October 2013
The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices
Current survey | Full report (353 KB PDF)Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)
The October 2013 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. Domestic banks, on balance, reported having eased their lending standards and having experienced little change in loan demand, on average, over the past three months. The survey contained two sets of special questions. Motivated by the increase in long-term interest rates since the spring, the first set of questions asked banks to describe whether they had experienced changes in the volume of applications for residential mortgages and whether they had changed lending policies for new home-purchase loans. The second set of questions examined the standards and terms on subprime auto loans over the past 12 months. This summary is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.1
Regarding loans to businesses, the October survey results generally indicated that banks eased their lending policies for commercial and industrial (C&I) loans and experienced little change in demand for such loans over the past three months.2 All domestic banks that eased their C&I lending policies cited increased competition for such loans as an important reason for having done so. Almost all foreign respondents indicated that their standards remained basically unchanged and that, on balance, they had experienced insignificant change in demand for C&I loans in the third quarter. On net, domestic and foreign institutions also reported having eased standards and experienced increased demand for commercial real estate (CRE) loans.
The survey results also indicated that banks, on average, did not substantially change standards or terms on lending to households. Modest net fractions of respondents reported having eased standards on prime residential mortgage loans, with a few large banks indicating they had eased standards on those loans.3 Modest fractions of banks reported, on net, weaker demand for prime and nontraditional mortgage loans. Most banks reported that the volume of mortgage refinancing applications received has fallen since the spring, and, in response, some banks have reportedly changed their lending policies and activities in the market for home-purchase loans. Standards on credit cards and other loans remained unchanged for most respondents, and a modest net fraction of banks reported having eased standards on auto loans. Most banks reported little change in terms on consumer loans, except for auto loans, for which a modest fraction of banks, on balance, reported having increased the maximum maturity and reduced the loan rate spreads.
Business Lending
(Table 1, questions 1–12; Table 2, questions 1–8)
Questions on commercial and industrial lending. A modest fraction of domestic survey respondents, on net, indicated that they had eased their standards for C&I loans to firms of all sizes over the third quarter of 2013.4 On balance, almost all terms on C&I loans were reportedly eased, regardless of firm size. In particular, a large net fraction of respondents indicated that they had decreased spreads on C&I loan rates over their bank's cost of funds for all firm sizes. In addition, moderate net fractions of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes. A modest fraction of banks reported, on net, that they had eased loan covenants, though primarily to large firms.
Among domestic respondents that reported having eased either standards or terms on C&I loans over the past three months, all banks cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. About one-third of respondents that reported having eased their C&I loan policies also cited a more favorable or less uncertain economic outlook as a reason for having done so. Similarly, one-third of those respondents indicated increased tolerance for risk as being an important reason for easing. In addition, modest fractions of banks indicated increased liquidity in the secondary market for C&I loans and improvement in banks' current or expected liquidity positions as important reasons for easing standards and terms on these loans.
Regarding changes in demand for C&I loans in the third quarter, for both small businesses and larger firms, the number of banks that reported having experienced weaker demand was about the same as the number of banks that experienced stronger demand. Banks reporting stronger loan demand most often cited as reasons increases in customers’ merger or acquisition financing needs, and customers’ increased need to fund investment in plant or equipment, inventories, and accounts receivable. About one-half of banks experiencing stronger demand also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive. Banks reporting weaker demand for C&I loans most often cited as reasons decreases in customers' funding needs related to investment in plant or equipment, inventories, or merger or acquisition financing needs. About one-half of domestic respondents that experienced weaker demand cited shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive, and less than one-half reported increases in their customers' internally generated funds.
Almost all foreign banks reported that they had kept their C&I lending standards basically unchanged over the past three months, except for three respondents, which reported having eased standards somewhat. On balance, foreign banks generally reported that terms on such loans were little changed. All but one of the foreign banks indicated that demand for C&I loans had remained the same over the third quarter.
Questions on commercial real estate lending. Starting with the October 2013 survey, the questions regarding CRE loans were asked separately for the three major CRE loan categories—construction and land development loans, loans secured by nonfarm nonresidential structures, and loans secured by multifamily residential structures. Small net fractions of banks reported that they had eased standards on each of the three categories of CRE loans, with the largest number of banks indicating having eased standards on loans secured by multifamily residential structures. Moderate net fractions of banks also indicated that they had experienced stronger demand for all subcategories of CRE loans.
Similarly to their domestic counterparts, a modest fraction of foreign banks reported having eased standards on CRE loans, and a moderate net fraction of foreign respondents reported having experienced stronger demand for such loans.
Lending to Households
(Table 1, questions 13–34)
Questions on residential real estate lending. On net, a moderate fraction of large banks reported that they had eased standards on prime residential mortgages over the past three months, while banks of smaller size had reportedly left their standards on these loans about unchanged. On balance, banks reported no significant change in their standards for nontraditional and subprime mortgages. Over the past three months, on net, banks reported having experienced weaker demand for prime and nontraditional mortgages. Few banks reported having changed their standards on home equity lines of credit, and a modest net fraction of banks indicated that they had seen increased demand for those products.
Special questions on residential real estate lending. The national average 30-year fixed-rate mortgage rate increased about 100 basis points from May 2013 to October 1, when the survey was sent to the respondents. The October 2013 survey included a set of special questions that asked banks about the effect of this increase in mortgage rates on their mortgage lending. On net, a moderate fraction of large banks and a modest fraction of small banks reported having experienced a lower volume of applications for home-purchase loans since the spring. The decrease in the volume of applications for mortgage refinancing was much more widespread, with more than 90 percent of respondents having reported that they have recently received moderately to substantially lower volumes of refinancing applications relative to the volume received in the spring. In response to the drop in the volume of applications for refinancing since the spring, large fractions of banks indicated that they had reduced the processing time for home-purchase loan applications and had increased their marketing of home-purchase loans to potential borrowers. On net, a moderate fraction of banks reported having reduced the staff allocated for processing applications for mortgages to purchase homes. However, very few banks reported having reduced origination and processing fees, or minimum required down payments and FICO scores for approving home-purchase loan applications, in response to the drop in refinancing demand since the spring. In addition, very few banks reported having become more likely to approve applications for new mortgages eligible for purchase by the government-sponsored enterprises from borrowers with combinations of FICO scores between 620 and 720 and down payments between 10 and 20 percent.
Meanwhile, a modest net fraction of banks reported that the composition of new mortgage applications, including applications for both home purchase loans and mortgage refinancing, shifted away from fixed-rate mortgages and toward adjustable-rate mortgages since the spring. Finally, a modest net fraction of banks reported that they expect an increase in the volume of applications for home-purchase loans over the next 12 months.
Questions on consumer lending. A modest fraction of domestic banks indicated that they were more willing to make consumer installment loans as compared with the previous quarter. Very few banks reported having changed their standards for approving applications for credit cards, and a modest fraction of banks reported having eased their standards for auto loans. Most terms on credit cards were little changed, except for credit limits, which a modest net fraction of banks reported having eased. A modest fraction of banks, on balance, reported having increased the maximum maturity of, and reduced the loan rate spreads on, auto loans. Most banks reported that they had kept their standards and terms on other consumer loans unchanged.
Only a modest fraction of banks, on net, reported having experienced an increase in the demand for auto loans over the past three months. In addition, almost all banks reported that demand for credit cards and other consumer loans did not significantly change over the same period.
Special questions on subprime auto lending. The October 2013 survey also asked banks to describe the changes in their terms for subprime auto loans over the past 12 months. Only 10 respondents indicated that they had originated such loans over the past year. For each of the surveyed terms on those loans—such as loan rate spreads, minimum required down payment, and credit score—not more than 3 of these 10 banks reported having eased at least one term.
This document was prepared by Marcelo Rezende and Vladimir Yankov, with the assistance of Nathan Lloyd, Shaily Patel, and Jane Brittingham, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Respondent banks received the survey on or after October 1, 2013, and responses were due by October 15, 2013. Return to text
2. For questions that ask about lending standards or terms, reported net fractions equal the fraction of banks that reported having tightened ("tightened considerably" or "tightened somewhat") minus the fraction of banks that reported having eased ("eased considerably" or "eased somewhat"). For questions that ask about demand, reported net fractions equal the fraction of banks that reported stronger demand ("substantially stronger" or "moderately stronger") minus the fraction of banks that reported weaker demand ("substantially weaker" or "moderately weaker"). Return to text
3. Of the 73 domestic banks, 37 were classified as large banks. Large banks are defined as those with total domestic assets of $20 billion or more as of June 30, 2013. Return to text
4. The survey asks respondents separately about their standards for and demand from large and middle-market firms, which are generally defined as firms with annual sales of $50 million or more, and small firms, those with annual sales of less than $50 million. Return to text