CHAPTER 1

Introduction

     The prime rate for bank loans has long been a source of

discussion.  Bankers, consumers, and business people have

often used it as a measure of the economy's strength and the

availability of credit.  The purpose of the prime rate has

changed over the years;  however, the controversy surrounding

it goes on.  At one time, it was frequently used in the

pricing of loans to Fortune 500 companies.  Today prime is

used in the pricing of loans to small and medium-sized

businesses, as well as some consumer loans.  For borrowers,

unforeseen changes in the rate can make them feel they are

at the mercy of the banking industry's whims.  For

economists, the prime rate is a meaningful measure of the 

banking industry's willingness to lend money to both

businesses and consumers.

Purpose

     This paper will examine some of the patterns of the

past movement of the prime lending rate.  The analysis of

the data that is derived from past prime rate levels will be

used to determine if there is any truth to a commonly held

belief among bank critics.  This belief is that bankers are

quick to raise and slow to lower the prime rate.  Bank




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