The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. Domestic banks, on balance, reported having eased their lending standards and having experienced little change in loan demand, on average, over the past three months.

Regarding loans to businesses, the October survey results generally indicated that banks eased their lending policies for commercial and industrial (C&I) loans and experienced little change in demand for such loans over the past three months. All domestic banks that eased their C&I lending policies cited increased competition for such loans as an important reason for having done so. Almost all foreign respondents indicated that their standards remained basically unchanged and that, on balance, they had experienced insignificant change in demand for C&I loans in the third quarter. On net, domestic and foreign institutions also reported having eased standards and experienced increased demand for commercial real estate (CRE) loans.

A modest fraction of domestic survey respondents, on net, indicated that they had eased their standards for C&I loans to firms of all sizes over the third quarter of 2013. On balance, almost all terms on C&I loans were reportedly eased, regardless of firm size. In particular, a large net fraction of respondents indicated that they had decreased spreads on C&I loan rates over their bank's cost of funds for all firm sizes. In addition, moderate net fractions of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes. A modest fraction of banks reported, on net, that they had eased loan covenants, though primarily to large firms.

Among domestic respondents that reported having eased either standards or terms on C&I loans over the past three months, all banks cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. About one-third of respondents that reported having eased their C&I loan policies also cited a more favorable or less uncertain economic outlook as a reason for having done so. Similarly, one-third of those respondents indicated increased tolerance for risk as being an important reason for easing. In addition, modest fractions of banks indicated increased liquidity in the secondary market for C&I loans and improvement in banks' current or expected liquidity positions as important reasons for easing standards and terms on these loans.

Regarding changes in demand for C&I loans in the third quarter, for both small businesses and larger firms, the number of banks that reported having experienced weaker demand was about the same as the number of banks that experienced stronger demand. Banks reporting stronger loan demand most often cited as reasons increases in customers’ merger or acquisition financing needs, and customers’ increased need to fund investment in plant or equipment, inventories, and accounts receivable. About one-half of banks experiencing stronger demand also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive. Banks reporting weaker demand for C&I loans most often cited as reasons decreases in customers' funding needs related to investment in plant or equipment, inventories, or merger or acquisition financing needs. About one-half of domestic respondents that experienced weaker demand cited shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive, and less than one-half reported increases in their customers' internally generated funds.

To read the full October 2013 Senior Loan Officer Opinion Survey, click here.