Fed Says More Banks Tightened Loan Standards to Start 2024

More US banks reported stricter credit standards in the first 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 rose to 15.6% in the first three months of the year, from 14.5% in the fourth quarter, data from a Fed survey of lending officers released Monday showed.

Lenders have generally been tightening credit standards since the second quarter of 2022, following a string of high-profile regional bank failures. The Fed lifted its benchmark rate last year to a two-decade high in a bid to curb inflation, and high borrowing costs have weighed on businesses and households.

More than three-quarters of respondents said they kept lending conditions for large and mid-sized businesses basically unchanged in the first quarter. Appetite for borrowing weakened, with the net share of lenders reporting less demand for C&I loans rising to 26.6%.

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 March 25 and April 8.

In response to a set of special questions on commercial real estate lending, “banks reported having tightened all the terms surveyed for each CRE loan type,” and “the most cited reasons for tightening credit policies on CRE loans over the past year, cited by almost all banks, were less favorable or more uncertain outlooks for CRE market rents, vacancy rates, and property prices,” according to the report.

Banks also tightened lending standards for consumers.

“A significant net share of banks reported increasing minimum credit score requirements for credit card loans, while moderate net shares of banks reported doing so for auto loans and other consumer loans,” the Fed said.