Remember the credit crunch, when executives and entrepreneurs around the country squawked that banks had raised standards so high that no one could get a loan?
Well, the only crunch today is the sound of bankers slamming into each other as they race to shower loans on business and consumers.
But now that banks are lending again with gusto, helping to fuel the rebound in the economy, banking officials warn that the industry is getting caught up in another frenzy likely to end badly. The fear is that banks are taking too many risks and losing sight of some cautious practices instituted after the collapse of the commercial real estate market in the late 1980s.
To win all sorts of business -- from loans for corporate takeovers to consumer credit-card accounts -- bankers have loosened their rules again. As a result, they are lending more money at narrower margins for less collateral and with fewer restrictions than just a year ago.
"This past year we have really seen a deterioration of standards," said Verne G. Istock, chairman of NBD Bancorp in Detroit. "Banks are planting the seeds of the next wave of problem loans."
Loans at NBD were up 12 percent last year amid the boom in the Midwest. But Mr. Istock says that growth, however welcome, is also a warning sign: "We're reminding our people that bad loans are made in good times."
NBD's situation is typical. Despite rising interest rates, lending at the nation's banks is up sharply, as the banks rush to take advantage of the improving business climate.
The Federal Reserve says that the nation's largest banks had $1.141 trillion in consumer and commercial loans outstanding at the end of 1994, up a brisk 7 percent from the year before.
By comparison, total lending at these banks declined by 9.6 percent from mid-1990 to mid-1993, as they strove to recover from the problems created during the real-estate lending spree of the late 1980s.
No bank will openly admit to making bad loans, of course. But many bankers say that competition is forcing them to measures that make them queasy.
"We find ourselves being pushed right up to the line," said Sloan D. Gibson, the head of corporate lending at Amsouth Bank of Alabama in Birmingham. Amsouth, which increased its loans by more than 10 percent last year, acknowledges it was able to do that only by cutting its interest rates and fees and easing its standards.
Mr. Gibson said, the bank will now make real estate loans that do not have the full personal guarantee of the property's owner. It also might make a secured loan of as much as 65 percent of a business' inventory when it feels that 40 percent is a more prudent level.
"The challenge for any bank is to not get caught up in the herd," Mr. Gibson said. "You have to be willing to say 'there is a line I will not cross,' but that's hard to do."
One measure of the gold-rush atmosphere is the interest rates and fees charged to borrowers, which are falling sharply, especially for loans to corporations.
Overall interest rates have risen, of course. But banks set the price of business loans as a spread -- that is, a set number of percentage points above a floating interest rate.
Analysts say banks are now charging rates so low they are not really making a profit once money is set aside in reserve for inevitable future losses. At best, they say, much corporate lending is a break-even proposition for banks, offered to attract more lucrative business, such as money transfers or management of corporate pension plans.
Credit standards are harder to gauge, but there are signs that banks are lending more on looser terms.
Bankers are also making more long-term loans, which are riskier than loans that must be renewed every year. Last year 39 percent of corporate loans were for five years or longer, compared to only 16 percent in 1992.
Another reason that this lending cycle may get out of hand is that many banks no longer worry as much about future losses because they sell large chunks of their big-loan portfolios to other investors, such as foreign banks and mutual funds. To the extent they off-load their loans, of course, the banks will not have to suffer for their mistakes.
For all the current lending enthusiasm, standards today have not slipped as far as they did in the late 1980s. And because they are still cleaning up past problems, the level of loans in trouble continues to shrink at most banks.