Monday, Sep. 18, 1933

Bankers Without Fun

The American Bankers Association is not used to meeting without plenty of social entertainment. Last week nearly 2.500 ABA-men assembled in Chicago, held their usual dinner without speeches, visited the Fair if they were so inclined, found time for some golf. Then, more soberly and attentively than usual, they attended their speechmaking sessions, held in the great gilded ballroom of the Hotel Stevens. They gazed thoughtfully at an enormous shimmering blue tapestry behind the speaker's rostrum, diligently considering the problems of U. S. banking, model 1933. Good reason had they for devoting themselves to work rather than play. For the first time since their counting houses were all shut up and they were called "money changers in the Temple" by the President of the U. S., they were assembling to consider the effects on banking of the New Deal and the national recovery program. Missionaries of Franklin Roosevelt were on hand to teach them: 1) what the Administration wants. 2) to like it. Big request of the Administration was freer lending in order to furnish industry the money to carry out the recovery program. By buying Government bonds the Federal Reserve has been building up excess reserves in banks, trying to encourage them to lend. In 1928 with $20,000,000,000 in deposits, banks of 101 leading U. S. cities had $9,000,000,000 in loans (other than loans on securities) outstanding. Today a similar group of banks with $15,000,000,000 in deposits have less than $5,000,000,000 in such loans. Willing enough to give short term credits but reluctant toward long term loans, banks have used their funds buying $2,000,000,000 additional government securities. To the convention was read a message from President Roosevelt saying: "I want you to know that we rely on your organization for its co-operation in furthering the free flow of credit so essential to business enterprises." To the convention came long-nosed Eugene Robert Black, governor of the Federal Reserve, a sublimated banker with a sympathetic, bankerish admonition: "We are in a new era. ... I wouldn't ask any bank to make any loan that in the judgment of its officers it should not make, but I do think that in the new era we must get away from an exclusive investment or collateral lending policy and return to a basis of commercial lending. The period of fear is gone. The hysteria is past." To the convention with stronger language--language much less attuned to bankers' sensibilities--came R. F. C. Chairman Jesse Holman Jones, big-nosed politico-industrialist from Texas. Said he: "Hoarders of available credit are little better than hoarders of currency. You are afraid of a recurrence of conditions through which we have just passed. ... I ask, is it not time that we uncross our fingers and follow the President's lead? ... No one wants banks to make loans of doubtful soundness, but the banker can, if he will do so, reconstruct most of his customers."

Specifically he cited a case that had come to President Roosevelt's attention: A firm with a $150,000 order from U. S. Steel Corp., and no credit available to fill it. "Such a circumstance is a travesty on banking. ... I could cite hundreds of cases . . . cases where a way could be found if a real interest is taken by the banker."

Grimly did many a conservative banker listen to this advice, remembering the last time, in 1929, when a "new era" was preached, remembering defunct bankers who lent not wisely but too well to "reconstruct" their customers.

To make lending easier Mr. Jones urged all banks to sell preferred stock to the R. F. C.: "A man with plenty of chips can play a better game of poker than one who is playing 'scared' or 'short' money. ... Let us assume that you do not need any new capital in your banks, is it not wise, as well as patriotic, to go along in the preferred stock program? ... Be smart for once. Take the Government in partnership with you, and then go partners with the President in the recovery program. . . ."

There was a breath of threat when he said: "It is easy to say 'no,' and if that is the program and we want the Government to do our banking, what is to become of our high-priced bank talent? The office boy can say 'no' and the note teller can collect the notes if they are good. . . ."

The day after Mr. Jones, George Vincent Mclaughlin, president of Brooklyn Trust Co. and of the New York State Bankers Association, spoke his mind to the Association: "It has been said that we should not permit our banking system to become a football for speculators. To this I will add that neither should we permit it to become a football for politicians. . . . We [Brooklyn Trust Co.] made an analysis of all applications for business loans ranging from $2,000 upwards received during the first eight months of this year. . . . We found that the demand for business credit had shrunk 50% from the corresponding period in the preceding year--which was itself a slack period. We also found that we had granted 81% of all the business credit applied for. ... I want to suggest that other bankers analyze all of their policies ... be prepared to answer critics with facts. . . . 'That every bank should sell stock to the R. F. C. is sheer nonsense. Apparently we are going to get a black mark if we don't apply for something whether we want it or not. The R. F. C. is not a liberal lender. If it wants to do something for the banks who have borrowed, let it release the excess collateral it has taken and reduce the interest charged on its loans." Appealed to on the grounds of patriotism, the A. B. A. as a whole could not give so blunt an answer to the Administration but it made clear its way of thinking. Col. Leonard Ayres, economist vice president of Cleveland Trust Co. and chairman of A. B. A.'s Economic Policy Commission, reported: "Your commission views with apprehension the propaganda . . which brings pressure upon bankers to adopt ultra-liberal loaning policies. . . . The objectives of the recovery campaign justify all the support that banks can rightfully give, but they justify it just so long as that support involves good banking." In drawing up resolutions for the convention the bankers planned to ignore Jesse Jones's preferred stock plan. He heard of their intention, sent word that he wanted to be heard by the resolutions committee, marched in on a night session of the committee and put his foot down. Result: The convention voted to "commend to the thorough and thoughtful consideration of all bankers" the opportunity to sell preferred stock to the R. F. C.--which might be taken as a recommendation or as advice to think twice. Nothing did the bankers say about freer credit.

Second big effort of the Administration was to try to get the bankers to grin & bear the deposit guarantee feature of the new banking law. Flatly Mr. Jones told the bankers: "Those of you who think you are going to get rid of deposit insurance at the next session of Congress simply do not know your Congress."

James Francis Thaddeus O'Connor, Comptroller of the Currency, went before the bankers and told them, the names of the two directors who with himself will administer the deposit guarantee law: Walter Joseph Cummings, executive assistant in the Treasury, close friend of William Hartman Woodin, and Elbert G. Bennett, banker of Ogden, Utah. These announcements the polite bankers applauded. And they listened politely when Comptroller O'Connor told them: ''Every depositor has a right to his money. This law makes the theory a fact. It will banish fear in every banker's mind of runs upon his bank. ... Is there any depositor who would not accept one-half of 1% less interest and know his deposit was insured? ... It is my firm opinion that the insurance feature of the law will save millions to our people."

To many a sound banker who realizes that under the deposit guarantee his bank may have to pay assessment after assessment to make up for the losses of unsound banks that fail, these persuasions were unconvincing. But it was not on that ground alone that the A. B. A. voted to urge at least a postponement of deposit guarantee. The bankers knew that there are still 2,700 banks now operating on a restricted basis, most of which cannot get in under the guarantee unless they are reorganized, that there are 8,000 other banks not members of the Federal Reserve, many of which cannot now pass the examination for admission to the guarantee system. There is small doubt that the public will soon withdraw its money from banks that cannot pass the examination. The bankers voted: "It is our considered judgment that means should be found to postpone action. . . . We believe that if the attempt is made to hurry through arbitrarily strict examinations the result will be the suspension and liquidation of some thousands of banks. . The whole project for deposit insurance . . . should be reconsidered. . . ." At the beginning of the week the A. B. A.'s outgoing president, Vice President Francis H. Sisson of Manhattan's Guaranty Trust Co., had ripped hotly into the new banking law. He said it was ''basically unsound and will therefore ultimately force its own repeal in amendment. In its place must come a plan of reform that will really reform." Later in the week the A. B. A.'s official voice was more humble. Its new president, Francis Marion Law, was to present himself and the A. B. A.'s views at the White House. "I shall announce to President Roosevelt," said he, "that the bankers of this Association are going to do everything permissible to good bankers to make the National Recovery Act work so that it will become a blessing to every man, woman and child under the American flag." Interesting coincidence (not design) : Banker Law is president of First National Bank of Houston, about twice the size of its rival, Houston's National Bank of Commerce of which Jesse Jones is chairman. One other great topic was before the bankers in Chicago: the drafting of a code for General Johnson. Not wage nor labor provisions were the important part of the bankers' code, but the provision that in every locality banks should jointly fix the maximum amount of interest paid on time deposits, and should fix uniform service charges. The purpose is to keep isolated bankers from putting up the interest rate in order to get deposits from their neighbors, to do away with a form of competition which has led to much unsound banking. Last week the Federal Reserve Board fixed a maximum interest rate on time deposits at 3%, but in many parts of the country the interest rate is already lower. The code aims to keep local rates at conservative levels even if lower than 3%.

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