Fed's LaWare Tells Bankers Worst is Over

WASHINGTON - Federal Reserve Governor John P. LaWare said Thursday that the banking industry is well positioned to fuel the economic recovery with loans, but his view was not shared by a top Treasury official.

"The worst is over for the banks," Mr. LaWare told those at a meeting of the Mortgage Bankers Association of America. "The banking system, after running a high fever, is about ready to be up and around again."

Mr. LaWare's view represented a switch from his pessimistic assessment of banks' lending capacity in an Aug. 16 speech.

Glauber Isn't So Sure

Treasury Under Secretary Robert R. Glauber, who appeared after Mr. LaWare at the mortgage bankers' meeting, was more skeptical about banks' ability to finance the recovery.

"We have a serious credit crunch in this country," Mr. Glauber said, "We have banks unable, unwilling, for whatever the reason, to make loans to worthy clients."

Mr. Glauber said one reason banks are refusing to lend "is that many of them have such weak capital positions that they can't do it."

Mr. LaWare said he is convinced that credit will flow because, through chargeoffs and reserves, the banking industry has covered its many lending mistakes of the 1980s.

Better Environment Seen

Citing improved interest margins, decreased operating expenses due to layoffs, and higher capital levels resulting from asset sales, Mr. LaWare said the operating environment for banks also has improved.

"These factors, combined with signs of a genuine economic recovery, should stir the competitive juices of banks and lead to more aggressive lending patterns," he said.

Mr. LaWare tempered his optimism by adding, "But do not expect a return to the glory days of the mid-1980s. Bankers recently on the brink of oblivion are not likely to walk close to the edge of the cliff in the near future."

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