WASHINGTON — More banks tightened their credit standards over the last three months because of economic concerns and lower risk tolerance, a Federal Reserve Board survey found.

The Fed’s Senior Loan Officer Opinion Survey, which polled loan officers at 57 large domestic banks and 24 U.S. branches of foreign banks, also found that loan demand is down. “A substantial fraction of respondents reported weaker demand over the past three months for both commercial and industrial loans and commercial real estate loans,” the report said.

Almost 60% of the bankers said they have tightened their standards on commercial and industrial loans to large and midsize firms since November, and 45% reined in loans to small businesses over the same period. Almost 75% said they charged higher premiums on riskier loans to large and midsize firms.

The Fed report, issued Monday, made clear that credit, while crunched in some markets, is still widely available.

“Of those customers that did not borrow as much as planned,” it said, “both domestic and foreign respondents noted that more than half were able to finance their spending plans either by borrowing elsewhere or by using internal liquid assets.”

And in a sign that the economic slowdown and resulting credit squeeze may be good news for banks, the Fed said, “Two large banks noted that they received increased demand from customers that had switched to bank loans from the commercial paper market.”

David L. Littmann, chief economist at Comerica Inc. in Detroit, said credit terms are “very much interest rate related” and are lagging indicators. As a result of interest rate cuts in January and the Fed’s indication that more cuts will come, “we’ll see a growing willingness” to extend credit “not just in the mortgage market, but in consumer and commercial lending,” he said.

More than 40% of the domestic banks surveyed — up from 26% in November — said they tightened their standards on commercial real estate loans, an area of booming growth in recent years. About half of the domestic banks surveyed increased the spreads of loan rates over their cost of funds, while about 40% demanded higher debt-service coverage ratios. Almost 30% of the domestic institutions said they experienced weaker demand for such loans.

Almost 20% of the domestic banks reported tighter standards, and about 25% higher prices on all types of consumer debt except installment loans. “Relative to recent surveys, this represents a significant increase in the number of banks tightening standards and terms for non-credit-card consumer loans,” the Fed said.

About 15% of the banks said they expect to tighten their standards and terms on all types of consumer loans by yearend, even if the economy does well. About 7% of the domestic banks reported that they are less willing to make consumer installment loans than they were in November, and more than 10% tightened standards on credit card loans.

At the same time, almost 35% of domestic institutions reported that demand for all types of consumer loans had fallen since November. Only 13% reported lower demand in the last survey.

Most of the banks surveyed said they had not changed their standards for home loans and reported a steady demand for them. This is a positive change since the November survey, when 33% of banks reported weaker demand for home mortgages.


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