WASHINGTON – The Federal Reserve's regional banks are reporting a moderate but noticeable overall boost in demand for both commercial and consumer loans and financial services in recent months.
In the Fed's most recent Beige Book report on economic activity released Wednesday, regional Fed banks say that despite an improving but somewhat mixed economic picture, demand for banking services has picked up moderately since the last report was compiled in early October.
"Loan demand increased since the previous Beige Book, according to a majority of the districts that report on the banking and financial services sector," the report said. "Residential mortgage activity was stable, on balance. Commercial loan demand was reported to be generally strengthening in most districts. Credit quality was generally stable. The lending environment remained competitive across most districts."
Different regions of the country have experienced growth in various areas and to separate degrees, however. The New York, Philadelphia and St. Louis Fed banks reported that loan growth was being driven primarily by demand for commercial and industrial lending, while consumer demand has remained somewhat anemic.
The Philadelphia Fed said that its contacts had indicated that "households and small businesses remained cautious of taking on more debt," which may be driving down consumer demand. Nonetheless, those same contacts "remained optimistic for continued growth over the next six months."
The Dallas San Francisco and Chicago Fed banks had an opposite experience, with consumer lending driving the financial services growth in those regions. The Chicago Fed reported that small-business lending had increased modestly but that auto loans were driving consumer demand, and the Dallas Fed reported a similar experience. The San Francisco Fed said that auto and mortgage loans were increasing modestly and that deposits were up and banks had "ample liquidity."
The Kansas City, Atlanta, Richmond and Cleveland Fed banks reported loan demand as steady with varying individual factors. The Richmond Fed said that competition for borrowers among lenders, particularly in Maryland, was becoming "intense" and that was potentially driving down lending standards. The Atlanta Fed, meanwhile, said that volumes were up slightly but that small banks were having a harder time competing with larger banks, and small businesses and first-time homebuyers were having a difficult time finding credit.
Another notable trend was that some Fed banks said that loan demand was being tapered somewhat by increased competition from nontraditional lenders. The St. Louis Fed said that "one-third of respondents indicated decreases in consumer borrowing due to competition from alternative lenders," while the San Francisco Fed said it had noticed "increased role of nontraditional lenders in mortgage markets." The San Francisco Fed also said that the climate of low interest rates and increased compliance costs associated with regulations have "reduced net margins and held down bank profitability" in recent months.