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

DATE: TUESDAY, August 23, 1994                   TAG: 9408230087
SECTION: BUSINESS                    PAGE: C8   EDITION: METRO 
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON                                 LENGTH: Medium

BUSINESS LOANS RISE

Banks are reporting a significant increase in business loans, even though a Clinton administration program to end the credit crunch is having little impact on their lending practices, the Federal Reserve said Monday.

A national survey of bank lending concluded that banks continued to ease credit terms for business and consumer loans but found that the changes had little to do with the administration's loan stimulation package.

In a March 1993 White House ceremony, Clinton unveiled a series of regulatory changes designed to ease the credit crunch that medium and small businesses had complained was blocking them from getting new loans. The president said the changes held out the promise of ``billions of dollars of economic stimulus.''

However, 17 months after that announcement, the Fed said its survey found the program had resulted in increased business lending at fewer than 10 percent of the banks responding to the survey.

``Little evidence of an effect on loan terms and standards or loan volume was found'' from the Clinton program, the Fed concluded.

Banking analysts said this was not surprising.

``You can't end a credit crunch by making changes in government regulations,'' said Paul Getman, a banking analyst at Regional Financial Associates in West Chester, Pa.

``The Federal Reserve ended the credit crunch by keeping interest rates low for two years and allowing banks to earn higher profits and thus build up their capital base so that they could make loans again,'' Getman said.

The Fed's August survey showed that demand for business loans had increased at a significant number of banks, with many banks attributing the increase to financing needs on the part of businesses wishing to expand inventories.

Between 5 percent and 10 percent of the firms reported some easing of business credit standards, with the biggest changes coming in loans to mid-size companies where the competition among banks to make loans has been intense.

Consumer lending, however, has lagged. More than half the banks reported a significant decline in demand for home mortgage loans, reflecting rising interest rates this year that have choked off the refinancing end of the market.

The survey found that while one-fifth of banks are more willing to make consumer installment and home-equity loans by easing requirements, demand for those loans has lagged behind commercial activity.

The demand for home-equity lines of credit actually declined during the three-month survey period, while the demand for consumer installment loans showed only a slight increase.

The Fed survey reflected the responses of senior loan officers at 58 banks holding $1.2 trillion in assets, more than one-third of the industry total of $3.4 trillion.

by CNB