WASHINGTON (MNI) – The following is the text portion of the Federal
Reserve’s quarterly Senior Loan Officer Survey, published Monday:

The July 2011 Senior Loan Officer Opinion Survey
on Bank Lending Practices

The July 2011 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 55 domestic banks and 22 U.S. branches and
agencies of foreign banks (hereafter referred to as foreign banks).1 The
July survey indicated that, on net, banks continued to ease lending
standards and most terms on all major types of loans other than loans
secured by real estate over the past three months.2 Modest net fractions
of respondents noted an increase in demand for commercial and industrial
(C&I) and commercial real estate (CRE) loans over the same period; at
the same time, banks reportedly experienced, on net, slightly weaker
demand for some categories of residential real estate loans. In response
to a special question, most banks indicated that they expected
originations of residential real estate loans in the second half of 2011
to be about the same as in the first half of the year. Significant
fractions of respondents to another special question indicated that, for
most loan categories, the current level of lending standards was tighter
than the middle of its recent historical range, though the reported
degrees of tightness varied noticeably across categories.

Domestic banks further eased standards on C&I loans to firms of all
sizes over the past three months. The net fraction of banks that
reported easing on loans to smaller firms remained relatively low and
below the net fraction that reportedly eased for large and middle-market
firms.3 On net, domestic and foreign banks indicated that they had eased
most terms on C&I loans over the survey period, and the reported easing
was especially pronounced for price-related terms. As in the past
several surveys, the most commonly cited reason for having eased
standards or terms on C&I loans was increased competition from other
lenders. Modest net fractions of domestic and foreign banks continued to
report an increase in demand for C&I loans over the past three months.

Domestic banks indicated that standards on both commercial and
residential real estate loans were about unchanged over the past three
months. The net portion of domestic respondents indicating an increase
in demand for CRE loans in the current survey declined in comparison
with the April survey. In contrast, small net fractions of respondents
indicated that demand for both prime and nontraditional residential real
estate loans as well as for home equity lines of credit had weakened or
remained basically unchanged over the survey period. With respect to
consumer lending, the net percentages of banks that reported easing
standards were low and roughly in line with the previous survey. While
positive net fractions of respondents reportedly experienced an increase
in demand for both credit card and auto loans over the past three
months, the pickup in demand was not widespread; moreover, demand for
other consumer loans was about unchanged.

1 Respondent banks received the survey on or after July 12, 2011,
and responses were due by July 26, 2011.

2 For questions that ask about lending standards or terms, reported
net percentages equal the percentage of banks that reported having
tightened standards (“tightened considerably” or “tightened somewhat”)
minus the percentage of banks that reported having eased standards
(“eased considerably” or “eased somewhat”). For questions that ask about
demand, reported net fractions equal the percentage of banks that
reported stronger demand (“substantially stronger” or “moderately
stronger”) minus the percentage of banks that reported weaker demand
(“substantially weaker” or “moderately weaker”). 3 Large and
middle-market firms are generally defined as firms with annual sales of
$50 million or more and small firms as those with annual sales of less
than $50 million.

Business Lending
(Table 1, questions 1-8, 25; Table 2, questions 1-9)

Questions on commercial and industrial lending.

The net fraction of domestic banks that indicated that they had
eased standards on C&I loans to large and middle-market firms rose
slightly to around 20 percent. On net, fewer domestic banks-about 10
percent-indicated an easing of standards on loans to smaller firms. On
balance, domestic banks eased all of the surveyed terms on C&I loans to
large and middle-market firms, with the most sizable net fractions of
respondents reporting easing of price terms, including the spread of
loan rates over banks’ cost of funds, the use of interest rate floors,
and the cost of credit lines. Domestic survey respondents also indicated
some easing of loan terms for smaller firms, though the reported easing
was less widespread than for loans to larger firms. For standards and
for most terms on C&I loans, reported easing among domestic survey
respondents was concentrated at large banks.4 Of foreign banks, almost
all indicated that standards on C&I loans had remained basically
unchanged, though between 5 and 35 percent reported easing various C&I
loan terms on balance. Among both domestic and foreign banks that had
eased standards or terms on C&I loans, the most commonly cited reason
for doing so was more aggressive competition from other banks or nonbank
lenders. A number of domestic banks also pointed to a more favorable or
less uncertain economic outlook as an important reason for the change in
their lending policies. The reasons most widely cited by domestic banks
that reported that they had tightened C&I lending standards and terms
over the past three months were a less favorable or more uncertain
economic outlook, and increased concerns about the effects of
legislative changes, supervisory actions, or changes in accounting
standards. A modest net fraction of domestic respondents indicated that
demand for C&I loans from large and middle-market firms had increased
over the past three months, while the net fraction that reported
stronger loan demand from smaller firms was close to zero. Most domestic
banks that experienced a strengthening of demand cited a shift to bank
borrowing from other funding sources as an important reason for the
change in demand, as well as to an increase in customers’ inventory
financing needs. About 20 percent of foreign banks, on net, reported in
the July survey that demand for C&I loans had increased.

4 Large banks are defined as banks with assets greater than $20
billion as of March 31, 2011, and other banks as those with assets of
less than $20 billion.

3 Board of Governors of the Federal Reserve System

A special question in the July survey asked respondents to describe
the current level of lending standards at their bank for several loan
categories. Loan officers were asked to report how their current lending
stance stood, relative to the range defined by the easiest and tightest
standards applied by their bank since 2005. For different types of C&I
loans, between 25 and 50 percent of domestic respondents indicated that
their bank’s current lending standards were near the middle of that
range. Of the remaining domestic respondents, more indicated that their
current levels of standards on C&I loans were tighter than the middle of
the range, compared with the number that indicated that standards were
easier than the middle of the range. The margin by which the number of
banks with standards that were tighter than the midpoint exceeded the
number of banks with standards that were easier than the midpoint varied
according to borrower credit quality classification, loan syndication
status, and borrower size. This margin was largest for
non-investment-grade syndicated loans and nonsyndicated loans to smaller
firms, as compared with investment-grade syndicated loans and
nonsyndicated loans to large and middle-market firms.

Foreign banks’ responses for syndicated loans were about the same
as those of domestic banks. By contrast, foreign banks were somewhat
more likely than domestic banks to characterize the current level of
standards as being tighter than the middle of their range for
nonsyndicated loans to large and middle-market firms. Questions on
commercial real estate lending. The net fraction of domestic banks that
reported that they had eased standards on CRE loans over the past three
months remained close to zero, about the same as in the previous two
surveys. Though few domestic banks have indicated any change in CRE
standards over the past year, the July survey’s special question
revealed that standards for all types of CRE lending remain tight
relative to the range that has prevailed since 2005 at most banks.
Indeed, roughly 75 percent of domestic respondents indicated that their
bank’s standards for construction and land development (CLD) loans were
tighter than the middle of the range that these standards have occupied
since 2005, with nearly one-third of banks stating that standards on CLD
loans were currently at their tightest level seen over this period.

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** Market News International Washington Bureau: 202-371-2121 **

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