Evening star., 1931-12-26
FEDERAL RESERVE
ASSA|LED IN CRASH
Glass Committee Says Board
Failed to Act Promptly to
Avert Recurrence.

Sharp criticism o. Federal Reserve
authorities en- the ground they failed
to act promptly to prevent recurrence
of the stock market panic in 1929. came
today from banking subcommittee.
1t was coupled with the assertion that
intensive participation of banks in the
security market had exaggerated blsl-
ness fluctuations and undermined eco
nomiC stability
The report aSSailed the very Slgnltl-
cant and mischicvouS role" played by
brokers loans for the account OF others
during the initiation period and asserted
no investigation was launched by Fed
eral Reserve authorities with view TO
Contro ling item in the future until
the Senate ordered an inquiry by this
special banking subcommittee headed by
Senator Glass, Democrat, Virginia.
The committee in its report made no
definite recommendations, but pointed
the way for remedial legislation, which
Glass expects TO introduce this session.
President Hoover, in his recent mes
sage. advocated the prompt improve
ment of the banking laws" in view OF
the extent of bank failures
Banks Oppose Curb.
The Glass Committee found banks
almost unann0lSi, >opoSed 10 }urther
restrictions on bank investments N re-
curitios.
The report said the almost universal
response" to a queStlonnalre sent out by
the committee was that present re-
strictions were sufficient.
One large New York bank qualified
such an answer" the report said, by
saving that they were adequate for con-
trail reserve cities implying that banks
outside New York and Chicago should
he further restricted in their security
purchases.
The committee gave figures to show
investments of banks IN securities out
side of the Government, railroad and
public utility groups have increased
considerably in the last decade
Its check up. covering 1890, showed
"practically half of the security in
vestments of the banks were outside
this field, whereas less than 40 per
cent was so invested 10 years before"
The increase in holdings outside OF
these groups was especially marked in
the case of smaller institutions" it
said.
Started After World War.
A study of security loans. the COM
mittea found, indicated that such ad-
vanCeS have been major element in
American banking only since the
World War"
The report also said a questionnaire
showed much the larger part of Sc
Curity loans we're not made for COM
mercial. industrial or agricultural uses,
but rather for the purpose of carrying
securities"
It added that few banks find it
feasible to classify these loans ac-
cording to purpose with any precision.
Statistics of the period of the Oc-
tober 1929, stock market panic were
given to show that restrictive credit
policies of the Federal Reserve authori-
ties during the period we're really ef-
fcctive only in curtailing loans by
banks to brokers and dealers" in Sc
curities.
They had comparatively little effect
In curbing bank security loans to other
customers and loans to brokers and
dealers, advanced mainly through the
agency of the banks, by non banking
lenders, the report added.
Despite the very significant and
mischievous role played by brokers'
loans for the account of others during
the stock market inf1ation the report
said no special steps were reported
by the Federal Reserve authorities to
control until the present investigation
was ordered by the Senate Committee
on Banking and Currency"
Promised Correction.
Former Gov Roy A. Young of the
Federal Reserve System was quoted as
having said in 1923 that if expansion of
the brokers loan account gets to the
place where it is dangerous and borders
on unwarranted speculation" the Amer
lean banking fraternity itself would cor
rect the situation. He said he could
recommend no legislation to that end.
The report observed that country
banks have larger proportion of their
resources in bond investments" where
as city institutions ARE more heavily
involved in security loans" and attrib-
uted this to the fact that they have
less direct access to the financial
centers, where the need for security
loans is keenest."
The report said efforts of banking
supervisory authorities to encourage or
enforce the practice OF writing down
bond investments showing substantial
depreciation to market value levels are
understood to have been taken in bad
part by many institutions"
All Losses Not Reported.
The financial results of the operation
of security aff1liates after the 1929
crash were regarded as ION the whole
unfavorable." The report said losses
of substantial size were not reported in
every case"
Inquiries as to the types of invest
mentS from which banks have suffered
the largest losses of late brought replies
as follows from Federal Reserve dis
trictS:
Boston-Second-gr industrial and
foreign bonds at present. Over period
of years, traction securities
New York-Practically every type of
bond
Philadelphia-All stock and bond in
Cleveland-Foreign issues, Southern
Nestments; also loans based on real
estate
municipals and lease holder bonds.
Richmond-Foreign securities. second
ary or speculative bonds and real estate
investments.
Atlanta-Second-g grade public utility
and industrial corporation bonds; also
foreign bonds.
Chicago - Real estate loans bonds
particularly foreign.
st. Louis - Drainage district and
levee bonds; low-grade foreign and
domestic bonds.
apolis-Foregn bonds.
Kansas City-LoSses too nominal to
warrant a comparison.
San Francisco - Unlisted securities;
irrigation bonds: and in the country
banks, securities of local enterprises.