Banks eased lending standards for personal loans in the fourth quarter: Fed

Banks relaxed lending standards for personal loans and left mortgage lending standards unchanged in the fourth quarter of 2020 as demand remained steady, new figures show.

According to the Federal Reserve’s Senior Loan Officer opinion poll on banks’ lending practices, banks left lending standards unchanged for most mortgage loan categories and home equity revolving lines of credit (HELOCs) during the quarter, but there was some easing elsewhere.

The survey found that 8.3% of major banks “Somewhat relaxed” Government-sponsored corporate mortgage (GSE) standards, which make up the bulk of bank mortgage lending.

“Modest proportions” of the major banks eased credit standards for qualified mortgage (QM) jumbo loans and for QM non-jumbo, non-GSE-eligible residential mortgages, the Fed report showed.

Banks reported that demand for credit card and other consumer loans was steady in the fourth quarter of last year, and lending standards were relaxed for all consumer credit categories of credit card, auto, and other consumer loans.

When asked banks how their credit standards for approving credit card applications from individuals or households changed during the quarter, 14.9% said they did “Somewhat loosened”, with no message with “Considerably loosened”.

Among the respondents, 10.5% of banks said that they “Somewhat relaxed” Credit standards for approving auto loan applications.

Home loan demand has fluctuated across bank sizes, with large banks seeing unchanged demand across all mortgage categories.

When asked about expectations for 2021, banks of all sizes said they generally expected to relax standards on all household credit in the face of rising demand, but warned that credit performance for most credit categories was likely to deteriorate.

Banks set aside billions of dollars to protect themselves from loan defaults through 2020 as the pandemic was expected to hit the U.S. economy.

Commercial and industrial loans (C&I) to large and medium-sized companies were an exception to performance expectation as banks forecast that loan performance in this category will improve over the course of the year.

For the fourth quarter of 2020, banks in the survey said they had, on balance, tightened their standards for C&I lending to businesses of all sizes and standards in all three major categories of commercial real estate lending – construction and real estate development loans, non-farm home loans, and Multi-family loans – when demand is weaker.

Fourth quarter earnings reports showed that banks lent less small business loans over the past year, with JPMorgan and Wells Fargo among the largest lenders seeing a decline after the paycheck protection program closed between the third and fourth quarters of 2020 of small business lending.


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