U.S. banks reported easing standards across all loan types in the second quarter amid strong demand from both commercial and residential borrowers.
The Federal Reserve’s quarterly survey of senior loan officers found that significant net shares of banks reported easing the terms on C&I loans to large and middle-market firms including the maximum size of credit lines, loan covenants, the use of interest rate floors, and premiums charged on riskier loans.
Other C&I loan terms were either eased by a modest share of banks or remained basically unchanged on net.
Banks that eased standards and terms cited “a more favorable or less uncertain economic outlook, more aggressive competition from other banks on nonbank lenders, and improvements in industry-specific problems.”
“Significant net shares of banks also mentioned increased tolerance for risk and improvements in their current or expected liquidity or capital positions as important reasons for easing lending standards and terms,” the Fed said.
As American Banker reports, “Most banks reported that they began implementing stricter lending standards for borrowers in late March of 2020 as the economic outlook shifted in light of news about the spread of the COVID-19.’
But in recent quarters, lenders have reversed course as demand increases and the economic outlook improves.
On the consumer side, banks eased lending standards for most mortgage loan categories and for revolving home equity lines of credit (HELOCs) in the second quarter though demand for government residential mortgages and HELOCs was basically unchanged on net.
A significant net share of banks eased standards for credit card loans, and moderate net shares of banks eased standards for auto loans and for other consumer loans. A significant net share also increased credit limits on credit card accounts while other surveyed terms on consumer loans either remained basically unchanged, on net, or had a modest net share of banks report easing.
The Fed surveyed loan officers at 75 domestic banks and 22 U.S. branches and agencies of foreign banks.