Magazine article American Banker

Big Banks Raise Prime Rate; White House Aide Blames Fed

Magazine article American Banker

Big Banks Raise Prime Rate; White House Aide Blames Fed

Article excerpt

NEW YORK -- Most of the nation's largest banks raised their prime rates to 12-1/2% on Tuesday from 12%. This was the second half-point rise in less than a month.

While the increase had been expected by many economists, Larry Speakes, a White House spokesman, said that President Reagan was "disappointed" by the prime rate hike.

Mr. Speakes then departed from custom and sharply criticized the Federal Reserve Board as being partly responsible for rising interest rates by its tight control of the money supply.

The increase, which was led by Chase Manhattan Bank, puts the prime at its highest point since October 1982. The only major firm not to raise its prime was J.P. Morgan & Co., New York.

In announcing its increase Tuesday, San Francisco's BankAmerica Corp., hoping to allay "confusion" on the part of some borrowers, changed the name of its prime rate to "reference rate."

A BankAmerica spokesman denied that the recent spate of prime rate cases, such as those brought by Atlanta lawyer Jackie Kleiner, prompted the renaming of the rate. He said that some borrowers had been under the "mistaken notion that this was the lowest rate they could borrow at, and this is just not true." However, he said the renamed rate would perform the same function as the prime -- a reference point for pricing loans.

Previously, the Reagan administration had been wary of publicly rebuking the Fed about interest rates. Mr. Speakes insisted, however, that his statement wasn't intended to compromise the Fed's historic political independence. …

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