Fed's latest quaterly loan officer data tells us the credit crunch is underway
The latest survey (PDF link) was conducted in October; 52 domestic banks and 20 foreign banks with operations here in the U.S. responded. The results are reported in terms of "net tightening/loosening." Specifically, the Fed adds up the percentage of banks that either "tightened considerably" or "tightened somewhat" in a given loan category and nets that out against the percentage of banks that "eased somewhat" or "eased considerably." On this page, which has historical data, a positive percentage figure means more banks tightened than loosened; a negative percentage figure means more banks loosened than tightened.
So what did the just-released October survey show? Widespread tightening of lending standards. In other words, we have clear evidence of a nascent credit crunch. The details:
* A net 19.2% of respondents said they were tightening standards on Commercial and Industrial (C&I) loans to large and medium sized firms. That was the highest net tightening percentage
since Q1 2003.
* Spreads are widening. Specifically, Fed data shows that a net 34.6% of banks are charging wider spreads over their cost of funds on C&I loans to large and medium sized businesses. A quarter earlier, a net 32.1% of lenders reported they were making loans at tighter spreads. The October reading was the highest since Q3 2002, an indication that borrowing costs are going up for corporate borrowers.
* So what about residential real estate? No surprise there. Lenders are tightening the purse strings substantially. Please note: The Fed used to report data on overall residential mortgage standards. Now, it breaks the figures out into prime, nontraditional (payment option ARMs, Alt-A loans), and subprime categories .
With that caveat aside, the net percentage of lenders tightening on nontraditional mortgages jumped to 60% from 40.5% in the prior quarter. The net percentage of lenders tightening prime mortgage standards rose to 40.8% from 14.3%. The net percentage of lenders tightening subprime standards was roughly unchanged at 55.5% (vs. 56.3% in the prior two quarters).
For perspective sake, the overall mortgage tightening index last peaked at 32.7% in Q1 1991. So the tightening readings we're seeing now are UNPRECEDENTED in the history of the data.
* Commercial real estate financing is also getting harder to obtain. A net 50% of banks reported that they were tightening CRE standards. That was up from 25% in Q3 2007 and the highest reading since Q4 1990 (61.68%). This is a big deal. It's a sign that real estate lending fears are spilling over into the commercial mortgage market.