The tightening of commercial credit standards that began with last fall's global financial crisis appears to be over.
According to a Federal Reserve Board survey released Monday, just 11% of banks tightened underwriting standards for large and middle-market borrowers in January. That is down from 37% in November and 25% in September.
The results were similar for commercial real estate loans. Twenty percent of the banks polled said they had tightened terms on these credits last month, down from 46% in November. And 6% actually eased standards in January, versus none in November.
Banks also appeared relatively satisfied with the terms of their existing loans. Only a few told the Fed that, given the chance, they would significantly adjust the terms of a majority of their credits.
William S. Trukenbrod, executive vice president at Northern Trust Co., said there was little need to change underwriting criteria during the past few months.
"The tightening already had oc-curred and, with the improvement in the stock market and other markets, there was no need to tighten further," said Mr. Trukenbrod, who also is a member of the regulatory relations committee of Robert Morris Associates, the trade group for lenders.
"There was a lot more confidence in the economy in January than there was in October or November," he said.
Jim Chessen, chief economist at the American Bankers Association, said lenders are raising standards for loans to specific industries, such as high technology and agriculture, rather than across the board.
"The approach is careful but optimistic," he said. "There is still the concern the economy will slow, but all the signs continue to be very positive."
Still, not all the effects from the Russian debt default in August and the debacle at Long-Term Capital Management in September have washed out of the system, according to the Fed's quarterly survey of senior loan officers. The bankers work at 55 domestic banks that hold nearly half of the industry's $4.49 trillion of assets.
Banks still overwhelmingly attributed higher loan demand to lingering troubles in the commercial paper and other debt markets, where some customers ordinarily would have turned first for financing.
Loan officers also said the syndicated credit market has yet to fully recover from last fall's economic upheavals.
Half of those surveyed said the market was less able to absorb new deals without significant modifications in terms compared to six months earlier. Those with a negative view of the syndicated market outnumbered those with a positive view by 3 to 1.
The most popular strategy for overcoming the syndicated market's troubles was to adopt flexible pricing, which lets the bank adjust the interest rate and other loan terms to ensure a full subscription.
"People are looking much more closely at the risk and return on syndicated loans," said David J. Schutter, KeyCorp.'s executive vice president for middle-market lending. "Transactions I see now are structured more carefully and are priced better."
Overall, the Fed said banks reporting stronger corporate loan demand outnumbered those reporting weaker demand by 3 to 1, and those with stronger small-business loan demand outnumbered those with weaker demand by 2 to 1.
Twenty percent of banks polled reported stronger demand for home loans, excluding refinancings. Only 10% reported weaker mortgage demand.
Nearly 14% of banks polled said they were more willing to lend to consumers in January. That is up from 6% in November. Nearly 10% of banks said they tightened credit card standards, compared to 2% that eased.
While most of the questions on the survey do not change, the Fed typically asks several special questions.
One of these focused on credit card debt. The Fed found that 80% of banks polled require consumers to repay between 2% and 3% of their outstanding balance each month, and 13% require between 4% and 5% each month. By contrast, in the late 1980s, the Fed said 60% required between 2% and 3% payback per month and 35% required between 4% and 5%.
