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The July 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices

Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)

The July 2018 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, which generally correspond to the second quarter of 2018.1  Responses were received from 72 domestic banks and 22 U.S. branches and agencies of foreign banks.  Unless otherwise indicated, this summary refers to the responses of domestic banks.

Regarding loans to businesses, respondents to the July survey indicated that they eased their standards and terms on commercial and industrial (C&I) loans to firms of all sizes and kept commercial real estate (CRE) lending standards about unchanged on balance.2  Banks reported stronger demand for C&I loans by small firms and weaker demand for CRE loans.

Banks also responded to a set of special questions inquiring about the level of banks' current lending standards relative to the midpoint of the range over which banks' standards have varied between 2005 and the present.  Banks, on balance, reported that their levels of lending standards on C&I loans are currently at the easier end of the range from 2005 to the present.  For CRE loans, banks reported currently having relatively tight lending standards on net.

For loans to households, banks reported that, on balance, their lending standards on residential real estate (RRE) loans and auto loans remained little changed, while a moderate share of banks tightened standards on credit card loans.  In addition, banks reported weaker demand for all categories of RRE loans, while demand for consumer loans reportedly remained about unchanged.  From a longer-term perspective, banks, on balance, reported that their current level of RRE and subprime consumer lending standards are at the tighter end of the range from 2005 to now.

Lending to Businesses

(Table 1, questions 1–12; Table 2, questions 1–8)

Questions on commercial and industrial lending.  On net, a moderate fraction of domestic banks reportedly eased standards on loans to large and middle-market firms, and a modest fraction reported having done so on lending to small firms.3  Over the second quarter of the year, banks reportedly eased most terms on C&I loans to firms of all sizes.  Significant net fractions of banks reportedly increased the maximum size of credit lines and narrowed loan rate spreads on loans to large and middle-market firms.  In addition, moderate net shares of banks increased the maximum maturity of loans, reduced the cost of credit lines and premiums charged on riskier loans, and eased loan covenants on such loans.  Moderate net fractions of banks narrowed loan rate spreads and increased the maximum maturity on loans to small firms.

Notably, almost all domestic banks that reportedly eased standards or terms on C&I loans over the past three months cited increased competition from other lenders as a reason for easing. In addition, significant fractions of banks mentioned a more favorable or less uncertain economic outlook, increased tolerance for risk, and increased liquidity in the secondary market for these loans as important reasons for easing.

Over the second quarter of the year, a modest net share of foreign banks reportedly eased C&I loan standards. Foreign banks also eased several terms on C&I loans; moderate net fractions reportedly narrowed loan rate spreads, increased the maximum size of credit lines, and eased loan covenants.

A modest net percentage of domestic banks reported stronger demand for C&I loans by small firms in the second quarter, while demand for loans by large and middle-market firms was little changed. Foreign banks reported that demand for C&I loans remained about unchanged. The number of inquiries from potential borrowers reportedly rose for a modest net share of domestic banks and was about unchanged at foreign banks.

Major shares of domestic banks that reported stronger C&I loan demand indicated that increases in customers' accounts receivable, inventory, and merger or acquisition financing needs, as well as increased customer investment in plant or equipment were important reasons for stronger demand. Major shares of banks that reported weaker C&I loan demand cited increases in customers' internally generated funds, reduced customer investment in plant or equipment, and customers' borrowing having shifted to other lenders as important reasons.

Questions on commercial real estate lending. On balance, banks reportedly kept CRE lending standards about unchanged. However, a modest net share of domestic banks reported that they tightened lending standards on loans secured by multifamily residential properties. Meanwhile, a modest net fraction of foreign banks reported easing their standards on CRE loans.

Moderate and modest net shares of domestic banks indicated weaker demand for construction and land development loans and multifamily loans, respectively. Over the same period, foreign banks reported that demand for CRE loans was about unchanged on balance.

Lending to Households

(Table 1, questions 13–26)

Questions on residential real estate lending. Banks reportedly kept residential mortgage lending standards little changed on balance. However, a moderate net share of banks reportedly eased standards on GSE (government-sponsored enterprise)-eligible residential mortgages, and modest net fractions of banks reported easing standards on government and non-qualified (non-QM) jumbo mortgages.4 A modest net fraction of banks reportedly eased standards on home equity lines of credit (HELOCs).

In the second quarter of 2018, banks reported weaker demand across all surveyed RRE loan categories. Moderate net shares of domestic banks reported decreased demand for subprime, government, non-QM non-jumbo, and QM non-jumbo non-GSE-eligible residential mortgages. In addition, modest net fractions of banks reported weaker demand for non-QM jumbo, QM jumbo, and GSE-eligible mortgage loans. Over the same period, a moderate net fraction of banks reported weaker demand for HELOCs.

Questions on consumer lending. A moderate net percentage of banks reported tightening standards on credit card loans over the past three months, while standards on auto and other consumer loans were reportedly little changed on net. In addition to tightening standards on credit card loans, banks also reportedly tightened several terms on such lending. Modest net shares of banks reportedly increased the minimum required credit scores and widened loan rate spreads on credit card loans. While a modest net share of banks reported widening loan rate spreads on auto loans, banks reportedly kept most terms on auto lending and other consumer loans about unchanged.

Demand for auto, credit card, and other consumer loans reportedly was little changed on balance. A modest net share of banks reported increased willingness to make consumer installment loans.

Special Questions on the Level of Banks' Current Lending Standards

(Table 1, question 27; Table 2, question 9)

The July 2018 survey included a set of special questions that asked respondents to describe the current levels of lending standards at their bank. Specifically, for each loan category surveyed, respondents were asked to consider the range over which their lending standards have varied from 2005 to the present, and then to report where the level of standards on such loans currently resides, relative to the midpoint of that range.

Domestic banks reported that, on net, their current lending standards on all categories of C&I loans remained at levels that are at the easier ends of their respective ranges since 2005. In particular, significant net shares of banks reported that their levels of lending standards on non-syndicated loans to large and middle-market firms and on investment-grade syndicated C&I loans are currently at the easier ends of their respective ranges since 2005. Moderate net fractions of banks reported that their current standards on non-syndicated loans to small and very small firms are at the relatively easier ends of their ranges from 2005 to now, and a modest net share of banks reported so for current standards on syndicated C&I loans to below-investment-grade firms. On net, domestic banks' current levels of lending standards on most C&I loan categories were generally in line with their responses to a similar set of special questions in the July 2017 survey.

Among foreign banks, moderate and modest net fractions reported that their current levels of lending standards on investment-grade syndicated loans and non-syndicated C&I loans to large and middle-market firms are at the easier ends of their ranges from 2005 to the present, respectively. However, a significant net share of foreign banks reported that their level of standards on lending to small firms is at the tighter end of the range since 2005. Foreign banks' current level of standards on syndicated loans to below-investment-grade firms is reportedly around the midpoint of its range on net. On balance, compared to responses to the July 2017 survey, foreign banks' current levels of standards appear to have eased on syndicated investment-grade loans and on non-syndicated loans to large and middle-market firms, and tightened on loans to small firms.

Regarding the levels of standards on CRE loans, domestic banks, on balance, reported that the current levels of their standards on most major categories of these loans are at the relatively tighter ends of the ranges that have prevailed since 2005. Significant and moderate net percentages of domestic banks reported that current levels of standards are tighter than the respective midpoints on loans for construction and land development purposes and on loans secured by multifamily residential properties, respectively. On net, banks' current level of lending standards on loans secured by nonfarm nonresidential properties is reported to be around the midpoint of the range of standards that have prevailed since 2005. Major net shares of foreign banks reported relatively tight current levels of standards on construction and land development loans and loans secured by nonfarm nonresidential properties, and a significant net fraction reported so for multifamily loans. Compared to the July 2017 survey, domestic banks' current levels of CRE lending standards appear generally less tight, while foreign banks' current levels of such standards appear to have tightened on balance.

With respect to RRE loans, on balance, domestic banks reported that lending standards for all categories included in this survey remained at the relatively tighter ends of the ranges of those standards since 2005. Subprime residential mortgages remained the category that was most consistently reported as being tight, with a major net share of banks reporting that standards are currently tighter than the midpoint. Additionally, a significant net share of banks reported relatively tight standards on jumbo residential loans, and moderate net fractions reported so for standards on government and GSE-eligible residential mortgages and HELOCs. The shares of banks that reported that their lending standards are at the relatively tighter ends of the ranges since 2005 have increased across most RRE loan types, compared to the July 2017 survey.

On balance, banks' current levels of standards on consumer loans were reported to be on the tighter end of the range since 2005 for subprime borrowers. In particular, significant net fractions of banks reported that the levels of their standards are currently at the relatively tighter ends of their respective ranges since 2005 on both auto and credit card loans to subprime borrowers. However, on auto loans to prime borrowers, a modest net percentage of banks reported that the current level of standards is easier than the midpoint, while standards are around the midpoint on credit card loans to prime borrowers and on consumer loans other than credit card and auto loans. On net, this year's responses on banks' current levels of standards on credit card and auto lending are generally in line with those reported in the July 2017 survey. However, the net fraction of banks reporting that their subprime credit card lending standards are currently at the relatively tighter end of the range since 2005 has increased, compared to last year.

This document was prepared by Judit Temesvary, with the assistance of Gideon Teitel, Jared Berry and Akber Khan, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.


1. Respondent banks received the survey on June 25, 2018, and responses were due by July 9, 2018. Return to text

2. For questions that ask about lending standards or terms, "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 greater than or equal to 0 and less than or equal to 5 percent; "modest" refers to net percentages greater than 5 and less than or equal to 10 percent; "moderate" refers to net percentages greater than 10 and less than or equal to 20 percent; "significant" refers to net percentages greater than 20 and less than 50 percent; and "major" refers to net percentages greater than or equal to 50 percent. Return to text

3. Large and middle-market firms are defined as firms with annual sales of $50 million or more, and small firms are those with annual sales of less than $50 million. Return to text

4. 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 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

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Last Update: August 06, 2018