Senior Loan Officer Opinion Survey on Bank Lending Practices
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The July 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices
The July 2019 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 corresponds to the second quarter of 2019.1
Regarding loans to businesses, banks indicated that, on balance, they left their standards basically unchanged on commercial and industrial (C&I) loans to large and middle-market firms, while standards eased for such loans to small firms.2 Most terms were reportedly eased on C&I loans across firm size categories. In addition, banks reportedly tightened standards over the past three months across all three major commercial real estate (CRE) loan categories—construction and land development loans, nonfarm nonresidential loans, and multifamily loans.
Meanwhile, banks reported basically unchanged demand for C&I loans from large and middle-market firms and weaker demand from small firms. Loan demand for construction and land development loans reportedly weakened, while demand for other CRE loan types remained basically unchanged during the same period.
For loans to households, banks reported that standards on credit card loans tightened, on net, while standards reportedly remained basically unchanged on auto loans and most categories of residential real estate (RRE) loans. Banks reported stronger demand for credit card loans, auto loans, and almost all categories of RRE loans.
Banks also responded to a set of special questions inquiring about the current level of lending standards relative to the midpoint of the range over which banks’ standards have varied since 2005. Banks, on balance, reported that their lending standards on C&I loans are currently at the easier end of the range of standards between 2005 and the present. For CRE loans, most RRE loans, subprime credit card loans, and subprime auto loans, banks reported currently having relatively tighter levels of lending standards on net.
Lending to Businesses
(Table 1, questions 1–12; Table 2, questions 1–8)
Questions on commercial and industrial lending. Banks reported that standards for C&I loans to large and middle-market firms remained basically unchanged in the second quarter, on balance, though a moderate net share of large banks reportedly eased standards on such loans.3 At the same time, a significant net share of banks reported narrowing interest rate spreads on loans to large and middle-market firms, and moderate net shares of banks reported easing loan covenants and increasing the maximum size of credit lines to these firms. In addition, a modest net share of banks reported that they eased standards for C&I loans to small firms, and a moderate net share of banks reported narrowing interest rate spreads on loans to such firms.
Almost all of the banks that reported reasons for easing standards or terms on C&I loans over the past three months cited increased competition from other lenders as an important reason for doing so. Significant net shares of banks also reported improvements in banks’ current or expected capital position, a more favorable or less uncertain economic outlook, and increased tolerance for risk as important reasons for easing standards. Meanwhile, major net fractions of banks that reported tightening C&I lending standards or terms mentioned a less favorable or more uncertain economic outlook, worsening industry-specific problems, and reduced tolerance for risk as important reasons for doing so.
Demand for C&I loans from large and middle-market firms reportedly remained basically unchanged in the second quarter, while a modest net percentage of domestic banks reported weaker demand for such loans to small firms. The number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines reportedly remained unchanged during this period.
Major net shares of banks that reported experiencing weaker C&I loan demand mentioned a number of important reasons for the reduced demand—specifically, declines in customers’ financing needs related to inventory, accounts receivable, investment in plant and equipment, and mergers and acquisitions, as well as higher internally generated funds and lower precautionary demand for cash and liquidity.
In contrast to domestic respondents, foreign banks reportedly left C&I lending standards basically unchanged and tightened some loan terms in the second quarter. In particular, modest net shares of foreign banks reported lowering the maximum size of credit lines, tightening collateral requirements, and tightening the use of interest rate floors. During the same period, a moderate net share of foreign banks reported weaker C&I loan demand.
Questions on commercial real estate lending. A modest net share of banks reportedly tightened standards on all types of CRE loans in the second quarter. Furthermore, a moderate net share of banks reported weaker demand for construction and land development loans over the same period, while demand for loans secured by nonfarm nonresidential properties and multifamily residential properties reportedly remained about unchanged.
Lending to Households
(Table 1, questions 13–26)
Questions on residential real estate lending. Banks reportedly left lending standards basically unchanged for most RRE loan categories in the second quarter, except for non-qualified mortgage (non-QM) jumbo and non-QM non-jumbo residential mortgage loans, for which modest net fractions of banks reportedly eased lending standards.4
Demand for all categories of closed-end RRE loans reportedly strengthened, on net, during the same period. For most categories of closed-end RRE loans, significant net shares of banks reported stronger loan demand, with the exception of government-sponsored enterprise (GSE)‑eligible mortgage loans, for which a major net share of banks reported stronger demand. Meanwhile, demand was basically unchanged for home equity lines of credit (HELOCs).
Questions on consumer lending. Banks reported basically unchanged willingness to make consumer installment loans over the past three months. A modest net percentage of banks reported tightening lending standards on credit card loans during the same period, while most terms associated with credit cards were basically unchanged on net. Meanwhile, lending standards and terms for auto loans were basically unchanged during this period. A modest net fraction of banks reported tightening lending standards on other consumer loans, while most terms on such loans were reportedly basically unchanged on net.
A modest fraction of banks reportedly experienced stronger demand for credit card loans, and a moderate fraction of banks did so for auto loans during the second quarter. Meanwhile, banks reported basically unchanged demand for other consumer loans over the same period.
Special Questions on Current Level of Banks’ Lending Standards
(Table 1, question 27; Table 2, question 9)
The July 2019 survey included a set of special questions that asked respondents to describe the current levels of lending standards at their bank. Specifically, respondents were asked to consider the range over which their lending standards have varied between 2005 and the present and to report where the level of standards currently is relative to the midpoint of that range.
Banks reported that, on net, their current levels of lending standards for all categories of C&I loans are at the easier ends of their respective ranges since 2005. In particular, significant net shares of banks reported that their lending standards for syndicated C&I loans to investment-grade firms and non-syndicated C&I loans to large and middle-market firms are currently easier than the respective midpoints of the historical ranges. Meanwhile, moderate net fractions of banks reported that their current standards for other types of C&I loans are at the easier ends of their historical ranges. Banks’ responses regarding the current level of lending standards for most C&I loan categories were broadly in line with their responses in the July 2018 survey.
Among foreign banks, significant and moderate net fractions reported that their current levels of lending standards for investment-grade and below-investment-grade syndicated loans, respectively, are at the easier ends of their historical ranges. However, a significant net share of foreign banks reported that their level of standards for loans to small firms is at the tighter end of the range between 2005 and the present.
For CRE loans, banks reported that the current levels of their standards for all major categories of these loans are at the relatively tighter ends of the ranges that have prevailed since 2005 on balance. Significant net percentages of domestic banks reported that current levels of standards are tighter than the respective midpoints of the historical ranges on loans for construction and land development purposes and on nonfarm nonresidential loans. A moderate net percentage of banks reported that the lending standards are tighter than the midpoint of the historical range on loans secured by multifamily residential properties. Banks’ reported levels of CRE lending standards were similar to those reported in the July 2018 survey across CRE loan categories, except for nonfarm nonresidential loans, for which lending standards are reportedly tighter.
Regarding RRE loans, banks reported that lending standards for all RRE loan categories remained at the relatively tighter ends of the ranges of those standards since 2005 on balance. Subprime residential mortgages make up the category whose level was most consistently reported as being tight, with a significant net share of banks reporting that standards are currently at the tighter end of the range since 2005. Additionally, a moderate net share of banks reported relatively tight standards on jumbo residential loans and HELOCs. The net shares of banks that reported their lending standards were at the relatively tighter ends of the ranges since 2005 have declined across most RRE loan types, compared with the July 2018 survey.
On balance, significant net shares of banks reported that the levels of their standards on both auto and credit card loans to subprime borrowers are currently at the relatively tighter ends of their respective ranges since 2005. However, standards are reportedly around the midpoint of the historical range both for credit card loans and auto loans to prime borrowers and for consumer loans other than credit card and auto loans. On net, this year’s responses on banks’ current levels of lending standards for credit card and auto loans are generally in line with those reported in the July 2018 survey. However, the net shares of banks reporting that their standards for subprime credit card and auto loans are currently at the tighter end of the range since 2005 have declined relative to last year.
This document was prepared by Camelia Minoiu, with the assistance of Max Gross, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Responses were received from 74 domestic banks and 22 U.S. branches and agencies of foreign banks. Respondent banks received the survey on June 24, 2019, and responses were due by July 5, 2019. Unless otherwise indicated, this summary refers to the responses of domestic banks. 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.
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
3. Large banks are defined as banks having $50 billion or more in total assets as of March 31, 2019. Return to text
4. The seven categories of residential home-purchase loans that banks are asked to consider are government-sponsored enterprise (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