Banks toughen lending

Banks toughen lending
Fed says U.S. banks tightened lending terms in March, citing economy
March 26, 2001: 1:07 p.m. ET


WASHINGTON (Reuters) - U.S. banks kept toughening their lending terms in March as the economy weakened and some top-grade loans began to deteriorate, weakening chances of loan repayment, the Federal Reserve said Monday.

"Overall, the responses indicated that business lending conditions at banks had tightened further since early January, while demand for business loans waned," the supplementary issue of the U.S. central bank's periodic survey of senior loan officers concluded.



Responses indicated that business lending conditions at banks had tightened further since early January, while demand for business loans waned.



Fed survey
More than half of the U.S. banks said that "a less favorable economic outlook" was a key reason they had decided to impose more stringent standards and terms for lending.

"Interestingly, some respondents also commented in this context on the rapid deterioration in certain investment-grade credits," the survey said, using the bankers' term for loans that they carry on their books to top-grade corporate borrowers.

The Fed normally issues the loan officers' survey four times a year, but said in a footnote that it has authority to conduct up to six a year. The last time it issued a supplementary survey was in 1998, when a financial crisis in Asia combined with a Russian currency crisis and U.S. hedge-fund woes nearly dried up credit and lending for a period of time