Banks announce tightening of lending standards in Q3

US banks tightened standards for business and consumer lending in the third quarter amid continued uncertainty over the economic outlook.

The Federal Reserve’s quarterly survey of major loan officers found that large net shares of banks said they had raised the bar for commercial and industrial lending to large and medium-sized businesses and small businesses.

Banks have also tightened all lending terms in businesses of all sizes, including increased collateral requirements, restrictive loan covenants, premiums levied on riskier loans, and the use of interest rate floors. for loans to small businesses and loans to large and medium-sized businesses.

“Major net actions by banks that signaled tightening standards or lending conditions cited a less favorable or more uncertain economic outlook, worsening industry-specific problems, and reduced risk tolerance as important reasons for the do, ”the Fed said.

As American banker reports, the survey results “marked a continuation of a trend that began in the first quarter of 2020, when many banks tightened lending standards in response to deteriorating economic conditions.”

Banks also tightened standards in the third quarter for the top three commercial real estate loans, all categories of residential real estate loans and all three categories of consumer loans.

Borrower demand for credit card loans, auto loans, and most categories of residential mortgage loans increased, but borrower demand was lower for commercial and industrial loans, as well as various types of mortgage loans. commercial, including construction loans and multi-family housing loans.

“Loan demand survey results suggest US businesses and consumers were on divergent paths at the end of the third quarter as consumers benefited from government stimulus payments, even as many businesses continued. to struggle, ”said American Banker.

The Fed also found that for all loan categories, a majority of banks reported less than 5% of loans were forborne in the third quarter. “Deferral of payment was the most cited form of forbearance for CRE, RRE and consumer loans, while clause relief was the most cited form of forbearance for C&I loans,” said the Fed.

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