The Personal Loan Department of a Large Commercial Bank

• Author: John B. Paddi
• DOI: 10.1177/000271623819600120
• Published date: 01 March 1938
• Date: 01 March 1938
• Subject Matter: Articles

135

The

Personal

Loan

Department

of

a

Large

Commercial

Bank

By

JOHN

B.

PADDI

WE

HAVE

been

told

many

times

of

late

that

the

character

of

commercial

banking

is

undergoing

fundamental

changes.

Five

or

six

years

ago

the

banks

of this

country

had

about

70

per

cent

of

the

depositors’

funds

invested

in

loans

and

discounts.

Today

it

is

estimated

that

only

40

per

cent

is

so

invested,

although

deposits

have

mounted

to

new

peaks.

Many

banking

authorities

believe

that

for

some

years

to

come

the

demand

for

commercial

loans

will

not

be

as

great

as

in

former

years

because

of

radical

changes

in

the

producing

and

selling

of

merchandise.

Year

after

year

com-

mercial

loan

figures

are

progressively

less

in

the

budgets

of

business,

and

this

trend

has

become

a

new

source

of

con-

cern

to

the

banker.

In

quest

of

ways

and

means

for

making

productive

a

part

of

the

sur-

plus

funds,

and

diversifying

their

port-

folios

safely

and

profitably,

hundreds

of

banks

throughout

the

country

investi-

gated

the

possibilities

of

a

personal

loan

service

as

an

additional

outlet.

For

many

years

prior

to

the

installation

of

the

personal

loan

department

in

the

Manufacturers

Trust

Company,

re-

search

was

made

of

the

policies,

methods,

and

results

of

banks

which

handled

every

type

of

monthly

pay-

ment loan.

EVOLUTIONARY

CHANGES

Let

me

first

say

a

few

words

con-

cerning

the

history

of

money

lending,

and

the

evolutionary

changes

which

brought

about

the

comparatively

fa-

vorable

conditions

of

today.

Probably

the

most

notable

change

was

in

the

purpose

for

which

loans

were

made.

Years

ago,

money

was

loaned

mainly

to

acquire

land

and

property,

or

to

hold

what

borrowers

already

had.

For

centuries,

the

earning

capacity

of

prop-

erty

was

high,

while

that

of

labor

was

low.

The

gradual

increase

in

wages

paid

to

labor,

and

particularly

to

skilled

labor,

has

been

one

of

the

most

important

factors

in

the

eventual

development

of

lending

for

consump-

tive

purposes.

As

the

margin

wid-

ened

between

salaried

income

and

the

necessities

of

life,

people

found

it

possi-

ble

to

improve

their

standards

of

living

because

this

larger

margin,

by

providing

means

of

repayment,

created

credit

capacity

which

did

not

previously

exist.

The

increasing

demand

and

the

rapid

expansion

in

the

volume

of

consumer

credit

brought

about

state

regulation

in

many

sections

of

the

country,

and

remedial

legislation

was

enacted

to

re-

strict

rates.

All

this

contributed

to

the

reversal

of

the

former

banking

and

social

attitude

towards

this

form

of

lending,

and

today

the

personal

loan

business

as

conducted

by

reputable

agencies

is

not

only

on

a

dignified

plane

but

offers

to

some

degree

a

solution

of

our

rather

common

problem

of

the

shrinkage

of

commercial

loans.

Nearly

three

years

ago

the

Manu-

facturers

Trust

Company

inaugurated

its

personal

loan

service.

No

doubt

the

fairest

appraisal

of

its

real

value

to

a

bank

may

be

stated

in

terms

of

its

objectives.

Briefly,

the

following

are

some

of

the

advantages

which

we

un-

covered

through

our

study,

together

with

the

conclusions

which

led

us

to

enter

this

field.

at SAGE PUBLICATIONS on November 29, 2012ann.sagepub.comDownloaded from