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February 11, 2008 – The FOMC fears that a credit crunch will choke off U.S. economic growth. Based on last week’s January (Q1) results from the Fed’s quarterly survey of banks’ lending practices, there are good grounds for concern.
There are no simple summary measures for these survey data. But, the gist of these Q1 results is clear enough. We haven’t seen such widespread bank credit tightening since just after the last recession. Further, for some types of loans, the recent data look much worse.
In the data details, a net 30.4% of the 56 domestic banks surveyed said they tightened their lending standards for Commercial & Industrial (C&I) loans to small firms in the three months through early January. That’s more than triple the October (Q4) survey reading of 9.6% (Chart 1).
For C&I loans to large firms, a net 32.2% of the domestic banks reported tighter lending standards in Q1. That’s up from 19.2% in Q4.
For both small and large firms, these Q1 data show the most bank tightening activity since Q1 2002. At that time, the economy was just emerging from the 2001 recession.
For commercial real estate loans, the net portion of domestic banks that had tightened their lending standards soared by 30.3 percentage points to 80.3% in Q1. That is the highest level since the start of these data in Q3 1990 (Chart 2).
A net 52.9% of 53 domestic banks said in Q1 that they had tightened their lending standards for prime residential mortgages. That’s up from 40.8% in Q4 (Chart 3).
Of 39 domestic banks offering nontraditional residential mortgages, a net 84.6% reported tighter lending standards in Q1. That’s up from 60% in Q4.
Of 7 domestic banks offering subprime residential mortgages, a net 71.5% reported tighter Q1 lending standards. That’s up from 55.5% in Q4.
In response to a new survey question, a net 59.3% of 54 domestic banks said they had tightened their lending standards for revolving home equity lines of credit during the Q1 reference period.
For consumer loans other than credit cards, a net 32.1% of 53 domestic banks reported tighter Q1 lending standards (Chart 4). That’s another record high for data dating back to Q1 1996.
Consumer credit card loans were also affected, albeit not as much. A net 9.7% of 41 domestic banks reported tighter lending standards for these loans in Q1, up from 3.2% in Q4.
Suzanne Rizzo