The Federal Reserve Board’s Senior Loan Officer Opinion Survey has just been published. This is an important document for assessing to what extent credit markets are thawing and confidence is returning to the financial system. The analysis below is a guest contribution by Asha Bangalore*, vice president and economist at The Northern Trust Company.

The number of loan officers reporting a tightening of underwriting standards for commercial and industrial loans in the April survey was significantly smaller for large firms (39.6% vs. peak of 83.6% in the fourth quarter) and small firms (42.3% vs. peak of 74.5% in the fourth quarter) compared with the February survey and the peak readings of the fourth quarter of 2008 (see chart 1).

At the same time, the cost of borrowing for both small and large firms declined in the April survey from the peak in the fourth quarter of 2008.

Although the terms of loans eased in the recent months, the demand for loans remained weak (see chart 3), reflecting the massive liquidation of inventories that is underway. In particular, the demand for loans was essentially unchanged at a weak level for large firms but was weaker with respect to demand from small firms (see chart 3).

The commercial real estate sector is mired with problems.