Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SATURDAY, February 9, 1991                   TAG: 9102090119
SECTION: BUSINESS                    PAGE: A-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

CREDIT TIGHTENS, SURVEY REVEALS/ LOAN STANDARDS RAISED IN LAST 3 MONTHS

A poll in January of senior loan officers at 60 large banks "suggests a further overall tightening of business lending standards and terms in the last three months," the central bank said.

"Domestic banks also have tightened somewhat their lending to the household sector . . . both with respect to mortgage financing and consumer credit," it said.

The survey, which covers banks holding nearly a third of the industry's $3 trillion in assets, comes as the Bush administration promised accounting changes aimed at making banks less reluctant to lend to credit-worthy borrowers.

Treasury Secretary Nicholas Brady told the House Budget Committee on Thursday that the government will issue a package of regulatory proposals within 10 days to two weeks.

Roughly a third of domestic banks responding to the Fed survey in January reported tightening standards for business loans, down from nearly half in October. If sustained in future polls, the trend would indicate a slackening in the pace of credit contraction.

Among foreign banks operating in the United States, 90 percent reported tighter terms for business loans.

The effect of the credit crunch on individuals was less severe, but before last fall the shortage had not appeared to be affecting consumers much at all.

A third of the banks said they've tightened standards for mortgage loans, most commonly by requiring a higher down payment. That's up from a quarter of the banks questioned in October. Two-thirds of the banks in January reported weaker demand for mortgages, compared with the first half of 1990.

The poll was the first of the central bank's quarterly questionnaires to uncover a retreat by banks from consumer installment loans. About 15 percent said they've tightened terms on consumer lending, with the rest saying the terms haven't changed.

Nearly half of the domestic banks reported reducing the size of credit lines offered to large and medium-sized businesses. Slightly more than half raised the cost of credit lines to large and medium businesses, and about a third to small businesses.

The banks said that rejected borrowers most commonly turned to another bank for loans. The next most common response, for large businesses, was to issue commercial paper and, for small and medium businesses, to turn to a finance company. Third, businesses chose to cancel, postpone or reduce their borrowing.

Businesses in states in the Northeast, particularly in New England, have complained most about scarce credit. The Fed survey, however, did not break out results by region.