Fed Senior Loan Officer Survey Q1: Banks expect tighter lending standards for 2023

• Tighter lending standards and weaker demand for business and most consumer credit through Q1 versus prior quarter
• Net 46.0% of banks versus 44.8 in prior quarter taking credit C&I for large and medium firms through Q1
• Net 46.7% of banks versus 43.8% in prior quarter tightened credit for C&I loads for small firms through Q1
• net 62.3% of banks versus 44.8% in the prior quarter raised spread Spread The spread is the difference between two things. Generally, the spread is referred to the bid and the ask spread (also called the bid and the offer), which is the difference between the price at which you can sell an asset (bid) and the price at which you can buy it (ask). Spreads ExplainedFor example, if you see that the EUR/USD pair has a bid at 1.1001 and an ask at 1.1002, that means that the spread is 1 pip or 0.0001. So, you can buy it at 1.1002 and sell it at 1.1001. The brokers you are tr The spread is the difference between two things. Generally, the spread is referred to the bid and the ask spread (also called the bid and the offer), which is the difference between the price at which you can sell an asset (bid) and the price at which you can buy it (ask). Spreads ExplainedFor example, if you see that the EUR/USD pair has a bid at 1.1001 and an ask at 1.1002, that means that the spread is 1 pip or 0.0001. So, you can buy it at 1.1002 and sell it at 1.1001. The brokers you are tr Read this Term for C&I loans for large and medium firms through Q1
• net 58.3% of banks versus 32.8 in prior quarter of banks raised spread for C&I loans from large and medium firms through Q1
• net 53.3% of banks versus 42.2% in prior quarter reported stronger demand for C&I loans from small firms through Q1
• banks tightened credit terms for all categories of commercial real estate loans through Q1 versus prior quarter
• banks tightened credit terms for all categories of consumer credit through Q1 versus prior quarter, fewer were more willing to make consumer installment loans
• banks saw net negative demand for consumer credit through Q1 but less so than prior quarter

Summary of lending to businesses:

Over the first quarter, significant net shares of banks reported tightened standards and terms for commercial and industrial (C&I) loans to firms of all sizes, with mid-sized banks reporting the most widespread tightening. This tightening was due to a less favorable or uncertain economic outlook, reduced risk tolerance, industry-specific issues, and banks' liquidity positions. Demand for C&I loans decreased, with major shares of banks citing investment in plant or equipment, mergers and acquisitions, inventory financing, and accounts receivable financing as reasons for weaker demand.

For commercial real estate (CRE) loans, major net shares of banks reported tightened standards and weaker demand, particularly among mid-sized banks. Over the past year, banks have tightened all surveyed terms on all CRE loan categories, including construction and land development loans, nonfarm nonresidential loans, and multifamily loans.

Foreign banks also reported tightened standards and terms for C&I and CRE loans, along with weaker demand for such loans.

Summary of lending to households:

Over the first quarter, lending standards tightened for most residential real estate (RRE) loan categories and home equity lines of credit (HELOCs). Banks reported weaker demand for all RRE loans, except for government, qualified mortgage (QM) non-jumbo, non-GSE-eligible, and HELOCs. Standards remained unchanged for GSE-eligible and government residential mortgages.

In consumer lending, significant net shares of banks reported tightened lending standards for credit card, auto, and other consumer loans. Banks also tightened almost all queried terms on credit card loans, such as increasing minimum credit score requirements and decreasing credit limits. Banks reported tightened terms on auto loans and other consumer loans, with significant net shares reporting wider interest rate spreads on auto loans.

Regarding demand for consumer loans, a significant net share of banks reported weaker demand for auto loans, and a moderate net share reported weaker demand for other consumer loans. Demand for credit card loans remained basically unchanged on net.

Special Questions on Banks' Reasons for Changing Standards and Outlook for 2023

• Banks tightening standards due to unfavorable economic outlook, reduced risk tolerance, deteriorating collateral values, funding costs, and liquidity concerns.
• Mid-sized and other banks more concerned with liquidity positions, deposit outflows, and funding costs.
• Foreign banks: economic outlook, risk tolerance, collateral values, and secondary market issues as reasons for tightening.
• Banks expect tighter lending standards for the remainder of 2023.
• Major net shares expect tightening for C&I loans, CRE loans, nonconforming jumbo mortgage loans, and consumer loan categories.
• Expected reasons: deteriorating credit quality, collateral values, risk tolerance, funding costs, and liquidity positions.
• Foreign banks also expect tighter standards for C&I and CRE loans.

Below is the survey results for large and median banks regarding their lending standards.

The lending standards compare to the 4Q of 2022 below:

Since the surveys are from one quarter to the other, the lending conditions for large and median sized banks (combined) continued to tighten and at a higher rate vs the prior quarter

In the treasury market yields have moved higher after the report:

• 2 year yield 4.003% +8.1 basis points
• 10 year yield 3.509% +6.3 basis points
• 30 year yield 3.824% +6.3 basis points

US stocks are little changed:

• Dow industrial average down 42.2 or -0.13% at 33631.52
• S&P index +2.76 points or 0.07% at 4138.94
• NASDAQ index up 10.44 points or 0.08% at 12245.52

The USD is moving modestly higher.