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The October 2021 Senior Loan Officer Opinion Survey on Bank Lending Practices

The October 2021 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 correspond to the third quarter of 2021.¹

Regarding loans to businesses, respondents to the October survey, on balance, reported easier standards and stronger demand for commercial and industrial (C&I) loans to large and middle-market firms over the third quarter. Banks also reported easier standards for C&I loans to small firms, while demand from small firms remained basically unchanged.² For commercial real estate (CRE), banks reported easier standards for all loan categories. Banks also reported stronger demand for multifamily loans and for loans secured by nonfarm nonresidential properties, while demand for construction and land development loans remained basically unchanged. For loans to households, banks eased standards across most categories of residential real estate (RRE) loans, on net, and reported weaker demand for most types of RRE loans over the third quarter. Banks also eased standards across all three consumer loan categories—credit card loans, auto loans, and other consumer loans—while reports on demand for consumer loans were mixed.

The survey included a set of special questions inquiring about the current level of demand relative to pre-pandemic levels (defined as the end of 2019) for C&I and credit card loans, as well as banks’ outlook for demand for such loans over the next six months. On balance, banks reported weaker levels of demand for all queried C&I and credit card loan categories compared with the end of 2019, and that they expect stronger demand for both C&I and credit card loans over the next six months.

Lending to Businesses

(Table 1, questions 1–12; table 2, questions 1–8)

Questions on commercial and industrial lending. Over the third quarter, banks generally reported having eased standards and terms on C&I loans to firms of all sizes. On net, moderate shares of banks reported having eased standards on loans to large and middle-market firms and small firms.³ Banks also eased most queried lending terms on loans to firms of all sizes.⁴ Easing was most widely reported for spreads of loan rates over the cost of funds, with significant net shares of banks reporting having eased these terms for C&I loans to firms of all sizes. Additionally, a significant or moderate net share of banks reported having eased the following terms on C&I loans to large and middle-market firms: the maximum size of credit lines, cost of credit lines, use of interest rate floors, and loan covenants. Regarding small firms, moderate net shares of banks also reported reducing the cost and increasing the maximum size of credit lines. Other queried C&I loan terms for firms of all sizes were either eased by a modest share of banks or remained basically unchanged on net. Foreign banks reported having left standards and most of their lending terms on C&I loans unchanged. However, a modest net share of foreign banks reported narrowing spreads of loan rates over the cost of funds.

Major net shares of banks that reported easing standards or terms cited a more favorable or less uncertain economic outlook and more-aggressive competition from other banks or nonbank lenders. Significant net shares of banks also cited improvements in industry-specific problems, increased tolerance for risk, improvements in their current or expected liquidity or capital positions, and increased liquidity in the secondary market, as important reasons for easing.

Regarding demand for C&I loans over the third quarter, modest net shares of banks reported stronger demand from large and middle-market firms, while demand from small firms remained basically unchanged. Furthermore, a moderate net share of banks reported a higher number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines over the third quarter. Meanwhile, a moderate net fraction of foreign banks reported stronger demand for C&I loans.

Major shares of banks that reported stronger demand cited increases in customers’ needs to finance inventory, accounts receivable and mergers and acquisitions, and increased investment in plant or equipment as important reasons for stronger demand.⁵

Questions on commercial real estate lending. Over the third quarter, a significant net share of banks reported having eased standards on multifamily loans, while modest net shares of banks reported easing standards on nonfarm nonresidential loans and construction and land development loans.

Significant and moderate net shares of banks reported stronger demand for multifamily loans and for loans secured by nonfarm nonresidential properties, respectively. Meanwhile, demand for construction and land development loans remained basically unchanged. A modest net share of foreign banks eased standards on CRE loans, while a significant net share of foreign banks reported stronger demand for such loans.

Lending to Households

(Table 1, questions 13–26)

Questions on residential real estate lending. Over the third quarter, banks eased lending standards for most mortgage loan categories and for revolving home equity lines of credit (HELOCs).⁶ The two exceptions were for government residential mortgages —for which standards were basically unchanged on net—and for subprime mortgages, which few banks reported as originating. The easing in residential mortgage standards was most widely reported for jumbo loans, with significant net shares of banks reporting having eased standards for qualified mortgage (QM) jumbo mortgages and non-QM jumbo mortgages.

Banks also reported weaker demand for most RRE loan categories over the third quarter. The two exceptions were QM jumbo mortgages and HELOCs, for which demand was basically unchanged on net.

Questions on consumer lending. Over the third quarter, significant and modest net shares of banks eased standards for credit card and auto loans, respectively. A moderate net share of banks also reported having eased standards for consumer loans other than credit card and auto loans. Consistent with an easing of standards for credit card loans, a significant net share of banks reported easing minimum credit score requirements for credit card loans. Meanwhile, a modest net share of banks reported easing minimum credit score requirements and the maximum maturity for auto loans. Additionally, a significant net share of banks increased credit limits on credit card accounts and a moderate net share of banks reduced spreads of interest rates charged on outstanding balances for auto loans. Other surveyed terms on consumer loans either remained basically unchanged, on net, or had a modest net share of banks report easing.⁷

Regarding demand for consumer loans, a moderate net share of banks reported stronger demand for credit card loans, while a moderate net share of banks reported weaker demand for auto loans. Demand for consumer loans other than credit card and auto loans remained basically unchanged on net.

Special Questions on Current Level of, and Outlook for, Demand for Commercial and Industrial Loans and Credit Card Loans

(Table 1, questions 27–29; table 2, questions 9–11)

The October 2021 survey also included a set of special questions that asked respondents to describe the current level of demand relative to pre-pandemic levels (defined as the end of 2019) for C&I and credit card loans. In addition, the survey inquired about banks’ outlook for demand for these loan categories over the next six months. Overall, responses to the special questions indicate that demand for C&I and credit card loans is currently weaker relative to pre-pandemic levels. However, banks expect stronger demand for C&I and credit card loans over the next six months.

For C&I loans, significant net shares of banks reported weaker demand for non-syndicated loans from small and very small firms, while a moderate net share of banks reported weaker demand for non-syndicated loans to large and middle-market firms, compared with pre-pandemic levels.⁸ Modest net shares of banks reported weaker demand for syndicated loans from investment-grade and below-investment-grade firms for the same period. Foreign banks also reported weaker demand for non-syndicated loans relative to pre-pandemic levels, but stronger demand for syndicated loans.

Looking ahead, banks expect stronger demand for C&I loans during the next six months from firms of all sizes. The most widely cited reasons for a stronger outlook for demand were higher investment in plant or equipment as well as an increase in expected customer financing needs on inventories, accounts receivable and on mergers or acquisitions.

Regarding credit card loans, a moderate net share of banks reported weaker demand from prime borrowers relative to pre-pandemic levels. Significant and moderate net shares of banks also reported weaker demand from near-prime and subprime borrowers, respectively.⁹ Looking ahead, significant net shares of banks reported expecting stronger demand for credit card loans over the next six months for prime and near-prime borrowers, while a moderate net share of banks reported expecting stronger demand for subprime borrowers. Major net shares of banks cited customers facing more favorable income prospects, and higher expected customer spending needs given prevailing interest rates and terms, as reasons for stronger expected demand. In addition, significant net shares of banks cited customer facing more favorable terms and shifting borrowing from alternative non-credit card sources of financing as reasons for stronger expected demand for credit cards.

This document was prepared by Juan M. Morelli, with the assistance of Andrew Wei, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

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