October 2016

The October 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 October 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 69 domestic banks and 21 U.S. branches and agencies of foreign banks.2

Regarding loans to businesses, the October survey results indicated that, on balance, banks left their standards on commercial and industrial (C&I) loans basically unchanged while tightening standards on commercial real estate (CRE) loans over the third quarter of 2016.3 Regarding the demand for C&I loans, a modest net fraction of domestic banks reported weaker demand from large and middle-market firms, while demand from small firms was little changed, on balance.4 Regarding the demand for CRE loans, a moderate net fraction of banks reported stronger demand for construction and land development loans, while demand for loans secured by multifamily residential and nonfarm nonresidential properties remained basically unchanged on net.

The survey included two special questions on C&I loan demand. The first asked for more detail on the reasons why customer borrowing from banks may have shifted to or from other sources of funding, and banks indicated that changes in both price and nonprice terms associated with other sources of funding contributed to the shifts.

A second special question asked respondents to assess the outlook for C&I loan demand over the next six months compared with current conditions. Banks reported that they generally expected C&I loan demand from firms of all sizes to remain basically unchanged, on balance, over the next six months.

Regarding loans to households, moderate net fractions of banks reported easing standards on loans eligible for purchase by government-sponsored enterprises (known as GSE-eligible mortgage loans), and modest net fractions of banks reported easing standards on loans categorized as QM jumbo and QM non-jumbo, non-GSE-eligible residential mortgages. The remaining categories of home-purchase loans were little changed on net. Banks also reported that demand for most types of home-purchase loans strengthened over the third quarter on net. Regarding consumer loans, on balance, banks indicated that changes in standards on consumer loans remained basically unchanged, while demand for auto and credit card loans rose.

A special survey question asked respondents to assess the likelihood of approving credit card applications by borrowers' FICO score in comparison to three months ago. A significant net fraction of banks reported they were less likely to approve credit card applications for borrowers with FICO scores of 620 (or equivalent) in comparison to three months ago. Meanwhile, moderate net fractions reported they were more likely to approve credit card applications from borrowers with FICO scores of 720 (or equivalent).

Lending to Businesses
(Table 1, questions 115; Table 2, questions 111)

Questions on commercial and industrial lending. Domestic banks reportedly left C&I lending standards for large and middle-market firms and for small firms unchanged, on balance, in the third quarter of 2016. Changes to terms on C&I loans for large and middle-market firms were mixed. Specifically, a moderate net percentage of banks reportedly increased the maximum size of credit lines, while modest net percentages of banks reportedly narrowed spreads of loan rates over the cost of funds and decreased their use of interest rate floors. The remaining terms surveyed remained basically unchanged on net. Banks also reported that changes in the terms of loans to small firms were mixed. Specifically, modest net percentages of banks reported increasing the maximum size of credit lines, narrowing spreads of loans rates over the cost of funds, and reducing their use of interest rate floors. Meanwhile, a modest net percentage of banks reported increasing the cost of credit lines, and the remaining terms surveyed remained basically unchanged 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. Significant fractions of such respondents also cited a worsening of industry-specific problems; less aggressive competition from other banks or nonbank lenders; 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.

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. Significant fractions of such banks cited as important reasons a more favorable or less uncertain economic outlook, an increased tolerance for risk, increased liquidity in the secondary market for these loans, and an improvement in their bank's current or expected liquidity position.

Regarding the demand for C&I loans, a modest net fraction of domestic banks reported weaker demand from large and middle-market firms, while demand from small firms was little changed, on balance, during the third quarter. In contrast, a modest fraction of banks reported that inquiries for lines of credit increased on net.

Major fractions of banks that reported weaker loan demand cited the following as important reasons: decreases in customers' needs to finance inventory, accounts receivable, plant or equipment investment, and merger or acquisition activity. Most banks also indicated that customer borrowing had shifted from their banks to other bank or nonbank sources because these other sources had become more attractive. A significant fraction of banks reported an increase in customers' internally generated funds, while a moderate fraction of banks cited a decrease in customers' precautionary demand for cash and liquidity.

Most banks that reported stronger loan demand cited the following as important reasons: increases in customers' needs to finance inventory, accounts receivable, plant or equipment investment, and merger or acquisition activity. Most banks also indicated that customer borrowing had shifted to their banks from other bank or nonbank sources because these other sources had become less attractive. A significant fraction of banks cited an increase in customers' precautionary demand for cash and liquidity, while a modest fraction of banks reported a decrease in customers' internally generated funds.

Meanwhile, foreign banks reported that C&I lending standards remained about unchanged, on balance, in the third quarter of 2016. However, a moderate net fraction of these banks reportedly narrowed spreads over their costs of funds, and a modest net fraction reportedly decreased the costs of credit lines. The remaining terms surveyed remained basically unchanged on net. Foreign banks reported that demand for C&I loans and the number of inquiries from potential business borrowers regarding availability and terms of new credit lines or increases in existing lines remained basically unchanged on net.

Special questions on reasons for stronger or weaker C&I loan demand. C&I loan growth at commercial banks slowed from an annual rate of nearly 9 percent in the second quarter to about 3 percent in the third quarter, consistent with the reportedly weaker C&I loan demand at large and middle-market firms.5 To assess the role of competition on terms in this decline in C&I loan demand, the October survey included a set of special questions that asked respondents to provide more detail on the possible reasons why customer borrowing from respondent banks may have shifted to or from other sources of funding.

Of the banks that indicated that customer borrowing had shifted from their banks to other bank or nonbank sources because these other sources had become more attractive, most indicated that other commercial banks' and nonbanks' price terms had become more attractive. Most banks also reported nonbanks' nonprice terms had become more attractive. Additionally, significant fractions responded that commercial banks' nonprice terms and corporate bond issuers' price terms had become more attractive.

Of the banks that indicated that customer borrowing shifted to their banks from other bank or nonbank sources because these other sources had become less attractive, most respondents indicated that other commercial banks' price and nonprice terms had become less attractive and that nonbanks' price terms had become less attractive. Additionally, a significant fraction responded that nonbanks' nonprice terms had become less attractive.

Special questions on the outlook for C&I loan demand. The October survey also included a set of special questions that asked respondents about their outlook for the demand for C&I loans over the next six months as compared with current conditions. Respondents reported that, over the next six months, they expect demand for C&I loans from large and middle-market firms as well as small firms to remain basically unchanged on net.

Meanwhile, a moderate net fraction of foreign banks reported that their outlook for the demand for C&I loans over the next six months was somewhat stronger compared with current conditions.

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 third quarter.6 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.

Regarding the demand for CRE loans, a moderate net fraction of banks reported stronger demand for construction and land development loans, while demand for loans secured by multifamily residential and nonfarm nonresidential properties remained basically unchanged on net.

Meanwhile, in the third quarter, a moderate net fraction of foreign banks tightened their credit standards for approving applications for CRE loans, and a significant net fraction of foreign banks reported experiencing stronger demand for such loans.

Lending to Households
(Table 1, questions 1630)

Questions on residential real estate lending. During the third quarter, a moderate net fraction of banks reported having eased standards on GSE-eligible loans, while modest net fractions reported easing standards on mortgage loans categorized as QM non-jumbo, non-GSE-eligible residential and QM jumbo residential mortgages.7 Meanwhile, banks left their lending standards basically unchanged for all other categories of residential real estate (RRE) home-purchase loans on net.

Over the third quarter, banks reported stronger demand for most categories of RRE home-purchase loans except for government and subprime residential mortgages. In particular, significant net fractions of banks reported stronger demand for GSE-eligible residential mortgages. Moderate net fractions of banks reported stronger demand for QM non-jumbo, non-GSE-eligible, QM jumbo, non-QM jumbo, and non-QM non-jumbo residential mortgages.

Meanwhile, banks' credit standards were reportedly little changed for approving applications for revolving home equity lines of credit (HELOCs), and a significant net fraction of banks reported that demand for revolving HELOCs had strengthened on net.

Questions on consumer lending. A moderate net fraction of banks indicated that they were more willing to make consumer installment loans during the third quarter compared with three months prior. Meanwhile, banks reported that their lending standards for approving applications for credit cards, auto loans, and other consumer loans from individuals or households remained basically unchanged in the third quarter on net.

According to respondents, terms on credit card loans were basically unchanged in the third quarter on net. Responses for auto loans indicated that modest net fractions of banks reportedly increased their minimum required credit score for approving applications and widened their spreads of loan rates over the cost of funds. Additionally, a moderate net fraction decreased the extent to which auto loans are granted to some customers that do not meet credit scoring thresholds for such loans. The remaining terms for approving applications for auto loans were basically unchanged on net.

Moderate net fractions of banks reported that demand for credit card and auto loans strengthened in the third quarter. Meanwhile, demand for consumer loans classified as other than credit card or auto loans remained basically unchanged on net.

Special question on banks' credit card lending standards. In response to a special question asking respondents to assess the likelihood of approving credit card applications by FICO score in comparison to three months ago, a significant net fraction of banks reported that they were less likely to approve credit card applications for borrowers with FICO scores of 620 (or equivalent). Respondents reported their likelihood of approving an application for a credit card to a borrower with the stated FICO score (or equivalent) of 680 remained basically unchanged on net. Meanwhile, a moderate net fraction of banks reported they were more likely to approve an application for a credit card to a borrower with the stated FICO score (or equivalent) of 720.

This summary was prepared by Robert Kurtzman, with the assistance of Kamran Gupta, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.


1. Respondent banks received the survey on or after October 4, 2016, and responses were due by October 18, 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 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. C&I loan growth statistics come from the H.8 Statistical Release on the Assets and Liabilities at Commercial Banks in the United States. Return to text

6. 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 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-z. Return to text