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.
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