Business Notes CREDIT

Banking regulators often lecture on the need for caution. But last week lenders heard quite a different message: Loosen up. The advice came straight from the top U.S. regulators, including Alan Greenspan, chairman of the Federal Reserve Board, who trooped over to a Washington meeting of a banking- industry group to warn lenders against being overly cautious and too restrictive in their loan policies.

Greenspan aims to ease a trend that began last year, when federal regulators tightened their examination of loans in the wake of massive real estate defaults. In the economically distressed Northeast, this tough oversight has compelled some banks to reduce lending. Greenspan is concerned that examiners and bankers may be cutting off credit to worthy borrowers, particularly small businesses. A credit crunch could help touch off the recession that the Fed chairman has deftly avoided thus far.