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By JASON BOOTH

Staff Reporter

Spooked by Wall Street losses and fears that the U.S. economy is slowing, banks throughout Los Angeles are tightening up their lending criteria a striking turnabout from the relatively fast-and-loose policies of just six months ago.

As a result, many local companies may find their access to capital cut off, or severely constricted. Those companies still able to qualify for loans could see higher interest rates.

"The blue-light special is over. Every industry sector, every credit facility is being priced higher," said Tara Balfour, senior vice president of structured banking at BankAmerica Corp. "Banks are recognizing that you have to look at how the economy is changing and factor that into how you underwrite deals."

Under more positive conditions, the fact that banks are becoming more cautious would be of little concern to most borrowers. But with Wall Street in convulsions and the market for initial public offerings effectively shut down, local public companies already have lost a key source of funding. The high-yield bond market, once a key source of financing for higher-risk companies, is also in a deep freeze.

A credit crunch, even on a limited scale, could have a profound effect on the economy, which is why speculation persists that the Federal Reserve will lower interest rates again in the coming weeks.

In theory, there should be no shortage of available capital. Over the last few years, hundreds of billions of dollars in investment capital have flooded the United States as investors pull out of collapsing markets from Tokyo to Moscow.

As a result, most banks operating in Los Angeles have seen their deposits swell and their balance sheets improve.

"The credit crunch is not a lack of available capital," said Bob Schack, chairman of U.S. Business Bank in downtown L.A. "There is a tremendous amount of money out there looking for good deals. But over the last six years, the credit standards have reduced to the point where banks are starting to worry. We will see credit standards tighten up, and that's a good thing."

Until very recently, lending activity has been brisk among most L.A. institutions.

Imperial Bancorp a big lender in the industrial, high-tech and entertainment sectors saw its loan portfolio rise 15 percent in the first six months of the year, exceeding $3 billion as of June 30, according to the California Department of Financial Institutions. Mellon 1st Business Bank increased its loan portfolio by around 11 percent over that period.

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