POST OF THE DAY
Macro Economics
Fed's Loan Survey

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By RodgerRafter
November 4, 2008

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Lots of data, charts, tables here.

Some key things I note:

Out of 55 Senior Loan Officers, all but 1 said they'd increased the spread of interest rates they charge on loans compared to their cost of funds. (Decreased competition will do that.)

The overwhelming majority are tighter in their lending in general, and none are looser.

Demand for all types of loans are weaker, and especially demand for mortgage loans is weaker. (Well maybe if you offered people better rates...)

For almost all questions, the bigger banks were tighter on average in their responses about lending practices than the medium and small sized banks. (My big picture view is that the Fed intentionally killed off the aggressive lenders by raising rates and keeping them high too long. Now that all that competition is gone they've stretched out the spreads to boost profits. Of course the loan officers aren't admitting to that being a factor.)

Reasons listed as "Very important" for tightening credit:
78.9% Less favorable or more uncertain economic outlook
63.2% Decreased liquidity in the secondary market for these loans
42.1% Worsening industry-specific problems
21.1% Reduced tolerance for risk
15.8% Deterioration of bank's current or expected capital position
11.8% Deterioration in bank's current or expected liquidity position.
10.5% Less aggressive competition from other banks
5.3% Increase in defaults by borrowers in public debt markets

Reasons listed as "Not important" for tightening credit:
5.3% Less favorable or more uncertain economic outlook
26.3% Decreased liquidity in the secondary market for these loans
10.5% Worsening industry-specific problems
15.8% Reduced tolerance for risk
26.3% Deterioration of bank's current or expected capital position
29.4% Deterioration in bank's current or expected liquidity position.
10.5% Less aggressive competition from other banks
47.4% Increase in defaults by borrowers in public debt markets

It's interesting to note that the main reasons for tightening credit have to do with expected deterioration of the economy and generally tight credit elsewhere. Actual defaults by borrowers and genuine trouble among the banks rank very low.

If the central banks of the world can succeed in boosting confidence then we could see a major change in the easing of credit standards. Then again, the banks could be right in their decisions to stay tight because the economy is going to pieces.