Fewer Banks Are Tightening Their Lending Standards

By JON HILSENRATH Although credit conditions remain strained, an April survey of loan officers by the Federal Reserve found a smaller number of banks were tightening loan standards compared with a few months ago. Glimmers of improvement were most notable in commercial lending. The Fed said 40% of the 53 domestic banks it surveyed between March 31 and April 14 said they tightened standards on commercial and industrial loans, a smaller percentage than the 65% that said in January that they tightened standards. "The April survey marks the first time since January 2008 that the proportion of banks reporting such tightening fell below 50%," the central bank said. When banks tighten standards, they make it harder to get a loan by toughening certain criteria, such as for income, cash flow or indebtedness. Banks were also a little less aggressive about demanding more for the loans they actually made. Some 80% said they toughened terms on loans -- for instance, increasing the interest rate -- when compared with some benchmark. That was down from the 95% that said in January they demanded a higher rate. About 65% of banks said they tightened standards for commercial real-estate loans, from 80% in January. It was the first time since October 2007 that the percentage of banks tightening standards on commercial real-estate loans fell below 70%. Consumer lending was mixed. While there was a greater percentage of banks tightening criteria for mortgage loans, the percentage doing so for home equity and certain other consumer loans eased a bit. Taken together, the report indicated conditions remained very strained in the financial sector, though they could be taking a small turn toward normalcy. Write to Jon Hilsenrath at jon.hilsenrath@wsj.com