The October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices
Table 1 | Table 2 | Chart data
Table 1 (PDF) | Table 2 (PDF) | Charts (PDF)

The October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices

The October 2017 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, which generally corresponds to the third quarter of 2017.¹ Responses were received from 72 domestic banks and 23 U.S. branches and agencies of foreign banks; except when indicated, this summary refers to the responses of domestic banks.

Regarding loans to businesses, respondents to the October survey indicated that, on balance, banks eased their standards and terms on commercial and industrial (C&I) loans and experienced weaker demand for such loans.² Meanwhile, banks' standards on most categories of commercial real estate (CRE) loans remained basically unchanged, while demand for CRE loans reportedly weakened.

For loans to households, banks reported that their lending standards on all categories of residential real estate (RRE) loans either eased or remained basically unchanged over the third quarter on balance, and that demand for all categories of RRE loans weakened. In contrast, banks reportedly tightened their standards and terms on credit card and auto loans, while demand for these loans reportedly remained basically unchanged.

Banks also responded to two new sets of special questions about changes in lending conditions to households over the past year. The first set asked banks to specify reasons why they have changed their credit policies on credit card and auto loans to prime and subprime borrowers over this year. Respondents' most reported reasons for tightening their standards or terms on credit card and auto loans were a less favorable or more uncertain economic outlook, a deterioration or expected deterioration in the quality of their existing loan portfolio, and a reduced tolerance for risk. Further, for auto loans in particular, less favorable or more uncertain expectations regarding collateral values was also reportedly an important reason for tightening standards or terms over this year.

The second set of special questions asked banks for their views as to why they have experienced stronger or weaker demand for credit card and auto loans over this year. Some of the most reported reasons for a strengthening of demand for credit card and auto loans from prime borrowers were that customers' confidence as well as their ability to manage their debt service burdens had improved. Some of banks' most reported reasons for a weakening of demand for credit card and auto loans from prime borrowers over this year were that the general level of interest rates had increased and customers' borrowing had shifted from their bank to other bank or nonbank sources.

Lending to Businesses
(Table 1, questions 1–12; Table 2, questions 1–8)

Questions on commercial and industrial lending. On balance, modest net percentages of banks reported that they eased standards for C&I loans to firms of all sizes over the past three months.³ Further, terms on such loans became less restrictive, on balance, with all loan terms either having been eased or having remained basically unchanged.

Specifically, for C&I loans to large and middle-market firms, a significant net percentage of banks reportedly decreased spreads of loan rates over their bank's cost of funds; moderate net shares of banks reportedly increased the maximum size of their credit lines, lessened their use of interest rate floors, and eased loan covenants; and a modest net share decreased the cost of credit lines. Banks also eased some terms for C&I loans to small firms: A moderate net fraction reportedly decreased spreads of loan rates over their bank's cost of funds and lessened their use of interest rate floors; a modest net fraction increased the maximum size of their credit lines and eased loan covenants; and banks reportedly left the cost of credit lines to these firms unchanged. Banks also reportedly left the maximum maturity of loans or credit lines, premiums charged on riskier loans, and collateralization requirements basically unchanged on net for all firm sizes.

Among the domestic respondents that reportedly eased their credit policies on C&I loans over the past three months, more aggressive competition from other bank or nonbank lenders was by far the most emphasized reason for easing. In particular, a majority of banks reported that more aggressive competition was an important reason for easing, with 14 of 29 respondents reporting it as a very important reason, while no other reason queried was cited by more than one bank as being very important.

Regarding the demand for C&I loans, a moderate net share of domestic banks reported that demand from large and middle-market firms weakened, while demand for such loans from small firms was reportedly unchanged on net. The reasons cited for weaker loan demand were less concentrated than the reasons for having eased standards. In particular, each of the following possible reasons for weaker demand was cited by at least half of the banks that reportedly experienced weaker demand: decreases in customers' needs to finance inventory, accounts receivable, investment in plant or equipment, and mergers or acquisitions. Meanwhile, inquiries from potential business borrowers regarding the availability and terms of new credit lines or increases in existing lines reportedly remained basically unchanged over the past three months on net.

A modest net share of foreign banks also reported easing their credit standards for C&I loans; these institutions also generally eased several terms on C&I loans. In particular, moderate net shares of foreign banks reduced the cost of credit lines and premiums charged on riskier loans while narrowing their spreads of loan rates over their bank's cost of funds. Also, modest net shares of foreign banks reportedly eased loan covenants and lessened their use of interest rate floors. Reportedly, foreign banks left the maximum size and maturity of loans or credit lines as well as collateralization requirements basically unchanged over the third quarter on net. Meanwhile, foreign banks reported that demand for C&I loans remained basically unchanged on balance. However, a significant net share of foreign banks reportedly experienced that inquiries from potential business borrowers regarding the availability and terms of new credit lines or increases in existing lines had increased in the third quarter.

Questions on commercial real estate lending. A significant net fraction of banks reported tightening their standards for loans secured by multifamily residential properties, while banks reportedly left standards for loans secured by nonfarm nonresidential properties and those for construction and land development purposes basically unchanged on net.

Banks also reported that demand for CRE loans weakened during the third quarter. A moderate net fraction of banks reported weaker demand for loans secured by multifamily residential properties, while modest net fractions of banks reported weaker demand for construction and land development loans and for loans secured by nonfarm nonresidential properties.

Meanwhile, a moderate net share of foreign banks reported tightening standards for CRE loans. In contrast to domestic respondents, a moderate net share of foreign banks indicated that demand for CRE loans strengthened in the third quarter.

Lending to Households
(Table 1, questions 13–26)

Questions on residential real estate lending. On balance, banks reported that standards for all surveyed categories of RRE lending either eased or remained basically unchanged over the past three months.⁴ Specifically, a moderate net share of banks reported easing underwriting standards for mortgages that are eligible to be securitized by government sponsored enterprises (GSE-eligible), while a modest net share of banks reported easing standards for jumbo mortgages that conform to qualified mortgage (QM) rules. Lending standards on non-QM jumbo, non-QM non-jumbo, QM non-jumbo, non-GSE-eligible, and government residential mortgages as well as on revolving home equity lines of credit reportedly remained basically unchanged on balance.⁵

Meanwhile, a moderate net share of banks reported weaker demand for all categories of RRE loans, and a modest net share of banks reported weaker demand for revolving home equity lines of credit.

Questions on consumer lending. A modest net share of banks reported tightening lending standards on credit card and auto loans, while standards on consumer loans other than credit card and auto loans (referred to as "other consumer loans") remained basically unchanged on balance. Also, a moderate net share of banks reported an increased willingness to make consumer installment loans.

Banks reported that they had tightened some terms on credit card and auto loans, on balance, while leaving other terms about unchanged. Regarding terms on credit card loans, modest net shares of banks reportedly increased their minimum required credit scores and decreased the extent to which loans are granted to some customers that do not meet credit scoring thresholds. The other terms queried for credit card loans—credit limits, loan spreads, and minimum percent of outstanding balances required to be repaid each month—reportedly remained basically unchanged on balance.

Banks reportedly tightened most terms surveyed for auto loans. A moderate net share of banks reportedly widened loan rate spreads, while modest net shares of banks reported increasing the minimum percent of outstanding balances required to be repaid each month and their bank's minimum required credit score and decreasing the extent to which loans are granted to some customers that do not meet credit scoring thresholds. Credit limits, which reportedly remained basically unchanged, were the lone exception to this tightening. Meanwhile, all terms on other consumer loans reportedly remained basically unchanged on balance.

Meanwhile, banks reported that demand for all categories of consumer loans reportedly remained basically unchanged in the third quarter on balance.

Special Questions on Reasons for Changes in Credit Policies for Credit Card and Auto Loans This Year
(Table 1, questions 27–28)

The October survey included a set of new special questions querying banks on their reasons for changing their standards or terms on credit card and auto loans to prime and subprime borrowers over this year. Major shares of banks reported that a less favorable or more uncertain economic outlook, a deterioration or expected deterioration in the quality of their existing loan portfolio, and a reduced tolerance for risk were important reasons for tightening their standards or terms on credit card and auto loans to prime and subprime borrowers. Major shares of banks also cited less favorable or more uncertain expectations regarding collateral values as an important reason for tightening standards or terms on auto loans to prime and subprime borrowers over this year.

A major share of banks also cited increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards as an important reason for tightening standards or terms on auto loans to subprime borrowers, while a significant share cited this as an important reason for tightening standards or terms on auto loans to prime borrowers. Only moderate shares of banks cited these concerns as important reasons for tightening standards or terms on credit card loans to prime and subprime borrowers. Meanwhile, significant shares of banks indicated that lower or more uncertain resale value for auto loans in the secondary market was an important reason for tightening standards or terms on auto loans to prime and subprime borrowers over this year. No more than 30 percent of banks listed a deterioration in their bank's current or expected capital or liquidity position or less aggressive competition from other banks or nonbank lenders as important reasons for tightening standards or terms on credit card and auto loans to prime and subprime borrowers.

Special Questions on Reasons for Changes in Demand for Credit Card and Auto Loans This Year
(Table 1, questions 29–30)

The October survey included a second set of new special questions querying banks on their views on the reasons for experiencing stronger or weaker demand for credit card and auto loans from prime and subprime borrowers over this year.

Of the banks reporting reasons for stronger demand for credit card loans from prime borrowers over this year, major shares of banks reported that customers' confidence and customers' ability to manage their debt service burdens had improved, while significant shares reported that the general level of interest rates had decreased, customers' propensity to fund purchases out of savings or income had decreased, and customers' borrowing had shifted to their bank from other bank or nonbank sources.

Major shares of banks reported that the following reasons were important in their seeing stronger demand for auto loans from prime borrowers this year: customers' confidence had improved, customers' ability to manage their debt service burdens had improved, customers' propensity to fund purchases out of savings or income had decreased, and customers' borrowing had shifted to their bank from other bank or nonbank sources. Meanwhile, significant shares of banks reported that a decreased general level of interest rates was an important reason for experiencing stronger demand for auto loans from prime borrowers.

Of the banks reporting reasons for weaker demand for credit card loans from prime borrowers over this year, major shares of banks reported that customers' confidence had deteriorated, the general level of interest rates had increased, and customers' borrowing had shifted from their bank to other bank or nonbank sources, while significant shares reported that customers' ability to manage their debt service burdens had deteriorated and customers' propensity to fund purchases out of savings or income had increased.

Major shares of banks reported that an increase in the general level of interest rates and that customers' borrowing had shifted from their bank to other bank or nonbank sources were important reasons for weaker demand for auto loans from prime borrowers this year. Meanwhile, significant shares of banks reported that customers' propensity to fund purchases out of savings or income had increased and that a deterioration in customers' confidence as well as in their ability to manage their debt service burdens were important reasons for weaker demand for such loans.

This document was prepared by Robert Kurtzman, with the assistance of Kamran Gupta, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

---

1. Respondent banks received the survey on or after September 25, 2017, and responses were due by October 10, 2017. Return to text

2. For questions that ask about lending standards or terms, "net fraction" (or "net percentage") refers to 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 loan demand, this term refers to 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"). For this summary, when standards, terms, or demand are said to have "remained basically unchanged," the net percentage of respondent banks that reported either tightening or easing of standards or terms, or stronger or weaker demand, is greater than or equal to 0 and less than or equal to 5 percent; "modest" refers to net percentages greater than 5 and less than or equal to 10 percent; "moderate" refers to net percentages greater than 10 and less than or equal to 20 percent; "significant" refers to net percentages greater than 20 and less than 50 percent; and "major" refers to net percentages greater than or equal to 50 percent. Return to text

3. The survey asked 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, which are those with annual sales of less than $50 million. Return to text

4. The seven categories of residential home-purchase loans that banks are asked to consider are GSE-eligible, government, QM non-jumbo non-GSE-eligible, QM jumbo, non-QM jumbo, non-QM non-jumbo, and subprime. See the survey results tables that follow this summary for a description of each of these loan categories. The definition of a QM was introduced in the 2013 Mortgage Rules under the Truth in Lending Act (12 CFR Part 1026.32, Regulation Z). The standard for a QM excludes mortgages with loan characteristics such as negative amortization, balloon and interest-only payment schedules, terms exceeding 30 years, alt-A or no documentation, and total points and fees that exceed 3 percent of the loan amount. In addition, a QM requires that the monthly debt-to-income ratio of borrowers not exceed 43 percent. For more on the ability to repay and QM standards under Regulation Z, see the Consumer Financial Protection Bureau's website at www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z. Return to text

5. In the text, we typically only summarize results from questions that received at least 10 responses. We do not report on subprime loans in this section, as only four lenders in our panel reportedly originate subprime residential mortgages. Return to text

Back to Top