After three years of widespread credit tightening, U.S. banks appear to be relaxing their underwriting standards somewhat, according to a survey of bank examiners released Thursday by the Office of the Comptroller of the Currency.
Examiners said that 20% of the banks featured in the survey eased their standards on commercial loans during the one-year period that ended Feb. 28, 2011, up from 2% for the prior one-year period and 0% for the year before that. Only 7% relaxed standards on retail loan products, but that's a significant improvement over the previous three years, when examiners reported that all banks had either tightened or maintained their standards.
In a news release, the OCC said that banks are easing standards in response to competition, improvements in liquidity and a desire to increase market share. Its chief examiner said that some easing of standards is "normal and healthy," but he expressed concern that some banks might be relaxing standards too much in some areas, such as leveraged lending. Though 16 of the 54 banks included in the survey do any meaningful leveraged lending, the survey found that 37% of those banks eased their standards in the year that ended Feb. 28, compared to 0% in each of the previous two years. Only 19% of those banks tightened their standards, down from 75% in the prior year.
"We need to remember that overly liberal underwriting standards contributed to extremely high credit losses," said Dave Wilson, the senior deputy comptroller for bank supervision policy and chief national bank examiner. "The pace of easing standards in products like leveraged lending is disconcerting and warrants close attention."
Among the other key findings:
• Twelve percent of the 33 banks that make small-business loans eased their underwriting standards on those loans, compared to 0% in each of the prior two years, while 33% tightened standards, down from 66% in the previous year.
• For the third consecutive year, no banks relaxed standards on residential construction lending.
• Of the 16 banks that offer credit cards, 25% eased their loan standards, up from 0% in the previous two years.
Banks represented in the survey included the 14 largest banks in the U.S. and 40 others with at least $3 billion of assets. Combined, these had total loans outstanding of $4.2 trillion at Dec. 31, or 94% all the loans in the banking system, according to the OCC.
