Easier credit points to a modest recovery in US
By Jeannine Aversa |
February 3, 2010, Wednesday
|
Print Edition
Print Edition
FEWER United States banks are erecting new hurdles for people and businesses to get loans, a fresh sign that credit problems are easing.
In a quarterly survey released on Monday, the Federal Reserve found that "commercial banks generally ceased tightening standards on many loan types" at the end of last year. The one exception: commercial real-estate loans.
Even though banks aren't imposing new restrictions on most loans, they have not eased tough standards put in place during the financial crisis. Banks "have yet to unwind the considerable tightening that has occurred over the past two years," the Fed said. Meanwhile, demand for home mortgages and other consumer loans weakened, a sign consumers are wary of making expensive purchases given double-digit unemployment and the fragile economy.
Consumers will help support economic growth, but they won't lead it by going on spending sprees. That's one main reason why the recovery this year is supposed to be modest rather than booming.
"The recent contraction in bank credit formation may owe more to weak demand, than weak supply, a story which might not resonate politically but which nonetheless seems to be supported by the data," said Michael Feroli, an economist at JPMorgan Chase.
Last week the Federal Reserve decided to hold interest rates at record lows near zero to nurture the recovery. Fed policy makers noted that bank lending continued to shrink.
Looking ahead, "significantly fewer" banks expected widespread deterioration in the value of loans this year, the Fed said, an improvement from the previous two years.
In a quarterly survey released on Monday, the Federal Reserve found that "commercial banks generally ceased tightening standards on many loan types" at the end of last year. The one exception: commercial real-estate loans.
Even though banks aren't imposing new restrictions on most loans, they have not eased tough standards put in place during the financial crisis. Banks "have yet to unwind the considerable tightening that has occurred over the past two years," the Fed said. Meanwhile, demand for home mortgages and other consumer loans weakened, a sign consumers are wary of making expensive purchases given double-digit unemployment and the fragile economy.
Consumers will help support economic growth, but they won't lead it by going on spending sprees. That's one main reason why the recovery this year is supposed to be modest rather than booming.
"The recent contraction in bank credit formation may owe more to weak demand, than weak supply, a story which might not resonate politically but which nonetheless seems to be supported by the data," said Michael Feroli, an economist at JPMorgan Chase.
Last week the Federal Reserve decided to hold interest rates at record lows near zero to nurture the recovery. Fed policy makers noted that bank lending continued to shrink.
Looking ahead, "significantly fewer" banks expected widespread deterioration in the value of loans this year, the Fed said, an improvement from the previous two years.
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