From cautious optimism to renewed concerns

By John Paul Rothenberg and Anaya Jhaveri
ABA DataBank

The April 2025 Federal Reserve Senior Loan Officer Opinion Survey, or SLOOS, signals a clear shift in the first quarter of 2025: Banks are tightening credit standards and facing weaker loan demand for commercial and industrial loans, often an early sign of broader economic slowdowns. After standards began tightening in 2022, by late 2024, more banks were holding steady and a few even easing. But that trend has now clearly reversed. In the first quarter of 2025, more institutions moved from neutral to tightening. With economic and policy uncertainty rising, the opportunities for easier credit may be shrinking.

This is part 2 of analysis by the ABA Office of the Chief Economist of the April 2025 SLOOS. Part 1 is here.

C&I loan supply

Figure 1 illustrates the tightening that began in 2022 and underscores the scale of this reversal from 2024. The percentage of banks tightening commercial and industrial loan standards (light red) reached its highest level since Q3 2023, while the share of institutions reporting significant tightening (dark red) reached its highest point since Q2 2023. The visual downturn reflects not just more tightening, but more intensity, indicating a shift from cautious optimism back to active risk management.

Figure 1

Figure 1 explanation: This chart tracks changes in credit standards for large and middle-market firms over time. The stacked bars show the percentage of banks reporting standards have tightened (red shades) or eased (green shades), with darker colors indicating more significant changes. The blue dotted line represents the net percentage (eased minus tightened), highlighting the overall trend each quarter.

Looking at the specific loan terms in Figure 2, loan covenants and maximum credit line sizes each moved roughly 10 percentage points deeper into net-tightening, despite sitting near neutral just one quarter ago. This points to a deliberate move to control risk exposure. However, the main pricing term of interest rate spread saw slight net easing, albeit weaker than last quarter. At the same time, risk premiums remain marginally net negative (-12 in April 2025), highlighting lenders’ continued reluctance to give ground where credit quality is most vulnerable. Overall, from the loan supply perspective, banks are trying to play offense on pricing but becoming more defensive on documentation.

Figure 2

Figure 2 explanation: This chart compares the percent of banks changing loan terms for C&I loans across the last two quarters using a combination of barbell and divergent bar charts. Each arrowed line (“barbell”) connects the net respondent percent for January (black dot) and April (blue dot) 2025, showing shifts in each term. The arrow is colored red for a net negative shift and green for a net positive shift. The categories are sorted from the most net negative category to the most net positive in the latest survey. The shaded bars behind each barbell display the distribution of change responses for January above the arrow, and April below the arrow: dark red/green indicate “considerable” changes in tightening/easing, while lighter shades show “somewhat.” Neutral responses are not shown.

Beneath the surface of pricing stability, concerns are pronounced. Figure 3 shows that the two leading reasons for tightening standards — the economic outlook and legislative, supervisory or accounting changes — not only rank highest in negative importance but also show the largest recent shifts toward increased concern. For example, the net negative value for economic outlook in the April 2025 SLOOS is -18, a sharp drop from -4 in January, marking a net change of -14 (as shown by the longest red arrow in Figure 3). In the face of a volatile economic outlook, banks appear to be reinforcing the structure of loans to prepare for potential stress.

On the other hand, competition from other banks or nonbank lenders remained a powerful counterweight, with many banks still citing it as a “very important” reason to ease (and a net positive value of 7 in the April 2025 SLOOS), especially as capital and liquidity positions remain strong. So banks are still motivated to compete for business, especially on headline rates, even as the broader lending environment grows more cautious.

Figure 3

Figure 3 explanation: This chart compares the count of banks citing reasons for changes in credit terms for C&I across the last two quarters using a combination of barbell and divergent bar charts. Each arrowed line (“barbell”) connects the net respondent count for January (black dot) and April (blue dot) 2025, showing shifts in each reason. The arrow is colored red for a net negative shift and green for a net positive shift. The categories are sorted from the most net negative category to the most net positive in the latest survey. The shaded bars behind each arrow display the distribution of responses for January above the arrow, and April below the arrow: dark red/green indicate “very important” reasons for tightening/easing, while lighter shades show “somewhat important.” Neutral responses are not shown.

Figure 4 compares reasons for changes in C&I standards for large banks (domestic assets of more than $100 billion) and other banks (domestic assets of less than $100 billion) in the April 2025 SLOOS. The figure shows large banks are generally less pessimistic about C&I loans in the most recent survey than smaller banks. While both cohorts show similar concerns about external drivers like the economic outlook and legislative, supervisory or accounting changes, the larger banks seem more comfortable about their own risk profiles given the more positive tilt of risk tolerance, liquidity position and capital position. Large banks responded that competition from other banks or nonbank lenders was a more important reason for easing than it was for smaller banks.

Figure 4

Figure 4 explanation: This chart compares the reasons for changes in standards for C&I loans between Large Banks (defined as those with total domestic assets of $100 billion or more as of December 31, 2024) and Other Banks (banks less than $100 billion in assets) using a combination of barbell and divergent bar charts. Each arrowed line (“barbell”) connects the net respondent percentage for Other Banks (black dot) and Large Banks (blue dot) in Q1 2025, showing differences in importance for each reason. The categories are sorted from the most net negative category to the most net positive for Large Banks. The shaded bars behind each barbell display the full distribution of responses for Other Banks above the line, and Large Banks below the line: dark red/green indicate “very important” reasons for tightening/easing, while lighter shades show “somewhat important.”

C&I loan demand

After ending 2024 with signs of renewed optimism, C&I loan demand took a noticeable step back in the first quarter of 2025. As Figure 5 shows, all queried reasons for changes in demand swung to a net weaker demand (i.e., all red arrows and no green arrows), with the sharpest pullbacks tied to longer-term plans. The steepest declines came from more strategic financing needs such as investment in plant and equipment and M&A, while shorter-term drivers like accounts receivable financing and inventory financing needs also moved into net weaker reasons for changes in demand. With long-term planning becoming more difficult due to economic and policy uncertainty, borrowers are taking a defensive stance: in the near term, firms are not stretching to finance operations; in the long term, they’re shelving expansion projects.

Figure 5

Figure 5 explanation: This chart compares the count of banks citing reasons for changes in demand for C&I loans across the last two quarters using a combination of barbell and divergent bar charts. Each arrowed line (“barbell”) connects the net respondent count for January (black dot) and April (blue dot) 2025, showing shifts in each reason. The arrow is colored red for a net negative shift and green for a net positive shift. The categories are sorted from the most net negative category to the most net positive in the latest survey. The shaded bars behind each arrow display the distribution of responses for January above the arrow, and April below the arrow: dark red/green indicate “very important” reasons for tightening/easing, while lighter shades show “somewhat important.” Neutral responses are not shown.

The April 2025 SLOOS shows banks and borrowers shifting decisively back to caution after a brief window of optimism late last year. In Q1 2025, credit standards saw a reacceleration in tightening across C&I loans, driven by renewed economic and policy uncertainty. Demand, particularly for long-term projects, has pulled back as firms postpone growth and banks reinforce risk controls. If uncertainty recedes, banks appear poised to compete for new lending, but for now, both demand and supply sides are treading carefully and waiting for clearer signals.

JP Rothenberg is a VP of banking and policy research at ABA. Anaya Jhaveri is a graduate student at Johns Hopkins University studying applied economics. Discover more in-depth research, dashboards and webinars from the Office of the Chief Economist by exploring ABA’s Economic Research & Insights website.