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A Comparison of Border and Non-Border Banks in Texas

Charles J. Ellard, Jerry Prock


Because of Mexico's economic problems, some people have asserted informally that the banks in the border area have an excess of cash because of the inflow of capital-flight money from Mexico. Others have contended that the increased movement of illegal drugs through the Texas-Mexican border area is a cause of a more deposit-rich banking industry in the region.

If these contentions are true, border banks should have a low loan-to-deposit ratio, low return on assets and tight capital adequacy relative to non-border banks. These conditions would be expected because of the peso devaluation and other factors that led to relatively slow economic growth in most border areas during the study period.

These contentions have never been tested systematically. If the contentions prove to be true, there could be important implications for the use of locally generated funds for economic development. Are bankers sending funds outside the area, keeping local rates high? Are bankers being too conservative in granting local loans? Are local banks on weaker economic footing than banks elsewhere? Does capital funding move from the border to non-border areas? Are banks just as profitable in the border area as elsewhere? If the contentions prove to be false, we would at least have learned something valuable about bank behavior in the border area: that is, proximity to Mexico is not a crucial factor in a bank's operations.

This study attempts to shed some light on the nature of bank operating characteristics in the border area and provide some answers to the contentions mentioned above. The purpose of the study is to identify the differences in operating ratios between banks situated on the border of Texas and Mexico and banks elsewhere in Texas.

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Print ISSN: 0886-5655
Online ISSN: 2159-1229