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THE PEOPLES NATIONAL BANK
EAST BRADY, PA.

February 19, 1934
Senate Committee on Banking & Currency
Hon. Duncan U. Fletcher, Chairman
Washington* D. C.
Gentlemen:
We respectfully submit for your consideration the adverse
effect of some provisions of the Banking Act of 1933 on the earnings and management of this typical country bank.
EARNINGS
1. The prohibition against interest on our balances
in reserve city banks results in a material loss of earnings and penalizes sound banking, as the smaller banks
should be encouraged to carry strong reserves. All reserve
city bankers interviewed readily agree that reasonable
interest should be paid on balances of correspondent banks.
They realize the small banks must have income to exist.
2. Section 26A ^imposing the legal loan limit against a corporation and all its subsidiaries" cuts our
earnings more than ZOfo$ for example one very high grade
concern and two of its several sudsidiaries provide more
than one-half of our total demand deposits, their aggregate
balance averaging well over #250,000* and isnft it unreasonable that we are restricted to #20,000. total loans
to these corporations when they have seasonal use for funds.
In one other instance this Section deprived us of #120,000.
of high grade (48 hours liquid) seasonal loans.
In both
cases cited this restriction forced the loans into reserve
city banks to fatten them at the expense of the small bank.
This bank has never lost a dollar on loans to large corporations, while our major losses ©^er the past few years have
been on small one-plant concerns. This Section deprives us
of the highest class and most liquid loans ever held by this
bank, and we believe it should be repealed.
^'lANAGET^IENT
1. With a Board capable to bringing us through the
past three years in an enviable condition, all but two
members are now disqualified by the different restrictions
in the Act. Thus we are deprived of the services of our



COPY
THE PEOPLES NATIONAL BANK
EAST BRADY, PA.

S.C. on B. & F.

2

most capable directors by (1) the restriction on the number
of bank boards on which an individual may serve, and (2) by
Section 33 of the Act, In has always been difficult for small
banks to find capable directors, and in their case all restrictions against eligibility should be removed to enable
them to select the best men obtainable•
We enclose a condensed brief outlining suggested changes in law
that we believe essential to the welfare of small banks generally,
and trust that your Committee may see fit to propose to the Gongress
to do modify the law, as applied to small banks, that *&ome lost
earnings may be restored and that the best management available may
be utilized•

Respectfully yours,

Cashier
Peoples National Bank of East Brady, Pa #
Enc#
FLL:LT




EARNINGS AND MANAGEMENT OF COUNTRY BANKS
UNDER THE BANKING ACT OF 1935
Presented by F. L, Ludwick, Cashier
Peoples National Bank, East Brady,Pa.
Country banks are now faced with two extremely grave conditions
that must be corrected if they are to make the necessary upward climb
to attain a sound operating foundation. Adequate earnings and efficient management are the two imperative essentials for sound banking, both are in jeopardy under present restrictions. Recent bank
legislation, while necessarily largely defensive, provides the highly
constructive measure of giving the Federal Reserve Board power to
control or remove unsound and bad management, but some other measures
intended to be beneficial are proving a grave menace to successful
operation of even the soundest country banks, and we are convinced
that repeal or modification of the following restrictions would greatly strengthen the present position of country and suburban banks.
EARNINGS:
1. Permit Reserve City Banks to pay interest on correspondent
bank balances.
This would justify small banks carrying surplus reserves
to stand prepared to meet any ordinary demand of depositors
and borrowers. The present restrictions will tend to turn the
surplus reserves of small banks into the speculative bond market in an attempt to recoup earnings. It is well known that
the large reserve city banks are now enjoying record ordinary
earnings, in spite of their heavy holdings of low yield government securities, and they can justly afford to pay reasonable
interest on correspondent balances.
2. Section S6A of the Act of 1955 provides "That legal loan limit
shall include the obligation of a corporation and all its subsidiaries."
This deprives small banks of some of their soundest and
most liquid loans. After all, the selection of loans is a
matter of sound judgment and the competent small bank can more
safely analyze the soundness of the larger well-known concern
with its varied interests than can be done in the case of
small concerns mostly dependent on one activity.




MANAGEMENT:
1 # Repeal Section 51 of the Act of 1955, which provides increase
nf minimum stock ownership to qualify as a director*
This provision will mitigate against obtaining capable
directors. Formerly it was difficult to find stock for a
desirable director. Under present conditions we canft find
the man who is willing to buy stock and assume the responsibility of a director these uncertain times.
2. Permit an individual to serve as a director of any number of
small banks, provided such service is approved by the Federal Reserve
Board.
Many small banks are now sound mainly by reason of having
had one such member on its board.
3.

Exempt small banks from Section 35 of the Agt of 1935.

This section prohibits "Any person connected with any concern that makes loans secured by stock or bond collateral from
being a director, officer or employee of a National Bank, etc.*
This prohibition takes from many banks their most valuable experience and ability and creates a grave problem which the banks
are unable to solve, as it is impossible in many cases to replace with capable and responsible directors.
GENERAL:
!•

Extend the life of Temporary Deposit Insurance to July 1st,

1955»
We believe the Temporary Deposit Insurance measure fully
covers the emergency need for deposit insurance, and earnestly
recommend its extension for one year as now in force*
February 19, 1954.




T.B GREGORY V . C E - P R . S T

N.E.GRAHAM.PRES.DENT

A.J.HARNACK.ASST.CASH.ER
J

R L.LUDWICK,CASH.ER

" H - M 6 CLAINE,ASST.CASH,ER

CAPITAL AND SURPLUS $ 3 0 0 , 0 0 0 99

PEOPLES NATIONAL BANK
OFEAST BRADY
PENNSYLVANIA

February 26, 1934*
Honorable Marriner S t Eccles,
Assistant Secretary of the United States Treasury,
Washington, D. C#
Dear Sir:
Knowing of your broad experience in the actual operation
of small banks whereby you are thoroughly familiar with their
present handicaps under some sections of the act of 1933, we
take the liberty to enclose for your consideration, copies of
a letter and a condensed brief recently mailed to the Senate
and the House committees on banking and currency, wherein we
suggest certain changes in Law that we consider of vital importance to the successful operation of small banks generally.
As to our bank, the several restrictions on eligibility
to serve as a director are ruinous; the comptroller of the
currency and his examiners would have no worries if all banks
were administered as this bank has been, yet present restrictions leave us but two members, depriving us of our strongest
directors and force us to choose between operating with a
board of incompetent and financially irresponsiole directors,
or voluntary liquidation•
Country banks are doomed if denied the right to select
the best management available, and in that case immediate
country-wide branch banking is necessary if banking facilities
are to be generally available. We all know that the American
Bankers Association will advise such changes as are desired by
the large reserve city banks, we have no quarrel with them,
but the writer has examined a draft of their recommendations
and found that small banks were the "forgotten mann, therefore
we can only hope that our small voice may be heard elsewhere.
Respectfully yours,

FLL/W
Eno.-2







February E8 f 1954.

Dear Sirs
I acknowledge- receipt of your latter
of February &6thj together with snclosure*;
addressed to Mr* Marriner S, Beel©$ relative
to changes in th© Law which you consider of
vital importance to the successful operation
of small banks*
Ir. Ecclos hr:.8 been h-.-re only a 3b ort
time and if extremely busy* I willf hot/sver^
be glad to call vour letter to his attention
at the earliest dato possible*
Tours very truly,

Secretary 'to Mr#M»S«Eacles

Peoples National Bank,
East Brftd/i Pennsylvania*