U.S. banks tightened commercial lending standards in the second quarter, while residential lending standards remained largely unchanged, according to a recent survey out of the Federal Reserve.
According to the Fed’s July senior loan officer opinion survey, U.S. banks tightened their lending standards on commercial and industrial (C&I) and commercial real estate loans in the second quarter this year. Demand for C&I loans remained flat during the quarter, while demand for commercial real estate loans increased.
Residential real estate lending standards, by contrast, were little changed, respondents told the Fed, with two exceptions. A moderate net fraction, or about 11.5 percent, of banks reported having eased standards for those loans eligible for purchase by the government-sponsored enterprises, while 20 percent of respondents reported having tightened loans for subprime residential mortgages. Further, 61 respondents told the Fed that “my bank does not originate subprime residential mortgages.” Demand for residential real estate loans strengthened during the second quarter, bankers told the Fed.
The Fed gathered those results from 71 domestic banks and 23 U.S. branches of foreign banks to gauge attitudes about lending.
Modest fractions of domestic banks told the Fed they had tightened standards on C&I loans to small firms and large and middle-market firms alike. C&I loan terms for middle-market and large firms were concerned were mixed, however. A modest percentage of banks narrowed spreads of loan rates over the cost of funds, while moderate fractions of respondents said they increased the premiums charged on riskier loans. A majority of large and smaller banks said that a “less than favorable or uncertain economic outlook” was either “somewhat important” or “very important” in their decision to tighten or ease C&I credit standards.
Meanwhile, lending standards for commercial real estate loans of all types tightened during the second quarter. A moderate net fraction of banks reported tightening standards for loans secured by nonfarm nonresidential properties, whereas significant net fractions of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties.
Where residential lending was concerned, bankers told the Fed that standards for all five categories included in the survey (GSE-eligible mortgages, government-insured mortgages, jumbo mortgages, subprime mortgages and HELOCs) remained tighter than the midpoints of ranges observed since 2005.
The full survey results can be viewed here.
