• U.S. banks indicated that they continued to tighten terms of loans to businesses and households.
• U.S. banks suggested that falling demand for loans and deteriorating credit quality were behind a decline in commercial and industrial lending during the Second Quarter.
• U.S. banks pointed to industry-specific problems as a reason for tightening lending standards.
If one compares the July 2009 findings with the earlier April 2009 survey, one finds that a number of large banks somewhat eased their lending standards. No medium- or small-sized banks eased their lending standards.
The current situation in which a number of large banks have led the way in becoming the first institutions to somewhat ease their lending standards may have to do with differing perspectives on risk. The larger institutions may have greater ability to differentiate among customers. They may possess a greater degree of confidence in their ability to weather the continuing fallout of the ongoing recession given their larger resources, greater access to financial markets, and possible perceptions of available federal assistance. The profile of failed banks may also be driving the early divergence in lending posture.
Through August 14, 2009, 77 banks have failed this year. Almost 85% of those banks were small- or medium-sized institutions having assets of less than $1 billion. The median total assets held by banks that failed this year amounted to $271.8 billion.
Following the 2001 recession, small- and medium-sized banks were the first to ease somewhat in August 2002. However, it was not until 2003 that a growing number of banks, led by large institutions, began easing their lending standards. If the past recession offers any insights, most banks are more likely than not to hold lending standards steady or even tighten somewhat over the next 6 months or longer.
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