Evening star., 1938-06-22

JeHQ more I1lOIley.
Finally some one in the Government
has cut through the maze of nnisun-
derstanding and accepted frankly the
fact that it is useless to tell banks to
be liberal about loans when a bank
examiner comes around the next day
and arbitrarily Classics q loan as
poor and insists that the loan be writ
ten off and bank capital reduced &C
cordingly to take care Of the loss"
Pressure for uniform bank examina-
ton or at least for a coordination Of
policies has been coming from all
parts of the country for long time.
President Roosevelt in recent mes
sage to Congress recognized the need.
Today the three agencies primarily
concerned with bank examination
the Federal Reserve Board the Fed
eral Deposit Insurance Corp. and the
office of the Controller Of the Cur
rency in the Treasury Department.
are closer together in formulating
program of uniform bank examina-
tion than they ever have been before.
And II an agreement is reached the
association Of state banking Depart
ments probably will adopt the new
rules so that America can 60 forward
with that big hurdle of unco-ordinated
bank examination actually overcome
Hard to Overestimate Value.
The meaning of this to the small
business man can hardly be overstated
For in consideration of what are
SLOW" or "doubtful' or loss" loans.
the banks heretofore have been sub
tscted, especially in times of business
depression, to great pressure by the
bank examiners. whereas this is the
very time when they should be given
every legitimate encoura cement to
make loans. From this tendency to
scare the bankers has come a realiza-
ton in Washington that psychological
factors induced by the Governments
own field representatives can produce
serious results in the whole field of
the public's relations to the banks.
But there is something even more
vital in the new plan. 1t relates to
capital loans. Banks usually lend
money on commercial loans with the
expectation that the borrower can pay
back within nine months. Banking
practice has rather encouraged the
idea that business which cannot
llquidate loan in that time needs
permanent capital and should go into
the capital market to get it.
Small businesses, on the other hand,
cannot get into the capital markets as
do the large businesses which float
loans in the Nations bond markets.
The big investment banking houses
rarely find it practicable to attempt
distribution through retail outlets OF
any loan involving less than sl,o00,0oo
Small businesses. to be sure, need vary
ing sums and most of them need
amounts far below S1000,00O apiece.
The probabilities are that the credit
needs of small businesses run from
$4,000 to sl50000 each. and only
occasionally above that sum.
Liberalized Step Sought.
Congress did not provide any capi-
tai market for small business And
1t is too expensive for the little busi-
ness men to file registration state
ment and 60 through the Securities
and Exchange Commission and try to
sell to the public. even If a machinery
for such sale of capital securities were
available. What Gov. Eccles of the
Federal Reserve Board suggested was
that banks be permitted to buy a note
or bond issue of a business located
in their immediate vicinity. 1t must
he an established business and one
that has a record which indicates a
great likelihood OF repayment. The
new regulations are understood to be
designed to permit the banks in
local community to buy bonds issued
for about 10 years, but with a pro-
vision IN them that the bonds or notes
must be amortized by periodic pay
nents within every year, not neces-
sarily every month, as in the case Of
housing loans.
Heretofore banks could buy the
bonds of big corporations whose Sc
rurities are rated or registered and for
which there is kind of public market.
But the banks were prohibited from
buying the securities Of small busi-
nesses because these we're not for
mally rated and usually we're not mar
ketable anywhere.
- To overcome this advantage and
yet provide a safe investment for
banks the new rules would allow
banks TO put in their Investment port
folios some of these bonds or notes
of small business. Because each bank
probably will diversity its investments
of this type and because such bond
or note issue would necessarily carry
sn interest rate higher than the
banks can now get by keeping so much
Of their funds in Federal, State or