* Fed loan officer survey finds lending conditions eased
* Fed: 19 pct of banks relaxed terms for larger borrowers
* Picture for household credit more mixed, demand up
By Alister Bull
WASHINGTON, May 6 Banks eased lending standards
to U.S. businesses over the last three months as competition
intensified and loan demand advanced, the Federal Reserve said
on Monday, improving odds that ultra-low interest rates will be
passed on to borrowers.
The findings of the U.S. central bank's quarterly senior
loan officers survey, which provides a detailed dispatch from
the front lines of the U.S. economy, were broadly in line with
other indicators showing steady, but still gradual growth.
"The survey results generally indicated that banks' policies
regarding lending to businesses eased over the past three months
and demand increased, on balance," the Fed said. "Banks that
eased their (commercial and industrial) lending policies
generally cited increased competition for such loans as an
important reason for having done so."
Analysts viewed the report as a modestly bullish signal on
the U.S. economy that indicated that benefits of Fed bond-buying
program, known as quantitative easing, were steadily trickling
into the economy.
"The broader easing and increased competition is some
indication that the Fed's accommodative policy is beginning to
be transmitted through more willingness to lend by banks,"
economists at UBS in New York wrote in a note to clients.
The Fed has held interest rates at nearly zero since late
2008 and bought more than $2.7 trillion worth of bonds to lower
long-term borrowing costs, an aggressive effort to spur growth
and hiring by encouraging investment and spending.
While many small businesses have reported frustration over
their difficulty in securing credit, the Fed's survey showed
there has been some progress on this front.
"In particular, a relatively large fraction of domestic
respondents reported having eased standards on C&I loans, and
moderate to large net fractions of such respondents reportedly
eased many terms on C&I loans to firms of all sizes," it said.
The report was based on an opinion poll of 68 domestic banks
and 21 U.S. branches and agencies of foreign banks.
"Bank lending is not the headwind that it has been in
previous years," said Michael Gapen, an economist at Barclays
Capital in New York.
The picture for household lending was more mixed.
A few domestic banks eased terms for prime mortgage
borrowers, where demand increased for a fifth straight quarter.
Banks also said they had eased selected terms on auto loans,
but reported little change in the terms for credit card and
other consumer loans. Demand for auto and credit card debt
strengthened over the last three months.
The poll found little change in the willingness of banks to
lend to mortgage borrowers with FICO credit scores in the
680-720 range - a solid credit rating on a creditworthiness
scale that goes up to 800. However, it said about one-third of
the banks had pulled back on lending to less creditworthy
Three-fourths of banks surveyed cited what is known as the
"put-back risk" of delinquent mortgages by Fannie Mae
and Freddie Mac "as an important factor restraining
their current ability or willingness to approve home-purchase
Put-back risk refers to the possibility that a mortgage sold
by a bank to Fannie or Freddie turns out to have violated the
underwriting guidelines of the two mortgage finance providers,
in which case they can force the bank to buy it back.
Banks reported little change in their standards for loans to
European banks. It was the first time there was no additional
tightening since the Fed started asking this question in its
October 2011 survey.
A prolonged European debt crisis has tipped the region back
into recession with concerns flaring again in recent weeks over
a bailout for tiny Cyprus.