Evening star., 1933-03-05
Securities Market Reflects
Effect of Widespread Bank.
ing Troubles, However.
DEMAND FOR CURRENCY
INCREASES MONEY RATE
Issuance of Clearing House Ger
tifcates Is Suggested to Relieve
Drain on Cash.
BY CHARLES F. SPEARE.

BY CHARLES F. SPEARE.
Special Dispatch to The Star.
NEW YORK, March 4.-The countr.
this week has experienced a banking
crisis more severe and covering a widel
area than any in which 1t has been In.
volved in the past three years. 1t il
comparable to those that occurred il
Austria and in Germany in the Sum
mer Of 1881 and in Great Britain ir
the following September. 1t is of &
scope and intensity that compels imme.
diate control through the application II
1t OF some form of national restriction!
or the general employment Of clearing
house certificates, as in the panic o.
1907.
More than half Of the States In tn,
Union have already enacted laws or BY
decree have prohibited depositors from
taking other than small percentagt
OF their funds from their local institu.
tionS. In a number of States 'banI
holidays" are in effect and the stocl
exchanges in these States are subject tc
the same inhibitions that govern bank.
ing practice
The chief collateral effect OF thi.
banking situation. which has spread thi.
week from the Atlantic to the Pacific
has been demoralized market for those
securities that represent the highest
percentage Of investments in the port.
folios Of the banks and are most readily
available when it becomes necessary Il
convert bank assets into cash. United
States Government bonds have beer
under great pressure and have declined
sharply in price. They are now from
to 7 points under the high levels oi
January. At the same time the best
quality Of both long and short term cor
poratlon securities, which few weeks
ago had sold on yield basis recalling
the cheap money era in the early part
Of this century have been sacrificed to
current necessities.
One Of the most significant Of the
phenomena Of the period is the COM
parative stability Of stocks. This once
more emphasizes their liquidated con-
dition. though 1t may be evidence that
the public. influenced by imitation talk
Is turning from fixed interest bearing
securities payable in gold to equities. .
Money Rates StifRen.
For the first time in over a year thu
money market has moved out of it.
state OF passiveness, when rates for cal
and time loans and for acceptances
were OF nominal proportions. to one
where there Is again An urgent demand
for money at what are now regarded as
stiff rates. Prior to the Michigan holi-
day loans for 80 to 80 days were quoted
at 2 Of per cent and acceptances al
Il Of l per cent. The same maturities
are now q z per cent and 21@ per cent
Call money has been 'pegged". since the
end of 1881 at l per cent. 1t has ad-
vanced to per cent. These changes
and the unexpected advance in the
New York rediScount rate to 3i2 pei
cent directly reflect the great demand
on the New York banks for currency-t to
meet conditions In the different locali-
ties where banking restrictions are ir
operation and the loss OF nearly $780,
000, 900 in gold. They could not have
been avoided with a drain that has
pulled from this center in about 8
months time over so per cent Of the
81 900, 900 900 recovery in deposits which
the metropolitan institutions expert
enced from the Spring of 1882 to the
early part Of last January.
Causes of the Crisis
These are the effects of the present
banking crisis. Now as to its causes
In January it was the almost universe
belief that, while there might be post
ponement this Spring in business re-
covery, we had reached the low point II
the industrial depression and need have
no further fear concerning the banking
situation. During the first six weeks o.
1888 bank failures were comparatively
small. But Congress felt its bounder
duty to make known to the public JUS
what banks had borrowed from the Re
construction Finance Corporation las
year and how much they had borrowed
The publication of these figures wa
the first shock. It was followed by {
new outbreak of banking troubles which
involved only moderate-sized institu
tions. Then came the Michigan "holi
day"
Coincident with this were the startling
revelations in the testimony before {
Senate hearing of Charles E. Mitchell
of the National City Bank Of New York
This developed public psychology to-
ward banks in general that had al
even greater effect on sentiment thar
safe to say that large sections Of thu
public that had maintained their menta
balance in the face of restrictions OF
the withdrawal of deposits over th'
country became suddenly panicky a.
they read the accounts of what hae
been going on among the officers of th'
second largest bank of the country dur
ing 1929.
extension from East to West and from
North to South Of the legal provisions
hurriedly created In order to protec
the banks from Withdrawals, and, i
may be said, to safeguard the depoSitorl
from themselves.
Immediate Action Urged.
The important thing now is to find ,
way out of the banking difnculties, re-
serving punishment of those who hav'
been partly responsible for them for ,
later date. What has to be done mus
be done quickly. At the same time i
must be effective and mechanically pos.
sible. England went of the gold basi
overnight The Federal Reserve Boars
and the clearing house associations II
the reserve centers could as rapid.
promulgate a policy of clearing hous
certificates which would check the casl
drain on the banks without imposinl
too great q burden on the busines
world. It would have the effect, as
did in 1907, of relieving the acute phase
Of the banking crisis and protecting tn
investment markets, and especially tina
for Government securities, agains
wholesale liquidation.
Such reforms In the banking system
as may be required to effect salutar
changes in the future may come latel
when the emotional phases Of the stu
alton have evaporated.
1t is, for one thing, urgently requires
that markets be stabilized in order +
permit the Government to 60 forwar
In its program Of refunding Its earl
Reconstruction Finance Corporation t
carry On its program Of relief to COZ
porations and to political divisions.
!. tcspyrisht, 1eas)