OCC Survey Finds Bank Underwriting Standards Remain Tight

WASHINGTON — The Office of the Comptroller of the Currency released today its 16th annual Survey of Credit Underwriting Practices and reported that the trend of tightening underwriting standards has continued for the last three years. However, the OCC is beginning to see some easing of standards in response to competition, and a slight improvement in credit market liquidity.

“Credit performance remains a concern despite several years of tightening,” said Deputy Comptroller for Credit and Market Risk Dave Wilson. “We are beginning to see some recent signs that standards may be loosening. That’s good for credit markets as long as bankers remember to stick to sound underwriting principals and do not compromise standards because of competitive pressures or the assumption that loans will be sold to third parties.”

Despite tightened underwriting standards, examiners noted that risk in both the commercial and retail portfolios increased for the third consecutive year and they expect portfolio risk to increase over the coming year. This increase was largely due to the combined effects of loans that were previously underwritten with more liberal standards coupled with continued economic weakness. This year’s survey also indicated that the majority of banks are using the same underwriting standards regardless of whether they intend to hold or distribute credits.

The OCC’s survey is a compilation of examiner observations and assessments of credit underwriting standards at the largest national banks. The 2010 survey included 51 of the largest national banks and covered the 12-month period ending March 31, 2010. The aggregate total of loans was $4 trillion, which represented over 93 percent of all outstanding loans in the national banking system.

Related Link

• Survey of Credit Underwriting Practices 2010 (PDF)