Fed says tight credit standards, weak demand persist at US banks

THE Federal Reserve said US banks broadly reported tight lending standards and weak demand for loans in the third quarter, though both measures improved somewhat compared with the prior three-month period.

The proportion of US banks tightening standards on commercial and industrial loans for medium and large businesses fell to 33.9 per cent, from 50.8 per cent in the second quarter, according to a Fed survey of lending officers released on Monday (Nov 6). Some 62.7 per cent of banks are keeping lending conditions basically unchanged.

The collapse of four US regional banks earlier this year sparked turmoil in the financial sector and increased concerns that lenders would rein in access to credit in a way that could tip the US economy into a recession. Data since then has shown the economy remained resilient till the third quarter, bolstered by strong consumer spending.

The central bank has raised its benchmark rate by more than five percentage points since early last year to rein in price growth, but left it in a range of 5.25 per cent to 5.5 per cent last week, a second consecutive hold. Fed chair Jerome Powell hinted the US central bank may now be finished with the most aggressive tightening cycle in four decades.

The survey showed an improvement in demand for credit, with the share of banks reporting weaker demand for commercial and industrial loans among large and mid-sized firms at 30.5 per cent, down from 51.6 per cent in the second quarter.

The figures in the survey, known as the Senior Loan Officer Opinion Survey, are calculated as net percentages, or the shares of banks reporting tighter conditions or stronger demand minus the proportion of banks reporting easier standards or weaker demand. BLOOMBERG