BANK LOANS TO FARMERS. 
17 
Table 3. — Prevailing rates of interest on personal and collateral loans to farmers: Per 
cent of banks reporting the various rates, March, 1921 — Continued. 
Geographic division 
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. 
.2 
14.1 
10.0 
73.7 
.3 
1.7 
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 
1.8 
5.3 
Colorado" 
.7 
.7 
2.9 
11.4 
Utah 
2.5 
i 
10.0 
1 
.6 
22.0 
62.1 
4.4 
10.7 
.2 
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 
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 7J 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. 
