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U.S. Lenders Wary Ahead of Euro Crisis: Survey

A third-quarter opinion survey for loan officers revealed that more financial institutions tightened their credit supply over fears that debt-ridden euro zone countries would tear apart the content's currency and expose U.S. banks to danger.

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The ""Federal Reserve"":http://www.federalreserve.gov/ polled senior loan officers from 51 U.S. banks and 22 branches for the nation's financial institutions at foreign branches for the ""_October 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices_"":http://www.federalreserve.gov/boarddocs/snloansurvey/201111/table1.pdf.

Seventy-eight percent of those polled agreed that their financial institutions tightened credit standards over economic malaise and threats to the financial services system, compared with 67 percent who dismissed questions about whether deteriorating capital positions played more of a role.

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Equal numbers of loan officers disagreed over whether their financial institutions felt less appetite for risk at about 44 percent in each category.

Twenty-two percent and 11 percent respectively agreed ""somewhat"" and ""very strongly"" that industry-specific problems caused their institutions to downsize their lending habits over the third quarter.

The Fed nonetheless reported that refinancing activity drove up healthy numbers for residential loan demand, which outran weak demand for the first time since 2010, largely among smaller community banks.

Notably, responses to questions about exposure to the European debt crisis portrayed the banking industry as wary and watchful, as about two-thirds of all respondents with U.S. banks and their affiliates overseas reported tightening credit in preparation for toxic assets and sovereign defaults.

""Paul Dales"":http://www.capitaleconomics.com/staff/global-economics/paul-dales.html, a senior U.S. economist with consultancy ""Capital Economics"":http://www.capitaleconomics.com/, called it ""encouraging"" that only 35 percent of senior loan officers with U.S. financial institutions reported possessing more than 5 percent of loans with significant exposure to credit and debt in Europe.

""US [sic] banks are not immune to the events in Europe,"" he wrote in a note. ""But at least they appear to be taking steps to protect themselves from any illiquidity and solvency issues that would be trigged by a sovereign debt default or the break-up of the euro-zone.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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