Banks in the U.S. saw increased demand from businesses and consumers for lending and in turn made those loans more readily available, according to a Federal Reserve report.
“Domestic banks, on balance, reported having eased their lending standards on many types of business and consumer loans and having experienced increases in loan demand, on average, over the past three months,” the Fed said today in its quarterly survey of senior loan officers.
The survey shows banks loosening the reins of credit for many categories of lending, including commercial real estate, commercial and industrial loans for firms of all sizes, credit cards, auto loans and other consumer loans. An exception was declining demand for mortgages.
The report supports forecasts for stronger economic growth among Fed policy makers, who last week trimmed their monthly bond purchases to $65 billion from $75 billion. They see growth picking up this year to 2.8 percent to 3.2 percent, according to their most recent forecasts released in December.
“If we start seeing meaningful credit growth, it would only be a matter of time before that’s reflected in improved economic momentum,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York. “The missing piece of this recovery has been a sustained pickup in credit.”
Banks also reported an improved outlook for 2014, today’s survey showed. About 20 percent to 40 percent of banks said they expect delinquencies on most types of business loans to decline this year. About 40 percent expect mortgage delinquencies and write offs to fall, and 15 percent to 20 percent expect credit-card loans and other consumer loans to improve.
The majority of banks said auto loans to borrowers with low credit scores would be an exception, and that delinquencies and charge-offs would increase.
The Fed said large banks eased standards on mortgages, while small banks tightened them. The share of banks easing and tightening was described as “modest.” Demand for mortgages was weaker, according to the survey, which was conducted from Dec. 30 to Jan. 14.
The mortgage market is closely watched by the Fed, which has sought through low interest-rate policies to spur borrowing, especially for houses and automobiles that many consumers finance with loans.
In a special set of questions, the Fed asked banks about the environment for high-risk, high-yield leveraged loans. The central bank has sought to curb froth in the leveraged-loan market by issuing supervisory guidance to discourage banks from making reckless loans.
Banks reported they had tightened standards on leveraged loans and that some loans had been “curtailed or significantly altered” by the Fed’s efforts to rein in the market. “A majority of them believed that affected borrowers would be able to turn to other sources of funding,” the survey said.
The total value of loans at U.S. banks climbed 2.2 percent during the past year to $7.39 trillion as of Jan. 22, according to a Fed report last week. Lending to businesses has been particularly strong, with commercial and industrial loans climbing to $1.62 trillion, a 7.5 percent increase from a year earlier.
The latest round of bond purchases begun in September 2012 helped drive down the yield on the 10-year Treasury note to as low as 1.63 percent last year.
As Fed officials moved toward winding down the program, yields climbed to as high as 3.03 percent in December. The benchmark note fell 0.06 percentage point to 2.58 percent at 1:51 p.m. in New York.
The KBW Bank Index, which tracks the performance of 24 financial institutions, was down 2.6 percent at 2:58 p.m. in New York, compared with a 2.2 percent decline in the broader Standard & Poor’s 500 Index. The bank index is up 20 percent over the past year.
The Fed’s survey of loan officers is based on responses from 75 domestic banks and 21 U.S. branches and agencies of foreign banks. The Fed doesn’t identify the banks.