It is a sign of the times that while businesses are now looking to expand, a modest majority of lenders have retained their more cautious approach.
We expect an increase in loan demand as well as a less cautious risk stance among lenders, though, as the administration follows through on a more aggressive form of deregulation across the banking industry.
This will most likely be part of what we expect will be a reacceleration of growth next year following an uneven year because of the broad policy changes across trade and immigration.
The Senior Loan Officer Opinion Survey from the Federal Reserve was released on Oct. 31, roughly covering the months of the third quarter.
On the demand side, the survey found stronger demand for commercial and industrial loans from large and middle market firms; demand among small firms was basically unchanged.
On the supply side, a modest majority of lenders reported tighter standards for C&I loans to firms of all sizes. Although this was an improvement over surveys taken earlier in the year, the banking community continues to show a reluctance to take on risk given the economic uncertainty.
As with C&I lending, a modest net share of banks reported stronger demand for commercial real estate loans over the third quarter and unchanged standards for those loans.
Finally, both the supply and demand for commercial lending follow the trend in the RSM US Financial Conditions Index. This suggests that borrowers and lenders are more willing to take on investment risk at times of improved economic activity.
Financial conditions are moderately accommodative, which implies less investment risk than would normally be expected. The recent movement in financial conditions, however, best resembles being stuck in neutral.
