The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1913-12-23
COURT DEC|S|ON| IS
SERIOUS BLOW To
NEW YORK BROKERS
National City Bank Will AL
low no More Over-Certi-
flying of Checks
MEANS MUCH FOR
STOCK EXCHANGE
Custom Has Been Followed for Years
and Only Two Cases of Brok-
ers Defaulting Are on
on Record
BY HOLLAND

New York, December Special mo
recommendations similar to those made
to the recent Pujo investigating commit
tee and, in fact, no legislation could have
brought such sudden and serious embar-
rassment to the brokers' not only of wall
street, but of other financial centers as
mat occasioned by recent decision OF
the supreme court in the so-called Ma
tlonal City bank case. Yesterday morning
brokers in this city received intimation
that the National City bank will in the
future decline to make so-called day
loans This is technical euphemsm for
the transaction known as over-certifyjng
checks. To report that brokers in New
York are seriously alarmed is not an ex-
agegrated statement
or suddens and after so years of prac-
tically harmless Decentralization of
checks for brokers, the supreme court has
decided that a bank cannot claim TO be
privileged creditor with respect to Sc
curity lodged with it by broker to pro
teet Decentralization. This decision is
entirely apart from any political or legisla-
tive agitation. But 1t is the first judicial
Interpretation, at least so far as the pro-
lection of banks that over-certify is con-
cerned
In about so years there have been only
two cases where brokers who have Sc
cured Decentralization in the morning
have failed to make their accounts good
by o'clock in the afternoon. They have
not always done this by depositing cash
in sufficient amounts to make their over
certification good, but they have deposited
either cash or first-class securities
For 1t to be known that broker was
in default at 3 o'clock at his bank through
failure to meet the charges entaled by
his generalization in the morning would
be to pronounce a sentence of Punishment
upon that broker. These are transactions
which reflect higher authority which is
an honor. even than the authority which
is in law.
Unless some means are devised whereby
brokers can obtain accommodations or
unless the clearing house association steps
in and recommends the adoption of the
London system of bi-monthly. settlements,
then what is called Wall street specula-
ton will be throttled and, In addition, the
business of the stock exchange, so far as
actual purchase and sale of securities are
concerned, will be greatly curtailed.
1t Is an Old Question
Although the national banking act for
bids over-certification of checks, vet as
transactions of that kind are not penalized
Ii has been presumed that the comp
troller of the currency at Washington
would look upon transactions whereby a
broker in the morning obtains certif-
cation of his check so that he can pay
for securities bought in the expectation
| that before o'clock he will have received
money enough on the transaction to make
the over-certification good not a real
violation of the intent of the law. Comp
trollers have generally been thus con-
placent. Until within comparatively re-
cent time CONGRATULATIONS were for the
most part protected by demand one-narie
| notes made by the brokers and deposited
with the banks. Afterward 1T was decided
that the wiser plan would be to enforce a
| deposit of securities which might be
| handed In in the morning and taken out
/ in the afternoon when the check was
made good. But the DECISION of the SUI
| preme court attaches no other value ~
| these securities in case of brokers fail or
| default than that which is common to all
creditors.
The Business Could Not be Done
1t would be impossible to transact the
business carried on by brokers unless ac-
commodations were secured. The brokers
| never have capital enough of their owr
| to meet the exigencies of stock exchange
transactions Immediately. They must
! borrow of the banks.
| There. are n New York city about 70t
| brokers of reputable standing. The aver
age balance kept by these brokers with
| their banks is estimated as about $1,000
| 1t is also estimated that the banks of New
/ York carry in the aggregate about $50.
100000 of deposits made by the brokers
| Upon these balances, as a general thing
no interest is allowed. Usually none Is
asked. But that sum. large as it is
would be trifie in comparison with the
| daily needs of the brokers.
] Yet the decision of the supreme cour;
| which wipes out the special protection
which the banks have felt they secured
when over-cartifying checks or, as 1t Is
| politely termed, making day loans" will
| undoubtedly compel all the banks which
| make specially of this kind of business.
or which. in fact. engage in 1t at all, to
follow the lead of the National City bank