Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-09-12
BY CHARLES F. SPEARE.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, September Eff the
superintendent of banks in New York
State co-operates with Government
authorities in endeavoring to protect
! banks all over the country from the
| effects of a depreciation in their Sc
curities. he will not use his authority
! to compel savings banks within MS
! jurisdiction to sell railroad bonds that
may be automatically eliminated from
the legal list this year through failure
to meet the eXacting requirements as
to coverage of bond interest.
| It is clear from the announcement
! from Washington that the admins
tration, together with representatives
of the Treasury and OF the Federal
Reserve, is attempting to tighten the
burden on banks that have had the
| misfortune to purchase securities that
have gone into default; also to es-
tablish a reasonable policy with re-
spect to write downs" on issues that
have suffered from the general liquida-
ton. The estimate that defaults ap-
proximate $500 900 900 makes it evil
dent that it is largely real estate oonds
and the obligations OF municipalities,
such as those in Florida. that repre-
sent the Dulh VI tIle ooISoSAoAi" AL
Volved.
Railroad Receiverships.
There have been only two railroad
receiverships during the panic period
and a comparatively few defaults by
public utility holding companies ana
less industrial failures of consequence
than in any other period OF depression
in the past 80 years. 1t Is the sltua-
ton in real estate bonds which have
defaulted and have suffered decline
| frequently of as much as two-thirds OF
| their original value and for which
| there is no market at present that Is
! giving bank examiners their toughest
! problems.
Although second and third grade cor
| poration bonds held in bank portfolios
| have. together with foreign dollar
loans. suffered a depreciation next in
size to that of real estate mortgages
publicly distributed, the effort has been
made to establish a reasonable per-
centage of write offs which will not
ieopardiZe the capital and surplus OF
the holding institutions. 1t is realized
that. as in all other periods of de-
preston, many of these bonds are suf-
fering from sentimental rather than
underlying conditions. Eventually they
will recover much of their lost ground.
On the other hand, it is felt that a
reasonable readjustment between the
price at which they have been carried
and the market price should be mace,
in order that the position OF the bank
in its published statements be falr
indication of it's standing. In many in
stances write downs" Of IS per cent
have been recommended and carried out
by institutions after examination by
State or national deputies. In general,
there has been a policy of accommoda-
ton where the institution showed con-
sentative record in its commercial loans
and only a moderate amount OF what
might be regarded as frozen" real eS-
tate loans, with no attempt to compel
banks to sell their second-grade issues
at the present market level.
Current Level Temporary.
With respect to high-grade corpora
ton, as we'll as municipal and other
tax-exempt issues in which the market
has slipped away, the position OF the
tanking authorities, as it Is today lnd1-
Gated, is to regard the current market
level as temporary and giving no occa-
sion for setting up reserves by an insti-
tuition against ultimate depreciation. A
case in point is the current price level
for Federal Land Bank bonds, OF
which approximately $1,000, 100000 of
par value have been issued and are held
in large measure by the banks of the
country. Owing to the def1ation In the
price of agricultural products and in
that of farm lands these bonds are
at present quoted at a heavy discount.
The 4 and "A per cent issues today
averaged bid of about 70. The 4i2s
were in the neighborhood of IS bid.
These figures are from 25 to 80 per
cent below normal for issues that are