Fed: Banks still tightening loan standards
WASHINGTON -- U.S. banks were miserly with credit through mid-January, as the economy plunged and loan demand deteriorated, the Federal Reserve said Monday in a quarterly lending survey.
Banks continued to impose tight conditions on borrowers, even as the Treasury Department provided about $200 billion in capital infusions under a special $700 billion financial rescue law. Treasury officials have pressed lenders to make loans to good clients to get the economy moving. The Fed has begun buying up to $500 billion in mortgage-backed securities to unfreeze lending.
The Fed report showed slight improvement. Banks were more willing to make mortgage and consumer installment loans in the past three months. Fewer banks cited their worsening capital position as a reason for ratcheting up standards for business loans.
Still, the Fed said the number of banks reporting tighter lending policies "stayed very elevated." The share of domestic banks reporting dropping demand for commercial and industrial loans soared to 60% from 15% the previous quarter.
"Though there was an incremental slowing in the pace at which credit standards are tightening across most sectors, it was modest in most areas; credit still continues to tighten at a fairly rapid pace," Goldman Sachs said in an analysis for clients, calling mortgage lending an area where credit relaxed significantly.
Treasury Secretary Timothy Geithner is set to unveil a plan next week to shore up the financial system, including finding a way to get bad assets off banks' books and slow record home foreclosures. The White House this week could announce more restrictions on executive pay and bonuses at firms receiving aid.
The moves come as new data show the economy deteriorating. The Commerce Department said Monday that consumer spending fell for a sixth-consecutive month in December, a new record. Consumer spending rose 3.6% in 2008, the slowest pace since 1961. Construction spending fell in December, with home building down 27.2% in 2008.
