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31277_1975-1979

31277_1975-1979

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341
Changes in Bank Lending Practices, 1976
The Federal Reserve has conducted quarterly
 
surveys of changes in bank lending practices at
 
large commercial banks in February, May, Au-gust, and November of each year since 1964.
 
The surveys provide information about changes
 
in recent and anticipated demand for business
 
loans, in price and nonprice terms of lending,
 
and in banks’ willingness to make various types
 
of loans other than shortterm business loans.
 
This article continues the series of annual re-views of the surveys and summarizes the re-sponses of the 121 banks included in the 1976
 
sample.During most of 1976 the demand for business
 
loans was weak, reflecting the modest recovery
 
of business capital spending coupled with heavy
 
longterm financing aimed at restructuring bal-ance sheets to rebuild liquidity and reduce risk
 
exposure. Despite a substantial recovery in cor-porate profit margins during 1976, the typical
 
cyclical resurgence of business spending for
 
fixed capital and inventories did not materialize.
 
With capital spending restrained and longterm
 
financings large, corporations continued to re-duce their indebtedness to banks for much of 
 
the year, as they had in 1975.In the last quarter of the year, business loans
 
began to increase. Although some of the
 
strength in late 1976 represented heavy acquisi-tions of bankers acceptances, which are in-cluded in business loans, other business loans
 
still had a positive growth rate. The evidence
 
from the lending practices surveys suggests that
 
the recent growth in business loans reflects both
N
o t e
 .J
ohn T. Scott of the Board’s Division of 
 
Research and Statistics prepared this article. Richard
 
C. Stevens of the Division of Data Processing provided
 
the author with cumulative totals; in a cumulative total
 
each bank is counted only once, whereas the table data
 
include the bank each time it reported in a particular
 
category for each survey period.
a moderate upturn in demand and somewhat
 
easier lending terms at some banks.The behavior of the terms of lending at large
 
commercial banks during 1976 can in part be
 
explained by the same forces that weakened the
 
demand for business loans. Businesses were
 
reluctant to make commitments for new capital
 
spending, despite favorable profit and liquidity
 
positions, in view of reduced capacity utilization
 
rates and a cautious attitude toward investment
 
stemming from the turbulent economic environ-ment of recent years. Bankers also displayed
 
a cautious attitude throughout 1976 because of 
 
their experience during the recent years of in-stability in the economy. The quarterly survey
 
tables show that in the face of weak business
 
loan demand, only a growing minority of large
 
banks eased slightly some terms of lending to
 
nonfinancial business during the year; over all,
 
banks did not substantially ease their terms. In
 
general, the banks’ policies toward interest rates
 
and standards of creditworthiness illustrate their
 
careful approach to terms of lending throughout
 
1976; their policies regarding compensating
 
balance requirements and the maturity of term
 
loans illustrate the moderate easing in policy
 
that did occur at some banks.In the first survey of 1976 taken in February,
 
almost half of the banks reported weaker de-mand for business loans and less than onetenth
 
reported stronger demand. Half of the respond-ents reported a moderately easier policy with
 
regard to interest rates.1About onesixth of the
interpretation of these responses is complicated be-cause some banks have at times considered a change
 
in the prime rate a change in policy, while others have
 
focused on the relationship between the prime rate and
 
open market rates. This complication is reflected in the
 
February response. During the 3 months preceding the
 
February survey, both the prime rate and the rate on
 
90 to 119day commercial paper fell, but the histori-cally high spread of about 165 basis points between
 
these rates changed very little.
 
April 1977
 
342 Federal Reserve Bulletin April 1977
banks reported moderately easier policy on
 
compensating balances, but other nonprice
 
terms of lending were essentially unchanged.
 
Almost onethird of the respondents were more
 
willing to make consumer instalment loans and
 
term loans to businesses, while a smaller num-ber were more disposed to make other types of 
 
loans. This pattern of reported increasing will-ingness to make various types of loans persisted
 
throughout 1976.Demand for commercial and industrial loanshad not picked up by midMay when the second
 
survey of the year was taken. About onefourth
 
of the respondents reported moderately weaker
 
demand for business loans, while demand was
 
about the same as in midFebruary for more than
 
threefifths of the banks. Most bankers reported
 
that their policy on interest rates was un-changed, and almost all of the other respondents
 
reported moderately easier policy. Although the
 
prime rate was unchanged at
6
 3A
 per cent
 
throughout this survey period, the spread beQUARTERLY SURVEY—FEBRUARY 1976Changes in bank lending practices at selected large banks:Policy on February 15, 1976, compared with policy 3 months earlier
Number of banks; figures in parentheses indicate percentage distribution of total banks reporting
ItemMuchstrongerModeratelystrongerEssentiallyunchangedModeratelyweakerMuchweakerStrength of demand for commercial and in-dustrial loans:1Compared with 3 months earlier
.............
Anticipated in next 3 months
...................
Loans to nonfinancial businesses:Terms and conditions:Interest rates charged..............................Compensating or supporting balances.Standards of creditworthiness
...............Maturity of term loans
..........................
Practice concerning review of credit lines
 
or loan applications:Established customers
............................
New customers.........................................Local service area customers.................Nonlocal service area customers
.........
Factors relating to applicant:2Value as depositor or source of collat-eral business
..........................................Intended use of the loan........................Loans to independent finance companies:3Terms and conditions:Interest rates charged..............................Compensating or supporting balances.
 
Enforcement of balance requirements.
 
Establishing new or larger credit lines.Willingness to make other types of loans:Term loans to businesses
...........................
Consumer instalment loans
.......................
Singlefamily mortgage loans
...................
Multifamily mortgage loans......................All other mortgage loans
...........................
Participation loans with correspondentbanks
......................................................
Loans to brokers
..........................................
121121(100.0)(100.0)
9 (7.4)
 
42 (34.7)56 (46.3)
 
66 (54.6)53
12
(43.8)(9.9)(2.5)
(.8)
TotalMuch firmer
 
policyModerately
 
firmer policyEssentiallyunchangedModerately
 
easier policyMuch
 
easier policy
121121121121121121121121121121121121121121(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)
(1.7)
(.8)(.8)(.8)(.8)(.8)(.8)
3
6
3
12
(2.5)58(47.9)60(49.6)(2.5)99(81.8)19(15.7)(6.6)110(90.9)1(.8)(.8)108(89.3)10(8.3)
(.8)
(2.5)
 
(5.0)(2.5)
 
(9.9)(7.4)(5.0)10394
 
10795104105(85.1)(77.7)(88.4)(78.6)
(86.0)
(86.7)14
2010
137
10(11.6)
(16.5)(8.3)(10.7)(5.8)(8.3)
(1.7)
3(2.5)98(81.0)20(16.5)3(2.5)117(96.7)1(.8)4(3.3)115(95.0)2(1.7)11(9.1)101(83.4)7(5.8)TotalConsiderably
 
less willingModerately
 
less willingEssentiallyunchangedModerately
 
more willingConsiderably
 
more willing
121120120120120121121(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)(.8)(.8)(.8)
4(3.3)79(65.3)37(30.6)3(2.5)81(67.5)34(28.3)1(.8)103(85.9)13(10.8)7(5.8)109(90.9)3(2.5)3(2.5)109(90.9)7(5.8)5(4.1)92(76.1)24(19.8)1(.8)98(81.0)21(17.4)
1(.8)
2 (1.7)
 
2 (1.7)
(.8)
1After allowance for bank’s usual seasonal variation. 3“Independent,” or “noncaptive,” finance companies are finance2 For these factors, firmer means the factors were considered to be companies other than those organized by a parent company mainly
 
more important in making decisions for approving credit requests, for the purpose of financing dealer inventory and carrying instalment
 
and easier means they were considered to be less important. loans generated through the sale of the parent company’s products.
 
April 1977
 
Changes in Bank Lending Practices, 1976 
 343
tween the prime rate and the rate on 90 to
 
119day prime commercial paper had decreased
 
somewhat.Onefifth of the respondents reported some-what easier policy on compensating balances in
 
midMay, bringing to more than onefourth the
 
proportion that had indicated easier require-ments on balances on one or both of the first
 
two surveys of 1976. There was no marked
 
change of policy on other nonprice terms of 
 
lending in the May survey. The pattern of in-creased willingness to make certain types of 
 
loans continued.In May the responding bankers had reported
 
a relatively optimistic projection of the upcom-ing strength of business loan demand. However,
 
the August survey showed that on balance de-mand was essentially unchanged at responding
 
banks, with threefifths of the banks reporting
 
unchanged demand and the rest equally divided
 
between the moderately weaker and moderately
 
stronger categories. Bankers reported some easQUARTERLY SURVEY—MAY 1976Changes in bank lending practices at selected large banks:Policy on May 15, 1976, compared with policy 3 months earlier
Number of banks; figures in parentheses indicate percentage distribution of total banks reporting
ItemMuchstrongerModeratelystrongerEssentiallyunchangedModeratelyweakerMuchweakerStrength of demand for commercial and in-dustrial loans:1Compared with 3 months earlier
...............
Anticipated in next 3 months
.....................
Loans to nonfinancial businesses:Terms and conditions:Interest rates charged..............................Compensating or supporting balances.Standards of creditworthiness...............Maturity of term loans
..........................
Practice concerning review of credit lines
 
or loan applications:Established customers
............................
New customers.........................................Local service area customers.................Nonlocal service area customers
.........
Factors relating to applicant:2Value as depositor or source of collat-eral business..........................................Intended use of the loan........................Loans to independent finance companies:3Terms and conditions:Interest rates charged..............................Compensating or supporting balances.
 
Enforcement of balance requirements.
 
Establishing new or larger credit lines.Willingness to make other types of loans:Term loans to businesses
...........................
Consumer instalment loans
.......................
Singlefamily mortgage loans
...................
Multifamily mortgage loans......................All other mortgage loans
...........................
Participation loans with correspondentbanks
......................................................
Loans to brokers..........................................
121121(100.0)(100.0)
Total
120 (100.0)121(100.0)121 (100.0)121(100.0)121(100.0)121(100.0)121(100.0)121 (100.0)121121121121121121(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)
Total17 (14.0)
 
64 (52.9)75 (62.1)
 
55 (45.4)28 (23.1)
 
2 (1.7)
1(-8)
Much firmer
 
policyModerately
 
firmer policyEssentiallyunchangedModerately
 
easier policyMuch
 
easier policy
(.8)
(1.7)
(.8)
(1.7)
(1.7)
 
(4.1)101(84.1)17(14.2)95(78.5)23(19.0)111(91.7)3(2.5)107(88.5)13(10.7)
(.8)
(1.7)
(2.5)
(.8)(.8)
9 (7.4)
 
3 (2.5)
111
104114107103115(91.7)(85.9)(94.2)(88.5)(85.2)(95.0)14
612(6.6)(H.6)
(5.0)(9.9)(7.4)(2.5)1(.8)117(96.7)3(2.5)116(95.9)5(4.1)3 (2.5)110(90.9)8(6.6)6 (5.0)102(84.2)11(9.1)(1.7)Considerably
 
less willingModerately
 
less willingEssentiallyunchangedModerately
 
more willingConsiderably
 
more willing121120(100.0)(100.0)(100.0)1(8)1201(.8)118(100.0)2 (1.7)120(100.0)2 (1.7)121(100.0)1(.8)121(100.0)1(8)
(.8)
(2.5)
(1.7)
(.8)
88(72.8)31(25.6)80(66.6)32(26.7)8(6.7)97(80.9)18(15.0)1(.8)111(94.1)3(2.5)103(85.9)13(10.8)1(.8)99(81.8)18(14.9)3(2.5)101(83.5)17(14.0)2(1.7)1After allowance for bank’s usual seasonal variation. 3“Independent,” or “noncaptive,” finance companies are finance2 For these factors, firmer means the factors were considered to be companies other than those organized by a parent company mainly
 
more important in making decisions for approving credit requests, for the purpose of financing dealer inventory and carrying instalment
 
and easier means they were considered to be less important. loans generated through the sale of the parent company’s products.
 
April 1977

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