Evening star., 1935-12-31
j. 5. ACT CALLED
MIXED BLESSING
Confidence Spreads, but
New Income Sources
Must Be Found.
BY EDWARD b. HUBBARD,
Cambridge Associates Writer.

next year, partly because OF the paTlk-
ing act of 1885 and partly in spite of
1t, is more favorable than for any
year since 1929. The increasing tempo
of industrial recovery which became
evident in 1885 has served to give con-
fidence to lenders and borrowers alike
The deposit insurance provisions
and the liberalization of the redis-
count privileges serves further to
make the bankers more willing to
lend. Furthermore, some banks are
entering the lucrative field of in
stallment financing and the financing
of inventory accumulation for small
enterprises, such as automobile sales
companies.
Others are taking advantage of the
tremendous opportunities for service
in the field of trust business, which
is becoming increasingly specialized
and highly technical profession. The
divorce of security aff1liates from some
of the larger banks is now proving to
be a penalty on earnings which must
be made up with aggressive tapping of
new sources of income.
On the other side of the picture is
the abolition of interest payments on
demand deposits and the reduction of
the interest rate on time deposits.
With deposits at record levels, there is
ample opportunity for profit even
with the low rates of interest avail
able in high-grade securities and loans
of good character Bank earnings in
the final quarter of 1885 were quite
generally we'll above those of the pre-
ceding quarters and the same quarter
of 1894 and there is every probabil-
ity that this trend will continue
through 1886.
Flies in the Ointment.
In the face of all this optimism,
there are two factors which are de-
cidedly discouraging to bankers. One
is the necessity for financing the
Government deficit, which has fallen
squarely on the banks. Possibly
some relief is in sight with the
growth of the unemployment insur-
ance fund, which will be an impor-
tant supporting force for the Gov
eminent bond market.
The other difficulty is the trend
among industrialists away from using
the banks for financing their needs,
favored as they are by security mar
kets, which gobble up common stocks
having any pretense of merit. How
ever attractive the terms of q bank
loan may be, the responsibility of is
suing common stock to common
stock hungry public is less.
There will undoubtedly be an in
creasing tendency among smaller husi-
nesSes to use the common stock meth
Cd in the coming years, with the re-
suit that commercial loans will grow
at slower rate than would normally
be expected in a business recovery.
The acute realization of this is one of
the most powerful stimulating forces
prompting bankers to search out new
channels Of business.
Most bankers will be greatly in
fuenced in their future actions, and
aided or limited largely in their abil-
tty to make profits, by the banking
act. Moreover the whole complexion
of banking has changed from laisser
faire to active interest and participa-
ton in control of business and credit.
Opposing Factors in Banking.
Discussions of the proper function
Of banking in modern society in con-
nection with the banking act of 1885
served to bring out two points Of
view. ITO serve business or to pro-
tect the public" expresses well the
present dilemma in banking That
there is dilemma has been amply
illustrated in the events of the past
year, when two strong men. each
Of a different school Of thought, held
the limelight in the preliminaries to
the passage of the banking act of
1885.
Senator Carter Glass, on the de-
fensive side, stood for conventional
American banking, a minimum of
political interference, and the policy
Of allowing the strictly monetary
aspects of the general business situa-
ton to iron themselves out naturally.
Mariner S. Eccles, on the other
hand, stood forth for the theory that,
whether we like it or not, the eco
nomic situation of the United States
and of the world at large is bound
about and will continue to be bound
about by artificial factors such as
high tariff walls, restriction of f1uc-
tuations in production, prices and
the rewards Of labor. Under these
circumstances. he maintained, it be-
hooves the banking system OF the
country to promote stability and en-
ployment in business" with every re-
source that can be made available
to It by the power Of the Govern
ment.
A One Sided Compromise.
As every one knows, the views OF
the New Deal and the views Of Eccles
prevailed, tempered only by correc-
tions Of the more obvious fallacies
Of the banking act as originally
drafted. And the banking fraternity
has accepted the new conditions as
gracefully as might be. AS one Of the
most important long documents
of our times, let US examine the
broad provisions of the new banking
act. Briefly, there are three impor-
tant changes effected by the legisla-
ton; changes that must be borne in
mind not only for the present, but
at some future date when they will
directly concern, not only the bankers,
hut every man. woman and child IN
the country.
(f) The plan Of deposit insurance
IS now a permanent part Of the bank
ing structure, for better or worse.
(2) The Federal Reserve Board
has been given greatly enlarged pow
ers for the control of money and
credit, together with the power to
enforce its decisions.
(3) The Government has been
given greater control over the Federal
Reserve Board, both directly and in
directly.
Compromises were made only on
the term of office of the board MEM
bers and their compensation and the
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