Fed Reports Strong Loan Activity in Most Districts

Competition for commercial and industrial loans remains strong in most parts of the country, the Federal Reserve Board reported Wednesday.

In its periodic report on economic conditions, known as the Beige Book, the Fed said the economy remained strong in all 12 of its districts. As a result, economists are predicting interest rates will remain unchanged in the weeks ahead.

Compiled by researchers at the Fed's district banks for the Federal Open Market Committee, the central bank's monetary policy arm, the Beige Book covers six weeks of information on employment, manufacturing, and consumer spending.

The report "continues to paint a picture of steady but moderate growth," said Wayne Ayers, chief economist at BankBoston Corp.

The Federal Open Market Committee is scheduled to meet Sept. 30.

According to the Beige Book, business loan volume outstanding in the Philadelphia region has been flat in recent weeks as banks there report competition from commercial finance companies and specialized small- business lenders.

Real estate investment trusts in the region stepped up their activities in the Philadelphia area and provided financing for new construction and the acquisition of office buildings and land.

In the Dallas region, stiff competition kept pressure on loan rates, and delinquency rates remained low, the Fed said.

"Economic growth is quite healthy, with little or no inflationary pressures," said Son Won Sohn, senior vice president and chief economist for Norwest Corp. "There's no reason to raise interest rates."

The weakest spots for commercial loan demand were in the Atlanta, Cleveland, and Kansas regions, where demand was flat.

Despite the stagnant demand in Cleveland, delinquencies remain low. And in Kansas, residential construction and home equity loans boosted overall lending.

Demand for commercial loans and residential mortgages rose in the Richmond region, and bankers reported strong competition for commercial accounts.

In the New York region, demand was strong for all loans except consumer credit. Interest rates on all loans declined over the last two months. The New York Fed district also reported slightly improved credit quality, with delinquencies down on commercial mortgages and stable on consumer and residential mortgages.

Commercial real estate loan volume in the Chicago district rose, especially for light-industrial buildings. Bank economists at one large bank expressed concern that other lenders were lowering credit standards for commercial mortgages.

"Office buildings are in short supply," Mr. Sohn said. "Even in Minneapolis, people are talking about going to the drawing board and putting up buildings in the suburbs."

Total loans on the books of large banks in the St. Louis region climbed 1.2% from mid-June to mid-August, while business loans rose 0.9% and real estate loans increased 0.3%.

In the California region, banking conditions improved, most noticeably with stronger loan growth and impoved credit quality in Southern and Central California.

Joel Naroff, senior vice president and chief economist for First Union Corp., said the increase in lending does not indicate that credit standards have become too easy.

"The economy is allowing businesses to grow, and credit demand has to grow with business activity," Mr. Naroff said.

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