Magazine article American Banker

Halt Seen in Erosion of Lending Standards

Magazine article American Banker

Halt Seen in Erosion of Lending Standards

Article excerpt

Banks have halted the slide in underwriting standards, the Federal Reserve said Tuesday.

In the past three months, banks have tightened guidelines for commercial real estate and residential mortgage lending, the central bank said. In addition, banks are also less willing to make new consumer loans.

"Taken together, these results suggest that the easing of lending standards over the past few years has virtually ceased," the Fed concluded from its quarterly survey of senior loan officers.

The central bank's study, which relies on a survey of lenders at 59 domestic banks and 24 foreign-bank branches, found that 96% of banks had either tightened or left unchanged their standards for approving commercial and industrial loans to large firms.

Also, all of the banks either tightened or left unchanged credit standards for construction and land development loans, and for commercial real estate loans.

The survey comes after more than a year of criticisms by regulators of bank lending practices. However, bank economists said the firming up in credit standards probably has more to do with changes in the economy.

Jim Chessen, chief economist at the American Bankers Association, said bankers are reacting to higher loan delinquency and bankruptcy rates. "Those are all flashing yellow lights telling lenders to pause and think carefully about credit being given," he said.

"It is not surprising," said Joseph Blalock, a senior financial economist at the trade group America's Community Bankers. …

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