Fed survey shows banks ratcheting up lending standards as Q3 jitters build

What the Fed asked and what it found

The October SLOOS took stock of how banks changed their lending standards, terms and loan demand in the third quarter, and the Fed published the findings on Nov. 2. The survey measures what banks say about credit conditions, not how many loans they actually made.

Participants included 61 domestically chartered banks along with 18 U.S. branches of foreign institutions. Banks pointed to a murkier economic outlook and worsening problems in certain industries as reasons for tightening, and the Fed noted that lenders raised premiums on riskier corporate loans across firm sizes. Banks also reported stricter standards for nonbank financial firms, including private equity funds as well as business and mortgage credit intermediaries.

Who is getting squeezed

On commercial and industrial credit, terms for large and middle market companies were largely steady compared with the prior survey, but banks got tougher with smaller businesses. Within CRE, banks indicated they made standards stricter for projects in land development and construction, for nonfarm, nonresidential assets, and for multifamily buildings, and they reported softer demand across all CRE segments.

Banks also reported reining in credit to nonbank financials even as they faced greater liquidity draws by private equity funds and by business credit intermediaries. Lenders again cited uncertainty about the economy and concerns that these borrowers' financial strength is deteriorating.

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Households and higher rates

Household credit was a mixed bag. Mortgage standards were broadly steady overall, with some loosening for jumbo loans but stricter rules for subprime. Banks said demand cooled on balance across all types of residential mortgages. They also reported being more likely to greenlight credit card applications from super prime and prime applicants, and less likely to do so for subprime borrowers, a pattern driven by smaller banks for the subprime group.

Financing costs climbed in Q3. A market quote showed the 10 year Treasury yield at 4.89 percent, down 0.002, at 9:43 AM EST, and the 10 year note touched 5.349 percent in intraday trading on Oct. 5, the highest since April 2002, amid worries about the nation's rising debt load. Tiffany Wilding, a managing director and economist at PIMCO, wrote on Oct. 28 that "Higher government bond yields have catalyzed a broader repricing of credit risk, especially for lower quality borrowers." She also said that small businesses, housing, and heavily indebted companies are running into tighter credit and steeper borrowing costs as AI related investment draws capital away from other areas.

Signals of household strain are showing up elsewhere. A CNBC and SurveyMonkey poll found that 20 percent of renters or people with mortgages devote no less than half of their pre-tax income to housing, and 49 percent put between a quarter and just under half toward it. Typical lender guidance suggests spending roughly 28 to 30 percent on housing. According to a separate Fed Survey of Consumer Finances published Oct. 9, nearly 20 percent of households were delinquent with their loan payments as 2025 drew to a close, compared with about 12 percent in the 2022 survey.

The takeaway for your portfolio

The picture here: banks are tightening for smaller businesses, riskier households and many real estate borrowers, while higher Treasury yields are pushing up borrowing costs and stoking a broader reset in credit risk. Why does that matter? Exposure to small cap stocks, lower quality credit, and CRE sensitive names could feel the funding squeeze, while prime quality consumer credit and larger corporate borrowers look relatively more insulated for now.

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