The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-02-09
BANKERS SEEK
MORE FREEDOM
TO UNDERWRITE
Wall Street Hoping That
Laws Will Be Made
Liberal.
BY RANDOLPH PHILLIPS
Times Special Writer

NEW YORK, Feb. 9.-The dep
rivation of normal earnings which
/ commercial banks are today ex-
I periencing has lent momentum to
a movement toward liberalization of
the banking act Of 1888. This liber-
alization, Wall Street hopes, will
take the form of a relaxation of the
restrictions on underwriting of Sc
curities.
Many bankers agree that the pro-
hibitions against commercial bank
dealing in securities and distribut-
ing them are sound. They do not
agree that the prohibition should
extend to underwriting.
The distinction between under
writing and distributing securities,
it is asserted, is a distinction not
recognized by the legislators. Abuse
of credit in the boom era was large
" the result of banking affiliates
engaging in both the origination and
selling of securities.
Double Liability Assailed
Assumption by them of this dou-
bic function was assailed because it
led to high-pressure methods of
craftsmanship against the interests
Of the depositors. A commercial
bank with securities affiliate was
not content with the returns from
underwriting, but expanded the
functions of the affiliate so that it
could reap the profits of distribu-
ton.
An expensive apparatus with a
large personnel thus was built up.
The piNssure Of overhead expenses
forced greedy scramble for busi-
ness. with the result that intensive
competition for the f1otation of ques-
tionable securities became the prac-
tice of many security affiliates.
With the subsequent collapse in
prices it became the custom to con-
denim all banks and banking meth
DDS. Those banks whose security af-
filiates had been restricted to I'M
derwriting were grouped with those
who did both underwriting and dis
tribution. The onus of the abuses
was not confined to the latter group,
however, when Congress took meas
UreS to legislate the evils out of the
banking system.
In the Banking Act of 1888 all
banks and other firms engaging in
a deposit business were prohibited
from issuing. underwriting, selling
or distributing. at wholesale or re-
tail. or through syndicate partici-
patton. stocks. bonds, debentureS,
notes or other securities"
Believed Adequate
The present investment banking
machinery is adequate for the ham
ding of a small volume of new Sc
curities. but the question has been
raised whether it will be when pres
ent hindrances against a large
volume of new issues are raised
Experts state that the total capital
pool of investment bankers today is
inadequate to accommodate stimuli
taneously the flotation of as little
as SI50.000.000 in new issues. This
inadequacy leaves issuing houses in
the position CT having no place to
unload the risk of underwriting a
large volume of new issues.
Bankers contend that the logi-
cal place for this risk assumption
is the commercial bank. Recogni-
ton of this fact will be made in the
report of the committee on finance
and currency of the New York
Chamber of Commerce to be de-
livered tomorrow to the chamber.
The report recommends that COM
mercial banks should not be al
lowed to distribute securities, but
should be allowed to underwrite new
securities of such character and
amount as they would be permitted
under law to own"