LaWare Predicts a Comeback for Banks in '92
BOSTON - U.S. banks' earnings will rebound next year, while 1991 will be "probably the last really tough year," Federal Reserve Board governor John LaWare said.
"I think 1991 is their transition year," he remarked after delivering speech to advocates for affordable housing. "Banks will be in a better position by the end of the year, and they will be back to a more normal earnings ratio. We will see earnings improve in 1992 and 199."
Toll of Real Estate Frenzy
He called the realty lending frenzy of the '80s "a pie-eating contest. The winner eats a lot of pie but is sick as a dog afterwards." Banks are recovering "from a period of overeating." Federal regulators, meanwhile, "overreacted to the situation," making lenders reluctant to approve new loans, said Mr. LaWare, adding that he was expressing a personal view, not an official one as a Fed governor.
The regulators' concerns with problem real estate loans had turned bank examinations into mechanical processes, which made bankers' lending decisions equally perfunctory. "Judgment is an integral part of the regulatory and lending functions, and we are working to get that back into the process," he said.
Consumer Confidence Key
Mr. LaWare said further easting of interest rates is not necessary to stimulate an economic recovery. He views consumer confidence as more important.
"There are strong signs the general economy is turning around and going into a recovery stage," he said. "The third quarter will be positive in terms of real GNP growth." Mr. LaWare predicted.
The Federal Deposit Insurance Corp. reported Tuesday that the 12,246 insured commercial banks earned $5.7 billion in the first quarter, down from $6.2 billion a year earlier. FDIC Chairman L. William Seidman said that despite signs of economic recovery, bank earnings will continue to be weak because a realty recovery has not begun.