Fed: C&I Demand Up, but Slowing

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WASHINGTON -- Banks have not tightened standards on home equity loans despite a supervisory letter in May from regulators warning that they posed unique risks, the Federal Reserve Board said Monday.

"Only five banks reported having tightened price-related terms and only a few banks reported having tightened their non-price-related terms and credit standards on such facilities," the Fed said in its quarterly survey of senior loan officers.

As for primary mortgages, the central bank said lenders over the past two years had eased terms, including the maximum size of primary and second mortgages and the maximum loan-to-value ratio.

Though demand for consumer and mortgage loans weakened, the Fed said demand was higher for both commercial and industrial loans as well as commercial real estate credits. However, just 15% of domestic banks reported an increase in demand for C&I loans from large and middle-market firms over the past three months -- off from 40% who did so in the July survey.

Underwriting standards for commercial real estate loans held steady, but banks reported loosening up on C&I loans.

"Almost one-half of domestic institutions -- roughly the same net fraction as in the July survey -- indicated that they had trimmed spreads of loan rates over their cost of funds for such firms," the Fed said of lending to large borrowers.

About 30% of domestic respondents -- fewer than in the previous survey -- reported that they had reduced the costs of credit lines. …