Banking & Capital Markets

Fed’s Easy Money Trickling Down

This year's relaxation of lending standards for C&I loans is ''the most pronounced on record'' since the Fed began its quarterly survey in 1990.
Ed ZwirnAugust 30, 2004

According to a report by the Federal Reserve, domestic banks as well as U.S. branches and agencies of foreign banks further eased lending standards and terms for commercial and industrial (C&I) loans, on net, over the past three months.

The central bank’s July 2004 report, “Senior Loan Officer Opinion Survey on Bank Lending Practices,” addressed changes in supply and demand for bank loans to businesses and households over the three months ended July 31. The Fed received responses from 56 domestic and 19 foreign banking institutions.

A small net fraction of domestic institutions also eased lending standards for commercial real estate loans, while standards for this type of loan at foreign institutions were essentially unchanged. A substantial net proportion of domestic banks reported stronger demand for both C&I and commercial real estate loans.

Foreign respondents indicated a sharp turnaround in C&I loan demand over the past three months; in contrast, demand for commercial real estate loans at these institutions was reportedly unchanged over the same period. In the household sector, a small net fraction of domestic banks eased credit standards on residential mortgage loans, and the demand for this type of loan was slightly weaker, on net. The demand for consumer loans of all types reportedly deteriorated as well over the past three months, while lending standards and terms for these loans were about unchanged.

Moody’s Investors Service’s John Lonski noted that 2004-to-date’s relaxation of lending standards for C&I loans is “the most pronounced on record” since the survey began in Q2 1990.

“The good news for today’s economic outlook would be how that earlier easing of business loan criteria overlapped a robust +4.4% average for the annualized sequential growth of real GDP for Q4 1993 though Q4 1994, inclusive,” Lonski wrote Monday.