Economic Policy Review

Listening to Loan Officers: The Impact of Commercial Credit Standards on Lending and Output

July 2000Volume 6, Number 2
JEL classification: E51, E52, E3

Authors: Cara S. Lown, Donald P. Morgan, and Sonali Rohatgi

Over most of the last thirty-three years, the Federal Reserve has polled a small number of bank loan officers about their moves to tighten or ease commercial credit standards. Although the Senior Loan Officer Opinion Survey uses a small sample and gathers only qualitative information, it proves to be a useful tool in predicting changes in commercial lending and output. The authors find a strong correlation between tighter credit standards and slower loan growth and output, even after controlling for credit demand and other predictors of lending and output. The analysis also shows that the loan officer reports can help predict narrower measures of business activity, including inventory investment and industrial production.

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