Wednesday, May 6, 2009

importance of bank loans

bank loans are, of course, not made in the same amount by the banking system every year. the extension of additional loans depends upon (1) the available loanable funds of the banking system, which, in turn, depends importantly upon Federal Reserve policy, and (2) the demand for bank credit on the part of prospective borrowers, especially business firms, This loan demand depends not only on business needs for outside funds but also on the availability of credit and equity capital from nonbank sources.
Data on bank loans for more than 25 years indicate that in the decade of the 1950's total bank loans rose by more than $68 billion, an increase of 163 per cent. The growth of commercial and industrial (business) loans nearly kept pace with total bank lending by rising by 137 per cent.
In the decade of the 1960's bank lending also more than doubled from $110.8 billion to $286.7 billion-an increase of 158 per cent. Commercial and industrial (business) lending more than kept pace as it jumped by 169 per cent. As a result.commercial and industrial lending was 37.8 per cent of total bank lending in 1969 as compared with 36.1 per cent in 1959.
In the first seven years of the 1970's, total bank lending rose by 76 per cent, while business lending of banks did not keep pace, since it increased by only 56 per cent. if this rate of increase of bank loans continued for the rest of the 1970's, the more than doubling of each of the two previous decade would be maintained. it thus seems clear that as the economy grows, so too does bank lending

1 comment:

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