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The April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices

The April 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 first quarter of 2024.¹

Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the first quarter.² Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.

Banks also responded to a set of special questions about changes in lending policies and demand for CRE loans over the past year. For all CRE loan categories, banks reported having tightened all queried lending policies, including the spread of loan rates over the cost of funds, maximum loan sizes, loan-to-value ratios, debt service coverage ratios, and interest-only payment periods.

For loans to households, banks reported that lending standards tightened across some categories of residential real estate (RRE) loans while remaining unchanged for others on balance. 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.

While banks, on balance, reported having tightened lending standards further for most loan categories in the first quarter, lower net shares of banks reported tightening lending standards than in the fourth quarter of last year across most loan categories.³

Lending to Businesses

(Table 1, questions 1–12, 27–31; table 2, questions 1–13)

Questions on commercial and industrial lending. Over the first quarter, moderate net shares of banks reported having tightened standards on C&I loans to firms of all sizes.⁴ Banks also reported having tightened all queried terms on C&I loans to firms of all sizes over the first quarter.⁵ Tightening was most widely reported for the maximum size of credit lines, the costs of credit lines, the spreads of loan rates over the cost of funds, and the premiums charged on riskier loans, for which moderate net shares of respondents reported having tightened these terms for loans to firms of all sizes.⁶ On balance, large banks reported leaving C&I lending standards and most terms basically unchanged, while most other banks reported having tightened C&I lending standards and terms for loans to firms of all sizes.⁷ Lastly, a modest net share of foreign banks reported having tightened standards on C&I loans, and modest or moderate net shares of foreign banks reported having tightened C&I loan terms such as the cost of credit lines, the spreads of loan rates over the cost of funds, the premiums charged on riskier loans, and loan covenants.

Of the banks that reported having tightened standards or terms on C&I loans, major net shares cited a less favorable or more uncertain economic outlook, a reduced tolerance for risk, and worsening of industry-specific problems as important reasons for doing so. In addition, significant net shares of banks cited increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards; deterioration in the bank’s current or expected liquidity position; less aggressive competition from other banks or nonbank lenders; and decreased liquidity in the secondary market for C&I loans. Other banks frequently cited deterioration in current or expected capital or liquidity positions and decreased liquidity in the secondary market for C&I loans, while no large banks cited these as important reasons for tightening.

Regarding demand for C&I loans over the first quarter, significant net shares of banks reported weaker demand for loans from firms of all sizes.⁸ Furthermore, a moderate 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. In contrast, a modest net share of foreign banks reported stronger demand for C&I loans over the first quarter.

Of the banks reporting weaker demand for C&I loans, among the most cited reasons for weakening demand, major net shares of banks reported decreased customer financing needs for merger or acquisition and inventory as well as decreased customer investment in plant or equipment.

Questions on commercial real estate lending. Over the first 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. Meanwhile, a moderate net share of banks reported weaker demand for construction and land development loans, while significant net shares of banks reported weaker demand for loans secured by nonfarm nonresidential and multifamily residential properties. Similar to domestic banks, a significant net share of foreign banks reported tighter standards for CRE loans. However, in contrast to domestic banks, a modest net share of foreign banks reported stronger demand for CRE loans over the first quarter.

Special questions on changes in banks’ credit policies on commercial real estate loans over the past year. A set of special questions asked banks about changes in their credit policies for each major CRE loan category over the past year. These questions have been asked in each April survey for the past eight years.

Banks reported having tightened all the terms surveyed for each CRE loan type. The most widely reported change in terms, cited by major net shares of banks across all CRE loan types, was the widening of interest rate spreads on loans over the cost of funds. Additionally, significant net shares of banks reported tightening maximum loan sizes, lowering loan-to-value ratios, increasing debt service coverage ratios, and shortening interest-only payment periods for all CRE loan types. In addition, significant net shares of banks also reported tightening the maximum loan maturity for nonfarm nonresidential and multifamily loans, and a moderate net share of banks reported doing so for construction and land development loans. Furthermore, significant net shares of banks reported reducing the market areas served for nonfarm nonresidential and construction and land development loans, while a moderate net share of banks reported doing so for multifamily loans. Foreign banks reported tightening across almost all terms for each CRE loan type.⁹

The most cited reasons for tightening credit policies on CRE loans over the past year, cited by almost all banks, were less favorable or more uncertain outlooks for CRE market rents, vacancy rates, and property prices. Additionally, major net shares of other banks cited a reduced tolerance for risk, increased concerns about the effects of regulatory changes or supervisory actions, and a less favorable or more uncertain outlook for delinquency rates on mortgages backed by CRE properties.

The survey also asked banks about the reasons why they experienced weaker or stronger demand for CRE loans over the past year. More banks responded with reasons for weakened demand than for strengthened demand for CRE loans. The most frequently cited reasons for weaker demand, as reported by major net shares of banks, were an increase in the general level of interest rates, a decrease in customer acquisition or development of properties, and a less favorable or more uncertain customer outlook for rental demand. Of the smaller but sizable share of banks that reported stronger demand, the most frequently cited reasons for stronger demand, as reported by significant net shares of banks, were an increase in customer acquisition or development of properties, a shift in customer borrowing to respondent banks from other banks and non-bank sources, and a decrease in internally generated funds by customers.

Lending to Households

(Table 1, questions 13–26)

Questions on residential real estate lending. Over the first quarter, banks reported having tightened lending standards for some RRE loan categories.¹⁰ Modest net shares of banks reported tightening standards for non-qualified mortgage (QM) jumbo, non-QM non-jumbo, subprime, and QM non-jumbo non-government-sponsored enterprise (GSE)-eligible mortgage loans. However, lending standards remained basically unchanged for GSE-eligible mortgages, government mortgages, and QM jumbo mortgages. While large banks reported net easing of standards, other banks reported net tightening of standards for most RRE loan types. In addition, a moderate net share of banks reported tightening lending standards for HELOCs.

Meanwhile, banks reported weaker demand, on balance, for all categories of RRE loans and HELOCs over the first quarter. Significant net shares of banks reported weaker demand for subprime and non-QM mortgages, while moderate net shares of banks reported weaker demand for most other RRE loan categories. Similarly, a moderate net share of banks reported weaker demand for HELOCs.

Questions on consumer lending. Over the first quarter, banks reported tightening lending standards and most terms, on net, for all consumer loan categories.¹¹ Significant net shares of banks reported tightening standards for credit card loans, while moderate and modest net shares of banks reported tightening standards for other consumer loans and auto loans, respectively.

Banks also reported tightening most queried terms on all consumer loan categories over the first quarter. A significant net share of banks reported increasing minimum credit score requirements for credit card loans, while moderate net shares of banks reported doing so for auto loans and other consumer loans. Meanwhile, modest or moderate net shares of banks reported decreasing the extent to which loans are granted to customers not meeting credit scoring thresholds and increasing spreads of interest rates over the cost of funds for all consumer loan categories. Other queried terms and conditions were left unchanged across these loans, on balance, with the exception of credit limits for credit card loans, which a significant net share of banks reported having tightened.

Regarding demand for consumer loans, a significant net share of banks reported weaker demand for auto loans, while moderate net shares of banks reported weaker demand for credit card loans and other consumer loans in the first quarter.

This document was prepared by Solveig Baylor and Luke Morgan, with the assistance of Jaron Berman and Paul Cochran, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.

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1. Responses were received from 66 domestic banks and 20 U.S. branches and agencies of foreign banks. Respondent banks received the survey on March 25, 2024 and responses were due by April 8, 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. The exceptions were C&I loans to firms of all sizes, for which similar net shares of banks reported tightening compared with the fourth quarter of last year, and auto loans, for which the net share of banks reporting tightening of standards in the first quarter was slightly higher than in the fourth quarter of last year.Return to text

4. 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

5. 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

6. 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

7. Large banks are defined as those with total domestic assets of $100 billion or more as of December 31, 2023. Other banks are defined as those with total domestic assets of less than $100 billion as of December 31, 2023. Return to text

8. Greater net shares of other banks reported weaker demand from firms of all sizes compared with large banks. Return to text

9. As an exception, foreign banks reported leaving the spread of loan rates over the cost of funds for construction and land development loans basically unchanged over the past year. Return to text

10. The seven categories of residential home-purchase loans that banks are asked to consider are GSE-eligible, government, qualified mortgage (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

11. Banks were asked about 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, the minimum required credit score, and the extent to which loans are granted to borrowers not meeting credit score criteria. Return to text