Federal Reserve reports tighter bank lending standards

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The Fed said the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories.

The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15 percent saying those standards had been tightened considerably.

But the survey found that the tougher lending standards extend far beyond home mortgages to other types of consumer debt such as credit cards and home equity lines of credit.

The current credit crisis began last year with rising defaults in the market for subprime loans, loans extended to borrowers with weak credit histories. Many of those subprime loans were packaged into mortgage-backed securities and sold to investors around the world.

Those investors, however, have pulled back from the subprime market and from other types of credit as losses have soared with the rising mortgage defaults.

As losses have mounted, more and more banks have grown reluctant to make loans and have been tightening up on standards. The Fed has been pumping billions of dollars into the banking system in an effort to encourage banks to keep lending to guard against the threat that the tighter credit could push the country into a deep recession.

However, working against this effort are the huge losses banks have occurred both on direct loans to consumers and businesses and in their own investments in such debt instruments as mortgage-backed securities. In reaction to the losses, banks have raised their own standards, especially because of the growing worries that the weak economy will make even more loans go bad.

"This survey reflects the high level of angst among banks involving the erosion of credit quality, rising delinquencies, foreclosures and defaults," said Mark Zandi, chief economist at Moody's Economy.com.

Analysts said the tightening up on credit card borrowing was coming at a particularly bad time given that slumping home prices have made it difficult for borrowers to tap their home equity lines of credit as a source of cash and many consumers have turned instead to using their credit cards.

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