Summary: Federal Reserve Senior Loan Officer Opinion Survey

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The Federal Reserve (1) has recently examined market loan demand and loan underwriting standards in both commercial and consumer sectors, comparing the Senior Loan Officer Opinion Survey responses over the course of time from 2Q 2005 to 2Q 2017. In this release are questionnaire response results from 76 domestic banks and 22 U.S. branches and agencies of foreign banks. The survey questions were primarily qualitative, and give a broad picture of current market demand and loan underwriting standards.

CRE Demand & Standards

Survey respondents indicated that Construction & Land Development and then Multifamily loans have experienced the steepest demand decline, while demand for other CRE segments remained generally unchanged.

Commercial Real Estate (CRE), in general, has experienced tightening standards and weakening demand throughout 2Q 2017, which is a common correlation. More specifically, the Banks that reported a tightening of lending standards reported that Construction and Land Development lending standards were the most affected, following was Multifamily, and then to a lesser extent general CRE standards.

C&I Demand & Standards

Commercial and Industrial (C&I) loans largely have experienced weakened demand while C&I standards were generally unchanged. The lessening of demand was reported primarily by larger International and Regional Banks, with community banks reporting a lessening of demand as well but to not as significant of a change in demand. Granted, larger institutions are significantly more involved in C&I lending. Banks cited the following reasons for weakened demand: shifts in borrowing to other banks or nonbank parties, decreases in the need to finance inventory, accounts receivable, investment in plant or equipment, and mergers or acquisitions.

While C&I standards did remain relatively unchanged, of the minority of banks who did report eased standards on C&I loan terms, the most underscored reason for this was aggressive competition from other lenders, by both other Banks and non-Bank parties.

Similarly, although there were reportedly no changes in standards overall, the terms of C&I loans did become less restrictive in favor of borrowers. The most common modification to terms have been increases to the top end of credit lines & the elimination of the use of interest rate floors, also Banks are reporting a narrowing of margins over the cost of funds.