New England Banks and the Texas Experience

by Katerina Simons
September/October1990

New England banks are currently suffering from problems similar to those that caused the demise of many Texas banks. In both cases, a boom in the real-estate sector was followed by a sharp contraction caused by weakness in the leading sectors of the economy. In both cases, banks had greatly expanded their real-estate lending, and the declining real-estate prices produced substantial loan losses.

This study suggests, however, that these similarities do not imply that New England will go on to repeat the Texas experience. The author finds that New England does not suffer from construction "overhang" to the same extent as Texas. Furthermore, the New England economy is more diversified, and can be expected to experience a more limited contraction.

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