Fed’s Senior Loan Officer Survey reflects more normal economy

By Theresa Sheehan, Econoday Economist
May 9, 2022

The Federal Reserve senior loan officer survey for April 2022 point to impacts that are a result of businesses and consumers reacting to the onset of tighter monetary policy from the Federal Reserve and anticipation of further increases in financing costs. Conditions for bank lending are looking more in line with periods of modest-to-moderate economic expansion after the recent episode of exceptionally stimulative interest rates that was a result of acting to forestall harm to the economy from the pandemic.

Banks reported that standards for business loans were about unchanged for commercial and industrial (C&I) loans to firms of all sizes and for commercial real estate (CRE) loans with the “exception for those secured by multifamily residential properties” for which standards eased. Demand for C&I loans was weaker for large and medium-sized firms and stronger for small firms. Demand for CRE loans were generally softer.

Banks reported easier standards for credit cards and auto loans, and for mortgages and home equity lines of credit. However, demand for new mortgages was weaker in the first quarter but stronger for home equity lines of credit. For the latter, it may be that consumers opened lines of credit to lock in future borrowing at a lower rate. Demand was up for all other types of consumer credit in the first quarter. There is a hint in the numbers that banks are more willing to consider subprime mortgages again which would allow less qualified buyers to borrow for a home, and that consumers are more willing to make use of one.