Evening star., 1939-06-01
Opinion Is Divided
On 90 Pct. Backing
For Industry Loans
Supporters Of Measure
Soy 1t Will Encourage
Bank Lending Policies
By The Associated Press,

BY lne Associated PreSS.
NEW YORK, June 1.-Govern-
ment guarantee of loans by banks
to private industrial companies may
be the next step in the administra-
tons efforts to pump idle money
from bank vaults into the chan
nels of trade.
A bill to provide guarantees of 80
per cent of bank industrial loans up
to S1,000000 already has been in
troduced in Washington by Sena-
tor James Mead, Democrat, of New
York, and is being studied by legis-
lators.
BackerS of the measure claim il
would encourage freer bank lend
ing policies, expanding industrial
loans and giving added pep tc
American business.
Interest rates under the proposed
Government-guaranteed loans would
be fixed at base rate of per
cent, but there would be an ad-
ditional charge of from !. to / per
cent as an insurance premium to
be paid the Reconstruction Finance
Corp. the Federal agency which
would guarantee the loans. How
ever, the bill provides that at the
discretion of the bank and r. F. c.,
the interest rate to the borrower
could be slightly higher or slightly
lower than the basic 4 per cent.
Skeptics Doubt Result.
While certain Washington circles
are enthusiastic about the Mead bill
there are some skeptics in Wall
Street who doubt it would be an
important business stimulator if il
became law. They contend there is
no present unwillingness on the part
of banks to lend money for legiti-
mate purposes, and that the bulk
OF companies being refused loans
today are seeking to borrow when
they should be trying to raise capi-
tai
In other words, the overwhelming
majority of applicants for bank
loans, it is contended, really need
risk capital" rather than loans,
and risk capital customarily is
raised through sale of preferred and
common stocks.
The Federal Reserve Banks, which
have been lending funds directly
to private industry, themselves have
found this out. With virtually in
exhaustible funds awaiting borrow
ers, the Reserve banks on April Is
had only SIS ,582 900 direct indus
trial loans outstanding, and the
most money the reserve institutions
ever have had out in these direct
loans at any time since they were
inaugurated was S32 2,493,O0 at the
end of 1885.
80 Per Cent Now Backed.
Moreover, the Reserve banks to-
day stand ready to make commit
ments to other banks and assume up
to 80 per cent of the risk of loans
of working capital to business or
ganizations, subject to review and
approval by Reserve officials. The
Mead bill, therefore, would provide
only an additional 10 per cent guar
antee" of bank advances to indus
try.
On the other hand, the Mead Bill
has stanch hackers who think the
Government guarantees encourage
bankers generally to broaden loan
policieS. and that wider industrial
borrowing would be very real pos
sibility.
They also believe that the Recon-
struction, Finance Corp, which
would provide the 80 per cent loan
guarantees under the Mead bill,
would be more liberal" in its at
titude on loan applications and ad-
vances than the Federal Reserve Is
at present in its review and approval
of 80 per cent guaranteed" bank
commitments.