On Monday, the Federal Reserve issued the results of their October 2011 Senior Loan Officer Opinion Survey. In short, the banks are slowly easing their credit requirements, but not by much.
The Federal Reserve surveyed 51 U.S. banks, and 22 U.S. branches of foreign banks last month, asking them about any changes in demand for business and home loans, and about easing or tightening of standards for issuing credit. The results aren’t terribly impressive, but they do show a slow easing of credit standards, at least in some types of loans.
Business Loans: Steady
A small fraction of the banks surveyed have eased their standards for commercial and industrial lending, according to the Fed. Previous quarters in 2011 showed “more widespread reports of such easing,” so the process is slowing down a bit. The bulk of the lending that has come from this easing has gone to medium- and large-sized firms, not small businesses. Furthermore, more banks reported a decrease in demand for commercial and industrial loans than in previous quarters.
Home Loans: Up!
Home loans are perhaps the bright spot of the report. More respondents reported higher demand for mortgage loans for home purchases than those reporting lower demand “for the first time since early 2010.” However, the report also notes that this might actually show an uptick in refinancing — not new home purchases (“some respondents may find it difficult to separate mortgage demand associated with the purchase of new loans from that associated with the refinancing of existing mortgages,” reads a footnote).
Auto Loans: More Accessible
While only “modest fractions” of banks have eased their credit standards for credit cards and non-auto loans, about 20 percent reported that their standards for auto loans “eased somewhat”, which is certainly good news for Detroit.
But overall, the survey shows a slow thawing and easing of credit standards among U.S. banks. However slow the process may be, at the very least, it isn’t showing signs of reversing itself. It would be nice to see banks making more of an effort to change their risk models, considering tax payers’ collective (and unintentional) willingness to extend a similar favor to them when banks need their help through TARP.