By Alister Bull

WASHINGTON, Nov 3 (Reuters) - Most U.S. and foreign banks have tightened lending standards across the board in the last three months as the economic outlook chilled and losses ate into their capital, the Federal Reserve said on Monday.
The Fed's October senior loan officers report, a closely watched survey of lending conditions that is conducted every three months, also noted that many banks had made it tougher to qualify for a prime residential mortgage or a credit card account.
"In the current survey, large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months," the Fed said.
About 85 percent of domestic banks tightened standards on commercial and industrial loans to large and medium-sized firms since July, the survey said, while 95 percent of the banks tightened the cost of credit to this key class of borrower.
Panic over massive U.S. home loan losses forced U.S. investment bank Lehman Brothers into bankruptcy in September and triggered a global credit crisis that has forced the U.S. government to pledge $700 billion to bail out its banks.
The sharp contraction in credit has crimped consumer spending and many analysts forecast that this tipped the U.S. economy into a recession in the third quarter, when growth shrank by an annualized 0.3 percent.
Banks are growing more cautious about extending fresh credit due to the gloomy prospects for the economy.
"Almost all domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards," the Fed said.
The October survey was based on responses from 55 domestic banks and 21 U.S. branches and agencies of foreign firms.
Banks have also suffered hundreds of billions of dollars in losses for bad mortgage bets, taking a big bite out of the capital they must put aside for lending and making them more risk-averse and less able to make fresh loans.
"Roughly 75 percent of foreign respondents and about 40 percent of domestic respondents noted that a deterioration in their bank's current or expected capital position had contributed to the move toward more stringent lending policies over the past three months," it added.
In addition to its usual questions, the Fed also polled banks on changes in commercial and industrial (C&I) loans and in changes to limits on credit card accounts.
The survey found that about 40 percent of domestic banks had witnessed an increase in drawings under existing C&I loans and that 65 percent of foreign banks had seen a rise.
The Fed said that 70 percent of domestic banks had tightened lending standards for prime mortgages, compared with 75 percent in the July survey. Almost 90 percent of firms tightened standards for non-traditional home loans.
The survey also found that about half of the domestic respondents had experienced weaker demand for prime mortgages.
There was a similar story for consumer credit, with 60 percent of survey participants reporting tighter terms for credit card loans. Half of the banks had lifted the minimum required credit score on credit card accounts since July.
(Reporting by Alister Bull; editing by Tom Hals) Keywords: USA FED/LOANS

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