Fed's Duke: Bank lending attitudes may be shifting

WASHINGTON Fri Feb 26, 2010 1:23am IST

Federal Reserve Board Governor Elizabeth Duke on Capitol Hill in Washington, September 17, 2008. U.S. banks appear to be warming to lending to small businesses even though credit remains abnormally tight, a top Federal Reserve official said. REUTERS/Larry Downing/Files

Federal Reserve Board Governor Elizabeth Duke on Capitol Hill in Washington, September 17, 2008. U.S. banks appear to be warming to lending to small businesses even though credit remains abnormally tight, a top Federal Reserve official said.

Credit: Reuters/Larry Downing/Files

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WASHINGTON (Reuters) - U.S. banks appear to be warming to lending to small businesses even though credit remains abnormally tight, a top Federal Reserve official said.

"Bank attitudes toward lending, including small business lending, may be shifting," Fed Governor Elizabeth Duke said in remarks prepared for delivery to a congressional committee on Friday.

Her remarks were posted on the committee's Website on Thursday.

Duke said the Fed's latest survey of senior loan officers showed that bank tightening of credit standards for small business loans appeared to be nearing an end.

"There is also some tentative, anecdotal evidence that many bankers may be devoting considerably more energy toward extending new loans in 2010, as contrasted with their overwhelming preoccupation in 2009 with collecting on or writing down loans already on their books," she said.

Duke, who was a community banker before joining the Fed's board in 2008, said the turnaround in bank attitudes would likely be gradual. High unemployment is likely to constrain consumer spending and hinder business confidence, she said.

"Improvement in a number of the conditions that depressed lending in 2009 ... lead me to be somewhat optimistic that we may begin to see an increase in bank loans later this year," she said.

Small businesses normally account for the bulk of new jobs in the United States, but they have been hit hard by the recession and credit contraction. That has contributed to the 9.7 percent jobless rate.

President Barack Obama has proposed a series of measures aimed at getting credit flowing to small businesses as a means of boosting hiring. However, Duke pointed out that demand for loans was weak as companies worry about weak sales.

She pointed to surveys from the National Federation of Independent Businesses, which have shown that only a small fraction of companies listed financing conditions as their top concern, while about one third listed sales.

(Editing by James Dalgleish)

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