Business Digest: Banks urged to prepare for higher interest rates

REGULATORS

Banks urged to prepare for higher rates

Financial regulators told banks Thursday to have procedures in place to minimize their risks from loans when rock-bottom interest rates start to rise.

The advisory came from the Federal Financial Institutions Examination Council, which includes the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The advisory wasn't meant to signal any upcoming change in interest-rate policy by the Fed.

To nurture the budding recovery, the Fed has slashed a key bank lending rate to a record low near zero, where it has been for a year. When the economy is on firm ground, the Fed at some point will start boosting rates. Some economists think the Fed might begin to raise rates later this year to safeguard against any problems with inflation.

It's unusual for the council to issue such an advisory. The last time it did so was in 1996, a Fed spokeswoman said.

Higher interest rates make it more expensive for banks to borrow and increase their costs of doing business. The council suggested that banks make sure they have sufficient capital cushions to protect against any possible losses.

-- Associated Press

MORTGAGES

Average 30-year rate falls to 5.09 percent

Rates for 30-year home loans inched downward this week, the first decline in a month, but remained above last month's record lows.