Demand for Consumer Loans Strengthens

By PaulEastwood / August 23, 2016 / Industry News
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growthIn the July Federal Reserve Senior Loan Officer Survey, banks, on balance tightened standards on commercial and industrial (C&I) and commercial real estate (CRE) loans in the second quarter in comparison to the previous quarter standards. The survey showed demand for CRE loans had strengthened during the same period and overall credit supply was still firm.

Standards for loans for the household sector remained unchanged on nearly all categories for the quarter. Subprime residential mortgages were one category that saw a fractional tightening of standards.

The demand seen for residential loans strengthened during the quarter, suggesting a solid housing sector.

As demand across all consumer loan types strengthened, no clear evidence was present on changes in standards on consumer loans.

What the overall data suggests is that banks are addressing underlying risk concerns. In an attempt to offer the Fed some form of reassurance, banks are tightening standards for those loans that are found to be higher risk.

Even with tightening standards, there may still be the existence of doubt as to whether or not standards have been tightened enough for subprime borrowers.

The data also suggests that consumer borrowing will remain strong in the short term which will underpin overall spending levels.