U.S. BANKING.

Auckland Star, Volume LXIV, Issue 247, 19 October 1933, Page 12

U.S. BANKING.

EVILS OF SYSTEM. NEEDS RADICAL REFORM. BANKER'S OUTSPOKEN VIEWS. (By FRANCIS H. SISSON, President American Bankers' Association.) NEW YORK, September 20. American bankers have long been in favour of banking reform laws that would really reform. For many years they have been conscious of certain conditions and practices in their own profession that were unsatisfactory, that gave them concern, but which they were powerless to remedy. One of the chief sources of these undesirable conditions was the institution of political supervision. It created in the minds of the people the impression that all banking was good because the Government, supposedly, was vigilantly on watch. The people did not realise that this was a false security. They did not realise that this very institution of supervision was sometimes an instrument for bringing improper influence to bear on banks to do things contrary to good banking principles. They did not realise that both national and State banking departments were continually granting charters to open banks to persons unfit for such a trust, and that many banks were allowed to begin operations with inadequate capital and in places where there could never be found enough business to support them. They did not realise how continually responsible bankers were protesting against these conditions —usually to be rebuffed by being made to -appear that they were actuated solely by selfish motives. The so-called Bank Reform Act of 1933 —the Glass-Steagall Bill, which is now being put into operation —in some respects makes true banking reform more necessary than ever. It intensifies some of the very evils described above as previously existing. For one thing, it sets up greatly extended bureaucratic powers over banking operations by Government officials with no safeguards or assurances that they will be any better in the future than in the past. But the worst feature of the bill is that, through its so-called insurance of deposits plan, it increases many-fold the forces tending to produce not stronger, but weaker, banking, and at the same time creates a greater smoke screen of false public security in respect to banking than ever before. To public confidence that banks are strong because they are being watched by political officials, it adds the equally fallacious confidence that they are safe because their deposits are guaranteed. Behind Political Smokescreens. Banks are never strong simply because they are watched, nor deposits safe because they are supposedly guaranteed. Banks are strong and deposits safe only when they are in the hands of strong, honest men. The only way to have strong honest men in positions of trust is to place responsibility fully and squarely upon them and then let them work under the limelight of full open competition, rather than behind the smokescreens of political supervision and unfair guarantees of bad banking. In England there is not a bank supervisor or examiner, not a single law Governing any important aspect of banking operations any different from other lines of business —and there was not a single bank failure during all the ravages of the past four years, when thousands of highly-supervised American banks went down. The insurance of deposits in the GlassSteagall Bill is only another form of the guarantee of deposits. In every case where it has been tried —and it has received eight large-scale tests in this country under all sorts of conditions — it has taxed strong, honest, well-con-ducted banks to pay for the shortcomings of weak, even dishonest bankers. In several cases it demoralised the system of public supervision of banking by submitting the officials to irresistible pressure to grant charters to unqualified persons wishing to enter banking under protection of the guarantee or to practice laxity in respect of established bankers who succumbed to the boom of reckless banking which developed. In all cases, by creating the impression that every bank was as good as every other, since the deposits in all were guaranteed, it destroyed discrimination among the people in choosing their banks, with the result that reckless, speculative bankers enjoyed public patronage along with good banks. The Guarantee Reception. In every case, also, of the trial of the deposit guarantee by States, the failures of banks increased and the loss of deposits to the public, even with the partial guarantee payments that were possible under plans set up, was far greater than it had ever been in those States, or was in other States, without the guarantee plan. The first and most important step of hanking reform that is now called for is - to reform the Banking Act of 1933— especially by taking the guarantee or insurance plan in any form wholly out of it. If the Administration's plans for industrial recovery are to be worked out successfully and a period of economic prosperity established, there must be sound and sufficient banking to back them. Repeated assertion by administration officials that the banks are culpable for not being more willing to extend credit in promoting the plans of the N.R.A. are, under analysis, absolutely unjustified, and any attempt to establish such an alibi for failure can only result in ultimate exposure and discredit. Banks are to-day, as they have been, ready and willing to make good loans to their customers. They need the earning power which such good loans give them, and are in a position to extend credit to sound business on a liberal scale. To urge them to make unsound loans, or to over-expand their credit facilities, is dangerous in the extreme, and if such advice were followed it could only result in disaster to the banks and business too. —(N.A.N.A.)