June 22, 2011
OCC Survey Showed Signs of Easing in Banks’ Underwriting Standards
WASHINGTON — The Office of the Comptroller of the Currency released its 17th annual Survey of Credit Underwriting Practices today. After 3 years of broad tightening of underwriting standards, this year’s survey showed some signs of easing especially in commercial products. Even so, numerous banks made no changes or continued to tighten underwriting standards especially in products with poor performance.
Underwriting standards remain in transition as banks continue to react to economic conditions and changing risk in their portfolios. For certain products, banks are once again easing standards in response to competition, an improvement in credit market liquidity, and a desire for more market share. On the other hand, an uncertain economic outlook, changing risk appetite and continued poor product performance were key influences where standards were unchanged or continued to tighten.
“Some easing of standards is normal and healthy as the economic environment stabilizes,” said Dave Wilson, the newly appointed Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner. However, Mr. Wilson warned, “We need to remember that overly liberal underwriting standards contributed to extremely high credit losses. The pace of easing standards in products like leveraged lending is disconcerting and warrants close attention.” Bankers need to apply sound and consistent underwriting standards regardless of the economic cycle or whether a loan is originated with the intent to hold or sell.
The survey is a compilation of examiner observations and assessments of credit underwriting standards. The 2011 survey included 54 of the largest national banks, covering the 12-month period ending February 28, 2011. The aggregate total of loans was $4.2 trillion as of December 31, 2010, representing approximately 94 percent of total loans in the national banking system.
The survey can be found on the OCC’s Web site.