U.S. banks ease credit conditions: Fed

Credit conditions in the U.S. are improving due to the rising demand and easier terms for loans, according to the quarterly Federal Reserve survey of senior loan officers.

The survey, which serves as one of the Fed’s main tools for evaluating the banking sector, found that banks have been cutting their spreads on corporate loans as competition heats up in corporate lending.

“Standards on [commercial and industrial] loans to large and middle-market firms, and to small firms, were unchanged,” the survey reports, “However, moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes, with most doing so in response to more aggressive competition from other banks or nonbank lenders.”

Overall, 24% of banks have a greater appetite to lend money and have reported much more demand for borrowing.

The survey focused on two main areas; banks willingness to lend to firms with European exposure and on banks’ residential real estate (RRE) lending policies.

Overall, banks have tightened standards on loans to European banks and on loans to non-financial firms with substantial European exposure. In terms of residential lending policies, banks “were less likely than in 2006 to originate mortgages to any borrowers apart from those with the strongest credit profiles, but a fraction anticipated increasing their exposure to RRE assets over the next year,” the Fed said.

Similar to previous years, only a small fraction of banks have eased standards on credit card, auto, and other consumer loans. Demands for consumer loans have continued to increase, especially for auto loans.