Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SATURDAY, July 8, 1995                   TAG: 9507100062
SECTION: BUSINESS                    PAGE: A4   EDITION: METRO 
SOURCE: MAG POFF STAFF WRITER
DATELINE:                                 LENGTH: Medium

AREA BANKS CUT PRIME

The banks, following a trend begun Thursday by major money-center institutions, cut the prime from 9 percent to 8.75 percent. Announcing rate cuts Friday were: Central Fidelity, Crestar, First Union, First Virginia, NationsBank, NBC Bank and Signet. Smaller banks are expected to follow suit.

The prime, generally the price banks charged their most credit-worthy commercial customers, also has a direct impact on home equity lines.

``Interest rates are coming down in general'' said Mark Vitner, an economist with First Union Corp. That is not always true when the Federal Reserve Board lowers the federal funds rate, the price that banks charge each other for overnight borrowing.

Vitner explained the market rates - such as mortgage interest, which dropped 1.5 points since the start of the year - led the prime rate down. He expects mortgage rates to fall slightly further in the next couple of days.

He's less sure credit card rates will drop. Those rates are already pretty low, he said, because of intense competition among banks for new customers.

But some credit cards, like home equity lines, are tied directly to the prime. Those rates will fall, he said.

Most major banks now offer credit cards with floating rates tied to either prime or the London Inter-Bank Offered Rate (LIBOR), said Robert Merrick, executive vice president of Signet Bank. Merrick expected that rate to drop a quarter-point, following the prime.

Some lines of credit also are tied to the price of Treasury bills. ``We've seen a pretty significant drop in Treasury rates,'' Vintner said.

Christine Chmura, an economist with Crestar, said the drop in prime ``is certainly better news for the individual who has loans than for those who have deposits.'' Rates on both sides are headed down, she said.

Home equity lines also are affected quickly, she said. They generally float at 1.5 points above the prime rate.

Chmura said the interest-rate market has been headed down in recent weeks in anticipation of this week's action by the Federal Reserve Board.

So actually, the market ``is already anticipating the next Fed easing,'' Chmura said.

Both loan and savings rates should drop in the near future, Merrick said. But he said savings rates may not go down as fast as the interest on loans.

Business lending is tied to either the LIBOR or prime, he said, and will fall along with consumer rates.

Guy W. Byrd Jr., president of Valley Bank, said the bank will ``obviously track along with what the consensus is in the industry.'' He expected it to look at its loan and savings rates next week.

He said, however, that a drop of a quarter-point probably will not stimulate demand for loans, but it ``should sustain the demand we've been seeing recently.''