Banks loosen lending standards in Q2, Fed survey shows

Investing.com -- Loan officers at major banks eased lending standards in the second quarter of the year, according to the Fed’s July Senior Loan Officer Opinion Survey, released on Monday. 

The net share of banks eased their commercial and industrial loans for mid-sized and large businesses in the first quarter of the year to 9.5%, down from 15.6% in the prior quarter, according to the Fed survey. 

"[T]he net shares of banks that reported having tightened lending standards are lower than in the first quarter across almost all loan categories," the survey showed.

Lending standards have eased since July last year, when the health of regional banks were closely watched following the collapse of Silicon Valley Bank. 

"Overall, responses to the July 2023 and 2024 surveys indicate that banks’ lending standards have eased since 2023 for most loan categories, though they remained tight relative to their historical ranges," the survey showed. 

Still, consumers faced tighter lending standards in certain categories including credit card and other consumer loans. But auto loans were a bright spot somewhat as a modest share of banks reporting having eased the maximum maturity and narrowing interest rate spreads over the cost of funds, respectively. 

Banks that reported a tightening in lending standards, or terms on C&I loans, cited "a less favorable or more uncertain economic outlook, worsening of industry-specific problems, a reduced tolerance for risk." 

The easing in lending standards in Q2 come just as many are pencilling in aggressive Fed rate cuts starting September to stave off a potential recession.