La Ware Says Credit Crunch Slows Recovery

Despite signs of a recovery, the credit crunch will continue to be a drag on the economy for some time to come, according to Federal Reserve Governor John P. LaWare.

"In large part," he said, "the credit crunch was brought on by significant asset-quality problems of lending institutions that will take time to resolve."

The Congressional Budget Office, meanwhile, appeared to take a different view.

In a midyear report, the office stated Thursday that it does not expect the credit crunch to have much of an impact on the economic recovery.

Easing Called Effective

In remarks prepared for delivery at a conference in New Zealand on Thursday, Mr. LaWare said the Fed's efforts to ease credit conditions and encourage bank lending over the past year "appear to have achieved their basic objective" in spurring renewed economic growth.

At the same time, though, he said monetary policy alone cannot solve the credit crunch.

He placed much of the blame on an excessively rigid approach by federal bank examiners in evaluating loan portfolios.

Criticism of Regulators

"I have little doubt that examiners have raised their standards and that this change has contributed to the credit crunch," Mr. LaWare said. "That is also the view of the Fed as a whole and of the U.S. Treasury."

He didn't say whether that opinion is shared by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

In any case, most bankers think regulators have used more stringent standards and have tightened their own lending standards accordingly, Mr. Laware said.

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