Evening star., 1939-12-31
Interest Rate Drop
Definitely Slowed,
Costs Reduced
Most u. S. institutions
Well Fortified to
Meet Changes
~ Cambridge Associates.

By Cambridge Associates.
Bank management enters 1910
with more confidence than for sew
eral years. The long and sickening
doWntrend of interest rates, while
not conclusively over, has been def
nitely slowed, costs OF operation
have been pared to the bone, and
commercial loans have proved them
selves susceptible to expansion.
Most conservative institutions
have shifted their unwieldy Gov
ernment security holdings into
short-term issues and have set up
reserves against declines in market
value so that they can face an ex-
pansion of demand for credit with
complete equanimity. Trust depart
ments are becoming more profit
able, and the way has been paved
for greater use of small loans and
auxiliary corporate financing.
Corporate Field Entered.
One of the most interesting de-
velopments of the year just past
was an extension of commercial
bank funds into the field of cor
porate financing. Once the limit
of banking ventures into this field
was the furnishing of temporary
credit pending the completion OF
successful refunding. With the
present large reserves of cash, how
ever, banks have not felt that they
are acting against conservative prin-
siples in extending self-liquidating
loans with maximum maturities
running as long as 10 years.
Because of bank demand practi-
cally all of the debenture issues OF
the 1899 utility refundings were
quickly taken up, and at the years
end the only such issues in any
substantial supply was the most
distant maturity of certain serial
loan, the last payment of which
was substantially larger than the
average for previous years.
Large Banks and Small Loans.
While some banks have tried out
the small loan field and failed to
profit, many of the larger banks
have built up profitable depart
ments handling this type OF loan.
Almost invariably those reporting
the greatest success have treated
this endeavor as a distinctly sep
arate business. One of the largest
industrial financing organizations
has now announced its intention of
experimenting in this field. and if
the banks wish to hold the busi-
ness they must take care to develop
1t aggressively.
Savings banks are making some
progress with liquidation of old
mortgages and sale of properties
previously foreclosed. In most
cases losses have been accepted in
principal, or reductions have been
made in interest rates, but there is
now universal tendency toward
making some regular provision for
amortization, which is source of
satisfaction to bank and customer
alike. It is expected that new resi-
dental building in the coming year
will be at least as large as that in
1889. The savings banks will have
an opportunity to acquire new mort
gage paper, although in competi-
ton with other agencies.
Interest in Rail Plans.
Banks OF all types nave a large
stake in railroad reorganizations,
and there are unmistakable signs
that real beginning will be made
toward cleaning up this most trou-
blesome problem in 1940 While
holders of underlying mortgages are
not especially disposed to accept
scale downs which give Junior Sc
curity holders more than would be
accorded them under the time
honored sale at auction, the pres
sure of the search for income is
now so great that the spirit of COM
promise is in the air. Practically
all plans place liberal sinking funds
before any distribution of income
basis" interest, which is designed to
guard against any repetition of the
great rail receivership era.
Practically every one admits that
q great change has taken place in
the value of guaranty contracts
when earnings have vanished, and
at present the whole matter is in
state of flux. While the right Of
foreclosure and sale is valuable in
q sellers market, it only loads up
creditors with taxable frozen assets
In times like the last few years. In
these days discretion is the better
part of valor.
It is likely that a showdown will
come within the next 20 months
on the steadily mounting Govern
ment debt. In this the banks have