Bank Hikes Prime Rate to 8.75%

A quarter point increase Friday in the prime lending rate charged by Riggs National Bank of Washington appears anticipatory, but it underscores the sentiment in financial markets that interest rates are headed higher.

Riggs, a unit of Riggs National Corp., said the increase to 8.75% “was the result of upward trends in interest rates and higher costs of funds.”

Riggs, about the 75th-largest among U.S. banks based on assets, has not been the trend-setter in prime rate moves that Southwest Bank of St. Louis has been at times. None of the major money center banks followed Riggs on Friday, and many economists said the major banks will maintain their 8.5% prime rates for now.

Philip Braverman, chief economist at Irving Securities Inc., said: “The move may be anticipatory, but it is symptomatic of the general perception that rates are headed higher.”

Analysts said the banks were paying more attention to the Federal Reserve than to Riggs.

William Griggs, managing director of Griggs & Santow Inc., said: “The markets want to know what the Fed will do and that could influence the major banks.”

An aggressive move by the Fed might prompt the major banks to raise their primes by half a point.

Over the past week, rates on short-term notes have risen as money market rates followed the key federal funds rate upward.

But money market analysts said much of the pressure on the fed funds rate stemmed from seasonal factors associated with the April 15 tax period.

Fed funds, which averaged around 6.82% over the two weeks to April 27, traded at an average effective 7.10% on Thursday and hovered around 7% on Friday.

At the same time, three-month certificate of deposit rates rose about 22 basis points to 7.12%.