Evening star., 1922-03-18
BONUS Would HIT !.
SMALL.TOWN BANK
Could Hardly Refuse Loans
on Certificates Under
Fordney Plan.
BY DAVID LAWRENCE.

Small town and country banks will
be hit hardest il the Fordney bonus
plan ever goes into effect, in the
opinion of high officials of the Treas
ury Department. They believe that
the city banks which ordinarily do
not make small loans or even take
small deposits will not bother with
the requests that the adjusted COM
peusation certificates be exchanged
for cash. The large banks also are
in 4 strong. enough position to refuse
because there is no legal compulsion
upon them to honor the certificates.
The small banks, however, will not
be able as readily 20 decline to !end
money. because IN snii,it communities
the relation between the Would-De-
borrower and the banks is bound TO
be so intimate that refusal might
prove embarrassing. This means that
the country banks will have to dig
down into their Capital and reserves
to meet the loans and while they can
appeal to larger banks to help them
out. this process is by 20 means sale
one to count upon. n provision mas
been inserted in tn" Fordney oiil
whereby the banks cln rediscount the
certificates at any banks except fed-
eral reserve banks.
Inasmuch as Chairman Fordney has
listed the advantages of the new meas
ure which he has drawn treasury oi :.
the bill in the form proposed. These
disadvantages are:
First, the country banks and the
banks in agricultural districts. "n!cn
are already Straining to the utmost 10
meet the demands for loans by farmers
and are already overloaded with loans
will find it hard to get the money TO
cash the certificates of the service men
Second, the country banks which DO
have the money will have that mucn less
g. tit-l MI
Third, the increase of at least $ooO.-
900, 900 in credits is an imitation which
might be justified if the money We're
to be employed in financing agricultural
and manufacturing or other productive
enterprises, but will prove mere eX-
pansion of credit from an economic
viewpoint.
Fourth, the whole transaction is an
indirect government credit and weak-
ems the governments positlon pH
about four billions of dollars, TOT
Chairman Fordney now admits that
the burden by 1943 will amount 10
that much. An addition of more than
four billions to a war debt OF twenty
three billions is likely to depress the
value of government securities as
whole.
Fifth. the Fordney plan does not
take into account the number or men
who may default on their borrow
ings.
Greatest Burden in Three ears.
Under the system proposed, man
who borrowS on half the total amount
of his certificate will get the re-
mainder of the value of his certificate
in three years. In other words, the
Treasury Department automatically
will have to redeem the certificates
held by the banks and also Will be
required at once to pay the service
man the remaining sum due. Inls
means that to get cash quickly the
defaulting process will he resorted
to. 1t will not be like defaulting on
an ordinary loan. but Will merely
mean Cushing in advance certihcate
which is worth with interest specl-
fed sum, depending upon the num-
Der of days u soldier or sailor served
in the war.
While it is true that those who do
not default will get slightly IN
creased amount in 1943. when the Ger
1ificatcs finally become due, Treasury
officials expect that the majority of
the service men Will prefer to cash
their certificates at the banks. while
Treasury to redeem them within three
years. There's the whole criticism in
a nutshell-the Treasury considers
the Forduey plan to be ulsadVanta-
cepus to the banks during the next
three years, and then imposes heavy
burden after that on the government
itself. Instead of four billions Of
dollars i'm twenty years, the experts
estimate that a large part of that
amount would be added to the public
debt in the next three years to meet
the certificates that will be present
ed by the banks to the government
for redemption In that event, the
Treasury believes. increased taxation
would be the only way out.
DOWNRIGHT 1On.sl