The October 2014 Senior Loan Officer Opinion Survey on Bank Lending PracticesFull report (353 KB PDF)
The October 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.1 This summary discusses the responses from 76 domestic banks and 22 U.S. branches and agencies of foreign banks.2
Regarding loans to businesses, the October survey results indicated that only a modest net fraction of banks eased their standards for commercial and industrial (C&I) loans to firms of all sizes, but generally larger net fractions of banks eased each of the pricing terms listed in the survey and some non-price terms.3 Banks also reported having eased standards for construction and land development loans, a category of commercial real estate (CRE) loans included in the survey. On the demand side, modest net fractions of banks reported stronger demand for C&I loans to larger firms; similar net fractions experienced stronger demand for all three categories of CRE loans covered in the survey.4
The survey included a set of special questions on retail small business lending.5 Banks on net reported that the volume of applications received for new retail small business loans over the past year had been close to the midpoint of its range over the past decade. Moreover, modest net fractions of banks reported that many minimum underwriting requirements for approving applications from small business owners to be somewhat tighter than the midpoint of its range. Even so, most banks expected a moderate increase in retail small business lending over the next year.
Regarding loans to households, some large banks reported having eased standards on closed-end mortgage loans, but respondents generally indicated little change in standards and terms for other types of loans to households. Reported changes in loan demand were mixed. Moderate net fractions of banks reported stronger demand for auto loans and weaker demand for nontraditional closed-end mortgage loans. Demand for other types of loans to households was about unchanged at most banks.
Another set of special questions examined banks' credit policies for subprime auto loans. Very few banks reported changes in terms on subprime auto loans over the past year and most respondents anticipated that lending policies on such loans would remain about unchanged over the next year.
Questions on commercial and industrial lending. A modest percentage of banks reported having eased standards on C&I loans to firms of all sizes.6 Banks reported having eased, on net, each of the surveyed price terms on C&I loans to firms of all sizes. In particular, a large net fraction of banks eased spreads, a moderate net fraction eased the cost of credit lines and interest rate floors, and a modest net fraction eased premiums charged on riskier loans. Non-price terms generally remained about unchanged, except that modest net fractions of banks reported having eased loan covenants or having increased the maximum size of credit lines on net. Foreign banks reported having eased spreads of C&I loans over banks' cost of funds.
Most respondents that reported having eased either standards or terms on C&I loans over the past three months cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. Smaller numbers of banks also attributed their easing to a more favorable or less uncertain economic outlook and increased tolerance for risk.
On the demand side, a modest net fraction of banks reported having experienced stronger demand for C&I loans from large and middle-market firms. A similar net fraction of banks reported a higher number of inquiries from potential business borrowers for new credit lines or increases in existing lines. Banks reported that loan demand from small firms had remained about unchanged on net. To explain the reported increase in loan demand by larger firms, banks cited a wide range of customers' financing needs, particularly those related to inventories, accounts receivable, investment in plant or equipment, and mergers or acquisitions. Foreign banks also reported having seen stronger demand on net.
Special questions on retail small business lending. The October survey contained a set of special questions on banks' retail small business lending. Banks on net reported that the volume of applications for retail small business loans received over the past year was close to the midpoint of its range over the past decade. Moreover, on balance, banks indicated that underwriting policies for approving applications for retail small business loans were somewhat tighter than the midpoint of their range over the past decade. In particular, modest net fractions of banks reported having somewhat tighter minimum underwriting requirements for the liquidity position, the quality of personal guarantees, and the debt-to-income ratio of the business owners applying for such loans. Even so, the large majority of banks expected that retail small business lending would increase moderately over the next year.
Questions on commercial real estate lending. A modest net fraction of banks reported that they had eased standards on construction and land development loans, while standards for loans secured by nonfarm nonresidential structures and multifamily residential properties remained about unchanged. Moderate net fractions of banks indicated that they had experienced stronger demand for all three subcategories of CRE loans. On balance, foreign banks also reported having eased lending standards on CRE loans and having seen stronger demand for such loans over the past three months.
Lending to Households
(Table 1, questions 16-32)
Questions on residential real estate lending. A moderate net fraction of large banks reported that they had eased standards on prime residential mortgages over the past three months. Smaller banks reported that standards for prime residential mortgages were about unchanged on net. Reported changes in demand for mortgage loans were mixed. On net, although large banks reported that demand for prime mortgages had weakened, smaller banks experienced increases. However, demand for nontraditional mortgages was weaker, on net, across both bank size groups. Few banks reported having changed their standards on home-equity lines of credit, and respondents indicated that they had experienced little change in demand for such loans on net.
Questions on consumer lending. A small net fraction of banks indicated that they were more willing to make consumer installment loans as compared with the previous quarter. A very few banks reported having eased their standards for approving applications for credit cards, and a modest net fraction of banks indicated having eased their standards for auto loans. Most terms on credit cards were little changed, except for credit limits and required minimum credit scores, which a modest net fraction of banks reported having eased. Very few banks reported changes on any of the terms on auto loans, except for a small number of banks that had either increased or reduced the spreads of loan rates over cost of funds. Most banks reported that they had kept their standards and terms on other types of consumer loans unchanged.
A moderate fraction of banks, on net, reported having experienced an increase in demand for auto loans over the past three months. In contrast, most banks reported that demand for credit cards and other consumer loans had not significantly changed over the same period.
Special questions on subprime auto lending. A set of special questions included in this survey asked banks to describe the changes in their terms for subprime auto loans over the past year. Only 19 of the 76 banks that responded to the survey reported that they currently originate subprime auto loans. For each of the surveyed policies--such as loan rate spreads, minimum required down payments, and credit scores--most banks reported no change relative to a year ago. In addition, most of those banks anticipated that their lending policies would stay about unchanged over the next year.
This document was prepared by Vladimir Yankov, with the assistance of Kamran Gupta, Nathan Lloyd, and Shaily Patel, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
3. For questions that ask about lending standards or terms, reported net fractions equal the fraction of banks that reported having tightened ("tightened considerably" or "tightened somewhat") minus the fraction of banks that reported having eased ("eased considerably" or "eased somewhat"). For questions that ask about loan demand, reported net fractions equal the fraction of banks that reported stronger demand ("substantially stronger" or "moderately stronger") minus the fraction of banks that reported weaker demand ("substantially weaker" or "moderately weaker"). Return to text
4. The three categories of CRE loans covered in the survey are construction and land development loans, loans secured by nonfarm nonresidential structures, and loans secured by multifamily residential properties. Return to text
5. Retail small business loans are loans to small businesses evaluated with credit scores that are based on the creditworthiness of the business owner rather than the firm itself. The average size of these businesses is significantly smaller than the $50 million in annual sales normally used in the survey to define small firms. Return to text
6. The survey asked respondents separately about their standards for, and demand from, large and middle-market firms, which are generally defined as firms with annual sales of $50 million or more, and small firms, those with annual sales of less than $50 million. Return to text