Senior Loan Officer Opinion Survey on
Bank Lending Practices
The May 2000 Senior Loan Officer Opinion Survey on Bank Lending Practices(BLPS) focused primarily on changes in the supply of, and demand for, bank loans to
businesses and households over the past three months. Supplementary questions
addressed the effect of conditions in the high-yield bond market on demand for C&I
loans, changes in terms on residential real estate lending over the past two years, the
distribution of loan-to-value ratios on home mortgage originations during the last three
months, and loans to purchase and carry securities. Loan officers from fifty-seven
large domestic banks and twenty-one U.S. branches and agencies of foreign banks
participated in the survey. The responses indicate that banks became significantly
more cautious lenders over the past three months.
The survey results point to an intensification of the recent tendency toward firmer
business lending practices. The percentage of domestic banks tightening standards on
C&I loans was the largest since the November 1998 survey, and the share of U.S.
branches and agencies of foreign banks that tightened standards also rose. Both
domestic and foreign banks tightened terms on C&I loans as well, particularly risk
premiums, most commonly citing a less certain or more unfavorable economic outlook
as the reason. In addition, a notable fraction of banks raised standards for commercial
real estate loans.
A modest net fraction of domestic banks noted that demand for C&I loans from large
and middle-market firms had decreased somewhat over the past three months, while a
few banks, on net, noted somewhat stronger demand from small firms. Meanwhile, 45
percent of the foreign branches and agencies, on net, reported weaker demand.
Nonetheless, many domestic and foreign banks reported that demand for C&I loans had
been boosted by unfavorable conditions in the high-yield bond market, and most were
fairly receptive to these customers.
In general, standards for residential mortgage loans were unchanged relative to three
months ago. However, relative to two years ago, a significant fraction of banks
reported having eased terms on residential mortgages, including increases in the
maximum size of loans and lower spreads of loan rates over their cost of funds. As in the past three surveys, a large fraction of banks reported that demand for home
mortgages had weakened. A notable fraction of banks also reported a modest
decrease in demand for consumer loans. Most respondents reported no change in their
willingness to make consumer installment loans.
Banks reported that the pickup in loans to purchase and carry securities since last fall
was the result of strong demand from nonbank brokers and dealers as well as from
private banking and retail clients. Most security loans are made to brokers and
dealers. Most banks indicated that a very large percentage of their security loans are
collateralized. At domestic banks, the most common form of collateral is equity
instruments, whereas at foreign branches and agencies, U.S. government and agency
securities were almost as commonly used for collateral as equities.
Almost a quarter of domestic respondents reported tightening standards on C&I loans to large and middle-market firms over the past three months, more than double the 11
percent last quarter. For large and middle-market firms, the percentage of banks
tightening was the largest since the November 1998 survey, and for small firms the
percentage tightening rose above that level, to 21 percent. The share of U.S. branches
and agencies of foreign banks reporting tighter lending standards also rose, to 33
percent, on net. Similarly, more than 20 percent of domestic and foreign banks
reported somewhat tighter standards on commercial real estate loans. No domestic
banks indicated that they had eased standards on either C&I or commercial real estate
Large fractions of banks also reported a further tightening of lending terms. For large
and middle-market firms, 49 percent of domestic respondents and 43 percent of
foreign branches and agencies, on net, reported higher premiums on riskier loans. In
addition, more than a third of domestic banks, on net, charged higher fees and
increased spreads of loan rates over their cost of funds. Significant fractions of
foreign banks increased fees and reduced the maximum size of credit lines. For small
firms, 36 percent of domestic banks reported charging higher spreads on riskier loans,
and smaller fractions of banks also tightened all terms mentioned in the survey.
Among both foreign and domestic banks that had tightened standards or terms on C&I
loans, a less favorable or more uncertain economic outlook and a reduced tolerance for
risk were most often reported as reasons for the tightening. A worsening of industry-
specific problems was also mentioned by a substantial fraction of banks.
Almost 20 percent of domestic banks reported stronger loan demand from large and
middle-market firms, while more than 25 percent saw weaker loan demand. A small
net fraction of banks reported stronger demand from small firms. Domestic banks
reporting stronger demand cited a wide variety of reasons as important; banks
reporting weaker demand for C&I loans most commonly cited reduced business fixed
investment as the reason. Meanwhile, 45 percent of the foreign branches and agencies, on net, reported weaker demand for C&I loans, reflecting reduced need for
merger and acquisition financing and increases in their customers internally generated
funds. On net, a small fraction of domestic banks reported moderately stronger
demand for commercial real estate loans; in contrast, 25 percent of foreign respondents
reported weaker demand.
Two special questions addressed the extent to which C&I lending has been affected by
developments in the market for below-investment grade bonds over the past year. A
large fraction of domestic respondents, and more than 40 percent of large banks,
reported that demand has been somewhat strengthened by below-investment grade
borrowers that have turned to banks because of unfavorable conditions in the high-
yield bond market. Out of sixteen banks that reported additional demand, ten reported
having been fairly receptive, five reported having been fairly unreceptive, and one
bank reported having been very unreceptive to these customers. Almost half of the
branches and agencies reported stronger demand, with most having been fairly
The decrease in the demand for home mortgage loans continued in May. On net, 43 percent of respondents reported weaker demand than three months ago. Banks have
now reported weaker demand for home mortgage loans, on net, for four consecutive
quarters. Over the past three months, three banks eased their credit standards for
approving residential mortgage loans, with all others keeping standards unchanged.
A special question revealed that terms on residential mortgage loans are generally less
stringent, on net, than they were two years ago. On net, almost half of the banks
surveyed have increased the maximum size of residential mortgages that they are
willing to approve, about 30 percent have reduced the spread of loan rates over their
banks cost of funds. About 20 percent of domestic respondents, on net, also indicated
that they have lowered origination fees relative to two years ago.
On balance, banks indicated that they are more willing to make high loan-to-value
loans than they were two years ago. More than 30 percent of the respondents noted
that they have eased their down-payment requirements, while just three banks reported
that they had tightened requirements. Nonetheless, more than half of residential
mortgage loans originated at banks in the past three months had a down-payment
greater than 20 percent, and almost 80 percent of loans were made with more than 10
A small number of domestic banks reported less willingness to make consumer
installment loans as compared with three months ago. Standards and terms for both
credit card and other consumer loans also remained unchanged at most banks.
However, a few banks reported a moderate tightening of standards, and about 10
percent of banks, on net, reported charging higher spreads over banks cost of funds
on consumer loans other than credit card loans. On net, 22 percent of domestic banks
reported moderately weaker demand for all types of consumer loans.
Loans to purchase and carry securities expanded rapidly late last year and in the early months of 2000; a series of special questions addressed banks activities in the market
for such loans.1 Domestic respondents indicated that the expansion of security loans resulted from a significant increase in demand from nonbank brokers and dealers;
many also noted increased demand from private banking and other retail customers.2 One bank noted that the broker-dealers were in turn using the loans to finance their
customers, and another reported that the demand was being spurred by high equity
Domestic banks reported that 62 percent of their loans to purchase and carry securities
were made to nonbank brokers and dealers, while 28 percent went to private banking
and other retail customers. At branches and agencies of foreign banks, almost all
security loans were made to nonbank brokers and dealers, mutual funds, or other
financial institutions. Only a minority of security loans at domestic and foreign banks
are made under commitment.
Banks accounting for 75 percent of all security loans at domestic respondents reported
that more than three-quarters of their loans to purchase and carry securities are
collateralized. Equity instruments are the most common forms of collateral, especially
for retail customers. At branches and agencies, collateral was somewhat less common
and was more likely to be U.S. government securities or other debt instruments.
1. Loans to purchase and carry securities are defined to include all loans made to nonbank brokers and dealers and all loans, whether secured (except by real estate) or unsecured, to any other borrower for the purpose of purchasing or carrying securities.
Responses are weighted by the weekly average of security loans outstanding in April.
Charts (15.5 KB PDF)
Measures of lending practices from current and previous surveys
Chart data (ASCII)
Table 1 (35.6 KB PDF)
Table 2 (18.7 KB PDF)
Full report (86 KB PDF)
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Last update: May 19, 2000