Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-08-09
BANKING POSITION
DECLARED STRONG
Wall Street Is Not Disturbed
by Failures of Small
Institutions.
BY CARLTON A. sHIvELY.

Special Dispstch to The Star.
NEW YORK, August S.-whatever
may be the state Of nerves in other
parts Of the country, Wall Street has
learned to take calmly the news Of
minor bank failures even when numer-
Gus casualties are reported simultan-
eously. Failure of really important
bank would, of course, have an ad-
verse influence on markets; but con-
fdence is strong that nothing Of the
sort Is likely.
The daily or weekly quota of failures
OF small institutions, in the metropoli-
tan district and out of it, is looked
upon as the natural washing up of in
securely moored banks by the currents
of trade depression. The countrv's
vast reservoir Of credit. the Federal Re-
serve System, IS tremendously strong.
Its credit outstanding. running at an
average of $3.50, 100000, is very small
ia relation to its total gold and other
reserves of nearly $500, 900 900. All
but $lS8, 900 900 of this credit is forced
into the market by action OF the Re-
serve banks in purchasing acceptance
bills and Government securities, partly
to keep money easy and partly to earn
little something. The ratio Of re-
serves to deposit and note liabilities is
at the high figure of 81 per cent.
Many bank failures are due to
downright dishonesty on the part of
management. Others are the result Of
honest, but inefficient management,
while the remainder are due to trade
conditions over which the bankers have
no control or could not foreSee Some
bank failures are, of course, caused by
a combination of these elements.
Just what proportion of recent fail
ures should be attributed to poor man.
agement and what to the trade depres-
sion is difficult to say. One school of
apologists for the banks maintains
that only In scattered instances is man
agement at fault. No bank fails, they
say, given honesty unless its loans are
so non-hquid that they cannot be
called in fast enough to meet any with
drawals of deposits, Banks attempt to
keep all fresh deposits at work, by
lending or by investment.
Naturally it is hard to draw the line
of fault between q frozen loan or frozen
asset due to poor judgement and one
due to inevitable changes in business
conditions. A borrower with good
credits and profitable business may turn
into bad risk If his industry turns
sour. The banker finds his loan un-
collectible or q slow one. At the same
time investment of bank funds into
what are regarded as sound bonds often
brings such large losses that banks are
embarrassed or forced to close. Yet
the investments looked good enough at
the time and were made only after
careful consideration.
Too many bankers find it too difn-
cult to say no to a request for accom-
mediation. They forget that a banks
funds should be lent and not invested
wherever possible. Banks in effect bor-
row short, in that the bulk of their
deposits are subject to call on short
notice. They therefore are taking
chances when they lend long, ie., tie
up money in loans for long periods or
in investments which cannot readily
be sold.
Perhaps the Federal Reserve System
could help by being more chary of
lending when member banks attempt
to use Federal Reserve capital through
q continuous position as heavy borrow
ers at the central institution, but the
bulk Of member bank borrowing is for
temporary accommodation.
tCopyrieht. 1917