Banks Toughen Lending Requirements For Consumers, Businesses

Banks are increasing their standards for loans to businesses and households, according to the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices.

The Fed reported that banks tightened standards throughout all residential real estate (RRE) loan categories and in auto loans, credit card loans and other consumer loans in Q2 on net.

“Over the second quarter, major net shares of banks tightened lending standards on all categories of consumer loans. Major net fractions of banks also tightened important terms on credit card loans, including credit limits and minimum credit scores required,” the Fed noted.

Those who replied to the July poll noted on balance that they made their standards and terms on commercial and industrial (C&I) loans more restrictive to companies. Banks also increased standards and noted less formidable demand throughout the three major areas of commercial real estate (CRE) loans.

“Major net shares of banks that reported reasons for tightening lending standards or terms cited a less favorable or more uncertain economic outlook, worsening of industry-specific problems, and reduced tolerance for risk as important reasons for doing so,” The Fed said.

As of now, banks on balance noted that their standards for issuing loans throughout all categories are at the tighter portion of the spectrum ranging from 2005 to the current time.

The April Senior Loan Officer Opinion Survey released in early May also noted that banks domestically had increased standards for loans to individuals and companies.

As previously reported, it is becoming more difficult for American consumers to obtain loans. One large reason for the trend is that financial institutions now can’t easily find out which borrowers are creditworthy.

American Bankers Association Senior Economist Rob Strand previously told The Wall Street Journal, “Banks are looking very carefully at their underwriting models to see if they need to be adjusted to factor in latent risk.”