 Ask
Dr. Econ
September 2000
How do you define "Commercial Loans" and what is the economic
importance of these types of loans?
Good question! A commercial loan, also commonly called a business loan,
a commercial and industrial loan, or a C&I loan, represents an important
line of business for the banking industry and a key source of funds for
the business sector. Commercial and industrial lending is a major line
of business for many banking firms as they provide credit for a wide array
of business purposes -- from inventory financing to investments in equipment
-- across a wide array of industry sectors, ranging from retail trade
to manufacturing. Likewise, commercial loans from banks represent an important
source of funding for corporations, partnerships, and sole proprietorships
that make up the business sector.
Commercial and industrial loans, as defined by the Federal Financial
Institutions Examination Council (FFIEC) in the commercial bank Call Reports
(FFIEC 031, 032, 033, 034), include loans for commercial and industrial
purposes to sole proprietorships, partnerships, corporations, and other
business enterprises, whether secured (other than by real estate) or unsecured,
single-payment, or installment. Loans to individuals for commercial, industrial,
and professional purposes, but not for investment or personal expenditure
purposes, also are included. Commercial and industrial loans reported
on the Call Report exclude the following: loans secured by real estate;
loans to financial institutions; loans to finance agricultural production
and other loans to farmers; loans to individuals for household, family,
and other personal expenditures; as well as other miscellaneous loan categories.1
Importance of Commercial Loans to the Banking Industry
Banking industry statistics show that commercial loans represent a very
large share of the assets of the banking industry. According to figures
from the Federal Reserve Statistical Release H.8 (510),
Assets and Liabilities of Commercial Banks in the United States, commercial
banks held $1066.5 billion dollars in commercial and industrial loans
as of June 2000; these loans accounted for 18.1 percent of all bank assets.
Over the ten-year period from 1989 to 1999, commercial and industrial
loans outstanding at U.S. commercial banks increased by more than 50 percent.
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Table 1
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U.S. Commercial Bank Assets
June 2000
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Assets
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Billions of Dollars
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Percent of Assets
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Total Assets
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5,848.1
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100.0%
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Securities
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1,307.1
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22.4%
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Loans
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Secured by Real Estate
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1,593.7
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27.0%
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Commercial and Industrial*
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1,066.5
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18.1%
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Consumer
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517.4
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8.7%
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Other Loans
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473.6
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8.1%
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Other Assets
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920.5
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15.7%
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Source: Federal Reserve Statistical Release H.8 (510), Assets
and Liabilities of Commercial Banks in the United States,
seasonally adjusted. See also web site (http://www.federalreserve.gov).
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* Reported as loans for commercial and industrial purposes to sole
proprietorships, partnerships, corporations, and other business
enterprises (Loans secured by real estate are reported under that
category.) Loans to individuals for commercial and industrial purposes
also are reported here.
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Commercial Loans are an Important Source of Funds for the Business
Sector
Commercial loans from banks provide an important source of funding to
the business sector, according to Federal Reserve Flow of Funds
data. According to this measure, bank loans on the balance sheets of the
corporate sector reached $911.4 billion in the second quarter of 2000,
or over 11 percent of the liabilities of nonfarm nonfinancial corporate
business (includes nonfarm nonfinancial corporate business; nonfarm noncorporate
business; and farm business). Table 2 provides a breakdown of the major
liabilities of the corporate sector, including loans from banks.
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Table 2
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Liabilities of Nonfarm Nonfinancial Corporate
Business
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Second Quarter 2000
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Liabilities
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Billions of Dollars
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Percent of Liabilities
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Total Liabilities
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8,209.5
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100.0%
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Corporate Bonds
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2,144.5
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26.1%
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Bank Loans, n.e.c.
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911.4
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11.1%
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Trade Payables
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1,143.0
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13.9%
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Mortgages
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430.1
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5.2%
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Other Liabilities
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3,580.5
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43.6%
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Source: Federal Reserve Statistical Release Z.1, Flow of
Funds Accounts of the United States, Second Quarter 2000,
Table B.103, page 103, or (http://www.federalreserve.gov/releases/Z1).
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n.e.c. = not elsewhere classified
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1 Please refer to the
FFIEC Call Report instructions for additional details (http://www.ffiec.gov/ffiec_report_forms.htm)
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