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; Th^. growing strains on the U.S. banking system 
85 
80 
75 
Loans grow faster 
than deposits... 
Loans aspercawt^ 
of total ^ 
65 
60 
0 
~~ ''New YorkCHy ; 
money center bonks 
Ls . £ •; - 
i -. 1. 
1967 1970 1973 6/30 
A Percent 1974 
Data: Investors Mananpmont <?ri«nr.fis. BW est. 
It. is widely known that* the drying up of the market for 
new capital has led corporations to borrow from the na 
tion’s banks as,never before. As a result, the banks’prime 
lending rate—has soared to record levels. 
What is less widely known is that the banks have ex-« 
tended themselves to levels far beyond what the invest 
ment community had come to regard as normal. 
While a few would suggest that the banking system as 
a whole is in difficulty, conservative observers both within 
and outside the banking community are concerned. 
A glance at the critical debt-to-equity ratios of leading 
banks indicates how dramatically the situation has 
changed since congress amended the Bank Holding Compar 
ny Act in 1970; * 
Here is a table showing debt ratios—theratiofrof sjmrt- 
and long-term debt to invested equitv^edfital—whence 
banks began setting up holding competmes—some in antub^ 
pation of a liberalized holding company act—and the ratiok 
for the banks’ holding companie/at the end of 1973. \ 
Bank 
Union Bank of California 
First Pennsylvania Banking and Trust/Co 13.3 to 1 
First National Bank of Chicago ..../ 10.2 to 1 
Wells Fargo Bank . { 14.3 to * 
Security Pacific Bank ~ 
Franklin National Bank 
Marine Midland Bank (New York) 
Mellon Bank 
Bank of America 
First National City Bank of New York 
Bank Debt 
Cd. flati# 
Ratio-1987 
—1973 
. . 15.0 to 1 
23.1 to 1 
.. 13.3 to 1 
20.1 to 1 
.. 10.2 to 1 
20.5 to 1 
. . 14.3 to 1 
27.8 to 1 
. . 13.9- to 1 
223 to i 
.. 20.4 to 1 
30.9 to 1 
. . 15.7 to 1 
23-3 to 1 
83 to 1 
15.7 to 1 
19.2 to 1 
31.8 to 1 
.. 163 to 1 
22/1 to 1 , 
i\etc York Tim**^ 
•Includes federal funds borrowed, 
borrowings from Federal Reserve, 
and other non-capital borrowings 
Banks can sell debt 
but not equity 
Data: Irving Trust Co., First Boston Corp 
! 
z 
The banks are overextended 
As loan demand has grown, and been ac 
commodated, so has the banks’ reliance 
on what is often called "hot money"—e.g., 
federal funds (money borrowed overnight 
from other banks; figures here are net of 
such funds lent) and large certificates of 
deposit ($100,000 or more). The problem 
is that such money may not stay put. 
LARGE COMMERCIAL BANKS 
Certain short-term borrowings 
as proportion of liabilities 
7 
<D 
Q-o. 
1969 70 71 72 73 74 
<T