BANKING : Bankers Say Federal Rules Make Them Afraid to Lend : Finance: The credit crunch is due partly to playing it conservative so they don’t offend regulators, they say.

WASHINGTON —  A group of leading bankers told the Bush Administration on Monday that lack of demand and tough federal regulations are making them exceedingly nervous and cautious about making loans.

“We can’t afford to take the risks we once could,” Bob Hawkins, president of the Independent Bankers Assn. of America, said after a meeting with Treasury Secretary Nicholas F. Brady and other regulators.

Despite some of the lowest interest rates in nearly two decades, many businesses are complaining about a credit crunch. Some say they have had persistent difficulty getting loans for expansion or continuing operations.

Brady praised the bankers for some of their initiatives to overcome the credit crunch--such as the use of toll-free phone numbers and special programs to make loans in inner cities--and expressed hope that all banks would expand their lending.

But the bankers told Brady that they were avoiding many loans they once would have made, fearing the ire of tough-minded federal bank examiners.

“There is a pretty literal interpretation of the rules that seem designed to make the banking system risk-free,” said Hawkins, chairman of Southern Commercial Bank in South St. Louis. “You can’t jump-start the economy if you can’t take risks.”

Deputy Treasury Secretary John Robson, who attended the meeting, offered a more optimistic evaluation, saying the bankers “by and large (offered) a fairly positive statement about the general condition of things.”

California’s economy is troubled and “uneven,” he said, but noted that business in the Midwest and the South is “sturdy.” New England’s economy “is coming off the canvass,” he said after the meeting.

The Administration has long been exhorting federal regulators to be more understanding and cognizant of the need for economic growth when they examine the books of banks and thrifts. But Robson said the Administration’s message is being drowned out by Congress, which is telling regulators that it’s best to be tough.

He compared the congressional rejection earlier this year of another term for Comptroller of the Currency Robert Clarke to “hanging of people in the public square” and the Salem witch trials. Democrats on the Senate Finance Committee, which rejected Clarke’s renomination, said he had been lax in regulating troubled Texas banks.

Examiners are exceedingly strict “because they see regulators dragged before the Senate committee and publicly flogged,” Robson said.

Among the leading bank executives who joined Brady’s credit crunch meeting were Alan Tubbs, president of the American Bankers Assn.; Lewis Coleman, vice chairman of Bank of America; Richard Boyle, vice chairman of Chase Manhattan; Walter Shipley, president of Chemical Bank; John Medlin, chairman of Wachovia, and Richard Thomas, chairman of First Chicago.