The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
BuoinewKevtew
MONTHLY
IN
FEDERAL RESERVE BANK of CLEVELAND
THIS
ISSUE
Another Look at The National Product.
2
Business Loans: Interest Rates and
Loans to Small Borrow ers............
flutte t$56
21
o
B'f"Dollars During recent quarters, "consumer investment" has been rececf--------ing from unusually high positions, while "business investment"—
70 1
has been providing a continuing forward thrust.
BUSINESS
INVESTMENT
"Consumer investment" = consumption expenditures for durable
goods + new residential construction.
'Business investment" = new nonresidential construction +
producers' durable equipment + change in business inventories.
1948
1949
1950
1951
Seasonally adjusted annual rates, plotted quarterly.
9
1952
1953
1954
1955
1956
Another Look at the National Product
forward thrust in business trast to the investment activity of a strictly
investment, coupled with a temporary business nature (such as outlays for pro
A sluggishness in some aspects of consumer deducers’ durable equipment) which have pro
mand, has characterized the cross currents of vided the main element of upsurge in the total
business so far in 1956. The current situation business picture.(1)
in its main outlines, together with the course
Another
of events leading up to it, can be seen clearly ment of thereason for an expository rearrange
conventional classification of Gross
from a look at the major constituent parts of National Product lies in the fact that the latter
the Gross National Product.
reflects an intermingling of what might be
In this connection, certain rearrangements called “ growth sectors” and “ fluctuating
have been made in the usual form of presenta sectors.” Growth sectors refer to those parts
tion of the various components of GNP, in which are seen, in fact, to increase from quar
order to bring the picture into sharper focus. ter to quarter and from year to year with a
The discussions and charts which follow are relative persistence. Fluctuating sectors are
designed to that end. All of the data are from those which are relatively more volatile and
official estimates of Gross National Product more sensitive to short-run or cyclical changes;
and its parts, as published by the U. S. De they are the sectors which the trained observer
partment of Commerce. No adjustments or is apt to seek first in his reading of the latest
changes have been made within the compo returns.
nents or sectors.
Separating the fluctuating elements from
the growth elements is, thus, one hurdle to be
overcome when using GNP data to appraise
Why a Rearrangement?
the new aspects of a particular current situa
One reason for a rearrangement of the com tion. Furthermore, for some of the many users
ponent parts of the Gross National Product, of GNP data, it is not always easy to reconcile
for purposes of presentation, stems from the the message provided by broad GNP informa
fact that elements of consumer activity and tion with that provided by somewhat more
business activity are incompletely separated volatile measures of business activity, such as
in the conventional treatment. Thus, outlays the Federal Reserve Index of Industrial Pro
for residential construction are included, duction.
along with categories of a strictly business
nature, within a general classification known Growth Sectors
as “ Gross Private Domestic Investment.”
The accompanying Chart A shows a divi
From the point of view of explaining economic
development in terms of the decisions and sion of Gross National Product into the two
behavior of economic groups, residential con very broad groups of elements which may be
struction can be better classified with a group
ing of consumer categories. The point has spe
cial timeliness in any review of recent calendar
quarters when residential construction has
been showing some relative weakness, in con
c o n tin u e d
(1) The separation has been performed only roughly here.
Some parts of residential construction are business activities
rather than consumer. F or a more detailed separation, see
Flow of Fu nd s in the United States, 1 9 3 9 -1 9 5 3 (B oard of
Governors of the Federal Reserve System, W ashington, 1 9 5 5 )
particularly Chapter 15 and Appendix B .
2
considered, respectively, the “ growth sectors”
and the “ fluctuating sectors.” Quarterly
standings are shown, in terms of seasonally
adjusted annual rates, for the span from early
1948 through the first quarter of 1956, the
latest date for which information is available
at press time. Chart B shows in greater detail
what is included within the growth sectors.
The nature and composition of the growth
components may be considered briefly before
turning to a consideration of the fluctuating
sectors, which is the central point of interest
in any short-run analysis. (By contrast, a
longer-run view of the economy, spanning
many years or decades, might put more direct
emphasis upon the growth sectors.)
Of the three separate sectors depicted in
Chart B, the one for which the pattern of
growth is perhaps most clearly visible, and
most familiar, is the line labeled “ Consumer
Dividing the G r o ss National Pro d uct Into "g ro w th
se cto rs" and "fluctuating se cto rs" helps to focus
attention on the nature of short-term changes.
Billions of Dollars
“ Growth sectors” = consumer maintenance (Chart B)
-(-state-local government outlays
“ Fluctuating sectors’’ = “ consumer investment” (Chart C )
-[-“ business investment” -ffederal government
outlays-f-net foreign investment
C o nsum er expenditures for services, as well as
purchases by state-local governm ents, show a p er
sistent rise over the p eriod covered; consum er
expenditures fo r nondurable good s m ight likew ise
be co nsidered a " g r o w t h " sector.
Billions of Dollars
“ Consumer maintenance” = personal consumption
expenditures, other than for durable goods
Maintenance: Services.” (More exactly, in
GNP terminology, this is the ‘‘services ’’ com
ponent of the sector called “ Personal Con
sumption Expenditures.” ) Here, the growth
aspect is taken for granted by most users of
GNP data. The regularity of the increase stems
partly from its connection with underlying
population growth. Other factors which may
be at work are certain persistent structural
changes in the economy which appear to result
in the proliferation of service functions and
also, perhaps, some purely statistical factors
arising from the methods used in estimating
the aggregate values of current services.(2)
The very large component of Gross National
Product which is classified as Personal Con
sumption Expenditures for Nondurable Goods
refers to consumer outlays for food, clothing,
gasoline and a wide scattering of consumer
goods of the relatively “ nondurable” (or per
(2) The services component of G N P includes, for example, the
imputed value of current rents on owner-occupied homes. Such
inclusion is consistent with the general conceptual framework
of G N P , but many users of the data make a mental discount
for this item when they are interpreting the m eaning of shortrun changes in the national product.
3
haps semi-durable) sort. Chart B shows this
sector under the caption “ Consumer Mainte
nance: Nondurable Goods.” It is classified
here with the “ growth sectors,” with full
recognition that such an arrangement can be
subject to question. The plausibility of such a
treatment (at least in the context of the pur
poses at hand) may be seen from the general
postwar behavior of this sector, as depicted
by the first line under the total on Chart B.
Thus, in spite of some fluctuations which are
appreciable in aggregate dollar terms, the
main direction of the curve representing out
lays for consumer nondurable goods is a per
sistent and fairly steady rise. The fluctuations
are relatively infrequent and, in most cases,
are of minor amplitude if viewed in relative,
or percentage, terms. Fluctuation is distinct in
at least one of the scare-buying episodes of the
Korean period (that of the first quarter of ’51)
but departures from the gradual upward trend
are barely noticeable in respect to the sluggish
ness accompanying the general business reces
sions of ’49 and ’54. Altogether, the curve de
picting consumer outlays for nondurable
goods bears a much closer resemblance to the
outlays for services than it does to the sharply
fluctuating consumer outlays for durable
goods. (The latter is not plotted separately
here, but becomes part of “ consumer invest
ment” in Chart C.)
It will be recognized at once that a con
siderable part of the reason why consumer ex
penditures for nondurables show so much of a
persistent growth aspect, and so relatively few
significant fluctuations, is that expenditures
for food make up the largest single sub-com
ponent. A splitting out of expenditures for
clothing, or other soft-goods items of the types
generally handled by department stores,
would undoubtedly show more marked cyclical
or short-term variations than is the case with
the nondurables total.(3)
(3) This operation, of course, could be performed with statisti
cal materials generally available, but it would carry the re
arrangement of G N P to the point of splitting the conventional
sectors. That would be beyond the scope of the present rather
generalized treatment, which leaves the sectors intact while
altering only the m ajor groupings of sectors.
4
Outlays by state or local governments con
stitute the final factor which may be con
sidered eligible for inclusion within the
“ growth” elements of GNP. As shown by the
bottom line of Chart B, this series has demon
strated a steady upward movement in the post
war period, a development which has been
intimately connected with the nation’s general
economic expansion and with population
growth.
Altogether, the total of the growth sectors
(shown both on Chart A and Chart B) has had
an average quarter-to-quarter increase from
early 1948 through early 1956 amounting to
about iy 2 percent, compounded quarterly. It
would be a great mistake, of course, to assume
that any such rate of increase is automatic or
guaranteed. It simply represents what has
transpired during the period. An additional
point should be kept firmly in mind: all the
The total of the "fluctuating se cto rs" of G N P is
shown here, along with the principal components.
During recent quarters, "co n su m e r investm ent" has
been receding from unusually high positions, while
"business investm ent" has been advancing, and
Federal outlays have tended to be level.
Billions of Dollars
“ Consumer investment” = consumption expenditures for
durable goo ds+ new residential construction
“ Business investment” = new nonresidential construction
-(-producers’ durable equipment+change in
business inventories
quantities referred to here are dollar-value
estimates rather than physical quantities. That
suggests the need for a distinct qualification
to the meaning which can be attached to
“ growth” in this connection.
The Price Angle
Since the basic concept of Gross National
Product runs in terms of dollar-value esti
mates, and especially since the various parts
of GNP are ordinarily handled and understood
in such terms, there has been no attempt here
to deal with the various sectors of GNP in ‘ ‘de
flated” or “ constant-dollar” terms. But it
must be recognized that the values plotted in
the chart are partly the result of price changes.
Thus, during the entire period since early
1948, as depicted in the charts, general price
increases were exceptionally sharp during
late 1950; they were conspicuously absent dur
ing 1953 and 1954; since the middle of 1955
they have been again in evidence. Conse
quently, an adequate interpretation of the
rising trends shown in the charts, and of the
meaning of growth in that connection, would
require adjustment for the price factor.
General Composition
of the Fluctuating Sectors
When the growth sectors, as previously dis
cussed, have been subtracted from the aggre
gate of GNP, for analytical purposes, the re
maining or “ fluctuating sectors” appear as
shown in Chart C. The total of the fluctuating
sectors, traced by the top line, presents a more
vivid picture of short-term fluctuations of the
economy than does GNP in general. Thus, the
recessions of ’49 and ’54 stand out in rather
sharp relief; also, an over-all increase from the
beginning to the end of the period is evident,
but it does not dominate the pattern as in the
case of the ‘‘growth sectors. ’’
The fluctuating sectors, as here defined, are
composed of the following expenditure classi
fications, all of which are regularly published
as components of GNP:
1. Personal Consumption Expenditures
for Durable Goods
2. New Residential Construction
3. New Nonresidential Construction
4. Producers’ Durable Equipment
5. Change in Business Inventories
6. Federal Government Purchases of
Goods and Services
7. Net Foreign Investment
The first two of the above sectors, i.e. con
sumer durables and residential construction,
are combined and shown in Chart C (as well as
in the cover chart) under the caption “ Con
sumer Investment. ’’ Items 3, 4, and 5, i.e. non
residential construction, producers’ durables,
and inventory change, are summed up in the
chart under the heading “ Business Invest
ment. ’’
Federal government expenditures, as a com
ponent of GNP, are shown separately in Chart
C. The final item, “ Net Foreign Investment”
is not shown separately in the chart, although
its effect is included within the total of fluctu
ating sectors, as depicted by the top line. (Net
foreign investment amounts to a series of plus
or minus adjustments of the total, depending
on the new flow of the payments in the nation’s
international accounts. The magnitudes of this
item during the period covered are character
istically small as compared with the other sec
tors, although at some times the quarter-toquarter changes would represent significant
factors in the total.)
Significant Changes in the
Two Investment Sectors
Tracing the contrasting courses of “ Con
sumer Investment” and “ Business Invest
ment” during the past year or two gives the
clue to the main features of recent business de
velopments. (Chart C and cover chart) Rela
tive weakness in autos and housing has charac
terized the most recent calendar quarters,
5
while the upthrust of business investment has Role of Federal Government Outlays
provided the expansionary force to the econ
The bottom line Chart depicts the
omy. The decline in autos and housing, re terly standings ofofFederalCgovernment quar
pur
flected in what is called here “ consumer in chases of goods and services over the period
vestment,” has been from the extremely high under consideration. Such expenditures make
positions of mid-1955;(4) such positions last up a significant part of what are called here
year were considered at the time to be unsus the “ fluctuating sectors” of GNP. If the pat
tainable, at least by many thoughtful ob tern traced by the bottom line of Chart C is
servers, and more recent events have proved compared with the pattern traced by the top
the apprehension well founded.
line, or total of fluctuating sectors, it will be
The 1955 surge in autos and residential con seen that Federal government expenditures
struction, which accounts for the recent be have played a very important role, comple
havior of the consumer investment line, had mentary to that played by the two investment
been made possible by a running start in 1954. sectors already discussed, in shaping the total
It is interesting to note that each quarter of behavior of the fluctuating sectors.
the year 1954 showed a gain in consumer in
Thus,
vestment from the previous quarter, even dur tures — itinwas Federalofgovernment expendi
the
ing the first two quarters which were charac course — which form defense outlays, of
provided the upward slope
terized by general business recession.
during the Korean War period, i.e. from the
By contrast, the course of business invest third quarter of ’50 through the second quar
ment had been generally downward during ter of ’53. Likewise, the decline in Federal
1954 until the final quarter of that year. In government expenditures, which was quite
fact, business investment (including plant and marked from the third quarter of ’53 through
equipment ex p en d itu res, and inventory the second quarter of ’54, was the largest
changes) had been a major depressing factor single influence in the decline of the total
during the mild business recession of mid-’53 “ fluctuating sectors” line during the recession
to mid- ’54. Thus, the turn toward the general of ’53- ’54; it shared, however, with ‘‘business
business recovery which took place in mid- ’54 investment ’’ in the downward pull during that
was attributable not to any improvement in episode.
business-investment activity at that time, but,
Beginning with the second half of ’54
as already noted, to the lift provided by the
consumer-investment sector. Stated in another and through the latest returns, a stabilization
way, it appears that the business-investment or leveling has occurred in the main direction
side of the economy (especially the large part taken by Federal government expenditures,
of it represented by plant and equipment ex including defense outlays. Changes during
penditures) was somewhat more sluggish on the past two years in the top line of Chart C,
the upsweep of the cycle in ’54 than has usually or total fluctuating sectors, therefore, have
been the case at cyclical turning points.(5) been brought about almost alone by the be
Business investment, however, surged in ’55, havior of the consumer-investment and the
and, as already noted, is providing a continu business-investment sectors.
ing element of expansion in ’56.
(4 ) Outlays for consumer durables other than autos and parts
leveled off (on a seasonally adjusted basis) during the fourth
quarter of ’ 55 but showed a resumed increase during the first
quarter of ’ 5 6 . The latter increase is estimated to have been at
an annual rate of about a half billion dollars. (See S u rvey of
Current Bu siness, U . S. Department of Commerce, M ay 1956 ,
p .2 .) Thus, so far as the first quarter of this year is con
cerned, the line depicting “ consumer investment” declines
somewhat less sharply than it would if it were limited to autos
and housing, without the other consumer durables.
6
( 5) See article in the September 1 9 5 5 issue of this R eview ,
entitled “ Consumer B uying and Business B u yin g.” That arti
cle noted the developing shifts in the relationship between con
sumer investment and business investm ent; it w as, perhaps,
slightly premature in spotting the shift away from consumer
investment and toward business investment as the bulw ark of
current activity. (A s it turned out, the third quarter of ’ 55
constituted the peak of consumer investment, although the data
for that quarter were not yet available in September.) The
method of rearranging G N P sectors utilized in the earlier
article w as essentially the same as, although less fully de
veloped than, the one employed here.
Com parison with
Industrial Production Index
The rearrangement of the sectors of GNP
which has been essayed here is suggested not
only for a better understanding of the mean
ing of GNP changes in themselves, but also,
perhaps, for a better understanding of the re
lation of GNP data to other broad measures
of business change.
Take, for example, the Federal Reserve
Index of Industrial Production. Differences
between the path traced by that index and the
path followed by GNP are sometimes a source
of puzzlement to consumers of business statis
tics. Especially may that be the case, if the
user of the two sets of statistics makes in
sufficient allowance for the effect of some of
the principal defined differences between the
two measurements, e.g. that: (a) the Index
of Industrial Production is a physical-volume
measurement, whereas GNP is an estimate of
dollar values, including the influence of price
changes, and that (b) the coverage of GNP is
substantially wider, insofar as it includes cer
tain important segments such as construction
and consumer services which are not part of
the subject matter treated by the Industrial
Production Index, as presently constituted.
Now suppose that a series showing the
“ fluctuating sectors” of GNP, as defined
above, is selected for comparison with the
course traced by the Industrial Production
Index. The correspondence between the two
(not charted here) would be seen to be con
siderably closer than the correspondence be
tween the aggregate of GNP and the Indus
trial Production Index. Even so, divergences
are marked.
If, further, the “ durable goods manufac
tures” component of the Industrial Produc
tion Index is selected for comparison with the
“ fluctuating sectors” of GNP, the similiarity
of patterns becomes rather striking. That is
shown by the accompanying Chart D, for the
same period as that covered by the previous
charts, i.e. for the first quarter of ’48 through
the first quarter of ’56. (Both series are shown
in terms of index numbers on a ’47-’49 basis.)
W hen the "fluctuating se cto rs" of G N P are co m
pared with the "d u ra b le good s m an ufactures"
com ponent of the Industrial Production Index, a
close similarity of pattern in quarter-to-quarter
changes may be observed.
1 9 4 7 -4 9
-
100
The principal difference between the two
curves is seen to lie in the matter of level
rather in the quarter-to-quarter patterns of
change. Thus, since the third quarter of 1950,
the position of the fluctuating sectors of GNP
(in relation to the base period) is substantially
higher than that of the durable-goods manu
factures component of the Industrial Produc
tion Index. That is mainly because of the in
fluence of price increases, which register by
definition upon GNP but not upon the Indus
trial Production Index.
Disregarding the differences in level, then,
the similarity of quarter-to-quarter changes
between the two series is a matter of consider
able interest. It suggests the following: (a)
The essential findings of GNP and of the In
dustrial Production Index are closer together,
and tend to corroborate each other to a greater
extent, than is often supposed, (b) The dur
able-goods sectors of the economy, because of
their volatility, are once more seen as highly
strategic for the interpreting of short-term
general business changes; if carefully utilized,
data toward this end may be drawn from GNP
7
information or from other sources, and much
the same story should emerge.
Outlook
The materials outlined above can be used as
a framework for considering the questions in
volved in the present business outlook; by
themselves, of course, they provide no defini
tive answer.
Consider, for example, Chart C or the cover
chart, with special reference to the trends of
consumer investment and business investment.
One consideration to be noted is that, to the
extent that there are problems or threats of
price inflation in the current and immediately
prospective situation, such problems would
have been even greater if the colored line
representing consumer investment were still
maintaining the upward thrust evidenced in
mid- ’55, concurrently with the business-invest
ment line pushing forward.
Secondly, the current advance of business
investment, if continued (as seems highly
likely in view of reasonably firm plans for
capital expansion) would seem to carry the
possibility that the enlarged payrolls so en
8
gendered will result in a turnabout of the ‘‘con
sumer investment” line toward a renewed
rise. If that occurs, fears of recession will fade,
and the problem of containing inflationary
tendencies will become greater than at present.
Observers of a different frame of mind can,
if they desire, read a different outlook from the
materials provided by Chart C. If consumer
takings (already weakened in some respects)
should decline markedly, the growth of the
business-investment line would likely be im
periled. Conceivably, that could occur both in
respect to a shift away from inventory accum
ulation and a downward modification of the
present plans for capital expansion.
Those who hold to the latter school of
thought might, perhaps, make a point that
even in our chart showing, the latest entry for
the total of “ fluctuating sectors,” as of the
first quarter of ’56, shows a decline (although
a slight one) from the previous quarter. How
ever, to argue on the basis of that slender
showing that the “ peak” has already been
passed should be considered a hazardous in
ference, and would probably be recognized as
such by even the more “ bearish” of presentday observers.
Business Loans
Interest Rates and Loans to Small Borrowers
of business loans at member (assets over $5 million) the amount of loans
banks, conducted by the Federal Reserve declined from 48 to 43 percent of the total;
System in October, 1955, revealed a number ofhowever, the number at both survey dates re
important changes since 1946 in the charac mained proportionally the same—2 percent of
teristics of such loans and the terms on which total business loans.
credit is extended.(1) The discussion and charts
In the
the
which follow deal with business loans by size percentageintermediate borrower groups,with
of business loans to firms
of borrower, with special reference to small assets from $50 thousand to $250 thousand
business; also included is an analysis of the rose from 16 to 18 percent of the total amount
interest rate structure of business loans of and from 22 to 36 percent of the total number
Fourth District member banks.
of loans. In the borrower class with assets from
$250 thousand to $5 million, the increase in
amount was from 25 to 32 percent and from
Loans by Size of Borrower,
7 to 13 percent in number.
1946 and 1955
The rise in the general price level since
The 1955 survey indicated that business loan and the consequent upward valuation of 1946,
busiportfolios of Fourth District member banks
continued to be composed primarily of loans
to both the small and medium-size borrowers, BUSINESS L O A N S BY SIZE OF BO RRO W ER,
in terms of the number of loans. There was also
19 4 6 A N D 1 9 5 5 1
evidence, however, of a significant shift since
1946 from the largest and smallest classes of
Fourth District Member Banks
borrowers to the intermediate-size group. A
(Percent of Total)
comparison of business loans by size of bor
rower is given in an accompanying table for
Number
Dollar
1946 and 1955.
Size of Borrower
of Loans
Amount
Between 1946 and 1955, the proportion of (Total assets in thou
sands of dollars)
business loans going to the smallest size bor
1955 1946 1955 1946
rowers (assets under $50 thousand) declined
from 11 to 7 percent of the total dollar amount Less than 50................ 49% 69% 7% 11%
and from 69 to 49 percent of the number of 50 - 250........................ 36 22 18 16
250 7 32
25
loans. Likewise, for the largest size firms 5,000 5,000.................. 13
and over............ 2
2
T
h e
su rvey
43
(1) This is the second of several articles dealing with the sur
vey results for the Fourth District. The first article was “ Loans
to B usiness by Member B anks” , Monthly B u siness R eview ,
M ay, 1 9 5 6 , dealing with changes in business loans since 19 4 6
by type of business, by size of bank, and by maturity of loan.
48
All borrowers.......... 100% 100% 100% 100%
1Survey dates: N ovem ber 20, 1946 and October 5, 1955.
9
ness assets, along with the growth in the vol
ume of business activity, probably accounts
for the shift in the distribution of business
loans from the smallest to the intermediatesize categories of borrowers. (The shift may
also be attributable in part to change in the age
distribution of business.) At the other end
of the scale, the increased importance of re
tained earnings and depreciation reserves as
sources of business financing in the postwar
period may explain the decline in the relative
importance of the dollar volume of loans to the
largest firms.
Size of Borrower and Size of Bank
With regard to the number of business loans
at District member banks, predominance of
borrowers with assets under $250 thousand
was a phenomenon which held true not only
for any one particular size of bank, but for all
bank sizes. (See Table 1 for details.) Bor
rowers with relatively small total assets (i.e.,
under $250 thousand) accounted for 94 per
cent of the number and 84 percent of the dollar
volume of business loans at banks with de
posits of $10 million and less. At medium-size
banks (deposits from $10 to $100 million)
borrowers with assets under $250 thousand ac
counted for 85 percent of the number and over
half of the dollar volume of loans. At the
largest size banks (deposits of $100 million and
over) almost three quarters of the number of
borrowers represented firms with assets under
$250 thousand, even though the dollar volume
of loans to this group was only a little over
one-fifth of total loans outstanding.
In the case of the small banks, there were no
loans reported to borrowers with assets over
$25 million, and at all bank sizes the propor
tion of the number of loans to borrowers with
assets over $1 million was well under one-tenth
of total loans reported.
Loans to Small Business
Over the past twenty years, serious concern
has been expressed regarding the ability of
small firms to enter business, to survive, and to
prosper. Underlying this concern has been the
10
belief that the long-run health of the economy
requires the continual fostering of young
firms, as well as a wide participation in risktaking which is necessary to a dynamic, freeenterprise economy.
As a part of the problem, attention has been
directed to the adequacy of credit and capital
for small business. It is important to recognize,
however, that financing is not the most critical
problem in many cases. Authoritative studies
have indicated that small firms are often in
greater need of managerial or technical assist
ance, or improved accounting and record keep
ing. While the needs of small business are thus
much broader than obtaining credit or capital,
financing requirements are still vitally im
portant.
There are several ways in which this com
plex question of the adequacy of credit for
small business may be approached. One way is
to consider the general structure of banking
facilities. From the standpoint of structure,
the commercial banking system of the country
is well designed to accommodate the credit
needs of small, local firms. Banking services
are provided in the United States by more than
14,000 banks, most of which are themselves in
the ‘‘small business ’’ category. This stands in
contrast to most other countries, which fea
ture a handful of large branch - banking
systems.
Small unit banks, which blanket the United
States, are an important source of short- and
intermediate-term credit to small business. In
addition, a significant part of the lending
activities of large banks is directed at serving
small business. To the extent that the credit
needs of small business are “ bankable” , the
United States banking system is well designed
to meet them.
A more significant approach to the question,
however, is to measure the number of smallbusiness loans actually made by banks. In this
regard, the 1955 survey of business loans has
provided fresh evidence as to whether small
business firms are getting an equitable share of
credit at commercial banks. The survey results
indicate that, of total loans to business by
Fourth District member banks, 60 percent of
the number of loans were to “ small” borrow
ers, as defined below, with an additional 30
percent of the number of loans being made to
“ medium-size” business firms. In terms of
dollar volume, small and medium-size bor
rowers accounted for 40 percent of total busi
ness loans. These figures generally confirm the
results of the previous survey of business loans
of member banks, made by the Federal Re
serve System in 1946. At that time, as well as
in 1955, Fourth District member banks of all
sizes indicated a broad participation in loans
to small business, as well as a wide variety of
credit practices designed to meet the financing
requirements of small firms.
“ Small” , “ Medium,” , and “ Large” Bor
rowers. Despite the attention given to the
problem of small business in recent years,
there has been no universal agreement as to
what constitutes a “ small” business.(2) The
analysis below of the share of business loans
going to various sizes of business is based on
the following definitions, which are believed
to be most meaningful when measuring size of
business by total assets alone:
(1) For business firms in the areas of
manufacturing and mining, commodity
dealers, sales finance companies, and pub
lic utilities, “ small” borrowers are those
with assets under $1 million; “ medium
sized” borrowers are those with assets of
$1-5 million; and “ large” borrowers are
those with assets over $5 million.
(2) For firms engaged in wholesale and
retail trade, construction, real estate, and
all other nonfinancial business, “ small”
borrowers are those with assets under $50
thousand; “ medium-size” borrowers are
( 2) The Small Business Administration has recently adopted a
set of size standards, based on number of employees in some
cases and volume of sales or receipts for other types of busi
ness, which may become authoritative. Since total assets of
the borrower was the only measure of size of business which it
w as feasible to secure in the Business Loan Survey, the dis
tinctions of “ small” , “ medium” , and “ large” borrowers which
are used here are necessarily based on total assets alone. The
distinctions were made, however, after consultation with the
Small B usiness Adm inistration.
those with assets of $50-250 thousand;
and “ large” borrowers are those with
assets over $250 thousand.
Two accompanying charts portray the share
of business loans made by Fourth District
member banks to small, medium, and large
borrowers, as defined above, in various busi
ness lines. For all types of manufacturing and
mining, as well as for public utilities and com
modity dealers, an overwhelming proportion
of the total number of business loans goes to
small business, i.e., a proportion ranging from
84 to 94 percent of the total. When mediumsize borrowers in the above lines of activity are
added, the share of the total number of loans
represented is from 96 to 98 percent. Only in
the case of sales finance companies did smalland medium-size borrowers account for less
than 90 percent of the number of loans. (See
Tables 2 and 3 for details.)
The average size of loans to small businesses
in manufacturing and mining, public utilities,
and commodity dealers ranged from $7,200 to
only $15,900. In contrast, the average size of
loans to large firms in the same lines of activity
was as high as $1 million. (See Table 3.) It is
thus to be expected that the share of the total
dollar volume of loans going to small business
would not be as large as the share of the total
represented by the number of loans. Neverthe
less, of total business loans to the above types
of business, loans to small business ranged
from 13 to 37 percent of the dollar volume.
Only in the case of sales finance companies,
public utilities, and firms engaged in the man
ufacture of petroleum, coal, chemicals, and
rubber products did small- and medium-size
business together account for less than half of
the dollar volume of business loans to the re
spective industry groups.
The types of businesses portrayed in the
second chart—trade, construction, real estate,
and all other nonfinancial firms—are in
herently much smaller in terms of total assets
than those discussed above, mainly because of
a much lower relative need for investment in
fixed assets. Hence the definition of a “ small”
business in such lines of activity involves a
11
L O A N S BY S IZ E O F B O R R O W E R — B U SIN E SS TYPE I
Commercial and Industrial Loans, Fourth District Member Banks,
October 5, 1955
DOLLAR
20
— I
M AN UFACTURING 8 MINING:
AMOUNT
P e r c e n t o f To ta l
40
60
I
I
I
I
80
1
I
IO O
I
I
Food,Liquor 8 Tobacco
Textiles,Apparel 8 Leather
Metal 8 Metal Products
Petroleum ,Coal, Chemicals
8 Rubber
Other M anufacturing
O T H ER:
Commodity Dealers
Sales Finance Companies
Public Utilities
LOANS TO
LOANS TO
LOANS TO
LOANS TO
LO ANS TO
"SM A LL"
"MEDIUM"
"LARGE"
"SM A LL"
"MEDIUM"
"L A R G E "
BO RRO W ERS
BO RRO W ERS
BO RRO W ERS
BO RRO W ERS
BO RRO W ERS
BO RRO W ERS
LO A N S TO
Small borrowers accounted for over 80 percent of the total number of
business loans to almost all the types of business shown here.
“ Small”
Borrowers = those with assets of less than $1 million
“ Medium” Borrowers = those with assets of $1-5 million
“ Larg e”
Borrowers = those with assets of over $5 million
considerably lower figure for total assets than
in manufacturing or mining, for example.
Of the total number of business loans at Dis
trict member banks to trade, construction, real
estate, and all other nonfinancial firms, the
share going to small business averaged over
50 percent, ranging from 29 percent in whole
sale trade to 60 percent in the case of “ all
other nonfinancial’ ’ borrowers. Medium-sized
12
borrowers accounted for an additional 37 per
cent of the number of loans to these lines of
activity. Thus, large borrowers received only
11 percent of the number of loans. (See
Table 3.)
The average size of loan to small borrowers
varied from $2,600 in the case of retail trade
to $4,400 in the case of real estate firms. In
contrast, the average size of loan to large bor-
L O A N S BY S IZ E O F B O R R O W E R — B U SIN E SS TYPE II
Commercial and Industrial Loans, Fourth District Member Banks,
October 5, 1955
N U M BER
0
W H O LESALE
R E T A IL
20
OF
LO AN S
P e rc e n t o f T o ta l
40
60
DOLLAR
80
100
0
20
AMOUNT
P e rc e n t o f T o ta l
40
60
80
100
TRADE
TRADE
C O N S T R U C T IO N
REAL
OTHER
ESTATE
N O N F IN A N C IA L
LOANS TO
LO ANS TO
LOANS TO
LO AN S TO
LO AN S TO
"SM A LL"
"MEDIUM"
"LARG E"
"S M A L L "
"MEDIUM"
"L A R G E "
BORROW ERS
BO RRO W ERS
BO RRO W ERS
BORROW ERS
B O RRO W ERS
BO RRO W ERS
LO AN S TO
O f the total number of business loans, to the industry lines shown, the share
going to "small business" ranged from 29 percent in the case of wholesale
trade to 56 percent for retail trade .
“ Small”
Borrowers = those with assets of less than $50,000
“ Medium” Borrowers = those with assets of $50,000-$250y000
“ Larg e”
Borrowers = those with assets of over $250,000
rowers in these types of business ranged as
high as $78,000. Consequently, the share of the
dollar volume of loans to small borrowers was
smaller than that of the number of loans. Al
together, small borrowers in the fields of trade,
construction, real estate, and “ other” (includ
ing service firms) accounted for 13 percent of
the total dollar volume of business loans to
such lines of activity, while medium-size bor
rowers accounted for an additional 32 percent.
Summary. The continued preponderance of
the number of loans made to small- and medi
um-size business firms at District member
banks suggests that, if any gap exists in the
financial facilities for such firms, it is not in
the area of short- and intermediate-term
credit, which banks are prepared to provide.
Other studies point to the conclusion that the
major area of unsatisfied demand for funds
by small business involves long-term loans as
well as equity capital; the latter are not suited
to bank loans and investments.(3)
A verage Interest Rates
The 1955 survey indicates that the average
interest rate paid by business borrowers at
District member banks was 4.2 percent, as con
trasted with 3.1 percent in 1946. The increase
reflects the general upward trend of interest
charges experienced by the economy during
most of the postwar period. The higher cost of
( 3) See, for example, “ External Financing of Small- and M edi
um-size Business” , S u rvey of Current B u siness, U . S. D epart
ment of Commerce, October, 1 9 5 5 , pp. 15-21.
13
borrowing for business purposes, and for other
purposes as well, can be attributed mainly to
the postwar surge in consumer and business
demand for goods and services, accompanied
by a heavy demand for funds. Pressures that
depress interest rates, such as slowdowns in
business activity, have been short-lived during
the postwar period; the economy has re
affirmed its resilience and moved to new highs
after each setback.
Within this framework of a rising level of
interest rates, the rates charged by banks on
business loans are also affected by the size,
type, and corporate status of business bor
rowers, as well as by the maturity of the loan.
Differences resulting from these factors in
October 1955 are indicated in Tables 4 and 5.
The most pervasive single factor was the asset
size of the business borrower, which is closely
related to the size of loan.
Asset Size of Borrower. It is not surprising
that size of borrower overshadows other con
siderations in interest-rate determination. The
initial cost of making a loan—credit investiga
tion, consultation, legal checks, completing
forms, and accounting requirements-—must be
spread over the expected income. Since initial
costs do not vary as much between large and
small loans, the latter tend to carry higher
interest rates in order to absorb the relatively
higher overhead costs. Also, the direct relation
of size of business to size of loan implies some
rate differential due to the smaller risk in mak
ing loans to large firms.
Generally, large borrowers were charged
lower rates than small borrowers, whether
classified by corporate status, size of bank,
type of business, or term of loan.
Corporate Status of Borrower. Incorporated
borrowers appeared to pay a lower average
interest rate on business loans than unincorpo
rated borrowers, other things being equal, in
over half the cases. The difference was not
marked, however, and the results were not
uniform as among types and sizes of business
and maturity of loans. The only outstanding
case of lower rates to incorporated borrowers
was that of short-term loans to borrowers hav
14
ing total assets of less than $250 thousand. If
differences in business of b o rro w er are
ignored, incorporated borrowers of most sizes
obtained lower rates than unincorporated bor
rowers on loans maturing in one year or less,
with the reverse being true for loans maturing
in over one year.
Deposit Size of Bank. The average interest
rate on total business loans at large member
banks was lower than at smaller member
banks. Banks with less than $2 million in total
deposits charged an average rate of 5.8 per
cent. The rate decreased, as bank size in
creased, to 3.9 percent at banks with total de
posits of $500 million or more.
Such differences in rate among banks of dif
ferent sizes is mainly attributable to the pre
ponderance of large loans and larger borrow
ers at the bigger banks, at least with respect to
the dollar volume of business loans. Since the
maximum loan to any one borrower at member
banks is usually limited by law to 10 percent
of the bank’s unimpaired capital and surplus,
the demand of large firms for large loans
naturally focuses on the bigger banks. A com
parison of interest rates at various size-classes
of banks on loans to the same type and size of
borrower and the same maturity, however, in
dicates that there was no general tendency for
any given size of bank to charge higher or
lower rates than any other size of bank. (See
Table 6 for details.)
Type of Business. Average interest rates
paid by various types of business ranged from
3.5 percent paid by sales finance companies to
5.8 percent paid on the average by construc
tion firms. Typically, sales finance companies
obtain large single loans while construction
firms obtain separate, smaller loans for each
project.
Again, size of borrower appears to be the
major influence. For all types of business,
larger borrowers obtained lower rates. All
types of manufacturing firms paid average
rates lower than wholesale and retail trade
firms. In the miscellaneous industry classifica
tion, service firms (which tend to be small)
{Text continued on page SI)
Table 1:
BUSINESS LO A N S BY BUSINESS OF BO R RO W ER A N D SIZE OF BA N K
Fourth District Member Banks, October 5, 1955
SIZE OF BORROWER
(Total assets in thousands of dollars) All Banks
Bank Size (total deposits in millions of dollars)
Less than 2
2 - 10
10-20
20-50
50 - 100
100 - 250
250 - 500
500 and
Over
A m o u n t o u t s t a n d in g — t h o u s a n d s o f d o l l a r s
Less than 50.........
50 - 250.................
250 - 1,000...........
1.000 - 5,000........
5.000 - 25,000....
25.000 - 100,000..
100.000 and over.
All borrowers
130,222
339,282
292,760
327,748
238,319
189,901
408,834
1,927,066
3,508
2,055
297
27
106
5,993
40,066
56,569
13,445
1,654
381
974
1,498
114,587
23,149
58,526
28,868
5,282
848
368
1,587
118,628
15,582
49,052
26,016
13,328
4,686
567
2,936
112,167
15,054
64,297
65,410
27,960
9,917
1,782
7,449
191,869
11,773
38,973
48,354
77,920
30,107
10,694
45,488
263,309
6,842
32,732
60,233
71,153
45,779
45,997
50,369
313,105
14,248
37,078
50,137
130,424
146,495
129,519
299,507
807,408
5,230
4,884
1,694
465
53
20
38
12,384
2,154
2,419
961
462
81
36
84
6,197
2,424
2,952
1,404
525
171
126
86
7,688
5,322
2,976
1,135
542
193
151
483
10,802
N um ber of L oans
Less than 50..................................
50 - 250.........................................
250 - 1,000....................................
1,000 - 5,000.................................
5,000 - 25,000...............................
25,000 - 100,000...........................
100,000 and over............
All borrowers.......................
46,097
34,549
9,672
2,653
603
374
810
94,758
1,327
527
48
11
10
1,923
13,566
7,594
935
127
11
26
38
22,297
10,844
8,361
1,733
227
40
4
32
21,241
5,230
4,836
1,762
294
44
11
49
12,226
Table 2 :
BUSINESS LOANS BY TYPE OF BUSINESS AND SIZE OF BORROWER
Fourth District Member Banks, October 5, 1955
Size of Borrow er (total assets in thousands of dollars)
BUSINESS OF BORROWER
All Borrowers
Less than 50
50-250
250-1,000
1,000-5,000
5,000-25,000
25,000-100,000
100,000 & over
A m o u n t O u t s t a n d i n g , in t h o u s a n d s o f d o l l a r s
Manufacturing and mining—total..............
660,669
Food, liquor, and tobacco............................ 79,793
Textiles, apparel, and leather...................... 26,888
Metals and metal products.......................... 310,557
Petroleum, coal, chemicals and rubber.. . . 122,181
All other manufacturing and mining......... 121,250
18,397
4,529
228
5,466
3,305
4,869
67,999
10,274
2,894
30,481
6,515
17,835
80,297
9,619
3,953
39,080
5,963
21,682
166,345
15,954
15,928
91,010
5,943
37,510
121,410
20,092
2,251
54,441
19,764
24,862
89,223
13,243
1,567
22,932
44,599
6,882
116,998
Trade—total.......................................................
Wholesale......................................................... 117,453
Retail................................................................ 273,418
390,871
54,414
5,604
48,810
117,008
29,560
87,448
79,813
35,357
44,456
62,358
37,959
24,399
15,942
7,565
8,377
20,141
1,179
18,962
41,195
Other—total.......................................................
875,527
57,412
99,045
100,967
80,537
250,641
15,181
Sales finance companies................................ 223,407
Transportation, communication, and other
public utilities............................................. 222,659
Construction.................................................... 103,458
Real estate....................................................... 135,586
Service firms.................................................... 105,528
All other nonfinancial................................... 69,708
All businesses.......................................... 1,927,067
735
49
6,728
9,579
7,071
24,575
8,675
130,223
154,275
2,542
3,188
9,743
34,592
35,210
48,497
20,503
339,282
132,650
Manufacturing and mining—total..............
16,251
3,289
565
5,454
2,346
4,597
6,088
1,662
119
1,457
1,138
1,712
5,917
1,074
262
2,148
748
1,685
2,643
364
93
1,123
305
758
Trade—total.......................................................
Wholesale.........................................................
Retail................................................................
39,664
6,598
33,066
20,522
1,947
18,575
15,140
3,086
12,054
3,005
Other—total.......................................................
38,845
19,487
13,492
6,082
67
67,147
36,092
7,610
229
40,966
2,542
33,307
27,212
2,009
30,868
472
4,557
238,319
47,725
25,066
1,000
1,465
149
5,132
189,901
4,045
109,255
122,228
857
1,035
3,304
9,917
408,834
1,082
110
80
496
60
336
279
50
4
118
24
83
128
22
4
51
36
15
114
1,159
1,846
614
385
229
65
13
52
38
4
34
280
4
4,024
957
259
208
418
1,341
9,870
16,743
32,286
36,739
21,035
14,636
292,760
3,976
20,013
14,939
23,135
23,198
7,496
6,288
327,748
N um ber of L oans
Food, liquor, and tobacco............................
Textiles, apparel, and leather......................
Metals and metal products..........................
Petroleum, coal, chemicals and rubber... .
All other manufacturing and mining.........
Commodity dealers........................................
Sales finance companies................................
Transportation, communication, and other
public utilities.............................................
Construction....................................................
Real estate.......................................................
Service firms....................................................
All other nonfinancial....................................
http://fraser.stlouisfed.org/
All businesses..........................................
Federal Reserve Bank of St. Louis
480
741
4,396
8,131
4,920
14,161
6,016
94,760
213
27
2,179
3,389
1,639
8,544
3,496
46,097
197
163
1,180
3,338
2,084
4,703
1,827
34,549
30
81
479
1,165
944
816
509
9,672
27
109
174
204
235
67
141
2,653
7
82
138
2
16
5
9
603
129
57
1
1
7
13
374
7
3
61
35
8
276
6
150
189
32
1
19
21
812
Table 3: PERCENTAGE DISTRIBUTIO N A N D AVERAGE SIZE OF BUSINESS LO A N S BY “SM A LL”, “M E D IU M ”,
A N D “LARGE” B O RRO W ERS A N D BY BUSINESS OF BO RRO W ER
Fourth District Member Banks, October 5, 1955
Amount of loans to:
B U S IN E S S O F B O R R O W E R
Type I
All
Bor
rowers
Type I
“ Sm all”
“ M ediu m ”
Borrowers Borrowers
(Assets
(Assets
under
$1-5 m il
$1 million)
lion)
Number of loans to:
“ Large”
Borrowers
(Assets
over $5
million)
All
Bor
rowers
Type I
A v e ra g e size of lo an s to:
“ Sm all”
“ M edium ” “ Large”
Borrowers Borrowers Borrowers
(Assets
(Assets
(Assets
under
$1-5 mil
over $5
$1 million)
lion)
million)
“ Sm all”
Borrowers
(Assets
under
$1 million)
“ M ed iu m ”
Borrowers
(Assets
$1-5 mil
lion)
4.0
2.3
$ 7,871
14,979
15,863
7,211
10,686
$145,455 $ 498,734
198,750 354,545
183,467 628,261
98,333 1,057,894
111,607 371,698
2.7
48.7
10,454
48,339
“ Large”
Borrowers
(Assets
over $5
million)
M a n u fa c t u r in g & M in in g
Food, liquor, and
tobacco........................
Textiles, apparel and
leather.........................
Metals and metal
products......................
Petroleum, coal,
chemicals, and rubber
Miscellaneous
manufacturing...........
O ther
Commodity dealers.......
Sales finance companies.
Transportation, com
munication, and other
public utilities............
All businesses—Type I . .
B U S IN E S S O F B O R R O W E R
T y p e II
Wholesale trade.................
Retail trade........................
Construction.......................
Real estate..........................
All other nonfinancial. .. .
All businesses—Type II.
100.0%
100.0
100.0
100.0
100.0
30.6%
26.4
24.2
13.0
36.6
20.0%
59.1
29.3
4.8
30.9
49.4%
100.0
100.0
30.3
5.8
26.3
9.0
94.2%
14.5
46.5
82.2
32.5
100.0%
100.0
100.0
100.0
100 0
83.9
86.7
93.4
90.4
3.4%
14.2
9.1
2.6
7.3
43.4
85.2
100.0
100.0
91.7
36.6
5.6
14.7
6.7
100.0 14.9
78.4
100.0% 19.4% 18.3% 62.3%
All
Bor
rowers
T y p e II
100.0%
100.0
100.0
100.0
100.0
100.0%
“ Sm all”
Borrowers
(Assets
under
$50,000)
4.8%
17.9
9.3
5.2
19.0
13.0%
“ M ediu m ” “ Large”
Borrowers Borrowers
(Assets
(Assets
$50,000over
$250,000)
$250,000)
25.2%
32.0
33.4
26.0
39.4
31.8%
70.0%
50.1
57.3
68.8
41.6
55.2%
100.0 87.3
100.0% 87.7%
All
Bor
rowers
T y pe II
100.0%
100.0
100.0
100.0
100.0
1 0 0 . 09 ;
“ Sm all”
Borrowers
(Assets
under
$50,000)
28.8%
56.2
42.0
32.7
59.7
51.5%
4.0
6.4%
2-4%
1.9
4.2
8.7
5.9%
“ M ediu m ” “ Large”
Borrowers Borrowers
(Assets
(Assets
$50,000over
$250,000)
$250,000)
47.0%
36.6
40.7
42.9
32.3
37.2%
24.2%
7.2
17.3
24.4
8.0
11.3%
148,148
183,486
507,692
527,147
8,650
$11,333
85,632 454,427
$146,571 $ 537,769
“ Sm all”
Borrowers
(Assets
under
$50,000)
“ M ed iu m ”
Borrowers
(Assets
$50,0 0 0 $250,000)
$ 2,947
2,624
2,824
4,438
2,775
$ 3,851
$ 9,548 $ 51,438
7,223
57,125
42,357
10,485
16,762
77,750
10,615
45,625
$ 9,439 $ 54,268
“ Large”
Borrowers
(Assets
over
$250,000)
Table 4:
AV ER A G E INTEREST RATE O N SH O RT -TER M * B U SIN E SS L O A N S BY B U SIN E SS,
SIZE, A N D C O R PO R A T E STATUS O F B O R R O W E R
Fourth District Member Banks, October 5, 1955
Size of Borrow er (total assets in thousands of dollars)
B U S IN E S S O F B O R R O W E R
All
Bor
rowers
Under 50
C orpo
rate
M a n u f a c t u r in g a n d M in in g
Food, liquor, tobacco.........
Textiles, apparel, leather . .
Metals and metal products
Petroleum, coal, chemicals,
and rubber.......................
All other mfg. and mining. .
T rade
Wholesale.............................
Retail....................................
O ther
Commodity dealers.............
Sales finance companies . . .
Transportation, communi
cation, and other public
utilities..............................
Construction.........................
Real estate............................
Service firms.........................
All other nonfinancial........
All businesses...................
5 0 - 250
Noncor Corporate
porate
2 5 0 - 1,000
Noncor
porate
Corporate
N oncor Corpo
porate
rate
5,000
Noncor Corpo
porate
rate
25,000
4.7
4.6
5.3
5.9
5.6
5.8
4.5
5.7
6.1
6.0
4.8
4.9
5.3
5.4
5.4
5.0
5.1
5.1
5.2
5.2
4.4
5.3
4.6
5.4
4.6
4.3
4.4
4.7
5.2
5.1
4.0
4.1
4.0
4.7
4.1
5.0
4.0
4.0
4.4
6.0
3.3
3.5
3.5
4.0
3.9
4.6
4.6
5.3
5.7
5.8
5.6
5.0
4.9
5.1
5.0
4.7
4.6
4.8
4.3
4.1
3.9
4.4
4.0
4.0
3.6
6.0
3.9
3.5
9.0
4.5
5.6
5.0
5.7
4.7
5.2
5.8
5.0
5.0
4.0
3.7
4.0
2.0
3.3
3.8
3.5
3.6
5.1
4.5
5.6
4.3
4.3
5.7
5.8
4.8
5.7
5.0
5.5
7.8
5.9
5.2
5.8
5.2
5.7
4.6
5.3
4.6
4.7
4.4
5.7
5.6
4.8
5.1
4.6
5.1
4.4
4.9
4.5
4.8
4.6
4.7
4.9
5.1
5.0
9.7
4.1
5.2
4.8
4.6
4.1
3.9
4.6
4.1
3.8
4.4
4.7
5.5
3.6
4.1
3.9
4.5
4.2
3.9
3.3
3.8
5.0
25,000
Noncor Corpo
porate
rate
4.0
4.2
4.1
4.6
4.4
* Loans outstanding as of October 5, 1955 which had an original m aturity of one year or less.
1,000 - 5,000
4.0
4.0
3.5
3.5
3.1
3.2
3.4
3.3
3.3
100,000 100,000 and Over
Noncor C orpo
porate
rate
3.2
Noncor
porate
3.1
2.0
3.3
2.2
3.6
3.1
3.4
3.0
3.2
3.3
3.6
3.5
3.2
3.2
3.5
4.5
3.8
3.3
3.0
3.2
3.4
3.5
3.5
3.2
3.1
3.9
3.5
3.2
Table 5:
AVERAGE INTEREST RATES O N TERM* LO AN S TO BU SIN ESS
BY BUSINESS, SIZE, AN D CORPORATE STATUS OF B O RR O W ER
Fourth District Member Banks, October 5, 1955
Size of Borrower (total assets in thousands of dollars)
B U S IN E S S O F B O R R O W E R
All
Bor
rowers
Under 50
Corpo
rate
M a n u f a c t u r in g a n d M in in g
Food, liquor, tobacco.........
Textiles, apparel, leather . .
Metals and metal products
Petroleum, coal, chemical,
and rubber.......................
All other mfg. and mining.
T rade
Wholesale.............................
Retail....................................
O ther
Commodity dealers.............
Sales finance companies . . .
Transportation, communi
cation, and other public
utilities..............................
Construction.........................
Real estate............................
Service firms........................
All other nonfinancial........
All businesses...................
50
Noncor C orpo
rate
porate
250
250 - 1,000
Noncor Corpo
rate
porate
Noncor Corpo
porate
rate
3.4 8.0
4.6 12.0
3.9 7.5
3.5 5.0
4.3 6.5
8.2
7.2
6.4
8.0
6.5
5.1
5.3
5.4
6.8
5.8
5.4
4.6
5.3
7.3
5.6
4.5
4.5
4.4
5.9
4.8
5.3
5.0
4.4
7.2
4.5
4.7
4.5
4.1
4.5
4.0
7.4
6.5
6.9
6.1
5.5
5.8
5.5
4.9
5.3
4.6
4.6
4.5
4.4
4.9
5.3 11.5 5.3
13.8
3.5
5.2
4.7
5.0
9.3
4.6
4.0
4.5
9.4
8.6
5.3
7.0
6.0
7.2
7.9
7.0
4.5
5.5
5.3
5.6
6.6
6.1
4.7
5.2
5.4
5.2
6.0
6.5
4.2
4.8
4.7
7.5
5.8
4.5
4.8
4.5
4.8
5.0
4.6
3.6
6.5
4.6
5.4
5.0
4.2
8.8
9.4
5.0
6.5
7.2
6.6
5.0
* Loans outstanding as of October 5, 1955 which had an original m aturity of over one year.
1,000 - 5,000
5 ,0 0 0
Noncor Corpo
porate
rate
25,000
Noncor C orpo
porate
rate
4.5
3.8
3.9
3.9
3.9
3.4
3.5
2.6
2.1
3.7
3.0
3.6
4.6
5.6
3.9
6.0
4.3
6.0
4.3
4.3
4.5
4.4
100,000 100,000 and Over
Noncor C orpo
rate
porate
Noncor
porate
2.9
3.6
2.9
3.1
3.3
2.8
3.0
3.3
2.8
3.1
3.0
4.5
4.3
5.0
5.3
4.0
3.8
4.3
25,000
3.4
3.8
5.0
4.7
2.7
4.3
3.9
3.5
2.9
3.2
3.1
3.4
3.3
5.0
3.2
3.0
7.2
3.5
3.2
2.8
4.5
4.5
4.3
3.0
2.9
Table 6: AVERAGE INTEREST RATES O N BUSINESS LO A N S
BY SIZE OF BANK, MATURITY, A N D SIZE AN D CORPORATE STATUS OF B O R R O W E R
Fourth District Member Banks, October 5, 1955
Size of Borrow er (total assets in thousands of dollars)
S IZ E O F B A N K
A ll Borrowers
Under 50
(T otal deposits in
millions of dollars)
Total
Corpo
rate
Noncor Corpo
porate
rate
5 0 - 250
Noncor Corpoporate
rate
250 - 1,000
Noncor C orpo
porate
rate
1,000
Noncor Corpo
porate
rate
5,000
5,0 0 0 - 25,000
Noncor C orpo
porate
rate
25,0 0 0 - 100,000
Noncor Corpo
rate
porate
100,000 and Over
Noncor C orpo
rate
porate
N oncor
porate
Sh o r t T erm 1
Less than 2. . .
2 - 1 0 ............
1 0 -2 0 ............
20 - 50............
50 - 100 ___
100 - 250........
250 - 500........
500 and over. .
5.8
5.2
4.9
4.9
4.9
4.0
3.9
3.9
5.5
4.7
4.6
4.7
4.7
3.9
3.8
3.8
5.9
5.3
5.2
5.1
5.1
4.8
4.5
4.4
6.4
5.5
5.3
5.6
6.0
5.4
4.8
5.6
5.9
5.7
5.5
5.8
5.6
5.3
6.1
6.5
5.4
5.0
4.9
5.1
5.2
4.8
4.7
5.5
5.8
5.2
5.2
5.1
5.2
4.9
4.9
5.0
5.6
4.6
4.8
4.7
4.8
4.6
4.6
4.8
6.0
5.1
4.8
4.5
5.0
4.7
4.0
6.6
5.5
4.4
4.0
4.8
4.6
3.8
3.9
4.3
5.0
3.2
4.7
4.1
3.8
4.6
3.9
5.0
3.8
3.7
4.0
3.8
3.9
3.5
3.9
5.1
5.4
4.6
5.3
4.3
4.2
4.1
5.0
4.8
4.7
5.0
4.0
4.5
4.2
3.9
4.4
3.5
4.4
3.8
3.5
6.0
3.8
3.5
2.2
3.0
3.5
3.6
3.3
3.3
3.4
3.5
3.9
3.4
2.2
2.9
3.0
3.1
3.2
3.3
3.2
5.0
2.7
3.0
3.3
2.9
3.5
2.8
3.2
2.9
3.1
L ong T erm 2
Less than 2. . .
2 -1 0 ..........
1 0 -2 0 ............
20 - 50............
50-100
100 - 250........
250 - 500........
500 and over. .
7.0
5.8
5.6
4.9
5.2
4.4
4.5
3.6
7.2
5.5
5.3
4.8
5.0
4.2
4.1
3.6
7.0
5.9
5.7
5.1
5.4
5.1
5.3
3.7
9.3
6.5
6.5
5.6
7.4
6.8
9.0
7.3
7.1
6.4
6.7
5.6
6.4
5.5
7.2
8.8
6.5
5.4
5.5
5.1
5.0
5.7
5.9
6.7
5.3
5.5
5.3
4.9
5.3
5.3
5.3
5.4
5.1
4.9
4.8
4.8
4.6
5.1
5.1
5.1
5.0
4.8
4.8
4.5
4.6
5.1
'Loans outstanding as of October 5, 1955, which had an original maturity of one year or less.
*Loans outstanding as of October 5, 1955, which had an original maturity of over one year.
3.5
6.0
3.1
3.5
3.5
2.9
2.9
paid higher rates. Utilities (which tend to be
large) paid lower rates. When viewed by size
of bank, a similar pattern prevailed, indicating
that size of business or size of loan, rather than
type of business, was the major influence bear
ing on differences in interest rate. With size
and corporate status of business and maturity
of loan remaining equal, there was no tendency
for any given type of business to pay con
sistently higher or lower rates than any other
type of business.
Maturity o f Loan. The accompanying tables
allow inspection of the differences in memberbank interest charges for short-term loans
(scheduled to mature in one year or less) and
term loans (which mature after one year).
With size, type, and corporate status of bor
rower remaining equal, rates on short-term
loans were generally lower than on term loans.
The only important exception occurred in
businesses with assets of $25 million or more,
where the results were mixed.
Notes
For two informative statements on Federal
Reserve credit policy, see the following:
Address by W illiam McC. M a r t in , Jr.,
Chairman, Board of Governors of the Federal
Reserve System, before the Pennsylvania
Bankers Association, Atlantic City, New
Jersey, May 4, 1956. Among other topics
covered by Mr. Martin are: how **regulating
the money supply to fit economic needs is one
thing, and fixing interest rates is another” ;
how U. S. Treasury needs are related to
Federal Reserve policy; how the 260 directors
of the Reserve Banks and branches contribute
to the development of credit policy.
Address by A lla n S proul , President of the
Federal Reserve Bank of New York (retired,
June 1) to the New Jersey Bankers Associa
tion, Atlantic City, May 24, 1956. Mr. Sproul
called for a broad national inquiry into the
banking and monetary system of the United
States. Also he discussed explicitly the contro
versial aspects of recent Federal Reserve
credit policy, stating the reasons for the Sys
tem’s decisions.
(A limited number of copies of both
speeches are available at the Research Depart
ment of this bank.)
# *
#
Recent articles of special interest, published
by other Federal Reserve Banks, include the
following:
‘*Outlook Bright for Electronics Industry, ’’
New England Business Review, Federal Re
serve Bank of Boston, April 1956. Although
the details of this article apply to the industry
in New England, the subject will be of interest
to businessmen and bankers of the Fourth
District. ■
‘‘Business Capital Spending: Plans and
Realizations,” Monthly Review, Federal Re
serve Bank of Kansas City, Kansas City 6,
Missouri, May 1956. This article includes an
interesting chart showing the past record of
comparison between anticipated plant-andequipment expenditures and actual expendi
tures.
21
;
FOURTH
FEDERAL
RESERVE
DISTRICT
@FedFRASER