Today's earnings squeeze can be difficult for lenders to deal with.

Costs of money market certificates of deposit are rising as the Federal Reserve has raised interest rates, yet the yields available on loans have generally not moved up to match this increase.

The result, as Roberta M. Probber, an analyst at Ryan, Beck & Co., has spelled out in that firm's weekly Banking Review, is that banks must decide "to lend or not to lend."

Ms. Probber wrote that, since lending today is not as profitable as a few months ago because of the margin squeeze, some banks have concluded there is no reason to push for growth.

There are, however, a number of institutions that feel they simply cannot turn off the spigot. These banks look upon the yield squeeze as a marketing opportunity to gain business by making loans at rates other banks will not match.

What banks are in this category?

First, there are those that are converting from thrift institutions to commercial lenders. They look at the hesitancy of others to lend at today's rates as an opportunity to show the commercial marketplace that they mean business, both literally and figuratively.

Second, some banks are trying to make inroads with companies in a new territory.

Both circumstances require an investment in marketing. But aggressive lending might not be as expensive as it first appears if the lender has a low average yield on the assets already on its books. Then lending without raising rates actually improves average yield on assets.

In addition, if a bank has been able to develop a source of funds at lower than the average rate being paid in its community, such as by building core deposits and thus easing its reliance on higher-priced CDs, aggressive lending without a rate increase can be justified.

But unless the bank has a pressing need to build market share, or has found a way to gather in funds at a lower cost than is generally available, the answer to the earnings squeeze that narrowed yields are bringing should be, "Just say no."

This can be a difficult decision.

Even confident bankers, seeing their competition offer higher yields or charge lower rates than the local market sets, frequently conclude that they cannot make money if they try to match their rivals. Being put in this position is an opportunity for self-examination, however.

If other banks can pay more than we do for deposits or charge less than we do for loans, figure out why before merely accepting it.

If they are trying to build a market position and are willing to sacrifice income for it, there is nothing you can do unless you want to give away the store.

But if self-examination shows that you are just not as efficient as you could be or are not pushing hard enough for lower-cost funds, then you have a spur to improve your methods and services.

Mr. Nadler, an American Banker contributing editor, is a professor of finance at Rutgers University Graduate School of Management in Newark, N.J.

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