Back in May, 60 members of the Greater Washington Board of Trade, warning of what they called a credit crunch in the area, wrote to President Bush, asking him to urge a more measured approach in the enforcement of banking regulations.

"We are writing to urge you to use your authority with the Secretary of the Treasury, the Comptroller of the Currency and others to caution against regulatory actions that do more harm than good," the business leaders said in the letter to the president.

The Board of Trade is still waiting for a response after seven months.

Recent prodding within the Bush administration, however, appears to have convinced regulators that perhaps some flexibility is needed in dealing with a banking industry that's buried under a landslide of delinquent real estate loans. Changes reportedly being drafted by the Office of the Comptroller of the Currency would allow banks to exercise greater flexibility in the way they classify problem loans. Presumably, banks would have greater leeway in writing off portions of problem loans and in restructuring many of them in agreements with borrowers.

So, indirectly at least, the Board of Trade appears to be getting a response to its plea for "sensitivity and prudence in regulatory enforcement." And because banks may be given more flexibility in handling bad real estate loans, some of the downward pressure on the local economy could be relieved during the next several months. At least that's the hope of area business leaders.

Problems in the local economy go much deeper than any that might be solved by changes in regulatory and loan policies, however. The problem then and now is a classic cyclical downturn that coincided with a real estate recession caused by overbuilding.

If there was any question about the magnitude of the area's real estate problems, C&S/Sovran Corp. answered it fairly convincingly in a recent earnings report. The nation's 12th-largest bank company said it expects earnings for the year to be about $210 million, after adding between $225 million and $250 million in the fourth quarter to its reserve for possible loan losses. The reserve is being strengthened, the company said, primarily because of "deteriorating conditions" in the Washington-area real estate market.

Baltimore-based MNC Financial Inc., the holding company for Maryland National Bank and the District's American Security Bank, has taken much bigger hits from bad real estate loans in the Washington area. Thus, two of the three biggest banking concerns with headquarters in the mid-Atlantic and Southeast have fingered metropolitan Washington's real estate sector as a serious problem area.

It is true that much of the local economy is taking a hit, directly or indirectly, from the real estate sector. Unemployment in the construction industry is greater than in any other. In fact, construction employment is down almost 14,000 jobs compared with a year ago. That's not all. Sluggish residential sales and a vastly overbuilt office market have created a broad ripple effect in the local economy. It not only jolted the banking and construction industries, but it spread to architects, interior designers, leasing agents, brokers, furniture and office supply firms, advertising agencies, law firms and a string of other business services. The fallout from this has been seen in spending cuts, scattered layoffs, bankruptcies, less advertising and a significant drop in consumer confidence.

The "unavailability of credit is a fast way to turn a sound business sour," the Board of Trade told the president in May. "When applied to a healthy region, we can quickly find ourselves in intensive care. The cycle is all too familiar: loss of jobs, more business failures and an eroded tax base."

Most of those developments have occurred, not so much because of a credit crunch imposed by banks and regulators but because the real estate bust coincided with a slowdown in employment growth and the onset of a broad decline in the national economy.

Asked about the "deterioration" of the Washington real estate market, Arnold A. Dill, chief economist at C&S/Sovran, observed that the "single biggest problem is the slowdown in growth" in the Washington area. A significant slowdown after years of high growth, affected the area's real estate and financial sectors, according to Dill.

In the absence of revised figures, he added, employment growth in 1990 will be the weakest, compared with national growth rates, since 1976-77. "This slowdown is the biggest problem for D.C. {area} real estate since it slows absorption," says Dill. "Growth has slumped most in construction, followed by the {finance, insurance and real estate} category and then services. The {area's} unemployment rate remains very low, implying that labor-force growth has slowed along with job growth. I don't know what the reason is but employment growth has slowed."

Much of Dill's assessment of the problem has a strikingly familiar ring. What we don't hear very much, however, is this observation from Dill: "The D.C. area has been more cyclical than people realize. It has had bigger swings in employment growth than the United States. The history of construction {in the Washington area} shows that it's been very cyclical and it's in a downturn at the moment."

Interestingly, the Board of Trade conceded in its letter to Bush that no economy is forever immune to cyclical change. It further conceded that the Washington region has "soft spots in its economy that need to be addressed."

Those soft spots will be there even after more credit is made available and the economy picks up, as Dill projects it will sometime after the middle of 1991. "That will be the best cure for absorption," according to Dill.

In the meantime, local business leaders would do well to start looking for a cure for some of those soft spots -- labor and housing shortages, for example -- before the next cycle comes around.