European banks expected to tighten credit standards to curb risk

The ongoing sovereign debt crisis in Europe has threatened to derail the global economic recovery through a systematic collapse of the region's finance sector - an event that could ripple across the Atlantic and plague U.S. markets. In an effort to preempt such an incident, eurozone banks are expected to tighten their credit standards so as to to mitigate excessive risk and and high-volume investments that may lead to major losses like the ones seen leading up the 2008 financial collapse. A survey of 124 regional banks by the European Central Bank concluded the majority of lending institutions will tighten their credit decisions and standards even further during the fourth quarter. They also expect demand for both corporate and mortgage loans to fall during the finall three months of 2011. "The increase in the net tightening of credit standards reported for the third quarter of 2011 should be seen against the background of a re-intensification of the sovereign debt crisis that undermined the perceived soundness of euro area banks," Reuters reports the ECB said in its latest quarterly bank lending survey.