Federal Reserve reports tighter bank lending standards

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The latest Fed survey found that banks tightened their lending standards on not just prime or traditional mortgages but also on nontraditional mortgages such as "Alt-A" loans given to people who supplied only limited income verification. The survey found that about 32 percent of the banks responding to the survey had tightened "considerably" their standards for nontraditional mortgages and another 43 percent had tightened standards in this category "somewhat."

The survey found that only nine banks are currently making loans in the subprime category and of that group, 78 percent had tightened lending standards either considerably or somewhat.

About 55 percent of banks reported imposing tougher standards on business loans, up from about 30 percent in the previous survey in January, the Fed reported.

"The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey," the Fed said.

The central bank last week announced new steps to aid with tight credit conditions by increasing the size of cash auctions to banks and allowing financial institutions to put up credit card debt, student loans and car loans as collateral for Fed loans.

The central bank also last week cut a key interest rate, the federal funds rate, by a quarter-point, in an effort to lower borrowing costs for consumer and business loans. However, the central bank signaled that this rate cut may be the last for a while as the Fed pauses to determine the impact of the seven rate cuts it has made since September.

Sen. John Kerry, D-Mass., said the new Fed report underscored the need for passage of his bill which would temporarily reduce fees on government-backed loans to small businesses.

"Over half of our banks have tightened their lending standards, making it harder for small businesses to expand their payrolls and invest in new equipment," Kerry said in a statement. "The Bush administration and Republicans in Congress have bailed out Wall Street and done nothing to help small businesses on Main Street."

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