Banks are interested in issuing medium-term notes despite the recent meltdown in the bank-bond market.

As fearful investors continue to balk at buying bank-issued securities, several regional banks have been laying plans with dealers about issuing medium-term notes.

Medium-term notes, which are typically issued out of a shelf registration filed with the Securities and Exchange Commission, are usually senior debt with shorter maturities.

Banks turn to senior debt as an alternative to deposits for funding purposes.

Market experts said Household International Inc. issued up to $600 million in medium-term notes last week.

Other firms who have issued or who are planning to issue such securities include PNC Bank Inc., Fleet Financial Group Inc., and National City Bancorp.

But medium-term notes have not been immune to the tumult in the fixed- income market. In fact, spreads-the basis-point differential between the yields of Treasuries and yields of medium-term notes-of two-year paper with high ratings have widened by as much as 15 basis points. The paper of the lower-rated companies has gapped out by much more.

"The medium-term market is still moderately active, although spreads on bank paper are wide," said bank bond analyst Katharine Rossow of Chase Securities Inc. "The market is still relatively open and flexible."

The flexibility lies in the details of the medium-term market. Unlike most bond deals, registered with the SEC and involving an underwriter, the banks engage dealers to search out demand for their paper. Once demand is discovered, the price and the amount of securities are negotiated.

Market experts point out that at a time when reports of a poor debt offering can hurt the reputation of a company, medium-term note deals offer a comfort zone in uncertain times.

"If various dealers go through the marketplace and discover there is no interest in your paper, then no paper gets printed, a deal doesn't get done and nobody finds out about it," said one market expert who declined to be identified.

"But if you do a typical offering where everyone knows you are issuing $200 million of securities and the offering turns out unsuccessful, that sends the wrong message to the market," he said.

Still, despite the clear advantage that medium-term notes offer, dealmaking is not running at a strong pace. Investors remain highly nervous, market experts said.

"Investors are looking for opportunities but they are very price- sensitive right now," said one Wall Street analyst who declined to be identified. At the same time, banks are offering unattractive prices for their debt "because they do not have a great need for funding and have not been concerned that there is not a lot of two-way flow going on."

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