Evening star., 1942-01-01
Sharp Rise in Loans
Indicates Active
Year Is Ahead
Fuller Use of Facilities
Likely to Cut Rotio Of
Costs to Volume
By Cambridge Associates.

BY Cambridge Associates.
Commercial banks this year are
looking forward to their first oppor-
tunity since 1928 to serve industry
to their fullest ability. In the long
years that have passed, their ca
pacity de, deposits) has increased,
but the demand for credit has been
at a low ebb. But commercial loans
increased $3.50 900, 900 in 1889, $780,
900 900 more in 1910, and $780,
900 900 additional In 1941. Actual
involvement promises to accelerate
the trend still further.
Industry, in the long dull years,
put its house in order financially
because the depression bore nome
the lesson of thrift. Cash reserves,
therefore went long way toward
financing the initial accumulation OF
inventories and the growth OF ac-
counts receivable accompanying ex-
pansion due to war.
B,1t liuuiditv has been reduced
now to the point where bank creoit
assumes a useful function. The nrst
large borrowing period of 1942 Will
undoubtedly be to satisfy the TAX
collector, who can't accept recelv-
Rbles.
Higher Return Possible.
Bankers will buy more Govern
ment securities, too. Their present
holdings are at record levels,
but as long as they have capacity 10
absorb more without threat to their
ability to grant industrial credit,
thev will be one of the primary mar
kets. It is now estimated that total
commercial loans. now at approx
mately 100000, could expand
to 20 billions without danger TO
the banking system. Both loans ana
securities, however, will undoubtedly
produce more revenue per dollar OF
investment.
At the same time, greater use OF
present facilities will reduce the ex-
penses of banks per dollar OF busl-
ness transacted. The additional cler-
tcal assistance needed IS not great,
and at the same time 1t Is likely that
women will replace many men called
into the services or drawn into In
dustry.
Bankers Back to Banking.
It is not necessary to ask how the
bankers feel about the present Sit
uation. They are anxious to make
their every resource available to its
greatest effectiveness. Most of them
have Wearied of the days when Sc
curity investments were their great
est problems.
Banking is profession that deals
with problems of human enterprise,
and the reason that the profession
has produced so many great men Is
because of the human relationships.
AS the largest holders of United
States Government securities, their
powers of judgment were exercised
only to a minor degree and 1t has
been evident to most of them that
banking as it is known at present
could not exist very long if its pri-
mary function should remain the
financing of the Government debt.
In view of the uncertainties in the
present picture. it is unlikely that
most banks will care to be more lib
eral in the matter of dividends. In
fact, the policy of setting aside re-
serves against possible future de-
clines in the value of securities has
become so common that the policy
will undoubtedly be used more gen.
orally on loans, thus restricting ap-
parent earnings gains. This partic-
ularly applies to term loans" which
are generally extended for purchase
of liquid assets. After the war
these reserves can be fed into earn
ings as they appear unnecessary.