Evening star., 1931-12-27
FEDERAL RESERVE
BLAMED IN CRASH
Expert for Senate Group
Says System Failed to Act
Promptly in Crisis.
BY the Associated Press.

BY the Associated Press.
The experience of the last decade
was cited yesterday in a document pre-
pared for a Senate banking subcom-
mlttee as spectacular confirmation" of
belief that increased participation of
banks IN the security markets is dan
gerous.
The document, made public by the
special banking investigating group
headed by Senator Glass, Democrat,
virginia, was report prepared by the
committees expert, DR.. H. Parker Willis
OF New York, summarizing the testi-
mony 1t has taken.
The subcommittee made it public
without comment and without approv-
ing 1t.
Federal Reserve Blamed.
The lengthy document filled with the
results OF questionnaires sent out by
the committee to banks and bankers in
all parts of the country assailed Fed
eral Reserve authorities on the ground
that they failed to take prompt action
to end conditions which played an i'm
portant part in the 1929 stock market
collapse
Despite the very significant and
mlschievous role played by brokers'
loans Tor the account of others during
the stock market imitation" the report
said, no special steps were reported
by the Federal Reserve authorities TO
investigate them for purposes of future
control until the present investigation
was ordered by the Senate Committee
on Banking and Currency.
AT about that time. the Federal Re-
serve Bank OF New York set on foot
thorough-going analysis of the
brokers' loan situation, which has been
furnished to the committee"
While no specific recommendations
Tor legislation were made in the report
1t is expected to point the way for i'm
portant revlsions in the banking laws.
Hoover Urged Changes.
Changes were urged, too. by President
HooVer IN MS annual message in view
OF the extent OF bank failures"
Remedial legislation this session also
VIII De sought by Senator Glass, a for
mer Secretary of the Treasury and CO.
author Of the Federal Reserve act
The report traced the effects of in
creased participation of banks in the
capital market.
During a period of widespread con-
ndence and active business" it said
the stimulation of the capital market
resulting from rapidly increasing bank
loans on securities and bank purchases
OF bonds tends to stimulate capital in
VeStment far more than would other
wise be the case.
AT the same time the overdeyeIon-
ment that ordinarily occurs in various
nelos during such a period is CORE
Spondlngly exaggerated. making the
subsequent reaction and period of de-
HaIlon ana liquidation all the more Sc
we're
The almost universal response uas
tnat present restrictions were sufficient"
it said.
From an unnamed New York bank
came the suggestion that the banks
ouIsloe New York and Chicago he
chases. pu'
Banks Hold Less Now.
Most Of the other banks expressed
views similar to that of New England
institution. which replied that man
agement will be always the nr;nr;ne
factor, but the controller Should have
any reasonable increase in his powers
or appropriations that he desires"
A detailed analysis by means of
questlonnalres disclosed banks TODAY
nave smaller percentage of their hold.
lhgS invested in Government. railroad
ana public utility securities than a
decade ago
The report observed that "practica1-
~ half of the security investments Of
the banks were outside this field when
the survey was made, whereas less
tnan 4O per cent was SO invested 10
years before" ~
;. The smaller institutions particularly
IL was noted, have increased the per
these groups.
Figures for all commercial banks
showed that Government bonds CON.
prlsed IS per cent of their total hold
lngs IN 1921 and 26 per cent In 1890
railroad and public utility bonds had
declined from II per cent in 1921 to
Is per cent. W.
Holdings OF State, county and munic-
lpal bonds showed a slight increase.
going from 9 per cent to 10. Other
bonds and stocks outside Of these three
groups. however, climbed from 80 per
cent Of the total to 40.
Curbed Brokers' Loans.
In connection with the 1929 Wall
Street panic, the report cited figures
to show that restrictive credit policies
OF the Federal Reserve authorities dur
ing this period were really effective
only in curtailing loans by banks to
brokers and dealers"
Bank security loans to other GUS
toners and loans to brokers and dealers
in securities by others went up sharply
Another important conclusion drawn
from the committees questionnaires was
that much the larger part of security
loans were not made for commercial,
industrial or agricultural uses, but
rather for the purpose of carrying
securities"
The report added: 1.-THE expansion
of security loans during the decade
192l-l930 was Nationwide phe-
nomenon.
THE San Francisco reporting men,
ber banks show the sharpest increase
during this period with a rise of 1873
per cent. The Kansas City and Rich
mond districts show the smallest. with
% and 40 per cent, respectively.
"The decade witnessed further con-
centration of security loans in the
Boston, New York and Chicago dis
tricts, the reporting member banks OF
which together accounted for 63 per
cent of the total in 1921 and 81 per
cent in 1890"