The producers news. [volume] (Plentywood, Mont.) 1918-1937, 1927-05-20
BANKS AND BANKING


At time when persons interested in the safety
of the PEOPLES money in banks are considering
calling a conference for the initiation of Bank
Depositors protection measure, at the next cleo
ton it might not be out of place to reprint what
one of the Big Business magazines has to say on
the subject The following article contains the
admission that the present system of country
banking, is not to say the least so very success
full. The article reads:
"The Paradox of contrasting situation existing
at the same time in different parts of the coun-
try is currently reflected in the epidemic OF fail
ures among country banks, while the urban reser-
voirs of gold and credit flooded with peak
prosperitv. In 1926, there were more than nine
hundred bank failures and suspensions, according
to the Federal Reserve Boards summary. The
boards record encompasses all banks which have
been seized with financial malady, even though
the suspension proved only temporary More
than S3OO,OOO,OOO in deposits reposed in banks
which suspended last year. Numerically, the
banking disasters of 1926, year of record nation
al prosperity are without precedent in the his
tory of the country.
"Since the deflation Of 192O-21, nearly 10 per
cent of the banks of the county have suspended.
The process of closing up was gradual, and the
casual observer of banking affairs is not yet aware
of the cumulative result. For the most part, the
banks which withered and faded away were small,
and as Individual banks comparatively unfmport-
ant except in their own communities. Their fail
ure caused no perceptible change in the call loan
rate in Wall Street. The potentially adverse eff
feet of these suspensions the Eastern money
markets was offset many times by the great In
fux of gold during the last decade from all parts
of the world. American banking in general at
tanned great size and strength while the weakest
country banks succumbed to adverse economic In
fluences. Though the technical financial effects
of these bank failures is admittedly small, the pO-
litical and sociological consequences may be sub
Stantial
"The genesis of the present trouble was, OF
course in the deflaton of 1920-21, when land anC
crop values-which measured the prosperity Of
rural communities and stood as collateral behinC
the loans of country banks-shrank with startling
rapidty The breakdown of agricultural pros
perity after the war rendered borrowing farmer
unable to pay off bank loans, which became froz
en-. The rural bankers therefore kept Obligingl
renewing the loans, for there was not alternative
They expected gradually to write Of their ba
loans, and repair the losses out of new profits
But, for variety of causes country banks in ger
eral have made comparatively little profit in tn
thwarted, the weakest link in the chain droppe
out one by one, despite the exemplary patience c
the government banking authorities
Earlier in the cycle, the chief crashes came
the wheat areas of the Northwest In 1926 tn
center of banking disaster was Iowa. Another Il
cal center of trouble was Georgia and Florida, bt
the disease there was more specialized. The SUI
pensions were primarily an aftermath of the Flo
ida land boom.
"The meaning of the epidemic, however, is tn;
unit banking in areas depending upon a sing
crop or single industry is fraught with exec
tiOnal hazards. Safety in banking flows from
capacity to diversity loans-to keep all the egg
out of basket. The concessions to advocat
of branch banking-such as the McFadden bill, r
Gently enacted, allows in modified form whe
state banks authorized to open branches-fs
to allow for sufficient diversification, for son
states in the Middle West are almost wholly d
pendent on a single crop. Ultimately, the count
may be persuaded to the viewpoint that countr
wide branch banking, such as is successfully a
ministered in England and Canada is the sol
ton.
up to the present, the issue of branch ban
ing has revolved solely around the bankers
terest The time has come to consider the que
ton from the broader standpoint of the deposit
and the borrower, whose interest is closer to tn
of the public veal. 1t has long been argued tn
the local banker knew his community better tn
an agent of large city bank could and that
was likely to be more lenent in extending loan
The rural communities have been suffering fro
the fact that local bankers were too closely ii
up with local business situations and too genera
In granting credit. Greater severity in lendi
would have been a boon to borrower and lend
alike."-World's Work