Magazine article American Banker

Lending on the Rise as Economy Slows

Magazine article American Banker

Lending on the Rise as Economy Slows

Article excerpt

Banks are making more business and consumer loans, even though the economy shows some signs of slowing down, the Federal Reserve reported Wednesday.

Loan demand increased in the Fed's New York, Philadelphia, Cleveland, Kansas City, and San Francisco regions, while it was flat in the Richmond, Va., Atlanta, and Dallas areas.

To help the central bank craft monetary policy, the Fed compiles the Beige Book, its periodic review of economic conditions around the country.

Most of the 12 Federal Reserve banks attributed the increased loan demand to commercial borrowers, although the New York Fed said borrowing by consumers led the way.

Banks may be making more loans, but they aren't lowering their underwriting standards. Only three Fed banks mentioned credit standards - a hot button just months ago. The Philadelphia Fed said banks in its region have toughened their credit standards while the New York and Kansas City banks said loan standards are steady.

More generally, the Fed said consumer spending is off, signaling a slowdown in retail sales. But manufacturing activity increased slightly, and residential and commercial construction held steady.

Inflation also appeared in check, with wage and price pressures easing.

Economists were split on what the data mean.

"This is like stepping onto a beach and trying to figure out if the tide is going in or out," said Jim Chessen, the chief economist at the American Bankers Association. "The reason I say that is the results are so mixed in this report. There are things that are a little worse and things that are a little better."

Still, strong loan demand is definitely a good sign, Mr. Chessen said. "This suggests bankers are confident about lending in this environment, that this economy is going to be strong enough, and that the risk of not getting repaid is not so great," he said. …

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