Credit Squeezing on Consumers & Businesses

Well this comes as no surprise but more than half of the banks surveyed by the Fed said they had tightened the screws on commercial and industrial loans, commercial real estate loans, residential mortgages and home-equity lines of credit.

This comes as no shocker. As stated in earlier posts, The Fed is trying everything possible to "free up" liquidity to lend. However, the banks are hoarding cash to improve their balance sheets in light of the current credit crisis and rising default rates. This will surely add to the already fragile economy as tighter credit could slow the economic growth, especially consumer spending economists say. Banks were also increasing interest-rate spreads, requiring more documentation, demanding more collateral, or requiring co-signers and or covenants before granting credit. Consumers in particular are being hit hardest the survey showed. A record 25% of banks said they were less willing to make consumer installment loans.

DETAILS

Commercial Real Estate: 79% tightened standards, while 52% said demand was weakening

Residential Mortgages: A record 62% of banks said they tightened standards for prime mortgages, while 49% said they saw demand reduced.

Consumer Credit: A record 25% of banks reported less willingness to extend consumer installment loans; only 2% were more willing.

Credit Cards: 32% tightened standards, mostly refusing loans to consumers without good credit.

Student Loans: 55% said they would provide fewer subsidized loans this fall than last fall.


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