The Covington leader. (Covington, Tenn.) 18??-current, 1922-06-15
REPORT ON CONTRACT RATE
OF INTEREST LAW

At the Knoxville convention OF the
Tennessee Bankers Association held
in May Of this year the association
adopted a report and resolution pro-
scented BY the legislative committee Of
the association relating to the eight
per cent. contract rate Of interest
law.
In view Of the public interest that
has been manifested in this law, we
publish in part the resolution passed
by the bankers in session at Knox
vile, as follows:
1.-TWO years ago at our Memphis
meeting we recommended passage Of
contract rate of interest law to
permit a contract rate in excess of
the legal rate of six per cent.
The sound reasons for such legislation
were apparent at that time. and sub
sequent events have a}undantly
shown the wisdom of that recommen-
dation.
The general assembly of 1921
passed an act legalizing a contract
rate of interest not to exceed eight
per cent. per annum. On the day
that this act become a law, and prior
thereto. the Federal Reserve Banks.
the final and controlling source Of
money and credit and interest rates,
under our banking system, were
charging the member banks the fol-
lowing rates:
"Seven per cent. on loans secured
by Liberty bond collateral, where the
applicant was the original purchaser
Of such bonds.
Seven and one-quarter on loans
secured by the same collateral where
the applicant was not the original
owner of such bonds.
Seven and one-half per cent. on
loans secured by commercial paper
as collateral.
lit is evident to any intelligent
citizen that no bank can afford to
borrow money at 7 1-2 per cent and
lend it at 6. The simple statement
of this proposition is sufficient to
establish its truth and no argument
is necessary to support it. If any
banker should ever be so rash as to |
adopt the policy of borrowing money
at certain rate of interest and then
lending it at a lower rate, his own
depOsitors would convince him of the
error in this experiment as soon as
they became aware of his system. At
the time of the passage of this law,
and prior thereto, there was a money
famine in Tennessee, and it was
largely produced by the fact that Dor
rowers in other states and in foreign
where elastic rates were
in vogue, were not only monopolizing
the loanable capital outside of Ten
nessee, but were actually draining
this state of its loanable funds.
1--WE reaffirm our belief that
rate of interest in excess Of
six per rent. is conducive to the eco
1omic welfare and development of
his state, and that such law is a
benefit and protection to the citizens
If this state, and especially to the
class.
But we will not participate in any
mock battle between the people and
he banks that may be staged by the
politicians Of any party.
IF our contention is sound. time
Will cOntinne to demonstrate its truth,
regardless Of any future manipulation
# law. If our contention is unsound
md if the market price for money
an be established and maintained in
his state by legislative enactment,
ime will demonstrate the fallacy of
'ur belief. and there may some day
rise in Tennessee a real, sure-enough
riend of the people, who will produce
he passage of a law to insure that
borrowers shall not be required to
,ay over two per cent, or even that
hey be loaned money without any
barge.
But until we have seen this demon
tration, or some other concrete proof
hat we have been in error, we shall
continue to shape our beliefs and con-
-ictions by the dictates of reason and
vidences gathered by our own obser-
alton. We, therefore, endorse the
resent contract rate Of interest law
n this state as a wise, liberal and
progressive measure, and strongly
recommend that it be retained on the
tatute books, or at least that further
ime be allowed to give this law an
to clearly demonstrate
is actual effects upon the economic
life Of our state in such way that
here can be no possible mistake about
What it's real effect is upon business |: