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U.S. Banks Loosen Terms on Business, Car Loans

U.S. banks are responding to increased demand for credit by relaxing guidelines on car loans and credit cards, the Federal Reserve reports.

by Staff
August 9, 2012
2 min to read


WASHINGTON — U.S. banks have made it slightly easier for companies to obtain loans and for consumers to get car loans and credit cards, according to a survey released Monday.

The Federal Reserve’s senior loan officer survey didn’t report a big change in lending, with most banks indicating that lending standards remain unchanged for business loans despite growing demand. But a small percentage of banks did indicate that standards are easing, and that they have extended more favorable terms to borrowers who attained loans.

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Peter Newland, economist at Barclays Capital, called the report “mildly positive.” He said that banks are slowly loosening terms, but without major changes in recent quarters.

Credit standards tightened sharply in the 2007-to-2009 recession, and any loosening of terms would help the recovery. Economists disagree on how damaged the credit channel remains. The Fed survey of 64 domestic lenders and 23 U.S. branches of foreign banks was established to help gauge the willingness of banks to lend and the demand that they were seeing.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said bank credit has been expanding “quite quickly.” He noted that lending on commercial and industrial loans is up 12 percent over the past 12 months, the fastest rate since October 2008.

According to the Fed survey, lending standards were eased due to more aggressive competition from other banks and nonbank lenders and not because of a more favorable economic outlook. See full Fed survey.

Small firms did not benefit from the easing of lending terms, the survey found. Demand for loans from small business was also unchanged. The report also indicated that U.S. banks continue to tighten their lending standards to European banks as a result of the debt crisis, the Fed survey found.

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In the consumer sector, there were reports of strong demand for prime and nontraditional mortgages. Newland of Barclays said the pickup in demand for mortgage loans showed that a gradual housing sector recovery remains in place.

Some banks reported that they had eased standards of auto loans and credit-card loans in response to growing demand. In May, consumer credit rose at an annual rate of 8 percent, the Federal Reserve reported last month.

 

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