Banking

Banks made several types of loans a little easier to come by in the second quarter, according to the most recent Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey covers senior loan officers at 64 domestic banks and 23 U.S. branches of foreign banks. The Federal Reserve conducts the survey quarterly to get a read on supply and demand in the lending market.

A number of banks reported easing their standards for loans to large and midsized firms, while lending standards for smaller firms were little changed from the previous survey. At the same time, banks reported easing the terms on such loans, regardless of firm size. Nearly all of the banks that eased lending standards or terms reported doing so because of more aggressive competition.

Stronger demand for consumer loans, standards ease for some
In the household lending sector, demand for prime and nontraditional mortgages reportedly strengthened from the previous quarter. Meanwhile, lending standards stayed about the same for prime mortgages and were a bit tighter for nontraditional mortgage loans.

The July survey included a set of special questions about the federal government's Home Affordable Refinance Program. A majority of larger banks said they had participated in the program within the past three months, compared with only one-third of other domestic banks. Among the respondents that had participated, a majority anticipated that more than 60 percent of the refinance applications would be "approved and successfully completed."

Other loans to consumers, including auto and credit card loans, were in greater demand. However, the fraction of banks reporting stronger demand for these loans was a little smaller than in the previous survey, the report noted. Banks also reported easing their standards for car loans and, to a lesser extent, credit card loans.

Another set of special questions asked banks about their lending to, and competition with, European banks. Compared with the first-quarter survey, a slightly larger share of banks reported tightening standards on loans to European banks. Also, a number of banks reported an uptick in new business due to decreased competition from their European counterparts. A "very large majority" said they were willing to accommodate the additional business.

Standards still tighter for most loans
The last set of special questions dealt with banks' current lending standards in comparison with the range of lending standards between 2005 and the present. Banks reported that their standards were tighter than the midrange since 2005 for several types of loans, including commercial real estate, residential mortgage, and credit card loans. But for a few categories of commercial and industrial loans, lending standards were closer to the midrange.

August 22, 2012