Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-12
NEW CREDIT GROUP
TO RELEASE Cash
Bankers in Outlying Regions
Will Be Reader to Aid Ap-
pIiCants for Loans.
BY MARK SULLIVAN.

AS the past week has seen the psy-
Geological effect of President Hoover
step about the banking situation, so the
coming week may see the effect of the
new National Credit Corporations con-
crete actions in the form of relief ac-
tually extended or loans actually made
The place where the ultimate effect
will appear, and for which the step is
mainly intended, is at the outer periph-
cry of the credit structure, namely,
upon depoSitors in banks and business
borrowers from banks all over the
country, especially in smaller COM
munitieS.
Already, without doubt, the begin
ming has taken place in the form of
greater readiness of Small-town bank
er in Oklahoma or Idaho to make a
loan to a farmer on his wheat of the
by the local bank as a matter of course.
The concrete transactions of the new
credit corporation at the point where
its functions come in direct contact
with the public can be Illustrated by
suppositious example. A bank in Iowa
or Illinois or any other State has two
varieties of assets both sound. One va
riety consists of promisSory notes grow
ing out Of business, industrial or agri-
cultural operations" and maturing in
mot over 90 days" agriculture, 8
months. These notes the local bank
can take to the Federal Reserve system
and get for them the currncy familiar
in every pocketbook as Federal Re-
serve notes" This part of the banks
assets is, in short, absolutely liquid. 1t
is self -liquidating." 1t is quick as
sets" instantly convertible into cur
rercy.
Will Liquidate "Slow" Notes.
The bank, however, has another
variety of assets, equally sound. 1t may
consist Of promlssory notes secured, for
example, by a mortgage on farm, or
by a gilt-edge bond, or by an equally
gilt-edge stock of the strongest railroad
in the country. These latter promissory
notes the Federal Reserve System will
not handle. The notes may be signed
by the very same man as the first
variety. They may be actually sounder.
Nevertheless, the bank holding them
cannot, under the statutes and Jules,
get currency for them from the Federal
Reserve System. The Federal Reserve
System, under the law, diScriminates
against this latter kind of security solely
for the reason that it is less liquid,
which means, for example, 1t may take
more than 80 days to foreclose a mort
gage and turn it into cash.
1t is this latter kind Of SLOW" notes
and securities which is now causing diff
ficulty to banks all over the country,
because the bank cannot discount them
with the Federal Reserve System, or,
under recent conditions, anywhere else.
1t is this class of notes and securities
which, speaking broadly, the new credit
iON falr of
as the new corporation is functioning,
every bank in the country will know
that for every sound security it has it
can obtain cash either through the
Federal Reserve System or through the
new credit corporation. Every borrower
from such a bank will benefit by the
banks greater readiness to make new
loans to business men or extend old
ones. Every depositor in a bank will
be assured by the fact that every sound
security in the bank is convertible into
cash.
Banks May Repay Losses.
Thousands of banks, of course. will
have no need of recourse to the new
credit corporation. Possibly 80 banks
out of 100 may not make use of it.
The banks that will mainly make use
of the corporations facilities are of
two types. A bank threatened by a
run, or which has lost much currency
through the Seepage of quiet boarding
by depoSitors, will now know it has the
new corporation back of it and, there
fore, substantially the entire banking
community of the United States.
Another class of banks, those that
actually have been forced to close their
doors. will now be able to get cash on
all their sound securities and will,
therefore, be able to give depositors a
portion, at least, of their money much
earlier than otherwise. 1t has been
suggested that the new credit corpora
ton should make loans on depositors'
bank BOOKS on failed banks up to a
certain percentage and under sound
conditions.
Has Psychological Effect.
The psychological effect alone. the
widespread knowledge that the new
institution is in existence and will soon
be furctioning, will of itself make
much of its functioning unnecessary.
To very large extent, mere knowledge
by local bank that the new institu-
ton will soon be available makes the
use of the institutions facilities un-
necessary.
However. soon the new credit cor
poration may begin to pass cash across
its counters, the speed with which it
has advanced so far is probably I'M
paralleled in American business his
tory. It was on Sunday, october 4, at
about a quarter after 9 in the evening,
that President Hoover laid before the
New York bankers what he spoke of
as a definite program of action" in
which their part was to initiate the
formation of tie billion dollar COR
poration which today, in less than a
week. is a reality.
Since that meeting at the home of