Commercial Lending Standards Tighten amid Increased Demand

Over the past three months, banks reported easing lending standards and weaker demand for a variety of home loan types. In contrast, lending standards for C&I and CRE loans tightened amid strengthening fourth quarter demand, according to the January Federal Reserve Senior Loan Officer Opinion Survey.

Although the majority of banks did not change their lending standards, a net 8.3 percent of banks reported tightening standards for commercial and industrial lending to large and middle market firms, while a net 4.2 percent of respondents reported tightening standards for small business lending. Most respondents who tightened standards reported a less favorable or more uncertain economic outlook, as well as worsening of industry related problems in the oil and gas sectors. Some banks also attributed tightening to a reduced risk tolerance, decreased liquidity in the secondary market for loans, and increased concerns about the effects of legislative changes or supervisory actions.

A moderate net fraction of banks reported easing standards on GSE-eligible mortgage loans, while a modest net fraction of banks reported having eased standards on qualified mortgage loans. Despite an easing of standards, a moderate net fraction of banks reported weaker demand across most mortgage categories.

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