Evening star., 1938-10-18

tlNt dSdillSl pUS-
sible losses and not paid out as divi-
dends. Dr. Kincaid said In any event
not all such gains should be paid out.
as banks should attempt to accumulate
a reasonable reserve over a period Of
years. say 25 per cent of its investment
portfolio.
Even when a bank buys bonds for
Investment return alone and avoids
buying for appreciation, the risks are
considerable because a bond is long
term obligation as rule, and long
term credit is very different from
short-term credit. The more remote
the maturity the more its market price
Is subject to fluctuation.
Need of Reserves Stressed.
DR. Klncaid spoke on investment
Policies of Banks" In opening his
remarks he said it is impossible to gen.
erahze about investment policies for
commercial banks. What may prove
good for one may be unsuitable for
another. The investment policy Of
given bank must be worked out in the
light of location, nature of business,
seasonal changes and the industrial
and business organization of the COM
munity.
A bank must first set u an adequate
primary reserve and then an adequate
secondary reserve, based on the need
for liquid assets and sufficient to pre-
vent bank from selling long-term
bonds in an unfavorable market. Ex-
planning his views further, he added:
The secondary reserve should be
composed of open-market paper so far
as possible, and to this end Treasury
bills, Treasury notes, Treasury bonds
approaching maturity, openmarHet
commercial paper, bankers bills, high
grade State. municipal and other civil
issues OF short maturity, some high
grade corporate issues approaching
maturity, will be found satisfactory.
The adequacy OF the secondary
reserve cannot be determined apart
from a careful analysis of local loans
and discounts, including real estate
loans The banker should make a
careful analysis of local loans before
attempting to determine how much
secondary reserve is necessary. This
analysis must take into account all
sound but slow paper that cannot be
relied upon to provide funds to meet
the sudden demand for funds on the
part of depositors."
Lessening Risks Held Vital.
In speaking of ways to lessen inter-
est-rate risks, Dr.. klncaid said that
some banks consider investment funds
as a revolving fund. They buy bonds
up to 10 years at most. Thus it is
possible, he said, to stagger the nlaturi-
ties in such way that $4,000 in
vested in bo.dS will have naturities
OF 100000 year. In this way the
average maturity of the total portfolio
would be close to five years. With
such policy, the bank can shift its
funds as they become available at the
rate of 100000 per year and thereby
average up its interest return on the
upturn of interest rates and average
them down on the downturn.
When there are many banks with
no investment policy, the load of main
tanning a stable market for bonds is
thrown more fully on to the Treasury
and the Federal Reserve banks. so
far as these banks are concerned. This
tends to asgravate the problem con-
fronting these agencies, to the possible
injury of all banks.
1t is the business of the directors of
a bank to formulate the investment
policy of the bank. Once it has been
determined, then its execution should
be placed in the hands of one officer
and he should be given a free hand
and full responsibility in carrying out
that policy. Too many cooks spoil the
pudding. he concluded.
Suburban Banks Admitted.
At the business meeting, before the
address, it was voted to amend the
constitution and bylaws to allow
officers of suburban banks within a
radius of 10 miles of Washington the
right to apply for membership in the
association.
This action will give nearby bank
ers full benefits of the associations
services, although they will be only
associate members, with no vote, and
will not have the right to hold office.
Many nearby bank officials have re-
Gently expressed a desire to belong to
the District organization,
A special committee consisting of
George O. Vass. Thomas J. Groom
and c. H. Pope investigated the matter
carefully, held conferences with sub
urban bankers and made favorable
report NJ D. Rosenberg assisted in
drawing up the necessary changes in
the constitution.
d. c. Bankers Honored.
Hilleary G. Hoskinson. president of
the association and vice president Of
the Riggs National Bank. presided at
the fall meeting. The attendance was
unusually large.
Special irlsignias were presented by
the president to Gerald E. Keene.
chairman of the auditor section and
assistant cashier of the Second Ma
tional Bank; J. Elliott Moran chair
man of the fiduciaries section and
assistant trust officer of the American
Security g. Trust Co.. and P. C. Brady,
chairman OF lne SdIe deposit SeCtlon
and assistant treasurer of the American
Security e. Trust Co.
Today's Trading on Exchange.
Potomac Electric Power per cent
preferred was strong on the Washing
ton exchange today. 10 shares selling
at lis. Security Storage sold at 1l2,
while 10 shares of Riggs National Bank
common moved at 267.
Heaviest trading was in Washington
Railway & Electric preferred, so and
20 share lots selling at l1212. Ana
costa IL Potomac Railroad guaranteed
bs sold at l10A, two $1,000 bonds
changing hands.