Evening star., 1935-11-14
BANKS TO ADHERE
TO SOUND RISKS
Presidents Reduced Rate
Plea Calls Attention to
U. S. Housing Loans.
BY DAVID LAWRENCE.


the interest rates charged by banks
will lead many people to believe that
whether interest rates are high or low
is something for the Federal Govern
ment to regulate and that the matter
is peculiarly the province OF PreSi-
dent of the United States.
Actually, however, subjects OF pro-
found importance to the economic
structure of the Government are often
discussed in a casual manner by the
President in his press conferences and
the resultant headlines inevitably give
an impression of Government power
or Government influence in given
situation which is out of all propor-
ton to what really can happen.
Interest rates are inseparably inter-
woven with the question of risk. Mr..
Roosevelt himself made that clear to
the correspondents when he said that
the better the risk the lower the rate
should be. Hence, any generalization
as to whether interest rates are too
high and should come down. or wheth-
er they are too low and should go up
is like the perennial argument as to
whether we are suffering today from
overproduction or underconsumption
Farmers Case Cited.
The case that Mr.. Roosevelt cited of
a farmer who had so per cent ready
in cash and couldn't get a lower rate
than per cent when he shopped
around to find a lender for the re-
mainder of the purchase money he
needed to acquire farm may or may
not have been related to the differ
ence in viewpoint of The banks as to
how much risk was involved.
To lend on farms today involves
numerous considerations in which pre-
diction as to the future plays no small
part Will the Federal Government,
| for example, continue to hold up the
price of farm property by continuing
| indefinitely to refinance farm mort
cages? Will the productivity of farms
be maintained at the present level or
will farm lands be worth much less
later on as adjustment and produc-
ton control programs reach a stable
basis? These are points that the
Nnder must take into consideration in
appraising farm land. and when there
| is virtual unanimity as TO the interest
rate that should be charged 1t is
usually because lenders view the risk
much the same way.
But the significance of any state
ment that comes from President of
ie ho
Federal Government has some power
| to regulate the matters discussed
Otherwise the comment is apt to be
wholly misconstrued as a hope for
a change through governmental in
tervention. To fix the price of credit
generally is not the Governments
function. though, to be sure, the
Government itself has a far-rea ching
influence on other interest rates when
| it sets the rate at which it will offer
| its own bonds and notes to a borrow
ing public.
Lower Rate Desired.
Undoubtedly, the President would
like to see general reduction in in
| terest rates. He believes in what is
called easy" money. because Gov
ernment borrowings can be financed
better when interest rates are low than
when they are high. But it is also
true that Mr.. Roosevelt thinks eco
nomic recovery would be accelerated
II interest rates could be brought down.
All this is only another way of say
ing that low prices for money would
aid the borrowers of new capital as
we'll as those who have obligations
outstanding The Federal Housing
Administration at times has been
criticized for its supposedly high in
terest rates. The total rate today for
| interest and nSurance-namely all the
| finance charges-amounts to about 6
per cent. So a generalization that
the rates of per cent are too high
on farm property will come right back
to plague the President with reference
to the rates that are being charged
through the Governments own agen-
cles in connection with housing loans.
Lower interest rates have been fore
cast for some time as an inevitable
result of the plethora of money Gre
ated by the present credit imitation,
and there is no doubt that already
many businesses which have re-
| financed their debts in the bond mar
ket have saved large sums of money
| through the downward revision of in
terest rates. But such changes in the
interest rate as affect individuals in
all manner of businesses and enter
prises and in all sorts Of borrowings
for real estate and construction pur-
poses will hardly come overnight. They
are the result of slow and gradual re-
turn of confidence in the wisdom of
lending money out for long time pur-
poses once more.
Lending Peoples Money.
Bankers, as has so often been said,
are not lending their own money but
the peoples money. They went
through, from 1929 to 1884. about as
bitter a period of denunciation for
their alleged imprudence in lending
money as has ever been visited on any
class of people in America for many
generations past. They are not likely
to swing now to risky loans. The
banks are sound today because sound
principles of lending have been estab-
lished and the Federal Government,
with its Deposit Insurance Corp, is
deeply interested in maintaining that
attitude on soundness toward risks.
In a sense, when a bank charges 6
per cent on one loan that looks risky
and 3 per cent or 2 per cent on some
thing that is well secured and we'll
protected, the bank in question is
merely charging about or per
cent for the use of its money, and
probably 2 per cent above that sum
goes as insurance to itself against the
possibility that the given loan or
others in its class might go sour.
Interest rates are combination Of
insurance against loss and proper