Fed Says `Historical Highs' of Banks Tighten Lending Standards (Scott Lanman)

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Tight Money

May 5 (Bloomberg) -- The Federal Reserve said the proportion of U.S. banks making it tougher for companies and consumers to borrow approached a record in the past three months as the credit crunch deepened.

{xtypo_quote_right} Traders anticipate that the Fed will leave its main interest rate unchanged at 2 percent through October, based on futures prices on the Chicago Board of Trade. {/xtypo_quote_right}

A net 70 percent of banks increased loan rates over their cost of funds for commercial and industrial borrowing, according to the central bank's quarterly survey of senior loan officers released today in Washington. That compares with 45 percent in the January survey, the Fed said.

The survey, conducted last month, was available to Fed policy makers last week when they cut interest rates by a quarter percentage point. Banks are restricting access to credit after financial firms posted more than $318 billion of losses and writedowns in the aftermath of the crisis sparked by subprime mortgages.

``The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey,'' today's Fed report said.

The survey covered 56 domestic banks and 21 foreign institutions. The American banks together have $6.1 trillion in assets, representing about 64 percent of the country's $9.5 trillion total for all domestically chartered, federally insured commercial banks.

Policy makers last week signaled that they are ready to hold off on further rate cuts as they assess the impact of the 3.25 percentage points of reductions since September. They dropped a reference to ``downside'' risks to growth from their previous statement