By David Lightman

The profit crunch may be over, but the credit crunch lingers -- and Congress is eager to do something about it.

Banks nationwide are healthier than they've been in years. But instead of plowing their newfound money into business loans, government data show that much of the profit is being invested in securities.

Washington officials are outraged, and their ire could spark a new round of banking reforms.

"Banks are fundamentally not doing what they're supposed to do, which is lend money," said Sen. John F. Kerry, D-Mass.

But the issue is not as simple as banks looking for profit when they should be looking for customers. Bankers maintain there are good reasons they are reluctant to lend. Regulatory requirements, they say, have become cumbersome, and it's often easier to invest than to lend.

Furthermore, they argue, the economy is weak, and there are not that many qualified borrowers out there.

Still, Congress is angry and is poised to do something to free up credit quickly.

"Two things are clear," said Sen. Joseph I. Lieberman, D-Conn., a member of the Senate Small Business Committee. "A lot of small and medium-sized businesses are having trouble getting loans, and there's been a significant surge in bank money going to government securities.

"This continues to be an underlying problem."

In December 1991, Congress passed and President Bush signed a banking reform bill aimed at giving the government tighter control over problem banks.

Under the law, regulators would be able to keep a closer eye on a bank's books, and thus spot problems long before they occurred. Banks would have to meet new, more stringent accounting requirements, and keep regulators better informed of how they were doing business.

Since then, interest rates have nosedived. Banks now pay between 2.75 and 4 percent on many deposits, but are still able to lend money at rates often twice as high. And long-term securities continue to pay significantly higher rates, thus making them attractive investments.

So banks have put their own money into those securities. Data from the Federal Deposit Insurance Corp. show that while the nation's 11,590 commercial banks loaned 5.7 percent less money in the third quarter of 1992 than the same period a year ago, investments in securities were up 17.2 percent.

"For many banks, it's a no-brainer," said William Stanley, president of the Connecticut Bankers Association.

But it infuriates many in Congress.

"In the last two years, Uncle Sam has been a commercial bank's best customer," said Sen. Alfonse M. D'Amato, R-N.Y., top Republican on the banking committee.

"There's something wrong with bank regulations that seem to discourage banks from taking traditional credit risks."

The 1991 law was passed at a time when the banking system faced its worst crisis since the Great Depression.

Taxpayers were being told they had to bail out the savings and loan industry, and the federal fund that insures customer deposits was down to its lowest levels in history.

The law required larger banks and thrifts to undergo annual independent audits of their financial statements. It also forced regulators to conduct annual on-site examinations of most banks and thrifts.

Lawmakers say they understand why the new requirements have made many bankers nervous. "Why should anyone take a chance on you or me when you have a regulator peering over your shoulder, asking you what you're doing," said Sen. Christopher J. Dodd, a banking committee member.

Making loans requires paperwork. Making investments requires less.

"The government has put the lid down very tightly on how we can lend money," said Stanley.

The regulators, though, are not entirely convinced. "Banks find it easy to blame regulators," said state Banking Commissioner Ralph M. Shulansky, "but I don't think they are being as aggressive in pursuing business as they used to be."

In Washington, Comptroller General Charles A. Bowsher, whose General Accounting Office has studied the situation extensively, agreed.

Remember, he said, before the new law, "some of these financial statements did not seem to tell the full financial picture of some of these financial institutions."

Bowsher was puzzled as to why business lending had been cut. "It really wasn't the small business loans that caused the banking problem," he said, "and even in the thrift area, it was mainly the big developments, the big commercial buildings."

Members of Congress are being urged by constituents to do something to free up credit, and they are eager to act.

There is no data to show how many businesses are being hurt, but as Sen. Barbara Boxer, D-Calif., put it, there have been an awful lot of phone calls.

The easiest solution is for the regulators to ease up on lenders.

"They've got to change the psychology," said Dodd. "It's got to be the government's policy to open up the credit window."

But Dodd and others have been saying that for years, and nothing happens.

The question then turns to whether laws should be changed. Lieberman has been trying for some time to create ways to make it easier for small businesses to borrow money; he plans to submit legislation this week.

Riegle, probably the most important player on this issue, wants to hold more hearings. On Wednesday, he plans to examine capital and development needs of economically distressed areas, for instance, and wants Bowsher to study the credit problem.

Kerry thought some sort of regulatory streamlining may be the answer. "There's such a hydra-headed regulatory process now that ... nobody assumes responsibility and makes change," he said.

D'Amato agreed. "Right up and down the line you have such a crude instrument being used to attempt to set standards (that) you trap everybody, good, bad and mixed," he said, "and you make situations that are difficult, impossible."

At the moment, though, no one knows how to proceed. President Clinton has spoken often of prodding banks to lend more money. Members of Congress are eager to act.

But it took nine months in 1991 to pass a bank reform law, and that was at a time when Congress perceived a more severe crisis. This time, banks are healthy.

Something has to be done, said Kerry.

"If it [the credit crisis] goes on much longer, and we sit around while we, quote, study," he said "where are we going to wind up?"