States dominated by community banks reported some of the lowest loan- to- deposit ratios nationwide, according to the Federal Reserve.

Regulators compiled the list as a way to determine whether interstate banks are making enough loans outside of their home states. A new federal rule requires that a bank branching into another state maintain a loan-to- deposit ratio there equal to at least half the average for banks based in that state.

That 50% rule makes it easier for banks to branch into states dominated by community banks, where loan-to-deposit ratios are low, said Karen Thomas, director of regulatory affairs for the Independent Bankers Association of America. "It's not too difficult for them to comply with the rule" in those states, she said.

The Fed said nine states, including New Mexico, Colorado, and Texas, have the lowest loan-to-deposit ratios, all below 70%.

Economists said small banks typically have lower loan-to-deposit ratios, because most do not have access to capital markets, and therefore must use deposits to fund loans.

Large banks, on the other hand, routinely post loan-to-deposit ratios above 100%, because they lend purchased funds in addition to their deposits. Those regional and money-center banks raise their home states' averages.

For example, Ohio, home to Columbus-based Banc One Corp. and Cleveland- based National City Corp., had a loan-to-deposit ratio of 105%. North Carolina, where First Union Corp. and NationsBank Corp. are based, posted a loan-to-deposit ratio of 100%. And Washington, with the highest figure, 111%, is home to big Washington Mutual Inc.

But Texas, which first allowed interstate branching in May, has no megabanks. In fact, 70% of Lone Star State banks hold less than $100 million of assets. The state's loan-to-deposit ratio is 69%.

Adrian R. Sanchez, a regional economist for the Federal Deposit Insurance Corp. in Dallas, said he was not surprised to see average ratios below 70% for all of the states in the FDIC's Dallas region, which includes Colorado, New Mexico, Oklahoma, and Texas.

"The '80s were not a good time here. We lost a lot of our major banks," he said. "People have a long memory and tend to be more conservative."

Rural community bankers are so conservative that loan-to-deposit ratios above 60% represent an increase from historical levels, said Keith Leggett, an economist at the American Bankers Association. Mr. Leggett said deposits at many small community banks are not growing as quickly as loan demand, which is one reason so many bankers are concerned about liquidity.

Though some community-bank-dominated states have conservative lenders, other rural states do not have enough loan demand, Mr. Leggett said.

That's the situation in Kansas, where economic growth has been flat and 85% of the banks and thrifts have less than $100 million of assets. The Sunflower State posted a loan-to-deposit ratio of 68%.

Other regions with low averages-the District of Columbia with 44% and Rhode Island with 67%-historically have had low loan-to-deposit ratios because few banks are based there, Mr. Leggett said.

But Mr. Leggett warned against drawing too many generalizations from the list, because the average ratios may be inaccurate. The Fed, which calculated the figures in conjunction with the FDIC and Office of the Comptroller of the Currency, could only estimate how much interstate banks lend in each state, because banks are not required to report to regulators where they make loans.

"They're making a lot of assumptions," Mr. Leggett said. "There's a lot of error associated with the list."

Making the list more accurate would be difficult, regulatory sources said. Congress has forbidden regulators to collect geographically specific loan data.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.