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Banks Ease Lending Standards for First Time in 4 Years

The Federal Reserve says banks have eased their lending standards for small businesses for the first time in nearly four years.

In its new survey of bank lending practices, the Fed found that the easing in loan standards was occurring primarily at the country's largest domestic banks, while many smaller banks continued to struggle.

The Fed says it's the first time it had found easier lending standards being imposed on small businesses since late 2006. The Fed defines small firms as those with annual sales of less than $50 million.

Banks had been reporting relaxed credit standards for big corporations.

But the new survey marked the first indication that credit was beginning to ease for smaller companies.

Demand for business and consumer loans, however, was largely unchanged.

A special question added to the quarterly Senior Loan Officer Survey, taken in July, also found some reticence to lend to European banks during months that saw heightened concern about those institutions amid mounting indebtedness in countries like Greece and Spain.

The survey also found less restrictive lending conditions for most types of commercial and industrial loans.

In a ray of hope for the beleaguered real estate sector, the Fed found that large banks were more eager to provide credit for home loans. No major changes were observed with regards to loans for commercial real estate.

The Fed held a conference on the problem of tight credit to small businesses last month. Federal Reserve Chairman Ben Bernanke noted a serious gap between large corporations who are building up cash and reporting strong earnings and the thousands of small businesses who are struggling to get credit.

Bernanke said banking regulators were applying pressure to get more credit flowing to small businesses, who hire more than half of American workers.

"Making credit accessible to sound small businesses is crucial to our economic recovery," Bernanke had said at the July 12 conference.

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