FED survey shows banks are tightening lending standards

Although the Coronavirus pandemic has affected the demand for money, banks are getting tougher on lending standards, according to a Federal Reserve survey. Here's the reason for this measure.

Despite the fact that the demand for money has decreased due to the Coronavirus crisis, banks are tightening their lending standards.

According to a Federal Reserve survey, institutions are getting tougher on giving out money, whether if it's for commercial real estate or credit cards. Moreover, the survey also showed that foreign banks are reluctant to lend.

The FED's senior loan officer survey stated that "major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems and reduced tolerance for risk as important reasons for doing so."

Weaker capital positions, less competition and worries over increased regulatory burdens are also reasons stated by the banks.

Meanwhile, the demand for commercial and industrial loans has decreased. The only exception is the residential real estate sector.

The tougher lending standards appeared only 4 months after the beginning of the crisis when the FED urged banks to help those who were in need of money.

According to the survey, banks are now lowering credit limits and require higher credit scores to grant consumer loans.

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