Fed Survey Shows Banks Expect 'Bad' Loans To Increase

A new Federal Reserve report shows most U.S. banks expect more loans to be delinquent and losses will increase this year. In a survey of senior loan officers, more than 70 percent say bad loans will rise should the economy continue to progress as projected by economists. More banks say they have made it harder for consumers to get home and credit card loans in the last three months, and fewer tightened terms for businesses than in the last survey.

The report's information shows the stabilization of the country's economy is not loosening lending terms. Banks are sitting on $1.1 trillion cash after Treasury and the Federal Reserve have made emergency capital injections and produced lending programs to help lenders extend credit to households and businesses.

The Fed's report says the vast majority of domestic and foreign respondents indicate that they expect deterioration in credit quality for all types of business and household loans. The Federal Reserve will release results of stress tests on the 19 largest banks on May 7. Ten of the 19 are expected to be asked to raise more capital because of the results. Chairman Ben Bernanke has taken unprecedented steps to expand credit and break the back of a financial crisis and at the same time the Obama administration has pledged to make further taxpayer funds available to ensure no major American bank fails.

The senior loan officers' survey was conducted from March 31 to April 14. The Federal Reserve report shows a larger share of banks have tightened terms on residential mortgages compared with the previous survey. This is at the same time that approximately 35 percent of banks saw increased demand for prime mortgages. About 65 percent of banks say they lowered credit-card lines for new or existing customers, and the share of banks raising minimum required credit scores also increased. (Read the entire report)

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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