Steel Products

The July 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices

Written by John Packard

Written by: Peter Wright

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 following is an edited version of the statement released by the Federal Reserve on August 5th together with graphs from the SMU data base.


The July 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 July survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months.

Regarding loans to businesses, the July survey generally indicated that banks eased their lending policies for commercial and industrial (C&I) and CRE loans and experienced stronger demand for such loans over the past three months.  A moderate fraction of domestic survey respondents, on net, indicated that they had eased their standards for C&I loans to firms of all sizes over the second quarter of 2013.

On balance, almost all terms on C&I loans were reportedly eased, regardless of firm size. In particular, sizable net fractions of respondents indicated that they had decreased spreads on C&I loan rates over their bank’s cost of funds regardless of firm size. In addition, moderate to large net fractions of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes. Most banks that eased their C&I lending policies cited increased competition for such loans as an important reason for having done so. On net, respondents reported stronger demand for C&I loans over the second quarter, although a few large banks indicated that demand had weakened, (Fig 1 large firms), (Fig 2 small firms). The survey included special questions on changes in standards and demand over the past twelve months for the three major categories of CRE loans–construction and land development loans, loans secured by nonfarm nonresidential properties, and loans secured by multifamily residential properties. Banks reported that they had eased their standards, on balance, on all three types of CRE loans over the past twelve months, though fewer banks so reported for construction and land development loans than for the other two categories of CRE loans. Moderate net fractions indicated that they had experienced stronger demand for all three categories over the same, (Fig 3). 

The survey results also indicated that banks eased standards and terms on, and saw increases in demand for, some categories of lending to households. Modest net fractions of respondents reported having eased standards on prime residential or nontraditional mortgage loans, and a large net fraction indicated that they had seen increased demand for prime mortgage loans, (Fig 4). A moderate net fraction of respondents reported that they had eased standards on auto loans over the past three months, and small net fractions indicated that they had eased standards on credit card loans and other consumer loans. Demand for all three types of consumer loans asked about in the survey had reportedly strengthened, on balance, over the second quarter, (Fig 4).

SMU comment; Overall this quarter’s survey continues to be good news for future steel markets as one of the impediments to growth is being eased. The C&I market is not back to where it was in 2005 but supply and demand are in balance and both are quite healthy. Demand for CRE loans now exceeds the pre-recessionary level and terms are back to where they were in 2005. Particularly encouraging is that demand for prime mortgage loans are very strong and somewhat mitigates the recent statistics on housing starts which showed signs of slowing in the second quarter. The demand curve shown in Fig 4 is probably not relevant as the vast majority of mortgage loans are being provided by Freddy and Fannie at present. There is a huge amount of valuable data in this report which can be accessed here by those readers who wish to dig deeper.

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