Senior Loan Officer Opinion Survey on
Bank Lending Practices

The Federal Reserve conducted a supplementary Senior Loan Officer Opinion Survey on Bank Lending Practices in early March to assess changes in lending conditions since the beginning of the year.* The survey focused only on changes in the supply of and demand for bank loans to businesses. Loan officers from fifty-four large domestic banks and twenty-two U.S. branches and agencies of foreign banks participated in the survey. Overall, the responses indicated that business lending conditions at banks had tightened further since early January, while demand for business loans waned.

Lending to Businesses
(Table 1, questions 1-5; Table 2, questions 1-5)

The fraction of domestic banks that reported tightening lending standards since the beginning of the year remained in the very elevated range of recent surveys. In March, half of the domestic bank respondents reported applying somewhat stricter standards to applications for commercial and industrial (C&I) loans and credit lines by large and middle-market firms, and one bank indicated that it had tightened standards considerably. A slightly smaller percentage of domestic banks, 43 percent, reported that they had tightened standards on C&I loans to small firms. No bank indicated that it had eased standards over the previous two months. For comparison, in the January survey 60 percent of domestic banks reported stricter standards for large and medium -sized firms, while 45 percent tightened standards to small firms.

As in the previous survey, about two-thirds of the domestic respondents said that they had raised premiums on riskier loans to large and middle-market firms at least somewhat, including a significant fraction that had widened these spreads considerably. For small firms, 48 percent of banks reported charging somewhat higher premiums on riskier loans and 10 percent increased their premiums considerably. The fractions of domestic banks that toughened their policies for other loan terms in March were also similar to the shares reported in the January survey. On net, about 50 percent of domestic banks reported that they increased the fees associated with credit lines, charged higher spreads over their cost of funds, tightened loan covenants, and raised collateral requirements for C&I loans to large and middle-market firms. Between a quarter and a third of domestic banks, on net, toughened these terms on C&I loans to small firms.

The percentage of branches and agencies of foreign banks that reported stricter standards on C&I loans fell to 46 percent in March from more than 80 percent in January. Substantial numbers of foreign respondents also reported further tightening of loan terms during the first two months of the year. About 60 percent of foreign institutions reported charging somewhat higher premiums on riskier loans, down a fair bit from more than 80 percent in January. More than 40 percent of foreign banks reported a general increase in spreads over their cost of funds, down from 75 percent in January. In addition, 55 percent of foreign banks tightened loan covenants and 50 percent raised collateral requirements, compared with 58 percent and 46 percent in January, respectively.

More than half of the domestic respondents indicated that a less favorable economic outlook was a very important factor in their decision to tighten standards or terms, and almost all domestic banks claimed that the economic outlook was at least a somewhat important factor. About a third of the domestic banks also reported that a worsening of industry-specific problems and a reduced tolerance for risk were very important reasons for tightening. In addition, many domestic banks mentioned continued defaults by below-investment-grade borrowers in public debt markets as a somewhat important reason for tightening. Interestingly, some respondents also commented in this context on the rapid deterioration in certain investment-grade credits. At branches and agencies of foreign banks, a worsening of industry-specific problems and a less favorable or more uncertain economic outlook were, on average, the most important reasons given for tightening.

Respondents indicated that demand for C&I loans weakened further since the beginning of the year. On net, more than 40 percent of domestic banks and 23 percent of foreign branches and agencies reported moderately or substantially weaker demand for C&I loans, compared with 50 percent and 20 percent, respectively, in January. Both domestic and foreign respondents cited their customers reduced investment in plant and equipment as the most important reason for diminished demand, followed by a decrease in the need for merger and acquisition financing. Among the few banks that reported higher demand for C&I loans, a decrease in internally generated funds was most often cited as an important or very important reason.

*Ordinarily, the Senior Loan Officer Opinion Survey is carried out on a quarterly basis, but the Federal Reserve has the authority to conduct up to six surveys a year.

The charts and tables for this report are available in Acrobat (PDF) format. Obtaining the Acrobat Reader

Chart (6.9 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)

Table 1 (11.2 KB PDF)
Summary of responses from U.S. banks

Table 2 (8.5 KB PDF)
Summary of responses from branches and agencies of foreign banks

Full report (25.2 KB PDF)