[[Credit crunch continues?: normxxx]]
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Current survey | Full report (517 KB PDF)
Table 1 | Table 2 | Chart data
Table 1 (68 KB PDF) | Table 2 (32 KB PDF) | Charts (15 KB PDF)
The October 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.1 The survey included two sets of special questions: The first set asked domestic and foreign banks about changes in the dollar amount of commercial and industrial (C&I) loans according to whether they were drawn under preexisting commitments; the second set asked domestic banks about changes in credit limits on existing credit card accounts for prime and nonprime borrowers. This article is based on responses from 55 domestic banks and 21 U.S. branches and agencies of foreign banks.
In the current survey, large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months. The net percentages of respondents that reported tightening standards increased relative to the July survey for both C&I and commercial real estate loans, as did the fractions reporting tightening for all price and nonprice terms on C&I loans. Considerable net fractions of foreign institutions also tightened credit standards and terms on loans to businesses over the past three months. Large fractions of domestic banks reported tightening standards on loans to households over the same period. Demand for loans from both businesses and households at domestic institutions continued to weaken, on net, over the past three months.
In response to the special questions, significant net fractions of large domestic banks and U.S. branches and agencies of foreign banks reported increases in C&I loans drawn under preexisting commitments. Moderate fractions of all banks, on net, reported increases in C&I loans not drawn under such commitments. Domestic banks reported reducing credit limits on existing credit card accounts both to prime and to nonprime borrowers, citing a less favorable or more uncertain economic outlook, reduced tolerance for risk, and declines in customer credit scores as important reasons for the decreases.
Lending To Businesses
(Table 1, questions 1-10; Table 2, questions 1-10)
Questions on C&I lending. About 85 percent of domestic banks— up substantially from 60 percent in the July survey— reported having tightened lending standards on C&I loans to large and middle-market firms over the past three months. About 75 percent of such respondents indicated that they had tightened their lending standards on C&I loans to small firms over the same period, a somewhat larger fraction than in the July survey. Significant majorities of domestic respondents indicated that they had tightened price terms on C&I loans to firms of all sizes, with notable fractions reporting considerably tighter terms.
On net, about 95 percent of U.S. banks reported having tightened the costs of credit lines to large and medium-sized firms, while nearly 90 percent reported such tightening for smaller firms. Nearly all banks— up from roughly 80 percent in the July survey— noted that they had increased spreads of loan rates over their cost of funds on C&I loans to large and middle-market firms, while about 95 percent of respondents, more than in the July survey, reported having widened spreads on loans to small firms. Substantial fractions of respondents also reported increasing premiums charged on riskier loans to firms of all sizes.
In addition, the fraction of domestic respondents that reported having tightened non-price-related lending terms on C&I loans to firms of all sizes over the survey period increased significantly relative to the July survey: Higher fractions of banks reported having reduced both the maximum size and the maximum maturity of loans or credit lines to large and middle-market and to smaller firms. Additionally, roughly 75 percent of respondents reported having tightened covenants on loans to large and middle-market firms, and about 70 percent reported having tightened covenants on loans to small firms.
U.S. branches and agencies of foreign banks also tightened their business lending stance. About 70 percent of the branches and agencies, considerably more than in the July survey, indicated that they had tightened their lending standards on C&I loans over the past three months. Large fractions of foreign respondents reported that they had tightened loan terms, including the premiums charged on riskier loans, the cost of credit lines, and the maximum size of credit lines.
Almost all domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards and terms on C&I loans over the past three months. Large majorities of respondents indicated that their bank’s reduced tolerance for risk and a worsening of industry-specific problems were factors in their decision. Roughly 75 percent of foreign respondents and about 40 percent of domestic respondents noted that a deterioration in their bank’s current or expected capital position had contributed to the move toward more stringent lending policies over the past three months, higher fractions than had cited that factor in the July survey.
The October survey suggested a slight further weakening of C&I loan demand over the past three months. On balance, 15 percent of domestic respondents reported a reduction in demand for C&I loans from large and middle-market firms, with about 5 percent reporting a weakening in demand from smaller firms. In contrast, 5 percent, on net, of the U.S. branches and agencies of foreign banks reported an increase in demand for C&I loans.
Substantial majorities of the domestic institutions that experienced weaker loan demand over the past three months pointed to decreases in customers’ needs to finance investment in plant and equipment, to finance inventories, and to finance customer accounts receivable as reasons for the weaker demand. In addition, all foreign and a large fraction of domestic respondents pointed to a decrease in customers’ needs for merger and acquisition financing as a reason for the lower demand for C&I loans. Among banks that reported an increase in demand, nearly all domestic respondents reported that customer borrowing had shifted to their bank from other bank or nonbank sources because these other sources had become less attractive.
In addition, some domestic and foreign respondents indicated that their customers’ internally generated funds had decreased. About 10 percent of domestic institutions, on net, reported that inquiries from potential business borrowers had increased during the survey period. In contrast, about 25 percent of foreign respondents, on net, reported a decrease in such inquiries.
Special questions on changes in the dollar amount of outstanding C&I loans. About 40 percent, on net, of domestic respondents reported an increase in the dollar amount of C&I loans drawn under preexisting commitments. Responses, however, differed substantially by bank size, with nearly 65 percent of large banks reporting such an increase, on net, compared with about 5 percent of smaller banks.
With respect to C&I loans that were not drawn under previous commitments, roughly 25 percent of large banks reported an increase in the dollar volume of outstanding loans, only slightly lower than the corresponding net percentage for smaller banks, 35 percent. About 65 percent of foreign banks indicated that the dollar amount of outstanding C&I loans drawn under preexisting commitments had increased on net. Forty percent of foreign respondents reported an increase in C&I loans not drawn under such commitments.
Questions on commercial real estate lending. On balance, about 85 percent of domestic banks reported that they had tightened their lending standards on commercial real estate loans (CRE) over the past three months. About 65 percent of foreign banks, up considerably from about 35 percent in the July survey, also indicated that they had tightened their lending standards on CRE loans. On net, about 55 percent of domestic banks— up from 30 percent in the July survey— and 40 percent of foreign banks— down from roughly 45 percent in the July survey— reported weaker demand for such loans.
Lending To Households
(Table 1, Questions 11-22)
Questions on residential real estate lending. Large majorities of domestic respondents reported having tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the previous three months. About 70 percent of domestic respondents— down from about 75 percent in the previous survey— indicated that they had tightened their lending standards on prime mortgages.2 Responses differed somewhat by bank size, with about 80 percent of the largest banks, but only 55 percent of the smaller banks, reporting tighter standards for prime borrowers.
About 90 percent— up slightly from July— of the 29 banks that originated nontraditional residential mortgage loans reported having tightened their lending standards on such loans.3 All 4 of the banks that responded to the survey’s question about lending standards on subprime loans indicated that they had tightened their lending standards on such loans over the past three months.4 About 50 percent of domestic respondents— a somewhat higher fraction than the roughly 30 percent in the July survey— experienced weaker demand, on net, for prime residential mortgage loans over the past three months.
A higher net fraction of large banks than smaller banks reported a decline in demand. About 70 percent of respondents— up from roughly 45 percent in the July survey— indicated weaker demand for nontraditional mortgage loans over the same period. Each of the 4 domestic banks that originated subprime mortgage loans reported weaker demand for such loans over the survey period, compared with 4 of the 7 banks that reported originating subprime loans in the July survey.
On net, about 75 percent of domestic respondents, similar to the fraction in the July survey, noted that they had tightened their lending standards for approving applications for revolving home equity lines of credit (HELOCs) over the past three months. About 25 percent of domestic banks, on net, reported weaker demand for HELOCs over the past three months, more than double the fraction that had reported weaker demand in the July survey.
Questions on consumer lending. Large fractions of domestic banks again reported tightening standards on both credit card and other consumer loans. Nearly 60 percent of respondents indicated that they had tightened lending standards on credit card loans, while nearly 65 percent of respondents indicated that they had tightened lending standards on other consumer loans over the past three months. Higher net fractions of large banks reported tightening standards on both categories of consumer loans than did smaller banks.
About 50 percent of banks reported having raised minimum required credit scores on credit card accounts over the past three months, and 60 percent reported having raised minimum scores on other consumer loans over the same period, responses that were little changed from the July survey. About 60 percent of respondents also reported having reduced the extent to which credit card accounts were granted to customers who did not meet their bank’s credit-scoring thresholds. A similar fraction of respondents reported a reduction in granting other kinds of consumer loans for that reason.
Also, significant net fractions of respondents reportedly raised minimum required down payments, as well as spreads of loan rates, on consumer loans other than credit card loans. Half of domestic banks indicated that they had become either somewhat or much less willing to make consumer installment loans over the past three months, up from 35 percent in the July survey and the largest fraction in more than two decades. About 50 percent of respondents, on net, indicated that they had experienced weaker demand for consumer loans of all types over the past three months, up from 30 percent in the July survey.
Special questions on existing credit card limits. Two special questions asked domestic banks to indicate whether they had raised or lowered credit limits on existing credit card accounts and, if they had lowered limits, to give possible reasons for the change. About 20 percent of domestic banks, on net, reported having reduced credit limits on existing credit card accounts to prime borrowers; about 30 percent of larger banks and 10 percent of smaller banks had lowered such limits.
Roughly 60 percent of banks had lowered limits on existing credit card accounts of nonprime borrowers; no banks reported raising limits to those borrowers. About 95 percent of banks that had reduced limits cited a less favorable or more uncertain economic outlook and reduced tolerance for risk as reasons for the action. Large majorities of respondents also cited a decline in customer credit scores and missed payments by customers on credit card loans and other loans at their bank.
1Banks received the survey on or after October 2, and their responses were due on October 16.
2A total of 52 institutions reported that they had originated prime residential mortgages. According to the Call Reports, these 52 banks accounted for about 78 percent of residential real estate loans on the books of all commercial banks as of June 30, 2008.
3According to the Call Reports, these 29 institutions accounted for about 62 percent of residential real estate loans on the books of all commercial banks as of June 30, 2008.
4According to the Call Reports, these 4 institutions accounted for about 11 percent of residential real estate loans on the books of all commercial banks as of June 30, 2008.
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