Fed: Banks Tighten Lending Standards as Credit Crisis Deepends

The Street may be ready to put the credit crunch behind it, but banks aren’t. According to a Federal Reserve survey, lending standards approached a record high in the last three months as banks grew increasingly sceptical of industrial and commercial borrowers. A net 70% of banks increased rates in Q1, compared with 45% in January. Bloomberg:

“The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey,” today’s Fed report said.

The survey covered 56 domestic banks and 21 foreign institutions. The American banks together have $6.1 trillion in assets, representing about 64 per cent of the country’s $9.5 trillion total for all domestically chartered, federally insured commercial banks.

 

What is perhaps more worrying is that the 3.25% in cumulative rate cuts the Fed has dished out to the markets since the fall have so far failed to appreciably reduce mortgage costs:

The average rate on a 30-year fixed mortgage was 6.06 per cent last week, down from 6.46 per cent at the start of September though up from 5.45 per cent in January, according to Freddie Mac.

In response to special survey questions on home-equity lines of credit, about half of U.S. banks said they tightened terms on existing loans, mainly because of declines in home values below appraised values, as well as increased defaults and changes in borrowers’ finances.

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