Bank Lending Practices Tighten as Loan Demand Falls
While the Federal Reserve continues to pump money into the system at an unprecedented rate, less and less of it is finding its way to consumers and commercial borrowers. Instead, its being used to prop up speculators and financial firms.
The Federal Reserve's Loan Officer Opinion Survey on Bank Lending Practices notes the impact the credit crunch is having on lending: After several years of lapse standards, we have now swung to the other extreme. At the same time, credit demand is dropping.
Here are the two key takeaways from the quarterly survey: First, both domestic and foreign respondents "expect their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009." Gee, that's an awful lot of tightening.
The second issue: "Demand for loans from both businesses and households at domestic and foreign institutions reportedly weakened, on net, over the past three months."
This may be a bit of a chicken & egg problem: Which came first, the tightening of lending practices or the slowing demand? Or, is the demand destruction for credit merely an outgrowth of the global contraction? It is less than clear what came first.
Regardless, if a picture is worth a 1,000 words, consider these 4 charts, showing the % of Loan Officers tightening standards for:
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Source:
The July 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices
FRB, July 2008
http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200808/
PDF: http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200808/fullreport.pdf
Monday, August 11, 2008 | 04:44 PM | Permalink
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Comments
Barry,
I hear anecdotal evidence of OVER-tightening credit standards: consumers with 20% down payment, good FICO scores over 700, and documented sufficient income (i.e., good customers in pre-bubble days) can not get financing to buy a house. Can any TBP readers validate this?
Posted by: John | Aug 11, 2008 5:16:20 PM
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