Most Big Banks Follow Move to 10% Prime

Most major banks fell into line Monday with a 10% prime lending rate in what analysts said was an affirmation of recent interest-rate declines that have contributed to a weakening of the dollar.

But most economists said the latest interest-rate drops have been too small to produce any immediate improvement in the nation’s trade deficit.

“Today’s war in terms of the trade deficit for this year is already lost,” said Sung Won Sohn, chief economist for Norwest Corp., a bank holding company based in Minneapolis. “What we are looking at is next year’s wars.”

Among the major banks cutting the prime from 10 1/2% on Monday were Bank of America, the nation’s biggest bank, No. 4 Manufacturers Hanover Trust and No. 5 Morgan Guaranty Trust.

The move toward the 10% prime rate began last Wednesday when Bankers Trust of New York, the nation’s eighth-largest bank, reduced its key business lending rate to its lowest level in 6 1/2 years.

On Friday, No. 2 Citibank and No. 3 Chase Manhattan Bank followed suit after the Federal Reserve lowered its lending rate to banks and other financial institutions to 7.5%, the lowest level in more than six years.

The central bank said it was cutting its discount rate because of “relatively unchanged output for some time in the industrial sector of the economy, stemming heavily from rising imports and a strong dollar.”

Analysts had been predicting a cut in the prime rate for several weeks because of drops in the interest rates set in the money markets, where banks get a sizable portion of their lendable funds.

The decline is of particular importance to commercial borrowers, whose rates are often tied to the prime rate. Large businesses are often able to borrow at rates below the prime rate, while many smaller borrowers frequently must pay more. It is also important to Third World borrowers, whose loans are generally tied to the prime rate.