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Banks to tighten credit standards: Moody's

March 6, 2020
Some banks are "bunkering down" on credit and are likely to continue tightening standards throughout the year, according to an analysis of the Federal Reserve’s Senior Loan Officer Opinion Survey by Moody’s Investors Service. The SLOOS collected responses from 74 domestic banks and 22 U.S. branches and agencies of foreign banks.
 
"There’s a continual tightening that’s going on," Warren Kornfeld, senior vice president of Moody’s financial institutions team said. A small group of banks — 8.9% of respondents — indicated in the Fed’s survey that auto loan underwriting "tightened somewhat" during the fourth quarter of 2019.
 
"That’s a pretty big pivot to jump to 8.9% from 0% net the previous quarter," Kornfeld added. "It’s a response, a solid move that indicates the financial crisis is still very much on people’s minds."
 
Similarly, 8.9% of banks reported in the Fed’s survey that credit standards will "tighten somewhat" over the course of this year, compared with current lending standards.
 
Still, Moody’s projected outlook for auto loans is marked as a "credit negative," in Moody’s Investors Service’s report analyzing the SLOOS results. Despite the stricter credit standards, auto underwriting is weak compared with the historical average and other consumer asset classes, Kornfeld said. However, "it’s a positive trend, and we see it with delinquencies coming down," he said.
 
 

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