Evening star., 1932-04-26

and have no charters as banks. have
authority under the law to do many
things that the banks themselves are
not permitted to do. In some cases
this has worked with no harm to any
one and has even been advantageous.
But in many cases these corporations,
winning the confidence of investors by
the name of the banks with which they
are connected, have been the agencies
for distributing securities that have not
been good or that have been priced far
above their intrinsic value. Further
more, there have been cases where the
affiliates have been used, through the
medium of loans by the parent banks,
for the purpose of investing the de-
positors' money in the kind Of assets
that the banks were not permitted to
acquire. That is an evasion of the law
and has caused many failures OF banks
and losses to. .depositors.
Reports and Examinations.
THE proposed bill provides, first Of
all, that all such aff1liates be subject to
reports and to examinations, SO that
the supervisory authorities may be in
formed as to the relationship between
the affiliate and its parent bank, and
may prevent the development of eva
sions and abuses. In the second place,
the bill definitely limits (to 10 per cent
of the banks capitaD the amount of
loans that a bank may make to its
afhliates, so that it can loan in that
way only its own money, not the de-
poSitors' money, and can loan its own
money only to limited extent. In so
far as affiliates engaged primarily in
issuing or trading in securities are con-
ha hill 20 ,bay
banks in the course of three years must
separate themselves from such affiliates.
The business of issuing, trading in and
marketing securities is very different
from the business of commercial bank
ing. 1t requires different types of men.
1t is clearly the part Of wisdom to dis
solve after reasonable interval fog
arranging the business without dis
turbance the relationship between mem
Der banks, whose service should be pri-
marily to finance current requirements
of trade and industry from their secur-
ity affiliates, whose business has to do
primarily with the direction of the
country's savings through the sale of
securities into permanent capital in
veStmentS. 1t Is believed that the pro-
posed separation will greatly improve
the banking situation. Many banks are
undertaking it voluntarily, and the
others will have to fall in line under
the provisions of the proposed law.
THE bill deals also with the subject
Of group banking, which has grown up
rapidly, owing in part to the strict
limitations imposed by our laws on
branch banking. Group banking means
that a holding company acquires the
controlling interest in a large number
OF banks, which it then run more or
less as system Of branches, without
the holding company being in any way
subject to supervision. These corpora
tions are created by State law, and are
not directly subject to regulation by
the Federal Government, but in order
to control their banks they must have
the power to vote the stock of these
banks. The bill proposes to require
that any holding company before it is
permitted to vote the stock of a mem
Der bank must submit to certain regu-
lations about reports and examinations
about loans from its constituent banks
and about the character of its own
assets.
While thus undertaking to regulate
group banking, the law proposes to in
crease the opportunities for branch
banking by allowing bank to estab-
llsh branches anywhere within the State
AL WAhCAI IIic parent udIlk S lOCdLeO,
and in certain cases where 1t is clearly
in the public interest even in another
State, but not more than SO miles from
the head Office. While wide
branch banking is thus authorized, such
branches can be established only with
the approval of the Federal Reserve
Board. There will be no danger, there
fore,' OF a disorganized scramble for
branches. Branches will be authorized
only when their establishment will ap-
pear to be in the public interest.