WASHINGTON - Banks owned by out-of-state holding companies offer lower rates on small-business loans than in-state banks, a recent study by the Office of the Comptroller of the Currency found.

Though small-loan costs tend to be higher for out-of-state holding company subsidiaries, they generally still offer lower rates than banks owned by companies in the state, the study said.

"Out-of-state holding company subsidiaries do not systematically discourage small-business borrowing through their loan pricing," the study said, contradicting conventional wisdom. These banks "appear to be willing to accept lower margins on small commercial loans," the study said.

Allowing banks to cross state lines has spread risks, which keeps down costs and allows an institution to charge lower rates, said Mike ter Maat, senior economist for the American Bankers Association.

"This finding is very profound, because it shows these banks can offer lower prices - not because costs are lower, but because their risks are spread geographically," Mr. ter Maat said. "It allows out-of-state holding companies to participate more heavily in some markets than banks that aren't diversified."

The Comptroller's study examined data from the June 1993 call reports of 1,377 commercial banks in Illinois, Kentucky, and Montana. Two-year-old data from these states was chosen because branching restrictions were in place then, confining banks to operating in one county. This ensured that any advantages resulting from diversification could be attributed solely to a bank's out-of-state status.

About 83% of the 5.4 million loans in the reports were under $100,000.

The study also found that in proportion to asset size, out-of-state banks make at least as many small-business loans as in-state banks.

"A lot of people allege that the out-of-state companies make substantially less of these loans than other types of banks," said OCC deputy director of research Gary Whalen, who wrote the study. "I did not find that to be true."

In his study, Mr. Whalen also found that small, independent banks do not face a competitive disadvantage in the small-business loan market from larger banks owned by in- or out-of-state holding companies.

The costs community banks incur when making small commercial loans are lower, and the margins wider, than for banks from out-of-state, the study said.

"The independents will remain competitive because they can drop their margins if they have to," Mr. Whalen said.

Karen Thomas, director of regulatory affairs for the Independent Bankers Association of America, agreed that community banks can compete with bigger banks in the small-business loan market.

"I don't think community banks fear the out-of-state competition because they can offer a quicker response and better service to customers," Ms. Thomas said.

However, she voiced a broader concern that industry consolidation will leave community banks at a competitive disadvantage because out-of-state banks can better afford the cost of complying with regulations.

"Consolidation and regulatory burden could force out the community banks," Ms. Thomas said.

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