Evening star., 1939-03-09

great demand. 49,
1t is true that.
after confer Da''o Lawrence.
ences last year between Federal Re-
serve Board officials and represent
atives of the Treasury Department
and the Federal Deposit Insurance
Corp, bank examiners were in
structed to approve loans up to 10
years. But it is also true that banks
are lOath to make commitments for
a 1O-year period merely on the
strength of the discretionary power
vested in a bank regulation which
can be changed overnight by a
succeeding administration or by the
same administration if a period of
def1ation suddenly develops.
Likewise banks, in some instances
while willing to make 10-year COM
mitments, reserve the right to re-
fuse a renewal at the end of any
six or nine month period. The re-
suit is that the borrower really has
not obtained l0-year loan at all
IN the same sense as would be the
case if he obtained a flotation of
capital in the bond market through
investment banking channels. The
borrower in the latter case is under
supervision of trustee to carry
out certain requirements of trust
agreement, but he does not face the
hazard of a bankers judgment
every six or nine months as to
whether the skies look cloudy or
clear in the business world.
Bankers Reluctant.
Intermediate credit or long term
capital has been available to busi-
nesses large enough to be able to
float loan of S1,000,000 or over
through investment banking chan
nels, but there is no comparable
machinery available to the business
man II he happens to need $500 900
or smaller sums. Here and there
some commercial banks are making
10-year loans, but they are not
numerous in quantity and there is
a natural reluctance to go into this
type of loan where the bank takes
the whole issue of company's
notes.
What Is being considered here
now IN Congress is legislation which
will permit private finance corpora
tions as we'll as banks to buy the
debentures of borrowing company
In whole or in part, these finance
corporations to be owned in large
part by banks and the debentures
made marketable by system of
insurance such as prevails now with
respect to the mortgage loans made
by the Federal Housing Administra-
ton.
Commercial banks would be ready
and eager to buy such debentures,
because they would have back of
them the same sort of Government
support which has made mortgage
debentures so popular. Indeed. the
other day large savings bank in
New York reduced its long-term
interest rate on mortgage loans be-
low that which had prevailed before,
because it was apparent that these
new forms of credit were not as
hazardous as had been believed.
In the realm of business loans,
however, rate of per cent prob
ably will be used, out of which a
premium for insurance will have to
be paid. The plans being discussed,
therefore, relate to the problem of
making it attractive for commercial
banks to use their idle funds to buy
debentures of American businesses,
which debentures would have as
feature of safety the same device
which IS attached now to Federal
Housing mortgages.
Housing Loans Working Out.
The argument will be made that
this will cause the Government
losses but in answer to this is the
experience with the housing loans
which are working out very well
with the use of the funds of private
banks rather than direct Govern
ment credit.
The truth is that Congress, in
passion of reform indignation,
wiped out of existence the system
of intermediate credit which existed
between 1920 and 1882 in what
were known as bank afiliates."
These institutions developed many
NSuoSo 0uU AL SllC oCSllC W SCU 11o
of the abuses, no long-term credit
machinery was left with which to
perform some of the very useful
functions carried on by these bank
ing corporations. Certainly no sys-
tenn which permits bad short-term
loans to be loaded on to banking
corporations owned by the banks
should be allowed. and other abuses
which were noted in the postwar
era should not be tolerated, but this
can be prevented and yet American
business, especially in small cities
and towns, given chance to get
the capital needed to build up
Americas national income to the
$4,000, 100000 mark attained in
1929.
For, with the disappearance of
intermediate credit for small COM
panies, the big companies, with
their surpluses and large capital
reserves. have been able to grow