Banks say they are tightening lending standards even as demand for money falls

Banks are tightening lending standards across the board even as they’re being urged to get money to those who have been hit by the coronavirus pandemic, according to a Federal Reserve survey Monday.

From commercial real estate to credit cards and autos, institutions are getting tougher on giving out money compared to the second quarter, even though demand also has decreased across most categories.

The Fed’s senior loan officer survey also showed that foreign banks also are showing a reluctance to lend.

“Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” the survey stated.

The banks further cited weaker capital positions, less competition and worries over increased regulatory burdens.

At the same time, demand for commercial and industrial loans ebbed. Except for residential real estate, demand fell for all other forms of consumer debt.

More stringent standards come just four months after the Fed had encouraged banks to do all they could to get money out to people in need. The central bank had encouraged regulators to give some leeway to banks engaged in pushing funds to “customers and members.”

“Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” the Fed said in a March 9 statement, shortly before the pandemic declaration.

The Fed has been working with banks on a number of lending facilities aimed at getting money to consumers and businesses both large and small.

The loan officers survey indicated that when it comes to consumer loans, banks are lower credit limits and insisting on higher credit scores.