By Scott Lanman
Nov. 10 (Bloomberg) -- The Federal Reserve said U.S. banks kept tightening lending standards for companies and consumers last quarter, reinforcing the central bank’s decision to leave its benchmark interest rates at record lows for a long time.
At the same time, the number of banks making it tougher to borrow diminished, the Fed said yesterday in its quarterly Senior Loan Officer survey. Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the survey showed.
The report helps explain why Fed policy makers last week said “tight credit” remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an “extended period.” JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand among companies.
“The fact that banks are still tightening standards is just another reason why the Fed is not going to be raising rates anytime soon,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who predicts the Fed won’t tighten until September.
While the Fed isn’t about to raise rates, with fewer banks making it tougher to borrow, “credit may be less of a headwind to growth in coming quarters than is commonly believed,” said Maki, a former Fed economist. The percentage of banks tightening standards was “quite similar” to the end of the last recession, in 2001, he said.
Separately, the Fed said yesterday that nine of 10 bank holding companies deemed short of capital in May have raised their reserves enough to withstand the risk of higher unemployment and slower economic growth.
Talks With Treasury
The one exception, GMAC Inc., “is expected to meet its remaining buffer need by accessing” one of several government programs to help the auto industry, the Fed said. GMAC is “in discussions with the U.S. Treasury on the structure of its investment,” it said.
The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn’t identify respondents.
Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed.
Commercial and industrial loans have dropped to $1.37 trillion from $1.6 trillion, commercial real-estate loans have declined to $1.66 trillion from $1.72 trillion, and consumer loans have fallen to $847 billion from $857 billion at the end of last year.
Commercial Loans
In response to a special question on the decline in commercial and industrial loans, banks cited lower originations of loans and decreased draws on revolving credit lines as the two most important reasons for the drop.
About a net 15 percent of banks tightened standards on commercial and industrial loans, half of the prior survey and below the peak of about 80 percent a year ago, the Fed said. Also, about a net 15 percent of respondents said they tightened standards for credit-card loans, the smallest since April 2008 and down from 35 percent in the July survey.
Banks were extending commercial real estate loans more often than refinancing them, the survey showed. About 75 percent reported extending more than one-fourth of construction and land development loans scheduled to mature by September.
The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08 at 4:05 p.m. in New York for its sixth straight gain. Financial companies gained the most of 10 industry groups in the S&P 500, adding 3.6 percent collectively.
‘Work Constructively’
Last month, the Fed and other regulators urged commercial real estate lenders to “work constructively” to arrange modifications with borrowers who show a willingness to repay debt.
Loan originations by the biggest U.S. banks receiving government assistance fell by 17 percent in August from a month earlier, the Treasury Department said Oct. 15.
In its monthly survey of lending by the top 22 recipients of capital injections from the $700 billion Troubled Asset Relief Program, the Treasury also said total loan balances fell by 1 percent in August from a month earlier.
Loans at New York-based JPMorgan fell to $653.1 billion at the end of the third quarter from $761.4 billion a year earlier. The decline reflected “some tightening of underwriting standards” on consumer loans, including credit cards, Chief Financial Officer Michael Cavanagh told analysts during an Oct. 14 call following the release of the quarter’s results. Loan demand from companies also fell, he added.
Bank of America Corp.’s loans and mortgages shrank to $878.4 billion from $922.3 billion a year earlier. The drop was due to “lower consumer spending and a resurgence in the capital markets” that allowed corporations to issue bonds and equity to pay off debt, Kenneth Lewis, chief executive officer of the Charlotte, North Carolina-based bank, said on an Oct. 16 conference call with analysts after the third-quarter report.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.
Posts
No comments:
Post a Comment