Banks are loosening their lending standards to make more consumer loans, according to a new survey by the Office of the Comptroller of Currency. The study asked banks to qualify their lending standards, and the response was positive: banks were easing standards for consumer credit.
According to the data, 35% of banks offering credit cards are currently easing their lending standards compared to only one-quarter of banks in 2011. Banks are also engaging in more automotive lending, having also eased their automotive loan volumes.
More impressively, the industry is retaining more of its originated loans. The paper reports that banks originated 76% of retail products to hold on their own balance sheet. Banks typically like to hold only assets in which they are most confident. Holding more originated loans while reducing credit standards reflects on the banking's industry's perception of risk in the consumer lending market.
Demand for banking services recovered sharply following the recession. Easing loan standards are a welcome sign given that banks significantly increased standards following the financial crisis. Experts suggest that lower credit quality standards for basic services greatly improves consumer spending, which often improves business borrowing and spending volumes.
Where banks haven't reduced lending standards is in housing and large financing transactions. While most people retain the liquidity and cash flow to handle a modest sized credit card balance, there exist long-term concerns about the state of the housing market. Historically, lending volumes improve in major purchases and acquisitions only after an improvement in smaller consumer lending patterns.