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The July 2021 Senior Loan Officer Opinion Survey on Bank Lending Practices

The July 2021 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 2021.¹

Regarding loans to businesses, respondents to the July survey, on balance, reported easier standards and stronger demand for commercial and industrial (C&I) loans to firms of all sizes over the second quarter.² For commercial real estate (CRE), standards on multifamily and construction and land development loans eased, while standards on loans secured by nonfarm nonresidential properties remained basically unchanged. Banks reported stronger demand for all CRE loan categories.

For loans to households, banks eased standards across most categories of residential real estate (RRE) loans, on net, and reported stronger demand for most types of RRE loans over the second quarter. Banks also eased standards and reported stronger demand across all three consumer loan categories—credit card loans, auto loans, and other consumer loans.

The survey included an additional 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 subprime consumer loans and most categories of commercial or residential mortgages, banks reported currently having relatively tighter levels of lending standards on net. However, the reported levels of lending standards eased for all loan categories relative to the July 2020 survey.

Additionally, banks were asked to report when standards reached their easiest and tightest points since 2005. Most banks reported that standards were easiest between 2005 and 2007 and tightest between 2008 and 2010, indicating that the ranges of standards in consideration have not changed significantly since 2011—the first year that special questions on the levels of standards were asked.

Lending to Businesses

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

Questions on commercial and industrial lending. Over the second quarter, banks reported having eased standards and terms on C&I loans to firms of all sizes. On net, significant shares of banks reported having eased standards on loans to large and middle-market firms and small firms.³ Banks eased all queried lending terms on loans to large and middle-market firms and eased most their lending terms on loans to small firms.⁴ Easing was most widely reported for spreads of loan rates over the cost of funds and costs of credit lines, with significant net shares of banks reporting easing these terms for C&I loans to small and large and middle-market firms. Additionally, significant net shares of banks reported easing the following terms on C&I loans to large and middle-market firms: the maximum size of credit lines, loan covenants, the use of interest rate floors, and premiums charged on riskier loans. Other C&I loan terms were either eased by a modest share of banks or remained basically unchanged on net. Foreign banks reported having left standards and most of their lending terms on C&I loans unchanged. However, a moderate net share of foreign banks reported narrowing spreads of loan rates over the cost of funds, and modest net shares eased loan covenants and risk premiums.

Major net shares of banks that reported easing standards or terms cited a more-favorable or less uncertain economic outlook, more-aggressive competition from other banks on nonbank lenders, and improvements in industry-specific problems as important reasons for doing so. Significant net shares of banks also mentioned increased tolerance for risk and improvements in their current or expected liquidity or capital positions as important reasons for easing lending standards and terms.

Regarding demand for C&I loans over the second quarter, modest net shares of banks reported stronger demand from small and large and middle-market firms. Furthermore, a significant net share of banks reported a higher number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines over the second quarter. Meanwhile, a modest net fraction of foreign banks reported stronger demand for C&I loans.

Major shares of banks that reported stronger demand cited increases in customers’ needs to finance inventory, accounts receivable, investment in plant or equipment, and mergers and acquisitions as important reasons for stronger demand. Most of the banks that reported weaker demand cited an increase in customers’ internally generated funds as an important reason.

Questions on commercial real estate lending. Over the second quarter, moderate and modest net shares of banks reported easing standards on multifamily loans and construction and land development loans, respectively. Meanwhile, standards on nonfarm nonresidential loans remained basically unchanged on net.

Significant net shares of banks reported stronger demand for multifamily loans and construction and land development loans, while a moderate net share of banks reported stronger demand for loans secured by nonfarm nonresidential properties. A modest net share of foreign banks eased standards on CRE loans, while a moderate net share of foreign banks reported stronger demand for such loans.

Lending to Households

(Table 1, questions 13–26)

Questions on residential real estate lending. Over the second quarter, banks eased lending standards for most mortgage loan categories and for revolving home equity lines of credit (HELOCs).⁵ The two exceptions were for government-sponsored enterprise (GSE)-eligible mortgages—for which standards were basically unchanged on net—and for subprime mortgages, which few banks reported as originating. The easing in residential mortgage standards was most widely reported for jumbo loans, with significant net shares of banks reporting easing standards for qualified mortgage (QM) jumbo mortgages and non-QM jumbo mortgages.

Banks also reported stronger demand for most RRE loan categories over the second quarter. The three exceptions were for government residential mortgages and HELOCs—for which demand was basically unchanged on net—and for subprime residential mortgage loans. The strengthening in demand was most pronounced for jumbo loans, with significant net shares of banks reporting stronger demand for QM and non-QM jumbo mortgages.

Questions on consumer lending. Over the second quarter, a significant net share of banks eased standards for credit card loans, and moderate net shares of banks eased standards for auto loans and for other consumer loans. Consistent with easier lending standards, a significant net share of banks reduced the minimum required credit score on credit card loans, and moderate net shares of banks did so on auto and other consumer loans. Additionally, a significant net share of banks increased credit limits on credit card accounts. Other surveyed terms on consumer loans either remained basically unchanged, on net, or had a modest net share of banks report easing.⁶

Regarding demand for consumer loans, significant net shares of banks reported stronger demand for auto and credit card loans, and a modest net share of banks reported stronger demand for other consumer loans.

Special Questions on Current Level of Banks' Lending Standards

(Table 1, questions 27–29; table 2, questions 9–11)

As with all July surveys since 2011, the July 2021 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.

In addition to the annual special questions on the current level of standards, in this edition of the July survey, banks were also asked to report when standards reached their easiest and tightest points since 2005. Most banks reported that standards were easiest between 2005 and 2007 and tightest between 2008 and 2010 across all loan categories. These results indicate that the ranges of standards in consideration have not changed in a significant way over the course of the pandemic, facilitating comparisons of the levels of standards over time.

Overall, responses to the July 2020 and 2021 surveys indicate that banks’ lending standards have eased notably since 2020. For all loan categories, the net shares of banks reporting standards on the tighter end of their range fell enough to offset most of last year’s increase.⁷

For C&I loans, banks reported levels of standards that were easier, on net, than the midpoints of their historical ranges for all C&I loan categories. Banks’ responses regarding the current level of lending standards were basically unchanged, on net, relative to the July 2019 survey.

Among foreign banks, respondents reported C&I loan standards that are tighter than the midpoints of their historical ranges, except for syndicated loans to investment-grade borrowers, for which standards were near the midpoint. For all such categories, the levels of standards have eased since the July 2020 survey but remain tighter than the levels reported in 2019.

For CRE loans, banks reported standards that are tighter than the midpoints of their historical ranges for nonfarm nonresidential loans and construction and land development loans, and standards that are near the midpoint of the range for multifamily loans. The net shares of banks reporting standards on the tight end of their ranges fell since 2019 for all CRE categories, driven entirely by smaller banks—the levels of CRE standards tightened, on net, since 2019 for large and foreign banks.

Regarding RRE loans, moderate net shares of banks reported that lending standards for residential mortgages—GSE-eligible, government, and jumbo mortgages—were on the tight ends of their ranges, while a significant net share of banks reported standards for HELOCs were on the tight end of their range. Though the net shares of banks reporting relatively tight standards have declined since the 2020 survey, they are still higher than in the 2019 survey for most RRE categories.

Regarding consumer loans, standards for prime auto and credit card loans are near the midpoints of their historical ranges, while standards for subprime auto and credit card loans and for other consumer loans are on the tight end of their historical ranges. Banks’ responses regarding the levels of standards for consumer loans were generally in line with those from the 2019 survey.

This document was prepared by David Glancy, with the assistance of Quinn Danielson, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

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