Magazine article American Banker

Credit Kept on Easing in 1st Quarter, Fed Says

Magazine article American Banker

Credit Kept on Easing in 1st Quarter, Fed Says

Article excerpt

WASHINGTON Credit terms and standards continued to ease last quarter, and demand for business loans surged, according to a new Federal Reserve Board report.

The Fed's survey of senior loan officers found that both businesses and households were receiving easier credit. Middlemarket firms, in particular, benefited from the trend, according to the poll.

In large part, the easier conditions reflect an improving economy. But they also could be the first sign of future trouble in the banking industry, according to one economist.

Recession May Loom

"If the pattern continues, one might begin to worry," said Sung Won Sohn, chief economist for Norwest Corp., Minneapolis.

By 1995, he said, "there is a high probability of a slowdown or recession, and a lot of lenders could get caught."

Already, some banks report concern about casing loan terms and conditions.

"The consumer area, especially auto lending, is an outright disaster," said David Littmann, chief economist for Comerica Bank-Detroit. "Lenders are making loans like crazy."

His bank, he said, got out of auto lending about six weeks ago when it became apparent that market rates didn't allow for an adequate profit.

"So far, that looks like a pretty good decision," he said.

In Line with Earlier Reports The May survey is consistent with a number of earlier reports on lending conditions. The February survey also found easier terms and standards for commercial and industrial loans, and slightly easier standards for commercial real estate loans. …

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