BANK LOAITS TO FARMERS. 



17 



Table 3; — Prevailing rates of interest on jyersoTial and collateral loans to farmers: Per 

 cent of banks reporting the various rates, March, 1921 — Continued. 



Geographic divisioii 

 and State. 



5 per 



cent. 



6 per 



cent. 



7 per 

 cent. 



8 per 

 cent. 



9 per 

 cent. 



10 per 

 cent. 



11 per 

 cent. 



12 per 



cent or 



over. 



Mountain 







.2 



14.1 



10.0 



73.7 



.3 



1.7 











Montana 









3.4 

 16.5 

 12.3 

 20.9 

 2.9 

 16.0 

 30.0 

 60.0 

 



2.8 

 11.0 

 14.0 

 13.7 



2.9 

 24.0 

 17.5 

 10.0 



93.8 

 72.5 

 66.6 

 64.0 

 79.9 

 60.0 

 50.0 

 20.0 







Idaho 













Wvoming 









1.8 



5.3 



Colorado 







.7 



.7 



New Mexico 







2.9 



11.4 



Arizona 











Utah 













2.5 



Nevada 









10.0 













Pacific 





.6 



22.0 



62.1 



4.4 



10.7 





.2 













Washington 







2.2 



6.5 



38.0 



65.7 

 74.2 

 55.2 



6.7 

 4.8 

 3.2 



24.7 

 14.5 

 2.5 





.7 



Oregon 











California 





1.1 















MINIMUM BALANCE REQUIREMENTS FOR BANK LOANS TO FARMERS 

 ON PERSONAL AND COLLATERAL SECURITY. 



As a rule, when a farmer obtains a loan at a bank he leaves the 

 proceeds on deposit subject to withdrawal by check. This practice 

 is entirely to his advantage as well as to that of the bank, so long as 

 he can draw on the proceeds of the loan at his convenience. Some 

 banks, however, require that a certain portion of the loan be kept 

 permanently on deposit so long as the loan exists. This has the 

 effect of making the loan actually extended smaller than the face of 

 the note on which the interest charge is based. Six per cent of the 

 banks reported a minimum balance requirement on 16.3 per cent 

 of their loans. The purpose of such a requirement seems to be 

 either the procuring of a higher rate of interest or the reduction of 

 the risk involved by means of keeping a certain percentage of the 

 loan in the control of the bank. 



As an illustration of the effect which a balance requirement has 

 on interest cost, let it be assumed that a farmer obtains a loan at 

 6 per cent on which 20 per cent of the proceeds are required to be 

 kept at the bank. The actual interest cost would then be not 6 per 

 cent but 7^ per cent. Similarly, a loan with the same minimum 

 balance requirement at a rate of 8 per cent would cost the borrower 

 10 per cent. It seems probable that these practices have resulted 

 from the mistake of establishing by law a maximum rate of interest 

 which is lower than is justified by the available supply of capital in 

 relation to demand. Under such circumstances, creditors are 

 tempted to resort to evasions, the effects of which many debtors may 

 not comprehend and which in many instances no doubt bring the 

 actual cost above what it would be if the laws were so drawn as 

 merely to prevent actual extortion without attempting to regulate 

 the rate in a free and open market. 



