Banks easing up on lending standards


Big banks are beginning to loosen their tight grip on lending, creating a new opening for consumer and business borrowing that could underpin a brightening economic outlook, The Wall Street Journal reported.

 

Reports released Thursday show that banks are slowly starting to increase their appetite for risk. The U.S. Office of the Comptroller of the Currency (OCC) said banks relaxed the criteria for businesses and consumers to obtain credit during the 18 months leading up to June 30, while the European Central Bank said fewer banks in the eurozone were reporting tightened lending standards to nonfinancial businesses in the fourth quarter of 2013.

 

Fueling the loosening is a rosier economic picture, competition for a limited pool of loans and a sustained low-interest-rate environment that has banks reaching for returns.

 

At the same time, the easing carries risks, including a return to the type of lax underwriting standards that sowed the seeds of the financial crisis, the OCC said. The regulator has prodded banks to stop easing up standards on so-called leveraged loans, made to companies with high levels of debt, prompting big banks to step away from some deals.