Banks begin to loosen credit standards

180px-National_Bank_OamaruBanks have begun to loosen their standards for many types of loans, dipping into their own profit margins in an attempt to make more loans, particularly to real estate developers and businesses.

A quarterly survey by the Federal Reserve, which allows the Fed to assess how credit is entering the economy, revealed that most banks have not made it easier to obtain business loans and commercial real estate loans over the last three months, but more than 50 percent of banks indicated that they are accepting interest rates that are more similar to rates paid by banks for deposits, USA Today reports.

Demand for auto loans increased since the Fed’s October report, though demand for mortgages has changed very little. Nearly 16 percent of banks indicated that they are letting up on auto loan standards by extending the maximum term of auto loans and other down-payment requirements.

“This is another sign that the economy is gaining traction,” Andrew Wilkinson, the chief economic strategist at Miller Tabak, said, according to USA Today. “While interest rates will likely remain low for a long time, the Fed is unlikely to need to keep the pedal to the metal in terms of bond purchases as 2013 develops.”

Additionally, banks have also started to reduce their spreads on car loans, though the report revealed that credit card standards remain tight. More than 90 percent of banks said that their credit card standards have not changed since last fall.

The report also revealed that banks have been reluctant to offer high-risk credit, and more than 20 percent of banks said that they have tightened standards for “subprime” residential mortgages over the last three months. For consumers with good credit, more than 90 percent of banks said that credit standards for mortgage loans remain the same, USA Today reports.

The Fed said that loan demand is increasing and that many banks expect credit quality to improve this year across all categories of loans. Nearly one-quarter of banks indicated that they have seen an increased number of commercial loan applications, while more banks said they had seen more mortgage and auto loan applications.