Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-13
STATES MAY VOTE
ON CREDIT AID PLAN
Many Observers Believe
Legislative Action Is Nee
essary in Matter.
BY C. b. UPHAM.

Action by each of the 48 States as
well as by Congress will be necessary
to give practical effect to one Of the
Hoover proposals for easing the bank
ing and credit condition of the country,
in the opinion of many who are close
students of banking problems. The
proposal in question is that arrange
ments be made for the creation OF
fund to liquidate banks which have
closed.
The President has suggested that
bankers in a given section cooperate
in placing depositors in closed banks
in immediate funds, taking as security
the assets in the closed banks, out OF
which to reimburse themselves when
final liquidation has been accomplished.
This Is regarded as a temporary ex-
pedient and it is believed that Congress
will be asked to set up a fund of some
500 900. 900 to serve the same purpose,
the amount to be retired out OF Fed
eral Reserve Bank earnings over pc
Rod Of years.
Franchise Taxes.
Since the beginning of the Federal
Reserve system the Reserve banks
ury as franchise tax total Of $l47,-
600, 900. The bulk Of this, however,
some $1,000 900, was contributed in
the years 1920, 1921 and 1922. For
1880 the franchise tax payment OF the
II banks was only $1,000. Indeed,
for the first six months Of 1881 each
of the IL banks showed an operating
deficit, current net earnings being in
the minus column. This is pointed to
as a factor to be considered in the
retirement of the amount originally to
be underwritten by the Treasury under
the proposal.
There has been a good deal Of liquida-
ton, Of the kind proposed, by the vol
untary action of banks IN various sec
tons. The banking commissioner OF
Minnesota, j. N. Peyton. has succeeded
in getting city banks of that State to
advance Immediately to the depositors
in the failed country banks rs per
cent of the estimated recovery from
the assets of the closed banks. The
depositors pay interest on the sums ad-
vanced and the city banks take the
assets of the failed banks as security.
In Louisiana it is reported that Gov.
Huey P. Long devised similar scheme,
which is rot only applicable to failed
banks, but is also used to bolster up
going banks which find themselves in
frozen or frosty condition. The State
and city banks there cooperate in at
tempting to save banks in trouble, and
the record of only four bank failures
so far in 1891 is pointed to as evidence
that the system is Of value. The same
thing can be done on a national scale
under the Presidents plan, many OBJ
servers believe.
Speeding Up Payments.
Oficials charged with the duty OF
liouidating failed national banks have
been giving attention for some years to
methods of speeding up payments Of
dividends to depositors. The proposal
that excess earnings Of Federal Reserve
banks be utilized as liquidation fund
for such purpose was given some con-
sideration three or four years ago by
committee Of bankers and business
men which made study of the Federal
Reserve System under the sponsorship
Of the Chamber of Commerce of the
United States. The objection urged
against it has been that 1t smacks Of
the deposit guaranty idea and, like
other devices to that end, would lead to
bad banking.
The answer made to this is that there
would be no encouragement to bankers
to resort to slipshod methods in the be-
in any event, because the plan does not
contemplate the guaranteed return Of
100 per cent of deposits. but only a
quick availability of whatever will
eventually be realized.
A liquidation fund created by the
Government would presumably be avail
able only for closed national banks, or
at most only to members of the Federal
Reserve System. Most of the failures
have occurred among State banks not
members Of the system. To include
them in the benefits it would seem that
each State would have to act along the
lines proposed for Federal enactment.
A method may be devised Of including
all banks under the one plan through
some cooperative action by the States
and the Federal Government. That Is
the direction along which thought is
being directed at the present time. To
some this difficulty emphasizes the i'm
portance OF one system Of banks to re-
place the present dual system.
(CopyriRht. 1931)