Bankruptcy

Fearing Trouble, Banks Tighten Lending

By J. Michael McBride

As has been previously noted here, the Federal Reserve can make money more available to lenders, which it has done, but it cannot force a bank to make a loan. So, in the current economy, lenders are raising their lending standards on all loans, especially loans to businesses.

Quote:

But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy. The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.

The financial system is not going along: As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.

Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.

"There's been a lot of disruption in the credit market, and a lot of traditional lenders have really tightened up," said Gregory Goldstein, president of Macquarie Equipment Finance, which leases computer gear and other technology to companies. "Before, some of the standards they lent on were weak, but we think they have overshot and gone too far on the other end."

Here is a link to the full article:
http://www.iht.com/articles/2008/07/28/business/28credit.php?page=1

Michael

Full post as published by Texas Lawyer Blog on July 28, 2008 (boomark / email).