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Banks tighten purse strings
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November 13, 2001: 2:14 p.m. ET
Fed survey finds banks tightened lending standards for businesses.
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NEW YORK (CNN/Money) - Banks in the United States tightened their lending standards for businesses in the third quarter, reacting to a slowdown in the U.S. economy, according to a Federal Reserve survey released Tuesday.
The Fed surveyed senior loan officers at 57 U.S. banks and 22 U.S. branches of overseas banks and found that, after loosening up their purse strings during the first and second quarters of 2001, most banks were more hesitant to lend money to companies in the third quarter.
"The number of foreign and domestic banking institutions that reported tightening standards and terms on commercial and industrial loans over the past three months increased notably after having edged down in the previous two surveys," the Fed survey said.
Among those surveyed, 30 percent of U.S. banks and 40 percent of overseas banks had downgraded loans to commercial airlines, non-defense aerospace firms, travel businesses and other leisure-related service businesses, "likely reflecting the disruptions caused by the terrorist attacks" of Sept. 11, the Fed said.
The percentage of domestic banks that reported tightening their standards on business loans to large and middle-market firms rose to 51 percent in October from 40 percent in August. Results were similar for lending standards on loans to small firms, the survey found.
Among overseas banks in the October survey, 64 percent said they had tightened business loan standards, up from 50 percent in the August survey.
The survey found 49 percent of the domestic banks had "tightened somewhat" business credit in recent months, which was up from 38.6 percent in the previous survey released in August.
"Almost twice as many domestic respondents as in the August survey indicated that a "less favorable or more uncertain economic outlook was a very important reason for tightening standards," the survey found.
Click here for more on the Fed and rates.
Almost 45 percent of domestic banks tightened standards on commercial real estate loans over the past three months, up slightly from nearly 43 percent in the August survey.
Bank credit standards for approving residential mortgages were largely unchanged over the past three months, with only two banks reporting that they had tightened lending standards somewhat, the survey found.
However, one-fifth of the banks in the survey reported that they had tightened standards on both credit cards and other types of consumer loans over the past three months, up slightly from August. Of the respondents, 14 percent raised minimum credit score requirements for individuals.
The Fed has cut its target for short-term interest rates 10 times this year, three times since the terror attacks, in an effort to make borrowing easier for consumers and keep them spending. Fed cuts are less likely to have an immediate impact on business spending. 
-- from staff and wire reports
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