Fed Q3 Senior Loan Officer Survey - Similar Picture to Q2 Keeps Business Investment Risks Moderate
The latest Fed Senior Loan Opinion Officer Survey on bank lending practices shows a fairly similar picture to the last report, with the proportion of respondents tightening credit only marginally increased while the proportion seeing reduced demand gave slightly less negative findings, after a significant deterioration in the Q2 report.
For C+I loans, a net 50.8% tightened standards for large and medium firms and 49.2% did for small firms, up from 46.0% and 46.7% respectively in Q2, and the highest since Q3 2020. However this was a second straight modest deterioration, suggesting the banking turmoil earlier this year has not had a major effect. Fed tightening is probably the main reason for the tightening of standards.
The net percentage seeing weaker demand actually slipped to 51.6% from 55.6% for large and lending firms and to 47.5% from 53.3% for small firms, only a partial reversal of a significant deterioration from 31.3% and 42.2% seen respectively in Q1, but again providing some relief that the environment f0r business investment, which held up well in the Q2 GDP breakdown, is not deteriorating sharply.
Other sections of the report give a similar message. The proportion tightening standards on commercial real estate, while still higher than for C+I loans, was little changed from Q2 while findings on demand were a little less negative. Downside risks on commercial real estate are real but do not appear to be increasing. Mortgage lending standards were not much changed from Q2 while findings on demand were quite significantly less negative. Supply and demand indicators for consumer loans look similar to Q2. The survey does not suggest any major downside risks from the housing sector or consumers.