Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-31
CREDIT POOL FITS
NATIONAL NEEDS
Guaranty Trust Asserts Plan
viii Restore Banking
Balance.

The Guaranty Trust Co., in its cur
rent business survey, says that Presi-
dent Hoover's plan for a Nation wide
credit pool, to release non-liquid bank
assets, is particularly well adapted to
the needs of the present situation.
The country's banking system" the
bank states, considered as a whole. is
in strong position. 1t could hardly
be otherwise, with nearly half of the
worlds gold in American bank vaults,
with the gold reserves of the Federal
Reserve banks far above the legal
minimum, and with the use of Federal
Reserve credit, both in the form of re-
discounts and of open-market bill and
security holdings, at a low level
There has existed for some time,
however, a curiously unbalanced posi-
ton as among individual banks For
the most part, the large banks in the
leading financial centerS are in an ex-
ceedingly well fortified condition. Fail
ures IN this group Of institutions have
been very rare, and the vast majority
OF the suspensions have taken place
among small banks in rural districts.
Wide Difference In Causes.
The causes of the difficulty vary
widely. In a decentralized system Of
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vldual institutions scattered throughout
the country, it was inevitable that the
advent OF depression, with its drastic
Shrinkage OF values, should have found
some banks inadequately prepared
Many of the banks that have closed
their doors during the last two wears
were OF recent origin some were in a
difficult position even before the de-
preston began; some were outgrowths
OF real estate and investment houses
scarcely entitled to the name of bank
at all. All banks have been affected
10 some extent by reduced earnings. due
to the general business situation and
low interest rates.
1t Is recognized. however, that the
assets OF many banks which have been
forced 10 close were essentially sound
and that the banks might have been
saved if the borrowing facilities at
their disposal had been better fitted to
their needs. Federal Reserve Banks
are authorized to lend their funds to
member banks only on self -liuuidating
commercial and agricultural paper and
on United States Government obliga-
tons. Banking trends in this country
IN recent years have been such as to
reduce the proportion Of bank resources
that fall within these categories.
Trend Forecast by Mellon.
Many banks have been forced to seek
employment for their funds in invest
ments Of various kinds. instead OF plac-
ing the money in commercial paper of
the eligible type. Several years ago.
Secretary Mellon pointed out this
trend. adding that it was gradually re-
ducing liquidity of banking assets as
whole. Events of the last two years
have shown that his warning was justi-
fed
Huge volumes of banking funds are
now invested in high-grade securities
which, under ordinary conditions. would
be readily convertible into cash. But
the abnormaIly depressed values now
prevailing for almost all types of in
vestment make it impossible to liQuidate
such securities at present without heavy
loss The National Credit Corporation
Is designed to place the surplus funds
OF the stronger banks at the disposal
of the weaker, in order to enable the
latter TO convert essentially sound as
sets into liquid funds without q reck-
less sacrifice of values"