Banks tighten lending to financial firms as loan demand weakens

Banks reported basically unchanged lending standards for commercial and industrial loans to large and middle market firms in the third quarter and tighter standards for loans to small firms, according to the Federal Reserve’s Senior Loan Officer Opinion Survey for October, released on Monday. Demand for business loans weakened, standards tightened and demand weakened for all commercial real estate loan categories, and banks reported weaker demand in every residential mortgage category, with mortgage standards mostly unchanged apart from easier standards for jumbo loans and tighter standards for subprime loans.

In special questions, banks said they had tightened standards over the past quarter for every type of loan to non-depository financial institutions the survey asked about, including loans to private equity funds and to mortgage, business and consumer credit intermediaries. Banks also reported that they were more likely to approve credit card applications from super prime and prime borrowers and less likely to approve applications from subprime borrowers, with small banks driving the subprime change.