The October 2011 Senior Loan Officer Opinion Survey on Bank Lending PracticesFull report (353 KB PDF)
The October 2011 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. This summary is based on responses from 51 domestic banks and 22 U.S. branches and agencies of foreign banks.1
Regarding lending standards, fewer domestic banks eased standards and terms on commercial and industrial (C&I) loans over the third quarter compared with recent quarters, particularly on loans to large and middle-market firms.2 About one-fourth of foreign respondents, which primarily lend to businesses, reported that they had tightened lending standards on C&I loans.3 All of the domestic and foreign respondents that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook as a reason for the tightening. In response to a special question, a large number of both domestic and foreign respondents indicated that they had tightened standards on loans to European banks and their affiliates or subsidiaries. Standards for commercial and residential real estate loans changed little over the past three months, and a small net fraction of banks indicated that they had eased standards on several types of consumer loans.
According to the survey, changes in loan demand were mixed. A moderate net fraction of banks reported weaker demand for C&I loans, in contrast to the increased demand reported in the previous three surveys; however, some large domestic banks continued to report stronger demand.4 Several large banks also reported increased demand for commercial real estate (CRE) loans. On the household side, demand for loans to purchase homes reportedly increased, though those reports may reflect the moderate rise in refinancing activity. Demand for home equity loans decreased, and demand for consumer loans reportedly was little changed.
(Table 1, questions 1-12; Table 2, questions 1-12)
Questions on Commercial and Industrial Lending. A small net fraction of domestic banks reported having eased standards on C&I loans during the third quarter, in contrast to more widespread reports of such easing in previous quarters. This moderate net reduction in easing was concentrated in loans to large and middle-market firms rather than in loans to smaller firms. Branches and agencies of foreign banks, which generally only lend to larger firms, reported a tightening of standards on C&I loans for the first time in several quarters. Domestic banks continued to ease some terms on C&I loans to both large and small firms, including by cutting loan rate spreads over their costs of funds and by reducing the use of interest rate floors. However, the fraction of banks reporting such easing of terms on loans to larger firms declined somewhat, and interest rate premiums on riskier loans reportedly increased on net. Foreign banks tightened all terms on C&I loans on net.
Domestic banks that reported having eased standards or terms on C&I loans continued to widely cite more-aggressive competition from other banks or nonbank lenders as a reason for having done so. Fewer domestic banks cited a more favorable or less uncertain economic outlook as a reason for easing compared with the previous survey. In contrast, domestic and foreign banks that reported having tightened standards unanimously cited a less favorable or more uncertain economic outlook. These banks also cited reduced tolerances for risk, decreased liquidity in the secondary market, and increased concerns about the effects of government policies (legislative changes, supervisory actions, or changes in accounting standards).
Reports of weaker demand for C&I loans outnumbered reports of stronger demand in a reversal from recent quarters, particularly with respect to demand from large and middle-market firms. Reports of increased inquiries from potential business borrowers for new credit lines also decreased significantly and, for the first time in several quarters, were outnumbered by reports of decreased inquiries. Banks that saw stronger demand for C&I loans cited many of the same determinants of demand as banks that saw weaker demand, perhaps reflecting the particular and varying needs of their customers. These factors included the need to finance inventories, accounts receivable, investments in plants and equipment, and merger and acquisition activities. Banks that saw weaker demand for C&I loans were much more likely to cite an increase in customers' internally generated funds, and banks that saw stronger demand were more likely to cite a shift in borrowing from other bank or nonbank sources.
Special Questions on Lending to Firms with European Exposures. A set of special questions in the October survey asked respondents about lending to banks headquartered in Europe and their affiliates and subsidiaries (regardless of the location of the affiliates and subsidiaries) and to nonfinancial firms that have operations in the United States and significant exposures to European economies (regardless of the location of their headquarters).
About one-half of the domestic bank respondents, mostly large banks, indicated that they make loans or extend credit lines to European banks or their affiliates or subsidiaries, and about two-thirds of the foreign respondents indicated the same. Among those domestic and foreign respondents, a large share--about two-thirds--reported having tightened standards on loans to European banks over the third quarter. Many domestic banks indicated that the tightening was considerable.
About three-fifths of the domestic respondents, mostly large banks, and all foreign respondents indicated that they make loans or extend credit lines to nonfinancial firms that have operations in the United States and significant exposures to European economies. Among those domestic and foreign respondents, a moderate fraction indicated that they had tightened standards on C&I loans to such firms. These loans reportedly constituted a small portion--less than 5 percent--of outstanding C&I loans at a majority of domestic respondents, and greater exposures were reported only by large banks. Such loans typically accounted for larger portions of the foreign respondents' lending.
Small net fractions of domestic respondents indicated weaker demand for credit from European banks (and their affiliates or subsidiaries) and from nonfinancial firms with significant exposures to European economies.
Questions on Commercial Real Estate Lending. Domestic banks continued to report little change in their standards on CRE loans, which were widely described in a special question in the previous survey as being at or near their tightest levels since 2005. In contrast, a large fraction of foreign respondents reported having tightened standards on CRE loans, in a substantial shift from the net easing reported by those institutions in the prior two surveys. Modest fractions of domestic and foreign banks reported a strengthening of demand for CRE loans, on net, although these reports were a bit less widespread than in the two previous surveys.
Lending to Households
(Table 1, questions 13-26)
Questions on Residential Real Estate Lending. Reports of strengthened demand for mortgage loans to purchase homes outnumbered reports of weaker demand for the first time since early 2010, perhaps reflecting refinancing activity.5 The number of banks reporting weaker demand for home equity lines of credit increased in the third quarter, particularly among smaller banks.
Few banks reported changes in standards on prime or nontraditional closed-end residential real estate loans, in line with the past several surveys. Similarly, very few banks reported any change in standards for home equity lines of credit, also in line with recent surveys.
Questions on Consumer Lending. Modest fractions of banks reported having eased standards on consumer credit card loans and on other non-auto loans. As in the previous survey, somewhat larger fractions of banks reported having eased standards on auto loans.
Banks, on net, continued to report having narrowed the spreads of interest rates on auto loans over their cost of funds, though these reports have been volatile over the past few quarters. A modest net fraction of banks also reported lengthening maximum maturities and lowering minimum required credit scores on auto loans. Small numbers of banks reported having eased some terms on credit card loans.
A small number of banks, on net, reported a strengthening of demand for consumer credit card and auto loans, in line with the past few quarters. Banks reported small, mixed changes, on net, in the demand for other types of consumer loans.
1 Respondent banks received the survey on or after October 4, 2011, and responses were due by October 18, 2011. Return to text
2 Large and middle-market firms are generally defined as firms with annual sales of $50 million or more and small firms as those with annual sales of less than $50 million. Return to text
3 For questions that ask about lending standards or terms, reported net fractions equal the fraction of banks that reported having tightened standards ("tightened considerably" or "tightened somewhat") minus the fraction of banks that reported having eased standards ("eased considerably" or "eased somewhat"). For questions that ask about 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 Large banks are defined as banks with assets greater than or equal to $20 billion as of March 31, 2011, and other banks as those with assets of less than $20 billion. Return to text
5 Although the question asks them to do so, some respondents may find it difficult to separate mortgage demand associated with the purchase of new loans from that associated with the refinancing of existing mortgages. Return to text
This document was prepared by Jonathan Rose and Cindy Vojtech with the assistance of Sam Haltenhof and Sam Levine, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.