New Banking Rules Should Boost Lending, Brady Says

TREASURY Secretary Nicholas Brady assured New England's business leaders Friday that recent regulatory changes would help the region's troubled banks lend more money. Stopping in three states where the recession has hit hard - Connecticut, Rhode Island, and Massachusetts - Mr. Brady also said the Bush administration would like to see interest rates drop further.

``We think there's ample room for lowering of interest rates,'' despite recent cuts by the Federal Reserve, he told reporters in Boston.

Brady's visit came as the Labor Department reported that unemployment in Massachusetts had jumped to 9.3 percent in February, up from 8.6 percent in January. Nationally, the jobless rate climbed to 6.5 percent, up from 6.2 percent in January.

The decline in bank lending is due in part to lower demand for loans during the recession. But Brady said the business community is feeling a ``real credit crunch'' as banks in the region struggle to cope with real estate loans that have gone bad.

To help ease credit, Brady and other bank regulators on March 1 announced new accounting methods that will allow banks to report more of their earnings and write off fewer loans. One key change, which still requires approval from the federal Securities and Exchange Commission, would allow ``loan-splitting,'' in which a loan could be divided into performing and nonperforming parts, rather than written off entirely.

Brady said the changes would help but would not have an impact overnight.

The key question now, said Bay State Gov. William Weld (R), is ``whether the regulations have been fully communicated'' from top officials to the examiners who look at bank portfolios.

Sen. John Kerry (D) of Massachusetts said he suggested that Brady ``get those 7,000 regulators to Washington'' to make sure the message gets through. ``Countless good businesses are suddenly finding that they don't have credit.'' As bad loans deplete their capital, many banks in the region have been contracting in order to keep their capital-to-asset ratios in line with international regulations.

Cash infusions from Uncle Sam may be the only way to save some regional banks from failure, says Marcel Veilleux, president of the New Hampshire Bankers Association. This ``open bank assistance'' might help regulators avoid bank takeovers.