US banks tighten lending standards

With the effects of the credit crunch still looming large, a survey conducted by the US Federal Reserve yesterday revealed that more US banks have now tightened their lending standards for businesses.

The last survey in July indicated that 60 percent of banks had tightened their lending standards, but this has increased by a further 25 percent in the latest survey.

All respondents of the survey have indicated that they perceive the economic conditions to become less favourable and that is the main reason behind tightening lending standards.

Large domestic banks also had to tighten their terms for both credit card and consumer loans which is sure to have a further impact on consumer confidence and domestic spending.

The fact that banks have continued to tighten lending amid fear and trepidation over the economy has meant that the Federal Reserve had to act by cutting interest rates again to 1 percent last week.

Both commercial and industrial loans have been affected and the worst hit are mid-tier firms who often rely on re-financing and capital in order to expand their businesses.

Consumer loans have been deemed to be riskier than ever as consumers are having to battle against rising costs and are now more reliant on credit cards than ever before.

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