Banks Tighten Loan Standards

Banks, concerned over rising loan delinquencies, are beginning to tighten their standards, the Federal Reserve reported Wednesday.

A survey of 56 domestic banks and 22 U.S. branches of foreign banks in early May showed that overall “bank lending standards were generally unchanged to a bit tighter compared with three months ago.”

Twenty percent of the banks had more stringent standards for approving new credit card applications and 10 percent had tightened standards for non-credit card installment loans.

The Fed also found that banks’ willingness to make consumer installment loans declined for the first time since 1991, when the economy was emerging from the recession.

“The tightening of lending standards for consumer loans may reflect, in part, a response to the rise in delinquency rates on such loans in recent quarters,” the Fed said.

“About half of the respondents … expected a further increase in delinquencies over the coming year, while only a sixth expected a decrease,” it added.

“The banks attributed their concern about future delinquency rates to increased household debt burdens and to a greater willingness of households to declare bankruptcy.”

Still, the survey found that standards for residential mortgages were little changed, while those for commercial real estate loans were tightened “by a modest number of respondents.”

The Fed said demands for household credit increased since its February survey of senior loan officials. A significant share of respondents reported stronger demand for residential mortgages and a smaller proportion noted a pickup in demand for consumer installment loans.

The survey also found little change in lending standards for business loans to customers of all sizes.

Demand for business loans was stronger from small and medium-sized firms and about unchanged from large firms. Demand for commercial real estate loans also was little changed.