Why the OCC is worried about looser lending standards

New data shows lenders growing less reluctant

A new report from the Office of the Comptroller of the Currency (OCC) is a definite study in contrasts.

The regulator points out in its 19th Annual Survey of Credit Underwriting that OCC bank examiners studying banks noted an easing of underwriting standards in recent months. This trend apparently occurred as banks started to grow their business volumes to remain competitive. 

This is both good and bad news for the lending industry and regulators.

On one hand, growing business volume shows unleashed hunger to return to a more robust lending market.

But there’s a flip side if this push to build volume encourages the reach for too much risk, the OCC notes.

"Examiners reported banks’ increasing risk appetite and greater market liquidity were factors that contributed to easing standards," the OCC said in its report. "Large banks, as a group, reported the highest share of eased underwriting standards. Loan portfolios that experienced the most underwriting easing included indirect consumer, credit cards, large corporate, asset-based lending, international, and leveraged loans."

The OCC is asking banks to be mindful of their underwriting standards going forward, while also paying extra attention to loan structures.

The report is compiled after OCC examiners survey numerous banks, including 86 of the largest national banks and federal savings associations. The study examines loans, which in total represents $4.5 trillion, or 87%, of the total loan system.

The regulator doesn't elaborate on mortgages specifically, but we know from the Mortgage Bankers Association's Mortgage Credit Availability Index that mortgage credit availability started to ease a bit in October.

Still, it only edged up 0.7% in October. At the time, Ellie Mae noted standards started to ease incrementally at the beginning of 2013. The effect of new mortgage rules impacting the market in 2014 is still unknown and a bit of an outlier in terms of accessing credit availability trends for this year.

The OCC's study of loosening credit focuses on leveraged lending, asset-based lending, indirect consumer lending and credit cards.

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