Banks in the U.S. eased lending requirements amid a widespread increase in demand during the second quarter, according to a Federal Reserve survey.
“Survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand,” the Fed said today in Washington in its quarterly survey of senior loan officers. The central bank surveyed 75 domestic banks and 23 U.S. units of foreign banks from July 1 to July 15.
Record lending by U.S. banks has helped the economy rebound from a first-quarter contraction brought on by harsh winter weather. Employers added more than 200,000 jobs for a sixth straight month in July, figures from the U.S. Labor Department showed last week. The last time that occurred was 1997.
“It is a better picture,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “There has been a generalized pickup in loan demand. Growth is a little stronger than it was a year ago. The economy seems to be at some sort of pivot point.”
Policy makers last week trimmed monthly bond buying to $25 billion in their sixth consecutive $10-billion cut, staying on pace to end the purchase program in October.
“Domestic banks generally continued to ease their lending standards and various terms for commercial and industrial loans,” the Fed said. U.S. financial institutions “also reported having eased standards on most types of commercial real estate loans on balance.”
The Fed found most consumer lending didn’t change. While “many banks reported having eased standards for prime residential real estate loans, respondents generally indicated little change in standards and terms for other types of loans to households.”
U.S. stocks rose today, with the Standard & Poor’s 500 gaining 0.7 percent as of the 4 p.m. close of trading in New York. Treasury 10-year note yields were little changed at 2.49 percent.
“A significant fraction” of banks experienced higher demand for commercial and industrial loans, and more banks reported stronger demand for commercial real estate loans as well, the Fed said.
“Moderate fractions” of banks reported increased demand for credit card, auto and other consumer loans, the report said.
Even with the lending increases, Fed Chair Janet Yellen said tight credit has caused the housing recovery to be slow. “It is difficult for any homeowner who doesn’t have pristine credit these days to get a mortgage,” she said at a press conference in June.
Some Fed officials have become concerned that competition among banks in other markets could be getting overheated. “We have seen signs of reaching-for-yield behavior in the leveraged loan market, subprime auto lending and corporate bonds,” Fed Kansas City Bank President Esther George said in a July 15 speech.
In its Beige Book report of regional anecdotal information, the Fed said July 16 that loan demand increased across the U.S., with lenders in Richmond noting easing terms for “well-qualified commercial and industrial borrowers,” and competition in Philadelphia and Chicago regions prompting “some financial institutions to take on higher credit risks.”