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The Federal Reserve’s April senior loan officer opinion survey (SLOOS) on bank lending practices examined changes in the standards and terms on demand for bank loans to businesses and households during the first quarter of 2023. According to the survey, demand for loans weakened across the board with banks reporting tightening standards. 

“Banks continued to tighten standards in the first quarter, and they expect further tightening as the year progresses, particularly for commercial loans,” said NAFCU Chief Economist and Vice President of Research Curt Long. “There was a stark divide between banks with over $50 billion in assets — who are less likely to anticipate further tightening and who expect to do so to address falling collateral values and rising delinquencies — and those with under $50 billion, who were more likely to expect further tightening to address their bank’s liquidity positions.”

A few key findings from the survey: 

• banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government-sponsored enterprise-eligible and government residential mortgages, which remained basically unchanged, with demand weakening in all RRE loan categories; 
• survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial loans over the first quarter;
• banks reported tighter standards and weaker demand for all commercial real estate loan categories;
• the survey also included a set of special questions inquiring about the reasons why lending standards changed in the first quarter and expectations for loan standards over the rest of 2023, to which banks cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks' funding costs and liquidity positions; and
• also in response to the special questions, banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers' collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.

Responses were received from 65 domestic banks and 19 U.S. branches and agencies of foreign banks. The survey was received on March 27, with responses due April 7. 

Access the full survey from the Fed. See NAFCU's recent economic analysis reports.