Fed: US banks tighten lending to Europe banks

[January 31, 2012]  WASHINGTON (AP) -- A Federal Reserve survey has found that more than half of U.S. banks that lend to European banks have tightened their standards, a reflection of the persistent European debt crisis.

Of the 26 U.S. banks surveyed that make loans to European banks, five said they had tightened their standards considerably in the October-December quarter. Another 10 said that they had tightened them somewhat in the same period, according to the survey released Monday.

Many economists predict that Europe's debt crisis will push the region into a recession this year. Many European banks are heavily exposed to government debt, making the banks more of a risk.

In the U.S., banks are seeing more small businesses apply for loans, according to the Fed's quarterly survey of loan officers for large banks.

The percentage of banks reporting increased loan demand from companies with annual sales of less than $50 million rose to the highest level since 2005, the survey found.

Economists saw the increase in demand for loans as a good sign for future economic growth because it indicates that more companies are confident and may be looking to hire more and expand.

"Businesses are starting to look to grow and they need loans to do it," said Mark Zandi, chief economist at Moody's Analytics.

Zandi said while loan standards are still tight compared to the period before the financial crisis hit, they have been eased in recent quarters and that is a good sign for future growth as well.

"The credit spigot is slowly opening after having been closed tight during the credit crunch," Zandi said. "That is good because we need credit to flow for this recovery to gain traction."

[Associated Press; By MARTIN CRUTSINGER]

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