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MONEY & BANKING: Think That Over

4 minute read

Sonja Henie was skating in Houston’s new $2,500,000 Coliseum, so 3,000 delegates to the annual convention of the American Bankers Association had to be content last week with the old City Auditorium. There the nation’s bankers cut many a fancy figure on the thin ice of their New Deal relations.

A. B. A. President this year was Orval Adams of the Utah State National Bank, Salt Lake City. In the three years since he rose on the convention floor to propose that bankers boycott U. S. bonds, Orval Adams has rarely missed a chance to snipe at the New Deal. Last week was no exception. Warning of a trend toward fascism or national socialism, he sombrely declared in his opening address: “To recapture control in Federal spending is the most vital issue confronting this great democracy. . . .” He then introduced RFC Chairman Jesse Jones as “a conservative” who had been “a tower of strength against Treasury raiders.”

Genial Banker Jones, at home on his Texas heath, wasted no time in laying this canard: “I have been introduced as a conservative. I am a liberal.” Thereupon, taking his usual line that U. S. banks would have to loosen up “or else,” he said: “We should all remember that it is the borrower who makes the mare go. He buys and hires and builds. He sometimes makes mistakes, but even so, he should still be encouraged. . . .”

Jesse Jones added with liberal belligerence: “You did like the first few years of the Roosevelt Administration. Why? Because he saved your banks—those that were alive when he took office. . . . I might tell you that of the 6,119 banks in which we put capital, as far as we in the RFC have been able to figure, less than 20 did not need the capital. Think that over. . . .”

A more poignant thought, the real meat of last week’s meeting (although fulminations made most of the headlines), was contained in a report of A. B. A.’s economic policy commission, which includes such famed bankers as A. P. Giannini, Winthrop Aldrich and Leonard P. Ayres. Acknowledging that “this present business upturn clearly appears to mark the beginning of a new business cycle,” the report offered a gloomy pronouncement that “banks in general may not derive profit from this business expansion, even if it continues with unabated vigor throughout next year. . . .” U. S. banking at present is like the hungry mouse which drowned in cream.

Last week total bank reserves were at an all-time high of $8,727,000,000, excess reserves only a mite below the 1935 peak of $3,300,000,000. For the first time in history banks are holding more cash than their total outstanding loans. In 1933 cash holdings were 48% of total loans; today they are 114%. This money, sitting idle, earning no return, has caused a drop in bank income from $556,514,000 for Federal Reserve members in 1929 to $336,560,000 in 1937.*

The New Deal, particularly through Jesse Jones, keeps egging banks to lend more. They cannot, say bankers, because industry just does not want to borrow, despite interest rates at record lows. Practically every other avenue to bank profits is similarly closed. Underwriting is forbidden, pinched volume on the stockmarket has reduced security and brokerage loans, the huge flow of gold, which has to be invested in short-term loans for liquidity, produces virtually no income (interest on 91-day Treasury bills, for example, is only .027%). The few big banks doing well today are those like Chicago’s Continental Illinois National and New York’s Manufacturers Trust, which have gone whole hog into buying Government bonds.

*Last week The American Banker’?, index of 17 New York City bank stocks stood at 32.5, one-seventh of its 1929 peak, even below the point where it stood the day before the 1933 bank holiday.

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