Banks saw easier standards and strengthening demand for commercial real-estate loans, a “moderate” strengthening in demand for prime residential mortgage loans and easier standards for most types of consumer loans.

“Banks are slowly loosening those strings and making credit more available,” said Millan Mulraine, U.S. economic strategist for TD Securities in New York. “We will hopefully get this positive feedback loop between economic growth, credit flows and employment growth.”

The survey of loan officers at 58 domestic banks and 23 U.S. branches and agencies of foreign banks was conducted from March 27 to April 10, the Fed said. The report doesn't identify respondents.

The American Bankers Association, a Washington-based trade group, said April 5 that U.S. consumer-loan delinquencies fell across the board in the fourth quarter as borrowers benefited from improving job and housing markets.

U.S. banks “reported having eased standards on credit card, auto and other consumer loans,” the Fed said today in its survey. “Demand for consumer loans reportedly continued to increase, especially for auto loans.”

The U.S. economy grew 2.2 percent in the first quarter, compared with 3.0 percent in the fourth quarter, according to a Commerce Department report last week. Gains in consumer spending were offset by a diminished contribution from business inventories and government spending that fell for a sixth straight quarter.

Financials Index

The Standard & Poor's 500 Financials Index, which tracks the performance of 81 companies, has risen 18.4 percent this year, compared with an 11 percent increase in the broader S&P 500 Index. The S&P 500 index remained lower today after the Fed's report. The index fell 0.6 percent to 1,394.64 at 2:44 p.m. in New York.

An improved environment for lending has boosted the outlook for companies like PNC Financial Services Inc., which this month reported that income from its residential mortgage business gained 18 percent to $230 million. Total loans grew to $164.6 billion as of March 31 from $150.1 billion at the same time last year as PNC recorded a 23 percent increase in commercial loans.

“The economy is, I think, continuing to do a little better each time we look,” said Jim Rohr, PNC's chief executive officer, in an April 18 earnings call. “We're seeing unemployment has come down, employment has gone up. We're seeing capital expenditures grow.”

The Fed asked a special set of questions on residential mortgage lending and how standards had changed for borrowers with lower credit scores.

“Banks reported that they were less likely than in 2006, to varying degrees, to originate mortgages to any borrowers apart from those with the strongest credit profiles,” the survey said.

Mortgage rates near record lows may be helping to stabilize the U.S. housing market. The average 30-year fixed-rate mortgage was 3.88 percent in the week ended April 26, according to Freddie Mac. The index reached the lowest level in 40 years in February at 3.87 percent.

Mortgage rates have stayed low as the Fed's $400 billion program to swap short-term debt for longer-term debt, known as Operation Twist, has helped hold the 10-year Treasury yield near 2 percent or lower. The yield on the 10-year Treasury note fell to 1.91 percent today from 1.94 percent on April 27.

More Jobs

Demand for new U.S. homes was stronger than projected in March, showing more jobs and cheaper borrowing costs are helping stabilize the market. Houses sold at a 328,000 annual rate, down from an upwardly revised 353,000 pace in February that was the highest in two years, according to Commerce Department data last week.

Home prices in 20 U.S. cities dropped at a slower pace in the year ended February, pointing to stabilization in the real-estate market. The S&P/Case-Shiller index of property values fell 3.5 percent, the smallest 12-month drop since February 2011.

The Fed survey also included a special set of questions on lending to firms in Europe. Banks “reported tightening standards on loans to European banks and on loans to nonfinancial firms with substantial business in Europe,” the survey showed. U.S. banks also “reported increased demand owing to reduced competition from European banks.”

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