THE VIRGINIAN-PILOT 
              Copyright (c) 1995, Landmark Communications, Inc.

DATE: Saturday, July 8, 1995                 TAG: 9507080384
SECTION: BUSINESS                 PAGE: D1   EDITION: FINAL 
SOURCE: BY TOM SHEAN, STAFF WRITER 
                                             LENGTH: Medium:   52 lines

BANKS MOVE QUICKLY TO DROP RATES THIS TIME, THEY JUMPED AT THE FED'S DECISION TO CUT SHORT-TERM INTEREST RATES

Five of Virginia's statewide banking companies responded quickly to the Federal Reserve cut in interest rates by trimming their base lending rates Friday.

NationsBank, First Union, Crestar, Central Fidelity and First Virginia reduced their prime lending rates to 8 3/4 percent from 9 percent.

A sixth bank, Signet, said it would trim its prime rate to 8 3/4 percent Monday.

The prime is the benchmark that banks use for most of their commercial loans and for some consumer loans, such as credit on variable-rate credit cards.

The Fed's decision Thursday to cut short-term rates for the first time in nearly three years triggered a surge Friday in the stock market. In one of the busiest trading days in history, more than twice as many New York Stock Exchange issues gained in price as lost. The Dow Jones industrial average also hit a record high 4,702.73.

The Fed's Open Market Committee lowered the federal funds interest rate to 5 3/4 percent from 6 percent. The fed funds rate is what banks charge for money they lend each other overnight.

In the past, some banks were slow to reduce their prime rates after the Fed cut short-term rates. This time, many other interest rates have already fallen and banks are catching up by reducing the prime, said Richard F. Bowman, treasurer and chief financial officer of First Virginia Banks Inc., the Falls Church-based parent of First Virginia Bank of Tidewater.

``Right now, all banks are very hungry for loans and have been relaxing the prices and terms of their loans,'' he said. ``Virtually everybody is easing up.''

Friday's reduction in the prime could have a greater impact on consumers than previous cuts in the prime because there are many more variable-rate credit cards in use, said Bob Merrick, executive vice president and chief credit officer of Signet Banking Corp. in Richmond.

But for many corporations, changes in the prime have less meaning than they once did, Merrick said. That's because more corporate borrowers pay interest rates tied to the London Interbank Offered Rate, or LIBOR. This international rate changes more frequently than the prime and better reflects the cost of credit.

On Friday, the LIBOR for six-month loans stood at 5.75. For one-year loans, it was 5.64 percent. by CNB