Senior Loan Officer Opinion Survey on Bank Lending Practices
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The January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices
The January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) 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 fourth quarter of 2023.1
Regarding loans to businesses, survey respondents, on balance, reported tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the fourth quarter.2 Furthermore, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
For loans to households, banks, on balance, reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government residential mortgages and government-sponsored enterprise (GSE)-eligible residential mortgages, for which standards remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened, and demand weakened on balance.
While banks, on balance, reported having tightened lending standards further for most loan categories in the fourth quarter, lower net shares of banks reported tightening lending standards than in the third quarter across all loan categories.
The January SLOOS also included a set of special questions inquiring about banks’ expectations for changes in lending standards, borrower demand, and loan performance over 2024. Banks, on balance, reported expecting lending standards to remain basically unchanged for C&I and RRE loans, but to tighten further for CRE, credit card, and auto loans. In addition, banks reported expecting loan demand to strengthen across all loan categories, and loan quality to deteriorate across most loan types.
Lending to Businesses
(Table 1, questions 1–12; table 2, questions 1–8)
Questions on commercial and industrial lending. Over the fourth quarter, moderate net shares of banks reported having tightened standards on C&I loans to firms of all sizes.3 Banks also reported having tightened most queried terms on C&I loans to firms of all sizes over the fourth quarter.4 Tightening was most widely reported for premiums charged on riskier loans, spreads of loan rates over the cost of funds, costs of credit lines, and collateralization requirements, while significant or moderate net shares of banks reported tightening most other terms on C&I loans to firms of all sizes.5 Tightening of C&I lending standards and terms was less widely reported by large banks than by other banks for loans to firms of all sizes.6 Regarding foreign banks, moderate net shares reported tightening standards on C&I loans and terms such as C&I loan covenants, while modest net shares reported tightening other terms, including the costs of credit lines, premiums charged on riskier loans, the maximum maturity of loans or credit lines, and collateralization requirements.
Major net shares of banks that reported having tightened standards or terms on C&I loans cited a less favorable or more uncertain economic outlook, a reduced tolerance for risk, less aggressive competition from banks or nonbank lenders, and deterioration in their current or expected liquidity position as important reasons for doing so. Significant net shares of banks also cited the worsening of industry-specific problems; decreased liquidity in the secondary market for C&I loans; increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards; and deterioration in their current or expected capital position as important reasons for tightening lending standards and terms over the fourth quarter.
Regarding demand for C&I loans over the fourth quarter, significant net shares of banks reported weaker demand for loans from firms of all sizes. Furthermore, a significant net share of banks reported a decrease in the number of inquiries from potential borrowers regarding the availability and terms of new credit lines or increases in existing lines. Meanwhile, foreign banks reported that demand for their C&I loans remained basically unchanged.
Of the banks reporting weaker demand for C&I loans, major net shares cited decreased customer investment in plant or equipment and decreased financing needs for inventories, accounts receivable, and mergers or acquisitions as important reasons for the weaker loan demand.
Questions on commercial real estate lending. Over the fourth quarter, significant net shares of banks reported tightening standards for all types of CRE loans. Such tightening was more widely reported by other banks than by large banks.7 Major net shares of banks reported weaker demand for loans secured by nonfarm nonresidential and multifamily residential properties, and a significant net share of banks reported weaker demand for construction and land development loans. Similarly, significant net shares of foreign banks reported tighter standards and weaker demand for CRE loans over the fourth quarter.
Lending to Households
(Table 1, questions 13–26)
Questions on residential real estate lending. Over the fourth quarter, banks reported having tightened lending standards for all categories of RRE loans and HELOCs, except government residential mortgages and GSE-eligible residential mortgages, for which standards remained basically unchanged.8 Moderate net shares of banks reported tightening standards for qualified mortgage (QM) and non-QM jumbo residential mortgages, HELOCs, non-QM non-jumbo residential mortgages, and QM non-jumbo non-GSE-eligible residential mortgages. A modest net share of banks reported tightening standards for subprime residential mortgages.
Over the fourth quarter, major net shares of banks reported weaker demand for non-QM jumbo and non-jumbo residential mortgages, QM non-jumbo non-GSE-eligible residential mortgages, and GSE-eligible residential mortgages, while significant shares of banks reported weaker demand for QM jumbo residential mortgages, government residential mortgages, and subprime residential mortgages. A moderate net share of banks reported weaker demand for HELOCs.
Questions on consumer lending. Over the fourth quarter, significant net shares of banks reported tightening lending standards for credit card and other consumer loans, while a modest net share of banks reported tighter standards for auto loans. Banks also reported tightening most queried terms on credit card loans. Specifically, moderate net shares of banks reported tightening credit limits, higher minimum required credit scores, wider interest rate spreads over the cost of funds, and tightening the extent to which loans are granted to some customers that do not meet credit-scoring thresholds. Similarly, banks reported tightening most queried terms on auto loans on net. In particular, a significant net share of banks reported wider interest rate spreads on such loans, and modest net shares reported higher minimum payment amounts on outstanding balances and tightening the extent to which loans are granted to some customers that do not meet credit-scoring thresholds. For other consumer loans, moderate net shares of banks reported widening interest rate spreads over the cost of funds, higher minimum credit score requirements, and tightening the extent to which loans are granted to borrowers not meeting credit score criteria. A modest net share of banks reported higher minimum payment amounts on outstanding balances. The remaining terms and conditions for each type of consumer loan remained basically unchanged.9
Regarding demand for consumer loans, a moderate net share of banks reported weaker demand for auto loans, while modest net shares of banks reported weaker demand for credit card and other consumer loans.
Special Questions on Banks' Outlook for 2024
(Table 1, questions 27–40; table 2, questions 9–16)
The January SLOOS also included a set of special questions inquiring about banks’ expectations for changes in lending standards, borrower demand, and asset quality over 2024, assuming that economic activity evolves in line with consensus forecasts. On balance, banks reported expecting lending standards to tighten for CRE, credit card, and auto loans, and expecting lending standards to remain basically unchanged for C&I and RRE loans. Banks reported expecting loan demand to strengthen across all loan categories. Banks also reported expectations of a deterioration in loan quality across most loan types during 2024.
Regarding lending standards, significant net shares of banks reported expecting to tighten standards for credit card loans and construction and land development loans. Moderate net shares of banks reported expecting to tighten standards for loans secured by nonfarm nonresidential properties and multifamily residential properties. A modest net share of banks expected to tighten standards for auto loans. Banks reported that they expect standards to remain basically unchanged over 2024 for C&I loans to firms of all sizes as well as for GSE-eligible residential mortgages and nonconforming jumbo mortgages.10 The most frequently cited reasons for expecting to tighten lending standards over 2024, reported by major net shares of banks, included an expected deterioration in collateral values, a less favorable economic outlook, an expected deterioration in credit quality of the bank’s loan portfolio, an expected reduction in risk tolerance, an expected deterioration in the bank’s liquidity position, and increased concerns about funding costs and about the effects of legislative or regulatory changes.
Regarding loan demand, significant net shares of banks reported expecting loan demand to strengthen across RRE loan categories and C&I loans to firms of all sizes over 2024, while moderate net shares of banks reported expecting loan demand to strengthen for loans secured by nonfarm nonresidential properties and credit card loans. Modest net shares of banks expected demand to strengthen for auto loans, loans secured by multifamily residential properties, and construction and land development loans. The most frequently cited reason for stronger loan demand over 2024, reported by a major net share of banks, was an expected decline in interest rates. Further, significant net shares of banks reported expected higher customer spending or investment needs, an expected shift of customers from other banks and nonbanks, and an expected decrease in precautionary demand for cash and liquidity as reasons for expecting stronger demand over 2024.
Regarding expectations for credit quality—as measured by delinquencies and charge-offs—significant or moderate net shares of banks reported expecting a deterioration in credit quality across most loan types over 2024.11 Specifically, significant net shares of banks reported expecting credit quality to deteriorate somewhat for credit card loans, loans secured by nonfarm nonresidential properties, C&I loans to small firms, auto loans, construction and land development loans, and loans secured by multifamily residential properties. Additionally, moderate net shares of banks reported expecting credit quality to deteriorate for GSE-eligible residential mortgages, nonconforming jumbo residential mortgages, and syndicated leveraged and nonsyndicated C&I loans to large and middle-market firms. Credit quality is expected to remain basically unchanged for syndicated nonleveraged C&I loans to large and middle-market firms.
Regarding foreign banks, significant or moderate net shares of such banks reported expecting tighter standards for most C&I and CRE loans over 2024. In addition, foreign banks also reported expecting stronger demand for all C&I and CRE loan types, and a deterioration in the quality of most C&I and CRE loans during 2024.12
This document was prepared by Zeke Sabbert, with the assistance of Michele Cavallo, Solveig Baylor, and Jaron Berman, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Responses were received from 64 domestic banks and 20 U.S. branches and agencies of foreign banks. Respondent banks received the survey on December 18, 2023, and responses were due by January 9, 2024. Unless otherwise indicated, this summary refers to the responses of domestic banks. Return to text
2. Large and middle-market firms are defined as firms with annual sales of $50 million or more, and small firms are those with annual sales of less than $50 million. Return to text
3. 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
4. Lending standards characterize banks’ policies for approving applications for a certain loan category. Conditional on approving loan applications, lending terms describe banks’ conditions included in loan contracts, such as those listed for C&I loans under question 2 to both domestic and foreign banks and those listed for credit card, auto, and other consumer loans under questions 21–23 to domestic banks. Thus, standards reflect the extensive margin of lending, while terms reflect the intensive margin of lending. The eight lending terms that banks are asked to consider with respect to C&I loans are the maximum size of credit lines, maximum maturity of loans or credit lines, costs of credit lines, spreads of loan rates over the bank’s cost of funds, premiums charged on riskier loans, loan covenants, collateralization requirements, and use of interest rate floors. Return to text
5. Banks were asked about the costs, maximum size, and maximum maturity of credit lines; spreads of loan rates over the bank’s cost of funds; premiums charged on riskier loans; terms on loan covenants; collateralization requirements; and the use of interest rate floors. Return to text
6. Large banks are defined as those with total domestic assets of $100 billion or more as of September 30, 2023. This size definition is a departure from earlier surveys, which defined large banks as those with total domestic assets of $50 billion or more. Return to text
7. For multifamily CRE loans, a major net share of other banks reported tightening lending standards. Return to text
8. 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 C.F.R. pt. 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. For more information on the ability to repay (ATR) and QM standards under Regulation Z, see Consumer Financial Protection Bureau, “Ability-to-Repay/Qualified Mortgage Rule,” webpage, https://www.consumerfinance.gov/rules-policy/final-rules/ability-to-pay-qualified-mortgage-rule. In addition, a loan is required to meet certain price-based thresholds included in the General QM loan definition, which are outlined in the Summary of the Final Rule; see Consumer Financial Protection Bureau (2020), “Qualified Mortgage Definition under the Truth in Lending Act (Regulation Z): General QM Loan Definition,” final rule (Docket No. CFPB-2020-0020), Federal Register, vol. 85 (December 29), pp. 86308–09, https://www.federalregister.gov/d/2020-27567/p-17. Return to text
9. Banks were asked about the minimum required credit score as well as changes in credit limits (credit card accounts and other consumer loans only), maximum maturity (auto loans only), loan rate spreads over costs of funds, the minimum percent of outstanding balances required to be repaid each month, and the extent to which loans are granted to borrowers not meeting credit score criteria. Return to text
10. Regarding the outlook for RRE loans, banks were asked about their expectations regarding lending standards, demand, and loan performance for GSE-eligible and nonconforming jumbo residential mortgage loans. Regarding the outlook for consumer loans, banks were asked about their expectations regarding lending standards and demand for credit card loans and auto loans. Banks were also asked about their expectations regarding loan performance for consumer loans for prime and nonprime borrowers. Return to text
11. Regarding the performance of business loans, banks were queried about expectations for the performance of four types of C&I loans (nonsyndicated loans, syndicated nonleveraged loans, syndicated leveraged loans, and loans to small firms) and three types of CRE loans (multifamily loans, nonfarm nonresidential loans, and construction and land development loans). Return to text
12. Foreign banks, on net, reported expecting standards to remain basically unchanged for C&I loans to large and middle-market firms. A modest net share of foreign banks also reported expecting improvement in the quality of syndicated nonleveraged C&I loans to large and middle-market firms. On balance, foreign banks expect the quality of nonsyndicated C&I loans to large and middle-market firms to remain basically unchanged over 2024. Return to text