We are aware that many other banks in Arkansas have suffered similar losses, which will be available when data for all Arkansas banks can be compiled. Decreasing Loan Growth. The loss of deposits directly impacts the ability of banks to increase loans. Usually there is a lag in the effect, as banks try to meet commitments by buying Federal Funds and participating loans out, but sooner or later the high cost of funds forces limitations on loan volume. The attached table, Table 3, shows the change in loan volume for four periods, again for the major Little Rock banks due to lack of data for all Arkansas banks for 1978 and early 1979. The impact of rising rates in 1978 and high rates so far in 1979 is obvious. From an increase of $64 million in 1976, and $127 million in 1977, only $21 million more was outstanding by year-end 1978--which is the net result of growth in the first part of the year, and a reduction from mid-year on. In early 1979, as you can see, the reduction has continued, with about $6 million loss since the beginning of the year. These figures are exemplary of what happens in Arkansas, and why, when national interest rates rise and conflict with the Arkansas usury limit. Now, let me turn to a measure of the impact that these unmade loans have. Comparative Unemployment Rates. Arkansas is a relatively poor but growing state, and regularly outperforms the national economy in employment growth, unemployment rates, and income increases. But in times of high interest rates, which affect both the national and Arkansas economies, Arkansas loses ground relative to the nation. To show this impact, I have included Table 4, which compares unemployment rates for Arkansas, the Central Mississippi Valley Region, and the United States, which are published by the Federal Reserve Bank of St. Louis. The figures are for four time periods, two of which were "low interest rate" periods, and two "high interest rate" periods. By "low" and "high" we mean periods when the average bank interest rate was above or below 8%. What the table shows is that during the last high interest rate period (1973 to 1975), Arkansas lost just over one-half percent of its unemployment rate advantage compared to the nation. If we hadn't lost that ground, we would have had 4,604 more people with jobs at year-end 1975, than we actually had and our employment rate would have been .54% lower. We gained against the nation in the 1976-1977 lowerrate period, but so far have lost even more in this latest high-rate period. We are now above the national unemployment rate, and there are 5,654 fewer jobs at year-end 1978, in Arkansas, than would have existed if we had been impacted no worse than the national economy. The Central Mississippi Valley Region, which includes Arkansas, Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois, generally has a lower unemployment In low rate than Arkansas, but the adverse rate impact on Arkansas compared to the Region follows the same pattern. interest rate periods we move closer to the regional position, and lose ground during the high-rate period. You can also observe that the impact of high rates was less in the earlier high-rate period, during part of which we had the previous relief act in force (Public Law 93-501), than it has been so far in this high-rate period when there has been no relief. There is no doubt that for a good many years now Arkansas has succeeded in improving its economy, and we are trying in a variety of ways to solve this flow of funds problem. The unfortunate realities of our national economic difficulties have caught us unprepared. The passage of House Bill 2515 can provide some relief, particularly from the impacts I have shown in economic development and unemployment. I appreciate the opportunity to make this presentation and hope that I have helped explain our problem. Thank you. |