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Business: Greenspan says economy has produced more bad loans

By MARCY GORDON, Associated Press

WASHINGTON (June 20, 2001 12:41 p.m. EDT) - Citing problems in retailing and manufacturing and among California utilities, Federal Reserve Chairman Alan Greenspan said Wednesday that the sagging economy has brought more problem loans and made bankers fairly tightfisted.

Bank regulators "need to be more sensitive to problems at individual banks, both currently and in the months ahead," Greenspan said in testimony prepared for a Senate Banking Committee hearing on the state of the nation's financial system. He also noted weaknesses in the health care and telecommunications industries.

"We are fortunate that our banking system entered this period of weak economic performance in a strong position," Greenspan said.

At the same time, the central bank chief reiterated his statement last month that bankers and regulators are getting better at reducing risks and breaking a cycle of tighter lending in a slumping economy and expanded credit in a recovery.

"It is not an easy road, but it seems that we are well along it," Greenspan said.

In his testimony, Greenspan did not discuss the future course of interest-rate policy or the state of the economy.

To ward off recession, the Federal Reserve has slashed interest rates five times this year. Many analysts predict policy-makers will make a sixth cut at the end of their two-day meeting June 27. Economists, however, have mixed opinions on the size of the reduction, with some predicting another half-percentage-point cut and others leaning toward a more moderate quarter-point move.

Greenspan's remarks come as personal debt is at an all-time high, and the amount of income Americans are dedicating to making payments on it is at levels unseen in 15 years. Mortgage delinquencies and write-offs by credit card companies are rising, and personal bankruptcy filings could hit a record this year.

During questioning by senators at Wednesday's hearing, Greenspan suggested the problem of Americans' low savings rate - which stood at a negative 0.7 percent of after-tax income in April- is tempered by the "extraordinary degree of productivity from our savings."

Greenspan declined to express his view on a proposal before Congress to raise the $100,000 limit on deposit insurance coverage, which he has previously opposed on grounds it would be a subsidy for wealthy people. He said he preferred to wait until the Federal Reserve's board of governors takes an official position on the issue.

-- (M@rket.trends), June 20, 2001