The New York herald., 1922-03-04
BANKERS SAY BONUS
| PLAN VIOLATES law
Declare National Bank Act
Does Not Permit Such
Use of Resources.
MANY DANGERS SEEN
G.. Z. Roberts, Vice-Presi-
dent Of National City Bank,
Attacks Note Scheme.
WOULD FREEZE CREDITS
WOULD FREEZE CREDITS
Initiation, Rise Of Interest
Rates and Gripping of Busi-
ness Sure to Follow.

Bankers of the financial district yes
terday branded the latest proposal for
financing a soldiers bonus through
service certificates as unsound eco
nomically and contrary to banking
practice as prescribed by law.
This attitude applied to the plan OF
lending to former soldiers SO per cent
Of the amount OF the certificates. 1t
was estimated that If the banks con-
sented to use their resources for such
loans a sum approximating $1,000,000.-
600 would be tied up for three years,
because the lending banks, under the
measure. could not begin to collect
from the Government for a three year
period.
The opinion was unanimous that
such an operation would cripple bust
ness. that bank credit facilities would
be forced into a frozen condition like
that of last year; that interest rates
would rise and the Treasury's vast re-
funding transactions, which will in
volve more than $4,000. 100000 Of Vic
tory notes. savings certificates, &C.,
would be hampered grievously.
Opinion of George T.. Roberts.
George Z. Roberts. vice-president Of
the National City Bank. summed up the
banking point of view in this way:
"The proposal would have the same
effect upon the money market as il the
Government borrowed the money itself
and lent it to the soldiers"
Other bankers echoed the same opin-
ion and noted that. In essence, the new
program harked back to the scheme
which was tabooed by PresIcent Har-
ding and Secretary Mellon. when the
Congressional bonus partisans sought to
float an issue of bonds to raise bonus
money. In some quarters. It was said
fiatly that the banks would not lend
money on bonus certificates. for the
reason, among others. that bank facil-
tiles never were intended to carry so
heavy load of collateral which had no
cash value until after three years.
THE transaction would depletc avail
able bank resources" said Mr.. Roberts.
tying them UP for the prescribed
period. The national bank act does not
contemplate that national banks should
use their resources In this manner.
There is nothing that the banks could
do after once lending upon the certifi-
Gates as the notes would not be negotia-
BILE and 1t would be imprudent for banks
to take much Of this class Of paper. The
creation of large body of loans upon
these certificates would interfere with
the Treasury's refunding operations"
Bank Would Have to Quit.
Mr.. Roberts. whose views have much
weight among bankers in all parts of
the country. said he was not familiar
with details of the new plan. as early
dispatches had been vague In some par
ticulars. As he considered the situa-
ton, 1t appeared. as one objection, that
the soldier who borrowed on his certifi-
cate might get only half of his bonus
while the taxpayer paid for the full
amount. If the borrower defaulted on
his loan. he stated. the loan would, In
effect, be sale to the bank, but the
bank would have to wait for dts money.
The loans made by banks need to bo
liquid. 1t was pointed out In banking
circles, and so most of the accommoda-
ton made Is In sixty to ninety day
periods. Assuming that banks In some
parts of the country were able and
willing to lend on certificates, they
would have to borrow, In turn. at the
Federal Reserve banks, but they could
not use the certificates as collateral for
reserve bank loans as they are not ne
gotiable for three years at least.
The banks, in other words. would be
forced to devote their own resources to
loan on bonus paper, and 1t would be
certain, bankers said, that borrowers for
business needs would suffer from high
rates and scarcity of credit
"a scheme to pass the buck to the
banker characterized the. plan TO pay Q
bonus by adjusted service certificates
maturing In twenty years.
This is merely another of tho many
devices to make the other fellow pay
the bonus" said the president of a large
national bank. Politicians have tried
UNNECESSARILY to make Wall Street pay
for the gift to the veterans. Attempt.
to make the allied Governments sub
sidize the American Legion have aiss
proven unsuccessful Now they try q
make future generations responsible o.
course this Is a perfectly obvious at
tempt to shift responsibility. Money will
have to be raised by taxation eventu.
ally. and the problem is not made any
easier by postponing It's solution fol
twenty years."
Another Bankers view.
"As a purely business proposition ]
would not consider making loan on ar
adjusted compensation Certificate "
said another banker. "A large number
of ex-service men would want to Dor.
row their 80 per cent. and never visit
the bank again on the principle that "a
bird In hand Is worth two In the bush.
We would then be left with collateral
which could not be disposed of till 1895,
when we could put In claim against
the Government 1t would be most
unsound banking to tie up our assets
In this manner.
Il do not favor making these certifi-
Gates eligible for rediscount with tn,
Federal Reserve banks. To do this
would certainly lead to another period
Of initiation. once more postponing ma
tional business recovery.
THE Government might set up Fed
eral loan bureaus for advances to OK
service men against certificates. But
after witnessing results OF state control
of railroads and OF the Shipping Board
cxperliuout VIC arc not partlctiurly an