Fed: Demand For Commercial, Consumer Loans Fell As Banks Tightened Standards

Banks reported tightening standards on loans during the pandemic

As the coronavirus took hold of the economy, banks in the U.S. tightened standards on loans for both companies and individuals, according to the April Senior Loan Officer Opinion Survey on Bank Lending Practices, published Monday (May 4).

The stricter standards came as the banks anticipated the economic downfall of the virus, which began to look dire by March as the forecast began to show that the whole world would be affected by the pandemic.

Many banks cited less appetite for risk as reasons for tightening the reins on business loans. Many banks also wrote in their survey comments that, due to the pandemic, they were primarily focused on helping existing customers rather than lending to new clientele.

It also came as an increase in Commercial & Industrial loans began to come in, with companies taking precaution and many looking to replenish themselves with funds as jobs disappeared and business got tougher while the country locked down.

However, construction and land development loans, non-farm nonresidential loans and multifamily loans all saw declines in the first half of 2020, according to the report.

For loans to individual households, the standards on credit card and auto loans tightened, and some banks tightened standards on residential real estate loans, too — although others loosened standards for government-residential mortgages.

For households, there was an uptick in demand for real estate-related loans and a drop in requests for loans related to credit card or auto concerns. Several of the banks surveyed wrote that the drop in loans was directly related to the pandemic’s effects.

Much of the lending activity over the past month has focused on the government’s Paycheck Protection Program (PPP), which banks were appointed to dole out. The PPP saw an influx of applicants for the $349 billion allocated during the CARES Act in March. The number of applicants was so great that the government funneled another $310 billion into the program as part of the next round of financial aid for virus-related concerns.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.