No Credit Crunch in U.S., Banking Regulators Insist

Federal banking regulators said Thursday that they see no evidence of a credit crunch in the United States, despite complaints in some regions that a federal crackdown in the wake of the savings and loan scandal has caused lending to dry up.

In testimony before the Senate Banking Committee, Federal Reserve Board Chairman Alan Greenspan said any tightening by banks “does not appear to have been widespread” and has not been severe enough to become a drag on the economy.

He also suggested that the steps regulators took earlier this summer to ward off lender panic appear to have worked. But he added that customers with questionable credit-worthiness will--and should--have difficulty obtaining loans.

Greenspan’s assessment was supported by officials of the other top financial regulatory agencies--the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Comptroller of the Currency.

They conceded that some banks may have tightened lending practices too severely a few weeks ago, but they insisted that such cases were isolated and were not regulators’ intent.

It was not clear what implications, if any, Greenspan’s assessment might have for broader money-and-credit policies--specifically, whether the Fed, the nation’s central bank, continues to hold its ground on interest rates.

Backed by a solid majority of the Fed’s policy-setting Federal Open Market Committee, Greenspan has adamantly refused to nudge interest rates down further--for fear of reigniting inflationary expectations.

It remains to be seen whether the recent perception that there has been a “credit crunch”--and the temporary retrenchment by some banks, particularly in New England--will persuade the panel to ease up on the reins.

Thursday’s hearing was scheduled in response to what lawmakers said was “a barrage of letters and telephone calls” from constituents complaining about the sudden reluctance of their banks to renew old loans--or make new ones--that they had willingly made before.

Some Bush Administration officials have contended that the United States is suffering a credit crunch. Commerce Secretary Robert A. Mosbacher and Housing Secretary Jack Kemp have voiced such views, though the White House has kept silent on the issue.

Although the senators generally conceded that free-wheeling lending was a major factor in the S&L; problem, many insisted that regulators be on guard to make sure banks do not overcompensate.

“Erring on the side of caution should not become an excuse for being too tough,” warned Sen. John Kerry (D-Mass.), whose state has been among the hardest-hit during the recent economic slowdown.

Regulators insisted that any excessive retrenchment by banks was not at their bidding. “We haven’t told bankers not to make loans, and we haven’t told them to cut off credit from good customers,” Comptroller of the Currency Robert L. Clarke said.

“We have reminded them to take care in making loans and, where necessary, we have required banks to recognize weaknesses in their portfolios and management systems.”

Greenspan told the committee that the bulk of any cutback in lending has been in financing of corporate mergers and restructuring and in lending to highly leveraged borrowers, which the banks have begun to consider too risky.

He also cited increased difficulty by developers and builders in obtaining loans for commercial construction--a move that he said was designed partly to compensate for “lax lending standards” in the past.

But Greenspan insisted that “there are no indications” that home mortgages have become more difficult to obtain. He said interest charged on home mortgages has not risen more rapidly than that for other categories of loans. And down-payment requirements are unchanged.

FDIC Chairman William L. Seidman, whose remarks were read by an aide while Seidman lay in a hospital bed recovering from a horseback-riding accident, said most of the small businesses that are experiencing difficulties are troubled, unprofitable or “shaky.”

“In our view, banks are to be applauded for tightening lending standards,” he asserted. “Applying traditional prudent lending standards to this kind of borrower is a sound practice.”