Many Chicago-area banks lowered their prime lending rates in lock step with the Federal Reserve’s emergency rate cut Wednesday but said that contrary to national trends, credit is flowing freely to their customers as usual.

The Fed’s 0.5-percentage-point cut in its key overnight federal funds rate to 1.5 percent was part of a worldwide effort to stimulate lending by banks and unfreeze credit to businesses and individuals.

The move was followed by a cut in the prime rate to 4.5 percent from 5.0 percent by major banks with branches in the Chicago area, including JPMorgan Chase & Co., Bank of America N.A. and locally owned banks Northern Trust Corp., Harris N.A., Oak Trust and Savings Bank, Old Second Bancorp Inc., Fifth Third Bancorp, Albany Bank and Trust Co., ShoreBank Corp. and National City Corp.

But while a lower prime rate will benefit customers with existing lines of credit, local banking executives said the rate cut would not stimulate additional lending. Local bankers also downplayed the impact of the lending freeze plaguing the global credit system on their operations and lending standards.

Chief Economist David Oser with ShoreBank Corp. said the prime rate cut is not going to have a huge impact on community banks, known for their conservative practices.

“We try to be careful with our lending at all times,” said Stan Faries, vice president of asset liability management at Old Second National Bank in Aurora, Ill. “We continue to lend to qualified borrowers. It’s business as usual.”
The credit crunch is an issue mostly affecting large banks and the international arena, said Faries.

Old Second has a considerable number of commercial loans and some home equity loans tied to the prime interest rate like many other banks, said Faries, but he does not see a lower rate affecting lending practices.

Roy Curran, president of Oak Trust and Savings Bank, said his bank is not going to do anything different than what it has done the last 20 years. He said the better question is how the rate will affect existing borrowers.

With a lower rate, consumers could possibly have lower bills for any loans tied to the prime rate, such as home equity. Robert Gecht, president of Albany Bank and Trust Co. N.A. is also focused on how the prime rate cut will benefit his customers.

While most local banks are faring reasonably well, Adolfo Laurenti, senior economist with Mesirow Financial Holdings Inc., said banks heavily concentrated in household lending, especially mortgages, will be the ones suffering with the credit crunch.

Even though the prime rate may be lower, the rate for Libor – the London Interbank Offering Rate -- used for interbank lending will be a better indicator of how credit tightening will unwind, said Laurenti.