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World News
Tighter rules dash hopes of end to credit squeeze--US
By James Politi in Washington
Aug 12, 2008, 10:08
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(Financial Times) - Banks expect to tighten lending standards for US households and businesses through to the end of the year and into 2009, damping any hopes of a quick end to the credit squeeze, according to a report by the Federal Reserve.
The Fed survey of senior loan officers is conducted every three months. Monday’s report was based on responses from 52 US banks and 21 US branches of internationally based banks in mid-July.
It highlighted that domestic banks had tightened standards in “all major loan categories” since the last survey in April, with consumer loans in particular becoming tougher to secure.
“Coming at a time when the cash flow from the rebates has dried up and the growth in labour income is slowing to a crawl, the restriction in lending to households underscores the challenges facing the consumer in the second half of the year,” said Michael Feroli, a US economist at JPMorgan.
The survey also pointed to a bleak outlook, with “large net fractions” of foreign and US banks expecting lending standards to tighten further in the remaining part of this year and “smaller, though substantial, net fractions” expected the stricter terms to continue next year.
“These days, you practically need the Jaws of Life [a hydraulic rescue tool] to pry open a banker’s wallet,” said Mike Larson, an interest rate and property analyst at Weiss Research.
“Overall, the longer the crunch lingers, the longer the economic slump could drag on.”
The dispiriting assessment of US credit conditions could offset the impact of more encouraging news last week that consumer borrowing in June had increased by $14.3bn (€9.6bn, £7.5bn) in June – much more than expected. That lifted hopes that even in such a tough environment US consumers are securing funds to buy goods and services.
Only 30 per cent of loan officers said they had securitised jumbo loans conforming to standards set by Fannie Mae and Freddie Mac, the two government-sponsored mortgage companies, highlighting the extent to which the availability of mortgage finance remains curtailed. The housing crisis is viewed as the root of the US economic slowdown.
(link to souce)
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