Banks are confronting a "lackluster" lending market, as many continue to tighten credit standards and monitor their borrowers more closely, the Federal Reserve Board reported Wednesday in its latest Beige Book survey of economic conditions.

The only high note the Fed sounded in its 45-page report concerned home mortgage refinancings, which have been in high demand as interest rates have declined.

Despite the slowing economy, most banks said their asset quality is holding steady. Only the Federal Reserve Bank of St. Louis reported an uptick in nonperforming loans, and banks in the Atlanta and Dallas Federal Reserve districts said their asset quality remained good.

And that in turn is good news for the banking industry in particular and the economy in general, said Wayne M. Ayers, chief economist at FleetBoston Financial Corp.

"It means we probably won't see the kind of credit crunch that pushed us into a bona fide recession in 1990-1991," Mr. Ayers said.

Wayne Kozlen, executive vice president at City National Investments, a subsidiary of $9.1 billion-asset City National Corp. in Los Angeles, said few banks would experience the robust expansion in 2001 that characterized the late 1990s. Still, he said, most will "continue to see growth."

The Fed issues the Beige Book every six weeks, before meetings of its Federal Open Markets Committee, which considers the report's contents when making interest rate decisions.

The committee has already lowered interests rates twice this year, the latest time being Jan. 31, when it dropped its target for the federal funds rate by 50 basis points, to 5.5%. The committee's next scheduled meeting is March 20.

Mr. Ayers said he agreed with many observers who continue to forecast a "soft landing for the economy and a modest recovery beginning in the third or fourth quarter of 2001.

"That's been my story and I'm sticking with it," he said.

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