WASHINGTON—The nation’s banks will begin easing loan standards in 2021 after a year of tightening their underwriting due to the coronavirus pandemic, according to the Fed’s fourth quarter 2020 Senior Loan Officer Opinion survey.
"Bank loan officers are anticipating easing standards on consumer loans this year, despite expecting rising delinquencies," said NAFCU Chief Economist and Vice President of Research Curt Long. "That outcome would contrast with the financial crisis, where the tightening cycle lasted from 2007 through 2010.
"Nevertheless, the fact that high-income households have fared so much better than low-income ones over the past year means that there may still be a lack of access to credit for low-income households even if underwriting standards do ease somewhat this year," Long added.
Among the key findings in the latest Fed Senior Loan Officer Survey:
Commercial & Industrial (C&I) Loans
- Banks reported tightened standards for C&I loans to firms of all sizes
- On net, modest shares of large banks eased standards to large and middle-market firms
- Moderate shares of small banks reported tightening their C&I lending standards to firms of all sizes
- Banks either tightened or left unchanged all lending terms on balance
- A moderate net share of banks reported weaker demand for C&I loans to firms of all sizes
- Significant net shares of banks reported a decrease in customers' merger or acquisition financing needs as an important reason for weaker demand
Residential Real Estate (RRE)
- Banks left lending standards unchanged for most mortgage loan categories and for revolving home equity lines of credit (HELOCs), with important differences across bank sizes
- Modest shares of large banks eased standards for government-sponsored enterprise (GSE)-eligible mortgages —which make up the majority of bank mortgage originations—for qualified mortgage (QM) jumbo loans, and for QM non-jumbo, non-GSE-eligible residential mortgages, while leaving standards unchanged for the remaining categories of RRE loans
- Large banks reported unchanged demand across all mortgage categories.
Consumer Lending
- A moderate net share of banks reported easing standards for credit card loans, and modest net shares eased standards for auto loans and for other consumer loans
- Banks also increased credit limits for credit card accounts, and narrowed the rate spreads charged on outstanding balances over their cost of funds for auto loans and other consumer loans, respectively
- A moderate net share of large banks reported stronger demand for credit card and other consumer loans, while a modest net share of large banks experienced weaker demand for auto loans
The senior loan officer survey was based on responses from 72 domestic banks and 22 U.S. branches and agencies of foreign banks.