Evening star., 1933-06-21
HOLDS BANK LAW
WILL REM0YEF FEAR
Senator BuIkIey Discusses
! GIass.SteagaII Measure
in Radio Forum.

adequate banking system" by Senator
Bulkley of Ohio. in an address last
night In the National Radio Forum.
The Ohioan, Democratic member
of the banking subcommittee which
handled this legislation In the Senate,
spoke over WRC and . coast-to-coast
network Of the National Broadcasting
Co.
"As a result of the improved super
vision and sound restriction on bank
operations provided by this act he
said, the banks will actually deserve
q greater measure Of public confidence
hereafter, while at the same time, the
provision for the insurance of deposits
will tend to remove the fear which has
caused wholesale Withdrawals of de-
posits for boarding"
Cites Insurance Principle.
:. This insurance principle and the
divorcement Of investment banking
J to by Senator Bulkley as salient fea-
lures of the new act.
He explained that the insurance will
be administered by the self-sustain1ng
Federal Deposit Insurance Corporation.
1t will become effective temporarily
January /, or earlier If fixed by the
President, for accounts of $2,500. and
on July l, 1884, for all accounts,
either whole or in part. The scale
will be. Bulkley explained, full cover.
age for the first $4,000, rs per cent
between $4,000 and $4,000 and so
per cent for those above $50, 600.
The separation of commercial ana
investment banking, Senator Bulkley
described as a needed reform, in that
1t will tend to keep commercial BANK
funds liquid.
The text Of Senator Bulkley's address
follows:
I AS much as three years ago it was
realized that the Federal Reserve ana
national banking systems had not been
operating as they should, and that. SO
far from preventing the financial dis
aster which was then afhicting U.s. their
operations had actually contributed to
the evils of the situation. The Sen
ate at that time passed a resolution
directing the Banking and Currency
Committee to investigate these systems
and report its recommendations and,
pursuant to that resolution. the GLASS
subcommittee. consisting OF nve men,
bers, was appointed.
There were, Of course. many bank
closings in 1929 and 1880. Yet even
when. early IN 1881, the Glass subcom-
mittee began its analytical studies, its
hearings and the distribution of its
missionaries, 1t was not realized to
what lengths banking embarrassment
was vet to 20. There were so many
bank closings that the public had be-
gun to lose confidence in all banks,
and the fear that caused depositors to
withdraw their funds and hoard their
cash brought on q corresponding rear
on the part Of the bankers, which
caused them to refuse new loan &C.
and m fNr W
ment of existing obligations, thereby
restricting business enterprise and In
creasing the fear In the hearts Of bank
customers.
Undoubtedly the fears on both sides
had some reasonable basis, and un-
doubtedly a vicious circle was created
which brought matters from bad to
worse until the situation forced the
executive order which closed all banks
Immediately after Inauguration day last
March.
Called Important Step.
With a banking system so vast and
complete as ours, it is perhaps not
possible to foresee and to foretell every
possible abuse and error by any single
piece of legislation. There can be no
doubt however, that the Glass bill, the
so-called banking act Of 1885," which
became law with the approval of the
President last Friday, is Q most Inn
portant step forward toward q thor
oughly sound and adequate banking
confidence of the people in the banks,
both by prevention Of those unsound
practices In the banks which gave rise
TO loss of public confidence, and also
by providing directly for the protec-
tion of depositors in future cases IN
which banks may be compelled to close.
AS a result Of the improved super
vision and sound restriction on bank
operations provided by this act, ths
banks will actually deserve a greater
measure of public confidence here
after, while at the same time the pro-
vision for the insurance Of deposits
will tend to remove the fear which
has caused wholesale Withdrawals Of
funds for boarding.
Merely to read the bill would take as
much time as I now have to explain
It and, Of course, full explanation
of all of its provisions, with state
ment of what is to be said on both
sides of all the controversial matters
involved would consume more time
than most people would be disposed to
give to the subject. Yet 1t is possible
very briefly to make clear those essen
tials of the legislation which command
public interest.
Protection Of Depositor.
The depositor who leaves his money
with his bank and expects to have 1t
available at any time subject to his
demand must be protected against the
use OF that money by the banker in
such manner as to tie 1t up in fixed
securities, and speculative transactions,
ell uynich tho ho oyekar
cannot realize at the time the depoSitor
calls for his funds. Our legislation,
therefore, is intended to make it plain
that resources of commercial banks
are to be kept available for loans to
support current business transactions
which clear themselves and provide for
quick repayment of loans, and are not
to be used. directly or indirectly, in
fixed investments, nor to support spec
ulation Of any kind.
To accomplish this vital purpose 1t
Is absolutely necessary that CONNER
cial banks shall be subjected to addi-
tional regulations as provided IN this
act, and shall also be separated COM
pletely from the investment banking
business
The principle OF separating these
two fields of banking was recognized
many years ago In the national bank
act and investment banking has never
been authorized in national bank
charters. This restriction, however,
has been evaded by the device Of the
incorporation Of aff1liated institutions
owned and controlled by the banks.
The law we have now enacted provides
for the complete divorcement Of Sc
c,Iritv affiliates from all member banks
of the Federal Reserve System and
for the termination of investment
banking business by all incorporated
banks and private bankers receiving
deposits, within one year afte- -pproval
OF the act.
Separation Of Banking.
The separation of commercial and
savings banking from investment bank
ing Is one Of the most important pro-
visions in the legislation and, on ac-
af IA larna ir,ferestS inunlued