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Federal Reserve: Loan Standards Easing


Demand for mortgages and business loans increased last quarter and banks were more inclined to lend, a sign the American economy is strengthening, according to a study from the Federal Reserve. "The July survey results showed a continued easing of lending standards and terms for many types of loan categories, and a broad-based pickup in loan demand," the Federal Reserve said.

The Federal Reserve’s senior loan officer survey showed a surge in business loans, with more than 30% of banks reporting greater demand from small, midsize and large businesses. Only about 5% reported weakened demand. At the same time, 11% of banks surveyed eased their standards for loans to midsize and large companies. Eight percent did the same for small businesses, while none of the institutions implemented more restrictive standards.

Meanwhile, about half of the surveyed banks told the Federal Reserve that interest in prime mortgages increased last quarter. Plus, almost 25% of banks said that they eased credit criteria on prime mortgages, with only 6% tightening standards. The acceleration in prime mortgage activity appears to be due, in part, to declining interest rates – down to an average of 4.12% from 4.46% at the end of last year. “The report points to continued gradual healing in the banking, corporate, and household sectors," Barclays Capital said in a note to clients.

The positive news on business loans and mortgages follows the government’s report last week that the economy grew in the second quarter at an annual rate of 4%, beating the expectations of economists.

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