Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-02-28

now studying possible metnooS OF relat-
ing the issuance Of new securities to the
supply of credit, said Allan w. Pope,
executive vice president of the First
National-Old Colony Corporation CT
New York, testifying before the Glass
Banking Committee of the Senate.
Something along this line is likely TO be
proposed within the year. he stated.
At the present time, he said, although
money is cheap and several large issues
have been successfully marketed, the
| flow Of new issues has been automatical-
ly regulated TO such an extent that
there is no flooding Of the market.
Only through cooperation between
commercial banks and underwriting in
vestment houses are undertakings OF
new issues of securities, beth domestic
and foreign, possible without which
American industry and trade would suf-
fer and cease to expand, Mr.. Pope con-
tinued, defending banks investment
afflliates.
Such cooperation is essential to I'M
derwriting investment houses which
find it impracticable regularly to en-
ploy capital of sufficient size to meet
the only occasional demands Of security
undertakings of large amounts.
Aid Of Bank Afiliates.
IT do not believe that this country
could have developed industrially 20 the
extent that II has since the war without
the assistance of bank afflliates." Mr..
Pope said, because private capital prob
ably could not have been found in sufi-
cient volume in so short time as to
develop private investment houses to a
point where they would have been in a
position to handle this enormous in
crease in underwriting and distribution"
The cooperation by commercial banks
in standing ready to loan funds TO cover
the commitments of investment houses
is an additional assurance that such
, undertakings are sound, as the banks
must make sure the securities to be
underwritten are acceptable as collateral.
The last 10 years have seen many
major banking institutions of the coun-
try develop security affiliates. Mr.. Pope
said he would not favor publicly of Sc
curity affiliate statements; but that such
publication would not necessarily hinder
! the activities of the investment affiliate.
However, he added, to publish the port
| folios of the afflliateS would be unWise,
because of the disturbances such publ
cation would create in the security
markets.
Banks in recent years. the witness
said, have not generally loaned TO Sc
curly afflliates to carry undigested
bonds and securities it has been over
loaded with.
Generally speaking, Mr.. Pope said,
large banks have indicated insufficient
means of employing money by the fact
that there has been a large increase in
Government bond purchases.
It would be unwise to try to regulate
bank investments. Better management
will go further. Security loans cannot
be regulated by law, the witness said,
although greater supervision might be
advisable.
Overissue Of Securities.
1t is impossible to regulate loans for
others. Mr.. Pope said. If industrialists
are prohibited from loaning in the call
money market, through the banks, they
will make direct connections for this
purpose and be under less control than
ever.
H. Parker Willis questioned the wit
ness on possible means of cllrbing over
distribution of new issues. The witness
agreed that the volume of increase in
brokers' loans prior to october, 1929,
kept pace with new issues, but added
that it was difficult to prevent under
writer's from selling securities when
there is a demand. He did not believe
it would be wise for the Stock Exchange
to bar securities where there is an over
issue. large proportion OF thu under
writing is done by non members OF the
Stock Exchange.
A blue sky law to stop worthless Sc
curity issues would act as deterrent
to sound issues and deprive the public
of sound investments. The harm which
! would be done by blue sky laws would
be greater than the good, Mr.. Pope said.
Discussing regulation OF bank af1ili-
hnf m
could not supply good Judgment, but 1t
would be possible to determine whether
good Judgment was being exercised by
means of proper examination of bank
afiliates to the same extent that ex-
aminations are required of the parent
institutions. If this were done 1t
would help to insure the proper con-
duct of large proportion of the under
writing houses of the country.
1T would recommend that the affili-
ates of national banks be examined CO.
incidentally with the examination of
the parent institution by the office of
the controller of the currency, and
that the aff1liates of banks examined
by the Federal Reserve Board examiners
be also examined. 1t would also seem
advisable that State bank examiners
examine the affiliates of State banks.
1T is probably needless to remark
bfldC the TeSuldClUIlS QO uOb pcTIIlit VI
loans to bank affiliates by the parent
institution to any greater extent than
would be loaned to any other similar
organization"
In connection with foreign loans, Mr..
Pope said that 1t seems one of the
paramount duties of the underwriters
of this country, for the sake of stimu-
lation of trade and industry in Amer
lea. to supply through the medium Of
new bond issues the legitimate needs
of those foreign countries entitled to
credit.
Lombard Loans.
In a prepared statement Mr.. Pope
said he was under the impression that
so-called Lombard loans might we'll
be carefully considered, particularly as
a means by which a Federal Reserve
bank might, under conditions of stress,
make a loan to a bank unable to pro-
vide rediscountable paper and then at
rate several per cent above the re-
discount rate. Some bank failures
would have been averted had 1t been
possible to have recourse to this method
during recent months. In case Lom-
bard loans should be authorized, he
said, provision requiring the Federal
Reserve Board to pass on the merits