Southwest Bank Cuts Prime Loan Rate

Southwest Bank said Friday that it will lower its prime lending rate, but analysts don’t expect other banks to follow suit until the Federal Reserve cuts interest rates again.

Southwest said it will cut its prime rate a quarter of a percentage point, to 7.75%, effective Monday. It becomes the second regional bank to reduce the key rate from the 8% level that has prevailed since Sept. 13.

First Fidelity Bancorporation of Lawrenceville, N.J., cut its prime rate Wednesday to 7.75%.

But no major banks have taken a similar action.

“My guess is you’ll have to see some more overt rate cutting on the part of the Fed,” said bank analyst Raphael Soifer of Brown Bros. Harriman, a New York brokerage firm.

There is widespread speculation in financial markets that the Federal Reserve soon will cut the discount rate--the interest the Fed charges on loans to banks and other financial institutions--to encourage economic growth.

This theory was supported Friday when the government said the unemployment rate rose 0.1 percentage point to 6.8% in October. A separate report said the government’s chief economic forecasting gauge slipped 0.1% in September.

Earlier this week, the Fed allowed the interest on overnight loans between banks, the federal funds rate, to fall a quarter of a point to 5%. But a cut in federal funds typically doesn’t trigger a corresponding reduction in the prime, Soifer said.