bank run blog

Data from the Federal Reserve shows that, as can be expected in a deflationary depression, bank lending has continued to contract. This, in the long term, would actually be good for the underlying fundamentals of the economy, but it is disastrous for those who hope to paper over the cracks and rebuild in the same sandbox. The Associated Press reports :

“A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday.

The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.

Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the last survey.

‘Even if you had a stellar credit history, banks were reluctant to lend in this environment,’ said Richard Yamarone, economist at Argus Research. With unemployment rising, it raises the odds of more people defaulting on their mortgages, he said.”

According to the Financial Times, the tendency was also apparent in commercial loan activity :

“About 40 per cent of US banks said they had tightened standards on commercial and industrial loans to businesses over the previous three months, the survey reported. The Fed said this proportion was “still very elevated” but noted that it represented fewer than half the banks for the first time since January 2008.

About 80 per cent of US banks said they had increased spreads on loans to large and mid-sized businesses, down from 95 per cent in January.

‘Large majorities of both domestic and foreign banks reported a less favourable or a more uncertain outlook, a worsening of industry-specific problems and a reduced tolerance for risk’ as reasons for tightening standards and terms on business loans, the Fed said.”

Associated Press : Fed says more banks tighten home loan standards

Financial Times : Bank lending terms keep squeeze on consumers