Feb. 2 (Bloomberg) -- A majority of U.S. banks made it tougher for consumers and businesses to get credit in the past three months even as lenders received infusions of taxpayer funds, a Federal Reserve report showed today.

“About 65 percent of domestic banks reported having tightened lending standards on commercial and industrial loans to large and middle-market firms,” the Fed said in its quarterly Senior Loan Officer survey. “Large fractions of domestic banks continued to report a tightening of policies on both credit-card and other consumer loans.”

Today’s report may underscore concern among Obama administration officials and some U.S. lawmakers that banks that have received more than $200 billion of taxpayer funds are failing to lend that on to customers. Treasury Secretary Timothy Geithner plans to unveil an overhaul of the government’s financial-bailout program next week, an administration aide said.

The survey showed lending overall was only slightly less restrictive than in the third quarter, when the Lehman Brothers Holdings Inc. failure reverberated throughout the financial system.

The U.S. economy continues to be hampered by a financial system that lost more than $1 trillion on housing credits since the mortgage crisis began in 2007.

“Most banks are tightening not because of balance sheet constraints, but because credits are going to be less solid in this environment,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York.

Foreign Institutions

The survey, conducted in the first two weeks of January, covers 53 domestic banks with combined assets of $6.2 trillion, along with 23 foreign institutions.

Not a single bank in the latest survey reported easing credit conditions on prime residential mortgage loans or loans to large or mid-sized commercial and industrial firms.

Geithner will “soon” announce a “new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said in his weekly radio address Jan. 31. “We’ll help lower mortgage costs and extend loans to small businesses so they can create jobs.”

The Fed said about 90 percent of domestic banks indicated they had increased the spread on loans over their cost of funds for commercial and industrial customers.

Size, Maturity

“Large fractions of banks again noted that they had reduced both the maximum size and maximum maturity of loans or credit lines” to both large and small firms, the survey said.

A “less favorable or more uncertain economic outlook” was cited by all domestic banks as the cause for tighter standards on commercial loans, as well as lower risk tolerance and problems in specific industries, the central bank said.

Concern about strains on their capital levels were less of a reason for the tightening in lending standards in the period, the Fed reported. “Only about 25 percent of domestic respondents” said “a deterioration in their bank’s current or expected capital position had contributed to the change, in comparison with approximately 40 percent in the October survey.”

The Treasury has distributed more than $194 billion through its program of purchasing stakes in U.S. banks. It has also mounted rescues of Citigroup Inc. and Bank of America Corp., insuring a total of more than $400 billion of illiquid assets on their balance sheets.

Boost Lending

Obama’s team and American bank regulators are discussing ways to overhaul the bailout fund, called the Troubled Asset Relief Program, in an effort to ensure banks step up lending. Possible strategies include insuring other banks’ hard-to-value investments, and setting up a so-called bad bank that would remove toxic assets from their balance sheets.

Obama said today that the U.S. is suffering from a “massive hangover” from years of risk-taking and warned of further bank failures.

“They’re going to have to write down those losses, and some banks won’t make it,” he said in an interview on NBC’s Today show.

About 45 percent of U.S. banks indicated they tightened standards on prime mortgage loans, down from 70 percent in October and 75 percent in the July survey.

Only four banks reported making subprime mortgages last quarter, the Fed said.

The U.S. economy shrank 3.8 percent in the fourth quarter, the most since 1982, as consumer spending recorded the worst slide in the postwar era. Companies shed 2.6 million jobs last year, the most since 1945. The U.S. unemployment rate stood at 7.2 percent in December, the highest level in almost 16 years.

Rate Cuts

Fed policy makers have also sought to shore up credit markets, cutting the benchmark interest rate to as low as zero in December and planning to expand its purchases of assets that banks and investors are unwilling to finance.

The Fed is acquiring mortgage-backed securities to push down home-loan yields, and this month will start buying up to $200 billion in securitized credits to students, car buyers, small businesses, and credit-card holders through the Term Asset-Backed Securities Loan Facility.

Banks may remain reluctant to lend as property values fall. Home prices in 20 U.S. metropolitan areas dropped 18.2 percent in November from a year earlier, the fastest drop on record, according to the S&P Case-Shiller Home-Price Index.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

Last Updated: February 2, 2009 17:08 EST