WASHINGTON — Banks eased standards and terms on loans to small businesses in the second quarter, according to a Federal Reserve survey.
Respondents to the Fed's quarterly survey of senior loan officers released Monday reported easing standards and most terms on lending to businesses of all sizes. The Fed described the change as "a modest unwinding of the widespread tightening that occurred over the past few years." It was the first survey since late 2006 that showed a loosening of standards on small-business loans.
One-fifth of large domestic banks reported easing standards for loans to small businesses. Banks cited increasing competition as a reason for easing standards on business loans.
The survey of loan officers at 57 banks and 23 branches of foreign banks was conducted July 13-27, the Fed said. The report doesn't identify respondents. The panel of domestic banks had about $7 trillion in assets, about two-thirds of the total assets for all domestically chartered, federally insured commercial banks.
One bank in the Fed survey said it was less willing to make consumer installment loans, while 13 said they were more willing and 39 said their willingness was essentially unchanged. Three banks said they had eased standards for approving credit card applications; none said they had tightened.
The survey may buttress the Fed's forecast for the economy to avoid relapsing into recession.
"Going forward, you would hope an ease in standards would translate to a rebound in bank loans," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto. "We know this recession has been made much worse because of the credit constraints, so obviously, it's quite encouraging to see evidence of those credit constraints disappearing."
Asked how banks had changed their credit standards for loans to companies with annual sales of $50 million or more, seven said they had "eased somewhat," two had "tightened somewhat" and 48 had terms that "remained basically unchanged."
Since December 2008, loans to businesses have dropped to $1.24 trillion from $1.62 trillion, while commercial real estate loans have declined to $1.55 trillion from $1.73 trillion, according to a separate release from the Fed for the week ending Aug. 4.
"Like financial conditions generally, the state of the U.S. banking system has also improved significantly since the worst of the crisis," Fed Chairman Ben Bernanke said in an Aug. 2 speech. "Loss rates on most types of loans seem to be peaking, and, in the aggregate, bank capital ratios have risen to new highs."
Uncertainty about the implementation of new regulatory rules may be inhibiting economic growth, Dallas Fed president Richard Fisher said in a speech last month. Businesses "are increasingly distressed by the lack of consistent direction coming from Washington," he said.