August 12, 2008 in City

Fed finds banks tightening lending

Associated Press

WASHINGTON – More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy.

The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.

The new survey, conducted in early July, found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent in the previous survey.

The Fed’s July survey covered 50 banks that hold about 80 percent of the residential mortgages on the books of all commercial banks.

The survey found that many banks had reported tightening their lending standards and terms on all major categories of consumer and business loans over the past three months.

About 65 percent of domestic banks – more than double the roughly 30 percent in the April survey – reported that they had tightened lending standards on credit card loans.

The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.

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