Fed: Bankers Clamp Down On Lending

It is no wonder that small business and consumers are not as active as they would need to be to support a meaningful improvement in US GDP. The Federal Reserve survey of senior bank loan officers, conducted during April, indicates that financial firms have made credit more scarce in many cases, in the first quarter.

The data is based on responses from 56 domestic banks and 23 US branches and agencies of foreign banks.

The Fed reported:

The April survey indicated that most banks kept their lending standards unchanged in the first quarter, but that moderate net fractions of banks further tightened many terms on loans to businesses and households.

The Commerce Department said consumer spending and personal income increased in March. But personal savings fell by a very modest amount – which means Americans dipped into their savings to shop. Without access to capital, however, the improvement in consumer activity cannot continue.

It’s clear the spending was limited by the caution exhibited by businesses and consumers, no matter what the Commerce Department data shows.  “The survey also indicated that loan demand generally weakened further,” the Fed reported.

The data also shows that it was the large banks – not the regional and community banks – that helped the market’s liquidity, a sign that the balance sheet of the largest firms have recovered.  Meanwhile, smaller banks are still saddled with onerous residential loans and commercial mortgages.