A recent survey by the Federal Reserve System confirms what most of us have already felt: The credit markets continue to tighten as this financial crisis continues. The survey, sent to domestic banks and foreign banks with U.S. branches, asked banks to evaluate how their credit lending standards -both consumer and commercial -compared with three months ago.
Not surprisingly, none of the 76 responding banks reported an easing of credit terms for Commercial and Investment lending. Most indicated that standards were tightening somewhat,”regardless of the size of the borrowing company or the lending institution.
What is interesting to note, however, is that the banks seem to have a bit more confidence in the smaller firms when it comes to lending, excluding financing for mergers and acquisitions. For domestic banks, 25.5% of respondents said that standards have “remained basically unchanged”for small companies, while only 16.4% said the same for companies with more than $50 million in revenues.
The survey doesn’t delve into why this is the case, but one reasons could be the ability of these smaller companies to build relationships with the banks. In a recent MDM article on the credit crunch, Burt Schraga, CEO of Bell Electrical Supply in Santa Clara, CA, shared his experience with renegotiating his credit line at a local bank. Schraga credits his long relationship with the bank for easing the process, even as his bank warned there was pressure for more scrutiny. (Read Credit Crunch in the Channel).
The survey also doesn’t talk about the future but uncertain economic conditions going forward was the most often cited reason for standards tightening. Until things start to stabilize, banks may remain leery of easing up any time soon.
Click here to read the complete results from the Federal Reserve Survey.
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