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Lenders react to proposed interest rate decline

By Jason A. Smith

jsmith@henryherald.com

Representatives of the banking industry in Henry County are keeping an eye on discussions at the national level, which could have significant implications on financial conditions in the country.

The Federal Reserve will continue talks today, regarding whether to lower interest rates in an effort to revive the economy. The Federal Reserve is expected to release a statement today on the proposed measure regarding the federal rate.

The Associated Press reports a cut in the federal rate for the second time this month, is "all but certain." Such a development is fueling speculation among investors and economists, as to whether the rate will be reduced further in the near future.

Investors and economists are reportedly predicting a cut of half a percentage point in the key interest rate, which would take it to 1 percent. The drop would result in a drop in the prime interest rate, from 4.5 percent to 4 percent.

Banking officials in Henry County among those keeping a close watch on the Reserve's deliberations this week.

Nicole Elkins is the branch manager of Park Avenue Bank in McDonough. She said bringing the interest rate down would have a negative impact on the industry as a whole.

"For financial institutions, a reduction in the interest rate contributes to a reduction in earnings, and in interest available to be paid to our customers," said Elkins. "It essentially affects everything we do."

She added a 1/4 percent drop in the interest rate would be a more advantageous course of action for federal officials to take, than a half a percent. Elkins also noted projections for the future, which point to possible improvements in the national economy by this time next year. "Times are tough for everyone, but fortunately the outlook is good according to the economic forecast for 2009," she continued. "There should be a slow, gradual upswing of the overall economy at that time."

Mark Sherling is the assistant branch manager of SunTrust Bank in Stockbridge. He said approving the proposed decrease would have positive results for customers, as well as the banking corporation itself.

"Dropping the interest rate would definitely have a benefit for our clients, as far as helping them in refinancing, pursuing loans or lines of credit," Sherling said. "If we can help customers get new loans who otherwise would not have been interested in those loans if rates were higher, it would help us to generate more business," he added.

On Monday, SunTrust took a measure of its own, to help the company to withstand ongoing economic pressures. The bank announced the sale of $3.5 billion in preferred stock to the federal government. Barry Koling, a spokesman for the company, noted the move will help strengthen SunTrust's position within a volatile banking industry.

"It gives us the flexibility to pursue growth opportunities in the current economic environment," Koling said. "We've been doing comparatively well in the economy, and we have been managing successfully. I think that will continue to be the case."

- The Associated Press contributed to this article.