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bank. Geographic differences in loan rates occur because of loan supply and

demand differences in local ma rkets.

Obviously, no single benchmark rate, prime or other, can provide an

adequate basis for comparison with the loan rates charged by more than

14,000 insured commercial banks.

As of September 30, 1977, 7.4 percent of the 7, 493 outstanding stock

loans that were extended to insiders of other banks after 1969 carried interest

rates below the average prime rate that prevailed during each of the ll time

periods contained in Table 2. * Only 4.0. percent of those same stock loans

was made at rates below the lowest prime rate that prevailed during each of

the 11 time periods. During the tight money periods of 1973, 1974 and the first

half of 1975, a considerably higher percentage of stock loans still outstanding on

September 30, 1977 was extended at rates below the average prime rate than in

other time periods. During 1976 and 1977, a period accounting for 85.4 percent

of outstanding stock loans, only 1.9 percent of such loans was extended at rates

below the average prime rate.

The initial maturities of fixed-rate notes

secured by bank stock are typically short and are periodically renegotiated.

State-by-state comparisons indicated that bank stock lending to insiders

of other banks was concentrated principally in the 15 unit banking states.

Nearly 73.9 percent of the number and 77.2 percent of the dollar volume of

*Loans defined as having interest rates below the average prime rate are those with rates below the lower limit of the interest rate interval containing the average prime rate for each time period in Table 2.

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the 7,531 outstanding stock loans were made by banks in the unit banking

states. * Banks in the 20 states with unrestricted branching prior to 1976

had 5.5 percent of the number and 2.8 percent of the dollar volume of stock

loans. And, banks in the 15 states with limited branch banking provisions

accounted for 19.8 percent of the number of stock loans and 19.2 percent of

their dollar volume.

All stock loans amounted to less than 1.0 percent of total loans of the

lending banks in each of the 20 statewide branching states and in 10 of the 15

limited branching states. However, stock loans exceeded 1.0 percent of the

total loans of the lending banks in ll of the 15 unit banking states.

In one,

Oklahoma, stock loans amounted to 7.4 percent of the total loans of banks

with stock loans.

Banks in the unit banking states accounted for 68.5 percent of those

stock loans in Table 2 that was extended at rates below the average prime rate.

This percentage is less than the 73.9 percent of stock loans made by banks

in unit banking states. Banks in the statewide branching states, however,

held 10.7 percent of the number of loans below the average prime rate,

almost twice their 5.5 percent share of stock loans.

Reasons for borrowing funds secured by bank stock vary with state

branching provisions. In only 6 of the 20 statewide branching states, 80 percent

or more of stock loans was used to purchase stock, whereas this was true in 10

of the 15 unit banking states. Smaller percentages of stock loans in statewide

branching states were used to purchase bank stock to facilitate changes in control

*The percentages presented here do not total 100 percent because they do not include banks in territories and possessions of the United States or the District of Columbia.

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states, 10 percent or more of the stock loans resulted in control changes.

However, in each of the 15 unit banking states, more than 30 percent of stock

loans was connected with control changes and in 6 of these, more than 50

percent was used to effect a change in control.

Stock loans were concentrated most heavily in banks located in states

in the southwestern and central regions of the country. Texas (26.1),

Oklahoma (7.0), Missouri (5.8), and Kansas (3.4) had the largest shares of

stock loans in the southwest and Ilinois (9.2), Minnesota (7.7), and Lowa (4.4)

had the largest shares in the central states.

About 65.7 percent of the 555 stock loans with interest rates below the

average prime rate in Table 2 was held by banks in 7 states as indicated in

the table. Banks in Texas and Oklahoma accounted for 39.3 percent of all

below-prime stock loans. Only banks in Oklahoma, Arkansas and Alabama

had a disproportionately large share of below-prime stock loans relative to their

share of all reported stock loans to insiders of other banks.

States with the Largest Concentrations of Below-Average

Prime Rate Stock Loans in Table 2

Number of Loans

% of Below Prime Stock Loans

Reported

% of Stock Loans Originating after 1969

Reported

State

Texas Oklahoma Arkansas Alabama Illinois Louisiana Kansas

27.5
11.8
7.9
5.5
5.4

23,2
7.2
2.3
2.7
7.7
3.2
3.5

4.0 3.6

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In Schedule II of the survey, commercial banks were required to

provide the number, amount and weighted average interest rate for loans

to executive officers, major stockholders and directors of other banks that were outstanding on September 30, 1977. Fixed-rate loan data were reported

for 12 time periods according to the date of the note. Reported loan and

interest rate data were divided into two sections. Section 1 was restricted

to loans where the other bank maintained a demand deposit balance with the

reporting bank; Section 2 included those loans where there was no such rela

tionship. Loans to financial institutions, loans to securities dealers and

brokers, loans secured by real estate with a current balance of less than

$60,000, and any loans with a current balance of less than $10,000 were

excluded from reporting requirements.

Executive officers were defined as persons who influence, or could

influence, major bank policy decisions, regardless of their titles. Major

stockholders were defined as persons owning 10 percent or more of any class

of voting security of the bank.

Directors included those members of the board

of directors of the bank who did not meet the criteria for inclusion as execu

tive officers or major shareholders.

There were 6,721 or 47.5 percent of the 14,137 banks that reported

outstanding loan balances to insiders of other banks as of September 30, 1977. *

*Data contained in this paragraph are not contained in the attached tables or in any of the tables transmitted to the Committee.

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Approximately 15.8 percent or 2, 232 of the reporting banks had extended

loans to insiders of other banks where the other bank maintained a demand

deposit with the lending bank. Some of those banks also extended loans to

insiders of other banks where there was no such demand deposit. Thus,

5,786 banks or 40.9 percent reported loans to insiders of other banks where

those banks did not maintain a demand deposit balance with the reporting

bank. The 2,232 banks reported an average of 13 insider loans, aggregating

about $1.6 million per bank. In the 5,786 banks that reported loans to

insiders of other banks where a demand deposit was not maintained, there

was an average of nearly 4 loans, totalling $227,000 per bank.

B. Table 3

There were 50,583 loans to insiders of other banks reported in the

survey. These loans amounted to $4.8 billion, or about 0.8 percent of total

loans of all commercial banks as of September 30, 1977. Floating-rate loans

accounted for 29.6 percent of the number and 49.4 percent of the dollar

volume of loans to insiders of other banks.

Table 3 indicates that more loans were made when a demand deposit

was maintained by the other bank with the lending bank than when no balance

existed (57.9 percent versus 42.1 percent). Moreover, 72.8 percent of the

dollar volume of such loans was made when a demand deposit existed, com

pared to 27.2 percent when one did not exist.

As indicated in the weighted average rate column of Table 3, there

was an apparent relationship between the interest rate charged on loans to

insiders of other banks and the maintenance of a demand deposit at the

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