First Fidelity All Alone in Cutting Prime Rate to 7.75%
First Fidelity has dropped its prime lending rate to 7.75% from 8%, but it was not seen as a step that other banks would automatically follow.
Instead, other major banks were expected to cut their prime lending rates only if the Federal Reserve Board reduces the fed funds and discount rates. An easing could occur as early as Friday.
May Be Irresistible to Corporate Borrowers
First Fidelity declined to give reasons for its rate cut. The Newark, N.J., banking company has not traditionally been in the vanguard of banks that cut lending rates in response to the economy.
The lower rate could be aimed at attracting borrowers while First Fidelity's competitors are still digging themselves out of a real estate morass. But whether the corporations that seek to borrow are creditworthy enough to be prime lenders is not clear.
Although a rate drop may stimulate the economy, analysts expressed concern that net interest margins could suffer if banks act too hastily.