Evening star., 1933-05-23

]. P. Morgan's Statement
Head of Famous Firm Tells Senate Committee
Private Banks Are National Asset
and Not q Danger.

PlOcRCSbuo llC klho u CNdlllAukllk Ob1ASo
ton Of the strongest kind to see, so
far as he can, that nothing Is done
which will interfere with the carry
ing out by the obligor of the contract
| with the holders of the security. To
accomplish this 1t Is frequently desir-
able that the private banker should be
a director of the company, the securities
of which he has sold.
"As to the charge that is frequently
and as believe, carelessly made that
bankers force their way into boards Of
directors, I can only say that, in my
experience Of over 40 years, cannot
taking q directorship except at the
earnest request Of the board Of directors
of the company in question. 1t Is often
useful for the directors Of company
who are not financial experts to have
an expert Of that sort, in whom they
have confidence, at hand for consulta-
ton. This is why I regret the tend
ency Of so much present-day legisla-
ton which endeavors to prevent bank
ers from being directors Of one thing or
another, or which throws on directors
such liabilities for errors for which they
could not be responsible as to make 1t
too dangerous for any man Of expert
ence or means to assume such respon-
sibilities.
1--WE must not lose sight OF the fact
that the steady supply of capital for
industry Is an essential of our system
and that anything which may hinder
the flow of such a supply, or needlessly
diminish the confidence of the investor
in the safety of his investment, Is un-
desirable.
"At the present moment, owing to the
destruction of confidence In this time
of depression, there Is no now Of cap
ital into industries and consequent
| ly no investment possible for the saw
ings of the people which are turned
over daily to savings banks and insur-
ance companies to be invested.
Conditions viii Pass.
"Just at present these are the only
sources from which industry can OBJ
tain its needed capital, as the saving
of the incomes of private persons have
been so greatly reduced by the de-
preston and by the extreme weight
of taxation on incomes and estates.
and as the depression, for the f1rst
| time as far as I know in the history
Of the world, is so widespread, no coun-
try can lend money in any other.
Though, at the present time, there
| is no demand for capital for industry.
this condition will pass, and we should
not by any means force the organiza-
| ton for distribution of securities out
| of business, lest, when there is again
| a legitimate demand for capital, 1t be
| found that the machinery OF diStribc-
tion has disappeared.
mo private banker where he Is Gas
we are) q wholesale merchant Of Sc
curities, or whether he deals directly
with the ultimate investor, could con-
tinue in the business if he had no
other sort of business to fall back on
in such times as the present.
1.-THE question has been raised
whether q private banker should be
permitted to accept deposits. The laws
of the State of New York very wisely.
as I think, and under careful restric-
| tions, have sanctioned the practice.
Those restrictions prevent, among
other things, our holding ourselves out
as depositaries for the public and from
paying interest on deposits OF less than
$500.
Would Curtail Service. r
"The bulk of our deposits has come
from our having done work for some
client, or because we are the paying
agents for coupons, or the cuStod1anS
of sinking funds. II we, for instance,
should be deprived Of the right to re-
ceive deposits which clients wish to
leave with us, we should very probably
have to disband a large part Of our
organization, and thus should be less
able to render in the future that I'M
portant service in the supply Of capital
for the development Of the country
which we have rendered In the past.
"m regard to the presence of private
bankers on the boards of directors OF
other banking institutions, believe it
to be true that none of the director
ships held by any private banker In
other banking institutions Is held at
his request, but because Of the strong
desire of those In charge Of the insti
tuition of which he becomes q director.
This certainly is the case in our own
Office and I believe in other cases, too,
although, of course, cannot speak for
anybody but our own firm. Person
ally, have always been averse to bank
ing directorships for my partners, but
because of my belief that 1t Is one Of
the duties Of a private banker to be
of use in the general affairs of the
community, and that the only way peo-
pie can be helped is in the way they
wish to be helped.
Therefore, If friends In whom we
have confidence ask us to serve them
by advising with them, we are bound
to give them the best advice we can.
A National Asset.
''No law could prevent any one from
discussing problems with, and seeking
advice from, frienGs in whose Judgment
he has a confidence which Is the re-
suit Of years of experience and CO.
operation, and I do not see any need
fNr 1nxtc LII
sultation more difncult.
THE private banker Is also useful
in offering sort Of neutral territory
where, at time, the management of the
incorporated banks may meet and dis
cuss the general problems without riv-
airy or competition.
Il believe II you were to ask the
heads of all the great banks in New
York who have had experience of both
good and bad times. you would be as
sured that the private bankers, by
Offering that neutral ground, have
served q very useful purpose, and would
have been much missed had they been
forced out of business by law, either
State or Federal.
ITO sum up, state without hesita-
ton that consider the private banker
national asset and not q national
danger.
"As to the theory that he may be-
come too powerful it must be remem-
bered that any power which he has
comes, not from the possession of large
means, but from the confidence of
people in his character and credit, and
that that power, having no force to
back 1t, would disappear at once If
people thought that the character had
changed or the credit had diminished
not financial credit, but that which