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Fed Says Fewer Banks Tighten Credit

Is the worst of the credit crunch behind us? According to an April study conducted by the Fed, which surveyed more than 75 domestic and foreign banks regarding their lending practices to businesses and consumers, there are some leading indicators that credit markets are beginning to loosen.

For example, the percentage of banks that admitted to tightening lending standards dropped below 50% for the first time since January of 2008. In fact, only 40% of domestic banks said they "tightened credit standards on commercial and industrial loans", which is 20% less than just three months ago. In addition, foreign banks with US branches reported a drop from 65% to 30% since January of this year.

So, I guess we can be comforted by the fact that some banks in the commercial space are choosing to keep it "difficult" to obtain credit instead of making it practically impossible. On the other hand, consumer credit is still a mess.  I mean, have you spoken with any underwriters lately? If you can even get someone on the phone, it's like talking to a brick wall. The amount of required documentation has become completely onerous, and what's worse is they change their minds daily about what it is they can or can't do. Of course, I realize it's not their fault - it's just the reality of the financial world we live in today.

There may be some glimmering signs of hope out there in the commercial world, but I believe the credit markets are still quite nasty for the average consumer. And as unemployment continues to rise throughout the country and lenders' portfolios experience greater deterioration, I suspect we haven't seen the worse of things to come.

What do you think? Has the worst of the credit crunch come and gone?

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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