US Banks Toughen Lending standards.

The Federal Reserve has indicated that both companies and consumers have found it harder to get loans in the past three months, especially in real estate.

80 percent of banks have raised standards on commercial- property loans even though the bench-mark interest rate has been recently lowered by half a point.

Edward McKelvey of Goldman Sachs has stated that there is “considerable evidence that banks have become more restrictive in their lending to firms and households.”

The way in which credit has tightened has effected business loans and prime mortgages hardest. A recent survey has highlighted that a third of U.S Banks have increased their standards on commercial and industrial loans.

The demand for loans in commercial real estate has weakened in the past three months with the majority of banks becoming stricter due to a “less favorable economic outlook“. Due to the negative publicity and hype over the credit crunch there is a reduced acceptance of risk in this sector.

In the home loans market Banks are making it tougher to get finance after record $146 billion credit losses since the beginning of 2007.

The Federal Reserve survey released today shows how Banks will now aim to learn from their mistakes. 85 percent of banks said that the introduction of loan-by-loan modifications based on individual circumstances would be the best approach to reduce losses.

These tougher lending standards will offer greater protection to homeowners, communities, the mortgage markets, the economy and ultimately the Banks themselves.

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