Federal regulators have been remarkably quiet this year on credit quality-a topic of persistent concern since late 1996.

But the lull, which may be short-lived, should not be interpreted as a sign that banks can get away with loose underwriting standards.

"It's not that the regulators have changed their minds," said James D. Kamihachi, senior deputy comptroller for economic and policy analysis at the Office of the Comptroller of the Currency.

"I just think it's not something that you can bang the drum about all the time. It's always a delicate balance. We don't want to be so strident that it comes off that we don't want bankers to make loans."

Arthur J. Murton, director of the insurance division at the Federal Deposit Insurance Corp., agreed.

"The concern has always been how will the loans you make today perform if and when the economy slows," he said. "That concern is still out there."

But the economy, now in its eighth year of expansion, has surpassed expectations-a key reason why regulators have eased up since last fall when they feared a slowdown was imminent.

Another explanation is that bank lending profits jumped last fall after the capital markets dried up and more borrowers returned to banks. That took some of the pressure off banks to price loans cheaply and take on greater risks.

Finally, banks are responding to criticism and tightening standards, said Pamela Martin, director of regulatory relations at Robert Morris Associates, a trade group that represents lenders.

In November, a Federal Reserve Board survey said that senior loan officers at more than one-third of all domestic banks had improved credit standards on commercial loans to large and middle-market borrowers.

"Everyone got a warning call this fall and they've taken that to heart," Ms. Martin said.

Though regulators have been making fewer public speeches on the subject, examiners continue to keep an eye out for poor underwriting practices, said the FDIC's Mr. Murton.

"We're looking at whether there are some banks that may be outliers," he said.

"Banks still face competitive pressure for loans," he added. "You've still got global weaknesses ... and we've seen some signs of credit quality slipping."

Indeed, the FDIC reported last week that "noncurrent loans increased by $2.7 billion in 1998, the first year since 1990 to have an increase."

And in January, the Fed's survey indicated that many banks were no longer tightening their underwriting criteria.

Alan Gayle, senior investment strategist at Crestar Asset Management in Richmond, Va., noted that growth in loan demand has outpaced growth in cash flow over the last year. That indicates some borrowers may have trouble repaying their loans, particularly if the economy sours, he said.

So it would not be a surprise if the red flags start waving again soon.

Comptroller John D. Hawke Jr. is working a major address on credit quality that could be delivered in the next few months.

"My biggest concern is complacency," he said in an interview last week. "There is an attitude out there that nothing can go wrong."

As an example, Mr. Hawke said that some banks want to eliminate credit review. They are so flush with record earnings and low loan delinquency rates that they do not think it is necessary, he said.

The Comptroller's Office, he said, is creating an "early warning system" for credit quality. The agency will compile financial indicators that signal impending loan quality troubles, he said. For instance, the agency will track any increase in banks with Camels ratings of 3, 4 or 5.

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