Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-07-20
BROADER TRAINING
: IN BANKING URGED
Chicago Federal Reserve
Chairman Advocates Better
Economic Education Plan.


"mere business" in the opinion Of Eu-
gene M. Stevens chairman OF the FED
eral Reserve Bank of Chicago In sup
mort of the assertion that bankers must,
to adequately meet problems which
have arisen in the last two decades,
consider questions from broader pro-
fessional angle than mere business
SUPPLIES, ne declares that conservative
banking methods probably saved the
country In 1929 from a complete col
lapse of the stock market by baslng
loans to brokers on arbitrary STOCK
valuations below speculative market
quotations while lack of similar SOUND
banking judgment has been responsible
for the failure of many banks specialize
ing in real estate loans.
N1r. Stevens expresses his opinions IN
an article published in the Executive
Scribe Bulletin Of the Metropolitan
Life Insurance Co. In discussing the
profession of banking Mr.. Stevens de-
yelops the idea that banking problems
must be considered from an angle IN
which a knowledge of economies ana
government procedure play their part
with the mechanics of actual business
The Federal Reserve System, which he
characterizes as perhaps the most
scientifically conceived banking system
Of all time has enabled central banks
under Governmental supervision 10
strengthen their power and control. ne
says. and in later years has MADE
marked progress in cooperation in
handling world problems.
Causes of Failures.
In enumerating some Of the efforts
of this improved banking system TO
meet new and changing conditions, ne
refers to the transformation OF the
United States from debtor 10
creditor nation, involving an entire re-
organization of our banking and credit,
and its policies and administration, ana
then states that despite these develop
ments I'VE have experienced within the
, last 10 years an unprecedented number
of bank failures" He says that most
of the failures were Of banks in small
towns, and in many cases the failures
we're caused because some crop or single
industry failed, and adds: "Neverthe-
less, most of these bank failures have
come from frozen or greatly deprecated
assets, and these assets usually nave
accumulated from loans originally
based on what proved to be false bases
of valuations"
It is in such cases, says Mr.. Stevens,
that sound knowledge of economics and
its application to actual business would
be invaluable to all bankers. Discuss
Ing this phase of the requirements OF
present-day banking procedure, he says:
1T is probable that the average
banker looks upon economies as
academic theory, useful as such but
not applicable to the practicalities OF
the banking business. The economist
concerns himself with the broad social
aspect of commerce and finance rather
than with its administration, and with
out the benefit of individual human
contacts in his study. The banker, on
the other hand has, primarily, human
relationships, and often only SO much
of economics as he gets through the
channels of practical experience.
Broader Vision Needed.
But commerce and finance cannot
exist in and with a distinct bearing on
the social order, on the world OF human
beings and their labors and needs
Again, the social order Is at once the
source and the consequence OF tho po-
litical system. Hence the alliance and
dependence of these three each upon
social order and the political and gov
erning system. The economist gathers
information and statistics and en-
deavorS to draw conclusions and to
learn the truth of the economic factors
in their actions and reactions.
My point is that we have come upon
a time in this country where the mere
business of banking is inadequate and
where its proper administration de-
mands the intelligence, training and
broad vision which we are accustomed
to associate with the best that there Is
in the professions.
During the great stock market in
flation in 1928 and 1929 the bankers
in the metropolitan centers, who we're
the principal lenders to stock brokers,
established arbitrary loan values on
the individual stocks. These loaning
values were in most cases substantially
below the market prices and were based
on what was regarded as more nearly
their sound values than on the prices
reflected in the wildly speculative mar
ketS.
When the collapse came in the Fall
OF 1929 the situation even then was
difficult enough to meet, but II bank
ers' loans to brokers and the resulting
brokers margins to their customers
had been based on market prices in
lished, the situation probably would
have been accompanied by an entire
collapse of our stock marketing and Its
administering institutions.
Land Valuations.
Similarly, II the country bankers in
the rural districts and the bankers in
the cities who loaned largely on real
estate had based their credits Of pre-
vious years on sound values of the real
estate instead of the purely speculative
market prices which were prevailing
and which could not be justified from
the standpoint of earning power under
normal conditions, much trouble would
have been avoided and great loss would
have been eliminated. Just as market
prices of stocks were based on values
of 20 or 80 times their earning power
in the most prosperous years of their
existence, so farm land prices were
based on an equally specious valuation
arrived at by prices of farm products
obtained under extraordinary condi-
tons"