The October 2015 Senior Loan Officer Opinion Survey on Bank Lending PracticesFull report (826 KB PDF)
The October 2015 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 69 domestic banks and 23 U.S. branches and agencies of foreign banks.2
Regarding loans to businesses, the October survey results indicated that, on balance, banks reported little change in their standards on commercial and industrial (C&I) loans in the third quarter of 2015.3 In addition, banks reported having eased some loan terms, such as spreads and loan maturities, on net. However, banks also indicated that they increased premiums charged on riskier loans for larger firms on net. With respect to commercial real estate (CRE) lending, on balance, survey respondents reported that standards on loans secured by nonfarm nonresidential properties, loans secured by multifamily residential properties, and construction and land development loans remained about unchanged. On the demand side, banks reported that demand for C&I loans was about unchanged, on balance, and moderate net fractions of survey respondents experienced stronger demand for all three categories of CRE loans during the third quarter.
Regarding loans to households, banks reported having eased lending standards on loans eligible for purchase by the government-sponsored enterprises and on qualified mortgage (QM) loans over the past three months on net. On balance, modest fractions of banks indicated having eased standards for credit card loans as well as for auto loans. On the demand side, modest net fractions of banks reported weaker demand across most categories of home-purchase loans. In contrast, respondents experienced stronger demand for credit card loans on net.
Questions on commercial and industrial lending. On balance, banks reported little change in lending standards for C&I loans to firms of all sizes over the past three months.4 Among the modest number of banks that indicated they had changed their C&I lending standards, reports of tightening were more frequent, especially for large and middle-market borrowers. Banks continued to report having reduced costs of credit lines and narrowed loan spreads for both large and middle-market firms and smaller firms on net. A modest net fraction of banks also reported having eased the maturities on loans and credit lines for firms of all sizes. However, banks also reported that they increased premiums charged on riskier loans for large and middle-market firms on net. Meanwhile, all foreign respondents indicated that their C&I lending standards had remained basically unchanged, but a few of them reportedly tightened the cost of credit lines and the premiums charged on risker loans.
The domestic respondents that tightened either standards or terms on C&I loans over the past three months cited a less-favorable or more-uncertain economic outlook as well as worsening of industry-specific problems as important reasons. Modest numbers of banks also attributed the tightening of loan terms to reduced tolerance for risk, decreased liquidity in the secondary market for these loans, and increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards. In addition, the few banks that reported having eased either their standards or terms on C&I loans predominantly pointed to more-aggressive competition from other banks or nonbank lenders as an important reason. A few banks also cited increased tolerance for risk or a more-favorable or less-uncertain economic outlook as reasons for easing loan standards or terms.
On balance, demand for C&I loans was little changed during the third quarter. Those banks that reported having seen stronger demand cited as reasons for the strengthening a wide range of customers' financing needs, particularly those related to accounts receivable, mergers or acquisitions, investment in plant or equipment, or inventories. Banks also reported that a shift in borrowing away from other banks and sources of financing contributed to stronger demand. Among the banks that reported weaker loan demand, decreased investment in plant or equipment was the most commonly cited reason, though reduced need to finance merger and acquisition activity, accounts receivable, and inventories were also cited. Foreign bank respondents also reported that demand for C&I loans was little changed during the third quarter of 2015.
Questions on commercial real estate lending. The majority of survey respondents indicated that their lending standards for CRE loans of all types had essentially remained unchanged relative to the second quarter.5 Regarding changes in demand, banks indicated that they had experienced stronger demand for all three types of CRE loans during the third quarter of 2015 on net. Similar to their domestic counterparts, foreign banks reported little change in their CRE lending standards, while they indicated having experienced stronger demand for such loans on net.
Lending to Households
(Table 1, questions 13-26)
Questions on residential real estate lending. Modest net fractions of banks indicated that they had eased underwriting standards on loans eligible for purchase by the government-sponsored enterprises (known as GSE-eligible mortgage loans) and on "qualified" but not GSE-eligible mortgage loans.6 In contrast, modest net fractions of banks tightened standards on government residential mortgages. Meanwhile, the vast majority of banks continued to report that they do not extend home-purchase loans to subprime borrowers. On the demand side, modest net fractions of banks reported weaker demand across most categories of home-purchase loans. On balance, lending standards were reportedly little changed for home equity lines of credit, and demand for such loans strengthened.
Questions on consumer lending. A small net fraction of banks indicated that they were more willing to make consumer installment loans over the past three months. A few large banks reported having eased their standards for credit card loans, and several large banks indicated that they had eased standards for approving applications for auto loans. Modest net fractions of banks reported having eased lending standards on other types of consumer loans. Regarding loan terms on consumer loans, some large banks reported that, on net, they had increased credit card limits on new or existing credit card accounts. On balance, several survey respondents lengthened the maximum maturity of auto loans but left the remaining terms on such loans about unchanged. Very few banks reported changes on any of the terms on other consumer loans.
Regarding demand for consumer loans, modest net fractions of banks reported stronger demand for credit card loans and other consumer loans over the past three months. In contrast, demand for auto loans was reported to have remained about unchanged on net.
This document was prepared by Rebecca Zarutskie, with the assistance of Blake Taylor, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
The January 2015 survey introduced new categories of residential real estate (RRE) loans that were designed to reflect the Consumer Financial Protection Bureau's qualified mortgage rules.7 The seven new categories of RRE loans are defined as follows:
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 equals 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 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
7. 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-z. Return to text