Fed says bank loan standards now tighter

The Fed's January senior loan officer survey, which policy-makers had in rough form when they decided to lower benchmark interest rates by a half-percentage point last week, showed also that demand for loans weakened among businesses and households over the last three months.


As the housing market collapsed earlier in 2007 and prompted a spike in mortgage delinquencies, the U.S. central bank has worried that tighter credit would choke off consumer and business spending, amplifying any deceleration of the broader economy.

The loan officers's survey showed that one-third of domestic institutions tightened their lending standards for business loans in the last three months, a larger fraction than in the previous poll in October.

A significant number of banks said they had tightened price terms on business loans to all types of companies, including raising the cost of credit lines and premiums charged on riskier loans.

Meanwhile, significant numbers of banks tightened their lending standards on all types of mortgages. More than half of banks said they had tightened lending standards even on loans to borrowers with strong credit.