The July 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. The survey also contained special questions about changes in banks' lending standards on, and demand for, the three main types of commercial real estate (CRE) loans over the past year, and on the current levels of banks' lending standards for many types of business and household loans relative to longer-term norms.

In the July survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months. This summary is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

Business Lending

A moderate fraction of domestic survey respondents, on net, indicated that they had eased their standards for C&I loans to firms of all sizes over the second quarter of 2013. On balance, almost all terms on C&I loans were reportedly eased, regardless of firm size. In particular, sizable net fractions of respondents indicated that they had decreased spreads on C&I loan rates over their bank's cost of funds regardless of firm size. In addition, moderate to large net fractions of banks reported having reduced the cost of credit lines and decreased the use of interest rate floors for all firm sizes.

Of the domestic respondents that reported having eased either standards or terms on C&I loans over the past three months, all but two cited more-aggressive competition from other banks or nonbank lenders as an important reason for having done so. The next most popular reasons indicated by respondents that had eased their C&I loan policies were a more favorable or less uncertain economic outlook, cited by about half of such respondents as being a somewhat important reason, and an increased tolerance for risk, reported by about one-third of such respondents as being a somewhat important or very important reason.

Regarding changes in demand for C&I loans in the second quarter, a moderate net fraction of domestic banks indicated that they had experienced stronger demand from small firms, and a modest net fraction of domestic banks said demand from large and middle-market firms had increased. However, six large banks reported that they had experienced weaker demand from large and middle-market firms. Banks reporting stronger loan demand most often cited increases in customers' funding needs related to investment in plant or equipment, inventories, and accounts receivable as the top reasons. About half of banks experiencing stronger demand also cited shifts in customer borrowing to their bank from other bank or nonbank sources because those sources became less attractive. Banks reporting weaker demand for C&I loans most often cited decreases in customers' funding needs related to merger and acquisition financing, investment in plant or equipment, accounts receivable, or inventories as the top reasons. Slightly more than half of the banks that experienced weaker demand cited increases in their customers' internally generated funds, and about half reported shifts in customers' borrowing away from their bank because other sources of bank or nonbank borrowing became more attractive.