WASHINGTON — A report on economic conditions issued Wednesday by the Federal Reserve Board said that banks have benefited in recent weeks from an increase in mortgage refinancings but have become stingier about lending to businesses.

The Fed’s so-called Beige Book, published in advance of the May 15 meeting of the Federal Open Market Committee, said that in many Fed districts mortgage rates have fallen sufficiently to spur a boom in refinancings. The New York Fed, for instance, reported that “nearly 70% of … banks surveyed note increased demand for residential mortgage loans.”

A banker in Greeneville, S.C., told the Richmond Fed that mortgage refinancings had accounted for 90% of his lending business from mid-March to early April.

Demand for business loans declined in a number of Fed districts, though Philadelphia and New York were prominent exceptions. Bankers in Dallas said that demand for business loans had been flat to slightly down since the preceding survey but that the motive for borrowing funds had changed.

“In past years, commercial loans were used primarily to finance expansion, but now an increasing number of new loans are being requested to cover operating costs as a result of slower product demand,” the Dallas Fed wrote.

As demand for business loans declined many bankers simultaneously raised their underwriting standards for such loans. Of the 12 Fed districts, six — Atlanta, Chicago, Dallas, Kansas City, New York, and San Francisco — said that underwriting standards had been raised.

The Chicago Fed reported that the few banks reporting a rise in demand for business loans had either lured business from their competitors or were being approached by borrowers shut out of the commercial paper and venture capital markets.

“Generally, bankers indicated that commercial lending standards had been tightened somewhat in recent weeks and overall credit quality was slightly lower,” the Chicago Fed reported. “Margins on business loans were said to be decreasing, despite lower interest rates.”

The monetary policymaking Open Market Committee uses the report — called the Beige Book because of the color of its cover — to inform its decisions on interest rates.


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