Investment and commercial banks and collateralized loan obligations are increasingly competing for lending business on commercial and industrial (C&I) loans. The quarterly Senior Loan Officer Opinion Survey on bank lending practices released by the board of governors of the Federal Reserve System, states almost all domestic and foreign respondents cited more aggressive competition from other banks or non-bank lenders as the most important reason for easing their lending standards and terms.
The largest commercial banks especially said the most competition came from other banks, but the second most cited source was the investment banks. Specified non-bank entities include hedge funds, insurance companies and collateralized loan obligations. The survey also revealed that 50% of those responding believe that increased competitive pressure reflected a permanent shift in the loan market.
More than 20% of domestic banks and 35% of U.S. branches of foreign banks reported eased lending standards for C&I loans over the past three months. Over 50% of foreign banks and almost 50% of domestic banks reported decreasing spreads on loan pricing.
Positive economic outlook was highlighted by three quarters of the domestic banks as an alternative cause for eased loan standards while foreign banks listed more favorable economic outlook as the least likely cause. As long as economic activity continues as forecasted, a majority of foreign and domestic banks felt that the loan industry would stabilize at current levels. The results of the survey were compiled from interviews with 57 domestic banks and 20 foreign institutions. Officials at the Fed declined further comment.