Scores of banks across the country yesterday lowered the prime lending rate a quarter of a point, following the Federal Reserve's move on Tuesday to cut short-term interest rates.
First Maryland Bancorp, Provident Bankshares Corp., NationsBank Corp. and Signet Banking Corp. were among area banks to trim the prime rate to 8.5 percent from 8.75 percent.
The prime rate is a benchmark that banks use to set interest rates on business and some consumer loans. Its reduction could mean lower interest rates for business and consumer loans, including auto loans and some credit cards, said Christine Chmura, chief economist with Richmond-based Crestar Bank.
"I would expect that rates will continue to drop, and in general, we should see borrowing rates coming down," she said.
The reduction also is good news for consumers who have run up bills, and have fallen behind on their monthly payments to banks. This month, the nation's 10,000-plus banks reported that consumer loans past due by 30 to 89 days jumped to 2.06 percent, the highest rate since June 1993, when they were 2.04 percent.
"To the extent they can roll over or consolidate their debt at lower interest rates, it does assist them," said James Barth, finance professor at Auburn University. "It comes at a good time because of holiday shopping."
On Tuesday, the Fed lowered to 5.5 percent from 5.75 percent the federal funds rate, which banks charge one another for overnight loans.
Banc One, a large regional bank based in Columbus, Ohio, cut its prime rate on Tuesday, becoming the first big institution to change the commonly used rate.
Other big lenders across the country followed its lead, including New York-based Citibank and San Francisco-based BankAmerica Corp., the nation's largest and second-largest banks.