Fed's Q2 Senior Loan Officer Survey Shows Banks Expect Tighter Credit

U.S. banks are expecting tighter credit conditions throughout the first half of 2009, according to the Federal Reserve's July Senior Loan Officer Opinion Survey on Bank Lending Practices.

The survey showed that 60% of domestic banks raised standards for business loans in the second quarter.

Regarding credit card loans, about 60% of domestic respondents indicated that they expected their banks to tighten standards on these loans in the second half of 2008, and about 35%, on balance, thought that their banks would tighten such standards on these loans in the first half of 2009.

The Fed reported that 80% of banks tightened lending standards on commercial real estate while 80% widened commercial loan rate spreads over fund costs.

A total of 40% of banks cited a limited number of mortgage applicants meeting the GSE jumbo loan criteria, while 30% of banks said they sold conforming jumbo mortgages to GSEs in the past three months.

The survey also reported a "very large" majority of domestic and foreign respondents pointed to less favourable or more uncertain economic outlook, their bank's reduced tolerance for risk and the worsening of industry-specific problems as reasons for tightening their lending standards and terms on commercial and industrial loans over the past three months.

By Stephen Huebl and edited by Nancy Girgis