THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, February 2, 1996 TAG: 9602020442
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY LON WAGNER, STAFF WRITER
LENGTH: Medium: 56 lines
Commercial banks in Virginia have followed the Federal Reserve's cut Wednesday of a key interest rates by reducing their prime lending rates.
The cuts should provide borrowers savings on credit cards and other short-term consumer loans, such as home equity lines of credit.
Central Fidelity Banks, First Virginia Banks Inc., Signet Bank, Crestar Bank and most others that operate in the state dropped their prime lending rate Thursday from 8 1/2 percent to 8 1/4 percent in the wake of the Fed's action.
Many credit card interest rates and other consumer loans move up and down with the prime lending rate.
``Some individuals who would've seen an upward adjustment to their ARM won't see as large of one or may not see one at all this year,'' said Christine Chmura, chief economist at Crestar.
With it less expensive to finance debt, many consumers will benefit, said Richard Bowman, chief financial officer of First Virginia Banks Inc. Americans are carrying historically high debt levels - with debt equivalent to 18.5 percent of their income, excluding mortgage payments.
Mortgage rates have been dropping during the past year, also because of the sluggish economy. The interest rate on the average 30-year mortgage was 7.02 percent this week, little changed from the 23-month low of 7 percent set a week ago, according to the Federal Home Loan Mortgage Corp.
Because of the slowing economyand tame inflation, bond yields have been falling this year, driving down mortgage rates. Inflation erodes the value of bonds' fixed-income payments.
But with consumers already saddled with loads of debt, Bowman said he was doubtful the Fed's cut would result in a new wave of borrowing.
``In the area from Virginia Beach up to Washington and Baltimore, you've got concerns about federal employment plus the budget deficit debate going on,'' Bowman said. ``People are really concerned about whether their job might go away. I think everybody can touch someone who has been affected by the slowdown.''
Further rate reductions may come later this year, economists and banking officials suggested, because it generally takes six months to a year for rate cuts to spur the economy. By many measures, the economy has been slowing and inflation does not appear to be a threat.
``It certainly has weakened over the last six months,'' said Charles Tysinger, chief financial officer of Central Fidelity Banks. ``I believe the restructuring of corporate America has led to a negative psychology that leaves a cloud over the head of anybody in the consumer market today.'' MEMO: Bloomberg Business News contributed to this report.
by CNB