Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, March 31, 1993                   TAG: 9303310129
SECTION: BUSINESS                    PAGE: B7   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

REGULATORS TAKE 1ST STEPS TO EASE CREDIT CRUNCH

Strong, well-capitalized banks and savings institutions were permitted, effective immediately, to make a certain number of loans to farmers and small- and medium-sized businesses with only minimal documentation, the agencies said.

Tuesday's action is designed to give institutions an easier time in granting so-called character loans - loans made more on the basis of borrowers' reputation than financial qualifications.

It is the first action taken under the credit-crunch initiative announced by Clinton on March 10.

"It is anticipated that approximately 10,000 banks and thrifts will be able to take advantage of this program; and, accordingly, the maximum value of the loans that can be made under this program could aggregate to approximately $46 billion," White House spokesman George Stephanopoulos said.

The four agencies issuing the directive to their examiners were the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of Thrift Supervision.

"Eligible banks and thrifts will be encouraged to make these [loans] based on their own best judgment as to the creditworthiness of the loans and the necessary documentation," the agencies said.

Only strong institutions will be permitted to participate. Individual loans will be limited to $900,000 or 3 percent of an institution's capital, which is the investment of its owners. The total of minimal-documentation loans must not exceed 20 percent of capital.

Bankers praised the policy change but said agencies must make sure field examiners follow it.

"In the real world . . . how the examiners take the policy and implement it will determine its effectiveness," said Diane Casey, executive director of the Independent Bankers Association of America, which represents community banks.

Although the cap on eligible loans is $900,000, most loans under the program probably will be in the $25,000 to $50,000 range, she said.