WASHINGTON — As a result of more aggressive competition fromother banks or nonbank lenders, some banks have recently reportedeasing their lending standards or terms as a result of moreaggressive competition from other banks or nonbank lenders.

That's according to the July 2007 Senior Loan Officer OpinionSurvey on Bank Lending Practices from the Federal Reserve Board,which collected data from the 53 banks that account for 67% of allcommercial and industrial loans as of March 31. Institutions thatmoved to a more stringent lending posture said they did so becauseof a “less favorable” or “more uncertain” economic outlook, areduced tolerance for risk and decreased liquidity in the secondarymarket for C&I loans.

Roughly one-fifth of those surveyed said they had experiencedweaker demand for C&I loans over the past three months fromlarge and middle-market businesses for reasons ranging fromborrowers' decreased need to finance inventories or investment inplant or equipment, or a shifting towards other bank or nonbankcredit sources, the survey's data found. Another one-fifth ofdomestic banks report stronger demand for C&I loans due togreater financing needs from borrowers for merger and acquisitionactivity.

Lending standards for commercial real estate loans werereportedly tightened further over the past three months: Aboutone-fourth of domestic institutions–a slightly smaller net fractionthan in the previous survey–and about 40 percent of foreigninstitutions indicated that they had tightened lending standards oncommercial real estate loans in the July survey. Regarding demand,approximately one-fourth of domestic and foreign institutionsreported that demand for commercial real estate loans had weakenedover the past three months.

Smaller net fractions reported that they had reduced the costsof credit lines and eased loan covenants to large and middle-marketfirms, and had reduced the costs of credit lines and loweredpremiums charged on riskier loans to small firms.

Regarding future business, about 15 percent of domesticrespondents, on net, reported that the number of inquiries frompotential business borrowers had decreased over the previous threemonths, a somewhat larger fraction than in the April survey.

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