Newspaper article St Louis Post-Dispatch (MO)

6 Banks Pushing Rates Up Increase Follows Fed's Move to Avert Inflation

Newspaper article St Louis Post-Dispatch (MO)

6 Banks Pushing Rates Up Increase Follows Fed's Move to Avert Inflation

Article excerpt

St. Louisans looking to buy cars, appliances or other items on credit face higher financing costs because major banks in the United States moved Wednesday to boost their prime lending rate.

Consumers whose credit cards contain provisions for variable interest rates also could end up paying more.

People who already have borrowed money at a fixed interest rate will be spared any increases, said John Dubinsky, president of Mark Twain Bancshares, which has branches in the St. Louis and Kansas City areas.

At least six big banks, led by Norwest Corp. of Minneapolis, raised their prime rate Wednesday to 6.25 percent from 6 percent.

The prime rate is a benchmark business lending rate that affects the cost of some consumer loans, home-equity loans and credit-card debt.

The banks raised their prime rates in response to the Federal Reserve Board's announcement Tuesday that it would tighten credit as a preemptive strike against inflation.

For the second time in two months, the Fed approved a quarter-point increase in the federal funds rate - the amount banks charge each other for overnight loans.

The new increase puts that rate at 3.5 percent.

Increases in the cost of money basically leave banks with two options: raise the price they charge customers for the money or absorb smaller interest-rate spreads on their loans.

Most banks in St. Louis and the nation refrained from raising their rates after the first increase in the federal funds rate Feb. 4.

Although expected in many quarters, that move gave some investors the jitters and led to a 96-point plunge in the stock market.

This time, the stock market shrugged off the Fed announcement, with the Dow Jones industrial average rising 6.91 points.

One securities analyst said banks in St. Louis are almost certain to follow Norwest and the others - which include Citibank, Chase Manhattan and First National Bank of Chicago - and raise their prime rates.

But the analyst, Matt Finn of Burns Pauli & Co., said banks here probably will wait until other big national institutions weigh in. …

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