Looking toward future business, about 10% of domestic institutions, on net, and nearly 20% of foreign respondents reported that the number of inquiries from potential business borrowers had decreased moderately over the previous three months.

Nearly 40% of domestic institutions, a notably larger net fraction than in the July survey, indicated that they had tightened lending standards on commercial real estate loans over the previous three months. More than one-fourth of domestic respondents also reported that they had experienced weaker demand for such loans over the same period. By contrast, both lending standards and demand for commercial real estate loans at foreign institutions were little changed in the October survey. While credit standards on C&I loans to middle and large businesses were unchanged in October, domestic bank officers indicated that they had eased terms over the past three months. Almost one-third of respondents–a somewhat smaller net fraction than in the July survey–noted that they had trimmed spreads of loan rates over their cost of funds over the past three months, while nearly one-fifth of banks–about the same net percentage as in the previous survey–reported that they had reduced the costs of credit lines. About 15% of domestic respondents, on net, indicated that they had eased loan covenants.

Considerable fractions of respondents also cited borrowers' decreased financing needs for inventories and accounts receivable, as well as increases in customers' internally generated funds, as reasons for weaker loan demand. Among domestic banks that saw stronger demand for C&I loans, three-fourths pointed to a rise in merger and acquisition activity as a reason for stronger loan demand, while two-thirds cited borrowers' increased needs to finance inventories.

Bank officers were also asked whether C&I lending has resulted in a surge of loans to fund mergers and acquisitions. About one-half of domestic institutions indicated that M&A-related C&I loans accounted for less than 5% of the loans currently on their books, and roughly one-third of banks noted that such loans accounted for between 5% and 10% of their loans. The remainder of banks, except for one institution, reported a share that was between 11% and 30%. On average, those banks with larger C&I loan portfolios had higher M&A loan concentrations, the Fed reported.

Domestic respondents generally reported that the share of M&A-related C&I loans on their books that were bridge loans was quite small: 90% of domestic institutions reported that this share was less than or equal to 10%. In the survey, bridge loans were defined as those loans that banks expected to be paid down with funds raised in capital markets within the next 12 months. Shares were higher at U.S. branches and agencies of foreign banks, where about two-thirds of respondents indicated that the share of such loans was 10% or less, while nearly one-third of respondents noted that this share was between 11% and 50%. –[email protected]