Evening star., 1933-04-16
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, April 15.-One Of the
questions In the current banking situa-
ton soon to be dealt with is that of
fixing prices Of securities carried in
portfolios at q level approximating
market values.
For nearly two years the banks have
been permitted by the controller OF the
currency and State superintendentS OF
banking to classify their securities In
such q way that q portion Is carried at
cost and another group at a discount of
IS per cent from cost, while all de-
faulted issues are set down at going
prices.
Convention" Values.
This obviously has given a fictitious
character to the investment item in
bank statements. It was authorized as
a temporary measure and in the ex-
pectation that the need for it would be
of brief duration. Inasmuch, however,
as bonds have experienced but one
sharp rally in the past two years, that
of last July and August. and as average
prices are today close to the low level
Of the depression. 1t IS felt that some
made and true bond values, instead OF
y
should be adopted.
This practice is about to be accepted
by the insurance companies. They have
been carrying their securities at what
are known as the convention" values
Of 1881. The discrepancy between them
and the values now obtaining is SO wide
that the companies engaged In writing
fire, marine and casualty risks are now
to recognize current values and readjust
their statements to them. This OBJ
viously compels a writing down of sur
plus accounts. However, 1t affords the
policy holder correct picture Of the
financial status Of his company instead
Of one that IS out Of joint with actual
conditions. The convention" values
were authorized by superintendents Of
insurance in different States, and,
therefore, the companies using them
were fulfilling all legal requirements in
exhibiting reports based on 1881 prices.
q readjustment mandatory on the COM
panies operating within their jurisdic-
ton.
In q majority Of cases where con-
servators have been appointed for
banks, the main trouble impelling this
action has been a shrinkage in securi-
ties sufficient to wipe out all surplus
or undivided profits and to impair capt.
tai. The reorganization to be effected
through the sale Of new preferred stock
to depositors and to holders OF what
will now be common stock provides the
capital necessary to offset the effect OF
q shrinkage in investments.
Solvent Banks.
The position of other banks that are
still solvent, but have q substantial de-
probation in their securities, is not so
clear It Is understood, for instance,
that the reluctance Of many State
banks to join the Federal Reserve Sys-
tenn is due to the demand on the part
Of the Federal Reserve authorities that
banks showing considerable deprecia-
undivided profits or surplus, either IN
whole or In part. Many Of the State
banks are unwilling to do this at one
stroke, though they might be agreeable
to prorating the writedown over
period Of months or years.
There was no call for the usual
March-end bank statements either by
the controller Of the currency or by
most of the State banking authorities.
Such q call, however, must be made at
least three times year. The next one
will be due on June 80. It Is expected
that by that date the banking situation
viii have cleared sufficiently to permit
of some modification of both the Fed
eral and State regulations as to the
valuations to be placed on securities
In all probability these will be less
lenient than they have been for the
past two years. While they Will not
bring prices down to the current mar
ket, they may initiate q scale OF re-
adiustments by which the banks can
accommodate themselves to what Is now
recognized as q permanently different
set Of quotations than those which OBJ
tanned prior to 1880.
This win compel an extension Of the
increasing practice of either reducing