Underwriting Standards Ease for Fourth Consecutive Year, OCC Survey Shows

WASHINGTON — Underwriting practices among national banks and federal savings associations (FSAs) eased for a fourth consecutive year in 2016, according to a report released today by the Office of the Comptroller of the Currency (OCC).

In the OCC’s 22^nd Annual Survey of Credit Underwriting Practices, examiners reported an incremental easing of underwriting practices within commercial and retail loans across 93 national banks and federal savings associations. The easing standards reflect the banks’ response to competitive pressures, expanding credit risk appetites, and a desire for loan growth.

“During the 12-month survey period, underwriting practices remained satisfactory. But an increasing tolerance for looser underwriting has resulted in a continued movement from more conservative to more moderate underwriting practices,” said Grace Dailey, Senior Deputy Comptroller and Chief National Bank Examiner. "While this movement is consistent with past credit cycles at a similar stage, credit risk is expected to increase if the trends we see today continue.”

In the survey, OCC examiners noted primary areas of concern relate to aggressive growth rates, weaknesses in concentration risk management, deterioration in energy-related portfolios, and continued general easing of underwriting practices. Examiners noted easing of commercial underwriting in pricing, guarantor requirements, and loan covenants. In the retail sector, easing occurred most frequently in collateral, loan size, and debt-to-income requirements.

Similar to practices seen in the 2015 survey, the easing of underwriting practices was most prevalent in direct consumer loans, conventional home equity, other commercial real estate loans, and residential real estate loans.

The survey is a compilation of examiner observations and assessments of credit underwriting standards and practices at 93 of the largest national banks and FSAs supervised by the OCC. The survey results cover the 12-month period ending June 30, 2016. The survey covers loans totaling $5.2 trillion, representing 90 percent of all loans in the federal banking system.

Related Link

• 2016 Annual Survey of Credit Underwriting Practices (PDF)