The Federal Reserve's latest survey of bank lending practices shows US banks are tightening credit standards, particularly for small businesses, commercial real estate, and subprime borrowers, amid growing uncertainty about the economic outlook.
The quarterly Senior Loan Officer Opinion Survey, published on 2 November, collects responses from 61 domestic banks and 18 US branches of foreign lenders and tracks changes in lending standards, terms and demand. While commercial and industrial lending to large and middle-market firms remained broadly stable, banks reported tightening standards for smaller businesses.
"Banks reported tightening standards for premiums charged on riskier loans for firms of all sizes," the report noted. Lenders cited a less favourable or more uncertain economic outlook, as well as worsening industry-specific problems, as key reasons for the shift.
Commercial real estate emerged as a pressure point, with standards tightened across all categories: construction and land development, nonfarm nonresidential properties, and multifamily properties. Demand for loans weakened in every category. Banks also tightened credit for nonbank financial firms, including private equity funds and business and mortgage credit intermediaries, even as demand for liquidity from private equity funds and business credit intermediaries grew.
On the household side, mortgage standards were broadly unchanged, though banks tightened rules for subprime loans and eased them slightly for jumbo loans. Banks reported weaker demand, on balance, across all residential real estate categories. "Banks reported being more likely to approve credit card applications to super-prime and prime borrowers and less likely to approve applications to subprime borrowers, with small banks driving the trend for subprime borrowers," the report added. The shift in household credit comes as borrowing costs rose sharply during the third quarter, with the 10-year Treasury yield hitting an intraday high of 5.349% on 5 October, its highest since April 2002.
Tiffany Wilding, managing director and economist at PIMCO, said small businesses, housing and debt-laden firms face tighter credit and higher borrowing costs as the artificial-intelligence investment boom crowds out other parts of the economy. "Higher government bond yields have catalyzed a broader repricing of credit risk, especially for lower-quality borrowers," Wilding said.
A separate Federal Reserve report on consumer finances, released in October, found that the share of families behind on loan payments had risen to nearly 20% by the end of 2025, from about 12% three years earlier.
Analysis
Why This Matters
- Tighter lending can slow economic growth, especially for small businesses that rely on bank credit.
- Pressure on commercial real estate may lead to more defaults and stress in regional banks.
- Households already behind on payments may find it harder to get credit, worsening consumer spending.
Background
The Federal Reserve's Senior Loan Officer Opinion Survey (SLOOS) has been conducted quarterly for decades and provides a key insight into credit conditions. The October survey was released amid rising Treasury yields and ongoing debate about the economy's trajectory. The survey does not measure actual loan volumes but rather bank-reported changes in standards and demand.
Key Perspectives
Banks (as reported in the Fed survey): Tightening standards due to a less favourable or more uncertain economic outlook and worsening industry-specific problems. They see weaker loan demand across most categories, especially commercial real estate.
Tiffany Wilding (PIMCO economist): Higher government bond yields have triggered a repricing of credit risk, especially for lower-quality borrowers. Small businesses, housing and highly indebted firms are feeling the squeeze as the AI boom concentrates capital.
What to Watch
- Next quarter's SLOOS results for further tightening or an easing of conditions.
- The path of Treasury yields: if they stay high, borrowing costs will remain elevated.
- Consumer debt payment trends: the Fed's consumer finances survey showed a sharp increase in late payments; further deterioration could signal broader stress.
Checked
12 claims in this story checked against 1 source: 11 supported.
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- SupportedUS banks are starting to tighten lending standards, with small businesses and commercial property facing a squeeze.US Top News and Analysis: “U.S. banks are starting to tighten their lending standards amid growing concern over the underlying health of the economy, according to a new Federal Reserve survey. The Fed's latest Senior Loan Officer Opinion Survey on Bank Lending Practices for October, published Nov. 2, showed an uneven credit backdrop in the third quarter, with smaller businesses, riskier households and commercial property in particular facing a lending squeeze.”
- Partly supportedBanks are less likely to approve subprime borrowers, according to the survey.US Top News and Analysis: “"Banks reported being more likely to approve credit card applications to super-prime and prime borrowers and less likely to approve applications to subprime borrowers, with small banks driving the trend for subprime borrowers," the report added.”
- SupportedThe survey shows banks tightening credit standards particularly for small businesses, commercial real estate and subprime borrowers amid growing uncertainty about the economic outlook.US Top News and Analysis: “U.S. banks are starting to tighten their lending standards amid growing concern over the underlying health of the economy, according to a new Federal Reserve survey. The Fed's latest Senior Loan Officer Opinion Survey on Bank Lending Practices for October, published Nov. 2, showed an uneven credit backdrop in the third quarter, with smaller businesses, riskier households and commercial property in particular facing a lending squeeze.”
- SupportedCommercial and industrial lending to large and middle-market firms was broadly stable, while banks tightened lending to smaller businesses.US Top News and Analysis: “Commercial and industrial lending to large and middle-market firms was broadly unchanged from the previous survey — but banks tightened lending to smaller businesses.”
- SupportedThe report said banks tightened standards for premiums charged on riskier business loans across firms of all sizes.US Top News and Analysis: “"Banks reported tightening standards for premiums charged on riskier loans for firms of all sizes," the report noted.”
- SupportedBanks tightened commercial real estate standards across the listed categories, and loan demand weakened in all CRE categories.US Top News and Analysis: “Commercial real estate is also emerging as a pressure point, with banks reporting tightened standards across the board on construction and land development, nonfarm nonresidential properties, and multifamily properties, and weakening demand for loans in all CRE categories.”
- SupportedBanks tightened credit standards for nonbank financial firms, while demand for liquidity from private equity funds and business credit intermediaries grew.US Top News and Analysis: “U.S. banks are also tightening credit standards for nonbank financial firms such as private equity funds and business and mortgage credit intermediaries. The pullback comes amid growing demand for liquidity from private equity funds and business credit intermediaries”
- SupportedMortgage standards were broadly unchanged, with tighter rules for subprime loans and some easing for jumbo mortgages.US Top News and Analysis: “While banks have left mortgage standards broadly unchanged, there has been some easing for jumbo mortgages — but tighter rules for subprime loans”
- SupportedThe report said banks were more likely to approve credit-card applications from super-prime and prime borrowers and less likely to approve them from subprime borrowers, with small banks driving the subprime trend.US Top News and Analysis: “"Banks reported being more likely to approve credit card applications to super-prime and prime borrowers and less likely to approve applications to subprime borrowers, with small banks driving the trend for subprime borrowers," the report added.”
- SupportedThe 10-year Treasury yield reached an intraday high of 5.349% on 5 October, its highest level since April 2002.US Top News and Analysis: “The 10-year Treasury note yield — the main benchmark for mortgages, auto loans and credit card debt — hit an intraday high of 5.349% on Oct. 5, its highest level since April 2002”
- SupportedWilding said the AI investment boom was squeezing other parts of the US economy, and said higher government bond yields had catalyzed a broader repricing of credit risk, especially for lower-quality borrowers.US Top News and Analysis: “Tiffany Wilding, managing director and economist at PIMCO, said small businesses, housing and debt-laden firms face tighter credit and higher borrowing costs as the AI investment boom squeezes other parts of the U.S. economy. "Higher government bond yields have catalyzed a broader repricing of credit risk, especially for lower-quality borrowers," Wilding said in a note Oct. 28.”
- SupportedThe share of families behind on loan payments reached nearly 20% by the end of 2025, up from about 12% in the previous survey in 2022.US Top News and Analysis: “The Fed's latest Survey of Consumer Finances, released Oct. 9, found that the percentage of families behind on loan payments at the end of 2025 reached almost 20%, up from about 12% in the previous survey in 2022.”
