Evening star., 1949-01-02
Banks Ponder Effect.
OF u. ). Policies as
Loans Set Record
BY the Assoeiatsd Press

NEW YORK, Jan. 1.-The Ma
tion's banks had more money lent
out to their business and private
customers at the year end than ever
before.
Bank earnings, in the meantime,
remained at high level. Income
has been maintained by the tre-
mendous volume of money on loan
plus the highest interest rates in
years.
The money borrowed has been
spent in thousands of ways-to have
the children's teeth fixed, to build
new generators, to buy cars, to
install new production lines, to pay
for huge inventories Of goods of all
kinds, to construct and repair
homes.
1t has helped finance record high
production, record high employment,
record high income-and to help
consumers cope with the high cost
Of living.
Contribution to Imitation.
This expansion in the use of bank
credit not only contributed to in
flationary tendencies but was it
self a result of such tendencies
in the view of the Federal Reserve
System and others. Bankers claim
expanded credit is the effect, not
the cause, of imitation.
Bankers and the administration
fought running verbal battle over
the control of bank credit. Neither
side could claim a cleanout victory
but each got in some telling
punches.
Bankers know we'll the dangerous
possibilities in the unwise use of
credit. But, with Yankee stub
bornness, they don't want to have
some one in Washington telling
them how to manage their business.
Early in the year the American
Bankers Association, under the
presidency of Joseph M. Lodge, a
Detroit banker, outlined a program
for voluntary credit control. Key
stone OF the campaign was to re-
strict credit to productive uses.
Credit, though, continued to
expand.
The Administration asked the
Congress for authority to impose
further restrictions on the use of
bank credit. Congress didn't see
eye to eye with the Administration
but did allow the use of some ad-
ditional curbs.
Regulation "W' Restored.
The curbs included the restora-
ton Of the war-famous regulation
wv" which governs consumer credit
and an increase in the amount of
reserves which banks must hold
against desposits. Bank reserves
are proportion of banks deposits
which cannot be used for loans.
The Federal Reserve System, the
official guardian of national credit
policy. increased reserve require
ments, put regulation "W' into
effect. and raised the rediscount
rate. The rediscount rate is the
charge made by central banks for
loans to member banks when the
latter need additional money to lend
to their own customers.
The voluntary campaign of the
bankers to use great caution in their
lending policies, plus the controls
imposed by the government un-
doubtedly slowed down the rate Of
bank lending activity-even If total
loans continued to increase.
Banks also got some tough COM
petition from another lending,
group, the insurance companies, q
development which the authorities
construed as "just as infiationary as
bank credit expansion"
The result was q slackening Of
lending activities by commercial
banks toward the year end.
But the banking system is still
highly liquid, still has in its vaults
billions worth of United State Gov
erment securities which the Federal
Reserve System stands committed
to buy at prices of par or higher.
Bankers themselves are aware Of
the position in which the policy of
supporting the Government bond
market has put them, and they
don't like it, but there is a wide
difference of opinion over possible
solution.