The Federal Research on Monday (Aug. 3) published findings of its market study of bank lending to consumers and businesses, and the research reveals intriguing insights into how traditional financial institutions are reacting to a changing market.
According to the Wall Street Journal, the Fed found that demand for commercial loans is on the rise in an array of categories, and while banks changed little about their loan application approval standards, there was evidence to suggest that banks are easing those standards for some corporate borrowers, especially big businesses.
The WSJ reported that banks often cited “more-aggressive competition” as the reason behind more lenient loan standards, from both banks and alternative lenders. But that rise in competition also led some banks to report weakened demand for loan products.
When it comes to commercial lending in particular, banks said that the “wide range of customers’ financing needs” could be attributed to a rise in demand for some lenders. Those needs include M&A activity, investment in equipment, and investment in inventory.
Still, the Fed found that a “vast majority” of traditional banks are not lending to subprime loan applicants. Instead, the survey found that banks agree that the standards to assessing loan applications submitted by large and middle-market companies have become more lenient compared to where those standards were in 2005.
But the institutions also reportedly noticed an easier climate for small- and medium-sized corporate borrowers. According to the report, lending to companies with annual sales of less than $50 million seems to have gotten easier for applicants as banks, both foreign and domestic, reported that lending standards are “gradually loosening” compared to a decade ago.
The Fed surveyed 71 U.S. banks and 23 U.S. branches of foreign banks, reports said, between June 30 and July 14. Its findings seem to align with separate studies that have found an increase in traditional bank lending to SMEs and a reduction in SME loan demand.