Most U.S. banks join trend

Press, 2 May 1981, Page 19

Most U.S. banks join trend

PA New York The 18 per cent prime rate became nationwide in the United States yesterday as the Bank of America, Citibank, and several other major banks joined the trend which began on Thursday. The nation’s two biggest banks added half a percentage point to their prime — or on base — rate on loans to businesses. Rates on most commercial and industrial loans are scaled upward from the prime. Also all major banks raised their broker loan rates to 18 per cent, which Wall Street analysts said indicated a further rise in the prime was likely. Like the prime, the broker loan rate, charged to securities dealers on loans backed by seccurities, is sensitive to changes in short-term interest rates in the money market. These rates have climbed sharply in recent days, raising costs of doing business at big banks which use the

money market as an important source of funds. For example, the federal funds rate, charged on overnight loans between banks, had been about 15.5 per cent for weeks, but it rose this week. The key money-market rate briefly passed 24 per cent on Thursday, opened 17.75 per cent yesterday, and stood at 20.5 per cent at midday. The Federal Reserve Board, which sets national monetary policy, so far this week has declined to add reserves to the banking system in amounts sufficient to bring the federal funds rate back down to the 15.5 per cent range. Most economists and Wall Street analysts have said the prime rate is likely to fall later this year as economic activity, wanes. But the widely-respected economist, Henry Kaufman, a partner in the investment house, Salomon Brothers, has predicted that the prime would exceed the record 21.5 per cent of last December.