The January 2005 Senior Loan Officer Opinion Survey
on Bank Lending Practices
Current survey | Full report (517 KB PDF)
Table 1 | Table 2
| Chart data
Table 1 (68 KB PDF) | Table
2 (32 KB PDF) | Charts (15 KB PDF)
The January 2005 Senior Loan Officer Opinion Survey on Bank Lending
Practices addressed changes in the supply of, and demand for, bank loans
to businesses and households over the past three months. The survey
contained a special question on the reasons why nonbank investors have
increased their participation in the commercial and industrial (C&I)
loan market recently. In addition, the survey asked banks about
changes over the past year in their terms on commercial real estate
loans. Finally, banks were asked why the share of industry assets
accounted for by residential real estate loans has increased over the
past three years. Responses were received from fifty-five domestic
banks and twenty foreign institutions.
As was the case throughout 2004, domestic and foreign banks reported
in the January 2005 survey that they had eased lending standards and
terms for C&I loans and commercial real estate loans. Demand
for C&I loans increased, on net, at domestic banks but was unchanged
at foreign institutions. Demand for commercial real estate loans
rose, on net, at both domestic and foreign banks in recent months.
A small number of domestic banks eased standards on residential mortgages
over the past three months, while standards and terms for consumer loans
were about unchanged, on balance. Relatively large fractions of
domestic banks reported weaker demand for both residential mortgages
and consumer loans.
(Table 1, questions 1-7; Table 2, questions 1-7)
In the January survey, domestic banks reported a further net easing
of lending standards on C&I loans. One-fourth of domestic
banks, on net, reported having eased their standards for large and middle-market
firms over the past three months, about the same fraction as in recent
surveys. Thirteen percent of domestic respondents also indicated
that they had eased their lending standards for small firms, down from
nearly 20 percent in the October survey. The share of U.S. branches
and agencies of foreign banks that reported easier lending standards
for C&I loans was 20 percent, a noticeable decline from the 35 percent
net easing in the previous survey.
Both domestic and foreign institutions indicated that they had continued
easing lending terms on C&I loans over the past three months.
On net, almost 50 percent of domestic banks trimmed spreads of loan
rates over their cost of funds for large and middle-market borrowers,
about the same fraction as in the previous survey. About one-fourth
did so for small firms, down from nearly 40 percent in the October survey.
More than half of foreign institutions reported having reduced spreads
on their C&I loans in the January survey. In addition, large
fractions of domestic and foreign respondents indicated that they had
eased other terms by increasing the maximum size of loans, loosening
covenant restrictions, or reducing the costs of credit lines.
One bank commented that loan maturities had lengthened markedly, a claim
consistent with both the Survey of Terms of Business Lending and information
from the syndicated loan market.
Almost all domestic and foreign respondents that had eased their lending
standards and terms over the past three months cited more aggressive
competition from other banks or nonbank lenders as the most important
reason. Large fractions of domestic banks also pointed to a more
favorable or less uncertain economic outlook and a higher tolerance
for risk as reasons for their move toward a less stringent lending posture.
More than half of foreign respondents cited increased liquidity in the
secondary market for these loans as a reason for easing.
In recent surveys, respondent banks have reported that they had eased
standards or terms in response to increased competition from other sources
of business credit. This survey included a special question on
why nonbank lenders have become more aggressive competitors. The
most important reason, according to domestic banks, was that nonbanks
have become more attracted to the senior status of loans in bankruptcy
and restructuring proceedings. Increased liquidity in the secondary
market was the main reason cited by foreign institutions and a close
second among the reasons given by domestic banks. Domestic banks
also pointed to the trend toward market-based pricing as a reason they
On net, about 45 percent of domestic institutions reported an increase
in demand for C&I loans from large and middle-market firms, up from
about 25 percent in the October survey. Almost 30 percent, on
net, indicated that demand from small firms had increased, about the
same as in the previous survey. In addition, nearly 50 percent
of domestic banks, on net, reported an increase in the number of inquiries
from potential business borrowers, a larger fraction than in the October
survey. In contrast, foreign institutions reported that demand
for C&I loans was unchanged over the past three months, although
the number of inquiries from potential business borrowers at these institutions
rose, on net.
Consistent with the growth of inventories seen late in 2004, greater
need for inventory financing was the most-often-cited reason for increased
demand for C&I loans at domestic banks. The second most important
reason for increased demand noted in the January survey was an increase
in merger and acquisition activity. As was the case in previous
surveys, large fractions of the respondents experiencing stronger loan
demand also pointed to their borrowers= increased financing needs for
accounts receivable and for investment in plant and equipment.
Commercial Real Estate Lending
(Table 1, questions 8-11; Table 2, questions 8-11)
About one-fourth of domestic banks reported a net easing of lending
standards on commercial real estate loans over the past three months,
a slightly larger fraction than in the October survey. The net
percentage of domestic banks that reported increased demand for such
loans was 16 percent, a modest decline from the 23 percent in the previous
survey. Of the thirteen foreign institutions in the survey that
are active in the commercial real estate market, one indicated that
it had eased standards, and two indicated that demand had increased.
For several years, the January survey has asked banks to report the
changes over the past twelve months in various commercial real estate
loan terms. Almost half of the domestic and foreign respondents,
on net, indicated that they had reduced spreads on loans over the past
year, compared with a small fraction that reported having tightened
spreads in the January 2004 survey. About 25 percent of domestic
banks also indicated that they had increased the maximum size of loan
that they were willing to extend last year, a bit more than had done
so during 2003. In addition, a modest fraction of domestic banks
had eased limits on loan maturity over the past twelve months.
By contrast, most foreign institutions reported that they had kept non-price
loan terms unchanged, but one indicated that it had tightened several
terms considerably. Domestic banks that had eased terms on commercial
real estate loans gave reasons very similar to those provided by banks
that had eased terms on C&I loans: more competition from other lenders
(both bank and nonbank), improved conditions in the commercial real
estate market, and a more favorable economic outlook.
Lending to Households
(Table 1, questions 14-19)
A few domestic banks, on net, eased credit standards on residential
mortgage loans over the past three months. Nearly 30 percent of
banks, on net, reported weaker demand for mortgages to purchase homes,
about the same as in the October survey. Nevertheless, over
the past three years the share of residential real estate loans in banks'
portfolios has risen noticeably. In response to a special question
asking for the reasons behind this growth, about 75 percent of the banks
noted that the share of new originations that were adjustable-rate loans,
which are better suited to holding in banks' portfolios, increased over
this period. About two-thirds of the banks said that strong demand
for residential mortgages had supported returns on them, thereby making
such loans more profitable to hold. Half of the banks indicated
that a widening in the spread between yields on residential mortgages
and those on mortgage-backed securities had increased the attractiveness
of the underlying loans. About one-quarter of the banks said their
mortgage holdings had increased because a larger share of their originations
did not conform to the standards set by the housing-related government-sponsored
enterprises (GSEs). Three-quarters of the banks that had reduced
sales of mortgages to GSEs claimed that their capital was sufficient
to support that growth, but a few banks reported limiting acquisitions
of other assets as a result of the retained mortgages.
Although standards and terms on credit card and other consumer loans
were about unchanged, 12 percent of the respondents indicated that their
willingness to make consumer installment loans had increased.
On net, 27 percent of domestic respondents reported weaker demand for
consumer loans in the January survey, about the same as in the previous
This document was prepared by William
Bassett and Fabio Natalucci with the research assistance of Arshia Burney
and Jason Grimm, Division of Monetary Affairs, Board of Governors of
the Federal Reserve System.