TOO MANY BANKS

Rotorua Morning Post, Volume 2, Issue 425, 9 January 1933, Page 6

TOO MANY BANKS

MANY FAILURES SERIOUS PROBLEM ARISING IN UNITED STATES CO-ORDINATION NECESSARY The United States has a serious banking problem, despite all the Federal aid which has been extended recently. Last year to September 30 there were 1099 bank failures, with liabilities exceeding 580,000,000 dollars. Recently the acting Governor of Nevada proclaimed a 12-day bank holiday in that State because of the suspension of a number of banks affected by the decline in live stock prices and turnover. Even apart from political speeches, discussion of the problem of structural reorganisation of the banking and credit system has been proceeding actively, one of the latest developments being the issue of a report by the economy policy eommission of the American Bankers' Association, which deprecates proposals to abolish State chartered institutions and substitute a unified system of Federal control over the entire banking business. The report declares that improved conditions do not require concentration in Government hands, over-cen-tralisation being as much '-to be deprecated as any other defect. It points out that between 1921 and 1931 the number of banks in the Rederal reserve system rose from 35 to 38 per cent. of the banks in the commercial field, and that loans, deposits, and investments in the member banks rose from 71 per cent. to 78 per cent. of the total. Many banks have failed within the system as well as outside, but the eommission admits that the record for the banks in the system has been materially better than for those outside. It is in favour of a "broadening unity in the functioning of our commercial banks, both State and national, along sound, co-ordinated lines, under the leadership of an ever-improving Federal re- ' serve system." Commenting on these views, the Statist says there can be no doubt that the eountry is over-stoclced with banks, and that the elimination of half of them would be a good thing. The failures since 1930 have. been argely due to the inability of banks to turn into cash, except at ruinous fn*-* n \c* n^mTnTnln'l'iA'nc; r»T csPPllT-

ities of the previous seven years. Had the law been strictly enforced the banks would not have abandoned their original and appropriate funct'.on of commercial lending in exchange for the seductive pursuits of --.peculation. Their policy is practicly unchanged to-day. Although they ro not without funds they will make ..Imost no commercial loans, but as {.rivate debts to them are liquidated ihe proceeds are promptly thrust into Government securities. They com- . pete for Government short-dated bills so sharply that they are paying a premium of 0.5 to 1 per cent. for them, and they are actually paying the Federal Government to warehouse their funds. Their desire for iiquidity leads them to purcha'se certificates without realising that the accumulation of short-term debt may before long be thrown on the market. Most of the public debt is in tho hands of the banks, and when any of them start to realise cash on Ihese securities the rest will follow ■uit, and a crisis for the banks may follow. The writer (an American correspondent) adds: "When the smoke clears away the banking business in this eountry will be pretty d6finitely under Federal supervision, simply because it will have been so generally and decisively financed by Federal agencies."