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

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 11 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 11 of the 15 unit banking states. Oklahoma, stock loans amounted to 7.4 percent of the total loans of banks with stock loans.

In one,

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.

25-629 - 78 - 5

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than in unit banking states. In only 4 of the 20 unrestricted branching

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 Illinois (9.2), Minnesota (7.7), and Iowa (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

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III. LOANS TO INSIDERS OF OTHER BANKS

A. Introduction

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 relationship. 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

survey.

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

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, compared 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