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February 3, 2025

The most recent Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) shows that bank lending standards for households and businesses tightened between September and December. That's despite the Fed cutting short-term interest rates by 100 basis points. Bond yields have been rising and are up nearly a full percentage point on stronger growth expectations, higher inflation expectations and larger deficit concerns.

For loans to households, residential real estate recorded a small fraction of banks easing standards as demand fell; mortgage rates have been rising which has crimped demand during the fourth quarter. Standards for auto loans, personal loans and home equity lines of credit (HELOCs) were flat. Demand for auto loans and consumer loans outside of real estate recovered, likely due to rebuilding after hurricanes.

Banks are tightening limits on credit cards, an area where standards are already tight. Demand for credit cards has plummeted with 17% of banks reporting weaker demand.

For businesses, 12.5% of banks reported tightening their lending standards for commercial and industrial loans to large and middle-market firms (e.g., businesses with annual revenue of $50 million or more). That is a significant increase from the past quarter when just 4.8% of banks reported tightening their standards. Banks cited economic uncertainty, worsening of industry-specific problems and a reduced tolerance for risk.

For loans to small businesses (annual sales of under $50 million), fewer banks reported tightening their standards compared to a few months ago. Small businesses had previously displayed less improvement.

Banks reported tighter standards and unchanged demand for commercial real estate (CRE) loans. Tighter standards affected construction and land development loans as well as nonfarm nonresidential properties. Standards for multifamily loans were steady.

The January report included a special set of questions about the 2025 outlook. Banks reported they expect lending standards to either ease or remain unchanged when demand returns. Specifically, banks reported expectations that multifamily CRE loans, mortgage loans and auto loan standards will ease the most.