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Financial Institutions
RE&C In Review: Revisiting the July Senior Loan Officer Opinion Survey: What Does it Mean for 2024?
By Molly Z. Brown on October 10, 2023
The Federal Reserve’s July Senior Loan Officer (SLO) Opinion Survey1 confirmed market data about the tightening of loan standards and more conservative underwriting standards. The Survey confirmed that rising rates have caused banks to place more emphasis on balance sheets, cash flow and income statements.
What Does This Mean for 2024?
The July 2023 Survey gave insight into expectations for the remainder of 2023, with banks reporting expectations for further tightening of credit standards for all loan categories. Heading into and during 2024, we can expect banks’ justifications for tightening underwriting standards to continue to hold based upon the uncertain “economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”2 SLOs also reported that supervisory changes and the desire for stronger liquidity due to economic headwinds that may occur.3 This makes sense. In July, the Federal Reserve announced that it is looking into revising capital standards for large banks.4 This would increase the cost of capital for banks.
Adjusting to Banking Environment Changes
To be sure, banks are still lending money. Underwriting standards at some institutions have gotten tighter, while others, mainly community and regional banks, have stayed relatively the same. Our recommendations to our clients when seeking borrowing capacity include:
- Be organized. Have your financial statements, tax and organizational documents ready
- Have your elevator pitch ready about what sources of funds are needed and uses of the funds
- If equity capital is needed, reach out to counsel to organize capital raises to facilitate your goals
If you find yourself in need of assistance navigating the changes in the financial markets, please do not hesitate to reach out to Molly Brown to discuss lending and other financing solutions that can ensure your deals stay on pace. Molly has experience advising banks and borrowers on financial institution trends, lending terms to mitigate risk, and has advised a top 50 bank on its capital and liquidity moves. Molly also has a wealth of experience structuring transactions with different sources of capital and liquidity.
1 The July 2023 Senior Loan Officer Survey on Bank Lending Practices available at https://www.federalreserve.gov/data/sloos/sloos-202307.htm (visited Oct. 6, 2023).
2 Id.
3 Id.
4 “The proposal would modify large bank capital requirements to better reflect underlying risks and increase the consistency of how banks measure their risks[;]” It would not impact community banks. See Agencies request comment on proposed rules to strengthen capital requirements for large banks available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230727a.htm (visited on Oct. 6, 2023).
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2023 Brouse McDowell. All rights reserved.
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