In studying the financing of different kinds of enterprises from the point of view of the borrower, it must not be forgotten that a general limiting condition underlying the whole question of financing the business is found in the condition of the bank and its ability to do what the borrower desires. In what has already been said it has been assumed or taken for granted that the bank had the power within certain limits to direct its credit practically into any channel that it may choose. This is true up to a certain point. There are two considerations, however, which always limit the power of the bank to lend to a given concern, and which must, therefore, be constantly borne in mind by the borrower, as well, of course, as by the banker himself, in his relations with the borrower. The first of these considerations is that the bank must, in its capacity of a semipublic institution, distribute its credit over the different classes of borrowers in such a way as reasonably to meet their requirements. It is, of course, true that a given bank may specialize in a particular kind of paper, or may confine itself largely to a particular industry or type of business. But when we consider the bank not as a single institution, but as one of a group of institutions, it is evident that provision has to be made for the credit needs of the entire community. This means that banks as a whole must provide for filling the requirements of their borrowers, and in order to do so must keep in mind some general plan of distribution. For instance, if, in a country community where there is only one bank, that institution should concentrate its entire lending power upon a very few businesses, the bulk of the community would be left without credit accommodation. It is in order to prevent a danger of this kind, possibly resulting from the control of the bank by persons who want to absorb its entire credit-granting power, that the National Banking Act endeavors to restrict the total amount of the loans granted to any one person or corporation to a specified percentage of its capital stock. This provision of law was partly due, no doubt, to the desire to prevent the bank from "putting all of its eggs into one basket," but it was also due to the desire to insure a fairly broad distribution of credit. The second general consideration which limits what the bank can do in any single direction is that there is a well-defined necessity for preventing the unnecessary or excessive expansion of given types of business. In a competitive community there is always a danger that business will be unduly expanded or increased in some particular industry. In fact, past crises or commercial depressions have often been aggravated by undue development of one line of business, resulting in a breakdown in that line, due to the fact that too great a volume of goods was produced there and that it was suddenly realized that the demand did not suffice to carry off the goods. When banks have allowed themselves to become too closely involved with institutions representing one principal industry, they find that a part of their credit is "frozen" or rendered unavailable because they cannot compel borrowers to realize without driving them into bankruptcy. This would result in forcing the customer to throw upon the market large stocks of goods which could not be sold at a remunerative price, and which must wait until better conditions have been restored in that branch of business. Sound banking, therefore, dictates, not only from the standpoint of the bank itself, but also from that of the proper balancing of different lines of business, a distribution of assets and risks.

It thus becomes necessary for the banker to consider and analyze carefully the composition of his assets and to arrange them not only by maturities, but by kinds of application, on a well-ordered plan. Such a digested and arranged scheme of bank assets is called the portfolio of a bank, and the problem of the bank in connection with it is simply to develop a holding which represents different kinds of risks and a fair distribution of the bank's loans among its different classes of customers.

In working out this problem satisfactorily, the bank is largely guided by the special and peculiar conditions in its own locality. For example, let us consider again the case of the country bank of a moderate size which is alone in its community and has no competition, and which, therefore, has the greater duty of a public sort to consider all classes of demands. Such a bank, we may suppose, has seasonal requests from the farmers surrounding it for loans to be used in growing and harvesting their crops. It also has demands from dealers in a retail community for funds to assist them in meeting their purchases of goods and to some extent in carrying them. Probably such a bank will also have some call for fairly long-term real-estate loans whose proceeds are to be used in developing or purchasing properties. There may also be a local manufacturing enterprise or two which has need of the services of the bank in financing the movement of raw materials into, and of finished products out of, the plant. In this connection, and others, also, the bank may be called upon to provide a considerable amount of domestic, and perhaps some foreign, exchange. Here is a complex problem of the division of credit.