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$25,000 or more on September 30, 1977, when it held more than 10 percent of
that bank's or holding company's stock in a collateral capacity.
Name and location of the institution whose stock was pledged; data on
"due-to" and "due-from" demand deposit balances; whether the borrower is
an executive officer, director, or major stockholder; date of the note; interest
rate; percentage of outstanding shares pledged; and other pertinent data were
among the 15 specific data items or questions pertaining to each reportable
stock loan. Many of these specific data items were not readily retrievable,
even by banks with automated systems and, therefore, manual examination of
credit files and collateral records was necessary.
B. Table LA
According to results presented in Table 1A, 902 banks, 6.4 percent of
the 14,137 banks, reported bank or bank holding company stock loans on
September 30, 1977 as called for in Schedule I of the survey.
A total of
10,214 stock loans was reported with balances totaling $2.7 billion. These
loans amounted to 1.0 percent of the total dollar amount of all outstanding
loans at those banks reporting stock loans and 0.5 percent of total loans
at all insured commercial banks. Banks with assets in excess of $300 million
accounted for 67.8 percent of the number and 77.8 percent of the dollar
volume of stock loans. Of the 399 reporting banks larger than $300 million
in assets, 219 or 54.9 percent reported stock loans.
The percentage of banks reporting stock loans increases with bank size.
The percentage rises from 2.6 percent of those with less than $50 million in
total assets to 80.0 percent of those with more than $5 billion in total assets.
The number of stock loans averaged Il per lending bank, rising from
2 in the smallest banks (under $50 million in assets) to 30 in the largest (over
$5 billion in assets). The average balance per stock loan rises from $106,000
in the smallest banks to $840,000 in the largest banks. For all banks making
such loans, the average stock loan balance was $267,000.
Total stock loan balances averaged $3.0 million per lending bank.
Although the amount of such loans increased with bank size, the proportion of
stock loans in the banks' loan portfolios rose from 1.2 percent of total
loans for the smallest banks to 2.5 percent for banks in the $300 to $999
million class and then declined to 0.3 percent of the total loans for the
largest lending banks.
About 81.2 percent of stock loans was for the purpose of purchasing
commercial bank or holding company stock. For those loans used to purchase
such stock, 49.4 percent was known to have been associated with a change
in control of the bank or holding company. Of all stock-secured loans,
40.1 percent was connected with a change in control. The survey did not
address the portion of the purchase price financed by stock loans.
In Table IF, information about bank and bank holding company stock loans
is summarized by interest rate charged by lending banks that did not hold demand
deposits (due-to balances) of the banks whose stock secures the loans. The
same kinds of information are presented in Table 1G for lending banks that
held demand deposits of the banks whose stock secures the loans. About 88.1
percent of the number and 88.6 percent of the total amount of stock loans
extended involved a due-to relationship.
Stock loans carry either a fixed rate or floating rate.
A fixed rate
is set on the date the note is executed and remains unchanged until the note is
paid off or refinanced or until it matures.
A floating rate generally is tied
to a market interest rate, such as the prime rate, and is adjusted periodically.
Floating-rate loans accounted for 56.8 percent of the 10, 214 stock
loans reported in Tables IF and IG and 65.4 percent of the total dollar volume.
For 90.1 percent of the floating-rate loans and 85.5 percent of the fixed-rate
loans, the banks whose stock was pledged maintained demand deposit relation
ships with the lending banks.
However, the data do no
indicate whether those
banks whose stock was pledged had correspondent relationships with the lending
institutions prior to origination of the loans or established such relationships
at the time such loans were extended.
Floating-rate stock loans were, on average, considerably larger than
fixed-rate loans. This is true regardless of whether the bank whose stock
was pledged maintaine
a demand deposit account with the lending institution.
Average stock loan size does not appear to depend on the existence of a
demand deposit relationship.
Comparison of results presented in Tables IF and 1G indicates that fixed
rate loans where the bank whose stock was pledged did not maintain correspondent
deposits generally had higher interest rates than fixed-rate loans where the bank
did maintain such deposits.
As indicated by Table 1F, fixed-rate stock loan lending activity by
banks without balances due-to was concentrated in the 7 to 9 percent range,
with 53.4 percent at rates above 8 percent. Such concentrations, as reflected
in Table 1G, were in the 6 to 8 percent range for fixed-rate loans extended
by banks with balances due-to, with 21.0 percent at rates above 8 percent.
Such results are suggestive of preferential interest rates where demand
balances are maintained. However, firm inferences about preferential rates
cannot be drawn at this time because Tables IF and IG do not contain loan
origination date (date of the note), term of the loan, credit standing of the
borrower and the borrower's institution, size of the due-to balances rela
tive to correspondent services provided, detail on charges for such services,
and method of compensation for these services. Examination of such informa
tion is essential before the existence of preferential interest rates on stock
loans involving a correspondent relationship can be established definitively.
In general, the data in Table IG did not indicate that the average
amount of correspondent balances per stock loan relative to the average stock
loan balance is related to rates charged on stock loans. There was no con
sistent relation between the net demand deposit balances due to the lending
banks by the banks whose stock was pledged and average stock loan size for the
3,733 fixed-rate loans carrying rates above 5 percent. Only for the 36 loans
in the 3.00 to 4.99 percent interest-rate interval is there a suggestion of a link
between preferential stock loan interest rates and correspondent balances.
The data in Table 1G disaggregated according to size category of the
lending bank suggest a similar relationship for lending banks with less than
$300 million in total assets. Average net demand deposit balances maintained
by banks whose stock secure loans extended by the lending banks tend to
increase relative to the average stock loan balances as loan interest rates
decline. This does not appear to be the case generally for larger banks.
However, it is not possible to determine from these data whether
correspondent balances were used as compensating balances to obtain prefer
ential rates on stock loans because the survey did not collect information on
the provision of banking services, which may be related to the correspondent
D. Table 2
Stock loans to executive officers, major stockholders and directors of
other banks (but not bank holding companies) are summarized in Table 2 by
interest rate range and time period when the loan was originated (date of note).
The average monthly prime rate, as reported in the Federal Reserve Bulletin,
is recorded for each time period except "1969 and prior." The "prime rate"
used is the rate that the largest money center commercial banks charge their
best customers on short-term business loans. Short-term customarily refers
to loans that have a term of less than one year. * Thus, the prime rate is a
good comparison rate only for some short-term, fixed-rate stock loans origi
nated during 1977 and most floating-rate stock loans. A longer-term rate is
more appropriate for most rate comparisons for stock loans originated prior
to 1977. During the period covered by the survey, short-term business loan
rates averaged 50 to 75 basis points above prime, and long-term business
loan rates averaged 90 to 120 basis points above prime. While most business
loans are unsecured, stock loans obviously are secured and, as such, should
carry somewhat lower rates.
Loan rates also depend on the location of the
*The prime rate for the second half of 1975 is incorrectly stated as 7.80 percent on Table 2. It should be 7.57 percent.