IAT - The Loan Officer Survey: Key Takeaways
2023-05-10 23:20:00 ET
Summary
- The Fed’s latest survey of banking institutions reveals tighter lending standards with weaker loan demand.
- The Fed’s Q2 SLOOS summary, released on Monday, revealed tighter lending standards for almost all categories of borrowers while demand saw sharp declines.
- As highlighted by the survey, lending standards tightened at 46.0% of banks (net) on commercial and industrial (C&I) loans to midsize and large borrowers, up from 44.8% in 1.
By Apoorv Tandon
The Fed’s latest survey of banking institutions reveals tighter lending standards with weaker loan demand.
The Federal Reserve Senior Loan Officer Opinion Survey (SLOOS) is a quarterly survey of approximately 65 domestic banks and 19 U.S. branches and agencies of foreign banks.
The SLOOS is an important instrument in the Fed’s analytical framework, with implications for policymakers, investors, economic analysts and the public at large.
The survey seeks to ascertain changes in lending standards and demand for loans across various categories, such as commercial and industrial loans, real estate loans and consumer loans.
Changes can have multiple and serious implications. For example, tightening of lending standards could signal an emerging trend of risk aversion within the lending industry.
Such a trend could have far-reaching effects on investment, growth and development across various sectors of the economy. Conversely, a reduction in demand for consumer loans could reflect myriad factors, including shifts in consumer preferences, changing macroeconomic conditions and credit market fluctuations, among others.
The knock-on effects of such a decline in consumer demand could manifest across different sectors of the economy, affecting employment rates, business investment and inflation.
The Fed’s Q2 SLOOS summary, released on Monday, revealed tighter lending standards for almost all categories of borrowers while demand saw sharp declines. Responses from domestic banks were collected in April, well after the regional banking stresses observed in mid-March.
As highlighted by the survey, lending standards tightened at 46.0% of banks (net) on commercial and industrial (C&I) loans to midsize and large borrowers, up from 44.8% in 1Q but still well below the peak of 83.6% observed in 1Q 2008 during the Global Financial Crisis. Meanwhile, demand for loans to this group plunged to -55.6% or its lowest level since reaching -60.4% in 1Q 2009.
Based on the latest survey results, it appears that tighter lending conditions will limit the availability of credit for businesses and households and dampen economic growth.
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The Loan Officer Survey: Key Takeaways