Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-20

the past eight years had maintained
adequate secondary reserves they prob
ably would have been able to weather
the unfortunate conditions which forced
them into liquidation. Therefore, with
this lesson before us, is not the creation
of a secondary reserve a wise policy for
all banks regardless of their size?
THE amount and character of sec
ondary reserve cannot be standardized.
They depend upon the size of the bank,
the character of its business, its rela-
tionship to other banks and the
economic condition of the community it
serves.
Building Secondary Reserve.
eff the bank is a commercial bank
with the larger part of its deposits sub
ject to withdrawal on demand and a
smaller line of savings DEPOSITS subject
to notice of withdrawal its secondary
reserve could be built up of the follow
ing assets in the order named:
81. Bankers acceptances of the kind
described in section GLIB Federal Reserve
act
90 Short-time. self-liquidating obli-
cations issued by merchants of I'M
doubted worth covering the actual sale
and transfer of staple products.
80. Securities issued by the United
states Government.
-. Securities issued by the political
subdivisions of the United States, pro-
vided they have a broad and ready
market in which they can be sold with
out delay.
IS Miscellaneous securities, including
bonds, notes and debentures issued by
successful corporations engaged in sup
plying necessary commodities and SER
vice, provided such securities have been
seasoned by several years successful
operation of the corporations which is
sue them and provided also they have
a broad and ready market in which they
can be sold without delay.
Some may not approve this list and
its arrangement with respect to the re-
lative Importance of the different class
es of assets Of a secondary reserve.
They may insist that call loans to
brokers secured by stock market col
lateral should head the list for the in
vestment of both commercial and saw
ings deposits. There is no doubt that
up to the present time the stock market
call loan has been the most liquid OF
all loans and under normal conditions
no superior form of secondary reserve
can be found. But as we are attempt
ing to discuss fundamental principles
the call loan situation deserves brief
attention.
Call Loan Situation.
"The call loan situation today is a
manifestation of a basic cause that
analyzed to enable us to determine
whether it is a constructive and helpful
force in our economic development or
merely a gambling scheme.
"The great difficulty that confronts
many banks with respect to the eStab-
lishment of a secondary reserve Is the
feeling that local bank deposits should
be used exclusively to supply local needs.
II such communities are attempting to
support several banks among which the
available prime commercial paper which
originates in the community is distribut-
ed, making it hard for each bank to
get hold of enough to make up fair
and reasonable secondary reserve,
would it not be better to concentrate
banking resources and instead of having
four or five weak struggling banks.
combine them in one strong bank with
adequate capital managed by trained
bankers? The demand for bank credit
in some communities amounts to more
than the bank deposits, making 1t
necessary, in order to supply the de-
mand for credits to use all of the bank
deposits in making unsecured, undiversi-
fed, capital loans.
ITO meet such conditions would not
branches of large, strong, well-managed
banks offer better facilities than small
weak, local banks? These and other
similar questions are engaging the at
tention of thoughtful bankers who
realize that while the principles OF
credit and banking may be compare
lively simple, it is no simple matter to
apply them correctly and successfully
amid the complex social and economic
conditions that confront us today. II
this brief address has given you any
thing of constructive nature to think
about it has served its purpose"