U.S. banks saw increased demand for lending in the first quarterand made loans easier to get, according to a Federal Reservesurvey.

“Domestic banks generally reported having eased their lendingstandards and having experienced stronger demand over the pastthree months,” the Fed said today in Washington in its quarterlysurvey of senior loan officers. It said the number of banksreporting eased standards and improved demand, rather than thereverse, was “modest.”

Fed Chairman Ben S. Bernanke this month cited improving creditconditions as removing a restraint to faster growth that shouldallow the economy to “approach more quickly its longer-run fullemployment level.” In its April 25 statement, the Federal OpenMarket Committee said it expects growth to remain moderate overcoming quarters and then to “pick up gradually.”

The Fed said in its survey that banks were more likely to easethan tighten terms on business loans to firms of all sizes amidincreased competition from other banks and non-bank lenders.

Banks saw easier standards and strengthening demand forcommercial real-estate loans, a “moderate” strengthening in demandfor prime residential mortgage loans and easier standards for mosttypes of consumer loans.

“Banks are slowly loosening those strings and making credit moreavailable,” said Millan Mulraine, U.S. economic strategist for TDSecurities in New York. “We will hopefully get this positivefeedback loop between economic growth, credit flows and employmentgrowth.”

The survey of loan officers at 58 domestic banks and 23 U.S.branches and agencies of foreign banks was conducted from March 27to April 10, the Fed said. The report doesn't identifyrespondents.

The American Bankers Association, a Washington-based tradegroup, said April 5 that U.S. consumer-loan delinquencies fellacross the board in the fourth quarter as borrowers benefited fromimproving job and housing markets.

U.S. banks “reported having eased standards on credit card, autoand other consumer loans,” the Fed said today in its survey.“Demand for consumer loans reportedly continued to increase,especially for auto loans.”

The U.S. economy grew 2.2 percent in the first quarter, comparedwith 3.0 percent in the fourth quarter, according to a CommerceDepartment report last week. Gains in consumer spending were offsetby a diminished contribution from business inventories andgovernment spending that fell for a sixth straight quarter.

Financials Index

The Standard & Poor's 500 Financials Index, which tracks theperformance of 81 companies, has risen 18.4 percent this year,compared with an 11 percent increase in the broader S&P 500Index. The S&P 500 index remained lower today after the Fed'sreport. The index fell 0.6 percent to 1,394.64 at 2:44 p.m. in NewYork.

An improved environment for lending has boosted the outlook forcompanies like PNC Financial Services Inc., which this monthreported that income from its residential mortgage business gained18 percent to $230 million. Total loans grew to $164.6 billion asof March 31 from $150.1 billion at the same time last year as PNCrecorded a 23 percent increase in commercial loans.

“The economy is, I think, continuing to do a little better eachtime we look,” said Jim Rohr, PNC's chief executive officer, in anApril 18 earnings call. “We're seeing unemployment has come down,employment has gone up. We're seeing capital expendituresgrow.”

The Fed asked a special set of questions on residential mortgagelending and how standards had changed for borrowers with lowercredit scores.

“Banks reported that they were less likely than in 2006, tovarying degrees, to originate mortgages to any borrowers apart fromthose with the strongest credit profiles,” the survey said.

Mortgage rates near record lows may be helping to stabilize theU.S. housing market. The average 30-year fixed-rate mortgage was3.88 percent in the week ended April 26, according to Freddie Mac.The index reached the lowest level in 40 years in February at 3.87percent.

Mortgage rates have stayed low as the Fed's $400 billion programto swap short-term debt for longer-term debt, known as OperationTwist, has helped hold the 10-year Treasury yield near 2 percent orlower. The yield on the 10-year Treasury note fell to 1.91 percenttoday from 1.94 percent on April 27.

More Jobs

Demand for new U.S. homes was stronger than projected in March,showing more jobs and cheaper borrowing costs are helping stabilizethe market. Houses sold at a 328,000 annual rate, down from anupwardly revised 353,000 pace in February that was the highest intwo years, according to Commerce Department data last week.

Home prices in 20 U.S. cities dropped at a slower pace in theyear ended February, pointing to stabilization in the real-estatemarket. The S&P/Case-Shiller index of property values fell 3.5percent, the smallest 12-month drop since February 2011.

The Fed survey also included a special set of questions onlending to firms in Europe. Banks “reported tightening standards onloans to European banks and on loans to nonfinancial firms withsubstantial business in Europe,” the survey showed. U.S. banks also“reported increased demand owing to reduced competition fromEuropean banks.”

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