Banking Exchange Magazine Logo

Banks Eased Lending Standards on Personal Loans in Q4: Fed

Further easing is expected but banks warn of a deterioration in loan performance

  • |
  • Written by  Banking Exchange staff
  • |
  • Comments:   DISQUS_COMMENTS
Banks Eased Lending Standards on Personal Loans in Q4: Fed

Banks eased lending standards for personal loans and left mortgage lending standards unchanged in Q4 2020 as demand remained consistent, new figures show.

According to the Federal Reserve’s senior loan officer opinion survey on bank lending practices, while lending standards were left unchanged by banks for most mortgage loan categories and for revolving home equity lines of credit (HELOCs) during the quarter, elsewhere there was some easing.

The survey revealed that 8.3% of large banks “eased somewhat” standards for government-sponsored enterprise (GSE) eligible mortgages, which make up the majority of bank mortgage originations.

“Modest shares” of large banks eased credit standards for qualified mortgage (QM) jumbo loans, and for QM non-jumbo, non-GSE-eligible residential mortgages, the Fed’s report showed.

Banks reported demand for credit card and other consumer loans was constant in Q4 of last year and eased lending standards across all consumer loan categories of credit card loans, auto loans, and other consumer loans.

When banks were asked how their credit standards for approving applications for credit cards from individuals or households had changed in the quarter, 14.9% said they had “eased somewhat”, with none reporting having “eased considerably”.

Among respondents, 10.5% of banks said they had “eased somewhat” credit standards for approving applications for auto loans.

Demand for residential real estate loans fluctuated across different bank sizes, with large banks seeing demand unchanged across all mortgage categories.

When asked about expectations for 2021, banks of all sizes said they generally expected to ease standards for all household loans amid strengthening demand, but warned that loan performance was likely to deteriorate for most loan categories.

Banks set aside billions of dollars through 2020 to protect against loan defaults as the pandemic was expected to hit the US economy.

Commercial and industrial (C&I) loans to large and middle-market firms were the exception to the performance expectation, with banks forecasting loan performance in this category to improve over the year.

For Q4 2020, banks indicated in the survey that, on balance, they tightened their standards on C&I loans to firms of all sizes and tightened standards across all three major commercial real estate loan categories – construction and land development loans, non-farm non-residential loans, and multi-family loans – while reporting weaker demand.

Banks’ Q4 earnings reports showed they extended fewer loans to small businesses last year, with JPMorgan and Wells Fargo among the biggest lenders to post a drop in small business loans between Q3 and Q4 2020 following the closure of the Paycheck Protection Program.

back to top


About Us

Connect With Us


Webinar: From KYC to IDV

How three leading banks are utilizing cutting-edge
digital tools to onboard, win, and wow customers

Time/Date: June 23, 2021 11:00 a.m. ET

Digital adoption, already moving at warp speed, accelerated seven years into the future during the COVID-19 pandemic. As the number of bank branches continues to fall, with at least one study predicting all branches will disappear by 2034 (Fox Business) and foot traffic declining (Vox), today’s most innovative banks are charting a new, digital-first path to win over customers while increasing security, meeting KYC compliance requirements, and winning customers to drive revenue.

In this webinar, you’ll hear from John Baird, Founder & CEO of Vouched, Tyler Crawford, COO of Bankers Healthcare Group, Anand Sathiyamurthy, CPO of Flagstar Bank and Daniel Sheehan, Chairman & CEO of Professional Bank as they describe their vision for digital transformation and how customer expectations are changing to digital first. They’ll also explore how fostering an innovation mindset creates new ways to tackle complex KYC problems and allows them to quickly compete in new markets and win customers.


This webinar is brought to you by:
Vouched Logo