Federal Reserve Survey Finds Banks Tightening Lending Standards and Weakening Demand for Loans

The July 2025 Senior Loan Officer Opinion Survey on Bank Lending Practices found that banks reported tighter lending standards and weaker demand for commercial and industrial loans to businesses of all sizes. For commercial real estate loans, banks also reported tighter standards and weaker demand. For household loans, banks reported unchanged lending standards and weaker demand for residential mortgages, but tighter standards and stronger demand for home equity lines of credit.

Title: Banks Tighten Lending Standards for Commercial Loans, CRE Loans See Weaker Demand

In the latest Senior Loan Officer Opinion Survey on Bank Lending Practices, released by the Federal Reserve for the second quarter of 2025, banks reported tightening lending standards and a decrease in demand for commercial and industrial loans to businesses of all sizes. The survey also indicated tighter standards and weaker demand for commercial real estate (CRE) loans.

For commercial and industrial (C&I) loans, a modest net share of banks (5%-10%) reported having tightened standards. This was accompanied by a significant net share of banks (20%-50%) reporting weaker demand from firms of all sizes. Additionally, banks reported tighter collateralization requirements and higher premiums charged on riskier loans to firms of all sizes.

In the commercial real estate sector, moderate and modest net shares of banks reported tighter standards for loans secured by nonfarm nonresidential properties and construction and land development loans, respectively. Meanwhile, demand for these types of loans was also reported as weaker by moderate net shares of banks, while demand for loans secured by multifamily properties remained basically unchanged.

For household loans, banks reported that lending standards remained unchanged across all types of residential mortgage loans. However, a modest net share of banks reported tighter standards for home equity lines of credit (HELOCs). The demand for residential mortgage loans weakened on balance, while demand for HELOCs strengthened.

In the personal lending category, a moderate net share of banks reported having tightened standards on credit card loans, while standards remained basically unchanged for auto and other consumer loans. Demand for credit card loans weakened, but demand for auto loans strengthened.

The survey provides insights into the current lending environment, highlighting the impact of tighter standards and weaker demand on various types of loans. It is essential for investors and financial professionals to consider these trends when making investment decisions.

References

[1] https://bankingjournal.aba.com/2025/08/fed-survey-lending-standards-tightened-for-many-commercial-loans-in-q2/