Most banks nationwide stopped raising the bar for borrowers at the end of last year and even made it easier for consumers to get some loans, but borrowers continued to pull back, the Federal Reserve said on Monday.
Most banks stopped tightening lending standards on many types of loans in the fourth quarter of 2009, the Fed said in its quarterly survey of loan officers.
Banks did, however, continue to tighten standards on residential real estate loans in the fourth quarter, and most banks kept in place the stringent standards established over the past two years, the Fed said.
In addition, some banks were tightening terms – such as interest rates and fees charged – for both businesses and households, the Fed said.
However, despite weaker consumer loan demand, more banks were willing to make consumer installment loans, the first gain in almost three years. Even so, some banks tightened standards on credit card loans and many banks reduced credit card limits and were less likely to issue cards to borrowers whose credit quality they doubted, the Fed said.
Banks were more sanguine about the outlook for credit quality in 2010, rating the outlook as "balanced." But that was in comparison with the pessimism of a year ago during a period of historic financial turmoil.
"Outside of commercial and prime residential mortgages, banks generally expect asset quality to stabilize this year," the Fed said.
Most banks said they expect delinquencies on commercial and industrial loans to larger firms to decline in 2010, but fewer expect credit quality at smaller firms to improve.
Reflecting lingering aftershocks from the collapse of the nation’s housing market, some banks said they expect the credit quality of their highest-quality residential mortgages and home equity loans would deteriorate further this year.
However, banks did not expect the quality of other types of consumer and residential real estate loans to deteriorate in 2010, and some banks anticipated some improvement in consumer loans.
The Fed’s survey was conducted among 55 domestic banks and 23 U.S. representatives of foreign banks.
