An analysis of commercial loan practices in the Youngstown-Warren SMSA and the commercial banks' ability to foster growth

Abstract

This study attempts to give insight into the Commercial Loan Practices of the Youngstown-Warren area banks, and in the process, raises some questions about their risk aversion. Secondary data was collected from various bank and bank regulatory sources which tends to support a very conservative attitude among bankers regarding commercial lending in the Youngstown-Warren Standard Metropolitan Statistical Area comprised of Mahoning and Trumbull Counties. If this geographical area is going to grow economically, then the degree of availability of funds for investment becomes a critical growth factor. The traditional philosophies held by bankers in this area exhibit a cautious attitude toward lending.

The research design used in this study compares the lending practices of the Youngstown-Warren SMSA banks to the lending practices of the banks in the Cleveland Federal Reserve District 4 and to the Federal Reserve System. An analogous geographical area was sought to be used as a basis for comparison. However, varying branch banking laws, industrial make up, growth patterns, and population size were important socio-economic inconsistencies which could not be resolved in the identification of a reference SMSA. The Cleveland Federal Reserve District was used as the base for measuring the Youngstown-Warren SMSA loan practices. The results of the statistical tests performed on the loan to deposit ratios and commercial loan to deposit ratios from the Youngstown-Warren SMSA banks, the Federal Reserve District of Cleveland, and the Federal Reserve System for all Commercial Banks in the U.S. indicate that most of the lending practices by the banks in the Youngstown-Warren SMSA do not conform to either national or district trends. The results support the conservative, cautious philosophy in lending to area firms.