Let us locate the item, in the effort to find out. The percentage runs highest in Chicago, where this class of collateral loan exceeds the loans on stocks and bonds. The inference is strongly suggested, therefore, that much of it, there, at least, represents advances to live-stock, grain and produce traders and speculators on the Board of Trade, at the stock yards, etc. The inference is strengthened by the fact that St. Louis, where there is a good deal of grain and commodity speculation, shows more than twice as much of this kind of paper as does Boston, where this kind of speculation is unimportant—despite the fact that Boston's aggregate collateral loans of all kinds greatly exceed such loans in St. Louis. In New York, where there is a great deal of coffee and cotton speculation, and some other commodity speculation, the amount of this paper, though relatively small, is absolutely greater than in any other city. No doubt, in New York, which is the country's centre for foreign commerce, a fair amount of the paper secured by "other personal securities, including merchandise, warehouse receipts, etc.," is really commercial paper, representing advances to importers and exporters—though the difficulties of giving this kind of security where goods are in transit would prevent most of our foreign trade being financed in this manner. The total of this kind of paper in New York—all these figures are for national banks alone—was only 113 millions on June 23, 1915.[525] It may be doubted if very much of this paper, in the great cities, represents goods in transit. With the caution that the view here expressed is based on inference, and not on actual knowledge of what the large city banks are doing, the writer concludes that probably the bulk of this paper, in large cities, represents loans to speculators rather than to merchants. It is liquid, but it is not commercial paper.
What of such paper in the country districts? Nearly one-half—$436,000,000 out of $882,000,000—of these national bank-loans on "other personal security, including merchandise, warehouse receipts, etc.," are in the country, outside the Reserve and Central Reserve Cities. Much of it is in the South. Much of it in the grain and live-stock producing regions. What do such loans mean?[526] Much of it is loans to farmers and planters. In the South, much of it is on crop liens. The loans on cotton warehouse receipts, at least in the country parts of the South, are not as great as is commonly supposed. In the North and West, there are a great mass of farmers' chattel mortgage loans, including loans on horses, grain in cribs, hogs, sheep, cattle, mules, etc. The use of this type of paper for financing the breeding and feeding of live-stock, particularly hogs, cattle and sheep, is very extensive. Virtually all loans to farmers and feeders for these purposes are secured by such chattel mortgages. It seems improbable that a great deal of this paper could represent ordinary commerce. Neither wholesalers nor retailers can easily handle merchandise on which chattel mortgages have been given. The usual method of granting credit to them is to advance loans on one and two name paper, unsecured. Not many loans to retailers and wholesalers will fall in the category under discussion.
To what extent are the loans of this type to farmers liquid? Well, the crop lien loans in the South have a natural term, and, though commonly longer loans than bankers have in mind when speaking of liquid paper, are liquid in the sense that they are automatically paid off at maturity. Loans on work-animals need not have a natural term. Loans on animals being fed for the market have such a natural term, and are truly liquid. Loans, however, on breeding animals are not thus liquid, such loans are commonly regularly renewed at maturity, and the banks do not count on them in emergencies. It is the opinion of Dr. J. E. Pope that fully two-thirds of the aggregate loans on live-stock chattel mortgage security are to breeders rather than to feeders, and hence are not liquid. Of course, none of these loans are commercial paper.
I conclude, therefore, that the thesis with which we started that the overwhelming bulk of commercial paper is to be found in the item, "other loans and discounts" is correct. I see no reason to suppose that an analysis of the loans of State banks and trust companies would show a different conclusion. We lack the figures for breaking up the collateral loans of State banks and trust companies into the two classes, "secured by stocks and bonds" and "secured by other personal securities, including warehouse receipts, merchandise, etc." We have merely the gross figures for collateral loans. As the State banks are in large degree country banks, it is probable that the percentage of commodity collateral as compared with stock exchange collateral for State banks would be larger than for national banks. However, the total of collateral loans for State banks is relatively small—559 millions, for 1909, as against "other loans and discounts" for State banks in that year of 1,112 millions, and as against a total of collateral loans of all banks reporting in that year of 3,975 millions. On the other hand, the collateral loans of the trust companies are very large: 1,222 millions for 1909, as against "other loans and discounts" for the trust companies in the same year of 460 millions. As the trust companies are chiefly city institutions, and as the concentration of trust company loans and capital in New York City is relatively very great, it would seem pretty clear that taking both State banks and trust companies into account would substantially lessen the percentage of loans "secured by other personal security, including merchandise, warehouse receipts, etc.," to total collateral loans. As the amount of commercial paper in this class of loans for national banks is probably small, it may be expected to be still smaller in the aggregate of collateral loans.
The following figures, for State and national banks, and trust companies, only, will, in the light of the foregoing, give us basis for some further conclusions regarding the character of banking assets in the United States. As before, the year 1909 is chosen:
| (000,000 omitted)[527] | ||||
|---|---|---|---|---|
| Resources | State Banks | National Banks | Trust Companies | Aggregate |
| Real estate loans | 414 | 57 | 377 | 848 |
| Collateral loans | 559 | 1,939 | 1,222 | 3,720 |
| All other loans | 1,112 | 2,966 | 460 | 4,538 |
| U. S. bonds | 5 | 740 | 3 | 748 |
| State, county and municipal bonds | 65 | 156 | 155 | 376 |
| Railway stocks and bonds | 75 | 351 | 362 | 788 |
| Bonds of other public service corporations | 50 | 148 | 168 | 366 |
| Other bonds, stocks, etc. | 95 | 208 | 769 | 1,072 |
| Total of items here listed | 2,375 | 6,565 | 3,516 | 12,456 |
| Total Resources | 3,338 | 9,368 | 4,068 | 16,774 |
This table makes clear that the figures for real estate loans given in the table for all banks, a few pages preceding, were much too high. It leaves the relations among the other items, however, not greatly changed. "All other loans" increase from slightly less than 23% of total assets to 27%. If we concede that one-half of the "all other loans" represents liquid "commercial paper"—a very liberal estimate, as we have previously concluded—we get about 13½% of the assets of these institutions in the form of "commercial paper," an increase over the 11½% to be assigned on the basis of the other table. The figure is the roughest sort of approximation. I attach little importance to the exact percentage, and the argument which follows is not dependent on any exact figure here. The proportion of collateral loans to total resources is changed also, and even more: collateral loans are 18% of total bank resources when all kinds of banks are included, and are over 22% of total bank resources when only State and national banks and trust companies are counted. If the foregoing is correct within very wide limits of error as to the amount of commercial paper, collateral loans very substantially exceed commercial paper. If all the "all other loans" should be counted as commercial paper, collateral loans are still not far behind them—22% as against 27½%.
What is the significance of this? We have seen that for national banks, the great bulk (over 66%) of the collateral loans were secured by stocks and bonds in June, 1915. We saw reasons for supposing that a higher percentage of stock exchange collateral would be found when State banks and trust companies are included. Suppose we assume that 75% of the collateral loans of all three classes of institutions here in question are based on stock exchange collateral.[528] This would mean 16½% of the total resources of these institutions in stock exchange loans—still well above the 13½% we have assigned to "commercial paper." In any case, it is at least justifiable to contend that loans on stock exchange collateral are as great in volume as commercial loans. I think that they very substantially exceed them. But further, we have another large percentage of bank resources invested in stock exchange securities outright—chiefly in bonds. The aggregate for those investments in the institutions under consideration is 3,250 millions. This is something over 19% of the total assets of these institutions. Combining this with the loans on stock exchange collateral, we get nearly 36% of bank and trust company assets invested, directly or indirectly, in stock exchange securities, as against an assumed 13½% in commercial paper. Conceding that all the "all other loans" are commercial loans, the stock exchange assets still exceed them in the ratio of 36 to 27½.
In our second table, we have listed items which aggregate only 12,456 millions of the total resources for these institutions of 16,774 millions. The items listed, however, represent virtually all the credit extended by banks to industry, commerce, agriculture, the stock market, other speculation, and the State. The excluded items of main importance are: Due from other banks and bankers, 2,302 millions; checks and other cash items, 432 millions; and cash on hand, 1,411 millions—the three items aggregating 4,146 millions, which virtually closes the gap. These three items are of immense importance as making for liquidity in banking assets, and as making possible extensions of credit to the business world, but it is not proper to count them when an estimate of the extent of bank-credits is in question. Our second table contains, for the three classes of institutions, all the items properly counted there, except overdrafts (small in amount) and one other big item which does not get into bank statements at all, namely, overcertifications and "morning loans." Of this last item, more later. We may, then, recalculate our percentages on the basis of the credit extended by the three classes of institutions, instead of on the basis of total resources. On this basis, the percentages are: