usatoday.com
04/18/99- Updated 11:17 PM ET
Y2K fears tighten credit
Banks urge businesses to prepare now
By Rich Miller, USA TODAY
Banks are starting to tighten credit standards on loans to companies that seem to be lagging in the fight to fix the Year 2000 computer bug, banking regulators say.
The aim: to limit losses in case the bug disrupts business and makes it harder for companies to repay their loans.
"We are just beginning to see instances where credit standards ... are being tightened," Federal Reserve Gov. Edward Kelley says. "We expect to see a (further) increase ... over the next few months."
Some banks are asking companies to put up more collateral to back their loans. Others are refusing to add to credit lines until they're satisfied the companies are ready to tackle the Y2K bug.
"There's a wide variety of different things banks can do, some of them quite mild," Kelley says, playing down fears that the steps could lead to a nationwide credit crunch.
Comptroller of the Currency John Hawke says some banks have tried to alter loan terms to require firms to show they're prepared for the Y2K glitch, which arises from computer programs that can't recognize dates after 1999.
But the banks have had "mixed success" in securing those changes because the competition to make business loans is so fierce, Hawke says. His agency oversees about 30% of the country's banks.
Regulators want banks to take a tougher stance on business loans to companies that have lagged in efforts to fix the computer glitch because they don't want the banks to lose too much money.
American Bankers Association economist James Chessen says banks aren't interested in cutting off business borrowers. But they want to know that firms are on track to tackle the computer bug.
"Banks are asking more questions and trying to find out what they can," Chessen says.
He played down the regulators' reports of tighter credit standards linked to Y2K preparedness. According to Chessen, banks take a wide variety of factors into account in setting loan terms and are trying to work with their customers, not against them, in tackling the Y2K bug.
"Banking is a relationship business," he says. "Banks want to make sure they have a relationship now and after Jan. 1, 2000."
Fed data show that banks have nearly $1 trillion in loans outstanding to business borrowers.
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