WASHINGTON - New England congressmen met with federal regulators Thursday and demanded to know why banks, flush with profits, are not making more loans.

"There is growing anger that something is not right with the banking industry," said Rep. Joseph Kennedy 2d, D-Mass. He spoke of "forcing banks back into the basic business of banking."

Rep. Edward Markey, also a Massachusetts Democrat, said bankers are "looking in the rearview mirror" at their business. "They don't want to do it anymore," he said. "We have to put pressure on the bankers to do their job with their record profits."

No bankers were present at the meeting with 20 of the 23 New England representatives, and the regulators hardly jumped to the bankers' defense.

First of Four Meetings

This first of four scheduled meetings between the legislators and regulators served mainly to update the lawmakers on the administration's plans to combat the credit crunch.

The next three meetings will focus on Federal Deposit Insurance Corp. loan workouts in New England; ways to make it easier for borrowers to refinance loans even when collateral values have dropped; and easing lending rules for banks that are less than well-capitalized, according to Rep. Barney Frank, D-Mass.

On Thursday, a day after regulators reported that banks earned a record $10.9 billion in the first quarter, the banking and thrift agencies released the final pieces of the credit crunch initiative President Clinton announced March 10.

Subjects Covered

Areas covered by the new policies are in-substance foreclosures, return of nonaccrual loans to paying status, and definition of special-mention assets.

The congressmen said few New England banks are rated 1 or 2 on the Camel scale, and therefore cannot take advantage of the "no-documentation" business-loan policy that the regulators announced in March.

The lawmakers asked Comptroller of the Currency Eugene A. Ludwig to extend the benefit to Carnel 3 banks that are improving.

"That's a very good suggestion," Mr. Ludwig responded.

Under the measures taken Thursday, troubled real estate loans do not need to be reported as foreclosures until the lender has taken possession of the collateral. Examiners have been lumping all troubled real estate into one category.

A bank can return a problem loan to accrual status if it is formally restructured - meaning that a portion is written off and the borrower signs a new note.

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