Senior Loan Officer Opinion Survey on Bank Lending Practices
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The October 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices
The October 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 third quarter of 2024.1
Regarding loans to businesses over the third quarter, survey respondents reported, on balance, basically unchanged lending standards for commercial and industrial (C&I) loans to large and middle-market firms and tighter standards for loans to small firms.2 Meanwhile, banks reported weaker demand for C&I loans to firms of all sizes. Furthermore, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
For loans to households, banks reported, on balance, basically unchanged lending standards and weaker demand across most categories of residential real estate (RRE) loans. In addition, banks reported basically unchanged lending standards and demand for home equity lines of credit (HELOCs). Moreover, standards reportedly tightened for credit card loans and remained basically unchanged for auto and other consumer loans, while demand weakened for auto and other consumer loans and remained basically unchanged for credit card loans.
The October SLOOS included a set of special questions about standards and demand for credit card loans across borrowers with different credit scores. Banks reported that they were more likely to approve credit card loans to prime or super-prime borrowers and less likely to approve credit cards for near-prime and subprime borrowers, compared with the beginning of the year. In a second set of special questions, banks reported that the level of demand for credit card loans was stronger in the third quarter of 2024 than before the pandemic (end of 2019) across most credit score categories and all dimensions of credit card demand (that is, demand for new cards, requests for increased credit limits, and utilization of existing credit). Banks, on net, forecast further strengthening in demand over the next six months, with an expected increase in borrower spending, as the most cited reason for their outlook.
Lending to Businesses
(Table 1, questions 1–12; table 2, questions 1–8)
Questions on commercial and industrial lending. Over the third quarter, banks reported that standards on C&I loans to large and middle-market firms were basically unchanged, while moderate net shares of banks reported tighter standards on C&I loans to small firms.3 Banks also reported that most queried terms were basically unchanged on C&I loans to large and middle-market firms, with the exception that modest net shares of banks reported increased premiums charged on riskier loans and greater use of interest rate floors. Terms for C&I loans to small firms tightened, on net, over the third quarter.4 Tightening was most widely reported for premiums charged on riskier loans, for which moderate net shares of banks reported tightening.5 In addition, modest net shares of banks reported having tightened collateralization requirements, tightened loan covenants, and widened spreads of loan rates over their bank's cost of funds for loans to small firms. On balance, large banks reported leaving C&I lending standards and most terms basically unchanged for firms of all sizes. Meanwhile, other banks reported leaving C&I lending standards and most terms basically unchanged for large and middle-market firms but tightening C&I lending standards and almost all terms for loans to small firms.6 Moreover, foreign banks reported leaving C&I lending standards and all terms for C&I loans basically unchanged.
Of the banks that reported tightening standards or terms on C&I loans, major net shares cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and a reduced tolerance for risk 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 capital position; decreased liquidity in the secondary market for C&I loans; and less aggressive competition from other banks or nonbank lenders as reasons for tightening.
Regarding demand for C&I loans over the third quarter, a significant net share of banks reported weaker demand from large and middle-market firms, while a moderate net share of banks reported weaker demand for small firms.7 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. Lastly, a modest net share of foreign banks reported stronger demand for C&I loans over the third quarter.
The most frequently cited reasons for weakening demand, reported by major net shares of banks, were that customer investment in plant or equipment decreased, customer inventory financing needs decreased, customer accounts receivable financing needs decreased, and customer merger or acquisition financing needs decreased.
Questions on commercial real estate lending. Over the third quarter, moderate net shares of banks reported having tightened standards for all types of CRE loans. Large banks reported that lending standards were basically unchanged for construction and land development (CLD) and nonfarm nonresidential (NFNR) loans, while a modest net share of large banks reported easier lending standards for multifamily (MF) loans. In contrast, significant net shares of other banks reported tightening for all CRE loan categories. Lastly, foreign banks reported that standards for CRE loans remained basically unchanged over the third quarter.
Meanwhile, a moderate net share of banks reported weaker demand for CLD loans, and modest net shares of banks reported weaker demand for NFNR and MF loans. In contrast, a significant net share of foreign banks reported stronger demand for CRE loans.
Lending to Households
(Table 1, questions 13–26)
Questions on residential real estate lending. Over the third quarter banks reported that, on balance, lending standards were basically unchanged for all RRE loan categories except for those classified as subprime, for which a moderate net share of banks reported tightening standards.8 In addition, banks reported that standards for HELOCs were basically unchanged.
Meanwhile, banks reported weaker demand, on balance, for most categories of RRE loans over the third quarter, although less broadly than in the previous quarter. A significant net share of banks reported weakened demand for subprime mortgages. A moderate net share of banks reported weaker demand for government mortgages, while modest net shares reported weaker demand for qualified mortgage (QM) jumbo and non-QM non-jumbo mortgages. Banks reported basically unchanged demand for government-sponsored enterprise (GSE)-eligible, QM non-jumbo non-GSE-eligible, non-QM jumbo mortgages, and HELOCs.
Questions on consumer lending. Over the third quarter, moderate net shares of banks reported having tightened lending standards for credit card loans, while standards were basically unchanged for auto and other consumer loans. Moderate net shares of banks reported lowering credit limits and increasing minimum credit score requirements for credit card loans, while all other queried terms for credit cards were left basically unchanged.9 In contrast, for auto and other consumer loans, nearly all queried terms were left basically unchanged, with the exception of loan rate spreads on auto loans, for which a modest net share of banks reported increasing.
Regarding demand for consumer loans, moderate and modest net shares of banks reported weaker demand for auto loans and for other consumer loans, respectively, while demand for credit card loans was basically unchanged over the third quarter.
Special Questions on the Credit Card Market
(Table 1, questions 27–32)
The October SLOOS included several special questions about the credit card market. In a first set of special questions, banks were asked how more or less likely they were to approve a credit card application to borrowers in a given credit score category compared with the beginning of the year. For prime or super-prime borrowers, moderate net shares of banks reported they are more likely to approve applications, while for near-prime and subprime borrowers, significant net shares reported they are less likely to do so.
In a second set of questions, banks were asked to compare the current level of demand for credit cards across various borrower risk and demand type categories with pre-pandemic (end of 2019) levels. With regard to borrower risk, moderate net shares of banks indicated that demand strengthened for near-prime, prime, and super-prime borrowers, while demand from subprime borrowers was basically unchanged. Furthermore, moderate net shares of banks indicated that demand strengthened across all dimensions along which borrowers demand credit—new credit cards, requests for increased credit limits, and utilization of existing credit limits.
In the second set of questions, banks were also asked about their outlook for credit card demand over the next six months by credit score. A significant net share of banks reported that they expected demand to strengthen for near-prime borrowers, while moderate net shares of banks reported expecting demand to strengthen for subprime, prime, and super-prime borrowers. Among banks that anticipated stronger demand, the most cited reason for this outlook, chosen by a major share of banks, was increased purchasing or spending needs. Major shares also cited expectations for a decline in interest rates and lower use of accumulated savings as reasons for a stronger demand outlook.
In a last special question, banks were asked about which credit scoring models were important to them when approving credit card applications. While the most selected option was credit bureau scores, chosen by almost all respondents, a major share of banks also selected internal behavioral scores as an important factor for their approval decisions. A significant share of banks also indicated that third-party behavioral credit scores were important.
This document was prepared by Jaron Berman and Paige Ehresmann, Division of Monetary Affairs, Board of Governors of the Federal Reserve System.
1. Responses were received from 66 domestic banks and 20 U.S. branches and agencies of foreign banks. Respondent banks received the survey on September 30, 2024, and responses were due by October 10, 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 June 30, 2024. Other banks are defined as those with total domestic assets of less than $100 billion as of June 30, 2024. Return to text
7. A moderate net share of large banks reported weaker demand from large and middle-market firms, while demand from small firms was basically unchanged. Significant net shares of other banks reported weaker demand from firms of all sizes. 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 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