Last week Comptroller of the Currency Eugene A. Ludwig renewed his call to guard against declining credit quality, citing a considerable weakening in underwriting standards in commercial lending over the past year. While noting that banks have tightened credit card lending because of rising delinquencies and losses, Mr. Ludwig stressed that terms for home equity and residential real estate loans have also eased.
The Federal Reserve Board's latest senior loan officer survey on bank lending practices confirms that banks have eased terms on business and commercial real estate loans: 5% relaxed standards for commercial and industrial loans for all firm sizes, and 40% reported narrower spreads. The survey showed that demand for business loans was up a net 15% among large and midsize firms and 20% among small firms. Banks eased standards for commercial real estate loans a net 10% over the past three months-the largest net gain posted since the Fed added the question to the survey in 1990.