The U.S. Federal Reserve on Wednesday said some banks that mellowed their lending standards in the last three months have reported better borrower appetite for auto loans and real estate.
The U.S. central bank, for instance, according to Fed, has cut interest rates to almost zero. Moreover, last month, it also announced its intent to invest $40 billion per month in low-interest mortgages to help knock down borrowing costs and fight unemployment.
Economists or analysts also confirmed the positive climate and consumer response in the housing market. JPmorgan analysts noted that 44 percent of banks have reported a stronger demand for real estate loans and the demand is even the strongest since 1995.
Fed said that among the reasons behind this higher demand for commercial and industrial loans were the easier lending standards and the tough competition between lenders.
“Of the respondents that reported having eased either standards or terms over the past three months, almost all cited more aggressive competition from other banks or nonbank lenders as an important reason for doing so,” the Fed said.
Slow Economic Recovery Blamed on Lack of Credit and Credit-Worthy Borrowers?
Although the economy growth accelerated to a 2 percent in the third quarter, U.S. officials still consider it a slow recovery pace, citing that this pace would not lower unemployment levels fast.
Meanwhile, some analysts say that this slow economic recovery pace can be blamed on lack of enough credit, for small companies wanting to expand. As a result, the high unemployment rate is still a major problem. Other analysts also blame on lack of credit worthy borrowers. Despite the easy borrowing standards, some analysts say, not many are able to capitalize through loans due to bad credit rating.
International borrowing: lending standards to European lenders ease, Fed says
Meanwhile, in international lending, the debt crisis in Europe has increased concerns about the credit quality of European lenders. Thus, fearing contagion, U.S. lenders have been reported to have taken extra care to control their lending by tightening their standards. However, Fed said that this trend is already easing, adding that some banks have reported a boost in their business through international lending in the last three months.