July 2016

The July 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices

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Table 1 | Table 2 | Chart data
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The July 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) 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 71 domestic banks and 23 U.S. branches and agencies of foreign banks.2

Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016.3  The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net.

Regarding loans to households, banks reported that standards on all categories of residential real estate (RRE) mortgage loans were little changed, on balance, except for those eligible for purchase by government-sponsored enterprises (known as GSE-eligible mortgage loans), for which a moderate net fraction of banks reported having eased standards, and for subprime residential mortgages, for which a moderate net fraction of banks reported having tightened standards.  Banks also reported, on net, that demand for most types of RRE loans strengthened over the second quarter.  In addition, banks indicated that changes in standards on consumer loans were mixed, while demand strengthened across all consumer loan types.  

Responses to a set of special annual questions on the approximate levels of lending standards suggested that banks' lending standards for all categories of C&I loans are currently easier than the midpoints of the ranges that have prevailed since 2005 (explained more fully below), except for syndicated loans to below-investment-grade firms. However, banks also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges.  Compared with the July 2015 SLOOS, fewer banks reported easier levels of standards and more banks reported tighter levels of standards for all business loan types.

In addition, banks continued to report in the July 2016 SLOOS that the levels of standards for all types of RRE loans are currently tighter than the midpoints of the ranges observed since 2005. Moreover, banks indicated that consumer loans to subprime borrowers are currently still tighter than their midpoints, while consumer loans to prime borrowers are currently easier than those reference points.  Finally, the July 2016 SLOOS introduced a new question on the current level of standards on loans to nondepository financial institutions.  A modest percentage of banks indicated that the current level of standards on these loans is tighter than the midpoint of the range that has prevailed since 2005.

Lending to Businesses
(Table 1, questions 112; Table 2, questions 18)

Questions on commercial and industrial lending.  Modest fractions of domestic banks reportedly tightened C&I lending standards for large and middle-market firms and for small firms, on balance, in the second quarter of 2016.4  Changes to terms on C&I loans for large and middle-market firms were mixed.  Specifically, a modest percentage of banks reportedly narrowed spreads of loan rates over the cost of funds, while moderate fractions of banks reportedly increased the premiums charged on riskier loans, on net.  Banks also reported that changes in the terms of loans to small firms were mixed:  Whereas moderate shares of banks reported having narrowed spreads of loan rates over the cost of funds and having decreased the use of interest rate floors, on net, modest percentages of banks reportedly increased the premiums charged on riskier loans and tightened loan covenants on net.

Most domestic respondents that reportedly tightened either standards or terms on C&I loans over the past three months cited as important reasons a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk.  In addition, most domestic banks that reported having eased either their standards or terms on C&I loans pointed to more aggressive competition from other banks or nonbank lenders as an important reason for doing so.

Regarding the demand for C&I loans, domestic banks reported that demand from large and middle-market firms and from small firms was little changed, on balance, during the second quarter.  Most banks that reported stronger loan demand cited the following as important reasons:  increases in customer inventory financing needs, customer accounts receivable financing needs, and customer investment in plant or equipment.  Conversely, half or more of the banks that reported weaker loan demand cited as important reasons decreases in these same three categories.

Meanwhile, foreign banks reported that C&I lending standards remained about unchanged, on balance, in the second quarter of 2016.  However, modest net fractions of these banks reportedly raised the cost of credit lines and tightened collateralization requirements, while a moderate net fraction reported having increased premiums charged on riskier loans.  A modest fraction of foreign banks reported stronger demand for C&I loans on net.

Questions on commercial real estate lending.  On net, domestic survey respondents generally indicated that their lending standards for CRE loans of all types tightened during the second quarter.5  In particular, a moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties, whereas significant net fractions of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties. 

Domestic banks generally indicated that they had experienced stronger demand for all three types of CRE loans during the second quarter on balance.  A modest net fraction of banks reported stronger demand for loans secured by multifamily residential properties, and moderate net fractions of banks reported stronger demand for construction and land development loans and loans secured by nonfarm nonresidential properties.  Meanwhile, all foreign banks reported leaving CRE lending standards basically unchanged, while a modest net fraction of these banks reported experiencing stronger demand for such loans.

Lending to Households
(Table 1, questions 1326)

Questions on residential real estate lending.  During the second quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans, while a moderate net fraction of banks reported having tightened standards on subprime residential mortgages.6  Meanwhile, banks left lending standards basically unchanged for all other categories of RRE loans on net.

Over the second quarter of 2016, banks reported stronger demand for most categories of RRE home-purchase loans.  Significant net fractions of banks reported stronger demand for GSE-eligible, government, QM non-jumbo non-GSE-eligible, QM jumbo residential, and non-QM jumbo residential mortgages, and a moderate net fraction of banks reported stronger demand for non-QM non-jumbo residential mortgages.  Credit standards were reportedly little changed for approving applications for revolving home equity lines of credit (HELOCs), and a significant fraction of banks reported that demand for revolving HELOCs had strengthened on net.

Questions on consumer lending.  A modest net fraction of banks indicated that they were more willing to make consumer installment loans during the second quarter compared with three months prior.  A modest net fraction of banks reported easing lending standards on credit cards, and a modest net fraction reported tightening lending standards for auto loans, whereas standards on other consumer loans remained basically unchanged. 

Regarding terms on consumer loans, modest net fractions of banks reportedly widened spreads of interest rates charged on outstanding credit card balances over their cost of funds and reduced minimum required credit scores for credit card loans, while a moderate net fraction of banks widened spreads of loan rates over their cost of funds on auto loans over the second quarter.  Banks also reported that terms on consumer loans other than credit card and auto loans remained basically unchanged.

Banks generally reported that demand for consumer loans had strengthened in the second quarter:  A modest net fraction reported that demand for credit card loans strengthened, while moderate net fractions of banks reported stronger demand for auto loans and consumer loans other than credit card and auto loans during the second quarter.

Special Questions on the Current Levels of Lending Standards
(Table 1, question 27; Table 2, question 9)

The July survey included a set of special questions that asked respondents to describe the current level of lending standards at their bank rather than changes in standards over the survey period.7  Specifically, for each loan category surveyed, respondents were asked to consider the range over which their bank's standards have varied between 2005 and the present and then to report where the current level of standards for such loans resides relative to the midpoint of that range.

Domestic banks reported that lending standards on all categories of C&I loans remained at levels that are easier than or near the midpoints of their ranges since 2005, except for syndicated loans to below-investment-grade firms, for which a moderate net fraction of banks reported that  standards are currently tighter than the respective midpoints.  A significant net fraction of domestic banks reported that standards are currently easier than the respective midpoints on non-syndicated loans to large and middle-market firms, while moderate net fractions of domestic banks gave that characterization of syndicated loans to investment-grade firms and non-syndicated loans to small firms.8  However, the fraction of domestic banks reporting standards are easier decreased, and the fraction of banks reporting standards are tighter increased for all C&I loan types compared with the July 2015 SLOOS.  Meanwhile, a significant net fraction of foreign banks reported that levels are currently easier than the midpoints of their ranges since 2005 for syndicated loans to investment-grade firms, while a significant net fraction of foreign banks reported that levels are currently tighter than the respective midpoints on non-syndicated loans to small firms in the July 2016 SLOOS.  

Regarding the levels of standards for CRE loans, domestic banks reported that the current levels of standards on all major categories of these loans are tighter than the midpoints of the ranges that have prevailed since 2005.  Moreover, similar to banks' responses regarding C&I lending standards, fewer domestic banks reported easier levels of standards and more reported tighter levels of standards, relative to the respective reference points, for all CRE loan types compared with the July 2015 SLOOS.  A significant percentage of domestic banks reported, on balance, that current levels of standards are tighter than the respective midpoints on loans for construction and land development purposes, while moderate net fractions of domestic banks reported that current levels of standards are tighter than the respective midpoints on loans secured by nonfarm nonresidential properties and multifamily residential properties in the July 2016 SLOOS.  Meanwhile, a major percentage of foreign banks reported, on balance, that levels of standards are currently tighter than the respective midpoints on loans for construction and land development purposes, while significant net fractions of foreign banks reported that levels of standards are currently tighter than the respective midpoints on loans secured by nonfarm nonresidential properties and multifamily residential properties.

With respect to RRE loans, on balance, domestic banks reported that lending standards for all five categories included in this survey question (GSE-eligible mortgages, government-insured mortgages, jumbo mortgages, subprime mortgages, and HELOCs) remained tighter than the midpoints of the ranges observed since 2005.  Of note, a major net fraction of banks reported that the current level of standards on subprime residential mortgage loans is tighter than the reference point.

On balance, current levels of standards on consumer loans to subprime borrowers were reported to be tighter than the midpoints of the ranges since 2005.  In particular, a moderate net fraction of banks reported that levels of standards are currently tighter than the midpoints of the respective ranges for credit card loans to subprime borrowers, and a significant net fraction of banks gave such a characterization of the current level of standards on auto loans to subprime borrowers.  However, moderate net fractions of banks reported that levels of standards are currently easier than the respective midpoints on credit card and auto loans to prime borrowers and on consumer loans other than credit card and auto loans.  Moreover, the net fraction of banks reporting that standards are easier than the midpoints of the respective ranges increased for all consumer loan types, except for subprime credit card loans and subprime auto loans, compared with the July 2015 SLOOS.

The July 2016 SLOOS introduced a new special question about the current level of standards on loans to nondepository financial institutions.  A modest net fraction of domestic banks and a significant net fraction of foreign banks reported that the current level of standards on these loans is tighter than the midpoint of the range of standards that has prevailed since 2005. 

This document was prepared by Marcelo Rezende, with the assistance of Edward Kim and Blake Taylor, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.


1.  Respondent banks received the survey on or after June 28, 2016, and responses were due by July 12, 2016. Return to text

2.  Unless otherwise indicated, this document refers to reports from domestic respondents. Return to text

3.  For questions that ask about lending standards or terms, the term "net fraction" (or "net percentage") refers to 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, this term refers to 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").  For this summary, when standards, terms, or demand are said to have "remained basically unchanged," the net percentage of respondent banks that reported either tightening or easing of standards or terms, or stronger or weaker demand, is between 0 and 5 percent; the modifier "modest" refers to net percentages between 5 and 10 percent; the modifier "moderate" refers to net percentages between 10 and 20 percent; the modifier "significant" refers to net percentages between 20 and 50 percent; and the modifier "major" refers to net percentages over 50 percent. Return to text

4.  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, which are those with annual sales of less than $50 million. Return to text

5.  The three categories of CRE loans that banks are asked to consider are construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties. Return to text

6.  The seven categories of residential home-purchase loans that banks are asked to consider are GSE-eligible, government, QM non-jumbo non-GSE-eligible, QM jumbo, non-QM jumbo, non-QM non-jumbo, and subprime.  See the survey results tables that follow this summary for a description of each of these loan categories.  The definition of a qualified mortgage (QM) was introduced in the 2013 Mortgage Rules under the Truth in Lending Act (12 CFR Part 1026.32, Regulation Z).  The standard for a QM excludes mortgages with loan characteristics such as negative amortization, balloon and interest-only payment schedules, terms exceeding 30 years, alt-A or no documentation, and total points and fees that exceed 3 percent of the loan amount.  In addition, a QM requires that the monthly debt-to-income ratio of borrowers not exceed 43 percent.  For more on the ability to repay and QM standards under Regulation Z, see the Consumer Financial Protection Bureau's website at www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-zReturn to text

7.  This set of questions has been included annually since the July 2011 survey. Return to text

8.  In the SLOOS, questions about levels of standards define large and middle-market firms as firms with annual sales of $50 million or more, small firms as those with annual sales of less than $50 million, and very small firms as those with annual sales of less than $5 million. Return to text