The Federal Reserve's survey of 61 domestic banks and 18 foreign branches shows lenders are reacting to deteriorated borrower collateral and an unfavorable economic outlook. While large corporate borrowers face largely unchanged standards, lenders are imposing higher premiums on riskier corporate loans across the board. Real estate developers and nonbank financial institutions are confronting the strictest lending hurdles alongside falling demand. Furthermore, banks are shutting out subprime consumers as delinquency rates surge toward historic highs.
Key points
Banks are aggressively de-risking balance sheets by targeting vulnerable borrowers rather…: Banks are aggressively de-risking balance sheets by targeting vulnerable borrowers rather than instituting blanket lending cuts across the corporate sector.
Surging household distress is driving consumer credit restrictions after the share of fam…: Surging household distress is driving consumer credit restrictions after the share of families behind on payments rose to nearly 20%.
Commercial real estate faces an intensifying capital freeze as banks implement tougher qu…: Commercial real estate faces an intensifying capital freeze as banks implement tougher qualification rules while borrower demand concurrently evaporates.
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U.S. banks are starting to tighten their lending standards amid growing concern over the underlying health of the economy, according to a new Federal Reserve survey.
The Fed's latest Senior Loan Officer Opinion Survey on Bank Lending Practices for October, published Nov. 2, showed an uneven credit backdrop in the third quarter, with smaller businesses, riskier households and commercial property in particular facing a lending squeeze.
The latest quarterly SLOOS study for October — which pulled together responses from 61 domestic banks and 18 U.S. branches of foreign lenders — covered changes in lending standards, terms and demand during the third quarter.
The survey tracks banks' reported lending standards, terms and demand, not actual loan volumes, offering a snapshot of evolving credit conditions and sentiment.
Small businesses feel the squeeze
Commercial and industrial lending to large and middle-market firms was broadly unchanged from the previous survey — but banks tightened lending to smaller businesses.
"Banks reported tightening standards for premiums charged on riskier loans for firms of all sizes," the report noted. Lenders pointed to a less favorable or more…
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