Borrowing on the rise as banks boost lending

America's banks are getting back into the business of lending money.

Following the 2008 mortgage meltdown, banks tightened their lending standards, making it hard for individuals and business to borrow. But the Federal Reserve's latest Senior Loan Officer Survey and Consumer Credit report shows a significant easing in credit conditions.

"On balance, banks eased their lending policies for commercial and industrial and commercial real estate loans and experienced stronger demand for both types of loans over the past three months," the Fed said in the report.

Another report found big banks are approving loans to small businesses at a record rate. The Biz2Credit Small Business Lending Index found big banks' (those with at least $10 billion in assets) approval rate for these loans rose to 19.4 percent in April, a record high for index.

There are conflicting explanations for why banks are lending again. During the period of tighter loan standards, banks said they weren't making as many loans because there was little demand for them, said Scott Anderson, chief economist for Bank of The West.

"Banks have been reporting lackluster demand since the Great Recession ended," said Anderson. "But they're now reporting stronger demand for commercial and industrial loans and for consumer auto and credit card loans as well."

Anderson also pointed out that in March consumer credit increased by $17.5 billion, the biggest monthly increase since February 2013.

Of the 74 U.S. banks and 23 U.S. branches of foreign banks in the Fed survey, 37 percent said demand for credit card loans from the most creditworthy borrowers had increased last year. More than half expect the trend to accelerate through 2014, while 23 percent expect demand among less creditworthy borrowers to increase as well.

Stronger demand for loans also means increased debt. A separate Fed report released Tuesday found that household debt increased 1.1 percent, or $129 billion, to $11.65 trillion, over the first quarter of 2014. This is the third consecutive quarter that debt increased, the longest streak of consecutive quarterly increases since the third quarter of 2008. The total level of debt was $419 billion higher than at the same time in 2013. It is 8.1 percent below the peak of $12.68 trillion reached in the third quarter of 2008.

The report showed increased borrowing for homes, cars and education offset a decline in credit card balances. Mortgage debt rose $116 billion, while at the same time, mortgage originations fell by $120 billion to $332 billion, the lowest level of new mortgage activity since the third quarter of 2011.

Student loan debt was up $31 billion and auto loan debt $12 billion, while credit card debt fell $24 billion and home equity line of credit balances decreased by $3 billion.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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