Bank of America has once again taken the lead by cutting its prime lending rate, but many analysts doubt other banks will follow quickly.
The nation's second-largest bank lowered its prime to 8.75 percent from 9 percent effective Thursday after Federal Reserve Chairman Alan Greenspan left open the possibility that the central bank may cut interest rates further.Bank of America's chief economist, Frank McCormick, said the move was a reaction to Greenspan's statements. Greenspan didn't specifically promise to lower interest rates, but said the central bank would "remain alert" to signs that the economic slide is intensifying.
The prime is the rate of interest a bank charges its best customers. It also is a key benchmark for many consumer interest rates, such as mortgages, credit cards and home equity lines of credit. A lower prime can also stimulate the economy by making loans more affordable.
Bank of America was the first money-center bank to lower its prime to 9.5 percent on New Year's Eve after the Fed started aggressively trying to ease credit. Other large banks followed within days.
Banks may hesitate at following Bank of America's lead this time, however, and wait for the Fed to lower the federal funds rate or the discount rate.