Fed Survey Reveals Favorable Credit Terms for Pension Funds

The Fed’s Senior Credit Officer Opinion survey shows that banks are offering more favorable credit terms to large investors in an attempt to move back towards traditional bank lending.

(July 12, 2011) – The Federal Reserve’s Senior Credit Officer Opinion survey for the second quarter of this year showed that pension funds and other large investors have received more favorable credit terms, according to a Nasdaq report.

The survey, which was released on Monday, polled 20 banks about the credit terms that they extend to various borrowers. According to Bloomberg, the Fed started issuing the survey because “a significant volume of credit intermediation has moved outside of the traditional banking sector” in the wake of the crisis.

Banks cited both a stronger market and increased competition from other lenders as reasons for the easing of terms of lending. Six of the 20 banks surveyed reported that pension funds had pushed for better financing rates.

The principal driving force behind the funds’ push for better rates was a sharp increase in demand for high-yield, high-risk corporate bonds. Meanwhile, there was little demand for more favorable equity financing, as reported by Bloomberg.

In spite of the positive changes in credit terms for investors during the previous quarter, optimism about the future remains modest. According to the report, “Looking forward over the next three months, a majority of dealers expected price and nonprice terms applicable to private pools of capital to remain basically unchanged, while one-fifth of respondents, on balance, indicated that they anticipated further easing of terms.”

Hedge funds, private-equity firms, and insurance companies are among the other investors who are enjoying the favorable terms. According to Bloomberg, these investors have been even more aggressive than pension funds in their attempts to receive better rates.

By Justin Mundt