I didn’t see much to cheer about in the Federal Reserve’s April 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices, which was released on Monday. Unlike The Wall Street Journal, I might add.

The Senior Loan Officer Survey is an interesting data dump from the Fed. It doesn’t measure actual credit activity as it does the background underwriting and pricing of lending in the U.S. So, instead of tabulating how many loans were made, the Senior Loan Officer Survey tells us whether those loans were made under stricter or more lenient underwriting terms since the last survey. Think of it as the lenders’ equivalent of the University of Michigan Survey of Consumer Sentiments.

According to the Fed, “the net percentages of respondents that reported having tightened their business lending policies over the previous three months, although continuing to be very elevated, edged down for the second consecutive survey.” I came to an even more downbeat conclusion.

The survey found that 40% of the banks surveyed tightened standards on commercial and industrial loans, a smaller percentage than the 65% that said in January that they tightened standards. But the fact is four out of every 10 banks tightened their C&I underwriting more after consecutive surveys which showed that notable portions of the banking industry tightening their underwriting. To me, the real story is that lenders started tightening underwriting last fall, and have continued to tighten that screw through April.

You have to look at the survey data historically to get a full sense for what I am saying:

TIGHT AND TIGHTER

Notice how the percentage of respondents who are tightening underwriting continues to remain elevated. Once a lender tightens its underwriting, it has to tighten it again, in order to vote “yes” in the Senior Loan Officer Survey. But this idea is lost on the Wall Street Journal. Under the headline, “Fewer Banks Are Tightening Their Lending Standards,” the Journal wrote:

Although credit conditions remain strained, an April survey of loan officers by the Federal Reserve found a smaller number of banks were tightening loan standards compared with a few months ago.

“The April survey marks the first time since January 2008 that the proportion of banks reporting such tightening fell below 50%,” the central bank said.

I don’t see the Monday report as offering the kind of good tidings that the WSJ implies. Instead, bankers continue to view borrowers with great skepticism and they are pricing their loans as such. The WSJ may have gotten its facts straight, but its context was off.