Senior Loan Officer Opinion Survey on
Bank Lending Practices
The August 2001 Senior Loan Officer Opinion Survey on Bank Lending Practices focused on
changes in the supply of, and demand for, bank loans to businesses and households over
the past three months. The survey included supplementary questions on the exposure of
banks to firms in the high-technology sector and the degree to which credit standards
and loan terms were tightened in that sector over the past year. Loan officers from
fifty-seven large domestic banks and twenty U.S. branches and agencies of foreign banks
participated in the survey.
Although the number of domestic and foreign banking institutions that reported
tightening standards and terms on commercial and industrial (C&I) loans over the past
three months remained elevated, it was lower than earlier in the year. A significant
fraction of domestic institutions also tightened standards for commercial real estate
loans in the August survey. In general, banks that tightened standards and terms on
C&I loans indicated that the most important reasons for tightening were a less favorable
or more uncertain economic outlook and a worsening of industry-specific problems.
Almost half of domestic banks, on net, reported weaker demand for C&I loans over the
past three months, about the same proportion as in the May survey. A somewhat larger
net fraction than in May reported that demand for commercial real estate loans had
Domestic banks reported that about 8 percent of C&I loans on their books were made to
high-technology companies, indicating that their exposure to these firms is limited.
By contrast, branches and agencies of foreign banks reported that loans to
high-technology companies accounted for about 14 percent of their C&I loan portfolio.
Domestic as well as foreign respondents noted that their tightening of credit standards
and loan terms over the past year for tech firms was greater than that for similarly
rated firms in other sectors (see the section below on lending to the high-tech sector
for the definition of the sector used by the survey).
Compared with the January and May surveys, smaller net fractions of domestic banks
tightened standards and increased spreads over their cost of funds for all types of
consumer loans over the past three months. According to the domestic respondents,
demand for consumer loans was about unchanged in August. Nearly all domestic banks
kept their standards for residential mortgage loans unchanged over the past three
months. About one-fourth of the respondents, on net, noted that demand for residential
mortgages had strengthened during the survey period, down from almost one-half in the
Although banks again reported that they tightened standards on C&I loans over the past
three months, the fractions of domestic and foreign respondents doing so retreated for
the second consecutive survey. The percentage of domestic banks that reported
tightening standards on loans to large and middle-market firms--which peaked at 60
percent in the January survey and decreased to about 50 percent in the May survey--fell
to 40 percent in August. Lending standards on business loans to small firms followed a
similar pattern: 32 percent of domestic banks reported tightening standards over the
past three months, down from 36 percent in May and 45 percent in January. The fraction
of U.S. branches and agencies of foreign banks that reported tightening standards for
customers seeking C&I loans fell from two-thirds in May to one-half in the August
In the August survey, the net fractions of domestic banks that reported tightening each
of the loan terms listed in the survey were similar to the net fractions in May. More
than half of the domestic respondents reported charging higher premiums on riskier loans
to large and middle-market firms; as has been the case for several surveys, no bank
reported lowering these premiums. More than half of the domestic banks, on net,
indicated that they had increased spreads of loan rates over their cost of funds for
large and middle-market firms over the past three months. Almost half, on net, also
increased fees on credit lines for these borrowers. Somewhat smaller net fractions of
domestic respondents tightened terms on C&I loans to small firms.
Sixty percent of the U.S. branches and agencies of foreign banks reported charging
higher premiums on riskier loans, and nearly the same fraction increased the fees
associated with credit lines. Half of the foreign institutions also noted that they had
increased spreads and tightened loan covenants over the past three months.
Most of the domestic and foreign respondents that had tightened standards or terms on
C&I loans over the previous three months continued to cite a less favorable or more
uncertain economic outlook, a worsening of industry-specific problems, and a reduced
tolerance for risk as the most important reasons for changing their lending policies. In
responses that were consistent with the elevated default rate on junk bonds, 52 percent
of domestic banks and 87 percent of foreign institutions that had tightened commercial
lending policies also mentioned an increase in defaults by below-investment-grade
borrowers as a contributing reason.
More than one-half of the domestic banks, on net, reported weaker demand for C&I loans
from large and middle-market firms, up from 40 percent in May; and more than one-third,
on net, reported decreased demand from small firms. Most of the domestic banks that
reported weaker loan demand cited reduced customer needs to finance capital expenditures
and mergers and acquisitions. About two-thirds of domestic banks also mentioned lower
demand for inventory financing, a result that is consistent with the ongoing inventory
correction. On net, 20 percent of foreign branches and agencies saw weaker loan demand
over the past three months, compared with 10 percent, on net, in the May survey.
More than 40 percent of domestic banks tightened standards on commercial real estate
loans over the past three months, about the same as in the May survey. Almost 20
percent of foreign institutions that engage in commercial real estate lending also
tightened standards in the current survey. On net, 32 percent of domestic and 10
percent of foreign institutions reported lower demand for commercial real estate loans
over the past three months.
The current survey also included a series of special questions that addressed lending
to high-technology firms over the past year. The survey defined the high-technology
(or "tech") sector as consisting of the following five high-technology industries:
(1) telecommunications service providers, (2) telecommunications equipment manufacturers,
(3) internet commerce, (4) semiconductor manufacturers, and (5) computer hardware,
software, and other high-tech industries.
About 8 percent, on average, of the volume of C&I loans on the books of domestic banks
that responded to the questions was made to the firms in the high-technology sector;
thus banks' exposures to this troubled sector appear to be limited. More than
one-third of these technology loans were made to telecommunications service providers,
with the second highest area of concentration in the computer hardware, software and
other high-tech sectors group. Foreign institutions reported that about 14 percent of
their outstanding C&I loans were accounted for by technology companies, of which
telecommunications service providers represented about 40 percent.
Domestic and foreign institutions tightened credit standards and terms for C&I loans to
technology companies more aggressively than for loans outside the high-tech sector over
the past year. The constriction of credit supply conditions was particularly severe
for below-investment-grade high-tech firms: 25 percent of domestic banks reported that
they had tightened standards somewhat more and 44 percent indicated that they had
tightened standards considerably more for C&I loans to lower-rated tech borrowers
relative to their non-tech counterparts. For foreign respondents, those fractions were
24 percent and 71 percent, respectively.
In addition, about 50 percent of domestic banks indicated that they had increased
price-related terms (such as fees and spreads) for investment-grade technology
companies by more than they had for investment-grade non-tech firms. A greater number
of domestic respondents, 72 percent, reported that they had toughened these terms for
below-investment-grade tech firms relative to similarly rated firms in other sectors.
This pattern of relative tightening was similar for non-price-related terms (such as
loan covenants) at domestic banks and for both types of terms at branches and agencies
of foreign banks.
Over the past three months, domestic banks' credit standards for approving residential
mortgage loans were largely unchanged. About one-fourth of the respondents, on net,
reported that demand for residential mortgages increased over the past three months.
About 10 percent of domestic banks, on net, reported that they had tightened standards
on credit card and other consumer loans over the survey period, down from 20 percent
and 18 percent, respectively, in May. In addition, more than 10 percent of respondents
increased the minimum required credit score for both categories of consumer loans. For
consumer loans other than credit cards, 14 percent of domestic institutions, on net,
increased spreads over their cost of funds, down from about one-fourth in the previous
survey, but only a few banks increased spreads on credit card loans in August. On net,
5 percent of banks reported stronger demand for consumer loans over the past three
Charts (12.7 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)
Table 1 (23.7 KB PDF)
Table 2 (14.2 KB PDF)
Full report (65.6 KB PDF)
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Last update: August 24, 2001