A new Federal Reserve study finds that credit availability from U.S. financial institutions remained largely unchanged during the past quarter. Fed officials are trying to spin the findings as a positive sign that conditions are stabilizing and setting the stage for improvements in the not too distant future.
The Fed's April 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices found most banks kept their lending standards unchanged overall during the quarter. Nearly 86% of banks did not change standards for large- and middle-market firms (those with annual sales exceeding $50 million) and 96.3% made no change for small businesses. Large banks, however, were found to be more likely to ease some of their lending policies. Meanwhile, the survey found a small percentage of banks actually began easing standards for commercial and industrial loans. It's the first time an increased number of firms eased their standards in two consecutive quarters since 2006.
However, a majority of domestic banks are carrying higher standards for credit applicants as well as tougher terms for approving small business credit card accounts, both for new and existing customers. Additionally, commercial real estate continues to take a beating. The Fed noted a "significant number" number of domestic banks tightened standards on commercial real estate loans, though not as much as in the previous study conducted in January. Some estimate a commercial real estate recovery may be delayed into 2012.
During the Chicago Fed's annual Conference on Bank Structure and Competition, Fed Chairman Ben Bernanke admitted credit availability remains limited, but promises there are reasons for optimism.
"Economic activity has continued to strengthen, and senior loan officers tell us that, at least outside of commercial real estate, they anticipate a modest reduction in their troubled loans over the coming year," said Bernanke. "As a result, bank attitudes toward lending may be shifting."
Bernanke noted that officials at the Fed's 12 regional districts are in the midst of an outreach program designed to discuss credit industry problems occurring on the ground and possible solutions to improve matters, especially for small businesses.
"Our message is a simple one: Institutions should strive to meet the needs of creditworthy borrowers, and the supervisory agencies should do all they can to help, not hinder those efforts," said Bernanke. "We are also supporting sensible efforts to work with troubled borrowers to bring them back into good standing."
Brian Shappell, NACM staff writer