U.S. banks tightened lending standards, loan demand dropped in Q2, Fed says

Aug 3 (Reuters) - Loan officers at U.S. banks reported tightening standards and terms on all types of business, real estate and consumer loans in the second quarter as widespread coronavirus-related shutdowns plunged the economy into recession and tens of millions of workers lost their jobs.

Demand for nearly all types of loans also fell, according to the Federal Reserve’s survey of senior loan officers, with the sole exception being demand for residential real estate loans, which strengthened. Banks reported that, on balance, lending standards across all loan categories were at the “tighter end of the range” of standards in effect from 2005 to the present.

Reasons for tightening standards for business loans included “less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk,” the U.S. central bank said in its quarterly survey, conducted from June 22 to July 2.

Banks also pointed to a deterioration or potential decline in their capital positions, less competition from other lenders, decreased liquidity in the secondary market and increased concerns about legislative, supervisory, or accounting changes.

Demand for business loans fell for a range of reasons, including a decrease in investments in plant and equipment and in mergers and acquisitions.

The Fed surveyed loan officers at 75 domestic banks and 22 U.S. branches and agencies of foreign banks. (Reporting by Ann Saphir Editing by Paul Simao)