The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-01-11
BY RAY TUCKER
Times STAFF Writer

WASHIN GTON, Jan. Ii
Although federal reserve officials
and many bankers sympathize with
the fundamental purpose of the
Glass banking bill to drive financial
institutions back out Of the specula-
tive realm into fashioned bank
ing, the drastic provisions employed
are causing considerable controversy.
Sections dealing with speculation
represent a study Of conditions
which have come about since the
World war and creation Of the re-
serve system.
With corporations seeking vast
amounts for expansion - Senator
Carter Glass Dem, va, calls it
over Expansion banks have acted
as agencies or set up investment
affiliates for marketing issues OF
corporate securities.
This system, the bills sponsors
contend, has brought serious evils.
1t has, they believe, placed the
banks at the service of spectators
instead of depositors; it has served
the desires Of get-rich-quick groups
instead of legitimate business and
industry; it has encouraged eX-
travagant stock issues and industrial
pyramiding.
Against Speculative Loans
At the peak of the 1929 boom,
brokers' loans reached the stag
gering total of $8,000,000
Though there are several ways
by which banks acts to promote
this flow of money into Wall street
the significant thing, in Glass
opinion, is that this sum was with
drawn from industry and business
Legitimate credit contracted, Sc
curity values were inflated, the ma
ton sailed down a golden stream tC
Coolidge prosperity" then tc
the Hoover crash
So the bill definitely proclaims
as a first principle that federal re-
serve funds shall not be loaned tC
member banks for making or car
rying investments.
The board is given power to take
away the systems facilities from
any institution which participate,
in speculative advances.
It prohibits banks from acting
as agents in handling credit sent tt
New York from other sections Of
the country. This is a weapon
against loans for account Of
others,' which totaled $4,000 900 ,OOC
of the $8,0O0,O0O,O00 figure.
Bankers Oppose Plan
To make these prohibitions effec
tive, the bill surrounds the popula
flfteen-day advances by reserve
banks to member institutions will
many limitations and penalties
1t permits reserve banks to charge
per cent higher interest rate i
it concludes that a loan is to b.
used for speculative purposes.
1t also provides that, if a banl
increases its supposedly speculative
loans while the fifteen-day advance
from the reserve bank is still alive
the lending bank can be forced II
repay its reserve loan Immediately
It also may be suspended if i
disregards warnings against thi
practice.
Bankers contend these provisions
are too rigid. They doubt whether
it is as easy as the bills makers
assume, to determine whether ad
vances of this kind are to be useC
properly or improperly. They MAKE
the counter-suggestion that dis
cretion to investigate use of such
funds, and to punish an offending
institution be left to the board.
Break Up Alliances
Another section breaks up alliance
and interlocking directories be
tween banks and associate com
panies organized to deal in invest
mentS.
These affiliates are not subjec
now to federal regulation, and the.
the held to be in a position t.
handle-or manipulate-the bank
and other stock to the detriment o
depositors. For instance, it i
claimed that an affiliate can boos
the price of stock by using depos
itors money in market operations
and then sell the inflated stock t.
the very depositors whose fund
were used.
Besides providing for federal ex
animation of these relationships ant
operations, the bill limits tn
amount of bank funds which can b
bought by one bank to 10 per cen
of the total stock issue, or Is pc
cent of the banks capital. TIL
present percentage is 25 Of capita
and Is Of surplus.