Evening star., 1933-09-20
Objections to Credit Extension.

At the conclusion yesterday OF meet
ing of the Federal Advisory Council
an organization composed Of the twelve
banker representatives OF the twelve
reserve districts-Walter w. Smith OF
st. Louis, its president, gave written
statement to the press which in normal
times could excite little interest or COM
ment. For the statement, after all, was
q very concise summary Of what most
people would regard as elementary
principles of sound banking.
Said Mr.. Smith:
Bankers are being unfairly and
widely criticized on the presumption
that they are refusing to make loans.
Banks can only make expenses and
banks have a substantial amount OF
unused funds. It should be remem-
bered that the money to be loaned is the
property of depositors. However, banks
must be in a position to meet the de-
mands of their depositors from time to
time.
Therefore they should not make loans
that either cannot be collected within q
reasonable time or are not eligible for
rediscount at Federal Reserve banks.
Cast into the compressed atmosphere
at Washington. this little statement
seems to have the potential character
istics OF bomb 1t is Immediately in
terpreted as a warning against the new,
r. F. C.-assisted, credit imitation pro-
gram. For it is argued that if the advice
of Mr.. Smith is followed generally by
bankers, the new program Of stimulat-
ing loans to industries to aid them under
WILL at the least, be placed in jeopardy.
Is Mr.. Smith speaking as the mouth
piece of the orthodox banking world,
stating views which already have been
accepted as gospel? Or, is Mr.. Smith,
in his position as president of the ad-
visory council, merely urging course,
acceptance of which the bankers will
decide aS individuals for themselves?
Mr. Smith urges sound banking, in
SO far as concerns careful use of the
money entrusted to banks by depositors.
But is the campaign for easier credit,
backed by the r. F. c. and Mr.. Jones,
the chairman of the board Of di-
rectors, opposed to sound banking?
There are certain types OF securities
not eligible for discount at the Federal
Reserve Banks, such as industrial bonds,
which are generally considered as sound
backing for loans. The Reconstruction
Finance Corporation has indicated
willingness to accept such collateral.
Mr. Smith plainly advises against loans
not now eligible for rediscount at the
Federal Reserve Banks.
The bankers, as witness the recent
statement by the Economic Policy Com
mission of the American Bankers Asso-
citation in Chicago, have not taken
kindly to that sort Of banking which
they express as ultra liberal lending
policies in support of the lending cam
paign now under way" Nor do they
relish the criticism for not adopting
that policy. But If the bankers are
not performing the banking function
which consists in credit extension. and,
furthermore, offer resistance to the
credit-extension policy urged by the
administration, 1t is easy to measure
the proportions of the stumbling block
that lies in the way Of consistent re-
covery.
Perhaps the danger of frozen credit,
however, goes deeper than the state
ment by Mr.. Smith or the warnings Of
other bankers to follow sound banking
practices. Sound banking is, of course,
closely identified with sound fiscal pol
icy by the Nation, and with inhationists
OF every creed wildly dashing about
Washington in all directions and de-
manding all things at once, capital will
continue to look for a hiding place
rather than make any real effort to
20 to work. Credit extension and talk
about imitation and currency debase-
ment are contradictory.