168 
BANKING STANDARDS 
3. “. . . . the rates applying to the bulk of the loans in any 
given city . . . . conform in a sense to the standards of a single 
competitive money market.” 22 
But, as pointed out above, geographical differentials in interest 
rates obtain and tend to persist. This fact, arrived at independ- 
ently by the author just quoted, is summarized as follows: 
1. “The spread [in the rates] between the highest and lowest 
communities is from three to six times larger than the largest 
differential in any year between the rates charged on different 
types of paper averaged for all communities.” 23 
2. “Banks in the cities in which Federal Reserve banks are 
located seem in general to have charged lower rates for loans than 
those in cities where there are merely branches of the system.” 24 
3. The larger the volume of deposits of cities, the lower the 
average rate charged customers.’ 
The rates of interest charged customers depend, among other 
things, upon (1) the personal relation between banks and bor- 
rowers; (2) the collateral offered as security; (3) the time which 
a loan is to run; (4) the purpose for which it is to be used; 
and (5) the demand for and the supply of funds available in 
different parts of the country. Differentials are traceable to all 
of these conditions; the one most influential and operating to 
make the rates consistently different geographically is the finan- 
cial and industrial specialization characterizing different parts of 
the country. The market for loans, however, is national, local 
areas overlapping and being linked together because of the bank- 
ing needs of commerce and industry and of the competitive neces- 
sity of banks to supply them. Locally, the differentials tend to 
disappear; in wider areas, they tend to persist. 
It would be of interest, if space were available, to describe the 
conditions out of which an explanation of the norms, trends, cor- 
relations, and regression tendencies in the matter of operating 
expense, of net earnings, and so forth, might be sought. To do 
22 Ibid., p. 810. 
28 Ibid., p. 810. 
24 Ibid., p. 810. See the discussion of differentials on customers’ loans by size 
of city, pages 364-365, above. 
25 Ibid., p. 811.