Your Money Adviser: Starting to Build a Credit History

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Bits Blog: AT&T Offers Customers Credit for Leaving T-Mobile

S.&P. Cuts European Union’s Credit Rating

The agency removed the bloc’s top-level AAA long-term credit rating, lowering it one level to AA+, citing “the overall weaker creditworthiness of the E.U.’s 28 member states.”

On Friday afternoon, S.&P. issued a clarification, emphasizing that the downgrade applied only to the European Union’s borrowing as a supranational body and that the move had no effect on individual member states.

The timing of the announcement was inauspicious, coming on the last day of a meeting of European Union officials and heads of state, whose capstone achievement was an agreement for the creation of a European system for winding down failed banks. That plan, despite limits that critics have been quick to point out, was supposed to demonstrate the bloc’s commitment to building a banking union, locking member states into an ever-tighter economic embrace.

S.&P. was apparently unconvinced. “We believe the financial profile of the E.U. has deteriorated, and that cohesion among E.U. members has lessened,” it said in explaining the downgrade. The firm also pointed to disputes over the European Union’s budget and to Britain’s plan for a referendum on remaining in the European Union as signs that solidarity was under strain.

The European Union’s borrowings of 56 billion euros, or $76 billion, are separate from those of member states and from finance programs like the European Financial Stabilization Mechanism and the European Atomic Energy Community. The ratings agency said 80 percent of the borrowing was currently extended to Portugal and Ireland, a legacy of the sovereign bailouts.

The European Commission, the executive arm of the union, took umbrage. “The commission disagrees with S.&P. that member states’ obligations to the budget in a stress scenario are questionable,” Olli Rehn, the commissioner for economic and monetary affairs, said in a statement. “All member states have always, and also throughout the financial crisis, provided their expected contributions to the budget in full and in time.”

S.&P. denied any link between the downgrade and the announcement of the banking resolution deal. Rather, it said it was a result of the falling credit scores of member states since it first put the bloc’s rating on review at the beginning of 2012 and delays and debate over the European Union’s budget.

Christian Schulz, an economist at Berenberg Bank in London, wrote in a note that the ratings downgrade “is largely symbolic as the E.U., at least in the grand scheme of things, does not borrow much.”

Investors, for their part, chastened by the ratings agencies’ blessing of financial dross during the credit bubble, have ignored many S.&P. decisions in recent years, and there was no market impact on Friday.

Credit Card Use Falls; Borrowing for Cars and School Rises

Consumers increased their borrowing by $10.4 billion in July from June to a record of $2.85 trillion, the Federal Reserve said on Monday. That followed a gain of $11.9 billion in June.

A category that includes auto loans and student loans increased $12.3 billion in July to a record $2 trillion. But a measure of consumers’ credit card debt fell by $1.8 billion to roughly $850 billion. That followed a $3.7 billion decline in the credit card category in June.

July consumer borrowing illustrated economic trends that have surfaced since the recession: Americans are using credit for their most urgent needs, while forgoing debt for discretionary purchases.

The auto and student loan category was up 8.1 percent from a year earlier and rose in every month but one since May 2010. But credit card debt has barely changed in the last year and was nearly 17 percent below its peak, in July 2008, seven months into the recession.

Slow job growth and small wage gains have made many Americans more reluctant to charge goods and services. That could restrain consumer spending, which accounts for 70 percent of economic activity. Americans may also be hesitant to take on more high-interest debt because of higher Social Security taxes.

At the same time, the weak economy is sending more people back to school. The Federal Reserve’s consumer credit report does not separate student loans and auto loans. But the Federal Reserve Bank of New York quarterly report on consumer credit shows student loan debt has been the biggest factor in borrowing increases since the recession officially ended in June 2009.

Economists expressed hope that as the impact of higher Social Security taxes fades, consumer spending will strengthen in the second half of this year. That forecast also counts on steady job growth to bolster income gains and support higher spending.

But some forces continue to restrain growth, including thousands of federal furloughs, which depressed income growth in July. And job growth has been weaker than first thought.

The Fed’s borrowing report tracks credit card debt, auto loans and student loans but not mortgages, home equity loans or other loans secured by real estate.

S.&P. Calls Federal Fraud Suit Payback for Credit Downgrade

Standard & Poor’s on Tuesday denounced a $5 billion fraud lawsuit by the United States government as retaliation for its 2011 decision to strip the country of its AAA credit rating.

The McGraw Hill Financial unit of S.& P. was the only major credit rating agency to remove the United States’ top rating, and the only one the Justice Department sued over claims of misleading banks and credit unions about the credibility of its ratings before the 2008 financial crisis.

In a filing on Tuesday in Federal District Court in Santa Ana, Calif., S.& P. said that the lawsuit was an effort to punish it for exercising its First Amendment rights and that the suit seeks “excessive fines” in violation of the Eighth Amendment.

It said the government’s “impermissibly selective, punitive and meritless” lawsuit was brought “in retaliation for defendants’ exercise of their free-speech rights with respect to the creditworthiness of the United States of America.”

A Justice Department spokesman declined to comment.

S.& P. seeks the dismissal of the lawsuit, which in July, Judge David Carter of Federal District Court allowed to go forward, with prejudice, meaning that it cannot be brought again. The August 2011 downgrade of the United States’ credit rating to AA-plus from AAA reflected concern about the federal government’s ability to address the nation’s swelling debt.

The government’s Feb. 4 lawsuit accused S.& P. of inflating ratings to win more fees from issuers, and failing to downgrade ratings for collateralized debt obligations despite knowing they were backed by deteriorating residential mortgage-backed securities.

In Tuesday’s filing, S.& P. estimated that more than $4.6 billion of the losses it claims might have resulted from collateralized debt obligations that were structured, marketed or sold by Bank of America or Citigroup. It also said more than $1 billion came from debt that had never been issued.

S.& P. also said the government lacked authority to sue under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, because no federally insured financial institutions had been affected by violations.

The government has in recent months made more use of that act, which was passed after the 1980s savings and loan crisis, in part because it has a lower burden of proof and a longer statute of limitations than other laws.

Your Money: An $18 Million Lesson in Handling Credit Report Errors

That indifference should surprise no one who has ever tried to deal with any of the three big credit reporting agencies, Equifax, TransUnion and Experian. “You feel trapped, like you are in a box,” said Ms. Miller, a 57-year-old nurse who works in a dermatologist’s office. “You have no control over this, and you can’t call them up and say, ‘You’re fired.’ ”

So she tried suing. That worked.

A jury in Federal District Court in Portland, Ore., last week awarded her a whopping $18.4 million in punitive damages, which, according to consumer lawyers, is the largest individual case on record.

If you think this has taught Equifax and the other credit reporting companies a lesson, you are a lot more optimistic than close observers of the industry. They say that despite the huge judgment, little is going to change for the millions of Americans who discover errors in their credit reports.

The credit bureaus are willing to tolerate these errors — and settle with consumers out of court — as a cost of doing business, according to credit experts and lawyers who work on these cases.

“Their business model is to keep doing the same thing over and over again,” said Justin Baxter, the lead lawyer on Ms. Miller’s case. “They can buy off a number of consumers with small dollar amounts and get rid of the vast majority of cases. To Equifax, that’s the cost of doing business.”

Ms. Miller made every effort to fix her report, exactly as consumers are advised to do. She initiated the company’s dispute process about seven times, and in most instances, Equifax would spit back a form letter saying it needed more proof of her identity. So she sent her pay stub and her phone bill. When that didn’t work, she sent her pay stub and her driver’s license. And when that failed, she sent her W-2 form and an insurance bill — at least three times.

But nothing ever changed: Ms. Miller, a model financial citizen who once had the credit score to prove it, had become mixed up with another, much less creditworthy Julie Miller. After she was denied a line of credit from KeyBank, she discovered 38 collection accounts on her credit report, none of which belonged to her, along with an inaccurate Social Security number and birth date. Her financial life was no longer her own.

Mixed files, as they are known in the credit industry, most frequently involve people who share common names with individuals who have similar Social Security numbers, birth dates or addresses. These errors are notorious for being among the most difficult to fix, credit experts said, and require human intervention to untangle the mess. But given the huge number of disputes, the process to address them is largely automated. And that is the excuse the industry advances to consumers who get stuck in its web.

The bureaus often outsource thousands of disputes daily to workers overseas. Those workers, often overwhelmed by the sheer volume of cases, are largely told to translate the problem into a two- or three-digit code that defines the gist of the problem (account not his/hers, for instance) and feed it into a computer.

But that process won’t untangle a mixed credit report. The reason files become mixed to begin with can be traced back to the computer formula the bureaus use to match credit data to a specific person’s credit report. It allows credit data, say a late payment on a credit card, to be inserted into a person’s file even if the identifying information isn’t an exact match. In other words, the system might add a late payment to the credit report of someone like Julie Miller even if the Social Security number is off by two digits or a birth date is off by two years, but enough of the other identifying information matches. That’s roughly what happened to Ms. Miller.

Partial matches aren’t always wrong, of course. Solid estimates on the number of mixed files are hard to find, though a 2004 study from the Federal Trade Commission said that partial matches occurred in about 1 to 2 percent of credit files, citing data from the bureaus. That might not sound like much, but when you consider that there are 200 million individuals with credit files at each of the big three bureaus, that translates to two million to four million consumers.

Kitty Bennett contributed reporting.

China’s Credit Squeeze Relaxes as Interest Rates Drop

China’s central government made no official announcement on the situation, and it remained unclear whether policy makers had intervened, but short-term interest rates fell sharply Friday from the day before, when they had reached some of the highest levels in a decade.

Still, rates for Chinese institutions seeking interbank financing on Friday were substantially higher than they had been a few weeks ago.

Financial experts said they expected the higher interest rates to persist for some time because the Chinese government appeared to have abandoned its longstanding policy of responding to any hint of an economic slowdown by expanding credit. Analysts say the government is holding back because it is determined to rein in excess credit expansion and avert a financial crisis that could result from years of poor lending practices and overinvestment. There are also hints that a huge shadow banking operation in China could be masking more serious financial risk-taking.

“The government at the moment wants to signal, we’re working on reform; we’re not interested in short-term stimulus, like China did in the past,” said Louis Kuijs, the chief China economist at the Royal Bank of Scotland.

The government’s reluctance to increase bank liquidity is troubling investors because of concerns that China’s economy is weakening much faster than expected.

Economists in China cut their growth forecasts sharply in the last week, though projections remain robust at 7 percent. Prices of Chinese shares plunged on the Shanghai and Shenzhen stock markets, ending one of the worst weeks in four years.

Joe Zhang, a longtime banker and the author of “Inside China’s Shadow Banking: The Next Subprime Crisis?,” said the apparent decision by the central bank to discipline banks by allowing rates to rise this past week was necessary.

“Effectively, they’re telling commercial banks to go and sort out their problems,” Mr. Zhang said by telephone on Friday. “The banks have lent out too much money. And what happens over time? You go from prime to subprime to silly loans. This is what happened with the U.S. subprime crisis. Banks start lending to bad projects. We’ve been too reckless.”

Determined to shore up defenses in a financial system that now underlies the world’s second-largest economy after the United States, China’s top leaders are slowing the flow of the fuel that has helped foster many of the risks: credit from state-run banks.

For much of the last decade, when the economy has slowed, Beijing has pressed state-owned banks to lend more aggressively.

But when interbank lending tightened this month — after aggressive lending early in the year — the central bank refrained from adding liquidity to the market, which would have kept short-term interest rates low.

As credit markets began to freeze up and mistrust among banks spread, rumors circulated of defaults. Late Thursday, the Bank of China, one of the country’s biggest lenders, was forced to issue a statement on its Web site denying local news reports that it had defaulted on interbank payments.

By late Friday, the markets had settled somewhat. The overnight lending rate between banks had dropped to 8.49 percent, down from a record-high fixing of 13.44 percent on Thursday, but still much higher than last month’s levels of less than 4 percent.

The situation remains volatile. Another benchmark rate for bank-to-bank borrowing costs, the seven-day repurchase rate, opened Friday at 8.1 percent, briefly soared as high as 25 percent and closed at 5.5 percent.

“Persistent tight liquidity conditions in China’s financial sector could constrain the ability of some banks to meet upcoming obligations on maturing wealth management products on a timely basis,” the credit ratings agency Fitch Ratings said in a report. Wealth management products are instruments sold to investors through banks and trust funds but do not appear on the financial companies’ balance sheets.

Referring to wealth management products, Fitch went on: “Issuance of new products, and borrowing from the interbank market, are among the most common sources of repayment for maturing W.M.P.’s, and the recent interbank liquidity shortage complicates both.”

Neil Gough contributed reporting from Hong Kong.

Employers Pull Applicants’ Credit Reports

He been laid off early in the recession and then had the bad fortune of tearing tendons in his knee just when he didn’t have health insurance. The job market was terrible and he had been out of work for more than a year. But the managers at the first two shoe stores to which he applied in the summer of 2010 seemed to be taken by his résumé. He had sold shoes for six years at Salvatore Ferragamo on Fifth Avenue and later at J. M. Weston, where a pair of men’s dress shoes can cost $2,000. The manager at one shop was already discussing salary. The other, he said, invited him to fill out the paperwork normally done on the first day on a job.

“Who does that if they’re not planning on hiring you?” Mr. Carpenter asked.

Yet neither job materialized. One manager, he said, “basically hung up on me.”

A friend at Bergdorf Goodman, the high-end clothier, secured him an interview for an opening in the shoe department. But when Mr. Carpenter confided to his friend that his finances were a mess, “he tells me, ‘Oh, you’ve got bad credit? They’ll never hire you.’ ” Sure enough, a week or two later, Mr. Carpenter said, he received a notice from Bergdorf informing him that while running a credit check, the store found information that played a role in its hiring decision. It was a so-called adverse action letter that by law a business conducting a credit report is supposed to send to an applicant.

Mr. Carpenter kept applying for jobs and kept checking off the box granting his would-be employer permission to look into his past. And he kept being turned down. There was the recession and there may have been dozens of applicants for each of these jobs. But while Bergdorf was the only company to follow up a job rejection with an adverse action letter, Mr. Carpenter became convinced that his credit report was a curse.

“No one lets me explain, ‘Hey, I had this freak injury when I didn’t have health insurance,’ ” he said. “It’s black and white: ‘You have these bad marks on your record, you don’t get hired.’ ” Down to his last $200, he applied for and was granted food stamps and federal housing assistance.

“There’s no reason,” he said, “a strong, able guy like me should have to go on welfare.”

PEOPLE tend to think of banks and other lenders as the main users of credit reports. But over the last several decades, credit reporting bureaus have been selling their services to a much wider range of buyers.

“Credit reports are really seeping into the soil,” said Sarah Ludwig, co-director of the Neighborhood Economic Development Advocacy Project, a New York-based nonprofit. “It’s taken an outsized role in employment, housing and insurance.”

For those seeking a job, it can lead to what Chi Chi Wu, a staff lawyer at the National Consumer Law Center in Boston, calls “a bizarre, Kafkaesque experience.”

“Someone loses their job,” Ms. Wu said, “so they can’t pay their bills — and now they can’t get a job because they couldn’t pay their bills because they lost a job? It’s this Catch-22 that makes no sense.” It can also be a kind of backdoor job discrimination, Ms. Wu contends, given the numerous studies that demonstrate that those black, Latino or simply poor are more likely to have lower credit scores than those who are white and have means.

Experian, one of the big three credit reporting bureaus, states in its marketing materials, “Credit information provides insight into an applicant’s integrity and responsibility toward his or her financial obligations.”

But to Ms. Wu and others, a credit report says more about a person’s economic circumstances than his or her moral character. “Some people can go to daddy and say, ‘I can’t pay my bills, will you bail me out?’ ” Ms. Wu said. “And others can’t.”

Nearly half — 47 percent — of employers use credit checks when making a hiring decision, according to a 2012 survey by the Society for Human Resource Management. Most businesses use credit checks only to screen for certain positions, but one in eight, the survey found, does a credit check before every hire. “We’ve heard from dozens of people over the past several years who say they’re being denied jobs specifically because of a credit check,” Ms. Ludwig said. The people contacting her group, she said, are “mostly lower-wage workers,” especially those applying to big retail chains.

Bucks Blog: Nuances of Credit Scoring Still Elude Consumers

Consumers still have many misunderstandings about the details of credit scoring, like the impact of having several inquiries on their report around the same time, according to the Consumer Federation of America.

The federation and VantageScore Solutions, creator of a score that competes with the heavily used FICO score, commissioned a survey to gauge the public’s understanding of credit scoring and the factors that affect a credit report.

A credit score is a three-digit number, based on information in your credit report, that lenders use to help gauge the risk of lending you money. Both FICO, the most widely used scoring model, as well as the newest version of the competing Vantage score, use a range from 300 to 850 — the higher the score, the lower the risk. (Earlier versions of the Vantage score use a range of 501 to 990.)

Just 7 percent of those surveyed knew that making several inquiries about a consumer loan, like a car loan or mortgage, in a short period of time won’t lower a borrower’s credit score. In fact, consumers should check multiple lenders to be sure they are getting the best rate, Stephen Brobeck, the federation’s executive director, said in a telephone briefing about the findings. This misunderstanding may hamper comparison shopping for interest rates, and end up costing consumers extra on their loans, he said.

Generally, multiple similar inquiries within a one- to two-week period are recognized as comparison shopping, so they count as one inquiry and don’t greatly affect your score, he said. Even if the inquiries span more than two weeks, it’s generally worth the effort because the potential savings outweigh a minor impact on your score, he said. “Consumers should not worry that comparison shopping for a loan in a week or two will lower their scores,” he said.

It’s a different situation, however, if you apply for multiple store credit cards in a short period of time. Such inquiries are clearly separate applications for credit, and may be detrimental to your score, said Barrett Burns, president and chief executive of VantageScore Solutions.

Consumers were also uninformed about the impact of co-signing for a student loan for a child.  About a third didn’t know that even one late payment could harm the credit score of the loan’s co-signer.

Consumers were also not aware of the relative cost of having a low credit score. About 80 percent underestimated, for example, the increase in interest costs due to a low credit score when taking out a $20,000, 60-month auto loan. (The correct answer, according to a quiz offered by the federation, is that a person with a low score will pay around $5,000 more than a person with a high score.)

To see how much you know about credit scores, and how to improve them, answer the questions at creditscorequiz.org. The updated quiz covers many of the questions asked in the survey.

The telephone survey of 1,022 adults, including both land lines and cellphones, was conducted by ORC International on April 25 through 28. The margin of sampling error is plus or minus 3 percentage points. (The survey results can’t be compared with prior years’ surveys because of a change in methodology, including the addition of cellphones to the survey sample.)

The federation offers these tips for maintaining a healthy credit score: pay your bills on time each month; don’t put the maximum amount on your credit cards; pay down debt, rather than just moving it around to new cards; check your credit reports for potential errors. You can check them free at annualcreditreport.com.

Were you aware that comparison shopping for rates won’t harm your credit score?

Your Money: VantageScore Ignores Paid Collections in Setting a Credit Score

But the old bill, which she ultimately paid, had gone to collections and showed up as black mark on her otherwise clean credit report. Ms. Barringer said she found out about it only when she applied for a mortgage last month and got an interest rate that was half a percentage point more than it would otherwise have been. As a result, she is paying an extra $94 a month on the $298,000 loan she took out on a three-bedroom ranch in Dallas, adding up to tens of thousands of dollars over the life of her 30-year fixed-rate mortgage.

And it was all because the doctor didn’t contact Ms. Barringer, an elementary school assistant principal, in a timely manner to let her know that she had mistakenly handed over her dental insurance card.

“I have always paid my bills on time and I put myself through school and have not had any kind of credit issues,” said Ms. Barringer, a single mother of twin 8-year-old boys. “If they want to punish somebody, does it really need to be on your report for seven years if you have not had credit problems and you pay it off? It just seems a little much.”

Credit scores try to capture your financial behavior and distill that identity into one all-powerful number. But that figure doesn’t differentiate between people like Ms. Barringer, whose credit suffered for an innocuous reason, and consumers who can’t keep up with their credit card payments after a wild shopping spree at Best Buy.

But now, at least one major credit score generator, VantageScore Solutions, has decided to ignore collection actions on credit reports — more than half of which are typically tied to medical debts — as long as the collections are paid. The change is not being made out of sympathy for people like Ms. Barringer. Instead, the company found that paid collections are less accurate at predicting future defaults than looking at unpaid collections in combination with a variety of other factors, like the age of consumers’ accounts and the size of their loans.

“There was no intentional decision to exclude a piece of behavior,” said Sarah Davies, senior vice president of analytics, research and product management at VantageScore Solutions, a joint venture of the three major credit reporting companies. “It was just about what was most predictive.”

VantageScore’s findings would also seem to lend support, at least indirectly, to proposed legislation that was reintroduced in Congress this year to require consumer reporting agencies to remove fully paid or settled medical debt information from consumers’ credit reports within 45 days of the debt’s resolution.

That sort of fix could potentially help some of the estimated seven million people who reported that a billing error prompted a collection agency to contact them in 2012, according to an April study by the Commonwealth Fund, a private foundation that researches health policy issues.

“While it doesn’t seem like an isolated collection account should have a significant impact on your scores, it can,” said Gerri Detweiler, a credit expert with Credit.com who supports the legislation. “We’ve heard from so many people over the years who thought that paying a collection account would help their credit scores. They were shocked to learn it didn’t. It feels terribly unfair to consumers not to feel like they are getting credit for doing the right thing.”

The VantageScore plays second fiddle to the FICO credit score, which is more widely used by lenders and continues to consider all collections valued at more than $100. So it’s unclear how many consumers the formula change will help. And ignoring paid collections does little for the millions of people who cannot afford to pay their medical debts because they are underinsured, uninsured or simply can’t keep up with the growing amounts their health insurance policies require them to pay. Among people who reported having trouble paying their medical bills, 32 million, or 42 percent, said they received a lower credit rating as a result of unpaid medical bills, Commonwealth found. And an estimated 28 million, or 37 percent, said they used all of their savings because of their bills, whereas 20 million, or 27 percent, took on credit card debt.

Even someone with a spotless credit history can fall into a downward spiral with just one hospital stay. “It is easy to point to someone who has run up their debt when it has to do with consumer spending,” said Mark Rukavina, former executive director of the Access Project and now a principal at Community Health Advisors, a Boston-based firm that consults with nonprofit hospitals. “But it is harder to say that about somebody that is dealing with illness and injury.”

The Consumer Financial Protection Bureau, which oversees both the major credit reporting agencies and debt collectors, has acknowledged that medical debts are a problem. Richard Cordray, the agency’s director, has said that consumers who have medical collections reported on their credit file can face a harder time getting a loan — or even a job, since some employers now look at prospects’ credit reports. And the agency has gone so far as buying its own batch of anonymous credit reports so that it can study how medical debts affect consumers, as well as to better understand the degree to which paid medical collection items predict defaults. But it remains to be seen what sort of action, if any, it will take.

The big question is whether FICO’s scoring strategy will eventually ignore paid collections, too, since that would have a much broader effect. A spokesman said that its scoring technique did not distinguish between paid and unpaid collections, though it began ignoring all collections for amounts under $100 when it introduced the latest iteration of its score in January 2009. All other types of reported collections are considered “as a derogatory because as a category they have proven to be strong indicators of credit risk,” the company said in a statement. “To ignore data that has been proven to be highly predictive of a person’s ability to repay a debt would not be in the best interest of consumers or lenders.”

Credit Rating Agencies Settle Lawsuits Over Debt Vehicles

The lawsuits had accused Moody’s, a unit of Moody’s Corporation, and S.& P., a unit of McGraw-Hill Companies, of negligent misrepresentation over their activities regarding the Cheyne and Rhinebridge structured investment vehicles.

Morgan Stanley, which marketed both debt vehicles and helped structure the Rhinebridge one, also settled.

Settlement terms were not disclosed in the cases, which had been brought in 2008 and had sought more than $700 million of damages. Both lawsuits were dismissed with prejudice, meaning they cannot be brought again.

Spokesmen for Moody’s, McGraw-Hill and Morgan Stanley confirmed their companies’ settlements on Friday.

“This settlement allows us to put the significant legal defense and related costs, as well as the distraction, of these very protracted litigations behind us,” said a Moody’s spokesman, Michael Adler.

A spokesman for McGraw-Hill, Jason Feuchtwanger, said the company’s settlement involved no admission of wrongdoing.

Lawyers for the plaintiff investors did not immediately respond to several requests for comment.

A trial in the Cheyne case had been scheduled for May 6 before United States District Judge Shira Scheindlin in Manhattan, who oversaw both lawsuits.

Credit rating agencies have been accused by investors, regulators and politicians of inflating the ratings of risky mortgage-backed and structured securities in a bid to win new business.

Critics said these activities also fueled demand from investors who thought the ratings were objective, but prices collapsed once the risks materialized, helping incite the 2008 global financial crisis.

S.& P. still faces the Justice Department’s $5 billion civil fraud lawsuit filed in February over its ratings, the government’s first major postcrisis action against a credit rating agency. S.& P. is trying to dismiss that case.

DealBook: Barclays and Credit Suisse Post Strong Earnings in Investment Banks

Darren Staples/ReutersBarclays’ investment bank benefited partly from a bullish stock market performance in America.

LONDON — As European policy makers push financial institutions to cut back on their risky trading activity, some of the region’s largest banks are becoming more reliant on their investment banking operations to bolster performance.

On Wednesday, the British bank Barclays and a Swiss rival, Credit Suisse, both reported strong first-quarter earnings for their investment banks that helped to offset some sluggish growth in other divisions like retail banking and wealth management.

The healthy performance comes despite a push by European politicians to limit firms’ exposure to financial risks and to promote lending to local economies.

New tougher capital requirements have forced European banks to shed billions of dollars of assets since the financial crisis began. A proposed cap on banker bonuses that will become effective at European institutions next year has led to fears of a mass exodus of firms’ top earners to international competitors.

The two banks’ first-quarter earnings reflected the strength of investment banking.

Barclays’ quarterly pretax profit for its investment bank rose 11 percent, to £1.3 billion, or $2 billion, or roughly 74 percent of the company’s combined pretax profit over the period.

Over all, Barclays’ quarterly profit, when adjusted for one-time charges, was £1.8 billion, down 25 percent from the same period last year, which missed analysts’ estimates. The fall was linked to £514 million ($784 million) of costs related to a restructuring that includes 3,800 layoffs and a £235 million ($359 million) charge connected to the value of the bank’s debt.

Barclays’ investment bank benefited from renewed deal activity and a bullish stock market performance in the United States, where it now generates around 50 percent of its revenue. For example, the bank is advising Dish Network on its proposed $25.5 billion takeover of Sprint Nextel. “The reality is that investment banking is becoming more dominant for Barclays,” said Ian Gordon, a banking analyst at Investec in London. “The first quarter was a blowout performance.”

At Credit Suisse, pretax profit in its investment banking division rose 43 percent, to 1.3 billion Swiss francs, or $1.4 billion, partly driven by a strong performance in the bank’s fixed-income sales and trading business. In contrast, earnings from the company’s private banking and wealth management business fell 7 percent, to 881 million francs, over the same period.

Credit Suisse reported a net profit of 1.3 billion francs ($1.4 billion) in the first quarter, compared with a profit of 44 million francs ($47 million) in the same period last year, when the bank booked a loss of 1.6 billion francs ($1.7 billion) on the value of its own outstanding debt.

Analysts said the bank’s strong earnings were a result of a cost-cutting program started by the chief executive, Brady W. Dougan. The company’s investment banking division also benefited from a pickup in global stock markets in the first three months of the year.

“The investment bank was the main driver with impressive cost management,” Kian Abouhossein, a banking analyst at JPMorgan Chase in London, said in a research note to investors.

Shares in Barclays fell 1.3 percent in London on Wednesday, while Credit Suisse’s stock price rose 1.5 percent in Zurich.

Attention will now turn to other large European banks that will report their first-quarter earnings over the next few weeks.

Deutsche Bank, the largest bank in Germany and one with a major investment banking division, will announce its results on Tuesday, as will the Swiss banking giant UBS. Analysts are expecting a fall in UBS’s first-quarter net profit as the company continues to carry out sharp reduction in its investment bank, which includes around 10,000 job cuts, to focus on its wealth management business.

The continued reliance on investment banking at some of Europe’s largest institutions follows efforts by politicians and top banking executives to reshape the Continent’s financial sector.

Some banks, like UBS and Royal Bank of Scotland, are reducing their exposure to risky trading assets, while others, like HSBC and Standard Chartered, are increasing their operations in fast-growing emerging markets.

Antony P. Jenkins, Barclays’ chief executive, also is trying to rehabilitate the company’s image after a series of recent scandals. Last year, the bank agreed to a $450 million settlement with the United States and British authorities after some of its traders were found to have manipulated crucial global benchmark rates for financial gains.

Even Cupid Wants to Know Your Credit Score

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Off the Charts: In Europe, a Repeat of the Credit Crisis

In the euro area as a whole, the amount of credit outstanding has fallen to levels lower than they were a year ago, according to figures released last week by the European Central Bank. In some countries within the euro zone, including Italy and Spain, credit is falling at a faster rate now than it did during the first crisis.

The difficulty in obtaining credit seems likely to make it even harder for the countries that have been hurt the most to recover and begin to grow again. The figures show that while the E.C.B. has relieved the immediate financial pressures on both governments and banks by making it easy for them to borrow, it has not managed to extend that easy credit to those who need money the most.

The first of the accompanying charts shows 12-month changes in the amounts of loans outstanding in the 17 countries that make up the euro zone, and the lower charts show the state of lending in several of the countries. The bolder of the two lines in each chart shows the change in outstanding loans to nonfinancial companies, while the other line shows changes in total loans to households, a figure that includes both home mortgages and consumer loans.

In the middle of the last decade, loans were growing rapidly in many countries. Interest rates had fallen sharply as markets concluded there was no good reason for rates to be much higher in one euro zone country than another. After all, the currency risk was identical in all the countries.

In Ireland and Spain, the easy credit helped to finance large housing bubbles, which then burst during the crisis. In both of those countries, the amount of outstanding loans rose at a pace above 30 percent a year at the peak of the cycle.

A falling total of loans means that on a net basis, no new loans are being issued, although banks might be relending some of the money being repaid on old loans. In some cases, particularly in Ireland, the amount of loans outstanding has plunged not because loans are being repaid but because they are being written off.

Some countries seem unaffected. In Finland, which has been among the most vocal in demanding austerity in the troubled countries, the amount of loans outstanding continues to grow at a rate of more than 5 percent a year. In Austria and Germany, loan volume is also rising, although at a slower rate.

But in Portugal, the amount of corporate loans outstanding is now lower than it was in the spring of 2008, before the collapse of Lehman Brothers sent world credit markets tumbling. In Ireland, loan totals to both companies and households have fallen to 2005 levels.

Floyd Norris comments on finance and the economy at nytimes.com/economix.