Fed Reports That Banks Denying 85% Of Loans

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Bloomberg: A record share of U.S. banks made it harder for companies to get loans in the past three months, concerned about mounting losses from the economic slump and financial crisis, a Federal Reserve report showed today.

“Almost all domestic and foreign respondents pointed to a less favourable or more uncertain economic outlook as a reason for tightening their lending standards” on commercial and industrial loans in the past three months, the Fed said today in its quarterly Senior Loan Officer Survey. “Large fractions of domestic banks again reported tightening standards on both credit card and other consumer loans.”

Evidence of tougher loan standards may have prompted Fed officials to cut the benchmark interest rate to 1 per cent last week. The deteriorating economy is “playing a more prominent role in the tightening of credit terms,” said Richmond Fed President Jeffrey Lacker in Jerusalem today.

The survey, conducted between Oct. 2 and Oct. 16, covers 55 domestic banks with combined assets of $6.2 trillion, along with 21 foreign institutions.

“It has never been harder for businesses and individuals to get a loan from the bank,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Banks are turning away borrowers left and right.”

About 85 per cent of domestic banks tightened lending standards on commercial and industrial loans to large and mid- size firms, the highest since the survey began in its current format in 1991, the Fed said.

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