The Federal Home Loan Bank Board has increased by $2 billion the amount of money savings and loan associations can lend to prospective home buyers.
The board's action, announced yesterday, was intended to make up for slowdown in savings deposits. The board cut from 7 to 6.5 percent the amount of assets an S&L must hold as cash and cannot lend to customers.
The board said the cut in its so-called liquidity requirement would become effectice May 1.
In recent months, consumers have reduced the amount of money they have deposited in savings and loan associations because other investments have become more attractive.
Savings and loan associations make most of the home loans in the country The Federal Home Loan Bank Board regulates all federally chartered S&L, which control most of the S&L deposits in the country.
As interest rates on market instruments like Treasury bills rise, depositors after take their funds out of S&Ls or commercial banks, where the interest that can be earned is fixed, and invest in securities such as Treasury bills, where the interest is not fixed.
Because short-term interest rates have been rising in recent months, more and more investors are taking their money out of passbook account to get higher rates.
Federally chartered S&Ls can pay no more than 5.25 percent interest on a passbook account. Treasury bills that mature in 90 days are now paying about 6.3 percent, while 180-day bills are in the 6.7 percent range.
Because Treasury bills must be purchased in minimum denominations of $10,000, many small investors are forced to keep their money in S&Ls, even though they might like to invest in government securities.
Although the amount of funds available to S&Ls has not been growing as fast as demand for housing loans and mortgage rates are rapidly closing in on 10 percent in many parts of the country - conditions are far from those that occured in 1974 when savings and loan associations found themselves losing more deposits than they took in and mortgage money became almost impossible to find in some states at any interest.
Bank board chairman McKinney pointed out that the board has already taken steps to increase the amount of funds available to S&Ls to lend.
"Since mid-1977, federal home loan bnaks have increased the level of advances outstanding to member thrift institutions by $6.2 billion, thus permitting member thrift institutions to offset a large part of the reductions in savings inflows."
McKinney promised that if conditions appeared to warrant it, the board would have no qualms about further reducing the liquidity reserves.
Although economists expect interest rates to keep rising for a while, no one anticipate anything like the credit crunch of 1974 reappearing.
For one thing, savings and loan associations have a large percentage of their deposits in long-term certificates of deposits which pay higher interest rates than passbooks and also demand a penalty from the depositor who withdraws his funds before the maturity date.
For another the difference between passbook rates of interest and the rates a consumer can obtain by buying U.S. Treasury securities is much smaller than in 1974 and is expected to remain so. Nonetheless, Federal Reserve Board chairman G. William Miller had told Congress that the ceiling rates on savings deposits probably will have to be raised if interest rates keep rising.
While commercial banks also experience savings reductions or outflows during periods of rising rates, banks have more kinds of assets than do S&Ls, whose loan portfolios are concentrated in home mortgages.