February 07, 2023

Fed survey reveals weakened loan demand, tightened standards

Federal ReserveThe Federal Reserve’s January senior loan officer opinion survey (SLOOS) on bank lending practices showed demand for loans weakened across the board with banks reporting tightening standards during the fourth quarter of 2022. The quarterly survey examines changes in the standards and terms for bank loans to businesses and households, as well as demand.

“Bank lenders sharply curtailed credit in the fourth quarter in anticipation of a recession in 2023. At the time, loan officers expected demand to recede and delinquencies to rise,” said NAFCU Chief Economist and Vice President of Research Curt Long. “Economic conditions have changed somewhat since the survey was conducted, highlighting the need for lenders to remain flexible in a volatile environment.”

In addition, here are a few key findings from the survey:

·         for loans to households, banks reported unchanged or tightening standards for most categories of residential real estate loans with weaker demand for loans;

·         standards tightened for all consumer loan categories—that is, credit card loans, auto loans, and other consumer loans—while demand weakened for auto loans, credit cards, and other consumer loans; and

·         the survey included a set of special questions inquiring about banks' expectations for changes in lending standards, borrower demand, and asset quality over 2023, which revealed that banks expect weaker demand and tightening standards throughout the year.

Responses were received from 69 domestic banks and 18 U.S. branches and agencies of foreign banks. Responses were collected between Dec. 19, 2022, and Jan. 6, 2023.

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