The numbers: Banks have eased standards and terms on business loans to firms of all sizes in the second quarter, according to senior bank officers surveyed by the Federal Reserve. There was strong demand for business loans from small businesses.
For consumers, banks reported a “moderate share” of banks tightened standards on credit card loans. Standards for residential real estate and auto loans remained unchanged.
Banks reported weaker demand for all categories of residential real estate loans, while demand for consumer loans was unchanged.
The Fed surveyed officers at 72 domestic banks.
What happened: Bank officers said they were easing standards on business loans because of increased competition from other lenders. They also cited more a favorable economic outlook, increased tolerance for risk and increased liquidity in the secondary market for these loans as reasons for easing.
The fraction of banks saying that their subprime credit card lending standards are at the relatively tighter end of the range since 2005 has increased compared to a year ago.
Big picture: Economists view the senior loan officer survey as a leading indicator of potential turns in the economy. For instance, a tightening of bank credit and a drop in demand would be a negative sign for the outlook. But that is not where the economy is now. Bank lending is running at a steady 5% annual rate, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.