Tightening of standards and terms across business loans; increased demand for credit card loans and HELOCs
KPMG Insight. The findings from the most recent Senior Loan Officer Opinion Survey indicate that a significant majority (94%) of domestic commercial bank respondents anticipate that, should a recession occur in the next 12 months, it would be mild to moderate. FRB Chair Powell has stated he will continue to raise rates to combat inflation. News reports indicate the largest U.S. banks continue to increase their bad debt loss reserves to “fortify their balance sheets” against potential increased credit losses as both interest rates and expectations for an economic downturn grow. In its most recent Supervision and Regulation Report, the FRB identifies risk management practices in credit, market, and interest rate risk among its 2023 supervisory priorities for large financial institutions.
The Federal Reserve Board (FRB) published its October 2022 Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices. The survey, which covers a 3-month period roughly aligned with the third quarter of 2022, received responses from a reporting panel of 71 domestic commercial banks and 18 large U.S. branches and agencies of foreign banks.
The survey focused on changes in the standards and terms of, and demand for, bank loans to businesses and households, as well as two sets of “special questions” investigating the respondents’ assessments of: 1) their credit card and auto lending policies, and 2) the likelihood and severity of a recession in the next 12 months and expected changes in lending standards should one occur.
Survey responses from the domestic commercial banks (hereinafter, “Respondents”) provide the following key findings:
More detailed highlights from the survey Respondents follow.
Commercial and Industrial (C&I) Lending: Many Respondents (approximately 40 percent) reported tightening standards and terms, as well as weaker demand, for C&I loans to firms of all sizes.
Residential Real Estate (RRE) Lending: Most Respondents (approximately 80 to 90+ percent) reported:
Consumer Lending: Some Respondents (approximately 15 to 20 percent) reported tightening standards and terms for credit card and other consumer loans, while most Respondents (approximately 90 percent) reported that standards and terms for auto loans remained basically unchanged.
In the first set of special questions, Respondents were asked to assess the likelihood of approving credit card and auto loan applications by borrower FICO score in comparison with the beginning of 2022.
In the second set of special questions, Respondents were asked to assess the likelihood and severity of a recession in the next 12 months, as well as how they expected their lending standards to change should one occur.
Bank Lending: FRB Survey Indicates Industry Expects Mild Recession, Tightening StandardsDownload PDF
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