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Business Finance And Banking - Preface

1. Preface

2. Summary

3. Part 1 Chapter 1

4. Chapter 2

5. Part 2 Chapter 1

6. Chapter 1 - continue

7. Chapter 2

8. Chapter 3

9. Chapter 3 continue

10. Chapter 4

11. Part 3 Chapter 1

12. Part 4 Chapter 1


THE NATIONAL BUREAU'S Financial Research Program has three
major objectives: first, the comprehensive reexamination of modern
financial organization with reference to the fundamental financial
services that the constituent institutions render to the community $
second, the study of the effects of law and public regulation and
supervision on the functioning of the financial system and third,
the investigation of how instability in financing activities is related to
general economic instability.

These major aims are being accomplished through the conduct
of a series of projects, each devoted to a phase or process of the
financial system, so far as these can be delineated for separate study.
The first project in the series dealt with consumer instalment financ-
ing and the second, the results of which are summarized in the pres-
ent volume, with business financing. Projects in investment credit,
agricultural finance, and urban real estate finance are now in process.
The final attainment of original objectives will require further
studies of lending and investment technology, and also of the ways
in which financial institutions affect the economic system through
their influence on the volume of circulating media.

From the beginning of the Program, a standard method has been
followed in the development of each project. A pre-research sur-
vey determines the adequacy of existing knowledge about the
financing process that is to be considered, and appraises needs for
additional information. On the basis of the results of this survey, a
number of studies are initiated, some of a technical nature and lim-
ited in scope, in order ( i ) to develop new data that may be essential
to round out existing knowledge and (2) to examine in adequate
detail those phases of the subject which require intensive study. The
findings of these primary studies are then brought together and
integrated in a concluding analysis.

Business Finance and Banking is the capstone study of the Busi-
ness Financing Project. This project has endeavored to determine
for recent years the general pattern of demand in the market for
short-term and medium- and long-term business credit} to trace the
structural changes that have occurred since 1900 in the business fi-
nancial organization, especially in manufacturing and trade enter-
prises whose credit demands have been the bulwark of the short- and
medium-term credit market} to relate these changes to major
changes in the structural organization of the economy 5 and, finally,
to describe the adaptations that financing institutions providing
credit have made over the past decade in response to changing de-
mands for their services. During the thirties, the business loan assets
of banks on the average were substantially below the levels attained
in the twenties, and in relation to total assets they were much less
important than in previous banking experience. Therefore, a prob-
lem of special interest in this study has been whether this develop-
ment indicates a long-run tendency for the business financing f unc-
^tion of the commercial banking system to decline.

The primary studies, on which the authors of this volume have
drawn extensively, fall into two groups. The first is concerned with
the contemporary financial structure of business and with changes
in that structure since 1900. The second comprises surveys of a
number of modern institutional arrangements for financing business
enterprise which represent significant adaptations in the business
financing process.

The studies in the first division of the project include four pub-
lished monographs and two unpublished reports, as follows:

The Financing of Large Corporations, 7920-59 (1943), by Albert
R. Koch

Financing Small Corporations in Five Manufacturing Industries,
1926-56 (1942), by Charles L. Merwin

Corporate Cash Balances, 1914-43: Manufacturing and Trade
(1945), by Friedrich A. Lutz

The Pattern of Corporate Financial Structure: A Cross-Section
View of Manufacturing, Mining, Trade, and Construction, 1937
(1945), by Walter A. Chudson

Industrial and Commercial Debt: A Balance Sheet Analysis (ms.
1942), by Carl Kaysen

Changes in the Financial Structure of American Business Enter-
prise, 1900-1940 (ms. 1943), by Sidney S. Alexander

The preparation of these studies required the compilation of several
samples of corporate balance sheet data for selected years in the
period 1900-19405 several samples of balance sheet and income
statement data for identical companies covering selected periods
since 1900, and particularly since 19145 and a number of special
tabulations of corporate financial data for selected years in the
period 1931-37, derived from compilations of the Bureau of In-
ternal Revenue and the Securities and Exchange Commission.

The studies of modern institutional adaptations in financing busi-
ness enterprise consist of four published monographs and two un-
published reports. The published monographs, prepared in collab-
oration by the authors of the present volume, Neil H. Jacoby and
Raymond J. Saulnier, are:

Term Lending to Business (1942)

Accounts Receivable Financing ( 1 943)

Financing Equipment for Commercial and Industrial Enterprise

Financing Inventory on Field Warehouse Receipts (1944)

The two unpublished reports are devoted to an examination of
Federal Reserve industrial loan experience under Section I3b of
the Federal Reserve Act. The first, which was a collaboration of
Charles L. Merwin and Charles H. Schmidt, is a detailed study of
the financial history of a sample of borrowers 5 and the other, a col-
laboration of Robert V. Rosa and Malcolm C. Urquhart, is an
examination, based on the same sample of cases, of factors that af-
fected the credit standing and experience of borrowers.

The Business Financing Project has been carried to completion
under grants of funds from the Association of Reserve City
Bankers, The Rockefeller Foundation, and the Carnegie Corpo-
ration of New York. None of these sources of financial support is
to be understood as approving, by virtue of its grant, any of the
statements made or conclusions reached in the publications of the

To carry out the project, extensive assistance has been essential
from various groups, both public and private, and from individuals.
Cooperation has been received from Dun & Bradstreet, Inc., the
Board of Governors of the Federal Reserve System, the Federal
Reserve Banks of New York, Philadelphia, and Chicago, the Fed-
eral Deposit Insurance Corporation, the Office of the Comptroller
of the Currency, the Reconstruction Finance Corporation, the
Securities and Exchange Commission, the Treasury Department,
the Department of Commerce, the American Institute of Account-
ancy, and from officers of commercial banks, insurance companies,
and lending agencies in leading financial centers of the country. We
are deeply indebted to these officials and agencies for the informa-
tion, materials, and other help which they have provided so gener-

Research on the Business Financing Project was carried on under
the direction of Dr. Ralph A. Young, whose enthusiasm and keen
interest stimulated all those participating in the project. The
authors of the present volume, who have taken part in the project
since its initiation, are sincerely grateful to Dr. Young for his pene-
trating criticisms and constant encouragement throughout all phases
of the work. In the preparation of the present study, the authors
have been ably assisted by Miss Dorothy Wescott, who edited the
manuscript and aided in the solution of many difficult problems of
presentation j by Dr. Herman Burstein and Miss Jean Wightman,
who served as research assistants j by Miss Molly Silver, who pre-
pared the charts; and by Miss Mildred Courtney, who supervised
the preparation of the typescript.

Raymond J. Saulnier
Director^ Financial Research Program
October 1946

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