An analysis of the effect of bank management, market structure and economic conditions on nonmetropolitan bank lending performance in Tennessee: pre-and postderegulation

The primary objective of this thesis was to evaluate the effects of bank management, market and organizational structure and demand factors on bank lending behavior in pre~ and postderegulation periods. This study was composed of four separate but related models that described the total, agricultural, consumer and commercial/industrial lending practice of nonmetropolitan Tennessee banks. Multiple regression analysis based on eight years (1977-1984) of secondary data on nonmetropolitan Tennessee banks and counties was used to determine which factors (management, structure and demand) were significant in explaining bank lending. In addition, dummy variables were used to represent pre- and postderegulation periods and to test the hypothesis that the two periods represent separate structural models. Results indicated that bank management factors were significant in explaining lending practice in all four models. A banker's attitude toward risk, measured by the amount of government securities held and the level of nonperforming loans, affected lending overall and in each specific loan category evaluated. Both market structure, i.e., concen-tration level and amount of nonbank competition, and organizational structure, i.e., whether an independent bank or one affiliated with a holding company, affected bank lending practice in all except the agricultural model. The demand factor, income per capita, was only significant in explaining total and consumer lending behavior. The null hypothesis was rejected, suggesting that there are a difference in bank lending practice between pre- and postderegulation periods. These results suggested that deregulation will have an impact on nonmetropolitan capital markets. Deregulation is likely to result in more competitive markets with more affiliated institutions. Such conditions, if they occur in nonmetropolitan counties, suggest that lending to most sectors is likely to increase as a result of deregula-tion. However, the study was limited in terms of the relatively few postderegulation years included in the study. In addition, results of the agricultural lending model were severely limited by a lack of relevant data.