No problems... right?

Kewl! Or not.

Diane

Banks tighten lending, consumer demand for credit declines

JEANNINE AVERSA, Associated Press Writer
Monday, November 22, 1999

http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/1999/11/22/national1404EST0626.DTL

[Fair Use: For Educational/Research Purposes Only]

(11-22) 11:04 PST WASHINGTON (AP) -- Banks were a bit more cautious about lending to businesses, but there was still plenty of money available to qualified borrowers in the last three months, the Federal Reserve said Monday.

At the same time, consumer demand for credit, particularly for home mortgages, declined, reflecting higher interest rates, according to a Fed survey of loan officers from 55 large domestic banks and 21 U.S. branches of foreign banks.

``The responses indicate that banks became more cautious lenders over the past quarter but do not suggest a widespread reduction in credit availability,'' the central bank said.

About 9 percent of U.S banks polled said they had tightened standards for commercial and industrial loans to large and mid-sized companies, up from 5 percent in the previous survey released in August.

Such tighter lending practices were more pronounced at U.S. branches of foreign banks, the latest survey found.

On the consumer side, 41 percent of banks reported weaker demand for home mortgages over the last three months, up from 35 percent in the previous survey. Meanwhile, 8 percent of the banks reported a decrease in demand for consumer loans; in August, 10 percent reported an increase.

The Federal Reserve raised interest rates three times this year -- in June, August and November -- increasing borrowing costs.

The Fed survey also found that businesses don't appear too concerned about taking out contingency loans for any problems that could arise from the Y2K computer changeover.

``Respondents indicated that demand for contingency lines of credit remained low,'' the Fed report said. Ninety-eight percent of banks reported ``a negligible number'' of requests from companies other than financial firms for such Y2K contingency loans, while no banks reported ``a substantial number'' of these requests.

The survey found U.S. banks were ``generally willing to extend such lines but often only to existing customers. Moreover, the standards and terms for such loans were usually tighter than those on otherwise similar credit lines.'' But banks weren't tightening terms and standards for businesses that wanted to extend existing lines of credit over the end of the year, the report said.

-- Diane J. Squire (sacredspaces@yahoo.com), November 23, 1999

Answers

PNG wins the prize for his predictions many moons ago that we would see a credit crunch.

-- flora (***@__._), November 23, 1999.

"About 9 percent of U.S banks polled said they had tightened standards for commercial and industrial loans to large and mid-sized companies, up from 5 percent in the previous survey released in August.

9%.... You are kidding, right? This is a problem? This is some fine research. You should be promoted to PhD just on the basis of this research alone.

-- (Polly@troll.com), November 23, 1999.

Polly Don't you realize that that is an 80% increase in the number of banks? That's a pretty big jump!

-- statistics (dont@lie.com), November 23, 1999.

Apparently 91% didn't tighten. When a majority tighten...page me.

-- (polly@troll.com), November 23, 1999.

Think about this. Banks make their money on the spread. They lend money to make money. People and Co.s are asking for less money meaning the demand is down. The banks decide to tighten credit standards lowering the supply. The pressure is coming from the Federal Reserve. Maybe they know something we don't, or better maybe they know something they don't want us to know.

Prepare early, prepare often

-- squid (Itsdark@down.here), November 23, 1999.

follow the money....always the best indicator!

-- citizen (lost@sea.com), November 23, 1999.