The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-02-18
DISCOUNT PLAN
SEEN ENABLING
BIC BOND DEALS
Provisions of New Banking
Bill Found Creating Ex-
banded Funds Outlet.

By Times Special
NEW YORK, Feb. $50 liberal
are the discount provisions Of the
proposed Banking Act of 1885 that
they should, in the opinion of
market observers, create a vast
outlet for high grade bords. AL
though yielding an average Of only
about 334 per cent, such obligations,
it was indicated today, would be
absorbed by banks on such an eX-
panded scale that returns would be
reduced still further under the inn
petus of idle funds seeking invest
ment.
In some quarters. Incidentally, the
conviction was expressed that the
dearth of primary liens available in
the open market might make even
more probable the splitting over Of
funds into reasonably safe but
somewhat lower grade issues. Over
the long term, it was felt, this de-
velopment should exert a favorable
influence upon the new capital
market, since the emission of bond
issues would be facilitated by the
strength impaired to the bond
market generally.
Wide Powers Stressed
With respect to this possibility,
authorities pointed out that, under
the terms III the bill now under
consideration by Congress, member
banks could be advanced funds on
any asset acceptable by the Federal
Reserve Board, which, by the way,
would be given almost complete
control of the Federal Reserve
Banks. This provision is in striking
contrast to The narrow legal defni-
ton which now exists.
Some of those more conServatively
inclined, however, are of the belief
that the Federal Reserve Board
might restrict discount privileges
only to such obligations, including
real estate loans, which are men,
toned specifically in the measure.
Moreover, Ghe thought prevails that,
before the bill meets with legislative
approval, reviSionS might be made
which would limit borrowing on COR
porate bones to a considerable ex-
tent.
MOP Program Watched
Bankers who have f1oated bonds
of railroads now in bankruptcy and
who are anxious to protect the in
terestS of their clients are closely
following developments in the re-
organization of the Missouri Pacific
Railroad. OF the many railroads in
bankruptcy, only two have attempt
ed to effect reorganization since the
depression. The plan of the st.
Louis-San Francisco Railway was
soon overturned by the opposition of
important institutional bondholders
Insurance companies have drawn
up a. plan of reorganization for the
bankrupt Chicago and Eastern ILL
nois Railway, but action toward con-
summating the plan has been post
poned. The plan now proposed by
the Van SweringenS for the Mis-
souri, Pacific may turn out to be the
real trail blazer so far as the New
Deal is concerned. o. P. SWeringen
was in conference last week with
Jesse Jones, president of the Recon-
struction Finance Corp, on details
of the plan which the former, as
representative of the debtor, is
bringing forward.
Cut in Charges Aimed
Because of this conference, it is
assumed that Mr.. Van Sweringen's
plan will embody the AdminiStra-
tons concepts of reorganization, al
though this is not certain to be the
case. Preliminary reports of the
plan indicate a dractic reduction in
fixed charges, with the holders Of
the first and refunding issues being
asked to accept income bonds for
major portion Of their present hold
ingS.
If holders of the better grade
bonds are to be asked to accept in
come bonds in railroad reorganiza-
lions, there undoubtedly will de-
velop a demand for some recon-
pensation in the form of common or
preferred stock, according to prom
inent institutional bondholderS.
Since this demand will have the eff
feet Of threatening the continuance
of control by present stockholders,
Wall Street expects that railroad
congratulations under the New Deal
will produce MANY a lively battle.