Fed releases new senior loan officer survey on lending practices

The Federal Reserve's January 2006 Senior Loan Officer Opinion Survey on Bank Lending Practices, released Feb. 10, addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. In addition, the survey contained a special question on changes in selected terms on commercial real estate loans over the past year. The mortgage survey also asked banks about the extent to which the spike in bankruptcy filings in September and early October of last year affected 4th-quarter charge-offs on credit card loans. Finally, banks were queried about their expectations for changes in asset quality in 2006. This article is based on responses from fifty-six domestic banks and nineteen foreign banking institutions.

Significant fractions of respondents, on net, reported that they had eased selected terms on commercial real estate loans in 2005. Banks cited more-aggressive competition from other banks and lenders as the most important reason for having done so. Among banks that experienced an increase in credit card charge-offs in the 4th quarter of 2005 as a result of the introduction of the new bankruptcy law, about three-quarters indicated that less than 40 percent of 4th-quarter charge-offs were attributable to this increase. In addition, banks accounting for more than one-half of credit card loans on respondents' books at the end of the third quarter reported that between 60 percent and 100 percent of the increase in the 4th-quarter charge-offs that reflected the introduction of the new law was attributable to households or individuals who would have filed for bankruptcy anyway later in 2005 or during 2006.

Credit standards on residential mortgage loans were reportedly unchanged over the past three months. On net, 44 percent of domestic banks reported weaker demand for mortgages to purchase homes, a notably larger net fraction than in the October survey.

More than 10 percent of US respondents-a somewhat larger fraction than in the October survey-indicated that their willingness to make consumer installment loans had increased over the past three months. Standards and most terms on credit card and non-credit-card consumer loans were reportedly little changed, on balance. However, about one-4th of respondents indicated that they had increased the minimum percent of outstanding credit card balances required to be repaid each month.

Demand for consumer residential loans reportedly had weakened more in the past three months: Nearly 30 percent of domestic banks, on net, saw weaker demand for such loans, up from about one-fifth in the October survey. A set of special questions asked banks about their expectations for the behavior of delinquencies and charge-offs on loans to businesses and households in 2006 under the assumption that economic activity progresses in line with consensus forecasts.

For more information, please visit : www.federalreserve.gov/boarddocs/snloansurvey




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