Research and Statistics

Americans want more credit, banks slowly ease credit restrictions


The Fed’s quarterly survey of senior loan officers finds bankers slightly easing credit standards for credit cards and other loans. More Americans are searching for credit, too

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Domestic banks have continued to ease credit standards over the past three months as more Americans are searching for credit, according to a Federal Reserve survey released Monday.

According to the quarterly survey of senior loan officers, demand for credit card loans increased in the first quarter of 2012, with 17.5 percent of banks reporting a moderate uptick over the past three months. Auto loans were particularly hot: 31.4 percent of banks said they had an increased demand for them.

The chart below shows the percentages of banks that tightened specific lending standards for new credit card applications in the first quarter of 2012 and in the second quarter of 2008, when credit tightening was at its peak. The chart also shows the percentage of banks which said they took certain specific actions regarding new and existing credit card accounts.
ActionQ1 2012Q2 2008
For new applications
Loosening overall lending standards14%0%
Tightening overall lending standards2.3%66.6%
For new applications and existing accounts
Lowering credit limits5.4%47%
Raising minimum payments2.7%10%
Raising credit score requirements5.1%57%
Refusing to lend to those who don’t meet all lending standards0.0%50%

While banks are granting more loans, they’re doing so cautiously. They’re tapping open the credit faucet a notch, not opening the floodgates.

“Banks want to see more consumer loans, but they want them from people who are going to pay them back,” says Christine Pratt, a senior analyst with research and advisory firm Aite Group.

Every quarter, the Federal Reserve surveys senior loan officers. This quarter’s survey compiles the answers of loan officers from 60 large domestic banks and 24 U.S. branches of foreign banks, who were asked for a three-month snapshot of what lending was like at their banks. According to this quarter’s survey, 14 percent of banks loosened restrictions on credit card applications. But most banks are letting their standards be.

Slow but steady growth
As in the previous four surveys, a small number of domestic banks reported laxer standards on credit card, auto, and other consumer loans while demand for consumer loans continued to increase.

According to the report, 7.7 percent of loan officers reported that their banks raised credit limits on new and existing credit card accounts. Meanwhile, 89.7 percent of loan officers said they remained basically unchanged.

Opening up
After the 2008 crash, banks significantly reduced credit card limits, hiked up interest rates, and made it more difficult for new applicants to get a credit card.  In recent years, banks have begun to ease off restrictions, but most are hesitant to do so.

And while banks continue to ease off the brakes, they continue to approach consumer credit cautiously, Pratt says. “[Banks] want bigger growth loans; smaller loans are still considered to be risky now.”

The previous survey indicated that lenders were optimistic about credit card loan quality in 2012. Bankers said they were more confident in consumers, with 21.6 percent of loan officers saying they expected cardholders would pay their bills. Only 5.6 percent expected loan quality to deteriorate.

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