Banks Tighten Lending Practices

Federal-reserve The January 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months.

pecial questions in the survey queried banks about changes in terms on commercial real estate loans during 2007, expected changes in asset quality in 2008, and loss-mitigation strategies on residential mortgage loans. In addition, the survey included a new set of recurring questions regarding revolving home equity lines of credit. This article is based on responses from fifty-six domestic banks and twenty-three foreign banking institutions.

In the January survey, domestic and foreign institutions reported having tightened their lending standards and terms for a broad range of loan types over the past three months. Demand for bank loans reportedly had weakened, on net, for both businesses and households over the same period.
C&I Lending
(Table 1, questions 1-6; Table 2, questions 1-6)

In the January survey, one-third of domestic institutions—a larger net fraction than in the October survey—reported having tightened their lending standards on C&I loans to small as well as to large and middle-market firms over the past three months. Significant net fractions of respondents also noted that they had tightened price terms on C&I loans to all types of firms, including raising the cost of credit lines and the premiums charged on riskier loans over the survey period. About two-fifths of domestic banks—a higher net fraction than in the October survey—reported having increased spreads of loan rates over their cost of funds over the previous three months. Smaller net fractions of domestic banks also indicated that they had tightened non-price terms on C