Evening star., 1934-08-05
.BANKSARE FACED
WITH HARD TASK
IN i. S. RECOVERY
Question of Safeguarding
Depositors and Holders
Proves Complex.
INITIATION AND OTHER
INFLUENCES CONFUSING
Expansion of Bond Holdings Held
Benefcial-Idle Funds Con-
tinue to Pile Up.
BY W. r. HUFE.
Associated press FINANCIAL Writer.

NEW YORK, August Are the
banks. fortified with hundreds of
millions Of dollars of idle resources,
refusing to cooperate in promoting
general economic recovery? II not,
what can they do to help?
Such questions as these, involving
the whole field Of banking and its
relation to the national economy,
occupy the attention of the financial
community, especially at the present
time, when excess reserves are piling
up sky-high and yet the Government
has found it necessary to allow the
Federal Reserve banks to extend di-
rect industrial loans to meet the re-
Quirements Of business.
Undoubtedly, according to certain
economists. the chief duties of the
banks at the present stage in the re-
covery program are to aid the Treas
ury in its borrowing to pay for re-
eovery expenditures and find some
way for reviving private lending,
gradually to replace Government
expenditure with private capital
The banks are assailed on the one
hand by critics who ask how long
they viii be willing to continue to
purchase Government obligations in
the face Of rising national debt, de-
clining yields on investments, the
threat of currency imitation and other
factors likely TO undermine their
value.
Industrial Needs Stressed.
On the other side are equally vocif-'
erous critics who ask why the banks
refrain when lending when industry
requires new capital and when the
banks themselves are weighed down
with unemployed funds.
The first question. economists find
the easier to answer. Their reply TO
those who fear q breakdown in the
Governments credit is something like
this: The banks are a component
part of the national economy. If
the economic machine is not made to
run properly, then the banks will
suffer no less than the whole system.
The banks cannot afford. therefore,
to sabotage this plan so long as credit
is plentiful enough to make borrowing
possible
The other question is more COM
plex 1t is pointed out repeatedly
in banking circles that it is not a
function of commercial banking to
extend working capital to industry,
no matter how badly the latter may
need it. Bank loans consist largely
of credits to finance the movement
and storage Of goods and of personal
and mortgage and security loans.
These extensions of credit are made
on already existing values or on prod
uce already in the process of being
marketed. Loans of several years
duration against doubtful or at least
problematical future business do not
lie in their province, bankers assert.
Working capital or new funds with
which to make a fresh start can be
obtained only in the capital market
that is, the bond market-it is argued
But the capital market has been
virtually closed.
SHOrt LOanS ludoequate.
Some banks have extended them
selves to the point of supplying this
capital through short loans, but such
an arrangement was satisfactory
neither to the borrower nor to the
lender. 1t was for this reason that
the Federal Reserve banks entered
the direct loan field, the first ad-
vance having been made last week.
Consequently, it is pointed out, the
most important thing the banks can
do to aid recovery is to buy bonds
and thus create a more favorable
market situation for potential bor-
rowers This being The case, the in
vestment statistics of the banks,
rather than their loan figures, are
the ones to be followed for recovery
indications.
Although there are signs that the
banks have apparently been taking
more interest in bonds recently they
have been slow to expand their port
folios for variety of reasons. Dur
ing the last decade their bond hold
ings became so swollen that they
are now reluctant to take on a dis
proportionate amount. in relation to
their loans. Furthermore bonds suf-
fered heavy depreciation during the
decline Of security prices and banks
are wary of repeating the experience.
1t is generally true that individual
bankers are anxious to do what they
can to further recovery But the
problem of the individual banker is
not the same as that of banking as
whole. The individual is interested
in keeping his bank liquid. in pro-
tecting his depoSitors and sharehold-
ers from additional losses.
Nevertheless administration" bank
ers insist that sooner or later the
pressure of idle funds viii produce
the desired results, aided by an in
creaSing disposition on the part of
bankers themselves to get together
and thrash out their problems.