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FOUR REPLIES How do leaders of the financial industry view the nation's capital needs? Spokesmen from commercial banking, investment banking, savings and loan, and insurance discuss the causes and implications of a potential shortage and the problems their industry faces in helping maintain a flourishing economy. COMMERCIAL BANKING: THE TWIN THREATS TO CAPITAL by W. LIDDON McPETERS, President, American Bankers Association and President, Security Bank of Corinth, Mississippi The question of whether or not our nation is heading for a capita! short-age is an exceedingly complex one. In this issue of TEMPO, Dr. Freund deals with the question in an especially lucid way. The concerns which he has expressed from his vantage point in the securities industry are widely shared in commercial banking. About one-fourth of the total credit outstanding in our economy comes directly from the more than 14,000 banks in our nation's commer-cial banking system. Moreover, a sig-nificant amount of the credit provided by several other types of lenders is supported, in part, by bank loans and commitments. Commercial banking's contribu-tion to the annual supply of new credit fluctuates from year to year, of course, but over a decade or so, it will tend to expand its holdings of debt securities and loans at about the same pace that total debt has grown in our economy. Federal Fiscal Policy This year-to-year fluctuation in the volume of credit extended by com-mercial banks is primarily the result of (1) changes in the demand for credit by individuals, businesses, and gov-ernments and (2) shifts in Federal Reserve monetary policy. The availa-bility of bank credit depends on the ease or tightness of the latter. Dr. Freund's emphasis on the important influence of the federal government in determining whether or not our nation may experience a capital shortage is well placed. A deficit in the federal budget has important implications with respect to the demand and supply of capital. (1) A federal deficit tends to result in a higher level of spending on consumption than would exist if federal revenues and expenditures were in balance. That is, the total of taxes and current savings is less than it should be in relation to total income in the economy. (2) In financing the deficit, the federal government at-tracts funds away from capital forma-tion in the private sector. Federal deficits thus tend to reduce the supply of capital, while at the same time increasing the demand for it. They have been a major source of inflation in our economy. The proper and principal use of money is (he consumption and alienation of it, whereby it is expended in making purchases. Therefore, in itself, it is unlawful to receive a price for the use of money lent, which is called —ST. THOMAS ACQUINAS Because the anti-inflationary weap-ons of fiscal policy are usually po-litically unpalatable, the burden of combatting inflation has fallen mainly on Federal Reserve monetary policy. The result has been recurrent periods of tight money over the past 20 years. Since this policy is implemented largely by curtailing the expansion of bank credit, the commercial banks and their customers have been sub- 10
Object Description
Title |
Four replies |
Subtitle |
Commercial banking: The Twin threats to capital Investment banking: the Restraints on capital Savings and Loan: the Competition for available capital Insurance: The Cost of financing capital |
Author |
McPeters, W. Liddon Foman, Robert M Martin, Preston MacNaughton, Donald S. |
Subject |
Capital Banks and banking Savings and loan associations |
Abstract | Illustration not included in Web version |
Citation |
Tempo, Vol. 23, no. 1 (1977), p. 10-17 |
Date-Issued | 1977 |
Source | Originally published by: Touche Ross, & Co. |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF page image with corrected OCR scanned at 400 dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Library. Accounting Collection |
Date-Digitally Created | 2010 |
Language | eng |
Identifier | Tempo_1977_Spring-p10-17e |