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Lender Survey: Non-Bank Debt Replacement Not Driving C&I Loan Growth

November 01, 2012, 06:00 AM
Filed Under: Federal Reserve

The October 2012 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the supply of, and demand for, bank loans to businesses and households over the past three months. This summary is based on responses from 68 domestic banks and 23 U.S. branches and agencies of foreign banks.

Slightly less than 10 percent of domestic survey respondents indicated that their C&I lending standards to large and middle-market firms and to small firms eased over the past three months on balance. However, larger fractions of domestic banks reported having eased many C&I loan terms to borrowers of all sizes. For most of those terms, the easing was somewhat more widespread than it was reported to have been in the July survey. Of the respondents that reported having eased either standards or terms over the past three months, almost all cited more-aggressive competition from other banks or nonbank lenders as an important reason for doing so. As in the previous survey, no other reasons were broadly cited as important.

On balance, C&I loan demand changed little over the past three months. In contrast to the July survey, in which a small margin of banks indicated that demand from large and middle-market firms had strengthened on balance, in response to the current survey a very small net fraction of respondents indicated that demand from such firms had weakened. On net, demand from small firms was reportedly about unchanged, as it had been in the previous survey.

On balance, branches and agencies of foreign banks reported that their C&I lending standards had remained about the same over the past three months, while positive fractions of banks reported easing on some loan terms. As was true for domestic respondents, the most widely cited reason for easing standards or terms among branches or agencies was more-aggressive competition from other lenders. Although a notable fraction of such institutions reported a weakening of C&I loan demand in the July survey, the balance of foreign respondents reported little change in demand for such loans over the past three months.

The October survey included a set of special questions that asked banks about possible factors related to the brisk expansion in C&I lending at commercial banks over the past 12 months. Survey respondents were asked to quantify the share of the dollar volume of the increase in outstanding C&I loans at their banks that was attributable to customers who used the lending to replace debt that was previously provided by nonbank sources of funding. Respondents did not generally report that this factor was a significant explanation for recent C&I loan growth at their banks. About one third of the domestic banks that responded to this question indicated that the replacement of nonbank debt accounted for less than 25 percent of the increase in C&I loans at their bank. Most of the remaining respondents reported that replacement of such debt was not a factor in C&I loan growth at their banks.

Read the full Senior Loan Officer Opinion Survey.

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