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US Credit: Still the Recovery’s Ball and Chain
• The FOMC Committee noted that “tight
credit” remains a constraint to household
spending growth and that “bank lending
continues to contract”.
Chart 1: Credit Standards Are Slowly Improving
• While larger banks have begun to relax their
credit standards, “none of the smaller banks,
which compose roughly half of the respondent
panel, indicated that they had eased their
standards”.
• Some easing in credit standards was
recorded for commercial and industrial (C&I)
loans, especially among large banks extending
credit to large and middle market firms.
• Conditions remained challenging for
commercial real estate (CRE) loans.
Source: Reuters EcoWin Pro
Chart 2: Demand for Mortgages Declined
• “Most banks reported essentially no change
in their standards on prime and non-traditional
mortgages over the past three months.”
• Demand for C&I loans from large and middle
market firms and from small firms weakened
further, as did demand for prime mortgages and
home equity loans.
• While credit conditions are no longer
worsening, tight credit standards and especially
weak demand for loans of all types remain an
important impediment to the recovery.
Last week, the FOMC Committee noted that “tight
credit” remains a constraint on household spending
growth and that “bank lending continues to contract”,
even though “financial market conditions remain
supportive of economic growth”. This view was
echoed by the recently released Senior Loan Officer
Survey which noted that while “most banks kept their
lending standards unchanged in the first quarter”, a
“moderate net fractions of banks further tightened
many terms on loans to businesses and households”.
Financing conditions diverging for small and
large firms
The main message emerging from the latest Senior
Loan Officer Survey (SLO) is that financing
conditions for small and large firms continue to
diverge. Similarly, while larger banks have begun to
relax their credit standards, “none of the smaller
banks, which compose roughly half of the respondent
panel, indicated that they had eased their standards”.
On the demand side, the main source driving the
divergence between large and small firms lies in the
fact that large firms are able to access capital
Source: Reuters EcoWin Pro
markets to raise funds, while smaller businesses rely
heavily on banks. On the supply side, smaller
regional banks remain exposed to the ailing
commercial real estate sector, constraining their
ability to increase leading.
Credit conditions generally unchanged
While developments were somewhat uneven, credit
conditions appeared generally unchanged in the
three months to April. Some easing in credit
standards was recorded for commercial and
industrial (C&I) loans, especially among large banks
with more than USD 20 billion in total assets
extending credit to large and middle market firms
with annual sales of USD 50 million or more. Given
that credit standards for C&I loans had previously
been tightened for 10 consecutive quarters, the small
reversal recorded recently suggests that conditions
remain stringent. In spite of this, April marked the
second consecutive quarter of easing, a
development which had not been observed since
2006. While prospects appear brighter for larger
Anna Piretti 7 May 2010
Market Mover
25
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