MBS RECAP: 11/7/2011


(Reuters) – About one-half of top U.S. banks surveyed by the Federal Reserve reported making loans or extending credit to European banks, which are under massive pressure from an ongoing political crisis.

The findings from a quarterly lending poll suggested that the U.S. banking system faces significant risks from Europe, despite relatively small direct exposure to the troubled sovereign bonds of southern European states like Greece.

“About one-half of domestic bank respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries, and about two-thirds of the foreign respondents indicated the same,” the U.S. central bank said in its Senior Loan Officer Survey published on Monday.

Of the domestic banks, about two-thirds reported having tightened standards on loans to European financial institutions in the third quarter, many considerably.

The Fed’s report was part of a wider quarterly survey on lending standards in the United States, which found fewer domestic banks loosened terms for corporate and industrial loans, another sign that growth will remain tepid.

In one bright spot, in the battered U.S. housing sector, reports of stronger mortgage demand outnumbered those of weaker demand for the first time since early 2010.

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