An Analysis of Changes in the Relative Importance of Member Bank Loan and Security Income.

The article presents an analysis of changes in the relative importance of member bank loan and security income in the United States. Prior to 1943, member banks in the United States relied upon interest and discount on loans for, the largest portion of their total current operating earnings. Since 1943, however, interest and dividends on securities have contributed the largest, percentage of total current earnings. The major reasons for this decline in the importance of loan income are well known. The sharp decline in security values following the stock market crash in 1929 forced the liquidation of many loans for purchasing or carrying securities. As a result of these developments, income from loans has declined significantly in importance as an income factor for banks. Although loan income declined in importance from 65.2 percent of total current earnings in 1929 to 30.1 percent in 1944, the trend was not, steadily downward throughout the entire period. The decline in the relative importance of loan income is the result of several causes. The relative importance of loans to total earning assets has declined. Likewise, there has been a consistent downward pressure on the rate of return on loans, particularly agricultural loans.