A Loan At Last: Banks Seem To Be Easing Up

The credit crunch is over, says economist Maury N. Harris of PaineWebber Inc. He notes that the Federal Reserve's May survey of loan officers at large banks around the country reveals that only a few are reporting tighter lending practices while about as many are starting to ease standards. "The lack of reports of tightening is highly significant," says Harris. "History indicates that banks are reluctant to report an easing even in strong recoveries, because they don't like to tell regulators they're lowering lending standards."

While commercial and industrial loans are still declining, Harris points out that the Fed's May report indicates that loan demand is strengthening for small and midsize business borrowers, while large borrowers seem to be obtaining loans outside the banking system. What's more, the Fed reports that nearly 20% of banks were more willing to make consumer loans than three months ago, compared with fewer than 2% that were less willing.

"With debt burdens down for both businesses and households, interest rates low, and lending standards easing," says Harris, "corporations and consumers are finally in a position to start venting pent-up demand."