A new Federal Reserve survey released last week showed that fewer banks have tightened lending standards during the third quarter, but also said that “tigh credit” remains a drag on the economy because many banks, including JP Morgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC) have reduced lending as a response to stricter underwriting standards for consumer loans and a lower demand for loans from businesses.

Loans at JP Morgan Chase fell to $653.1 billion by the end of the third quarter from $761.4 billion a year earlier. According to the bank’s Chief Financial Officer, Michael Cavanagh, the decline reflected “some tightening in underwriting standards” on consumer loans, including credit cards and real estate. Cavanagh made the statement following the release of the company’s third quarter results. Cavanagh added that loans for businesses also saw a decline.

Bank of America Corp. has also seen a decline in lending. Their outstanding loans and mortgage shrank to $878.4 billion from $922.3 billion just a year earlier. On an October 16th conference call, Bank of America CEO, Kenneth Lewis, said that the decline was a result of “lower consumer spending and resurgence in capital marks,” which allow corporations to issue new bonds to pay off equity debt.

JP Morgan Chase and Bank of America aren’t the only two banks that have seen declines in lending. Loans held by U.S. commercial banks have declined for the last 10 months, falling to $6.7 trillion at the end of October, down from $7.2 trillion at the end of 2008, according to a Federal Reserve report.

Commercial and industrial loans have also dropped to $1.37 trillion down from $1.6 trillion a year earlier. Commercial real estate loans have declined to $1.66 trillion down from $1.72 trillion a year earlier and commercial loans held by commercial banks have fallen to $847 billion, down from $857 million at the end of the last year.

There are other factors than tightened lending standards which are also causing loan balances to decline. Banks across the board also reported having a lower origination of new loans and decreased draws on revolving credit lines.