Fed Survey: U.S. Banks Eased Lending Standards

Banks Easing LendingIn the last three months, U.S. banks eased lending standards on a range of loans to businesses and consumers, according to the Federal Reserve's quarterly survey of senior loan officers.

The summary report, released on May 5, is based on responses from 74 domestic banks and 23 U.S. branches of foreign banks.

On balance, domestic banks reported easing lending policies for commercial and industrial (C&I) loans and commercial real estate (CRE) loans. Domestic and foreign banks also reported stronger demand for both types of loans, the April survey found. "To explain the reported increase in loan demand, banks cited a wide range of customers’ financing needs, particularly those related to inventories, accounts receivable, investment in plant or equipment, and mergers or acquisitions," the report said.

As in previous surveys, heightened competition was a driving force behind easier lending policies. Indeed, all of the banks that either eased standards or terms on C&I loans cited competition from other banks and nonbank lenders as an important factor. Meanwhile, a smaller number of banks attributed easier policies to changes in the economic outlook and an increased tolerance for risk.

A special question (asked annually since 2001) polled banks on changes in their lending policies for CRE loans. On net, banks reported easing terms on such loans over the past year.

Household lending mixed
Although businesses generally saw easier lending terms and standards, the picture was mixed for some loans to households. For instance, roughly equal shares of domestic banks reported tightening or easing standards for residential mortgages. The changes in standards for home equity lines of credit were similarly mixed, the report said. Meanwhile, banks reported tightening standards on nontraditional mortgages, including interest-only mortgages and "Alt-A" products.

Banks did ease lending standards for some consumer loans, and several U.S. banks reported a greater willingness to make consumer installment loans compared with three months ago. Banks also reported easing standards on credit cards and auto loans. Standards for other types of consumer loans remained unchanged, however.

Consumer demand for such loans varied. On balance, banks reported stronger demand for credit card and auto loans, while changes in demand for other types of consumer loans were mixed.

Outlook for credit card balances
Another set of special questions in the April survey asked banks about the factors that affected credit card loan growth in 2013.

Many banks reported higher application volumes from prime and superprime borrowers, while a smaller number reported an increase among nonprime borrowers.

More than half of domestic banks reported that the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 was a factor constraining credit card loan growth in 2013. Banks cited several provisions of the Credit Card Act as important, including restrictions on credit card fees and the prohibition on raising interest rates on existing balances. Respondents also pointed to consumers’ preferences for debt levels as a constraining factor.

Looking ahead to 2014, more than half of domestic respondents expected higher growth (or lower contraction) in consumer credit card loans to prime or superprime borrowers, compared to 2013. Meanwhile, a smaller net share foresaw higher growth among nonprime borrowers.

May 13, 2014