Evening star., 1932-05-01

personal physician to the coun-
i try's banking system, finds him
self with an ailing patient on
his hands.
For two years he has been probing
exhaustively into all the ramifications
of the disorder From the lips of wit
nesses and from the banks themselves
he secured a complete description of,
the symptoms, and, on the basis of this
information, recently introduced in the
Senate bill regarded as something of
a major operation upon the banking
structure. This bill is his prescription
for curing some, and only some, of the
ills of modern banking.
In drafting his BILL however, Senator
Glass worked on the principle that
while it might help cure certain mani
fest immediate evils" more thorough
overhauling will be necessary when the
real weaknesses are more clearly dis
cernible.
Reform Is Desirable.
Senator Glass is convinced, however,
that some remedial steps, such as those
proposed in the bill, must be taken at
this time, and it is on this point that
the opponents of the measure take issue.
They do not deny that some measure
able, but they argue that the banking
situation at this time Is so delicate that
remedies proposed by Senator Glass
might be dangerous. The opponents of
the bill differ on specific questions, but
they are generally agreed on the prop
osition that any treatment applied at
this time might well prove more harm
full than the disease. They want the
proposed operation postponed until busi-
ness conditions have shown material
improvement.
Senator Glass and the other members
OF the Committee on Banking and Cur
rency, however, have decided to press
the bill for passage at this session. As
one member expressed it: Those op-
posed to the bill now because it might
make a sick banking system worse
probably would argue later, when con-
ditionS are better, that the measure
would only make an invalid of healthy
system"
The bill as reported out by the COM
mittee contains many highly technical
provisions, but there are several involv-
ing such important changes in banking
practice that they should be borne
clearly in mind.
Corporation Proposed.
Some of the objectives of the bill may
be outlined as follows:
Protection of bank depositors-To ac-
compliSh this objective, the creation of
Federal liquidation corporation is pro-
posed.
1t is estimated that approximately
81 500 900, 900 in assets are now tied up in
closed banks The result is that
great many individuals and business
houses cannot meet their obligations be-
cause they cannot use their funds now
tied up in the banks. Liquidation of
assets through the usual receivership is
at best slow process, and the COM
munity suffers from business stagna-
ton.
The proposed liquidation corporation,
however, would have available about
S268 600, 900, and would b. authorized to
raise twice that sum through bond is
sues if necessary. With the funds thus
available, the corporation would lend
money on the sound but frozen assets
of closed banks. This would enable the
depoSitors to secure in a comparatively
short time a part of their deposits in
cash.
In discussing this highly important
feature of the bill, Senator Glass said:
The continued postponement OF
liquidation is very heav'' burden upon
a large part of the community. Fur
thermore, there is and can be no as
surance that further bank failures OF
considerable amount and number can
be avoided. They will from time to time
reeur even under the best. conditions.
But in order to provide against repe-
tition of the present painful experience
in which a vast sum of assets and
iS tied have
recommended the creation of the nqui-
dation corporation"
Study of Brokers Loan"
Bank loans and their uses-In en-
deavoring to restrict the use to which
bank loans may be put, the committee
acted upon evidence that banks direct
ly or indirectly have loaned large sums
of money for use in stock speculation.
In this connection a thorough study was
made of the so-called brokers loan
a special form of securities loan in
which a bank or some other agency
advances funds through an intermedl-
ary-the broker-instead OF Lending
direct
Stock exchange speculation on money
borrowed from banks resulted In: %
A steady increase in bank security
loans and investments; (2) rising prices
resulting from the increased demand;
(3) a sporadically enlarging volume OF
stock exchange operations and new is
sues made possible by popular enthusi-
asm thus engendered, and t4D vlo-
lentlv f1uctuating course OF prices on
the stock exchange continuing until the
whole structure fell OF its own weight
in 1929
To correct. SO far as legislation can,
these evils. the bill proposes:
To control and limit brokers,
loans. particularly to limit the use OF
funds of the Reserve banks for THIS
purpose. ,.. -. ,,t,
funds to an undue degree into olrecI
loans upon securities.
3. To prevent as far as possible spec
ulative market loans by corporations
engaged in industrial or banking enter
prises.
The committee takes cogniZance OF
SUGGESTIONS that control of this form OF
credit ought to be effected in some way |
through stock exchanges, but expresses
the conviction that banking control
alone may greatly ameliorate conditions
in this field.
Foresee Higher Rates.
Some bankers teStifying at the recent
committee hearings expressed the belief |
that any legislation aimed at loans
secured by stocks and bonds would have
the effect of further depressing the Sc
curities market 1t was also predicted
that this particular section of the bill
would adversely affect the marketable
ity of Government bonds and would
ultimately compel the banks to charge
higher interest rates on loans and pay
lower rates on deposits in order to
subsist. The reasons for these conclu-
sions were not stated.
In connection with this phase of. the
bill, however, the Federal Advisory
Council of the Federal Reserve Board