The Federal Reserve says demand for bank loans is increasing — if only mildly — and so are credit quality and demand for banking services, according to American Banker.
But the Fed’s quarterly “Beige Book” released this week also showed that the improved environment for financial services isn’t spread evenly across the U.S., and major stresses remain in some regions.
Overall, economic activity has continued to grow since the last report in October, and demand for business and consumer loans remains consistently healthy nationwide — even in regions where overall economic activity was stagnant or even depressed, the report said.
The Federal Reserve Bank of Kansas City reported flat economic activity during November and December because of declines in tourism, auto and retail sales. But the region’s banks saw “a slight increase in overall demand, stable loan quality and steady deposit levels,” and the bank says it expects economic drivers to improve in the coming months.
The Dallas Fed reported a drop in economic activity because of the effect of declining oil prices on refining and related industries, and its outlook is negative. But like the Kansas City Fed, Dallas sees “overall loan demand increased slightly,” particularly among consumers and manufacturing companies outside the energy sector.
The San Francisco Fed reported mixed loan demand for banks, with some reporting strong demand from the construction industry while companies with “sufficient cash turned towards internal financing.” The New York, Cleveland and Philadelphia Fed banks also said that high rates of severely distressed mortgages remain in Pennsylvania and New Jersey, preventing more robust growth.
Regional Fed banks also reported that loan delinquencies have decreased, but banks’ own lending standards appear to be largely unchanged and “stiff competition for high-quality borrowers was leading to lower underwriting standards” nationally.
The biggest change over the past year is improved confidence when it comes to building and financing large projects, said Bob Sadowski, the senior economic analyst at the Cleveland Fed. “The reason they were reluctant in 2013 is they still had a lot of concerns about the economy, about fiscal issues, and so on,” Sadowski said. “If you come forward 12 months, you’ll see that most of our contacts say that projects are moving more freely through their pipelines.”
The Fed’s regional economists generally focus on large-scale loan demand from banks. During the same period, loan approvals for smaller businesses from big banks fell off but non-bank loan approvals gained ground, according to a separate monthly survey by Biz2Credit.