Easing credit conditions, Fed survey finds


The pandemic-induced credit crunch appears to be easing, creating new borrowing opportunities for consumers and businesses, according to a national Federal Reserve study.

“When it comes to business loans, respondents to the July survey, overall, reported easier standards and higher demand for commercial and industrial (C&I) loans from businesses of all sizes over the course of second quarter, ”the Fed reported. Interest in commercial real estate loans (CRE) has also gained momentum with the relaxation of standards for multi-family loans, construction and land development, according to the second quarter survey.

Each quarter, the Fed polls senior lending officials at banks and other financial institutions. The last report in July included input from 97 loan officers.

“For household loans, banks relaxed the standards in most categories of Residential Mortgage Loans (RREs), net, and reported stronger demand for most types of RRE loans during the second quarter.” , indicates the survey. “Banks have also relaxed standards and reported stronger demand in all three categories of consumer loans – credit card loans, auto loans and other consumer loans.”

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The Fed added additional questions to assess historical levels of lending standards. Loan officers were asked how the current lending standards compare to the period dating back to 2005. The Fed reported.

However, the results are mixed. “For subprime consumer loans and most categories of commercial or residential mortgages, banks said they currently have relatively stricter levels of lending standards on the net,” the survey found.

Lenders were asked when the standards had reached their easiest and strictest points since 2005. Most indicated that the standards were easiest between 2005 and 2007 and most stringent between 2008 and 2010. This indicates, according to the Fed, that there has been no significant change in lending standards over the past 10 years.

In summary, lending opportunities increase as banks relax their standards.

“Major net shares of banks that reported easing standards or conditions cited a more favorable or less uncertain economic outlook, more aggressive competition from other banks over non-bank lenders, and improvements in business-specific issues. industry as important reasons for doing so, ”the report mentioned.

At the same time, most banks said the stronger demand for loans was driven by the needs of businesses “to finance inventory, accounts receivable, investments in factories or equipment, and mergers and acquisitions.” according to the report. “Most of the banks that reported weaker demand cited an increase in funds generated internally by customers as an important reason.”

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