Nov 12 2008
Banks tighten credit
The growing losses from the economic slowdown and financial crisis has made banks and other financial institutions to tighten their lending policies thereby adding fuel to the already prevalent credit crisis sweeping across the United States. This tightening of the lending process has been unanimously attributed to the uncertain economic outlook and the present deteriorating perceived by all banks and financial agencies. Credit cards and other financial loan products have been equally affected by these strict regulations. It has been reported that a whopping 85% of domestic banks have tightened their lending standard’s towards industrial loans and commercial loans which were provided by them to mid sized and large firms. The individuals and businessmen alike have never found it so hard to get access to a loan as they are facing right now. Banks are at regular intervals turning away borrowers which is a very recent development. A majority of banks and other lending institutions in the field of providing credit to large firms and industries have reportedly increased their respective costs on the credit lines while almost all of the banks are in the process of increasing their respective spreads on the borrowing rates over the cost of funds pertaining to the loans being provided to mid sized firms and large firms. Also reported to have been affected are the maximum size and the maximum maturity of loans or credit which was being offered by banks to firms. Tightened standards have also impacted the vertical of prime mortgage loans. the US economy has seen a contraction at an annual pace of 0.3 per cent between the months of July 2008 to September 2008. The unemployment rate too has subsequently increased to reach a figure of 6.1%. Tightened lending standards have also been reported on the credit card front as well as the personal loan front. A slump has been seen in the number of people applying for a loan in these turbulent times. These tough loan standards prompted the Federal Reserve to cut the benchmark interest rate by 1 per cent recently.