Banks Show Elevated Reluctance To Lend

There is an elevated amount of reluctance from banks to lend, according to Boston Fed President Eric Rosengren, speaking Wednesday at the Boston Fed's Basel II conference on New Challenges for Operational Risk Measurement and Management.

"The practices of risk management in general, and operational risk management in particular, have made great strides in the past several years - progress that has been stimulated, in part, by the Basel II process," said Rosengren in his opening remarks.

However, "Despite these significant and important gains, there are clearly lessons to learn from the performance of contemporary risk management practices during the period of financial turmoil that began in late July," he added.

Rosengren noted that the bank had become more concerned about the risks to the U.S. economy in determining their credit standards, and that a less benign economy could shake confidence over lending.

Nevertheless, confidence in the long term strength of the banking sector remains intact, he added.

By Erik Kevin Franco and Cristina Markham