Citing fears of an economic slowdown, more banks have toughened commercial loan standards this fall than at any other time since 1990, according to a survey by the Federal Reserve Board.

Nearly 40% of the big domestic banks queried said they tightened terms on commercial and industrial loans to large and middle-market borrowers, while 20% did so on small-business loans.

That marked the broadest round of tightening since 1990, when the country was in the grip of a recession and a credit crunch.

Bankers, however, said in interviews Friday that credit will continue to be readily available.

"We are not to the point of a credit crunch," said William S. Aichele, president and CEO of Univest of Pennsylvania Corp. "This is a matter of degree. We are not at the point where banks are cutting off credit."

Lee B. Murphey, chief credit officer at First Liberty Bank in Macon, Ga., said a credit crunch is unlikely because banks are better capitalized and more profitable than eight years ago.

"There is plenty of liquidity and plenty of capacity to lend," he said.

In a shift from the previous two loan officer surveys, banks told the Fed that demand for commercial credit increased this fall.

Nearly 40% reported moderately stronger demand from large and middle- market firms, while only 10% reported weaker demand. For small-business lending, 21% of the banks reported higher demand and 14% had weaker demand. The survey covered 36 large U.S. banks.

Loan officers at the biggest banks attributed the rise in demand to recent liquidity troubles in the bond and commercial paper market.

Tools used to tightened commercial underwriting standards included higher premiums for risky loans, wider spreads between loan rates and the cost of funds, and bigger fees for lines of credit, the Fed said. Only one of the 36 banks queried eased standards on loans to big corporate customers, and two eased small-business loan standards.

"This is sound risk management," said Paul M. Dorfman, executive vice president and senior risk manager at Bank of America and immediate past chairman of Robert Morris Associates, the trade group for loan officers. "On average, it seems that tightening is an appropriate thing given the outlook for the economy."

About half of banks surveyed tightened standards for commercial real estate lending. They primarily increased spreads and demanded lower loan- to-cost and debt service ratios. Besides gloomier economic prospects, loan officers attributed the tighter standards to the disruption of the commercial mortgage-backed security market and to concerns about the reliability of take-out financing, which is a commitment by a permanent lender to acquire a mortgage from another creditor once construction of a building is completed.

Banks also cut back sharply on lending to other banks. Three-quarters of domestic banks surveyed said they reduced the amount they were willing to lend to other banks, and half said they have stopped lending to some or all banks.

More than half imposed restrictions on lending to Japanese banks, while only 11% targeted European banks and 6% focused on domestic money-center banks.

For consumer lending, 15% raised standards on credit cards and 10% on consumer loans. More than half of the banks reported increased demand for home mortgages. There was little change in terms for these loans, the Fed said.

The Fed also asked lenders about progress borrowers have made combating the year-2000 computer bug. Half of the banks had evaluated year-2000 preparations for at least 90% of corporate borrowers. None had evaluated less than a quarter of business borrowers. This is up significantly from May, the last time the Fed asked about year-2000. About 15% of corporate borrowers were behind in year-2000 preparation, the Fed said.

The 36 banks surveyed have at least $15 billion of assets. Collectively, they hold more than $2 trillion of assets, about half of the industry's total.

The Fed also surveyed 23 U.S. branches of foreign banks. It found that two-thirds tightened commercial underwriting standards. The rest left standards unchanged. Most raised the fees or rates for these loans. Nearly 40% reported increased demand for commercial credit, while 26% said demand had fallen. Nearly 44% of foreign banks surveyed tightened standards for commercial real estate loans. None loosened standards.

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