WASHINGTON — Banks eased lending standards across all loan types in the second quarter as demand increased and the economic outlook improved, according to the Federal Reserve’s latest senior loan officer opinion survey on bank lending practices.
Most banks reported that they
But lenders have recently reversed course, reporting higher risk tolerance amid heightened competition from other banks and nonbank lenders, the Fed said in summary of the report released Monday. The survey is conducted quarterly.
In particular, banks reported loosening lending standards and terms on commercial and industrial loans to firms of all sizes. A “significant net share of banks” reported receiving more inquiries from potential customers about either the availability of new credit lines or increases in existing lines of credit.
“Major shares of banks that reported stronger demand cited increases in customers’ needs to finance inventory, accounts receivable, investment in plant or equipment, and mergers and acquisitions as important reasons for stronger demand,” the Fed said in the summary.
A large share of firms also told the Fed that they had reduced lending standards for credit card loans and had also increased credit limits on credit card accounts, reporting stronger demand.
“Consistent with easier lending standards, a significant net share of banks reduced the minimum required credit score on credit card loans, and moderate net shares of banks did so on auto and other consumer loans,” the Fed said.
While banks also reported easing real estate lending standards, the survey indicated that lenders may have been more hesitant to relax those standards as compared to other loan categories.
A high number of banks also experienced stronger demand for multifamily loans and construction and land development loans. However, a more modest share of banks reported easing standards for commercial real estate loans. Only 7% of firms reported that their credit standards had eased somewhat for construction and land development loans. Fifteen percent reported that their credit standards had eased somewhat for loans secured by multifamily residential properties, while 1% reported that their standards “eased considerably.”
Financial institutions by and large eased lending standards for most residential mortgage loan categories and revolving home equity lines of credit in the second quarter — with the exception of subprime loans and loans backed by the government-sponsored enterprises. A significant share of banks reported relaxing standards for jumbo loans in particular.
Still, banks said that lending standards for both CRE and residential real estate loans were historically tighter than average, and are tighter compared to the Fed’s senior loan officer opinion survey from July 2019. Standards for commercial and industrial loans, however, are looser than historical averages and generally unchanged compared with 2019.
