October 2007
The October 2007 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 October 2007 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 their lending policies for backup lines of credit for commercial paper programs and prime nonconforming residential mortgage loans. As in the past two surveys, banks were asked separately about changes in credit standards and demand for prime, nontraditional, and subprime residential mortgages. This article is based on responses from fifty-two domestic banks and twenty foreign banking institutions.
In the October survey, domestic and foreign institutions reported having tightened their lending standards and terms on commercial and industrial (C&I) loans over the previous three months. Both domestic and foreign institutions also reported a tightening of lending standards on commercial real estate loans. On net, domestic banks indicated that demand for C&I loans had weakened over the survey period, whereas foreign institutions reported that demand for these loans was little changed. Both domestic and foreign institutions noted weaker demand for commercial real estate loans over the past three months. In the household sector, domestic banks reported, on net, tighter lending standards and terms on consumer loans other than credit card loans, as well as tighter lending standards on prime, nontraditional, and subprime residential mortgages over the survey period. Lending standards on credit card loans were, by contrast, little changed. Demand for residential mortgages and consumer loans of all types had reportedly weakened, on net, over the past three months.
C&I Lending
(Table 1, questions 1–6; Table 2, questions 1–6)
In the October survey, about one-fifth of domestic institutions, on balance, reported that they had tightened their lending standards on C&I loans to large and middle-market firms over the past three months relative to the previous three months. While the net fraction of domestic respondents reporting tighter lending standards over the survey period was only somewhat higher than in the July survey, the fraction of domestic institutions that increased spreads of loan rates over their cost of funds increased sharply in the October survey, to about one-third. Domestic respondents also reported having tightened several other price-related terms on C&I loans to large and middle-market firms over the survey period: Significant net fractions of banks indicated that they had increased the cost of credit lines and premiums charged on loans to riskier borrowers. Regarding non-price-related terms, about one-fifth of domestic banks, on net, reported more stringent covenants on loans to large and middle-market firms.
Smaller net fractions of domestic banks reported that they had tightened their C&I lending policies for small firms over the past three months. On net, about one-tenth of respondents—a fraction similar to that in the July survey—reported tightening their lending standards on C&I loans to small firms, and about one-fifth of domestic institutions reported charging higher loan rate spreads on such loans.
Compared with domestic banks, larger net fractions of U.S. branches and agencies of foreign banks tightened their lending standards and terms on C&I loans over the past three months. About one-third of foreign respondents—up from one-eighth in the July survey—indicated that they had tightened their lending standards on C&I loans. About three-fourths of respondents widened spreads of loan rates over their cost of funds, and a similar net fraction indicated that they had increased the cost of credit lines and raised premiums charged on loans to riskier business borrowers.
Almost all domestic banks and U.S. branches and agencies of foreign banks that reported having tightened their lending standards and terms on C&I loans pointed to a less favorable or more uncertain economic outlook as a reason for having done so. Large majorities of both domestic and foreign respondents also cited decreased liquidity in the secondary market and reduced tolerance for risk as reasons for a move toward more-stringent lending policies. By contrast, relatively few respondents indicated that concerns about their banks’ capital or liquidity positions had contributed to the tightening of lending standards and terms.
The net fractions of domestic respondents that reported a weakening of demand for C&I loans from large and middle-market firms as well as small firms over the past three months were a bit smaller than in the July survey. About one-sixth of domestic respondents noted weaker C&I loan demand from large and middle-market firms, and less than one-tenth of banks indicated weaker demand from small firms. The demand for C&I loans at foreign institutions was reportedly about unchanged, on net, over the past three months. Regarding future business, about 15 percent of domestic respondents and 10 percent of foreign respondents reported that the number of inquiries from potential business borrowers had decreased relative to the previous three months.
Special Questions on Commercial Paper Backup Lines of Credit
(Table 1, question 7; Table 2, question 7)
According to the October survey, both domestic and to an even greater extent foreign institutions tightened, on net, their lending standards and terms for providing backup lines of credit for commercial paper programs over the past three months.2 About half of the domestic and three-fourths of the foreign respondents reported a tightening of lending standards and terms on backup credit lines for single-seller, multi-seller, and other types of asset-backed commercial paper programs. Furthermore, about 25 percent of domestic and 60 percent of foreign respondents reported that they had tightened lending standards and terms on credit lines for unsecured A2/P2-rated commercial paper programs; less than 10 percent of domestic and about 40 percent of foreign respondents indicated that they had instituted more-stringent lending policies on credit lines for A1/P1-rated commercial paper programs.
Commercial Real Estate Lending
(Table 1, questions 8–9; Table 2, questions 8–9)
The net fraction of domestic banks that reported having tightened their lending standards for commercial real estate loans over the past three months increased notably, to 50 percent, relative to the July survey. The net fraction of foreign institutions that reported tightening their lending standards on such loans was, at about 40 percent, little changed compared with the July survey. Regarding demand, approximately 35 percent of domestic and foreign institutions—up from about 25 percent in the July survey—reported that demand for commercial real estate loans had weakened over the survey period.
Residential Real Estate Lending
(Table 1, questions 10–11)
In the October survey, significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents indicated that their lending standards had remained basically unchanged. About 40 percent of respondents indicated that they had tightened their lending standards on prime mortgages, compared with only about 15 percent that reported having done so in the July survey.3 Of the forty banks that originated nontraditional residential loans, 60 percent—up from around 40 percent in the July survey—reported a tightening of their lending standards on such loans over the past three months.4 Finally, five of the nine banks that originated subprime mortgage loans noted that they had tightened their lending standards on such loans—a proportion about as large as in the July survey.5
About half of the domestic respondents, on net, indicated that demand for prime, nontraditional, and subprime residential mortgages had weakened over the past three months. The net fractions reporting weaker demand for prime and nontraditional mortgage loans increased notably compared with the July survey, whereas the net fraction reporting weaker demand for subprime loans was only slightly larger than in July.
Special Questions on Prime Jumbo Mortgage Lending
(Table 1, questions 12–14)
On net, about 45 percent of domestic respondents indicated that the volume of their banks’ originations for prime residential mortgage loans that were above the conforming loan limit set by the Office of Federal Housing Enterprise Oversight (prime jumbo mortgages) had declined over the survey period.6 About 35 percent of respondents reported that the share of new prime jumbo mortgage originations that was securitized over the survey period had declined relative to the previous three months; the remaining respondents indicated that there had been no substantial change in the share of such securitizations. Domestic banks tightened several lending terms on prime jumbo loans over the past three months. In particular, significant fractions of respondents reported that they had increased loan fees and spreads of mortgage loan rates over their cost of funds and that they had required more stringent income and asset documentation as well as higher minimum downpayments.
Consumer Lending
(Table 1, questions 15–20)
About one-fourth of domestic banks—up from about 10 percent in the July survey—reported that they had tightened their lending standards on consumer loans other than credit card loans over the past three months. Also, moderate net fractions of banks indicated that they had tightened lending terms and conditions on such loans; in particular, they reduced the extent to which such loans were granted to customers who did not meet credit scoring thresholds, and increased minimum credit scores and spreads of loan rates over their cost of funds. A few banks indicated a diminished willingness to make consumer installment loans relative to three months earlier. Lending standards and terms on credit card loans were little changed, on balance, over the past three months, although one-tenth of respondents, on net, reported that they had widened spreads of loan rates over their cost of funds on such loans. About one-fourth of domestic institutions indicated that they had experienced weaker demand for consumer loans of all types, a slightly larger net percentage than in the July survey.
1Banks received the survey in early October, and their responses were due October 18. Return to text
2The number of domestic respondents to this set of special questions varied from nineteen to twenty-eight, depending on the question. According to Call Reports, these institutions accounted for between 40 percent and 50 percent of C&I loans on the books of all domestic commercial banks as of June 30, 2007. The number of foreign respondents varied from fourteen to seventeen; these institutions accounted for between 40 percent and 55 percent of C&I loans on the books of all U.S. branches and agencies of foreign banks as of June 30, 2007. Return to text
3Forty-nine institutions reported that they had originated prime residential mortgages. According to Call Reports, these forty-nine banks accounted for about 75 percent of residential real estate loans on the books of all commercial banks as of June 30, 2007. Return to text
4According to Call Reports, these forty institutions accounted for about 70 percent of residential real estate loans on the books of all commercial banks as of June 30, 2007. Return to text
5According to Call Reports, these nine institutions accounted for about 45 percent of residential real estate loans on the books of all commercial banks as of June 30, 2007. Return to text
6The number of domestic respondents to this set of special questions varied from thirty to forty-seven depending on the question. According to Call Reports, these institutions accounted for between 60 percent and 70 percent of residential real estate loans on the books of all commercial banks as of June 30, 2007. Return to text
This document was prepared by David Lucca with the assistance of April Gifford and Isaac Laughlin, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.