Lending Lags Upturn, Says Greenspan

WASHINGTON - The U.S. economy is on the mend, but bank lending continues to lag the rebound, Federal Reserve Chairman Alan Greenspan said Tuesday.

Amid "compelling signs that the recession is behind us," demand for credit remains sluggish, Mr. Greenspan told the House Banking Committee's domestic monetary policy subcommittee. Efforts by banks to boost capital and correct bad lending habits acquired during the 1980s have diminished credit availability, he said.

"Lending to businesses has been unusually weak for some time now, and the outlook is for a rather modest upturn when it comes," he said.

Midyear Policy Report

Delivering the Fed's mid-year monetary policy report, Mr. Greenspan portrayed bank lending as a dim spot in an otherwise brightening economy.

Among his reasons for optimism: Lower [Elligible Words] prices have boosted consumer spending and real income; short-term interest rates have declined; and businesses and consumers are more confident.

If lending has tapered off because borrowing surged during the 1980s, that may not be worrisome, he said. But he warned that, in some regions, "the credit retrenchment appears to have gone beyond a point of sensible balance."

No Relief in New England

"I have not witnessed any relief across New England," said Rep. Richard Neal, D-Mass. "I grant you that [New England] has not turned around, but there is evidence that it is at least not getting worse," Mr. Greenspan replied.

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