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Banks Hold Off Cutting Prime Rates

September 29, 1998

Once upon a time, banks hopped on the bandwagon of a Federal Reserve interest rate change with quick adjustments to their prime rates. No longer.

Most banks were silent Tuesday after Fed policy-makers cut short-term interest rates for the first time in nearly three years, to 5.25 percent from 5.5 percent.

Only one lender, Southwest Bank of St. Louis, cut its prime rate from 8.5 percent to 8 percent _ and it took the step on Friday. The prime, the rate banks charge their most creditworthy customers, is used as a base for setting rates for a variety of other borrowers.

``The prime isn’t the indicator it once used to be,″ said Vernon Plack, financial institutions analyst with Scott & Stringfellow in Richmond, Va. ``It really doesn’t matter where banks set their prime rates today.″

He said banks will probably cut their prime rates, but don’t feel obligated to do so quickly. Banks often now base their primary lending rates to businesses on the London Interbank Rate, underscoring the growing importance of the global economy, said Plack.

Instead, prime rates today mostly influence consumer loans, from credit cards to auto lending, said George Bicher, banking analyst with BT Alex Brown in New York.

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