THE DECLINE OF THE COMMERCIAL LOAN.

The article comments on the decline of commercial loan in the U.S. from 1920 to 1930. The percentage of commercial loans of national banks to total earning assets reduced from 57.5 per cent in 1920 to 37 percent in 1929. According to the theory underlying the Federal Reserve Act, the provision of commercial loans is the main function of banks. Thus decline of commercial loans has significant impact on the theory underlying the Act and upon the practical operation of the system. The motives which have led the borrowers to reduce their bank loans have been examined. Three main classes of borrowers included in the discussion are the larger corporations, the small merchant and business man, and the farmer. Much of the borrowing from banks is motivated from inability to raise funds in other ways rather that from the economies believed to be associated with the borrowings. It is viewed that continuous association of economic progress with the growing importance of the larger corporations having access to the stock and bond markets will increase the probability of the commercial loans to decline relatively to other bank assets.