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Loan Standards Getting Harder Even With Demand For Money Falling

US Dollar

EDITOR NOTE: If you take a moment and observe what’s going on around you, you’ll probably notice that many people and businesses are having difficulty getting loans at a time when they really need it. That’s because banks are now much more strict about their lending standards. Their economic outlook is grim, which tells you something about the economy and the market. Future economic prospects look highly uncertain. And the market...euphoria is always certain, as it is certain to fall.

Banks are tightening lending standards across the board even as they’re being urged to get money to those who have been hit by the coronavirus pandemic, according to a Federal Reserve survey Monday.

From commercial real estate to credit cards and autos, institutions are getting tougher on giving out money compared with the second quarter, even though demand also has decreased across most categories.

The Fed’s senior loan officer survey also found that foreign banks also are showing a reluctance to lend.

“Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” the survey said.

The banks further cited weaker capital positions, less competition and worries over increased regulatory burdens.

At the same time, demand for commercial and industrial loans ebbed. Except for residential real estate, demand fell for all other forms of consumer debt.

More stringent standards come just four months after the Fed had urged banks to do all they could to get money out to people in need. The central bank had encouraged regulators to give some leeway to banks engaged in pushing funds to “customers and members.”

“Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” the Fed said in a March 9 statement, shortly before the pandemic declaration.

The Fed has been working with banks on a number of lending facilities aimed at getting money to consumers and businesses both large and small.

The loan officers survey indicated that when it comes to consumer loans, banks are lowering credit limits and insisting on higher credit scores.

Originally posted on CNBC

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