U.S. Senior Loan Officer Opinion Survey on Bank Lending Practices (Q3 2023)
Senior Loan Officer Opinion Survey Shows Credit Conditions Remain Tight in 2023Q3
The Federal Reserve Board's Senior Loan Officer Opinion Survey (SLOOS) showed U.S. banks continue to report tighter credit standards and weaker loan demand from both businesses and consumers through the third quarter of 2023.
Fewer banks reported tightening standards over the past three months compared to the previous three months. The net percent of banks tightening lending standards has now moved below peaks seen in past tightening cycles.
The October SLOOS included a set of special questions that asked banks to assess the likelihood of approving credit card and auto loan applications by borrowers of different FICO scores, in comparison with the beginning of the year. Banks reported that they were less likely to approve loans for borrowers with relatively lower FICO scores (between 620 and 680).
Banks' most frequently cited a less favorable or more uncertain economic outlook; reduced tolerance for risk; deterioration in the credit quality of loans and collateral values; and concerns about funding costs as reasons for tightening lending standards in the third quarter
Federal Open Market Committee (FOMC) members had access to the SLOOS ahead of last week's meeting that ended with the Fed staying the course on its policy rate. As noted in the FOMC statement, tighter credit conditions work in the same direction as policy rate changes when it comes to cooling economic growth and inflation.
While fewer banks on net reported further tightening in lending standards in the third quarter of this year, overall lending standards remain tight, with little sign of easing. Moreover, the cumulative effect of tighter credit conditions continues to work its way through the economy. With limited relief on the horizon, the more stringent standards should weigh on economic activity in the coming quarters – helping the Fed restore price stability