Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-08-29
INVESTMENT BOND
STATUS IS SOUGHT
Many Inquiries Made by Pur-
ChaSerS as Firms Earn
ings Decline.
Special DISPATCH 70 m. star.

special Dispatch 20 The star.
| NEW YORK, August 2s.-From In
terror cities have come q number Of
| inquiries as to whether the special
| session Of the New York legislature
! will take any action In regard to the
| States list Of bonds legal for invest
ment by savings banks and trust COM
| panies. Wall Street had hopes that
some action might be taken, but 1t was
pointed out today that Gov. Roosevelt
called the session to consider specific
| legislation in connection with the New
York City investigation and there is
| little likelihood that he will go into
| other measures at this time.
This investment problem is by no
means confined to New York, for in
every State where mutual savings
banks are operated and a list Of legal
| investments for them is set up, New
York is looked to for precedent.
Bonds Market Down.
Savings bank trustees have not been
slow to realize that some railroads
earnings this year have dropped below
the requirement that they be one and
one-hah times fixed charges to 60 on
the legal list in this State. The bond
market has discounted this by marking
prices down and there is considerable
| conjecture as to what will Be done
about suspending the legal regulations
for a time so that the banks may be
able to carry their portfolios without
being forced to take heavy losses.
Individual investors also are con-
cerned about the status OF these bonds
The reason is that inclusion on the
| legal list gives q bond certain premium
| value. Savings banks must conflne
their purchases TO such bonds, and In
times OF depression the supply becomes
scarce and the premium rises. II an
issue were dropped from the list and,
as many seem to imagine. It were COM
| pulsory for banks holding Il to sen II
/ Immediately, the price would Of course
/ fall rapidly, even though the bonds
| intrinsic value might be unimpaired
As q matter of fact, the so-called
legal list" is not an absolute au-
thority. Joseph A. Broderick, New
York State superintendent of banks,
has stated: The trustees Of savings
banks are not, because Of this list,
relieved of the duty Of making q care
| ful investigation on their own part
into the legality Of their investments.
In fact, it would be improper for the
trustees of savings banks TO place their
sole reliance upon the list It Is not
TO be assumed that the list Is q COM
plete or infallible guide"
/ Mr.. Broderick knows, of course, that
certain railroads nave not earned their
fixed charges / a times, but he must
wait for official reports at the end of
the fiscal year, on December 81, before
removing their bonds from the legal
| list
If q railroad bond is removed from
the legal list a bank is not under
obligation 10 sell its holdings Of this
bond immediately, unless the superin-
tendent OF banks SO orders.
Text Of Law.
The banking law of the State reads:
Whenever any securities purchased
by any savings bank pursuant to the
provisions Of section 239 Of this chap
ter shall have, either before or since
| the date such purchase was made,
ceased TO be an authorized investment
for the money of savings banks, the
superintendent may, in hts discretion,
require such savings banks to sell such
securities"
Ten years ago the rigid requirements
Of the legal list were lifted for time,
thus allowing savings banks whose
portfolios showed large market de-
probation TO carry their securities over
| trying times until market prices were
again &C investment levels
| tCopyright, 1e3I9