COMMERCIAL LOANS, SOCIAL SECURITY, AND CLINTON'S ECONOMIC POLICY
Three topics are addressed in this research. Commercial loan pricing in California over the 1992-1995 period is analyzed within the context of the concepts of supply and demand. The implications for the commercial banking industry of the effects of population demographics on the social security system are identified. Lastly, the economic policies of the Clinton Administration are assessed from a Keynesian perspective.
Commercial Loan Pricing in California: 1992-1995
The demand for commercial loans increased dramatically in California in the second-half of 1994. Subsequently, interest rates on commercial loans in California began to rise following several years of dramatic declines. In December 1994, however, Sanwa Bank began lowering prices on commercial loans as a part of a strategy to build market share in the small business segment of the market. Neither the earlier interest rate reductions nor the current interest rate increases, however, have had any dramatic impact on the demand for commercial loans.
Bank lending to businesses soared in 1994, reflecting strong corporate demand. Bankers tied the lending surge to the need for short-term loans at floating rates as interest rates rose during the year. As rates decline, some banks will extend riskier loans to make up for lost volume. Business loans increased 8.3 percent in 1994 from 1993 levels.
Small Business Administration-guaranteed commercial loan through banks reached record levels in 1994, as interest rates on commercial loans increased. The number of Small Business Administration bank lenders in the Sacramento area increased from 53 to 60 as the demand for commercial loans increased.
Adam Smith held that market prices are determined "by the interaction of supply and demand in the short run," while the natural price is a reflection of "long-run costs of production." The natural ...