Since most of the banks in the United States are small, the loans to any one customer are likely to involve excessive concentration of risk. This danger is increased by the fact that a controlling interest in the bank may be and often is owned by one person, firm, or corporation engaged in other business. The limitation on national banks in this respect is that the loans to any one person shall not exceed 10 per cent of the bank's capital and surplus and 30 per cent of its capital, but " the discount of bills of exchange in good faith against actually existing values and the discount of commercial or business paper actually owned by the person negotiating the same" is not considered as money borrowed. Most states have some limitations, modeled upon the National Bank Law, on loans to any one person, the variations ranging from 10 to 30 per cent of capital, or of capital and surplus, or of capital and surplus and undivided profits. Practically all states make the same exceptions with respect to discounted paper as do national banks and many of the states make additional exceptions, particularly as to loans on real estate, bills of lading and warehouse receipts, collateral securities, and loans approved by special vote of the directors. Loans to directors and officers are likely to be excessive and on slight security, and while the National Bank Law makes no provision against such loans, many states require that they either must be approved by an appreciable majority of the board of directors, or must not exceed certain specified maximum amounts, or must be specially secured.
In almost all of the states, loans may be made on real estate security, but up to 1913 national banks were prohibited from making such loans and some restrictions are still made by some states as to population of city, amount of loan, margin of value of security, character of lien, and the kind of bank empowered to lend on real estate security. This kind of loan is non-liquid and dangerous for a commercial bank, but the power to loan in this way has been very useful to state banks. Because of their greater freedom in extending loans, the state banks have been able to adapt themselves to local conditions more than have national banks.