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Loan Officer Survey: CRE Focus 

May 14, 2024

Last week the Federal Reserve released the results of its April 2024 Senior Loan Officer Opinion Survey, which tracks lending standards and demand for commercial and consumer lending.

Why it matters: The quarterly covers over 80 banks and specifically tracks underwriting quality and demand for various types of CRE loans. The following summary is excerpted from the Fed press release with reformatting and editing for clarity.

The survey describes the results in “net share,” which are the percentage differences between the fraction of banks that reported tightening standards or strong demand versus weaker standards and weaker demand.

• The summary describes the net share with the following ranges: “unchanged” less than or equal to 5%; “modest” greater than 5% and less than or equal to 10%; “moderate” greater than 10% and less than or equal to 20%; “significant” greater than 20% and less than 50%; and “major” greater than or equal to 50%.

By the numbers: The Fed highlighted the following key takeaways for CRE, which include 1) construction and land development loans; 2) multifamily loans; and 3) nonfarm nonresidential loans.

• Tightening Standards: Over the first quarter, significant net shares of banks reported tightening standards for all types of CRE loans. Such tightening was more widely reported by “other banks” than by “large banks.”
• Weaker Demand: Meanwhile, a moderate net share of banks reported weaker demand for construction and land development loans, while significant net shares of banks reported weaker demand for loans secured by nonfarm nonresidential and multifamily residential properties.
• Foreign Bank Branches: Similar to domestic banks, a significant net share of foreign banks reported tighter standards for CRE loans. However, in contrast to domestic banks, a modest net share of foreign banks reported stronger demand for CRE loans over the first quarter.

Go deeper: The survey also details various aspects of bank credit policies for CRE loans.

• Tighter All Around: Banks reported having tightened all the terms surveyed for each CRE loan type.
• Widening Spreads: The most widely reported change in terms, cited by major net shares of banks across all CRE loan types, was the widening of interest rate spreads on loans over the cost of funds.
• Smaller Amounts: Significant net shares of banks reported tightening maximum loan sizes, lowering loan-to-value ratios, increasing debt service coverage ratios, and shortening interest-only payment periods for all CRE loan types.
• Shorter Maturities: Significant net shares of banks also reported tightening the maximum loan maturity for nonfarm nonresidential and multifamily loans, and a moderate net share of banks reported doing so for construction and land development loans.
• Reduced Market Areas: Significant net shares of banks reported reducing the market areas served for nonfarm nonresidential and construction and land development loans, while a moderate net share of banks reported doing so for multifamily loans. Foreign banks reported tightening across almost all terms for each CRE loan type.

What they’re saying: Almost all banks said tightening of credit policies on CRE loans over the past year was tied to less favorable or more uncertain outlooks for CRE market rents, vacancy rates, and property prices.

• Major net shares of other banks cited a reduced tolerance for risk, increased concerns about the effects of regulatory changes or supervisory actions, and a less favorable or more uncertain outlook for delinquency rates on mortgages backed by CRE properties.
• The most frequently cited reasons for weaker demand were an increase in the general level of interest rates, a decrease in customer acquisition or development of properties, and a less favorable or more uncertain customer outlook for rental demand.

Yes, but: Of the smaller but sizable share of banks that reported stronger demand, the most frequently cited reasons for stronger demand, as reported by significant net shares of banks, were

• An increase in customer acquisition or development of properties,
• A shift in customer borrowing to respondent banks from other banks and non-bank sources, and
• A decrease in internally generated funds by customers.

Contact David McCarthy (dmccarthy@crefc.org) with questions.

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2024 Presidential Polling Reveals Shifts in Swing States

May 14, 2024

There have been some noticeable shifts in polling for the 2024 presidential election over the last two months. This week, we analyze recent polls for swing states as well as some “stretch” states both campaigns are eager to win.

What’s Happening: Swing State Swings

The “swing-state” chart below provides snapshot of where the race stood in key states on March 1, prior to the president’s State of the Union address and the Stormy Daniels hush money trial in New York, and where it stands on May 10.

Note: The impact of the trial on polling is yet to be fully realized.

Source: https://www.realclearpolling.com/

Go Deeper: In every state except Pennsylvania, former President Donald Trump has lost ground since March 1. The three states where Trump appears to have lost the most ground are Nevada, Georgia, and Michigan. Despite these shifts, Trump still leads the polls in these states, while North Carolina remains hotly contested.

• Nevada: Democratic presidential candidates have carried Nevada since 2008. Other than in 2016, the state has voted for the winning candidate since 1980. While Democrats won with a 2.4% margin in the previous two cycles, that margin was not as close as it was in some other swing states. If President Biden is in trouble here on election day, it will likely be a big night for Republicans.
• Georgia: President Biden won Georgia by 11,779 votes. If Trump can flip this state back to his column in 2024, its 16 electoral college votes will offer him multiple paths to winning back the White House.
• Michigan: Michigan has voted with the winner of the presidential election since 2008. Among the historical “Blue Wall States” of Pennsylvania, Michigan, and Wisconsin, Biden has performed best in Michigan with a 2.8% margin of victory. Biden was ahead of Trump in the polls by about 1% in Michigan until last October when Trump overtook him just as the Israel-Hamas war started.
• The Blue Wall States are all within the standard 3% margin of error when it comes to polling results. If Trump’s strength is overstated by the polls, then a Biden win becomes more likely even if Trump carries the other four swing states.
• North Carolina While viewed as always just out of reach for the Democrats, North Carolina is the most likely to flip out of any on the list above. President Obama last won it in 2008, but it has since been reliably, though narrowly, Republican. Yet, the sub-4% margins give Democrats hope at the possibility of flipping its 16 electoral votes.

Expanding the Map

In every cycle, there is inevitably a period in which campaigns talk about expanding the map to new swing states and, typically, the press follows suit as is the case here in a recent article from Roll Call.

The four states below have been on each party’s radar to flip for a few election cycles, as polling sometimes demonstrates unexpected campaign strength or weakness. Former President Trump is currently polling about 4% to 6% ahead of the vote count he received in 2020 in each of these states.

• Minnesota: In the leadup to the 2020 election, Trump targeted Minnesota as a swing state due to Clinton’s narrow 2.5% victory. However, it landed squarely back in the blue column with Biden winning it by 7% in 2020. Recent polling may keep it in the news cycle, but don’t expect Minnesota to flip. The state has voted Democratic every presidential election since 1976.
• Virginia: A previous GOP stronghold, Virginia has been reliably Democratic since 2008. With the Blue counties in Northern Virginia trending even more Democratic, a flip here is more difficult but would likely usher in President Trump. Biden won the state by a commanding 10%, compared to Clinton’s 5.3%.
• Texas: Over the past decade, Texas voters have been steadily trending towards Democrats, but it has remained out of reach enough to be branded a battleground state. However, the vote margin here will be closely watched for 2028 and beyond, due to its growing population and whopping 40 electoral votes.
• Florida: The once perennial swing state famously decided the 2000 election and has voted with the winner of the election in every cycle since 1976 except in 1992 and 2020. Florida’s rightward shift was well demonstrated in 2022, and it is the only battleground state where Trump improved his vote share from 2016. If this state flips, a second term for Biden would be a near guarantee. With abortion access on the ballot, Democrats may see a pick-up opportunity, but a flip here is unlikely.

Yes, but: The election will likely come down to the seven expected swing states mentioned in the first chart, but the four “stretch" states will play a key role.

The Bottom Line: Biden’s poor standing in the South and Sunbelt states cannot be understated. If he doesn’t improve in Nevada, Arizona, Georgia, and North Carolina, and Trump sweeps all of them. Biden will have to hold on to Pennsylvania, Michigan, and Wisconsin to have any chance to secure a second term.

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FDIC Chair Gruenberg’s Fate

May 14, 2024

On May 7, a report commissioned by a special committee of the Federal Deposit Insurance Corp. (FDIC) and performed by law firm Cleary Gottlieb issued a scathing indictment of the FDIC’s culture:

“Far too many FDIC employees…have suffered from sexual harassment, discrimination, and other forms of interpersonal misconduct for far too long. We find that aspects of the FDIC's culture and structure— including a lack of accountability, fear of retaliation, a patriarchal, hierarchic, insular and risk-averse culture, power imbalances, insufficiently clear guidance and reporting channels, inadequate recordkeeping, and an investigative process that lacks credibility internally — have contributed as root causes to the conditions that have allowed for this type of workplace misconduct to occur."

The report also highlighted FDIC Chairman Gruenberg’s behavior as cause for concern, noting that some employees experienced “deeply unsettling exchanges during which he was extremely “harsh” or “aggressive”: 

“While we do not find Chairman Gruenberg’s conduct to be a root cause of the sexual harassment and discrimination in the agency or the long-standing workplace culture issues identified in our review, we do recognize that, as a number of FDIC employees put it in talking about Chairman Gruenberg, culture “starts at the top.” 

Report background: Following reporting by the Wall Street Journal in November 2023 of the FDIC’s “toxic and misogynistic” culture:

• The House Financial Services Committee and the House Oversight and Accountability Committee opened investigations into the FDIC’s culture.
• The FDIC Office of Inspector General began to examine the “leadership climate at the agency with regard to harassment and inappropriate behavior.”
• The FDIC Board announced the establishment of the Special Review Committee, co-chaired by two non-management Board members, to oversee an independent third-party review of the FDIC’s workplace culture.
• In December 11, 2023, the Special Review Committee appointed Cleary Gottlieb as the third-party reviewer.

Following the report’s issuance, according to American Banker, Gruenberg apologized and said that “as Chairman, I am ultimately responsible for everything that happens at our agency, including our workplace culture.” He added that the FDIC “will spare no effort to create a workplace where every employee feels safe, valued, and respected.”

What they’re saying: Several Republican members of Congress have called for Gruenberg’s resignation. Rep. Bill Foster from Illinois is the only Democrat thus far urging Gruenberg to resign.

Democrats on key finance committees, including Sen. Elizabeth Warren, Sen. Sherrod Brown, and Rep. Maxine Waters, have indicated their confidence in Gruenberg’s ability to implement change at the FDIC and noted that problems at the agency pre-dated his tenure.

According to Axios, White House spokesperson Karine Jean-Pierre did not say whether President Biden had confidence in Gruenberg, but that the chair "apologized and has committed to the [report's] recommendations."

The bottom line: Gruenberg’s current position as FDIC chair is critical as the Biden Administration seeks to finalize regulations, including the proposed bank capital requirements, that require an FDIC vote. If he were to step down, the FDIC board would be evenly split between Republicans and Democrats.

What’s next: Gruenberg, as well as Federal Reserve Vice Chairman for Supervision Michael Barr and acting Comptroller of the Currency Michael Hsu, will be testifying in front of the House Financial Services Committee and the Senate Banking Committee next week for regularly scheduled oversight hearings.

All eyes will be on his performance at these hearings and the level of support he receives from Democratic members of Congress.

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