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U.S. Banks Loosened Credit Standards in Third Quarter: Fed Survey

Banks expect demand for business and credit card loans to rise in the next six months thanks to a bullish consumer spending outlook, rising wages and prevailing interest rates.

U.S. banks lowered lending rates and bolstered credit supply for businesses, commercial real estate investors and households in the third quarter, the latest findings from a Federal Reserve Senior Loan Officer survey showed.

According to a Reuters report that cited the Fed survey, banks “generally reported having eased standards” due to factors like declining economic uncertainty and “an increased tolerance for risk.”

Third quarter for bank earnings ended last month where Citigroup  (C) - Get Citigroup Inc. Report, Morgan Stanley  (MS) - Get Morgan Stanley (MS) Report, JPMorgan  (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Bank of America  (BAC) - Get Bank of America Corp Report clocked record profits driven by rise in deal making fees in the investment banking divisions.

On Nov. 3, the U.S. Central Bank indicated that it will begin slowing the pace of its $120 billion in monthly bond purchases later this month but chair Jerome Powell added that officials will be patient on raising interest rates.

From July to September, demand for loans among medium to large scale firms also accelerated, the Fed reported.

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Banks also offered lower credit score requirements or increased credit limits to accommodate consumer credit card and auto loans.

While the demand for credit cards rose during the third quarter, the central bank reported a decline in demand for auto loans.

The Fed survey reported that banks expect demand for business and credit card loans to rise in the next six months thanks to a bullish consumer spending outlook, rising wages and prevailing interest rates.

Last week, the Labor Department said that hourly wages were up 0.4%, and 4.9% on the year, to $30.85 per hour, with the year-on-year reading coming in ahead of Street forecasts.

The U.S. economy added more than half a million new jobs in October with headline unemployment rate falling to a post-pandemic low of 4.6%.