Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-04-18

N + customers
were being offered more service under
one roof than the banks could give
under the restrictions placed on them,
the banks should turn to some means
to hold their customers They found
such means in the formation of affili-
ates, and it was merely another step
to broaden the scope of activities of
such aff1liateS to carry out projects not
always consistent with their original
purpose. Thus the affiliates found
many fertile and profitable fields until
their ramifcations embrace large
number of activities, in most instances
in direction which lies outside to what
has been generally considered the prov
ince of commercial banking.
Activities Are Broad.
The more important affiliates engage
principally in syndicate operations; the
purchase and sale of stocks and other
investment securities; and real estate
financing; while others buy and sell
mortgages which may be ineligible fol-
the bank, although not necessarily in
adequately secured. National banks are
restricted In their loans upon real es-
tate to not exceeding five-year maturi-
ties on improved property at so pei
cent of its value. Frequently such
tons where the transaction may be de-
sirable, sound and profitable under more
!, liberal specifications.
The activities of a number OF such
corporations, Mr.. Await continued, have
been increased sometimes at the ex-
pense of conservative operation. As long
as the conduct of the business parallels
careful management and sound judg-
ment the results may be satisfactory
but too often the urge for large profits
offers encouragement to indulge in spec
ulative ventures and unsound practices
which bode i'll for the successful con-
tinuance of the company. Experience
has taught us that when these lines
begin to diverge, they do SO rapidly
and the sins Of the children are visited
upon the fathers with inevitable and
unhappy results.
Some Dangerous Practices.
Perhaps one phase of the affiliated
company's operations which is suscep-
tible to danger is that of guaranteeing
the payment of mortgages which ii
has distributed, frequently among the
banks customers, in large amounts
Under a depressed real estate market
and poor business conditions it may
tax the company's ability to meet its
engagements along this line and by
reason of it's affiliation the bank may
find itself embarrassed in coming to
the rescue.
Another practice having it's element
of danger is the trading in the stock of
the bank with which it is affiliated OF
course, on occasions where the winding
up Of an estate would necessitate throw
ing on the market important blocks CT
bank shares with the result that not
only would the demand be insufficient
to absorb them and consequently de-
press the market but would lead to a
possible loss Of public confidence in the
bank, the acquisition and the orderly
distribution of such stocks by the affil-
late in placing such stocks in the hands
of those who are personally interested
in the welfare of the bank, may serve a
useful and necessary purpose, though
some students of this subject feel even
these transactions are dangerous. But
where the affiliate attempts to control
the market for the banks stock, through
the employment of its funds, perhaps
creating fictitious values which indie
pendent market transactions might not
sustain. the affiliate is clearly on dan
gerous ground.