WASHINGTON—The Federal Reserve’s second-quarter senior loan officer opinion survey (SLOOS) "reinforces the growing divergence between the relatively sanguine economic story at the household level – where balance sheets and loan demand are solid – and financial markets,” noted NAFCU Chief Economist and Vice President of Research Curt Long.
"The latter have been beset with concerns over trade, slower growth abroad, and rising levels of corporate debt. Whether any of those issues is sufficient to bring about a recession is debatable, but these fears are beginning to feed on one another," Long suggested.
Over the past three months banks reported tightening standards across all three major commercial real estate loan categories and weakened demand for construction and land development loans, Long noted.
Some Standards Tightened
Similar to the first quarter, standards on credit card loans continued to tighten while standards for auto loans and most residential real estate loans remained unchanged. Banks reported stronger demand credit card loans, auto loans, and almost all categories of residential real estate loans, the Federal Reserve said. Of note, a solid majority of banks saw stronger demand during the second quarter for government-sponsored enterprise-eligible mortgage loans, Long added.
The most recent Senior Loan Officer Survey was based on responses from 74 domestic banks and 22 U.S. branches and agencies of foreign banks.
Improvements in Capital
“Almost all of the banks that reported reasons for easing standards or terms on C&I loans over the past three months cited increased competition from other lenders as an important reason for doing so,” the Fed reported. “Significant net shares of banks also reported improvements in banks’ current or expected capital position, a more favorable or less uncertain economic outlook, and increased tolerance for risk as important reasons for easing standards. Meanwhile, major net fractions of banks that reported tightening C&I lending standards or terms mentioned a less favorable or more uncertain economic outlook, worsening industry-specific problems, and reduced tolerance for risk as important reasons for doing so.”