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A quantitative investigation of the effect of scientific lending on certain industries, as viewed from the aspect of banking

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McLeishWA_1939redux.pdf (12.16Mb)
Date
1939
Author
McLeish, William Alexander
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Abstract
 
 
A study of this work will show clearly that its importance is largely due to the series of sequences which have been brought out. These sequences have shown the Banker, more clearly than ever before, what has been taking place month by month and year by year during all the operations in the borrower's Accounts. He can now ascertain the high and the low months. If there is any deviation from these, an enquiry can be set up immediately as to the reason and a satisfactory answer obtained. This is one of the most important items to be remembered in the lending of money.
 
The data being required immediately at the end of each month ensures that the Accounts are kept before the eye of the Banker, and the production of the monthly results is in no way hindered, as is sometimes the case with statistical investigation.
 
The collection of data in this way brings the Banker into closer touch with his customer. He becomes more interested in the welfare of the latter, and by investigating the matters which cause variations in the Accounts, he obtains a wider knowledge of what is taking place in the industry or trade. He can thus have a deeper insight into the borrower's activities, and the effect will be to make the borrower's officials feel that their company or firm is of real value and worthy of respect and consideration, and to give the Banker himself a sound foundation of fact upon which to base his loans to the borrower.
 
This work has dealt with facts presently existing, but it has shown that it is possible for the Banker to make short forecasts for a period of three or four months. This applies particularly to the Bills of Exchange Account, where, as has been said, it pays the borrower to use the facilities given and to take advantage of a lower rate of interest and even the two Current Accounts can also be used in this forecast, the one acting as a guide to the other, so that here a new sphere is introduced. While the general opinion appears to be that forecasting is not regarded with much favour among Bankers, yet there is no doubt that it can be carried out with a reasonable measure of success in lending to certain industries, and in particular to those reviewed here.
 
Thus it will be seen that out of the mass of figures contained in the Banker's Current Account and Bills of Exchange Account Ledgers, there has been evolved a very clear picture of a Company's lending, presented in a manner which has never been previously attempted, and a higher standard of efficiency has thus emerged. As regards other Loan Accounts of the Bank's customers, further progress could, without doubt, be made. This work, although in itself very small, lays down the principle to be followed after a considerable period of research.
 
As a further step forward a Research Department would be a distinct aid to work of this nature, for there is no doubt that Banking, viewing as it does the whole ramifications of Commerce and Industry, stands in the best position to give information and advice to its many customers on whom the Bank has had to reply since its inception, while the present state of Scottish Commerce and Industry is such that a loosening of the rigidity of some of the defined principles of Banking would be of infinite value. A Research Department ready to point out quickly changing conditions and to deal with confusing problems which the Banker at the moment has no time to investigate, would be a definite aid both to the Bank and to its customers.
 
The Banker should thus feel himself on firmer ground. He not only has the figures before him, but by making graphic representations of his Accounts he can build up a visual picture of the state of affairs and thus can be certain of any observations he makes to his Head Office from time to time upon the Accounts. It is not suggested that all Bank lending to -day is just "a shot in the dark," and that no system exists for eliciting information regarding the principles of lending. But at present the "why and wherefore" of present day lending is only studied on the surface. By the use of modern scientific methods it can in the future be thoroughly examined and the results systematically collected and scientifically investigated.
 
It is the aim of this work to present such an investigation in three definite fields of study, as an illustration of the methods required to raise Banking to the status of a science rather than a tradition.
 
URI
http://hdl.handle.net/1842/35270
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