Loan Standards Easing, But Still a Long Way From Normal
The October 2010 Senior Loan Officer Survey shows that banks are easing some of the standards and terms for some loans over the past three months, but standards for many categories of loans would not return to their longer-run averages for the foreseeable future.
A few of the large banks reported that they eased credit standards for approving applications for credit cards from individuals or households. However, a small fraction of banks reported that they reduced the size of credit lines on credit card accounts and widened the spread of interest rates on credit cards over their cost of funds.
For all loan categories, a substantial number of respondents thought that their bank’s lending standards would not return to their long-run norms until after 2012 or lending standards would remain tighter than longer-run average levels for the foreseeable future. About 40 percent of respondents thought that standards on residential and credit card loans would return to their longer-run norms by the end of 2012.
If credit card lending returns to its norms by the end of 2012, it will take four years for the credit card market to recover from the crash. That is a long recovery and a lot has changed in those four years. Credit card debt has dropped every quarter since then and regulations have sliced fees. Credit card revenue may never return to what it was during before the Fall of 2008.
The Senior Loan Officer Survey is based on responses from 57 domestic banks and 22 U.S. branches of foreign banks.