Fed Says Banks RaisedRates on Riskiest Loans

Banks raised rates 31 basis points on their riskiest commercial loans during the past three months, according to a Federal Reserve Board study released Monday.

The Survey of Terms of Business Lending was conducted Nov. 3 to Nov. 7 and required commercial banks to rank credit extended as either minimal, low, moderate, or acceptable risk. Regulators classify any loans that cannot meet the acceptable risk standard, which means the borrower has a fair credit rating, lacks access to the capital markets, and suffers management weaknesses. The last survey was conducted Aug. 4 to Aug. 8.

The average rate for acceptable-risk loans increased to 7.79%, up from 7.48%. Also, average maturities rose to 588 days, up from 346 days in the last survey. But banks only originated $18.4 billion in these credits, down $3 billion from August. Banks lowered rates slightly on their low- and moderate-risk loans, which were 6.27% and 6.88% respectively. But rates on minimal-risk loans rose to 6.29%, a 21 basis point increase.

Overall, the spread between the lowest and highest-risk loans rose to 150 basis points, a 10-point increase from August. Banks originated $134.78 billion in commercial loans and charged an average rate of 6.85%.

Foreign banks charged substantially less for loans, the survey found. Average rates at these lenders for minimal-risk and acceptable-risk credits were 6.15% and 6.9% respectively.