The Federal Reserve’s much-anticipated Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices is out.
It is everything you expected it to confirm: tighter standards and weaker demand.
Here is a summary of the SLOOS findings (emphasis ours):
“The April 2023 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally correspond to the first quarter of 2023.1
Regarding loans to businesses, survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms as well as small firms over the first quarter.2 Meanwhile, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government-sponsored enterprise (GSE)-eligible and government residential mortgages, which remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit cards.
The April SLOOS included three sets of special questions, which inquired about banks’ changes in lending policies for CRE loans over the past year; about the reasons why banks changed standards for all loan categories over the first quarter; and about banks’ expectations for changes in lending standards over the remainder of 2023 and reasons for these changes.
In response to the first set of special questions, banks, on balance, reported tightening lending policies for all categories of CRE loans over the past year, with the most frequently reported changes pertaining to wider spreads of loan rates over banks’ cost of funds and lower loan-to-value ratios.
Regarding the second set of special questions about reasons for changing standards on all loan categories in the first quarter, banks cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks’ funding costs and liquidity positions.
Finally, regarding the last set of special questions about banks’ outlook for lending standards over the remainder of 2023, banks reported expecting to tighten standards across all loan categories. Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.
As in past releases, survey results are tabulated for two domestic bank size categories: large banks and other banks. Banks in the large category have $50 billion or more in domestic assets as of December 31, 2022; banks in the other category have under $50 billion in domestic assets. This release includes additional comments in the text that further disaggregate large banks into the largest banks and mid-sized banks. The largest banks are defined as those with total domestic assets of $250 billion or more as of December 31, 2022, and mid-sized banks as those with assets between $50 billion and $250 billion. In general, the tightening in standards for business loans was more frequently reported across the mid-sized banks than either the largest banks or other banks, both for the first quarter and in expectation for the rest of 2023. As reasons for tightening standards on all loan categories, both in the first quarter and over the rest of the year, other and mid-sized banks reported concerns about their liquidity positions, deposit outflows, and funding costs more frequently than the largest banks.”
What is striking is how much the banking turmoil bolstered the standing of the big banks and hurt everyone else.
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