Evening star., 1939-03-08

II Z Ill e u ldJe :.s:33 II 2&
credit, and some -
OF them are do r.,,
ing so, but it is
against the judgment of most Of
them as to what should be the true
function of commercial bank,
which must be ready at any time to
pay out money demanded by its
depositors.
But, as happens so often in dis
cussions of national policies, the
two schools of thought are not
really discussing the same thing.
The commercial banker who insists
that he is making all the sound
loans that should be made in his
locality is right, because he is
thinking of short rt-term credit stand
ards, and so is the small business
man who says he cannot get the
necessary long-term capital needed
for expanding his enterprise.
Capitalists Dilemma.
"Oh," says the commercial bank
er, when capital is mentioned,
''let the small businessman get it
from his friends who will take a
stock interest in his company"
But" replies the capitalist of
the small town or city. when ap-
preached by the small business
man, 81 am beset by tax laws which
make it hardly worthwhile for me
to take risks. I get so little out of
1t. If you make money for me in
this proposed company, I get Is
per cent for myself and I must
give IS per cent to the Government
If you lose, get tax deduction
which doesn't really cut my taxes
down very much. No. thanks,
prefer taX-exempt securities or cer-
tain and secure investments.
Then there's another type of COM
ment. 1t comes usually from Gov
ernment officials and legislators who
for the last five years, have heard
the story about the need for inter-
mediate credit and are frankly skep-
tical. They point to the Recon-
struction Finance Corp. and to the
Federal Reserve banks, which were
empowered by Congress to make
direct loans to industry. Why, they
ask, if there was a demand didn't
this satisfy the needs of small busi-
ness men? The answer is to be
found in the fact that the standards
set up were really based on short-
term credits and on liquidation of
the debts in too large amortizations.
or else in an insistence on collateral
or security which the borrowers
could not give. The other day the
president of large Western COM
mercial bank who has become con-
vinced, unlike many of his brethren.
that there is need for intermediate
credit, wrote this pertinent comment
in a letter to a Government de-
partment:
Both the Federal Reserve banks
and the R. F. c. have been author
lied to make term loans to small
business, but as the standards they
nave set up are not very greatly
dlfferent from the standards of the
commercial banks, neither agency
has obtained significant volume of
such business"
Further Testimony.
Further testimony comes from a
man who is now active in one of
the Federal Reserve banks. He wrote
recently to a member of the United
States Senate as follows:
Since Congress amended the
Federal Reserve Act authorizing
Federal Reserve banks to grant di-
rect loans for working capital pur-
poses 1 have held the position of
secretary to the Industrial Advisory
Committee for our Federal Reserve
Bank and have handled all applica-
tions for such loans that have been
presented to this bank. I have,
therefore, come in contact with ap-
plicants and borrowers throughout
the district and feel that I am fairly
we'll Informed as to the need of in
dustry throughout the territory.
I'm view of the limitations placed
on Federal Reserve Banks under the
act, l have felt that some system
should be devised whereby funds
for improvements and expansion
purposes could be made available
from private sources, hence 1 am
sincerely interested in any form of
legislation in that direction"
Two types of machinery are being
discussed-the setting up of a sys-
tenn of regional banks of interme-
diate credit with Government CAPT.
tai at the start, but with the idea
of private stockholdings ultimately.
The other plan looks to the utiliza-
tion of existing banking facilities
somewhat as the Federal Housing
Administration loans have been
made by commercial banks with a
percentage of guarantee by a gov
ernmental agency like the R. F. c.,
covered by an insurance premium
of one per cent paid by the borrower
to offset possible losses.
Latter Plan Preferred.
The latter plan is favored by most
OF the legislators on the theory that
public opinion would not counte-
nance the setting up at this time of