Evening star., 1933-10-01
REOPEN|NG
WILL FREE BILLION
Half of Sum Tied Up May
Circulate Again Under
Treasury Program.
BY DAVID LAWRENCE.

Reopening the closed banks Of the
Nation, at least those which can and
should be able to keep open with Gov
eminent help, means the release foi
Use In American business and industry
OF at least 81 Loco, ,o0o. 900 of the saving.
of the Nation.
The deposits in closed banks are es-
timated at about 81, 600, 600 900, but the
depositors will be lucky if so per cent
Is made available in the next few
months. the remaining so per cent be-
ing left for the necessarily slow hquida-
ton of the future.
Over the last so years the records
show an average of about Sc cents are
recovered out Of every dollar tied uI
in closed banks. The Federal Govern
ment would not be taking much Of a
chance. therefore, in making available
be realized out Of whatever sale of as
sets or repayment Of loans that the
closed banks might expect over perhaps
two or three. or even five years. The
more time the closed banks have for
iquidating their old assets, the more
they probably will realize, though de-
positOrs naturally would rather have
as much cash now as possible.
Process to Take Time.
The process by which the Federal
Government viii reopen the closed
banks will take time to work out, and
only the general principles of the plan
can be developed at this time.
Broadly speaking, the assets Of all
closed banks will have to be revalued
and there is already going on an exam
ination Of many of the banks opened
after the bank holiday on a restricted
basis, as well as some which have been
enough shape to be admitted to the
insurance deposit scheme, which goes
into effect January /.
Wherever bank has some loans that
are Of slow or doubtful repayment in
full. the bank is supposed to set up a
reserve Of capital to meet the possible
loss But the banks find in some in
stances that their capital is not suffi-
cient to write of their poor loans OF
that what is known as capital impair
ment would take place even if all the
loans were repaid. this being the result
of large write-ofIs in the past two years
United States Ready to Lend Funds.
The Federal Government is prepared
to lend money to these banks for new
capital The Reconstruction Finance
Corporation can lend an unlimited
amount by purchasing the preferred
stock Of banks or trust companies Con-
gress either forgot or deliberately faileG
to limit the amount of preferred stocl
that can be bought. At one time il
was believed at least two billion dol
Ia ko
but now it is assumed that less thar
billion will do the trick.
Actually. very little cash will bt
needed to finance these capital transac-
tions. The Government will subscribe
to- let us say. $lO0, 900 in order to bring
the capital of a particular bank uI
from $500 900 to about $5O0,000 anC
thus enable the bank to have the proper
ratio of capital stock to the amount Of
deposits it is carrying.
If the Government buys the preferred
stock. 1t can send check to the banl
payable whenever the bank needs tht
money With the capital actually as.
sured, the bank in question may moi
need any money right away. for it car
carry in its statement the fact thai
it has $4,000 Of Government money
pledge by the Government to buy
the stock would be as good as cash anc
later on. when the transaction was con
summated. the Government could. If Il
liked. offer the preferred stock for salt
to the public by the Treasury itself and
in effect. guarantee payment Of the pre-
ferred stock.
Borrowing to Be Small.
So it is not expected that any huge
borrowing will be necessary at this time
to get the money to pay for the pre-
ferred stock.
In the case. however. of those bank!
which have been closed and money
now is needed to release deposits. tht
Reconstruction Finance Corporation
will lend actual cash and the bank!
in turn will notify depositors that hal
of their money is going to be available
to them. This probably will not Occur
until after the first of the year though
a determined effort is going to be made
to release as much as possible In the
meantime.
If billion dollars is released. some
Of it will 60 to buy the usual necessi'
ties of the household. but much of II
will go to pay of mortgages or tt
build homes, or to buy bonds Of good
companies-the customary investment
process.
1t is believed that billion dollar:
in cash will support $4,000. 900, 900 ir
credit. This is only another way
of saying that the turnover OF 6