Federal Reserve Bank Survey Shows Looser Credit Standards

Lending standards are showing signs of easing according to a Federal Reserve financial institution survey. Getting approval for a new credit card is more likely now than it's been within the last 3 years. Banks are offering more liberal lending standards to smaller businesses than they have in four years. As the United States of America economy wobbles in its recovery from a severe recession, tight small business credit has been a major setback. Some experts say despite the good news, loosening lending standards will do little to help until demand for small business credit returns.

Lending standards for charge cards relax

On a quarterly basis, the Federal Reserve bank survey queries bank executives about the previous quarter's availability of credit and subsequent demand. In a report on the Fed survey, Creditcards.com said charge card lending standards for approving applications had been loosened about 8 percent of banks. Of all the banks surveyed, none had tightened credit card lending standards any further. Data from the survey indicates that 11 quarters of steadily tightening credit may start trending the other direction. Conversely, most existing cardholders nevertheless face limited and costly credit, as outlined by the survey.

Spurring demand for small company lending

The latest Fed assessment revealed that for the very first time since the recession broke out small business credit may be beginning to open up. NPR reports the Fed said it was the first time it had found relaxed lending standards for small company since late 2006. The survey was released shortly after a Fed conference on the small company lending problem in mid-July. Fed chairman Ben Bernanke addressed a vexing disconnect between major corporations sitting on huge money reserves and smaller businesses scrambling for loans. Even so, demand for small business loans remains weak, according to the banks surveyed.

Small business outlook remains dim

It's been documented that small business owners have complained about the lack of credit since the recession hit. However, Seeking Alpha reports that although small business lending standards easing, the negative outlook of small business owners remains a drag on demand for commercial loans. Small Businesses owners are less optimistic than nearly any point in the past five years according to data from the NIFB Small company Economic Trends report. A mere 6 percent believe now is the time to resume expanding. In the next two quarters, just 19 percent are planning to make a capital purchase. Also, plans to expand inventory, hiring and sales expectations remain at low levels.

More on this topic

CreditCards

creditcards.com

NPR

npr.org

Seeking Alpha

seekingalpha.com