Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-12-05
BY CHARLES F. SPEARE
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, December 5.-Within a
few weeks the superintendent of banks
in those States that impose certain re-
Strictions on the investments of savings
institutions and trustees will be COM
PEELED to reach a decision regarding
the status in 1892 of securities that
technically will then be no longer legal,
owing to failure to cover their interest
requirements by specific margins.
The situation today parallels that in
1921 when the depression cut deeply
into the revenues of the railroads and
q, high percentage of So-called legal
bonds theoretically passed off the legal
list. At that time full appreciation of
conditions was taken by the banking
authorities, who made the necessary
concessions under which savings banks
and other fiduciary institutions were al
lowed to carry such bonds in their port
folioS and at cost" rather than at
market"
New Law May Be Passed.
Conferences now being held between
banking interests and representatives
of the New York State Legislature and
the New York State banking depart
ment are expected to result in the filing
of bill at Albany early in January
which will temper the terms Of the
savings bank law and greatly ease the
position of the savings banks during
the present crisis. 1t has never been
reasonable to anticipate that the super
intendents of banks in this or in other
States would exercise their authority
and compel institutions to sell securi-
ties that had not fully realized legal
requirements, when the bond market
was in demoralized condition and the
pressure of few offerings on it re-
suited day after day in wide open
breaks in junior mortgage issues.
There is no equivalent during this
century for the collapse in second-grade
railroad bonds that has taken place in
the past three months. In the last
10 market sessions this group of bonds
has declined into price area where
they have sold between 20 cents and 40
cents on the dollar. Most of these
bonds originally came out we'll above
90; some above 100. Until 1881 they
have all fulfilled the legal requirement
that they show earnings in each year
for at least five or six fiscal years,
amounting to one and onerhalf times
their fixed charges. They were quail
fed as to legality by having paid cash
dividends on their stocks, also for five
or six fiscal years, equivalent to at
least one-fourth Of fixed charges
1t has been proposed that the regula-
ton, as 70 the term during which in
terest charges must have been earned,
be increased from five years to eight
years, and the entire period under sur
vey be 10 years instead of six years.
This would give some of the roads more
latitude and permit them to qualify,
even though their earnings have fallen
off sharply during 1881.
Rating Change Suggested.
A more liberal attitude on the part
Of State supertntendents of banks and
of National bank and Federal Reserve
bank examiners is likewise believed to
be under consideration in behalf of
commercial banks. Under the present
rulings generally adopted there are GER
tain classes of securities that realize
rating high enough SO they may be
carried in the portfolios Of banks Eat
cost" in spite Of the fact that they
have dipped down well below so-called
book values. Other securities of lower
specified percentages. In cases of de-
faulted bonds, banks holding them have
been required to carry them at their
actual market quotations.
Since these rulings were put into
effect about three months ago the bond
market has steadily declined. Condi-
lions have become such within the past
Two weeks that it has become impossible
to sell any considerable amount of
either high-grade or inferior types Of
bonds.
Under the circumstances, there has
been a growing disposition on the part
of bank examiners to take a more