By Denny Gulino

WASHINGTON (MNI) – The Federal Reserve’s latest survey of lending
standards showed a modest further easing of standards for commercial and
industrial loans between July and October and demand that did not
increase, while households faced much the same restrictions on credit,
restrictions that “substantial fractions” of banks said are going to be
in place for the foreseeable future.

A net percentage of 9.1 reported “substantially stronger” demand
for commercial real estate loans and another 18.2% reported “moderately
stronger demand,” a slight increase overall.

“Domestic survey respondents reported easing standards and most
terms on C&I loans to firms of all sizes,” the report said. “As in the
April and July surveys, banks mainly pointed to a more favorable or less
uncertain economic outlook and increased competition.”

“Demand declined for C&I loans, particularly for small firms” after
showing no change in the previous survey.

Drawdowns of exiting credit lines also fell in the latest survey,
particularly among U.S. branches of foreign banks.

Answering a special question in the latest survey, and “for all
loan categories, substantial fractions of respondents thought that they
bank’s lending standards would not return to their long-run norms until
after 2012 or would remaining tighter than the longer-run average levels
for the foreseeable future,” the report said.

There was one sign in the report that demand for credit might pick
up, with the number of inquiries about new or increased lines of credit
continuing to rise.

The 73-page report reflects answers from a sample of 57 domestic
banks and 22 U.S. branches of foreign banks and generally 60% to 80% of
most responses were grouped in the area of little change. Compared to
the previous period, there was some mild easing of the terms of
borrowing but only in some categories.

The long-term charts of responses showed fewer banks reporting an
increase in demand for bank loans as this year progressed and a little
rebound in the spread of loan rates over the banks’ cost of funds.

The recovery continued in the latest survey from the huge upward
spike of late 2008 and early 2009 in loan restrictions. Yet the
reticence to lend and the willingness to borrow remain well short of
what was the case before the crisis.

** Market News International Washington Bureau: 202-371-2121 **

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