ABSTRACT

From our point of view, however, it would be wrong to concentrate merely on the overall level of bank loans. Credit rationing, whether officially inspired or not, should obviously result in either a fall in total lending, or the avoidance of an increase. What matters in our present context is the way in which the individual bank borrower is affected. When money is tight, the good credit risk (provided he does not wish to borrow for a purpose forbidden under an official directive) will normally be able to secure his 'essential' requirements (though notions of what is 'essential' are somewhat elastic). Moreover, he need not always be the best credit risk, on an objective evaluation of his proposal. The 'good customer' (frequently a big customer) has a stronger pull (if only because the bank fears to jeopardize future business) than the man less highly regarded (on the basis of the profitability of his account). This probably happens everywhere, though there will be variations of degree. Where it occurs, the consequence will be relative credit starvation of some potential borrowers.1 The probability that this will be so is increased under English conditions, in consequence of ordinary banking practice. When a proposal is submitted to an English banker, for example, one of the questions he will ask himself is whether sutficient finance has been sought. Borrowers do sometimes ask for less than they will need, though, of course, the opposite is also true and frequently proposals have to be pared down and more modest estimates accepted. It is not in the interests of the bank that excess accommodation should be provided, but it is equally unsatisfactory that a venture should be inadequately financed. If it is a good proposition (and acceptable on other grounds), the bank will wish to see it through. It is not in the interests of the customer, nor of the bank, that the former should be stranded halfway. Further, the banker will want to establish the size of his eventual commitment here and now. He dislikes supplementary 1 Cf. the views expressed in 'Finance and Business', The Manchester Guardian, July 11, 1953. In reporting on the tendency of bankruptcies (which apply to private persons) to rise at a time when compulsory liquidations (limited companies) were falling (first two quarters of 1953), the Guardian records 'a widespread view that the banks have tended to help some of the large companies over a difficult period, whereas many one-man businesses, particularly in the building and timber trades, have had to fend for themselves. It is common knowledge (borne out by an analysis of bank advances) that bank loans to personal and professional borrowers have been squeezed much more than those to large industrial concerns over the past eighteen months.'