April 2008
The April 2008 Senior Loan
Officer Opinion Survey
on Bank Lending Practices
Current survey | Full report (517 KB PDF)Table 1 | Table 2 | Chart data
Table 1 (68 KB PDF) | Table 2 (32 KB PDF) | Charts (15 KB PDF)
The April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.1 Special questions in the survey queried banks about changes in terms on home equity lines of credit and about their student loan programs. This article is based on responses from 56 domestic banks and 21 U.S. branches and agencies of foreign banks.
In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on a broad range of loan categories over the previous three months. The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey. Compared with the January survey, the net fractions of banks that tightened lending standards increased significantly for consumer and commercial and industrial (C&I) loans. Demand for bank loans from both businesses and households reportedly weakened further, on net, over the past three months, although by less than had been the case over the previous survey period.
Business Lending
(Table 1, questions 1-8; Table 2, questions 1-8)
Questions on C&I loans. About 55 percent of domestic banks—up from about 30 percent in the January survey—reported tightening lending standards on C&I loans to large and middle-market firms over the past three months. Significant majorities of respondents reported tightening price terms on C&I loans to these firms, and in particular, on net, about 70 percent of banks—up from about 45 percent in the January survey—indicated that they had increased spreads of loan rates over their cost of funds. In addition, smaller but significant net fractions of domestic banks reported tightening non-price-related terms on C&I loans to these firms over the past three months.
Regarding C&I loans to small firms, about 50 percent of domestic respondents reported tightening their lending standards on such loans over the survey period, compared with about 30 percent who reported doing so in the January survey. On net, about 65 percent of banks—up from about 40 percent in the January survey—also noted that they had increased spreads of C&I loan rates over their cost of funds for these firms. In addition, large net fractions of domestic respondents reported tightening other price-related terms, and smaller fractions tightened non-price-related terms on C&I loans to small firms.
About 60 percent of U.S. branches and agencies of foreign banks—a slightly smaller fraction than in January—noted that they had tightened lending standards on C&I loans over the past three months, and very large majorities also reported that they had tightened price terms on such loans. In particular, around 80 percent of foreign banks—about the same as in the January survey—reported increasing spreads of loan rates over their cost of funds. Finally, large fractions of foreign respondents reported tightening selected non-price-related terms over the past three months.
Substantial majorities of domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook and to a worsening of industry-specific problems as reasons for tightening their lending standards and terms on C&I loans over the past three months. In addition, significant majorities of respondents cited their banks’ reduced tolerance for risk and decreased liquidity in the secondary market for these loans. About 35 percent of domestic banks and 45 percent of foreign institutions—somewhat larger fractions than in the January survey—noted that concerns about their banks’ current or expected capital position had contributed to more-stringent lending policies over the past three months.
On net, about 15 percent of large domestic banks reported that demand for C&I loans from large and middle-market firms had increased over the past three months, but a similar net fraction of these banks reported weaker demand from small firms. In contrast, about 20 percent of small domestic banks, on net, reported weaker demand for C&I loans from all types of firms over the past three months. Finally, about 25 percent of foreign banks, on balance, reported weaker demand for C&I loans over the survey period.
The vast majority of large domestic banks that reported stronger loan demand from large and middle-market firms indicated that customer borrowing shifted to their banks from other bank or nonbank sources, as these other sources became less attractive for such borrowers. Substantial majorities of domestic and foreign institutions that reportedly experienced weaker loan demand over the past three months pointed to a decrease in customers’ needs to finance investment in plant and equipment. In addition, as reasons for a lower demand for C&I loans, the majority of domestic banks indicated that customers’ needs to finance inventories had declined, and all foreign respondents noted a decrease in customers’ needs for merger and acquisition financing. Regarding future business, about 20 percent of large domestic banks, on net, reported an increase in the number of inquiries from potential business borrowers over the past three months. In contrast, tiny net fractions of small domestic banks and foreign institutions indicated that inquiries from potential business borrowers had declined during the survey period.
Questions on commercial real estate loans. About 80 percent of domestic banks and 55 percent of foreign banks—fractions similar to those in the January survey—reported tightening their lending standards on commercial real estate loans over the past three months. Concerning loan demand, about 35 percent of domestic banks and 45 percent of foreign institutions reported weaker demand, on net, for commercial real estate loans over the past three months.
Lending to Households
(Table 1, questions 9-26)
Questions on residential real estate loans. Majorities of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months. About 60 percent of domestic respondents—a somewhat larger fraction than in the January survey—indicated that they had tightened their lending standards on prime mortgages.2 Of the 37 banks that originated nontraditional residential mortgage loans, about 75 percent—a somewhat smaller fraction than in the January survey—reported a tightening of their lending standards on such loans over the past three months.3 Finally, 7 of the 9 banks that originated subprime mortgage loans—a somewhat higher proportion than in the January survey—indicated that they had tightened their lending standards on such loans.4
About 25 percent of domestic respondents, on net, experienced weaker demand for prime residential mortgage loans over the past three months, and 30 percent indicated weaker demand for nontraditional mortgage loans over the same period. The net fractions of respondents that reportedly experienced weaker demand for these two types of loans in the current survey were significantly smaller than in the January survey. Finally, about 65 percent of domestic respondents—a net fraction similar to that in the January survey—reported weaker demand for subprime loans.
About 70 percent of domestic respondents—a somewhat higher fraction than in the January survey—indicated that they had tightened their lending standards for approving applications for home equity lines of credit (HELOCs) over the past three months. Regarding demand for these lines, about 20 percent of domestic banks, on net, reported weaker demand over the past three months.
Special questions on existing HELOCs. About 50 percent of domestic respondents reported having tightened terms on existing HELOCs over the past six months. Nearly all respondents pointed to declines in the value of the collateral significantly below the appraised value for the purposes of the HELOCs as reasons for tightening terms on these lines. Large majorities of respondents also cited increased defaults of material obligations under loan agreements, as well as significant changes in borrowers’ financial circumstances, as additional reasons for tightening terms on the existing HELOCs.
Questions on consumer loans. About 30 percent of domestic banks—up from around 10 percent in the January survey—reported that they had tightened their lending standards on credit card loans over the past three months. In addition, significant net fractions of respondents indicated that they had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds, reduced credit limits on credit card loans, and increased minimum required credit scores. On net, about 25 percent of domestic banks—up from around 15 percent in the January survey—expressed a diminished willingness relative to three months earlier to make consumer installment loans. About 45 percent of domestic banks—up from around 30 percent in the January survey—reported tightening lending standards on consumer loans other than credit card loans. Similar fractions of respondents indicated that they had widened spreads of loan rates over their banks’ cost of funds and had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds. Regarding loan demand, about 20 percent of respondents, on net, indicated that they had experienced weaker demand for consumer loans of all types over the previous three months, down notably from around 35 percent in the January survey.
Special questions on student loan programs. In the April survey, 29 domestic banks reported that they had originated student loans under the Federal Family Education Loan Program (FFELP) in the fall of 2007.5 Of these, about 40 percent, on net, expected that their commitments to provide these loans for the fall of 2008 will decrease relative to those made last year. In addition, about 45 percent of respondents, on net, expected the number of schools for which they will provide financing under the FFELP to decline relative to 2007, and about 60 percent of respondents expected to reduce the amount of borrower benefits on these loans relative to those provided in 2007.
Of the 20 banks that reported originating private-credit (non-FFELP) student loans in the fall of 2007, about 15 percent, on net, expected their commitments to provide these loans for the fall of 2008 to decline relative to 2007.6 In addition, about 40 percent of respondents expected a decline in the number of schools for which their banks will provide private-credit student loans this fall. Finally, about 55 percent of banks anticipated that, compared with 2007, they will increase private-credit student loan rate spreads over their cost of funds. Similar fractions of respondents also expected to tighten credit standards on private-credit student loans for the fall of 2008.
1Banks received the survey in early April, and their responses were due on April 17. Return to text
2A total of 53 institutions reported that they originated prime residential mortgages. According to Call Reports, these 53 banks accounted for about 80 percent of residential real estate loans on the books of all commercial banks as of December 31, 2007. Return to text
3According to Call Reports, these 37 institutions accounted for about 75 percent of residential real estate loans on the books of all commercial banks as of December 31, 2007. Return to text
4According to Call Reports, these 9 institutions accounted for about 50 percent of residential real estate loans on the books of all commercial banks as of December 31, 2007. Return to text
5According to Call Reports, these 29 banks accounted for about 60 percent of the assets on the books of all domestic commercial banks as of December 31, 2007. For additional information on the FFELP see: www.ed.gov/programs/ffel/index.html. Return to text
6According to Call Reports, these 20 banks accounted for about 55 percent of assets on the books of all domestic commercial banks as of December 31, 2007. Return to text
This document was prepared by David Lucca with the assistance of Oren Ziv, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.