(Updates with analyst reaction)
By Alister Bull
WASHINGTON Feb 4 Banks eased U.S. credit
standards somewhat over the last three months and reported
stronger demand for loans and residential mortgages, according
to the Federal Reserve's latest quarterly Senior Loan Officer
Survey, which was released on Monday.
The January report, based on responses from 68 domestic
banks and 22 U.S. branches of foreign firms, also asked if
domestic banks had tightened lending standards to European
competitors, but found that only 10 percent had done so.
Signs of improved access to lending and stronger demand for
debt would chime with more upbeat U.S. economic data on consumer
and business spending, and brighter news from the nation's
battered housing market.
But U.S. officials have been frustrated by the difficulty
experienced by some households and businesses in obtaining
credit, despite ample bank liquidity and overnight interest
rates that the Fed has held near zero since late 2008.
"Modest fractions of domestic banks reported having eased
their standards across major loan categories over the past three
months on net," the Fed said. "Domestic respondents indicated
that demand for business loans, prime residential mortgages, and
auto loans had strengthened."
The Fed has flooded the economy with money via three rounds
of bond purchases, tripling its balance sheet to almost $3
trillion since 2008. But growth remains fragile and U.S. gross
domestic product actually shrank slightly in the fourth quarter
of last year.
NO CLIFF DIVING
"These latest figures were consistent with continued growth
in the economy but did not signal a significant pickup in
lending activity," JP Morgan economist Daniel Silver wrote in a
note to clients, adding that the survey also showed no impact
from the so-called U.S. fiscal cliff.
Businesses and households might have curbed spending because
of uncertainty over year-end tax hikes and spending cuts. But
the worst of the 'cliff' effect appears to have been deflected
after a last-minute deal to raise taxes on wealthier Americans
while preserving cuts for everyone else.
On the other hand, $85 billion in automatic spending cuts
were merely postponed to March 1 to win time for a broader
budget deal. Economists worry U.S. lawmakers will not narrow
their differences in time to spare the economy these
Commercial loan standards were eased almost entirely because
of greater competition for business, the Fed said, while
stronger demand was driven by customer investment in plant or
equipment, and the need for finance related to mergers and
Credit standards for residential mortgages had not changed,
but demand was higher, according to the survey, as was demand
for car loans. U.S. auto sales rose 14 percent in January,
according to data released last week.
In addition to its regular assessment of lending conditions,
the Fed also asked survey participants three specific questions,
including queries about commercial real estate, or CRE, and the
outlook for credit quality.
"Respondents indicated that they had eased selected CRE loan
terms over the past 12 months," the Fed said, adding that
"moderate to large fractions of banks expect improvements in
credit quality in most major loan categories."
It also asked about lending to European banks. In addition
to revealing that only a small portion of domestic banks had
tightened loan standards to European counterparties, most also
said they experienced a drop in competition from this source.
Europe has been battered by a prolonged sovereign debt
crisis, although strains have eased somewhat following policy
responses last year led by the European Central Bank.
(Reporting by Alister Bull Editing by Neil Stempleman and James