Facebook Twitter

INTEREST RATES MAY DIP TO EASE CREDIT CRUNCH

SHARE INTEREST RATES MAY DIP TO EASE CREDIT CRUNCH

The Federal Reserve Board may act to lower interest rates because of mounting evidence of a credit crunch by commercial banks, Fed Chairman Alan Greenspan said.

Greenspan's surprise testimony Thursday before the Senate Banking Committee countered his opinion of several weeks ago that there had yet to emerge a tightening of credit by the financial institutions.But he said that "lower rates are moving up relative to the cost of money in the commercial banking industry, which is suggestive of the fact that markets are tightening independently of our actions.

"We may have to act to offset that particular tightening," Greenspan said.

The Fed, concerned about the effects of inflation on the domestic economy, has held interest rates in check for the last six months despite political pressure from the White House to lower rates.

Greenspan said he was unable to explain the cause of the sudden upward shift in interest rates charged by commercial banks but added the Fed is "monitoring this issue on a day-by-day basis."

Many small and medium-size businesses have reported difficulty in acquiring credit this year as federal regulators clamp down on speculative bank lending, especially for commercial real estate development.

If the Fed's policymaking panel, the Federal Open Market Committee, moves to influence interest rates downward, costs of everything from credit card charges to home mortgages would most likely follow.

During his appearance, Greenspan called for greater capital requirements to bolster the financial safety of the nation's banks and cautioned Congress against cutting deposit insurance.

Many regulators believe if banks put up more cash to back their operations, they will be more conservative in their lending practices and not turn to the government for a bailout.