Evening star., 1934-03-25

sehat3f Fietcher' aI4L,
means the difference between more
than 100000 men being profitably en-
ployed, spending money for the prod
ucts of the farmer and of other man
ufacturerS, and those same 100000
odd men being supported by friends
or relatives, or by private charity.
The need for this new institution Is
very simple. In the days before the
crash of 1929, there was no such prob
lem. Did a manufacturer want to
hire 1000 men, and start producing
some new product which he was sure
people would buy. the mere fact that
he did not have the ready cash to buy
the equipment and start paying wages
and building costs or rent, ETC., made
little difference. He went to his bank.
Its officers told him that much of
the money he needed could not be
provided by an ordinary bank loan.
Such loans have to be paid back
rather promptly. The manufacturer
might not want to pay back the
money he would spend for a new
building, or the machinery to equip
1t, for three to five years, sometimes
even longer.
No Trouble in Financing.
So they referred him to investment
bankers. They told him to issue some
bonds or some new preferred stock in
his company, or, in some instances,
even common stock. Then the invest
ment bankers would sell these Securi-
ties to investors. the money would be
provided, and the manufacturer would
60 ahead.
In those days there was no trouble
with such financing, if the manufac-
turer was we'll and favorably known
in his own community. Investors even
in distant cities would buy his bonds
or preferred stock. They would do so
after making careful inquiries as to
the character and ability of the manu-
facturer wanting the new capital.
Sometimes, in new ventures, but made
with men who had regulations for
character and ability, the investors
would be tempted with piece of the
profit as we'll as return on their IN
veStrnent. They might be given o
share of common stock in the enter
prise along with bond bearing fixed
ton the manufacturer had as being
able and honest, the better bargain
he obtained in borrowing his new cap
ital.
But along came the crash, and the
investors in the picture 1 have just
painted disappeared. The investment
business withered and almost died with
the loss of billions of capital So what
has happened? The small manufac-
turer has been unable to borrow money
for extension, improvements or even
to carry on his business.
Meanwhile the commercial banks
have become less liberal in their treat
ment of such small business men,
largely because of fear, but due also
to more strict bank supervision.
The banks want to stay liquid. They
want their assets in cash, or in loans
which can be called any day the
bankers might decide they needed
money.
One in Each District.
Now consider this new system which
is provided in my bill and approved
by President Roosevelt as a necessary
part of the recovery program.
One of these new intermediate
banks will be located in each of the
Federal Reserve districts to serve that
territory. Each of these banks will
have branches in the various cities
through its district. For instance, the
Chicago bank would have branches at
Springfield and other big cities in that
district. The Philadelphia bank would
have branches at Pittsburgh, Harris
burg, etc.
The manufacturer in Augusta, Ga,
who desired to borrow $50,000 to erect
an addition to his plant, and put per-
haps 300 men to work, but who had
been unable to get the money, would
apply either to his own commercial
bank or to the Atlanta intermediate
Credit Bank. 1t would probably work
out that his own bank. where he kept
his checking account and from which
he had probably borrowed money to
meet his pay rolls and buy raw ma
terials for his factory for many years,
would approve the loan.
Then the Federal intermediate
Credit Bank, to be set up under this
bill, would agree with this manufac-
turer's local bank that it would put
up $40, 700 of the money, with the
local bank advancing $4,000 and as
suming only that amount of the risk.
might say that there will be very
little risk in the cort of loans planned
by this new set of banks. Inclusion
OF the local bankers in the various
loans, though they assume only one
fifth of the risk. narrows down the
possibility of losses to the Federal
banks tremendously.
500, 100000 Is Required.
The President wrote me to this
effect: Estimates based on this sur
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