Survey: Banks Stricter on Loans
Friday, 20 November 1998
W A S H I N G T O N (AP)
A SURVEY of bank lending by the Federal Reserve this month found "a
broad tightening of business lending practices" as bankers grew
increasingly concerned about the economy's prospects.
Bankers' wariness was growing even though the Federal Reserve, at the
time of the survey, had twice cut short-term interest rates in an effort to
support investor and consumer confidence.
The findings, reported today, almost certainly played a role in Fed
policy-makers' decision Tuesday to cut rates a third time, bringing the
benchmark rate on overnight loans between banks to a four-year low of
4.75 percent.
"The survey results suggest a broad tightening of business lending
practices," the Fed said. "Citing increased concern over the economic
outlook, a large share of the participants indicated they had firmed
standards and terms on loans to large and middle-market businesses and
on commercial real estate loans."
The Fed first detected tightening credit conditions in a survey in
mid-September, after the U.S. stock market plunged during a wave of
financial turmoil that swept the globe following the collapse of the Russian
ruble.
As with the September survey, the latest check "found little evidence of
any changes in lending practices on loans to households." A few banks said
they actually had become more willing to make consumer installment loans
while a "moderate percentage" said they had tightened standards on credit
cards.
In September, large businesses were most affected by tighter credit. But,
this month, the difficulties definitely had spread to medium-sized business
borrowers and "some banks also reported having tightened standards and
terms on loans to small businesses.
The Fed questioned senior loan officers at 55, mostly large, banks, who
represent nearly half the industry. More than a third of the U.S. banks and
two-thirds of the foreign-owned banks said they had adopted stricter
standards for lending to large and medium-sized American companies. In
September, only a quarter of the U.S. banks and two-fifths of the foreign
banks had tightened.
"A less favorable or more uncertain economic outlook was the most
commonly cited reason for having tightened," the Fed said. "Many banks
also cited ... industry-specific problems, a reduced tolerance for risk, and
less aggressive competition from other banks and nonbank lenders."
In fact, the survey showed that demand for both business and commercial
real estate loans had increased because businesses were having trouble
raising money in the stock and bond markets.
Bankers also told the Fed that most of their business customers were
making satisfactory progress in fixing their Year 2000 computer problems.
But many U.S. banks said, because of Year 2000 concerns, they had
started to become more careful about lending to other banks in Japan and
a few had restricted their lending to banks in Europe. |
