Economy

October Senior Loan Officer Opinion Survey on Bank Lending Practices

November 7, 2013

Once a quarter the Federal Reserve surveys the senior loan officers of 73 domestic banks and 22 U.S. branches and agencies of foreign banks. Questions cover changes in the standards and terms of the banks’ lending and the state of business and household demand for loans.

The survey preamble was as follows. “The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. The survey also contained special questions about changes in banks’ lending standards on, and demand for, the three main types of commercial real estate (CRE) loans over the past year, and on the current levels of banks’ lending standards for many types of business and household loans relative to longer-term norms. In the October survey, domestic banks, on balance, reported having eased their lending standards and having experienced little change in loan demand, on average, over the past three months. The survey contained two sets of special questions. Motivated by the increase in long-term interest rates since the spring, the first set of questions asked banks to describe whether they had experienced changes in the volume of applications for residential mortgages and whether they had changed lending policies for new home-purchase loans. The second set of questions examined the standards and terms on subprime auto loans over the past 12 months.”

There is a huge amount of valuable data in this report which can be accessed here by those readers who wish to dig deeper. http://www.federalreserve.gov/boarddocs/snloansurvey/201308/fullreport.pdf

Regarding loans to businesses, the October survey indicated that demand for commercial and industrial (C&I) loans from both large and small firms had deteriorated to the point that as many banks were reporting a demand decrease as were reporting an increase. Also in the last two quarters fewer banks are reporting an easing of lending standards for C&I loans (Figure 1 and Figure 2). A majority of banks are still reporting an increase in demand for and easier terms for construction and land development loans but that majority is declining (Figure 3). There has been a drastic decline in demand for prime mortgage loans with a majority of banks now reporting a decline in demand. Banks have been gradually easing their lending standards for prime mortgages over the last year (Figure 4).

SMU Comment: Overall this quarter’s survey is less optimistic for future steel markets than the last few have been. Of particular concern is the decline in demand for prime mortgages which supports the recent reports of housing starts. Starts still look good on a year over year basis but the monthly numbers have been struggling since February.