What Bank Bailouts Accomplished

Filed under the category of “things we already know,” a quarterly Federal Reserve Board survey of senior loan officers confirms that despite the injection of billions of dollars into banks via a taxpayer-funded bailout, the flow of money loaned to consumers remained largely frozen during the last three months.

The January 2009 survey showed a moderate loosening of mortgage lending standards, although a majority of credit card lenders continue to maintain the tighter lending standards that were reported in the last survey of loan officers, taken in October 2008.

Here are a few highlights from the survey of 53 domestic banks and 23 U.S. branches of foreign banks:

• Mortgages
About 45% of domestic bank respondents said they had tightened lending standards on prime mortgages over the past quarter (compared to 69% who reported doing so in the previous survey). Nearly 50% of those banks that sold nontraditional residential mortgages reported having tightened lending standards on those loans. Only four banks reported making subprime mortgage loans during the past three months.

About 15% of domestic banks said they had become either “somewhat” or “much less” willing to make consumer installment loans during the past quarter, compared to about 45% of banks that said this in the last survey.

• HELOCs
About 60% of domestic banks said they tightened lending standards for home equity lines of credit during the past quarter, down from 75% in the October 2008 survey.

About 40% of domestic banks said they reduced the size of existing HELOCs.

• Credit Cards
Almost 60% of banks said they tightened lending standards on credit card and other consumer loans; this figure remained unchanged since the October survey.

Nearly 55% of banks said they reduced the availability of credit cards and other consumer loans to consumers who did not meet credit score thresholds.

About 45% of banks said they lowered credit limits for either new or existing credit card customers, compared to 60% who reported doing so in the October survey.

Major banks, including Citigroup, which already received $45 billion in taxpayer money, will likely need much more money in coming months, the International Herald Tribune reported recently.

Should they get it?

Tags: bailout, bank bailout, effects of bailout

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