WASHINGTON–During the second quarter standards were tightened for commercial and consumer loans by banks amid weaker demand, according to a new report by the Federal Reserve.
The same report forecasts that the nation’s bank expect the trend to continue for the remainder of 2023.
The findings are included in the Fed’s July 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices, which gauges changes in the standards, terms and demand for bank loans over three months (corresponding mostly to the second quarter).
Those conditions included commercial and industrial (C&I) loans to firms of all sizes and for all commercial real estate (CRE) loan categories, according to the report.
“Loans to households saw the same circumstances, according to the report,” the report stated. “That includes all categories of residential real estate (RRE) loans, especially for those other than government-sponsored enterprise (GSE)-eligible and government loans. Home equity lines of credit (HELOCs) were also affected by the tighter standards and lower demand.”
Additional Findings
In addition, the report, called the SLOOS by the Fed, found other consumer loan categories shared the trend – except for credit card loans. Demand weakened for auto and other consumer loans, while demand remained basically unchanged for credit card loans, the Federal Reserve stated.
In response to a question as part of the SLOOS over whether banks should look forward to the second half of 2023; the bankers reported they expect to further tighten standards on all loan categories.
“Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023,” the report stated.
How Survey is Conducted
The Fed report is based on a survey of senior loan officers at selected banks, up to six times a year. It includes lending officers from up to 80 large domestically chartered commercial banks and up to 24 large U.S. branches and agencies of foreign banks.
The Fed said the purpose of the survey is to provide qualitative and limited quantitative information on bank credit availability and loan demand, as well as on evolving developments and lending practices in the U.S. loan markets.
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