Evening star., 1932-10-23
bANKS;MAY LEAVE
SECURITIES FIELD
Movement to Drop Affi|iates
Is Reported in Wall
- Street.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, october 22-The deci-
sion of one of the oldest New York City
banks to cut loose from some Of the
financial subsidiaries that have been
identified with 1t and to make its pri-
mary business that of commercial bank
ing is expected to be followed by other
institutions here and elsewhere through
out the country.
There has been rumor in Wall
Street for several days that an alliance
made two years ago between a large
bond distributing organization and one
of the leading New York banks is to be
dissolved after January 1. This date
comedies with the expiration of options
that were given when the deal was con-
summated and when the stock of the
bond house was exchanged for the Sc
curitieS affiliate of the bank. There
have also been reports that number
of large New York banks with security
affiliates are preparing to divorce the
latter and that they may eventually
make an investment in the capital of
private firms that were prominent dur
ing the years of plenty for their ability
to originate and distribute domestic and
1OTelgn DOnO issues.
Matter Argued in Congress.
The anticipated movement of the
banks away from the practice of estab-
fishing security affiliates is a recogni-
ton of public demand, that has been
steadily crystalliZing, for a enforcement
between commercial banking and in
vestment banking. The subject has
been widely argued in Congress In bills
that were introduced there last Winter
it was proposed to compel a separation
of banks in the Federal Reserve system,
as well as non-member institutions,
from their controlled bond and stock
wholesaling and retailing subsidiaries
The criticism has been made that there
was dangerous weaving together of re-
lationships between the two branches of
banking and that not little of the
since 1929 could be directly traced to
this alliance.
During the years when enormous
issues of. new securities were being
made, the investment affiliates of the
large banks in New York, Chicago,
Philadelphia, Boston and San Fran
cisco were active competitors with the
private investment houses and with the
hundreds of dealers throughout the
country for the fat commissions then
available from the sale OF new under
writings. Their branches were dis
tributed throughout the United States
and Canada as we'll as in nearly all OF
the leading capitals of Europe. The
aggregate OF their business ran into
billions of dollars annually. They were
both wholesalers and retailers. They
were in a favored position for obtain
ing new underwritings from their rela-
tionShips to the parent bank, whose
clients frequently were the borrowers.
The criticism has been made that TOO
often loans were encouraged in order
to create securities and meet demand
for such securities then current In the
investment market. A large portion
of the proceeds of such loans found
their way into the call money market
in 1929, as no employment was avail
able to them in the ordinary pro-
cesses of plant expansion or merchan-
disc distribution.
New Issues Few.
The lean period Of the past two
years in the investment market, with
an almost entire absence Of new under
writings has compelled most of the
securities af1liates of the banks to
reduce their organizations to a
skeleton form Many branch Offices
have been closed Droves of bond
salesmen have been released and have
either been absorbed into other fields
or are among the unemployed.
Ore OF the arguments in favor OF
both chain banking and branch banking
has been that these provided a multi
tude of services that could be given
to members of the chain or branches
of a large metropolitan institution and
that among such services the most
valuable would be that covering ad-
vice on investments which would come
from the security affiliate of the parent
company With the trend toward the
dissolution of the relationships between
commercial banks and their affliates,
considerable discussion is taking place
in banking circles as to the effect
CT this on the movement toward branch
banking. Chain banking is no longer
being considered seriously, as it had
its death blow in the collapse of sew
eral conspicuous chains two and three
years ago.
(Copyrieht 1927