Magazine article Economic Trends

Business Loan Markets

Magazine article Economic Trends

Business Loan Markets

Article excerpt

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The Federal Reserve Board's October 2007 survey of senior loan officers (covering the months of August, September and October), found considerable tightening of standards for commercial and industrial loans. About one-fifth of domestic banks and one-third of foreign banks tightened standards for commercial and industrial loans to large and medium size firms, while the remaining fraction reported little change in lending standards in the period surveyed, q-he reasons cited for tightening included a less favorable economic outlook, a reduced tolerance for risk, and decreased liquidity in the secondary market. A large fraction of domestic and foreign banks increased the cost of credit lines and the premiums charged on loans to riskier borrowers. About a third of the banks surveyed raised lending spreads (loan rates over the cost of funds).

Demand for commercial and industrial loans has continued to weaken over the period surveyed, though the fraction of banks reporting weaker demand is smaller than the in previous survey. Those who reported weaker demand cited decreased investment in plants and equipment as the reason, while those who reported stronger demand cited difficulty in getting other forms of credit such as commercial paper, and increased activity in mergers and acquisitions. …

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