WASHINGTON–The nation’s banks continue to report tighter underwriting standards coupled with weaker demand for commercial and industrial (C&I) loans to all sizes, according to a new report for Q3 from the Federal Reserve.
The findings were compiled in the Fed’s October 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), which measured conditions over the prior three months.
According to the SLOOS, for households banks also tightened lending standards across all categories of residential real estate (RRE) loans other than government residential mortgages, for which the standards remained basically unchanged.
The Findings
Other findings from the Fed’s SLOOS:
- Demand weakened for all RRE loan categories, the SLOOS reported, with banks reporting tighter standards and weaker demand for home equity lines of credit (HELOCs).
- On credit card, auto, and other consumer loans, standards also tightened, and again, senior loan officers said they saw weaker demand
Special Question
This edition of the SLOOS included special questions about banks’ likelihood of approving credit card and auto loan applications by borrower FICO score (or equivalent) over the three-month period in comparison with the beginning of the year, and banks’ reasons for changing standards for all loan categories in the third quarter of 2023.
According to the report, when it came to the credit scores, banks reported they were less likely to approve credit card and auto loans for borrowers with FICO scores of 620 and 680 in comparison with the beginning of the year.
The loan officers also reported they were more likely to approve credit card loan applications and about as likely to approve auto loan applications for borrowers with FICO scores of 720 over this same period.
In terms of tightening lending standards during Q3, banks reported that they most frequently cited a less favorable or more uncertain economic outlook; reduced tolerance for risk; deterioration in the credit quality of loans and collateral values; and concerns about funding costs as important reasons for over the third quarter.
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