U.S. BANKERS

Hokitika Guardian, 20 November 1933, Page 2

U.S. BANKERS

AND ; THEIR PART IN RECOVERY

THE USE, OF STATE CREDIT.

WASHINGTON," November 3. The “London Times’ ” Washington correspondent says there are signs that the Recovery Administration in Washington is turning its attention to the ■banking situation to an increasing extent, This is not surprising, for it must not be forgotten that deposits aggregating about £400,000,000 are, still tied op .iu glosed and restricted banks in the .United States, With this uuha.ppy, legacy of the banking crisis of the spring still confronting them hankers in the United 'States must fee] constrained/to act with more than usual Care in; granting advances, fo,r they must be fully aware that complete re- j storatian of confidence in the banks I on the part of depositors is • dependent, I upon a prudent and conservative policy j on the part of bankers. Small wonder then that the lba'nker s at the recent an-j «ual convention at .Chicago are reported to have 'been dumbfounded by the exhortation delivered to them by a Government representative to play their part in the prosperity “drive” by making advances with greater freedom'. Real- 1 rsatio'n by the Government that much 1 more than mere verbal encouragement j to bankers to lend money is needed to ( provide crippled borrowers with the; means to expand their .activities is I shown, however, by the various plans | which, have been put forward to thaw j the good but “safe” assets of closed j bank*. i

These plans all have one feature in [ common—namely, that the credit of the State is used to make good the ; collapse in the credit of private borrowers; Entry by the State into the : country’s credit system on such a I ocale as is apparently contemplated may have some curious sequels, but j at all events it seems a more logical' method of approaching the problem on the part of the banks. The banking , crisis was an aftermath of the unjusti- i fiable boom which broke in the autumn ! of 1929; banks were blamed ,for having ! contributed to that boom by unduly free lending. Having suffered great losses and encountered a major crisis as a consequence of a too free loan I policy, they are now adjured to play ! their part in the recovery campaign and not he a drag op. the wheel. Doubtless American bankers will show the administration that they desire to co-operate, but after the experience of j late years it might have been thought | that the Government was only too -well j aware of the evils which followed in j the train of imprudent lending by j banks. Strong banks are an asset .to i every highly developed industrial • fra-! tion, and never more so than in periods J of acute, depression. They can only become and remain strong by refusing to lend to borrowers who cannot offer good security and a reasonable prospect that the advance will be liquidated at maturity. It should never be the business of bankers to make longterm loans to industry or on real estate seeing that their resources consist- j of deposits repayable at sight or on demand. Long-term loans should he obtained through the new issue market, and one of the obstacle's' in the United States to the provision of such capita! for industry appears to be the operation cf the new Securities Act.' ,