Who Lends Money?

In case you happen to be shopping for a loan, you might like to know that not all Dallas banks take the same view toward lending money. Looking at financial reports from the city’s 48 banks, covering the year 1974, one finds some remarkable disparities. They range from Northwest National Bank, which lends very little of its money, to Merchants State Bank, which might have lent more than it wished.

An easy way to see which banks like to lend money is to look at the bank’s total deposits and see what portion of those deposits is loaned out. We found the average percentage of deposits loaned out during the last 15 days of 1974 to be 64.43 per cent. What that simply means is that $64.43 is loaned out for every $100 deposited with the bank. Most of the rest deposited is invested in cash or in federal, state or local securities.

Those with the lowest percentage of money loaned out obviously prefer to invest the bulk of their deposits in securities instead of loans, which implies a conservative banking philosophy. In extreme cases, the bank becomes subject to accusations that it is merely hoarding the neighborhood’s money instead of loaning much of it back out.

The lowest at year end 1974 was Cam F. Dowell Jr.’s Northwest National Bank with $22.40 loaned out for every $100 on deposit. Conservatism is apparent in three other of Dowell’s “affiliated banks,” Hillcrest State, Village National and Royal National. The largest single stockholders in those banks are Dowell himself and the Howard Corporation, a huge subsidiary of Republic National Bank.

At the other end of the spectrum, banks which have 80 or 90 per cent of their deposits loaned out face possible liquidity problems, meaning if they had to quickly convert their assets (a loan is an asset) to cash it would take quite a while. (The need to convert the loans is an unlikely event.) On the other hand, those banks which have most of their deposits invested in securities could turn them into cash quickly.

A good example of why some banks find themselveswith 80 or 90 per cent of their money loaned out can befound at The National Bank of Commerce. NBC’s outstanding loans dropped by $26 million during 1974, butmore than offsetting that drop in loans was a $61 milliondrop in deposits. The result is an increase in NBC’s loan-deposit ratio from 73.55 per cent in 1973 to 81.86 at yearend 1974.