Banks eased standards and terms for commercial and industrial (C&I) loans in the face of weaker demands for those loans during the third quarter, according to a report issued Tuesday by the Federal Reserve.
In addition, banks left standards unchanged for most commercial real estate (CRE) loans, although demand reportedly weakened for most categories of those loans, according to the Fed’s October 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices.
The Fed report also noted that weaker demand for residential real estate (RRE) loans caused banks to ease their standards for most categories of those loans – but standards for consumer auto and credit card loans were unchanged (as was demand during the quarter for those categories of borrowing).
Tuesday’s report also included a new component: responses by banks to a set of questions gauging banks’ likelihood of approving credit card and auto loan applications by a borrower’s FICO score (used in determining a borrower’s credit worthiness) in comparison to the begin of the year.
The Fed report said that, according to the responses to the questions, banks were less likely to approve such consumer loans for borrowers with FICO scores of 620 in comparison with the beginning of the year, while they were more likely to approve such consumer loans for borrowers with FICO scores of 720 over this same period.
In other portions of the report, the Fed said banks indicated that the change in the slope of the yield curve so far this year had not affected their standards or price terms across the major loan categories.
However, when asked to assess their potential response to a prolonged hypothetical moderate inversion of the yield curve, the Fed said banks responded that they would tighten standards or price terms across every major loan category if the yield curve were to invert, a scenario that they interpreted as a signal of a deterioration in economic conditions