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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Nick who wrote (32671)	3/7/2001 5:17:51 PM
From: Nick	Respond to of 65232

Greenspan tells banks not to go too far in restraining lending By MARCY GORDON AP Business Writer WASHINGTON (AP) -- Federal Reserve Chairman Alan Greenspan said banks that have tightened lending as the economy has slumped shouldn't go overboard and cut off credit to worthy borrowers. In a speech to a banking conference Wednesday, Greenspan said banks need more than ever to be flexible and adapt to the changes around them. With the record-breaking economic expansion of recent years ended, "weaknesses that were once hidden have surfaced and have separated strong managers of risk from weaker ones" at banks, he said. A survey published in early February by the Federal Reserve showed that banks had continued to tighten credit to businesses and were more cautious about lending to consumers in the previous three months as the economic outlook worsened. According to the survey of loan officers, 54.4 percent of banks reported stricter lending policies for large and middle-sized companies, up from 45.6 percent in the previous survey, and 20.4 percent of banks said they had "tightened somewhat" credit standards for approving consumer loans other than credit-card loans. That was nearly double the 11.1 percent in the fall of 2000. Greenspan, who recently estimated that growth in the current quarter could be "very close to zero," did not address interest rates in his speech prepared for the Independent Community Bankers of America in Las Vegas. He spoke to the group by satellite transmission, and copies of the speech were released in Washington. In congressional testimony last Friday, Greenspan defended the Fed's decision to delay cutting interest rates until January despite growing signs of an economic slowdown. He said acting sooner could have caused even more trouble later on, rejecting the view of some critics that the slowdown occurred in part because the Fed botched monetary policy. Between June 1999 and May 2000, the central bank boosted interest rates six times in an effort to slow the red-hot economy and prevent grater inflation. The Fed then left interest rates unchanged until Jan. 3, when, in a rare move between scheduled meetings, it slashed them by a half percentage point. That action was followed with another half-point reduction on Jan. 31. On the plus side, Greenspan said Wednesday, "We move into a period of uncertain times with the level of the (banking) industry's overall profitability well above the average of recent decades." He repeated a previous warning that banks and the government regulators who supervise them "should be mindful that in their zeal to make up for past excesses, they do not overcompensate and inhibit or cut off the flow of credit to borrowers with credible prospects." Greenspan's remarks contrasted with a speech he gave last May, in which he warned that banks might be turning complacent about risks in the economy, failing to take into account the fact that economic good times don't last forever. At the time, he advised banks not to become overconfident in their ability to manage risks, especially as they venture into new types of financial activities.