Evening star., 1938-06-27

to get adequate financing has been
one OF the factors held responsible
tor the current slump. This condi-
tion has been attributed to the re-
strictions throWn about bank loans
by the Government. aud has led to
demand for their reldrdtion-a
n,oDe strongly urged by Chairman
Eccles of the Federal Reserve
Board and opposed by Secretary OF
the Treasury Moroenthau.
The administration was moving or
two fronts today in the fight on the
depression.
With the Federal spending -lendine
machinery being geared for the vas,
cash outlay contemplated under the
new pump -priming" program, the
Treasury announced new banking reg.
ulations, effective July l, designed tc
stimulate the flow of private capital
These, it was believed, would turn
loose about $3,000,O00, 900 lying idle
in the banks.
The lending and investing policy
OF every bank in the country will be
affected by these changes which rep
resent the viewpoint OF Mariner S
Eccles, chairman of the Federal Re-
serve Board, who in his recent let
ter to Senator Vandenberg, Repub-
hcan, of Michigan, who emphasized
differences in the financial high COM
mand OF the Government. said that
small business was not getting the aid
needed because Of stringent bank reg
ulations and the Securities Act of
1888 requiring securities sold in in
terstate commerce to be registered.
Principal Changes.
These are the principal changes the
new regulations make:
l. Bankers may make long term
lover nine months loans without
criticism Of examiners. as long as the
loans otherwise are sound.
z. Bankers may invest in the bonds
Of small local corporations even though
the securities are not quoted on stock
exchanges, provided the bank can
demonstrate the worth of the bonds.
This is an innovation primarily for the
national banks and the State banks
Belonging to the Federal Reserve Sys-
tenn.
Formerly, bank examiners criticized
as risky and slow the majority of loans
for more than nine months The
banks might make such loans, but they
we're discouraged by the knowledge
chat the long loans would be dis
counted when examiners set out to
figure the net capital worth and
solvency of the bank.
Loans formerly we're listed by exam
liners as good, slow, doubtful and loss.
These have been renamed with roman
numerals, with II" corresponding to
good" The old practice was to de-
duct as net capital part Of the slow
loans and all of the doubtful and loss
class. The new rule will limit these
deductions to so per cent of the
doubtful and 100 per cent of the loss
items. Thus, the making of sound
iong-term loans will not raise questions
about the solvency Of bank.
Bond Purchases Restricted.
vi 0OAAAS, "a CcCAAt pic
vent Federal Reserve member banks
from buying issues not easily dispos-
able because they were not listed on
stock exchanges. This shut out the
bonds of small local companies.
The new regulation permits the pur-
chase of any bonds, but in the case
Of bonds not having an organized
market the bank must prove to the
examiners satisfaction that they are
sound investments. Purchases Of such
unlisted bonds also was restricted to
those maturing in 10 years from date
Of issuance and for which arrange
ments actually have been made to pay
off in amortized installments at least
rs per cent of the principal by the
maturity date.
TO discourage excessive bank specu-
lation-rapid buying and selling Of
securities to gain profits on changes
in prices, as contrasted with holding
securities for the interest payments
the agencies also ordered:
l. On group I investments-the
highest Of four grades-examiners
will value the securities at the price