Bank Credit

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Bank Credit


monetary loans granted by banking institutions.

Under capitalism, bank credit is one of the forms of loan capital. It may be a sum granted for the temporary use of capitalist enterprises and private parties in exchange for a pledge of physical assets as security, although a pledge is not always part of the agreement; it may also take the form of bank purchase of securities. A distinction is made between long-term and short-term bank credit. Non-Soviet bank statistics single out such categories of loans as loans to commercial and industrial companies, loans to agriculture, consumer loans, and loans to stock-brokers and dealers. For example, in the aggregate balance of American banks for June 1970 credit transactions were distributed as follows: the banks’ loans per se accounted for 70 percent of the banks’ total income assets of $424.2 billion, 30 percent being invested in state securities and state and local bonds. Industrial and commercial companies accounted for 37 percent of the total sum of loan indebtedness, farmers for 4 percent, consumers for 21 percent, and real estate for 23 percent. Today, the main share of bank credit is used by large monopolistic enterprises both directly, in the form of loans under very advantageous conditions, and indirectly, through expansion of consumer and mortgage credit, which leads to the more rapid sale of their goods and services.

Under socialism, bank credit is an important instrument for expanded reproduction and for the promotion of the planned circulation of the fixed and working funds of socialist enterprises. The primary form of bank credit in the socialist countries is direct, planned, and designated credit. Loans are issued in observance of the following credit principles: the planned and designated direction of credits; the use of physical assets as securities; the necessity of payment for credit; and repayment at a definite time. Loans are distinguished by time period (long-term and short-term loans), by sectorial structure (loans in industrial enterprises, agriculture, transportation and communications, and trade), and by purpose or designation (loans for commodity and physical assets and seasonal expenditures, loans granted on the basis of en route payment documents, and loans to supplement working capital). On Jan. 1, 1973, the total enterprise indebtedness just of short-term loans of the Gosbank (State Bank) of the USSR was 111.8 billion rubles. More than two-thirds of all loans were given to enterprises in industry and trade; more than three-fourths of all loans were given for commodity and physical assets.