WASHINGTON - Loan demand by businesses of all sizes surged in the last three months, while banks made it easier to borrow, a survey of bankers released yesterday by the Federal Reserve showed.

"Respondents attributed the strength primarily to customers' greater needs to finance inventories and investments in plant and equipment," the Fed said in describing the results of its May survey of senior loan officers at 76 banks operating in the United States.

Bankers also generally continued to ease lending standards, according to the survey. "As in the last several surveys, the results show an easing of terms and standards on loans to both businesses and households," the Fed said.

Business loan demand was up across the board, but businesses were also more sensitive to loan terms, the survey showed. "About half of both domestic and foreign respondents stated that the demand for business loans is currently more sensitive to changes in terms than it was a year ago, for all size categories of borrower," the Fed said.

As with the previous survey conducted in February, respondents generally reported a slight easing of standards for commercial real estate loans, the Fed said. The results of the two surveys "represented the first, albeit small, sign of an easing in standards for commercial real estate loans since the significant tightening in 1990-1991," the Fed noted.

The loan officers also reported an increased willingness to lend money to individuals for all types of purchases, including mortgages, the Fed reported.

But demand for household credit varied, according to the survey.

"On the one hand, likely reflecting the backup in mortgage rates, the number of respondents reporting declines in residential mortgage demand exceeded those indicating increases, with several banks experiencing substantial declines," the Fed said. Meanwhile, demand for home quality loans and installment credit picked up, the survey showed.

The May survey included questions that revealed that banks' holdings of U.S. Treasury and agency securities grew rapidly in March and April.

About a fourth of the respondents reported "stronger growth" in both categories of securities, while about a third reported a "pick-up in growth" primarily in agency securities, the Fed said.

"Those respondents that had expanded their holdings of Treasury securities stated they had done so primarily because the recent decline in the price of those securities made them an attractive investment opportunity," the Fed said.

The Fed also asked banks how they were coping with new mark-to-market accounting requirements. "The most common action was to decrease the maturity of their security portfolios, although many banks increased hedging activities and reduced security holdings," the Fed said.

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