Last month’s bank chart on “who lends money” has opened our eyes, and most definitely our ears, to the fact that bank statements of condition may all appear uniform, but are not. Considering that the statements are published annually in newspapers so people can shop and compare banks, an explanation is in order.
On year-end bank statements, the amount of loans outstanding is listed in two places. Once in the balance sheet, representing loans outstanding on the last day of the year, and once in a memoranda section, representing average loans for the last 15 days of the year. Obviously the loan total on one single day could be manipulated more easily than a 15-day average, so we used the 15-day average figure.
All of these reports are submitted on uniform Federal Deposit Insurance Corporation forms. But we found there is a catch. The FDIC uses one formula to compute the 15-day average for national banks, and another formula to compute the same figure for state banks.
When we were setting up our chart, a national bank officer was consulted, who wasn’t aware that state banks’ 15-day loan figures are computed differently from those of national banks. After the chart was published, a state banker telephoned accusing other banks of not computing their loan figures correctly. He wasn’t aware that national banks computed theirs differently from state banks.
FDIC in Washington has cleared up the mystery. The 15-day figure for national banks is just what it says – nothing but loans. But the 15-day figure for state banks includes not only loans, but another asset – federal funds and securities.
So when you’re looking at a state bank’s condition the FDIC way, things get confusing. Using FDIC’s formula for determining the 15-day loan average, we found that Merchants State Bank, for instance, had 90.23 per cent of its deposits loaned out. But not really.
Using FDIC’s one-day formula, which includes nothing but honest-to-goodness loans, we find that only 77.06 per cent of Merchants’ total deposits were loaned out.
Further confusing this isan admission by FDIC thatunless a considerable discrepancy exists between theone-day loan figure and the15-day loan figure, FDICwon’t catch the errorsarising from miscalculations by the banks.
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