Fed says fewer banks tightened loan standards last quarter

A smaller share of US banks reported stricter credit standards in the second quarter, according to the Federal Reserve.

The net share of US banks that tightened standards on commercial and industrial loans for mid-sized and large businesses fell to 7.9%, the lowest since 2022, data from a Fed survey of lending officers released Monday showed. That was down from 15.6% in the prior report.

The survey reflects standards and demand for loans over the past three months, which generally corresponds with the second quarter of 2024. It was compiled before a weaker-than-expected jobs report helped spark a global rout in stock markets, as investors grew more concerned about the trajectory of the US economy.

Lenders have generally been tightening credit standards since 2022, reflecting a sharp increase in the Fed’s benchmark interest rate and a string of high-profile regional bank failures. High borrowing costs have weighed on businesses and households. The Fed is widely expected to begin lowering interest rates from a more than two-decade high at their meeting in September.

The appetite for borrowing stagnated, with an equal share of lenders reporting stronger demand for C&I loans as those reporting less demand. Lenders had been reporting weaker demand for those loans for nearly two years.

The figures in the report, known as the Senior Loan Officer Opinion Survey, are calculated as net percentages, or the shares of banks reporting tighter conditions or stronger demand minus the proportion of banks reporting easier standards or weaker demand. The survey was conducted between June 20 and July 8.

Banks generally tightened lending standards for consumers, especially for subprime credit card and subprime auto loans, the Fed said. Consumer demand for auto loans declined for the ninth quarter, and demand also waned for loans excluding credit cards and cars. Demand for credit cards increased slightly.

A “significant” net share of banks also reported that standards on home equity lines of credit were on the tighter end of their range, the report said.