A bank that sets one price for all its checking account customers runs the risk of being adversely selected against by its high-balance, low-activity (and hence most profitable) customers.”

Fed Says Banks Toughen Lending Standards Amid Slump (Update3): “The Federal Reserve said more banks made it harder to borrow money as defaults and delinquencies on home loans soared and the economy faltered.

Most “domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months,” the Fed said today in its quarterly Senior Loan Officer Survey.

Funds were scarcer for homebuyers and small businesses, credit card loans became tougher to get, and even banks' best customers were subject to greater scrutiny. Tighter credit may delay any recovery in economic growth, which economists forecast will slow well into next year.”

Credit continues to tighten. SIGNIFICANTLY.

“The survey, conducted last month, covers 52 domestic banks with combined assets of $6.1 trillion, along with 21 foreign institutions. About 75 percent of U.S. banks indicated they tightened standards on prime mortgage loans, up from 60 percent in the previous survey, the central bank said.”

The only possible outcome is a MASSIVE, PROLONGED RECESSION. (Hehe, and to think, the Bulltards are buying equities in general and financials in particular as oil comes off with the naïve belief that some decrease in oil will more than offset a GLOBAL CREDIT CONTRACTION.)

“The economy is also faltering. The unemployment rate has moved up 1 percentage point during the past 12 months to 5.7 percent, while delinquencies on home loans to borrowers with weak or limited credit histories rose to 18.8 percent in the first quarter from 13.8 percent a year earlier.”

“The credit crunch is intensifying. It reinforces the view that the economy will be weak in the next several months and there will be renewed pressure on the Fed to start easing again.” -James O'Sullivan, UBS

Morgan Stanley Rating Cut by Moody's on Risk Controls (Update2): “Morgan Stanley had its long-term credit rating lowered by Moody's Investors Service, which cited the second-biggest U.S. securities firm's failed risk-management practices.

Morgan Stanley's debt was downgraded one level to A1 from Aa3, Moody's said in a statement today. Both firms are based in New York. A1 is the fifth-highest investment-grade rating.”

The long run consequences are serious.