Fed: Banks report weaker loan demand from consumers, businesses; restraint on recovery

Fed: Banks see loan demand weaken

WASHINGTON — Most banks are seeing weaker demand for loans from both consumers and businesses, one of the forces restraining the vigor of the economic recovery.

The information, contained in a quarterly survey released by the Federal Reserve on Monday, suggests Americans don’t have much of an appetite to take on new debt as they repair their finances after the worst recession since the 1930s.

The survey found that demand over the last three months slipped further for home loans geared to the most creditworthy borrowers, for home equity loans and for business loans.

In addition, most banks said they have tightened standards and terms on credit cards used by small businesses. Those standards are tighter now than before the financial crisis, the Fed said. That’s serving as another restraint on the recovery.

Many small companies use credit cards to pay salaries and finance operations, while bigger companies turn to capital markets for credit. Small banks have been especially hit by soured commercial real-estate loans. That’s crimped lending to small businesses.

Traditionally during economic recoveries, small businesses play a key role in job creation. But problems getting credit have made it more difficult for small businesses to get the financing to expand operations and hire. It’s a point of concern for the Obama administration and the Federal Reserve.

The Fed survey also found that most banks kept their lending standards the same over the last three months. The exception was some large banks that loosened standards on commercial and industrial loans to large and medium-sized firms.

Most banks reported essentially no change in their lending standards on home mortgages. However, standards on home equity lines of credit eased over the past three months, the first time that’s happened since January 2008, the Fed said. Banks tightened lending standards on credit cards.