Bank lending is improving for consumers

August 6, 2024

The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) showed banks’ lending standards for households improving to the point that some loan categories revealed an actual easing of conditions for consumers, a marked change from the prevailing tight conditions that have been in place for roughly two years. While tighter standards continue for firms, they are less tight than in recent quarters.

For loans to households, residential real estate (RRE) showed improvement in both demand and supply of loans. For the first time in more than two years, a small fraction of banks, actually eased standards in the second quarter, a reversal from the tighter standards that existed for eight straight quarters.

In the first quarter of 2024, 4% of banks tightened standards for RRE. On the demand side, 15% reported weaker demand for RRE versus 20% that reported weaker demand in the first quarter.

For auto loans, no banks tightened their lending standards in the second quarter after tightening standards in the prior two years. With auto affordability an issue for some consumers, easier lending standards would help ease the path to a new or used vehicle purchase. For home equity lines of credit, 2% eased their standards after two years of tightening standards. For consumer credit cards, 20% of banks tightened their standards, the same reading as in recent quarters.

For businesses, 8% of banks tightened their lending standards for commercial and industrial (C&I) loans to large and middle market firms (e.g., businesses with annual revenue of $50 million or more) in the second quarter. That compares to 16% in the first quarter and 15% in the fourth quarter of 2023. For loans to small businesses (annual sales of under $50 million), 8% of banks tightened standards, vs 20% in the first quarter. Banks cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, a reduced tolerance for risk and increased concerns about the effects of legislative changes, supervisory actions or changes in accounting standards as reasons to tighten standards.

In addition, banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories. Nearly one quarter of respondents reported tightening standards for approving new loan applications for multifamily properties versus one third responding as such in the first quarter. For nonfarm, nonresidential properties, 21% tightened standards, down from 31% in the first quarter.