Bureau of Business Research 	<>q~4 
June 1991
College and Graduate School of Business, University of Texas at Austin ~~ 

The Texas Economy: Financing Availability 
Recovery from the 1986 downturn in the Texas economy has been slow and arduous by any economic measure. A variety of factors has contributed to the seemingly imperceptible slow pace with which much of the state is returning to prosperity: sagging oil prices (prior to the Kuwait crisis), the real estate glut, unprecedent­ed financial institution failures, and a regulatory environment that has handicapped the lending ability of the banking and thrift industries. En­

) 
tering the 1990s, 55 percent of Texas banks, representing 81 percent of Texas banking indus­try loans and 77 percent of Texas banking in­dustry assets, were lending impaired.1 
In an attempt to assess both the borrowers' and the lenders' perspectives, a survey of Texas businesses and lending institutions was under­taken during the summer of 1990. The results provide some important insights. 

The Borrowers' Perspective 
Surveys were mailed to all manufacturers and wholesalers (approximately 5,000) employing twenty-five or more persons and reporting sales or revenue amounts to the Bureau of Business Research for publication in the Directory of Texas Manufacturers and the Directory of Texas Wholesalers. Approximately 30 percent of the respondents (6 percent of those surveyed) showed revenues in excess of $10 million, and 80 percent had been in business more than ten years. 
Surveyed about the availability of commercial

r 	bank financing, borrowers were asked to indi­cate the number of both loan applications and loan approvals in the last twelve months. Respondents making application to Texas banks experienced an 81 percent approval rate as com­pared to the 70 percent approval rate for appli­cants to non-Texas banks. Not surprisingly, the most frequent applications and the highest rates of acceptance were for working capital and equipment financing loans. 
Borrowers were asked why loans were reject­ed, and an attempt was made to segment the reasons by credit factors and lender policy fac­tors. Among credit factors, lack of equity, poor earnings record, and excessive existing leverage were cited as the major reasons for loan denial. The most prevalent lender policy rejection rea­son was that the loan type was not handled by the lender. 
Many respondents not only completed the sur­vey but also provided additional comments. Three themes emerged. First, borrowers were dismayed at the collateral-to.-loan ratio required by lenders. A recent Fortune article echoed this point, noting that for a "$4 million loan you needed to guarantee $2 million personally and put up a $2 million certificate of deposit as col­lateral for the rest."2 A second concern was the apparent disregard for past credit history. One man, in business thirty years, wrote that he had "sought secured loans from fourteen banks un­successfully." Third, borrowers resented what they consider to be a "change in the rules" by the banking industry. Most comments on this point blame overly zealous regulators. 

The Lenders' Perspective 
Members of the Texas Bankers Association and the Texas Savings and Loan League were surveyed concerning loan approval rates today compared to two years ago, the relative impor­tance of factors affecting credit evaluation, ex­pectations concerning the level of economic activity during the 1991-1995 period, and the im­


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Analysis of Business Respondent Loan Application Status 
Panel A: All respondents 
Number of Approved Category · applications (percentage) 
Applied to Texas bank 270 81 Applied to Texas thrift 14 64 Applied to non-Texas bank 53 70 Applied to non-Texas thrift nm nm 
Panel B: Respondents in business 10 years or less 
Number of Approved Category applications (percentage) 
Applied to Texas bank  59  78  
Applied to Texas thrift  nm  nm  
Applied to non-Texas bank  19  89  
Applied to non-Texas thrift  nm  nm  

Panel C: Respondents in business more than 10 years 
Number of Approved Category applications (percentage) 
Applied to Texas bank  211  82  
Applied to Texas thrift  nm  nm  
Applied to non-Texas bank  34  59  
Applied to non-Texas thrift  nm  nm  

nm: not meaningful. 

pact of government regulation of banks. Ninety percent of the respondents (6 percent of those surveyed) had assets of less than $250 million. (Lender responses are skewed toward smaller banks, hence their comments may not reflect the experience of the overall Texas banking com­munity.) 
In recent years the state of the Texas economy and a restrictive regulatory environment for Texas banks have resulted in substantial changes in the ability and willingness of Texas banks to make loans. Compared to two years ago, current approval rates for real estate, working capital, and equipment loans showed substantial de­creases. In the case of entrepreneur and vehicle loans and letters of credit, a complete retreat from the market was noted for some lenders. When asked to indicate the importance of vari-
Approval Rates by Loan Type (percentage) 
Loan type* Approval rate 
Working capital 70 Equipment financing 71 Vehicle financing 59 Real estate financing 51 Letter of credit 85 
*listed in order of frequency applied for. 

ous factors affecting credit evaluation today ver­sus two years ago, bankers responded that cash flow, equity, and the level of existing debt are more important today; collateral and credit his­tory, less important. 
Lenders were generally optimistic about the level of economic activity expected in the short term (1991-1995). Only 18 percent anticipated unusually low economic activity for this period. (When borrowers were asked the same question, 11 percent anticipated unusually low levels of activity for the 1991-1995 period, indicating that borrowers, relative to lenders, are more optimis­tic for the short term.) Even less encouraging is the response of lenders as to how these expecta­tions will influence their lending opportunities. Twenty-six percent expected a decrease in lend­ing opportunities and 35 percent expected no change. 
In addition to completing the survey, many respondents shared their thoughts on the current state of the Texas banking industry. Dominating the comments was dissatisfaction with the heavy­handed way in which regulators were overseeing Texas lenders. 
Conclusion 

Few of the results presented here are surpris­ing to anyone who has observed the erosion of the Texas credit environment over the past few years. It is important to note the consistency of the borrower and lender responses. Both are keenly aware of the adverse impact of changing and inconsistent regulatory policies. Small to medium Texas businesses have traditionally looked to small to medium Texas banks for credit, and the changing regulatory environment 


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Employment and Unemployment Rate by Metropolitan Area 
Total nonagricultural employment (thousands)  Total employment (thousands)  Unemployment rate  
Area  Mar. 1991  Mar. 1990  Percentage change  Mar. 1991  Mar. 1990  Percentage change  Mar. 1991  

Abilene  48 .6  48.4  0.4  47 .9  48.0  -0.2  5.5  
Amarillo  77.5  76.8  0.9  90. 1  90.1  0.0  5.0  
Austin  383.8  374.5  2.5  423.4  412.6  2.6  4.4  
Beaumont-Port Arthur  148.2  139.6  6.2  158.8  149.7  6.1  6.4  
Brazoria  67.4  65 .3  3.2  83.4  81.1  2.8  5.2  
Brownsville-Harlingen  77.4  75.4  2.7  94.7  92.4  2.5  12.8  
Bryan-College Station  55.9  55. l  1.5  61.1  60.3  1.3  3.2  
Corpus Christi  137 .8  134.5  2.5  155 .8  152. l  2.4  7.0  
Dallas  1,374.7  1,365.l  0.7  1,364.9  1,357.9  0.5  5.6  
El Paso  209.7  206.4  1.6  226.7  223.5  1.4  10.7  
Fort Worth-Arlington  584.0  581.6  0.4  692.5  691.0  0.2  6.3  
Galveston-Texas City  76.4  75.2  1.6  102.0  100.9  1.1  6.8  
Houston  1,622.4  1,570.0  3.3  1,657.8  1,611.0  2.9  5.2  
Killeen-Temple  72.8  73.7  -1.2  89.1  89.9  -0.9  6.8  
Laredo  45.l  44 .0  2.5  47.7  47 .0  1.5  12.0  
Longview-Marshall  68.4  69.3  -1.3  72.7  74.2  -2.0  7.7  
Lubbock  98.5  97 .6  0.9  110.2  109.1  1.0  5.1  
McAllen-Edinburg-Mission  103.l  101.6  1.5  133.9  132.9  0.8  19.8  
Midland  44.8  43 .9  2.1  45.5  45.0  1.1  5.0  
Odessa  44.2  43.5  1.6  49 .0  48 .1  1.9  6.0  
San Angelo  36.7  36.2  1.4  41.3  41.6  -0.7  4.8  
San Antonio  518.0  519.7  -0.3  564.0  565.6  -0.3  6.5  
Sherman-Denison  37.7  37.5  0.5  44.5  44.7  -0.4  6.5  
Texarkana  45 .8  47 .l  -2.8  52.0  53.4  -2.6  7.5  
Tyler  62.2  61.8  0.6  69.6  69.4  0.3  6.5  
Victoria  28.7  27.7  3.6  34.6  33 .5  3.3  4.7  
Waco  82.6  81.4  1.5  87.7  86.6  1.3  5.7  
Wichita Falls  50.0  50.2  -0.4  51.7  52.0  -0.6  6.7  
Total Texas  7,093.4  6,989.5  1.5  7,978.0  7,874.0  1.3  6.4  
Total United States  108,610.0  109,343.0  -0.1  115,639.0  117,093.0  1.3  7.1  

Note: Data are not seasonally adjusted. Figures for 1990 have undergone a major revision; previously published 1990 figures should no longer be used. Revised figures are available upon request. All 1991 figures are subject to revision. 
Sources: Texas Employment Commission and U.S. Department of Labor, Bureau of Labor Statistics. 

Nonagricultural Employment 
In Five Largest 
Texas Metropolitan Areas 

(January 1984=1.00) 
1.35 
1.30 
Fort r ~-· ­
. 
­
. 
1.25 
1.20 
1. 15 
1. 10 
1.05 
1.00 
0.95 

J 0.90-lllfilHHllHHffllHllllHffHfffHlflHllHlfffiffffillffHIHHlfilHllllHffHfffHlffHt 1984 1985 1986 1987 1988 1989 1990 1991 
1.30 
1.25 
1.20 
1. 15 
1. 10 
1.05 
1.00 
0.95 
Total Employment 
In Five Largest 
Texas Metropolitan Areas 

(January 1984=1.00) 
Fort .. .·~ 
~ 

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has affected their ability to conduct business. Perhaps the feelings of both the business and banking communities are best captured in the comments of a bank respondent: "Congress needs to realize that our southwestern economy has been beset by all manner of economic set­backs and that a banker needs to be there for his customer in the bad times as well as the good times." 
Under the present regulatory structure, the banking system is severely constrained and, at the same time, insulated from the discipline of the market. Much of the regulatory structure was designed for a less sophisticated financial environment. The risk, inherent in the banking business, cannot be adequately addressed by regulation. A complete review of deposit insur­ance, capital requirements, and regulatory super­vision needs to be undertaken. The objectives should be to strengthen the banking system through simplification of regulation and to as­sess risk by increasing exposure to market dis­cipline. 
-Beverly L. Hadaway 
Associate Professor of Finance 
University of Texas at Austin 
Notes 
1. 
Harvey Rosenblum, "The Texas Credit Crunch," The Southwest &onomy (September 1990). 

2. 
John Davidson, "Brother, Can You Spare A Loan?" Fortune (August 27, 1990): 65. 


Texas  Population  
Other  by Race and Ethnicity, 1980  
Black  
Hispanic  
White  
0 10 20 30 40 50 60 70 


Percentage 
Texas Population by Race and Other Ethnicity, 1990 
Black 
Hispanic 
White 
Percentage 
Source: U.S. Bureau of the Census, 1990 Census of Population and Housing (data are subject to 
revision); 1980 Census of Population and Housing. 
Note: Graphics by the Bureau of Business Research staff. 

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Population in the Metropolitan Statistical 
Areas of Texas, 1980 and 1990 


MetroEolitan Statistical Area  1980  1990  Percentage change  
Abilene  110,932  119,655  7.86  
Amarillo  173,699  187,547  7.97  
Austin  536,688  781,572  45.63  
Beaumont-Port Arthur  375,497  361,226  -3 .80  
Brazoria  169,587  191,707  13.04  
Brownsville-Harlingen  209,727  260,120  24.03  
Bryan-College Station  93 ,588  121 ,862  30.21  
Corpus Christi  326,228  349,894  7.25  
Dallas  1,957,378  2,553,362  30.45  
El Paso  479,899  591,610  23.28  
Fort Worth-Arlington  973, 138  1,332,053  36.88  
Galveston-Texas City  195,940  217 ,399  10.95  
Houston  2,735,766  3,301 ,937  20.70  
Killeen-Temple  214,656  255 ,301  18.93  
Laredo  99,258  133,239  34 .24  
Longview-Marshall  151,752  162,431  7.04  
Lubbock  211,651  222,636  5.19  
McAllen-Edinburg-Mission  283,229  383,545  35.42  
Midland  82,636  106,611  29.01  
Odessa  115,374  118,934  3 .09  
San Angelo  84,784  98 ,458  16 .13  
San Antonio  1,071 ,954  1,302,099  21 .47  
Sherman-Denison  89,796  95,021  5.82  
Texarkana  75,301  81,665  8.45  
Tyler  128,366  151 ,309  17.87  
Victoria  68,807  74,361  8.07  
Waco  170,755  189,123  10.76  
Wichita Falls  121,082  122,378  1.07  

Source: U.S. Bureau of the Census, 1990 Census of Population and Housing (data are subject to 
revision); 1980 Census of Population and Housing. 
Note: Graphics by the Bureau of Business Research staff. 

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INONPROFIT ORG. I 
01353 SERIALS ACQUIS-GEN LIBRARIES 
BUREAU OF BUSINESS RESEARCH UNIV Of TX AT AUSTIN 
PCL 1.114 Austin, Texas 78713-7459 55 451 CA"PUS 
P.O. Box 7459 
Address correction requested. 
Editor: Lois Glenn Shrout 
Texas Business Review is published six times a year (February, April, June, August, October, and December) by the Bureau of Business Research, Graduate School of Business, University of Texas at Austin. Texas Business Review is distributed free upon request. 
Announcements 
By the time this issue reaches you, the Bureau should have detailed data from the 1990 census of population (generally referred to as STF-1). Included are breakouts by age, sex, and race, along with information on household and 
l 

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housing characteristics. Data are available for geographic areas down to the block group level. The Bureau is providing extractions from the computer tape on hard copy and diskette. Data displayed in this issue (charts on page 4; maps, page 5) were taken from summary tape PL 94-171. For more information, call (512) 471-1616. 
Implementing JOBS in Texas by Christopher King and Deanna Schexnayder is available through the Bureau's sales office. Presenting the findings from the initial evaluation of the Job Opportunities and Basic Skills (JOBS) pro­gram, this report also examines the status of welfare reform in Texas. For a copy of the report, call (512) 471-1616 (the cost is $8.00 plus tax).