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Federal Reserve Bank of St. Louis


Excerpt from report prepared by Mr, O., S. Powell of F. R. Bank of
Minneapolis covering his trip through southwestern Minnesota visiting 51 member and non-member banks during the week of October 5, submitted with Mr. Peyton's letter to Mr. Morrill of October 26, 1936

"....The banks are not taking a very active part in financing building

The Federal Savings and Loan Association at Hutchinson

finances building over a large area."

....Competition from Production Credit Associations is not keen and
the bankers rather welcome the existence of the PCA's as a means of
educating the farmer borrowers in business-like methods of handling
their loans."
Federal Reserve Bank of St. Louis


June 14, 1937

Hon. John H. Fahey, Chairman,
Federal Home Loan Bank Board,
Washington, D. C.


Your letter of May 18 to Mr.
Secretary of District Number One of the
of Supervisors of State Banks, has been
Chairman of the Group. I believer that
acknowledged receipt of your letter and
complete reply would be made at a later

John D. Hospelhorn,
National Association
referred to me as
Ur. Hospelhorn
stated that a more

The Supervisors of District Number One have not
met since your letter was received and hence no decision
has been made relative to your request for an enumeration
of the instances which prompted the Supervisors to adopt
the resolution which was sent to you by rr. Hospelhorn.
Speakinr for New York, I can say that such an
enumeration would require a large amount of work since no
effort has ever been made to keep a record of the complaints
which have arisen fram time to time. I assume that the same
would be true in the case of other bank commissioners.
Furthermore, your letter seems to indicate that you re7ard
the practices complained of, or at least certain of them,
as within the spirit and intent of the statute, and of
course if that is your view, then no worthwhile purpose
would be served by a compilation of factual data.
Here in New York the activities of some of the
representatives of the Federal Home Loan Bank Board in behalf
of an expansion of the facilities of Federal savings and
loan associations have been a source of constant concern
to this Department and to banking institutions. Some of
the practices - particularly the advertising and the
solicitation of shares - of certain of the Federal
Federal Reserve Bank of St. Louis

Hon. John H. Fahey --2

associations whieh have been established, have been the
subject of continuous criticism in banking circles. As a
result of the opposition, which has been developed in this
State, to the apparent pro7ram of expansion, some of these
practices appear to have been curtailed in recent months.
There are, however, certain activities still
going on which I believe should be made known to you. It
has come to my attention from reliable sources, that some of
the representatives of your Board have gone about the State
soliciting State savings and loan associations to convert to
the Federal system. In order to induce such conversions, it
appears that these representatives have sometimes stated that
this Department is not sympathetic to savings and loan associations but on the contrary is unjustifiably critical of
their policies and operations. In contrast, they have
represented the Federal Home Loan Bank Board as an agency
that is willing and anxious to cooperate with savings and
loan associations, and as possessing greater means than this
Department for promoting the success of the savings and loan
A most flagrant example of the methods which are
sometimes employed to bring about conversions came to my
attention not long ago. In this case one of the officers of
an association which had converted to the Federal system
stated to one of my examiners that his association had converted because representatives of the Federal Home Loan Bank
Board had intimated that unless it did take out a Federal
charter, a Federal association might be organized in the same
community. I think you will agree with me that such tactics
are thoroughly reprehensible and are likely to eventually
have a harmful effect upon the entire banking system of this
T might go on to cite numerous other cases which
tend to indicate that some of the representatives of your
Board have permitted their enthusiasn for expansion to overshadow those principles which should be recognized if we are
to maintain a sound banking structure in which savings and
loan associations play an important part.
Last December I attended a meeting of the
Executive Committee of the National Association of Supervisors of State Banks at Washington. At this meeting a
resolution criticising the policy of chartering Federal savings and loan associations was adopted and I assume that a
copy was sent to you after the meeting. I am enclosing a
Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis

Hon. John H. Fahey --3

copy of this resolution with the thought that it may not
have previously been brought to your attention. The adoption
of this resolution by the Executive Committee which is made
up of a representative from each Federal Reserve District,
and the approval of the one da'ed April 30th by Commissioners
from the New England and Liddle Atlantic States, indicate
quite clear3y, I think, that the policies of the Board are
of general concern to state Bank Supervisors.
It seems inconceivable to me that some of the
to in the resolution of April 30th have
of the Board. For this reason it
seems unnecessary to enumerate specifically the instances
which prompted the Bank Commissioners of District Number One
to adopt the resolution of April 30th, and the Executive
Committee of the National Association to approve the resolution of December 31st. Yoreover, I can hardly believe
that even in the absence of a bill of particulars such as
you requested, the members of your Board udll decline to
give serious consideration to resolutions expressing the
views of such a large number of Bank Commissioners.
It is my intention to submit your letter to the
Supervisors of District Number One at their next meeting.
Very truly yours,

William R. Vthite


WHEREAS, the promiscous and unnecessary chartering
of financial institutions of whatever kind is undesirable and
detrimental to the economic structure of the United States; and
WHEREAS, it appears that not only the policy of free
and easy chartering of federal savings and loan associations,
but also the promotion plan pursued for the chartering of
such associations are unequivocally against the public policy;
WHEREAS, such associations should not be chartered
without investigation as to their need and as to the effect
thereof on existinf banking institutions;

Nea, THEREFORE, BE IT RESOLVED that the executive
committee of National Association of State Supervisors, is
unconditionally opposed to the promotion of the establishment
of federal savings and loan sssociations, and
BE IT FURTHER RESOLVLD that the executive committee
recommends the most careful investigation and scrutiny of
applications for charters for federal srvings and loan associations, and the approval of only such applications for charter
which clearly show need for associations of this kind, and
BE IT FURTHER RESOLVED that careful consideration
be given to the advisability of making the Federal Savings
and Loan Insurance Corporation a subsidiary of the Federal
Deposit Insurance Corporation, with complete separation of
the two insurance funds.
Federal Reserve Bank of St. Louis

3xcerpt from essoranOum to the Board by ier.
(4/60A6) on the subject of "C.ummary of Bank Relations
The attitude .Xmfesetke. Fe<ers.),. Reserve E'Yetpe
The reports indicate that the prevailing attitude is one of friendtiJr•it, tbe email rormenc,r !)117kn, in general eeem to
liness. At tbe
feel that nembership in the System would bring no edvantagee not already
,0!! eorreeponert relationehip. Moreover, nemmem, t)
te then i'
bers thich new derive important income froa exchange charges vee positive
disadvantages in memberebtp.

Henke are reportee SE generally concerned becense their income is
low. In this comnection the importance of charging exchange where that
practice prevails is ell the more emnbseized. Ban'-f, ere ale° reported as
increasingly interested in F. H. A. loans, perieval loans, and instalment
financing, ard in makirg service charges.
Excerpt& free r
nThes county St. Lawrence County, New York) is one in vhich branch
banking might correct some of the problems whtch now exist and which are
apt to arise in the future. If there is any need for s hank in certain
of tbe smeller communities which nor have banks, this need could be supplied by a branch bank with stronger =moment and executive ability
than it ie possible for an indepen4ent bark to obtain. The Ogdensburg
Trust Company is the only inetitetion in tl-e county with capital sufficient to oeerete a branch banking system but its management is vial:Ming to take over any of the smaller banks although they own an in,terest in three or Pour of the small banks and &twist these banks with
(N. Y. report)
advice and suggestions.°
*Comments of the bankers in this county (St. Lawrence) indicate
that they have a very limited interest in, and understandine of, the
policies of the Federal Reserve System, and that they are primarily intereated in the Eederal Reserve Bank as a correspom'ert bank from rhich
they can obtain various service, cheaper and of greater efficiency than
from the ordimmry correspondent. Visits to these benks usually arouse
a number of questions regarding letters, circulars, and regulations received from Federal which the executive officerr have been uneble to
uneerstand fully.° (N. Y. report)
°Attitede stemmieekix_bankw Comments were entirely favorable
aeong euch nonmember banks (7yoming County, New York) se are familiar
with the policiee and functions of the Federal Reserve Systen. Reasons
expressed for not joining the Federal Reserve System include the following:
Federal Reserve Bank of St. Louis

- 2Objections to a Purther supervising authority in addition
to the Aeconstruction Finance Corporation, Fee,eral Tseposit Insurance Corporation, and the State Banking Department.

rxtra labor involved in furnishing reports ane keeping of

c. In the present aboence of necessity for ?van accommodatio
withall other services are rendered by correslondent banks
out cost.n (W. Y. report)
Cleveland report:
"At the meeting of Group Six of the Ohio Bankers Association (west
central sectt:11 of tbe state) a resolution was ac:opted opposing comamemostory membership in the Federal Reserve Proton for insured atate
ber hanks as provided in the Banking Act of 1935. The ammo resolution
also endorsed the dual banking system ane opposed any aetion which has
been taken or may be taken looking te Mmification of the banking gystem under federal supervision."
'All of our Field Representatives report that, "- conversation with
o the good faith of
*ember bankers, there haa been expressed a doubt a
the Board's statement relensed in connection with ti-v? recent increase
in reserve requirements of member banks. The idea idto expresaed that
the acjtion war taken solely for the purpoee of making more rands availTibia to Peeeral reserve banks nor the support of the government bomd
market. As indicated above these comments were quite general and
from all sectio
n of Ohio,
"Member bankers, particularly in the southwestern sectio
are complaining of undue activity an the part
Corporation which is active in making loans to
connection with live stock financing. In
ing centers complaint is made that city banks
y lower rates. The
industrial and commercial accounts at substantiall
section are still
truth of the matter appears to be that banks
recent years desoite
maintaining the level of interest rates prevai
tbe may money condition."
Prom Richmond report:
should be remembered
"In discussing membership with nonmember banks it
l Reserve DisFedera
that there are more than 500 nonpar banks
two Carolinas.
trict, the majority of these institutions
ge charges
Their apparent advantage over member
eration of
and more liberal regulations is a pronou
membership in the System by these banks."
Federal Reserve Bank of St. Louis


17/.0,1 Atiarta report:
Mithout exception the reports of visits to banks reflect a feeling
of friendliness tolard the Federal Reberve E.-yLtee. Vie principal reason
why the smaller nonmember banks do not join is the importance which they
attach to revenues frcm exchGnge."
Fran St.


Veveral baio:err cr4T-77-';- ?d on the increJ..s€ L: ron-par points, particularly in the State of Missouri* and expressed the opinion that the
am tlat account.'
useridnelg of the Reserve P-tnk res being seriously
?roil Minreapolis reports
"At vrriour group. meetingz of the Unnesota Barlerst nneociattam, the
Secretary called attention to the wide difference in exchamo charges made
y asvociatiens
urgN9 then to get tcgetliwr 4,,Ingh,count
by varivue Icnkv
or district
uniform cherge.
probably take some
entirely of such char7es.*
Prom Kensas City report:
riret Yetional Bank of Olathe, (Colorado), reported
"The cashier of
with the service rihdered by the Federal Repleased
that he
serve Bank on non cash collection itens represented by the usual drafts for
the shipment of produce ane other like commodities out of the immediate
Olathe territory, and representing a crov. total of from ::750,000 to .1,1,000,000 in 1955. He said that this had been the source of considerable income
to his bank.i'
"Of the nonmember banIke visited (in Nebrucla) the majority are not on
the par list and their reluctance to forego the income derivnd from exchange
deductions is one of the reasone for their not being interested in membership. Until conditions change, when they again bees demand for loane and
earnings therefrom that will enable them to offset, in part at least, the
revenue from exchange, there is little or no likelihood that they will be
vital question nowadays with many
intereeted in aenberehip. aevenne is
scarcely more than exist on their
of these mall banks
liquidating, stating that the
present volume of
fernery to pay their debte,
avails of the wheat
as it night have been. Some
was not as productive
operation. in debt, in
told me that the
year with anything
view of
mmme of tbess
like the
email banks
Federal Reserve Bank of St. Louis



.5A1S1 • „

t 1,1



MICHIGAN INVESTOR - September 26, 1956.

P‘t, vv v

Address of ?resident S. N. Scherer; Preeident, National
Association of Supervisors of State Banks, and Commissioner
of Banking, Wisconsin.




/ v.

a • •

is generally realized that the ;lost perplexing ramifications
of this problen of competition are not thooe pertaining to beaks. The
trus problem arises from the coexistence of building and loan associations; credit units, cooperative banks, production credit associations
sad tao postel sevings system. The splendid attitude of cooperation which
has existed during the pant few years between State end Federal cuthorities with respect to the creatioe and regulation of banks has unfortunately not carried over to these competitive fields.
As an outstandin6 illustration of lack of proper cooperation, I hsve
on/y to refer to the practice of tne federal Home Loen Bank in &ranting
Federal charters to savings and loan associstions. This board claims to
pursue a policy of granting Federal charters only where it a,peers that
there is necessity for an institution in the community where it ia to
transact business and reasonable probability of its usefulness and success. It claim's that it does not establish them where "undue injury" to
properly conducted existing local thrift and home financinj, institutions
will result.

However, we in Wisconain have learned to our regret that these well
expressed intentions are held subservient to the primary desire of the
board to extend its insurance membership to State building and loan associations. State chartered institutions are whipped into taking insudance
memberehip in the Federal Savinge 4c Loan Insurance Corporation by the justified fear of newly Federal chartered institutions invading their community
if they fail to do so. This is the same old ruinous competition, but in
this instance with a more dangerous aspect. In Rilwaukee alone, there are
now operating five newly chartered Federal associations in addition to
the State associatione already operating there. Other State essocietione
which are now operating under restrictions might have been restored to normal operations had they not been compelled to face this new competition.


The restriction of new bank chartere is recognised as an atsolute necessity by many State laws and the administrative policies of many other
State supervisors. It has likewise been written into the Federal law end
the FDIC is required to consider the question of the public necessity and
conveniftee and the future earnings prospects of State banks newly applyin4 for insurance with it. Shall these protective measures be brought te
naught by another agency being allowed to Charter institutions operating
under ather names but which actually compete with banks?
Federal Reserve Bank of St. Louis

I urge that the Association make representations to the Federal Home
Loan Bank Poard advising that board of the very real dangers apparent in
continuance of its present policy and asking that State supervisors be
consulted in every case with respect to the need for a new aseociation and
its prospects for success before any new Federal association is established.
Similarly, the regulation of competition among banking institutions
definitely requiree the coordination of State and Federel ;policy with respect to chartering and governins the operations of credit unions, cooperative banks, production credit essociation, find similr.a. institutions. A
knowledge of the worthy purpose which underlay authorisation of these recent
additions to the field of financial competition does not alter the fact that
the activities of these institution', affect in a very material way the operations, tht earnings prospects, and consequently the chances for lone life of
the banks with reeponsibility for whose continued sound health you are charged.
Discussion of the problems of competition leads naturally to an appraisal of one of the oldest end so one of the rustiest coapetitivc mechanisms
that exist. I refer to the postal savings system. At the present time our
principal ground for criticieins the postbl sENings system lies in the fact
that the ponderous processes of the Federal law have established a rate of
interest payable upon deposite made with the systex which is higher then
the rate that banks could or should pay on such deposits. Even assuming a
return to the eerninge these benks eeperienced during the late 20's End assuming repeal of existing prohibitory legislation and regulation, the vicious
poseibilitiee of the effecte of the postal savings system upon our benks
cannot properly he appreciated at a tine like the present when the demand
for bank credit ie so far belay.; normal.
return to normelcs, however, will
bring into harsh relief the evils of • situation which deprives our banks
of needed funds through the Federally sanctioned device of high interest
rates end Government backed safety.
The existence of Federal insurance for deposits in banks seems clearly
to dispose of the safety rector. Deposits of 45,30G or lees ere &pally as
secure from the depositors' point of view in any insured bank as they are
in poetal savings. Since the success of deposit insurance depends upon
continued sound and profitable operation of insured banks, the Federal authorities ehould reeommend amendments to the law to eliminate or lessen thE
competitive dangers of postal savings. . . ...
Federal Reserve Bank of St. Louis





Report of H. C. Timberlake--during visit through western and
southern South Dakota, July 10-20, 1936 (submitted with Mr.
Peyton's letter of 7-30-36)

Pages 7-8
Governmental Agencies & Relief ProJects
South Dakota bankers' attitudes toward the numerous "new deal"
governmental activities range from "hearty approval" to "loud disapproval".
The PCA's receive more than the usual amount of criticism because they
enter into directo competition with the small country banker in melny
instances. A few banks reported that they did not suffer from PCA
activities as their customers had learned that it was often dheaper to
pay 7 per cent to the local banker than 5 per cent plus costs to the PCA.
There are PCA's located at Mitchell, Pierre, and Rapid City and the small
banks within 25-30 miles of those three cities were the chief critics.
Beyond that distance, the inconvenience of "long distance borrowing,
apparently offset the advantage of lower interest rates in the opinion of
the borrowing farmers. Several bankers felt that the government's excursions
into banking during the emergency years 1933-1935 had been highly beneficial
to the banking fraternity of the nation as the governmental banking agencies
had forcefully taught the farmers to accurately and promptly account for
the same of mortgaged property - a lesson that bankers had been unsuccessfully
attempting to teach them for a generation! The bank at Gregory has a sidepocket Agricultural Credit Corporation which had operated quite successfully
since 1923 and at present has $250M discounted with the Intermediate Credit
Bank with a very satisfactory spread between the interest and discount rates.
Similar set-ups have been encountered at other points both in South Dakota
and in other states and in every instance they have appeared so successful
that it seems to me it would be well worth our while to make an investigation of them with the view of recommending that Agricultural Credit Corporations be established at other points, botn as an aid in taking care of the
financial needs of the communities and as a means of increasing the earning
power of some of our member banks.
Federal Reserve Bank of St. Louis


MICHIGAN INVESTOR--Mich. Bankers Convention--July 18, 1956

Page 20.

3. Government Competition with Banking: With respect to
Government competition with banking, we recognize that at the time
of the emergency the Government not only came to the aid of the
banks themselves with new capital and assisting loans but of necessity
came to the aid of the people in cases where the emergency had made it
impossible for the chartered banking institutions to perform their
normal or complete functions. And that in doing this a great general
service was performed, through the Reconstruction Finance Corporation,
the Federal Depisit Insurance Corporation, the Home Owners Loan Corporation and the Federal Housing Administration not only in Michigan but
throughout the Nation.
But we know and believe that the financial and banking
emergency has passed and that the chartered and insured banks are both
able and willing to meet every proper b
equirement of their
Therefore, we resolve that continued Government competition
through Government sponsored credit agencies in such matters as can be
normally and safely handled by the banks of Michigan under the principles
of sound banking practice is in conflict with the fundamental constructive
purposes and policies of the Government in protecting, restoring and reestablishing the banks to their normal functions and usefulness.
4. Postal Savings: With full understanding that there may be a
place for Postal bavings in communities that cannot support regularly
chartered banking institutions we believe that the Postal Savings System
has been developed far beyond the scope originally intended by law.
We call attention to the fact that one of the original purposes
of the Postal Savings System in providing a place for the savings of a
large body of immigrants not familiar with our established forms of
banking has been largely destroyed by immigrationestriction. Also that
the Postal Savings depositor has little, if any, More assurance of safety
than a depositor in an insured bank and much less convenience for the
handlingof his funds. That Postal Savings depositors are now being paid
in interest the approximate full net rate on market price of seven to ten
year Government bonds. That there has been no reduction in the rate of interest
payment to Postal Savings depositors although it has been both necessary and
required of most savings banks, during a period of years in which the net
income rate on long term Government securities has been steadily declining
to new low records. That the Postal Savings Banks in competing for savings
depositors funds tend to segregate and withdraw these funds from the normal
credit and investment uses of the community and the Nation.
Therefore, We Resolve that the present operation of the Postal Savings
System is a distortion of its function and service as originally intended and
Federal Reserve Bank of St. Louis

and unfair and unnecessary competition with chartered and insured banks,
and offer to Mr. Tom K. Smith and his Special Committee of the American Bankers
Association on their study of the Postal Savings System our complete cooperation in their work and the use of the information they will produce and
Federal Reserve Bank of St. Louis



Report of WM. E. PETERSON, sub. with Mr. Peyton's letter to
Bd. dated 7-7-56

Page 3

There appeared to be no prospects for industrial loans and
generally the banks felt that there was no suffering becauFe of the
activity of the Production Credit Association. Some land was being
sold in most of the communities, being mostly that which had been
owned by insurance companies and other loaning agencies. I found in
some communities tenants had difficulty in obtaining farms, being
forced to hold auctions of their chattels as a result.
Federal Reserve Bank of St. Louis



The "Voice" of the Associetion--Resolutions submitted by Resolutions
Committee--W. A. McDonnell, Chmn.

PaKes 8-9
A- if-

Governmental Agencies and the
Postal Savings System
The federal government is at this time engaged in many
activities which come in competition with private business. While
we recognize that emergency conditions justified the entrance
many of these fields
the government to
emergency conditions rapidly passing, the government should
and otherial
relinquish much of its
ry; and
wise, especially that
the banks and others
and as completely as possible, replace such governmental undertakings
The Postal Savings System in particular continues to be an encondicroachment upon the rights of private endeavor, and under normal
tions curtails bank credit in many cities and communities. There
no need whatever for its further continuation, the system should
BE IT RESOLVED, That the above statement be adopted by this
n in
Association as its policy concerning the government's participatio
business generally, and the Postal Savings System in particular.
Federal Reserve Bank of St. Louis




Page 12
Association members also took a stand for discontinuance of the
federal postal savings system which the5, declBred in their resolution
"is an infringement upon the rights of private enterprise" and "the
announced causes for its enactment have now largely passed."
-X- 31- * * *

In another resolution the convention favored the government withdrawing its participation, financial and otherwise, in all fields
competitive with private industry "more promptly", permitting banks
and all others engaged in private enterprises to "as rapidly and as
completely as possible" replace such governmental activities.
"The welfare of the individual citizen of America can best be
maintained and preserved by the elimination of bureaucratic domination
of governmental agencies," stated another convention rcsolution.
Balancing of the federal budget by "economy and the elimination of waste
and extravagance" was asked by the delegates.
Federal Reserve Bank of St. Louis




Page 54

That the government be requested to withdrawn (sic) from
the active lending field such governmental lending agencies created
to serve during a period of emergency as suel agencies have now
served their purpose and at the present time are opernting in
competition with local banks.

We earnestly request that the government take steps to prevent
any further development of the postal savings system, and that they
immediately reduce the rate of interest paid on postal savings deposits, in view of the low rates of interest prevailing on all forms of
Federal Reserve Bank of St. Louis




REPORT OF H. C. Core, Asst. Cashier, Minneapolis Eer. Bk.-period from
June 8 to 17, 1956—submitted with letter from Fed. Rev. Bk.
of Minn. dated 6-L3-56

Page 5
It is the general practice of the bankers in this territory to
collect eechenge end eervice cLargee, and they arc_ apparently well
pleased wit.. the resulte obtained. The lose of exchange is the
greetest objection to membership from the viewpoint of the average
non-member bank, although several of the smaller banks presented the
queetion of capital requirements. Two member banke indicated they
were giving serious considerat.on to withdrawing from membership in the
System. The loae of exchange, which ranged from i8.00 to t10.00 e day,
was the renson given in one instance. In the other case, the bank officera
felt there wae insufficient volume of business to justify a member bank in
their torn under preeent repital requirements.
Page 4
* * * Some bankers have exprersed themselvee to the effect also that
nationel banke deeiring to convert into state banke would at least defer
action until after the btat( election to ascertain who ia made governor. If
air. Langer is elEcted, thee.; ms; even wait a longer period until his attitude
toward state banks ie. definitely known. In the face of Mr. Langerle speechee,
poor crop prospects thie year, and flnanci,1 difficultiee expErienced in
recent years, the bankers generelly are exceedingly cautious in making lonns.

Several banks resented competition from the t'ostal Savings 4stem.
The retiring president of the North Dekote Bankerel Aseocietion (on whom I
called) suggeeted that the kostal bavings System be authorized to pay a rate
about 0 less than that approved by the Federcl Depo,it Ineurence Corporation.
Mutual insurence companies are furnishing strong competition for the bankr in
decline in tneir revenue from:
writing insurance, and many banke reported
this sJurce.

No 5
A ver, few banks have ceased to pay interest on C/D's and savings
accounts. One such bank at ite peak had ap2roximately one-half million dollare an deposit, rald now h&s about 010,000. Thie bank has about $10,000. in
C/D'e and f,60,000. in savinge accounts, whic, the custemere continue to carry
with the hope thet the bank will eventually resume payment of interest. In
the count; in which this bank is eituated, no one ie on relief. No cattle
have been sold here except in the normal course of bueiness. The bank in
question is situated in one of the richest farm_ng sectiont of North Lakota,
and crop conditions here were much better than in other sections visited.
Federal Reserve Bank of St. Louis





* * * One non-member state banker informed me that as a result
of our visitation:. last summer and again thie year, together with the
exhibition of our movie, he had learned more about the Federal heserve
Bank in the phst year then during the preceding ten years.
Federal Reserve Bank of St. Louis


(Submitted with letter from Fed. Res. Bk. of Minneapolis,
dated June 20, 1936)

Page 2.

There is a wide variation among the banks in their general attitude
towards local loans. (Aside from drouth considerations this summer) On
one end of the scale is a banker who is taking over all of the Regional
Agricultural Credit Corporation loans in his community and is refinancing
most of the Federal feed loans. He is also buying local warrants issued
by his city to finance a new auditorium and an electric light plant. He
stated that he expects to borrow from the Federal Reserve Bank at frequent
intervals inasmuch as the credit demands of his community are larger than
his bank's deposits can supply. Another bank has been quite aggressive in
the sale of real estate to promising farm boys in his community, and he
actively assists them in the purchase of their farms by making real estate
loans. The small loans are carried in his bank, and the larger loans are
placed with other lending agencies. In the middle class among the bankers
are one or two who state that they were never carried away by the desire
to over-loan at boom time prices and they were not afraid to loan reasonable
amounts to farmers today. They believe that the average country banker is
over-conservative as a result of leaning too far in the other direction some
years ego. At the other end of the scale there is a large group of banks
where the statement is made that there are no desirable loans in the community.


Pake 3
Postal savings are absorbing some of the time money in the Redfield
area as a result of the reduction in interest rates on time deposits. Time
depositors apparently prefer postal savings to investment in local loans or
other forms of investment.

** * * ****

Page 5
The Production Credit Associations received both favorable and unfavorable comment. The Pierre Production Credit Association was severely
criticised by bankers at Pierre and Blunt who said that its lending methods
were too lax and that it made foolhardy loans which tended to spoil customers.
Several instances of bad loans were cited. Un the other hand, the banker at
Onida thought that the Pierre Production Credit Association was too conservative and he stated that he had no trouble in meeting its competition. Nothing
but favorable comments were received about the Production Credit Associations
operating at Sturgis and Lemmon.
Federal Reserve Bank of St. Louis

* * * * * * **


THE FINANCIAL AGE—JUNE 1936(Convention no.-N.Y. State Bankers

Page 450
Lewis H. Brown,
Johns-Manville Corporation

And,incidentally, may I call to your attention one other important
factor in connection with these million mortgages. When the World War was over,
the American people by unanimous coasent demanded the liguia,tton of the war
corporations. And when this war on depression is aver, in my judgment the
American people will demand that their re-constituted local banking structures
take over from government bureaucracy the servicine of these mortgages. In
this activity lies a great opportunity for the banks of this country to render
a public service and to establish a new and uniform pattern through collective,
cooperative activity of private enterprise so as to make safer the homes of
the people and through amortization prevent the destruction of accumulated
capital. liere is an opportunity for bankers to re-establish contacts in their
own localities with a million customers and pave the way for the creation of
several million new customers where true service can be rendered and a fair
profit made.
Federal Reserve Bank of St. Louis


THE FINANCIAL AGE---JUNE 1936 (Convention no.-N.Y. State Bankers

P4ge 465
The conventioq adopted resolutions calling upon Congress to
restrict the Postal Savings Pystem to communities lacking adequate
banking facilities.
Federal Reserve Bank of St. Louis





(Convention number)

AN APPROACH TO BANKING PROBLFMS--Tom K. Smith, Pres., Boatmen's Nat. Bank,
St. Louis, First Vice-Pres., ABA

Page 74

During the past four years there has been one fundamenttl
change which affects our problems in the field of bank management
in a very definite manner. That change has been brought about
through the organization of agencies of the Federal Government
which today affect every bank--whether it be chartered under state
or national law. There was a time in banking history when Federal
agencies were of interest to national banks only. That day is past.
Such instruments of the government as are represented in the Reconstruction Finance Corporation, the Federal Deposit Insurance
Corporation, the Federal Housing Administration, the Home Owners'
Loan Corporation, and the Farm Credit Administration now present
national problems and possibilities in the management of our banks
wherever they are located and under whatever charter they operate.

Page 75
On the other hand, there are problems affecting bank management
which cannot be solved within the bank itself. These problems arise
from the impact of governmental agencies upon our chartered banking system. It is at this point that the American Bankers Association has been found to be of such great value to the banks in presenting their point of view to governmental authorities.
One such
problem of interest today in this section of the country has to do
with the Postal Savings System. Please bear in mind that this is not
a political question in a partisan sense of the word. As you know,
the Postal Savings System was established by a Republican administration in 1909 and has come to its greatest development under a
Democratic administration in 1956.
The Banking Studies Committee, of which I have the honor to be
chairman, is making an exhaustive study of this question at the present
time. When we arrive at our conclusions, we will present them to the
Federal authorities in an impartial manner and not in the heat of political
controversy. We will give the Federal authorities, the public, and each
member bank, as well as the state associations, the benefit of our findings.
We have faith in the American people and in the government representatives
they have selected and believe that they will act fairly when they have the
facts before them.
Federal Reserve Bank of St. Louis


The Tennessee Banker-June 1936

Tom K. Smith
Page 75 (contd.)

In the course of this study we are making a series of maps of
the various states in the Union, indicating the present-day practice
regarding the Postal Savings System with the idea of showing where
it can be helpful and where it is unnecessary in that it duplicates
the service now being offered by regular chartered banks either stete
or national. Among other cuestions we are desirous of answering the
1. Is there a need for the Postal Savings System today along the
lines of its original purpose when it was established twenty-seven years
2. Should the Postal Savings System be continued in those areas
where banking facilities now are adequate to meet the demands of the
public? As a result of our survey we hope to find out where the
banks are ready and willing now to take over deposits and continue
to do so in the future for those desiring to establish small savings
accounts in banking institutions, assuming that the Postal Savings System would be curtailed or abandoned. It is obvious that if the banks
are not willing to take such deposits, it wsuld be foolish for us to
urge Congress to curtail the services of the system. Our scientific
approach to this problem will give us the answer.
3. Is the Postal Savings System making it difficult for members
of the F.P.I.C. to pay the corporation assessments and maintain
earnings sufficient to keep them in a sound position to serve the needs
of their community in various sections of the country? The more we
Page 76:study this question the more it becomes apparent that we must have all
the facts from all the banks where the Postal Savings System is in
operation if we are to render a satisfactory report to the Congress, the
banks, and the public. If we are to represent you in a national way, it
becomes apparent that we must have word from you as to what you want. It mayte
that we cannot satisfy every one, but I am certain that you will be content
with the attitude of the majority upon which the findings of the Banking
Studies Committee will be based.
The President end others in authority have said that many of tLe
emergency loaning agencies would be curtailed whenever and wherever chartered
banks were willing and able to take up the tEsk. We have no desire to urge
chartered banks to undertake unsound loans. Here again our approach to
the solution of this problem must be based on no narrow partisan conception.
For that reason we have undertaken a study of the various Federal lending
Federal Reserve Bank of St. Louis


The Tennessee Banker—June 1936

Tom K. Smith
Page 76 (Contd.)

agencies in Washington. We are studying the ways and meane by
which these agencies operate, with the idea of passing along the
information we obtain upon this important problem to all the banks
of the country. We shall piece before you the names of these agencies, the lews back of them, and the time limitations within which
they are supposed to operate, as well as the extent and scope of
thcir operation. We shall study the question of whether or not some
emergency organizations have now fulfilled their function and should
be liquidated, for we believe that it is useless to continue emergency
organizations if the emergency for which they were established has
passed away. As we obtain our information we shall file it in looseleaf form with the secretaries of the state bankers associEtions,so
that it will be available for all the bankers of this country.
Under the heading of permanent agencies let us consider the
Farm Credit Administration. The very able Governor of that agency has
said that the F.C.A. is to supplement and not to supplant other credit
agencies in the field of farm credit. We must admit that the Farm
Credit Administration, through its various banks and corporations,
has done a splendid piece of work in meeting the emergencies which
existed a few years ago in the field of farm credit. As a result of
the work of that agency, many banks and insurance companies are in a better
position today than they were formerly. We are now interested in seeing
to it that the Farm Credit Administration continues to supplement and not
to supplant banks and other legitimate credit agencies in agricultural
credit. It is evident to all that if a permanent agency like the F.C.A.
should take business away from chartered banks, these banks would have
difficulty in remEining sound and in paying their taxes to help support
both state and federal governments. The government and the banks are
interested fundamentally in maintaining the soundness of the Federal
Leposit Insurance Corporation, and the more sound banks we can have in
that system the better it will be for the Federal Government and for
the public at large. In other words, we wish to impress upon the Federal
Government the necessity of looking at this problem as a whole. The
various agencies affecting banking must be co-ordinated and must work toward common objectives.
Federal Reserve Bank of St. Louis

it- -X-


BULLETIN OF THE AIB--Vol. 17 July 1935
(Seattle Convention---June 1936

No. 3

Page 288-89
William A. Irwin
Prof., Economics, Washburn College,
Topeka, Kansas, address before
Omaha Convention

****** ** **

Finally, out of all this maelstrom of forces, there has come for
the banker and for other investors and guardians of our economic savings,
worse difficulties than have been known in many generations. There has
been not merely the fight to save all that could be saved from the
wreckage of the depression, but as we have tried to rebuild the shattered
framework of our economic structure, it has been constantly more difficult
to do business.
By means of its own, government hasbeen able to force down interest
rates on almost every kind of investment available for banking funds; it
has entered directly and indirectly into competition with the banks on a
scale hitherto undreamed of. The slackness of business has added to the
difficulty of the situation. hegulations have been imposed and enforced
with a rigidity not often known in the history of American banking. Perhaps some of this was needed and was justifiable, but it has made times
exceedingly difficult for the men who guide the destinies of many American
Federal Reserve Bank of St. Louis

* * * * * **** **


Resolutions Adopted
46th Annual Convention
Ohio Bankers Asso., 1936
(The Ohio Banker, June 1936)


During the emergency period of the past several years, the Federal
Government has set up numerous agencies which are competitive with banks in
varying degrees. The Chief Executive has said that these agencies will be
disbanded when their functions are being performed by institutions not
governmentally sponsored.
Therefore, we urge that our members make every effort to see to it
that the credit and other financial needs of their respective communities
be satisfied to the extent that this can be done in conformance with sound
banking principles, thus removing completely the need for the continued
existence of the government agencies.
Federal Reserve Bank of St. Louis



THE ARKANSAS BANKER—June 1936 (Convention Number)

Pages 7-8
* * ********

Wood 14etherland is much beloved and respected in Arkansas, where
he served his apprenticeship es a banker.
words call for and
receive attention. Sometimes he deperts from his set speech to inject
a bit of hiE particular philosophy. He did this at Hot Eprings when,
in beginning his talk, in speaking of the difficulties bankers must
face and the means of overcoming them, he used the title of a popular
book, "Why Not Try God?" as a suggested remedy.
Netherland told the delegatesthat "there is a growing resentment
against the government going into private banking business.
"The 1933 crash brought the United Stetes into the banking field,
and today the RFC is the nation's greatest institution," Netherland
said in paying tribute to members of all government agencies. He further
indicated that the work of the government had nearly been completed and
it should retire.
"The best way to help them to retire," he said, "is to improve our own
conduct." He further stated that the banking business should do what other
large corporations have done--appoint research committees to correct faults.
Federal Reserve Bank of St. Louis

SOURCE; THE FINANCIAL AGF*** June lee (Convention no.-111.Y.


Pege 468
Orval W. Adam;:
Second Vice-Pres., A.B.A.

kprce of Icederel ComPetition
the unTraditionally, the American baaker hr,s been recohnized
operatton of the Government's fiecel policy, he has been shorn of both
thoee powera. There is no alternative left to the bnkers but to carry
out the provisions end to submit to the demands of the spending agencies of
Government. More then that, the very money that ie placed in our custody ene
for which we find only limited, safe :;utlet and inv,,Lstment, iE tekm over by
11,-.1: virtually become e banker in competition with
this same Governmnt
private benking, operatin6 an e nen-competitive basis, letting out, in turn,
this captured money with such open-handed prodigality and on such Precarious
conditions and terme EF no responsible bunker could match end still remain
"The Government, -le unregulated banker, can of course ournue this philanthropic policy with perfect safety as long as there is a dollar left in the
pockets of the taxpayers ef America, beceuselbe huge deficits thet result from
this procedure are inv&riebly met by further mid& upon the public treasury.
"Why don't we tell them that, in order to fintince all these ,-uertionsble
per cent of
concepts of benevolence, the United Statee Governmrnt trA! teken
all the people's holdings in our vaults, and thst in exchange
money we are holding nearly 60 iyer cent of Government I.O.U.'s
Federal Government in rea2onsible for the dizzy dance
of which is subject to the whim and caprice of impractical
we not tell them that when the Government began its spending
industry in a condition of uncertainty, all our oldtise traditional outlets
for lending our money with safety were suddenly cloved; anc, that t 'day the
Government ie practically our only customer, the only one who comer to ue to
borrow aur money, and thet,too, upon ite own terms?
Dictetion by Borrowers
"We must explain thtt the Government will not pay ue enough interest
on these lonns so that we in turn heve been forced to lower the intereet rates
to our depository, almost to thc vanishing point.
Federal Reserve Bank of St. Louis

Study #15


SOURCE: Address delivered by H. A. Bryant, President of the Kansas
Bankers Association, at the annual meeting held in Kansas City, Mo.,
May 5-6, 1936

This association was responsible for the general adoption of the
service charges and for that we claim due credit. If the association
has had any part in the increased earnings, just mentioned, then we are
glad the bank management program vas one of our principal activities this
year. The state-wide Bank Management Commission, of which Mr. M. L. Breidenthal
is chairman, deserves a lot of credit for the time, thought and energy they
put in this work and their efforts are appreciated. It was a big job to take
their program to nll corners of the state and you will remember the high points
which were stressed. A budget for banks. Amortized credit. Plans for meeting government loan competition, such as the production credit associations
and federal and local credit unions. Service charges, interest on deposits,
loans on real estate. In fact, a new investment policy was suggested. Out
of these meetings came a better feeling among bankers. A realization that
in many cases bankers must change their long established policies, if they
are going to operate on a profitable basis.

There has been considerable discussion as to the best plan of meeting
the governmental agencies that are in competition with banks. About the
most sensible suggestion made tIms far is the reduction of interest rates
on desirable loans to meet the Production Credit Associations' rates, or
the rates of any other governmental agency provided of course that the loan
is in every way desirable.

You will be interested in knowing that the Bank Studies Commission of
the American Bankers Association is making a very exhaustive study of the
Postal Savings System. Their report will soon be released and will be very
valuable in combating this competition. The Kansas Bankers Association is
working with the American Bankers Association in this matter and at least a
modification in the rates of interest and in the regulations will not be too
much to expect in the future.
Federal Reserve Bank of St. Louis





V. S. Whitesides, Tupelo
Group Vice Pres.

PaFe 9

heard criticised most is the Production Credit Association. We
have made a rather careful study of the loans made by such an
association in four counties of Group 1, and have talked to
bankers from these counties, and it is our impression that,
generally speaking, these associations are making loans which
bankers are perfectly willing for them to make. We do not think
any bank would make much of a fight for the loans which are being
made by the Seed Loan Offices, Resettlement Administration, Federal
Land Bank and Home Owners Loan Corporation.

J. G. Tucker, Leland
Group, Vice Pres.
Page 11
If the Federal Production Credit Corporations would require
applicants for production loans to present a letter from a bank
stating that the bank had refused to make the loan, before the
Credit Corporation would consider the applicetion; I believe the
loan portfolios of the country banks would be materially increased.
This was required by the Home Owners' Loan Corp., in making their
I believe the Federal Production Credit Corporations serve a
very useful purpose in making available production credit for the
larger planters who need 4;20,000.00 or more to produce a crop, but
think the local banks would be glad to handle all sound loans of
410,000.00 and under.
Federal Reserve Bank of St. Louis


May 1956

Pages 69-70
* * * **
Government in Business
The basic foundation of civilization rests upon the principle of the
freedom of action and initiative of the individual citizen, either in his
personal capacity or associated with others. Upon this formula the Fathers
founded our government. We view with increasing uneasiness the subtle, yet
steady encroachment of government into those fields of endeavor that
naturally and essentially belong to the privately owned banks.
However wise and helpful this invasion into the field of private
banking business and endeavor may have been when first inaugurated, there
can be no valid excuse for its continuance at the present time. With banks
abundantly supi)lied with loanable funds and ready and anxious to make loans,
they are being deprived of the very best class of loans with which they are so
familiar and are so well equipped to make.
Of course,our banks must realize that the financing of the business of
their respective communities, on a sound basis, is not only their privilege
but their obligation and duty. Therefore, should the government retire from
this field of financing, our institutions must come forward and resume the
place which they formerly occupi2d with reference to this business.
* * ****
Postal bavings System
In view of the fact that under Federal Deposit Insurance Corporation
bank deposits are guaranteed to the amount of $5,000.00 in each account, there
is no further ne.cessity for the Postal Savings System. The system as nor
administered withdraws from general circulation a large sum of money which
should go into the banks of the different communities, to be used in legitimate
trade and commerce of the country. This is an example of governmental interference in business. Deposits with banks, members of the Federal Deposit
Insurance Corporation, are as safe as those with the Postal Savings System,
and to expect the banks to receive Postal Savings funds from the Postal
Savings System and pay the rate of interest thereon demanded by the government
is to expect the banks to pay an unwarranted and unconservative price for the
As at present administered the banks cannot afford to pay the rate of
interest demanded by the government upon these deposits and therefore money
deposited with the Postal Savings System is taken out of the local community
thereby causing an unnecessary drain upon the local banks. We urge the
Federal Reserve Bank of St. Louis


46th Annual Convention Mo. B.A.*-May 1936

rages 69-70 (contd.)
E. H. Zimmerman

repeal of the Postal Savings System Act and pending such repeal urge that the
rate of interest paid by the System on such deposits (which is the same rate
which has been paid since the inception of the Pystem) be reduced to the rate
now generally paid on savings and in harmony with current conditions in the
money market.
Federal Reserve Bank of St. Louis

40th Annual Convention,
Oklahoma Bankers Asso., May 1936
(The Oklahoma Banker, May, 1936)

BE IT RESOLVED, that the members of the Oklahoma Bankers Association, represented by their delegates at the 40th annual convention held
in Tulsa on May 7th and 8th, 1936, do hereby approve and adopt the
following statements as a declaration of the policy of this association
for the guidance of its officers, committees and memLers.
***** ***

In order to further safeguard the banking depositories of this
country we think steps should be taken to bring about a repeal of the
Postal Savings system. As the total amount of any individual deposit
in the system cannot be over $2500, and all individual deposits in the
banks are insured by the FDIC up to $5,000, the need for the Postal
Savings system has expired.
We heartily endorse the survey that is being made by the American
Bankers Association in order that the proper facts relative to the
operation of this system may be laid before the Congress at the
earliest possible date, looking forward at least to an amendment to
the Postal Savings System, reducing the rate of interest on such deposits, if not eliminating the system entirely.
Federal Reserve Bank of St. Louis

* * ****

* *


"Future of Banking in the United States"
by Wood Netherland, V. Pres.,
Mercantile-Commerce Bank & Trust Co., St. Louis, Mo.
40th Annual Convention
Oklahoma Bankers Asso., May, 1936

***** *****

New Credit Needs
We all know that there are certain types of sound intermediate credit for
which at present there is no adequate machinery in the conventional banking
set-up. A recognition of this need is expressed in a measure by the legislation giving authority to the Federal Reserve Banks to make loans to
industry. It has long been my conviction that we should explore the feasibility of the member banks of the Federal Reserve system in some manner acquiring the ownership of the Federal Intermediate Credit banks, identifying
the latter with our chartered banking system and enlarging their powers so as
to provide intermediate credit for commerce and industry in addition to that
which they now provide for agriculture.
The avenue for ample short term capital expansion through the commercial
banking structure will, of necessity, be somewhat restricted so long as
intermediate obligations have a very limited rediscount status with our
central banks. And rightly so, since obligations which may be needed to
back issues of currency should be short term and of a self-liquidating
On the other hand, if an arm of the central bank were authorized to
issue debentures secured by sound intermediate obligations discounted by
member banks, it would present a sounder system of finance than will result
in repeated and occasional successful attempts to liberalize the eligibility
provision for loans which theoretically at least may be needed to partly
secure currency.
Federal Reserve Bank of St. Louis


"The Great Obsession" - Address by Rev. W. Bertrand Stevens,
Bishop of Episcopal Diocese of Los Angeles,
45th Annual Convention of California
Bankers Asso., Sacramento, May, 1936.

****** * *

I was rather interested in the President's reference to postal savings.
I think perhars--I say this again Aith some hesitation--that one reason the
postal savings have been popular with some people is because they are able
to gralap it and some of our banks with their magnificent exteriors, with
their reports in millions of dollars, somehow seem to suggest an experience
and an environment that is entirely outside of the experience of the little
Federal Reserve Bank of St. Louis



Address of A. L. Lathrop, Pres., Calif. B. A.,
V. Pres., Union Bank & Trust Co., Los Angeles
45th Annual Convention of California
Bankers Asso., Sacramento, May 1936

***** ** * ****

Government in Business
The federal government is today engaged in extensive business operations, in direct competition with the private citizens of this nation on
a far-flung scale not realized or understood by the people at large, nor
even by business itself.
This invasion by government of the field of private business, if it
be permanently established, will inevitably supersede the private business
activities of individuals and corporations.
Against Uncle Sam private business is unable to compete. Fundamentally
when government engages in private business, it has advantages over private
citizens which produce unfair competition, and if continued extensively
and permanently, the result is socialism.
Presumably, the government entered these private fields in response
to the demands of a national emergency, and generally served a useful
purpose in so doing. The aid and the support of the federal government in
times of emergency, is a duty and a purpose to he performed by the government. That it should continue in private enterprises when the emergency
has passed, is a definite threat to the existence of private business,
and is greatly to be deplored.
Unfair Competition
At the present time, the government is engaged in more than 200 lines
of business in direct competition with its citizens. Among these are
construction, the manufacture, wholesaling and retailing of furniture,
and clothing, the real estate business in all of its departments, the
production and sale of power, insurance, transportation and communications,
and banking.
The government in business, is not a fair competitor with private
operators. Equal opportunity does not exist as between it and private
business, and only on the basis of equal opportunity can there be fair
The attribute of government competition, which most definitely places
it in an unfair category, rests in the fact that government carries on its
business without regard to the elements of profit or loss. These are
vital factors in private business. No private business can survive which
operates permanently at a loss. The government is not restrained by any
such considerations and does furnish funds to offset deficits. These
Federal Reserve Bank of St. Louis

_ 2funds are derived from taxes, in part at least, upon the income and assets
of the very businesses with which the government is comp,Aing. If deficits
increase, the government has only to increase taxes to offset its losses.
The government also operates with funds for which it pays low rates
of interest obtainable only by the government. Public property used by
the government in business, is free from any burden of taxation, and
depreciation is not taken into account as an expense of governmental
The banking business probably furnishes the most clearly defined and
concrete example of government competition with private business. In
this country today, there are over 15,000 banks which are privately owned
and operated. One hundred and sixty of them are over 100 years old, and
2200 are over 50 years old. The combined capital of these 15,000 banks is
nearly $5 billions and their deposits are over t47 billions.
These institutions have trained personnel and operating facilities
and the capacity to care for all the normal credit requirements and
banking needs of our national business.
Forcing Loans from Banks
Resulting from grave national crisis, recurring since the fall of
1929, another banking system has developed in America, composed of credit
lending agencies, wholly or partially operated by the federal government, and exclusively under its direction. Collectively they are referred to as "Govermnent Lending Agencies." As of November 30, 1935,
the total capital invested in these governmental lending agencies through
the contribution of cash and the issuance of bonds, notes End obligations
carried by the government, amounted to nearly $6 billion, and these
agencies had made loans totaling over $15 billion.
In large part, this capital and these loans were made possible because the banks of this country had invested over 15 billions in bonds
and notes of the United States Government.
In effect, the government makes forced loans from the banks, because
the banks, with their huge holdings of government bonds, cannot refrain
from taking the successive offerings. The government thus becomes the
greatest borrower of all time, and then it lends these borrowed funds at
artificially low rates, to those who would otherwise be direct borrowers
from the banks, as well as to some who, having no credit standing, could
not borrow a dollar except as a favor.
That the capital invested by the government in lending agencies in
direct competition with the private banking system of this country, exceeds the total capital invested in the private systems by one and a
quarter billions of dollars, and that the amount of loans extended through
these agencies in direct competition with the lending activities of the
private banks, exceeds the total loans in the portfolios of all private
banks by nearly $1 billion, is a startling and alarming condition.
Federal Reserve Bank of St. Louis


- 3Should Government Continue in Business?
By direct and aggressive competition these federal lending agencies
in the short space of three years, have developed an aggregate of loans
outstanding greater than that of the private banking system of the
Bankers will agree that many of these governmental lending agencies
rendered valuable emergency aid and made available for emergency purposes,
a form of credit not permissible or practicable for private banks to
extend, but instead of subsiding with the passing of the emergency, these
agencies are becoming more firmly and widely established month by month.
They solicit and advertise for business and at rates which private banks,
who must make a profit to survive, cannot meet. Apparently it has become
the settled policy of the federal government to stay in the banking business in competition with the private banks and to enlarge its field of
*** * ******

Farm Loans
To an imrortant degree, government competition is a present-day
definite threat to the business of private banking, particularly in the
country districts. The Farm Credit Administration is exploring every
possibility for the development of business with farmers in its appeals
to them to utilize the various types of credit furnished by that organization and their principal appeal has been based on lower costs.
These lower costs, however, are achieved at the expense of the taxpayers. The Federal Farm Loan Act has been amended to provide that regardless of the rates of interest stipulated in the mortgages, the interest
rate payable by borrowers on loans held by the Federal Land Banks or made
through National Farm Loan associations, may not exceed 3-i per cent to
July 1, 1936, and 4 per cent for a two-year period thereafter.
Further legislation provides that these banks shall be reimbursed for
the loss of interest betreen the rates provided in the mortgages and
these reduced rates, out of the Treasury of the United States. The total
appropriations for this purpose to December 31, 1935, had amounted to
$58,950,000, of which, at that date, $30,605,000 had been paid by the
Secretary of the Treasury.
No private bank can possibly meet this outrageous competition. Such
a subsidy ignoresany return on the investment ani the accepted principles
of efficient operation and management.
Notwithstanding these subsidies from the U. S. Treasury, the Federal
Land banks for the period from July 1, 1935, to December 31, 1935, shored
a net loss of over $7 million.
Federal Reserve Bank of St. Louis

******** *

- 4But we must insist that government lending agencies while they continue to operate in competition with banks shall do so on an equal basis,
without subsidies taken from the general taxpayers to make good losses incurred in giving concessions to their customers. Private banks could
compete very comfortably if the government would make good from the public
treasury, losses in revenue resulting from reductions in interest rates,
which is just what the government is doing for its own lending agencies
operating in direct competition with private banks.
Postal Savings System
Since 1910, the United States government has maintained postal savings
offices where any individual over ten years of age may make savings deposits of from $1 to t2,500.
The system was founded as an aftermath of the financial panic of 1907
and was intended as a medium of deposit for timid persons in times of
financial stress.
Beginning with 1931, the deposits in postal savings increased very
rapidly until in June, 1935, there was a total of over $1,200 million.
This great and rapid growth took place during the panic period from 1931
and later. Since December, 1934, it has receded.

witn the establishment of Federal Insurance of bank derosits on a
permanent basis, there no longer exists any necessity for the Postal
Saviags System. Since each individual deposit in a member bank is now
insured up to $5,000, the Postal Savirws System, with maximum individual
deposits of $2,500, offers no additional protection whatsoever.
In California, the Postal Savings denosits are decreasing at a
greater rate than the general average. Both deposits and number of depositors have fallen off in tlis state. There are 290 offices in California where Postal Savings deposits may be received, and at only 39 of
these locations are there no private banking facilities. On the other
hand, there are 138 locations with Pull private banking facilities, but
with no places of deposit for Postal Savings.
This situation largely nullifies the one possible logical argument
that remains for the Postal SavinRs System, the contention that Postal
Savings offices should be provided where there are no banking facilities.
In California they are not provided in 138 locations where there are
banking facilities.
We believe that the postal Savings System should be abolished. It
serves no useful purpose and does create through high interest rates and
liberal withdrawal provisions, unfair and unnecessary competition with
private savings banks.
A serious effort should be made at this session of Congress to have
the law abolished.
Federal Reserve Bank of St. Louis

******* * *


"America Off Balance" - Address by Orval W. Adams
V.Pres., A. B. A., Ex. V.Pres., Utah State Nat. Bank, Salt Lake City
45th Annual Convention, California
Bankers Asso., Sacramento, May, 1936

** * * * *****

* * * * * The halo of innocence and humanitarianism still rests upon
the brows of the bungling statesman whose tinkering and manipulation of our
financial system have placed public and private finance at their mercy. It
can and must be shown that they are the ones who must bear the responsibility
for many of the ills that have befallen us.
But to the 50,000,000 depositors in America, the banker is responsible
for lowering the interest rates, which resulted in losses of hundreds of
millions of dollars annually to the industrious, the saving, and the thrifty
Why don't we go to our depositors with the facts? We have their names
and addresses--we know them by name. Why don't we tell them that when the
federal government began its wild orgy of spending, it came to us, the
bankers of America, and practically demanded the money we had on deposit:
the money that was placed with us for safety and sound investment by the
wage earners, the professional men, the clerks, the widows, the domestics,
the farmers, and all others who live within their means and save.
Traditionally, the American banker has been recognized as the unofficial
custodian and investor of the people's money. Today, through the operation
of the government's fiscal policy, he has been shorn of both of these
powers. There is no alternative left for the banker but to carry out the
provisions and submit to the demands of the spending agencies of the government. More than that, the very money that is placed in our custody, and for which
we find only limited, safe outlet and investment, is taken over by this same
government that has virtually become a banker in competition with private
banking and spending, operating on a non-competitive basis, and letting out
this captured money with mugh open-handed prodigality, on such precarious conditions and terms, which no responsible banker could meet and remain solvent.
The government, as banker, can, of course, pursue this philandering
policy with perfect safety as long as there is a dollar left in the pockets
of the taxpayers of America, because the huge deficit that results from this
procedure are inevitably met by further raids upon the public treasury.
Clearly, it needs no formal proclamation to cripple the banking system
of America--it has been accomplished by indirection.
*** ** * * * * *

* * * * * Why do we not tell them that when the government begun its
spending spree and kelt industry in a condition of uncertainty, all our oldtime traditional outlets for lending our money with safety were suddenly
closed; and that today the Efovernment is practically our only customer, the
only one who comes to us to borrow our money, and that too, upon its own
Federal Reserve Bank of St. Louis


— 2 —
We must explain that the government will not pay us enough interest on
these loans, so that we, in turn, can continue to pay our depositors the
customary, decent return on savings. No--the government places its own
price upon its borrowings from us, so that we, in turn, have been forced
to lower the interest rates to our depositors, almost to the vanishing point.
The government did not go to the individual taxpayer or to industry or to
other groups in society to get the bolk of the money. It came to us. That
is why $5 out of every $6 since June, 1950, with which the government is
financing its huge spectacular operations has come direct from our own
vaults. But it's the people's money!
Federal Reserve Bank of St. Louis

** * **** ***

Report of the Resolutions Committee
45th Annual Convention of California
Bankers Asso., Sacramento, May, 1936

** * ** * ****

Resolution No. 4 - Postal Savings
"WHEREAS, The Postal Savings System was inaugurated some twenty-five
years ago primarily to serve communities lacking banking facilities and
certain classes of the population unfamiliar with banking, or lacking
confidence in banks; and
"WHEREAS, The deposits of the vast majority of depositors in banks
are now insured under the Federal Deposit Insurance Corporation; now,
therefore, be it
"RESOLVED, That we urge upon Congress the desirability of limiting
the operation of the Postal Savings System to those communities that lack
private banking facilities with insured deposits."
** **** * *** *

Resolution No. 5 - Credit Extension
by Government Agencies
"WHEREAS, We recognize the value both to banks and to our citizens
of a number of government credit agencies established during the emergency
period; and
"WHEREAS, We believe that these temporary and competitive government
credit agencies, valuable as they were during the emergency period, are
no longer necessary, and that the credit facilities of banks and other
normally existing financial institutions are adequate to care for the
needs of our citizens; and
"WHEREAS, The Government has gone to great lengths, through the
operations of the Reconstruction Finance Corporation and through the
establishment of the Federal Deposit Insurance Corporation, to strengthen
the banking structure internally, and to strengthen public confidence in
banks, and
"WHEREAS, Competition on the part of government agencies is a steadily
growing factor in the decreased earnings of the banks of the country;
now, therefore, be it
"RESOLVED, That we earnestly urge that emergency government agencies
for the extension of credit in competition with banks be rigidly limited
in their activities and be eliminated at the earliest possible date."
Federal Reserve Bank of St. Louis


Address by W. S. Elliott,
Proceedings of the
National Association of

V. Pres., Bank of Canton, Ga.
34th Annual Convention
Supervisors of State Ranks
November 1935

** * *****
Future of State Banks

Government Competition has affected State banks seriously. We
have been assured that competitive loaning operations will be curtailed,
and banks permitted to take over the normal business of their customers
again. The most indefensible competition is the maintenance of the
Postal savings system now that banks have deposit insurance, double
the amount of the Postal savings limit.
Federal Reserve Bank of St. Louis

** **** **


M. E. Bristow (Virginia)
Discussion on the Address of Mr. Hecht
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

* * * * * * * * I aurely agree with our distinguished speaker: we
have also sensed recovery, more in some sections than in others but it
still exists and I also heartily join the speaker in regard to the
Postal Savings system which should be eliminated or limited as much as
rossible. It was founded to bring into circulation timid money and
limited to 12000 and now we have insured bank deposits up to A5000 and
it seems to me to be obvious that the postal savings has been super—
seded by that action. Furthermore, the money is redeposited, and the
Postoffice should center on its own function and not invade the banking
field. The present depositors in that system should withdraw their
money and deposit it in the nearest bank.
Federal Reserve Bank of St. Louis


Discussion on the Address of Mr. Fisher
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

Mr. Bates (Iowa):

**** *** ** **

* * * * * * I am familiar, however, with the great benefit that the
RFC has been in our state, not only to the banks but to the state as a
whole and without it and the other instrumentalities of the government
there would be no banking system today and we would be down deeper than
we were in 1932, and I am not one of these fellows who is afraid this
country is going to hell by reason of the RFC and FDIC being in the
lending business. I do hope that as time goes on, and as opportunities
present themselves, that they will be able to orderly retire, but I am
not one of those that wants to bite the fellow that kept me alive and
there are a lot of banks in the United States that would have been
worse today if it had not been for the agencies, and the deposits in
Iowa I know would not have increased 11120,000,000 since the inauguration of the FDIC if it had not been inaugurated. * * * * *
**** * * * **

J. M. Lee (Florida): * * * * * * I remember very distinctly the
feeling of anxiety, worry and nightmares I had in the early days of
1933 when the very foundation of our strong as well as weak financial
institutions was threatened, and I remember the consolation and satisfaction that came to me when the President of the United States declared his moratorium and said "Boys, I'll take charge and relieve you
at least temporarily of the tremendous unprecedented condition with
which you are confronted." To me that was a great relief, and I
remember very distinctly the expression of satisfaction that issued
abroad amongst the depositors of my state, even those cut off from the
last available penny walked about with a smile and said it would all
work out all right after a while, and how I watched and wondered olhat
would be the move of the administration and how they would right a
condition that had come about under the administration of my5elf and
my predecessors in office because when I thought for a moment I recognized the fact that just a few years back the banking institutions of my
state and nation were sound, and this came on during the course of
progress and it became involved in a state of chaos and lack of confidence and I wondered just how the administration would change that. I
watched with interest, and there came into existence the RFC and FDIC
and other branches of government and, you know, I haven't agreed at
all times with the rulings or the administration of the RFC, I haven't
had any great arguments with them, my representative from my office,
Mr. Smith, has handled that department and has carried on such arguments as might have come about. But, yau know, there is this proposition: we must take into consideration the officers and administrators
of this department were just hung, as we were; they have taken hold
of a situation at a point where we were forced to lay it down because
we couldn't handle it. They have inaugurated plans and programs and
changed them sometimes daily because of the fact that something they
were planning or doing they found perhaps wouldn't work. I know on
some occasions I have been in Washington and worked out plans and still,
when I left and before I got home I would find when I did get there they
Federal Reserve Bank of St. Louis

had been changed, found they wouldn't work and I had received notice
from Tashington. But it was experimental and some other plan that had
worked equally as well or better was instituted, and we have gone on
and have had restored to us and our peonle and our banking institutions
the confidence of their patrons. * * * * * * * *
Federal Reserve Bank of St. Louis


Address by R. S. Hecht, Pres., A. B. A.
Proceedings of the 34th Annual Convention
National Associatien of Supervisors of State Banks
Atlanta, November 1935

* * * * * * * Some say there is great danger of infusion, others
fear that banking will be subjected to unbearable regimentation and that
there will be a further tendency towards reduced earning power in
privately owned banks and the growth of government loaning agencies will
continue. I personally do not share some of the fears expressed, I confess I am deeply concerned over the prospect of the federal government
getting into practically every phase of the banking business, and they
threaten to become permanent. More than a dozen different government
lending agencies with accumulated assets of about 10 billion dollars
exist, and while no one will deny that the money of the organizations
was necessary at the time to briag about an adjustment of the nation's
banking structure shattered by the forces of the depression, nevertheless it is a ouestion whether it is desirable that so large a part should
remain permanently under the control of these government agencies instead of being gradually taken over by the private instrumentalities
which now shoul-i be Thle to carry on their part of the nation's economic
When the President addressed the American Bankers Association in
washington lnst year he made in quite clear that he favored curtailment
of the government activities as rapidly as the bankers demonstrated
their willingness to assume normal functions. I believe the President
was quite sincere in his statement, but there are many who do not share
this point of view in his entourage and believe it should be permanent
and considerably expanded. Against this ultra-philosophy it will be
necessary for the bankers to nut strong resistance because it strikes
at the very foundation of business. * * * * * * * * *
Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis


La. soLomaa



Address by Governor Eugene Talmadge of Ga.
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

** * ** ***

* * * * * * The banks are piled with money they cannot loan profitably
and safely, and the only reason for that situation is on account of the
government loaning money--and some of tne bankers are the transgressors in
that gystem. The government puts out the money sort of indirectly and lets
it go through the banks, and some bankers have unwisely encouraged that
gystem to loan money to farmers, when in bad years they probably would not
want to take the risk. That is fundamentally wrong, and it has grown to
such an extent that today avone who wants to start a bank--they can't
start a bank and keep it alive and the people do not have pride and honor
in the bank stock as they used to, there is so much interference that
today banking is no longer looked upon as a lucrative business. Another
thing is the postoffice taking deposits--that should be stopped. The
banks should take it, the banks representing the business industry and
private industry should loan the money for private industry in this
There is all kind of organization control in legislation and politics, they are generally minority groups that come in and write certain
platforms and push the politicians, and so it is done, and if the bankers
in this country would think seriously of the government competing with
private individuals whom they tax to the hilt--if those bankers would
sort of petition them, and wake up on that, it will be only a short time
before the Congressmen and Senators and the National Legislature and our
lawmakers in the state will see the government operates only through
function and that is as referee and judge between its citizens, and when
it does that it will have its hands full, but as long as the government
sends agents around soliciting loans from private citizens to build or
paint a house and go in debt--as long as it solicits loans to the farmers
for seed and so on, and the bankers sit back and let it go on, you can
expect harder times in the banking business.
Federal Reserve Bank of St. Louis

** ** *****

D. W. Bates (Iowa)
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935


Our state as a whole is happy, and we have come through the depression beyond our expectation and I think that everybody, everything, every
object, every instrumentality ought to be given its dues. In 1933, when
the life insurance companies and banks were attempting to foreclose the
mortgages on farms in the country and homes in the city, there was no
place on God's footstool for people to go to get money with which to refinance that loan or get a dollar, and it was only through the instrumentality of the federal agency that they were able to rzet a dollar, and
they came into our state and refinanced those farms and refinanced those
homes and the money--a large part of it, went into the banks that were
restricted or pretending to operate without restrictions, and we refinanced our whole rrogram so that there are only about 16% of our farms
in Iowa that may now be lost by the actual owners, and they had become
so indebted that the condition is impossible of refinancing and putting
the farmer on his feet so he can go ahead, and it is no use unless that
can be accomplished. The great, task in our state was accomplished and
today we are selling land for 4175 and 200 an acre--cash: We sell it
out of our denartment and we have sold in the past seventy-two days
twenty-seven farms, the lowest price being 45 and the highest t2.92,
and the average is better than $140 and our sales are all cash. * * * *
To give you some idea of the condition of our state, from July 1933 to
July 1935 we liquidated in these closed bsnks and paid depositors fifty
million dollars in cash and that could not have been accomplished if it
had not been for the federal agencies who refinanced these mortgages we
held, both in closed and open banks. * * * * * *
Federal Reserve Bank of St. Louis

** * **** **

S. H. Squire (Ohio)
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1.935


I do not want to sit down and by my silence give consent to the
utterance this morning and sentiment of disparagement on the government
in its efforts to rehabilitate the banks in this country. It seems to
me the banking chaos in 1933 without question would have ruined the
banking structure of the country if it had not been for government aid.
Purchasing debentures and stock by the government has made the capital
structure of the banks sound and secure. 6ith the inauguration of the
FDI--we can't kid ourselves, we bankers didn't give confidence to the
people, the insured deposits did that. I do not want to see the government disparaged of the wonderful work they have tried to do to rehabilitate the banks, farmers and other vital sources. We are now in a
strong position, our only trouble is lack of earnings and that I think
will solve itself.
Federal Reserve Bank of St. Louis

** * ***** *




The Commercial & Financial Chronicle--Proceedings Convention ABA-New Orleans—Nov. 1955

ENTERPRISE--Francis 44arion Law, Chmn.

Page 39
Retirement of Government from Business
With the passing of emergency conditions from a large portion
of our national economy, and with increasing evidence that the full
restoration of industrial enterprise under private finance and
initiative is essential to complete the return of recovery, we
believe the time is at hand for recognition as a matter of national
policy of the need for the retirement of the Federal Government as
rapidly as possible from the field of control and operation of the nation's
industrial, commercial and financial enterprise into which it has entered
so widely.
It is our conviction that preponderant public opinionin this nation
is against any form of socialization of our national industry, commerce
or finance. We believe that the only fundamental cure of unemployment
is through the stimulation of re-employment by the removal of unjustified
barriers to the free play of private enterprise and individual initiative.
The Government in Banking
We particulPrly emphasize the desirability of the retirement of
Government from those fields of extending credits of various types
which can be adequately served by privately owned institutions. We
recognize that the exigencies of the now passing depression made necessary
a large participation by Government for a time in the task of meeting the
public's emergency financial needs. We believe those conditions have been
largely remedied am: that the obligation now rests upon the banks and other
financial agencies to demonstrate to the people of this country that they
are fully able and willing to meet all demands upon them for sound credit
co-operation. It is our duty as bankers to facilitate in every effective
way the retirement of Government agencies from credit activities by
promoting public understanding of the proper function of privately owned
** * * *** *

Postal Savings
We endorse the statement of President Hecht in his address to this
convention, that the competition of the Postal Savings System with
privately-owned banks through the relatively high interest rate and liberal
withdrawal privileges allowed its depositors is inequitable. Every
depositor can now get insurance for his deposits up to t5OOO and we feel
Federal Reserve Bank of St. Louis

FranciF Marion Law
Page 39(contd.)

the need for the Postal Savings System has really passed, except
perhaps in such communities as do not enjoy other banking facilities.
A serious effort should therefore be made at the coming session of
Congress to at least modify, if not abolish, the law governing the
Postal Savings System.
Federal Reserve Bank of St. Louis


The Commercial & Financial Chronicle--Proceedings Convention of ABA-New Orleans--Nov. 1935

THROUGH THE BANKERS' EYES--Address of the Pres. of ABA--R. S. Hecht

vage 26
In saying this I do not mean to imply any undue pessimism in
regard to the future of banking, but I do wish to emphasize that
with the strong competition which the Government is giving to banks
by loaning money at very low rates, on one hand, and paying interest
on savings deposits at higher rates than most commercial banks can
afford to pay under existing conditions, on the other, it will be
very difficult for banks to earn a reasonable return on their capital
In this connection I wish to,pay particular emphasis on the fact
that the competition which the Postal Savings System gives privately-ownd
banks through the relatively high interest rate and liberal withdrawal
privileges allowed its depositors is unfair, and since every depositor
can now get full protection for his deposits up to $5,000 through any
member of the Federal Deposit Insurance Corporation the need for the
Postal Savings System has really passed except perhaps in such rural communities as do not enjoy other banking facilities. A serious effort should
therefore be made at the coming session of Congress to at least modify,
if not abolish, the law governing the Postal Savings System.
Federal Reserve Bank of St. Louis

The Commercial & Financial Chronicle--Proceedings Convention of ABA-New Orleans--Nov. 1955


Paze 24
Restrict Postal Savings to Bankless Communities

I hope the day is not far distant when the system of Postal
Savings will be confined to communities without banks. Now that
deposit insurance is upon a permanent basis, it seems fitting that
the Government should evidence its good faith in it by restricting
the business of Postal Savings. If this be done, many banks will be
able to increase their deposits, extend more loans, and, consequently, be
in a position to make more money.
Federal Reserve Bank of St. Louis

'The Commercial & Financial Chronicle—Proceedings Convention of
New Orleans--Nov. 1935

Bk. & Trust Co., St. Louis
Page 43
(Following taken from recent address at Babson Partv by Pres. Rudolph Hecht)
... I confess that I am deeply concerned over the prospect
that the supposedly temporary activities of the Federal Government
in practically every phase of the banking business threaten to
become permanent.
There are now more than a dozen different Government lending
agencies which have accumulated assets of about U0,000,000,000. While
no one will deny that many of these organizations were necessary at the
time they were creilted, to bring about a prompt and safe adjustment
of the nation's financial and banking structure, which had been shattered
by the forces of the depression, still we seriously question whether it
is desirable from any standpoint that so large a part of our credit
activities should remain permanently under the control of these Government
agencies instead of being gradually taken over by the private instrumentalities which, under the changed conditions, should now be able to carry on
their proper part in the nation's economic life.

Pages 44-45-46
* * the RFC has by no means completed its work. The railroad
program, the real estate mortgage problem in all its ramifications,
many drainage, levee and irrigation district situations are yet unsolved, and while progress is being made in all these fields, the
liquidating services of the Corporation will likely be needed for some
years to come. But as the ability of the Federal Reserve banks, under
the provisions of the Banking Act of 19351 to assist in certain
emergency situations increases (under proper regulatory provisions which
will prevent abuse), it would seem that we should look forward to the
eventual retirement of the RFC from the lending field. Recent public
information to the effect that the Corporation has been making loans
for the construction of new factories to manufacture goods in lines in
which there is already serious overproduction seems almost incredible.
If this is true, there must have been some extraordinBry circumstances
which allowed no alternative, for surely such action does not represent a general policy of the Corporation. Certainly with the increased
Federal Reserve Bank of St. Louis


Wood Netherland
Pages 44-45-46 (contd.)
latitude now accorded private instrumentalities both by law and
by our present economic situation, it is not too much to insist
that the RFC underwrite no new projects which will compete with those
already struggling for existence.
The Home Owners' Loan Corporation, which rendered an excellent
emergency service on urban mortgages, now holds nearly three billions
of home mortgage paper, secured by approximately one million urban
homes. With the rehabilitation of our building and loan associations,
the re-entry of insurance companies into the home mortgage field, and
with the keen competition now in progress between private lending
agencies, including banks, under the provisions of Title II of the
National Housing Act, there would appear to be no compelling reason
for further expansion of this agency; but, on the other hand, there
should be a steady continuance of the liquidating program in which it
is now or soon will be engaged. Gradually, by change of ownership,
settlement of estates, etc., these mortgages will filter back into the
private market on sounder terms, and the HOLC will pass into disuse with a
feeling of satisfaction over having made a major contribution to the
recovery program.
No such manhinery as Title II of the National Housing Act has been
devised for farm mortgages, and although in a recent short comparative
period, private agencies have made more of this type of paper than have
the Federal Land banks, the supply of funds for farm mortgages is yet
far too limited for us to dispense with the services of these institutions. The greatest adverse feature of farm mortgages for commercial
banks, now, as in the past, is the element of non-liquidity. There is no
well-developed market where such securities may be disposed of in the
event of necessity, as is the case with urban mortgages, and those
interested have, for nearly half a century, endeavored to devise some
system whereby this liquidity might be supplied for farm mortgage loans.
The farm loan system, originally represented by the Joint Stock Land
banks and the Federal Land banks, was an effort to supply this liquid
requirement. It is unfortunate that because of the depression and, in
a few instances, because of mismnnagement, the Joint Stocks were obliged
to enter into liquidation. But as mortgages made to a Land bank are
pledged as security for its outstanding bonds, and as these bonds enjoy
a ready market, the net effect of the system is to provide commercial
banks and investors generally with an avenue for financing farm mortgages
without sacrificing the all-important element of liquidity. It is to
be hoped that the Federal Land Bank System may soon bring to an end its
emergency program, and that the direction of its operations be returned
to a nonpartisan board, as originally provided for under the administration
of Woodrow Wilson. It is contrary to our sense of democracy that the
management and power incident to the operation of so vast a financial
structure should, in the last analysis, be lodged in a single individual,
as the Governor of the Farm Credit Administration. This is merely the
on the
statement of a principle and is in no way intended to reflect
Federal Reserve Bank of St. Louis


Wood Netherland
Pages 44-45-46

man who presently occupies the position, one whom I regard as the
most efficient Administrator in Washington to-day.
In reviewing the activities of the two great agencies handling
real estate mortgages, namely, the HOLC and the Federal Land Bank,
we should not be unmindful of the valuable aid they provided for our
commercial banking system during the rehabilitation period. Initiating
their emergency activities for the avowed purpose of relieving banks of
slow and uncollectible paper, they have made a definite contribution
to a more liquid banking condition, and the re-opening of many of our
banks is directly traceable to the activities of these two Government
agencies. This is aside from the service rendered to hundreds of
thousands of borrowers who were saved from foreclosure by having their
loans refunded on more liberal terms than it was possible for other
creditors to grant.

Perhaps the most potential source of competition for the country
bank in the future, and the one which is now a matter of deep concern,
is in the short-term credit field, which has been invaded by the
Government-sponsored short-term credit agencies, authorized to make
loans for general farming purposes and chattel mortgages on crops and
live stock. Here, again, our criticism should be temperate, for
both immediately precedinE and directly following the bank holiday,
when deposits were shrinking, country banks were unable to make loans
of this kind, and thus the Production Credit Associations and the
Agricultural Credit Corporation filled a very definite need. As a
matter of fact, had not this sytem been in operation during the years
1933 and 1934, it is difficult to see how farmers in many sections would
have obtained their legitimate credit needs. But with the banking
situation stabilized, bankers,for the most part, feel that the country
banks are now in a position to take care of all the sound short-term
credit needs. In many sections of the country, notably in territories
containing large terminal markets for commodities and live stock,
commercial banks and private loan companies are experiencing substantial
competition from these Government agencies. They handle a sizeable
volume of a most desirable type of paper, such as commodity loans, feeder
cattle loans, and others, much of which, if made by a commercial bank,
would be eligible for rediscount at the Federal Reserve Bank. With the
initial capital structure of these institutions, as well as organization
and promotional expense, underwritten by the public treasury, and their
debentures enjoying a close relationship to Government obligations both
as to tax-exempt privileges and intimate association in the public mind,
obviously they are able to quote more favorable terms to borrowers than
can be justified by acturial experience. Although we are nonplussed by
this situation for the time being, it would not be the part of wisdom
for commercial banks to engage in credit transactions below the cost of
Federal Reserve Bank of St. Louis


Wood Netherland
Pages 44-45-46 (contd.)

doing business, and while interest rates may be for a time abnormally
low due to Government fiat,there will eventually be such a reaction
to Government expenditures that rates inevitably will be adjusted to
a level in keeping with lending experience.
Our approach to this problem should not be merely one of protest,
but likewise one of self-examination, for I am firmly convinced that
by proper and sympathetic attention on the part of country bankers to
the sound credit needs of farmer borrowers, whatever advantage the
Production Credit Associations may have from the treasury subsidy will
be overcome. Farmers entitled to credit,for the most part, will much
prefer to obtain it from their local banker, where the transaction may
be closed without delay, and where the personal contact is an important
consideration. If we are to succeed, however, in handling this credit,
I should like to say courteously, but nevertheless emphatically, that we
must have the proper conception of our duty toward farmer borrowers.
It is no affront to remind you that in many sections of the country,
particularly as respects tennant-operated farms, unconscionable interest
rates formerly prevailed under the burden of which no form of agriculture
could survive. Bankers themselves were not altogether responsible for
this situEtion, one of the major caufiea being the fact that although the
bank had two classes of customers, depositors and borroterr, ci 0' these,
the borrowing class, was carrying the entire cost of bank operating expense
and the payment of dividends to stockholders. Heretofore, to those who
had money, banks rendered service without charge, andal of the cost of
operotion was laid on those who had use for the funds. This has now
changed. With the installation of service charges, which are presumed
to reimburse the bank for service rendered to those who want their money
lower interest rate on deposits, it is not now necestaken care of, and
sary to ask such high rates from borrowers in order to produce the same
income as was formerly obtained. In short, having found a new source of
revenue, we cannot appropriate it all to ourselves; a part of it, et least,
should be shored with those who in previous years have carried the entire
burden of our operating expenses.
Finally, I would recommend to our captains of finance and to those
charged with the operation of our Federal Reserve System a more tolerant
and sympathetic attitude toward the credit needs of small independent
operators, farmers in particulsr, than has been heretofore displayed.
According all due credit to our great corporate enterprises for their
magnificent contribution to cur commercial supremacy, it is in the
combined efforts of our independent individual citizens that, after all,
lie our greetest hope for national security.
This reference to the subject of Government lending would not be
complete without some discussion of the moral effect of such activities
on our composite notional character. More than 4,500,000 of our citizens
are now indebted to these agencies--a sizeable voting block, the potential
Within this
political strength of which is too obvious for comment.
Federal Reserve Bank of St. Louis

Wood iletherland
Pages 44-45-46

group are hundreds of thousands of men and women who have done their
honest best and are entitled to the utmost of consideration from
their more fortunate fello14 men. Again, there are other thausends who
are hopelessly involved and for whom liquidation was, is and will be
the only solution. Between these two classes there are speculators,
minors, estates, old people witb no income, and a host of others who
make a ready audience for those who have no regard for the sanctity of
obligations end who preach the gospel of repudiation. No political
administretion, however well intentioned, can supply those reetraints
and restrictions so necessary to sound credit practices without incurring
of the voters who borrow from it, end thus it is persuaded
to follow the line of least resistence. This is particularly true, in
a democracy such as ours, where succession is thought of from the shortranEe viewpoint, and where prosperity now seems to be the real forgotten
man. Few people question the necessity for many of the lenient policies
adopted to help those who have honestly tried, but the high delinquency
record on loans made by the Government lending agencies discloses altogether too much disregard for promises made and is but a practical
illustretion of what invariably happens when the sovereign enters the
lending business. This has the double effect of imposing unnecessary
loeses on loans already disbursed and serves to retard the flow of
credit from private sourcee, and is altogether an unhealthy situation.
No system of credit can function long, or in the end survive, when those
who are able to pay find refuge in measures designed to assist only those
who are in actual and unavoidable distress. It is essential, therefore,
that the granting of credit be restored to private instrumentslities with
the greatest possible dispatch in order that our traditional respect for
obligations may not suffer wholesale collapse.
Whether we like it or not, we are operating banks in an era when
there iE a great wave of socialistic thinking which has been interpreted
into laws that will be infbrce for many years to come. Under these
conditions our banks have been more and more converted into a public
utility with less and less freedom of operation. Perhaps this iE well.
Time only can prove the value of these changes. It is our obligation to
apply ourselves diligently to the tesk of adjustment to the nes order,
to the end that our private banking system may be preserved. If I read
the temper of the American people aright, they have no desire to see our
financial resources directed toward political ends. A sense of the value
of individual initiative and of private control is too deeply rooted in
our national cheracter to be destroyed even by the most terrific of
storms. For in this is represented the fundamental tenets of the American
faith, the principle upon which our country was founded, by which it has
grown great, and to which it must adhere if the republic is to
My conception of a well-ordered credit system,and one which older
governments have long since found most desirable,
is one operated for private
Federal Reserve Bank of St. Louis


Wood Netherland
Pages 44-45-46

profit, alive to its obligation to serve with such supervision by
the Government as will minimize the abuses which all intelligent
men condemn. I believe that our private banking system ie the
one best adapted to the peculier needs of our wide and diversified
national life. It is due to this system, in no small measure, that
we have produced 50% of the world's wealth with 6% of the world's
population, and notwithstanding statements of reformers to the
Contrary, this wealth is so evenly divided that immigration barriers
must still surround this land of opportunity lest the peoples of a
troubled world make a beaten path to our door.
Federal Reserve Bank of St. Louis

The Commercial and Financial Chronicle—Proceedings Convention of ABA
New Orleans--Nov. 1955

Vice-Pres. Utah State °at. Bk., Salt Lake City

PaFg 74

Outlook Chary.ta
To-day this type of management, which heretofore has provided
stability, solvency and success for our banks, is being subjected to
vigorous, ruthless assault so that true and tried practices no longer
count for us at their intrinsic value even though no one has as yet
been able to point out any worth while alternative to the established,
traditional profitable use of the funds of our depositors and of the
capital represented in the investment of our stockholders. Application
of fundamental banking practices has been checked for the time being
at least, through the low interest rate policies of the Federal government, through its wholesale entry into banking and credit, and its
invasion of the field heretofore regarded as the rightful, exclusive
domain of private industry.
Those who have inaugurated this wide departure from accepted
principles of sound Governmental finance, send out frequent but faint
appeals that it is intended only to meet what is conveniently termed
"an emergency", the extent and duration of which cannot be foretold.
Also the authors contend that the purpose is to restore prosperity and
rebuild private industry. If the powers-that-be were to herald the end
of the emergency, a rapid demand for business credits would ensue
immedietely. Who then would be the first tc suffer? Obviously the bank
depositors and stockholders of the entire nation, who number more than
45 million people and who represent the backbone of our economic system.
Their losses would come from an unavoidable drop in the market value of
Government bonds, 60% of which the banks are now holding.
Federal Reserve Bank of St. Louis



..-)')-/1 A)


The Commercial & Financial Chronicle—Proceedings Convention of ABA-New Orleans--Nov. 1935

MANAGEMENT AND THE NEW SUPERVI:A0N--H. B. Wells, Secy. Commission for
Financial Institutions, State of Indiana

Pare 52

There are many other matters of grave concern to the management
of our institutions other than those found in the day-by-day inside
operations which need immediate and thoughtful attention on the part
of our bankers. Among these are the unfair and unnecessary competition
of the Postal Savings System, discriminatory tax laws in certain States,
the attack upon the sanctity of property rights, and many other matters
with which you are all familiar.
Federal Reserve Bank of St. Louis

The Commercial & Financial Chronicle--Proceedings Convention ABA-New Orleans--Nov. 1935

Address of Pres. C. J. Lord, Vice-Pres. National Bank of Commerce, Seattle,
Manager Capital Branch, Olympia, Wash.

Pages 48-49
Government in the Lending_ Field

Notwithstanding the strides made in the progress of recovery
from the extreme low point of the depression, some features of the
banking picture are far from satisfactory. The most acute problem
still is the greatly reduced public use of the very excellent and
adequate credit facilities offered by the banks. Increases in
deposits, ordinarily symbolizing a healthier business tone, have not
been accompanied by an increasing demand for loans, due no doubt to
the fact that the unprecedented increase in bank deposits is the direct
result of vast governmental operations. This is true in spite of the
variety of methods banks have adopted to stimulate sound credit
extension, but to little avail. There is not a single member of this
Division which would not welcome the opportunity to make further
advbnces for worthy purposes, and thus give that additional necessrry
impetus to business.
This disconcerting outlook is chargeable in a considerable degree
to the encroachment of our Government into the field of money lending,
and to its efforts in directly contesting for banking business. To my
mind this is neither a direct nor an incidental function of Government.
It owes no duty to perform for citizens that which they can do for themselves, and it should not be so engaged. Rather, its responsibility,
generally speaking, is to co-ordinate, to protect and to preserve the
rights and liberties of its people.
In enunciating this principle, however, I want to keep in mind a
proper conceptjon of the desperftteness of the period through which we
have passed. I want to avoid judging too harshly the steps taken to
stem the tide of the decline. I concede that emergencies arire, but
such heroic measures as are taken to combat them should be pursued for
the duration of the crisis only. As its end approaches there should be
a firm stand against the regretful tendency to make permanent the devices
created for temporary use. All of us should acclaim freely the virtues
of whatever agencies and mhatever means have contributed to our economic
betterment. It cannot be doubted that the key to complete recovery is
encouragement to private enterprise which, after all, is the acknowledged
foundation of our country's greatness.
Federal Reserve Bank of St. Louis

The Commercial & Financial Chronicle--Proceedings Convention of ABA
New Orleans--Nov. 1955

OF FDIC----L. A. Andrew, Chairman

Pace 58

The national Government has within recent years broadened the
participation of the Government in tLe loaning activities which
rightfully belong to the banks. In several cases these loaning
activities were proposed as temporary expediencies to aid the people
until public confidence had been restored.
We believe that this
time hrs now arrived and we urge, first, that all banks broaden and
extend their loanin6 activities so that in the near future they can
take over the better grade of loans now handled by the Government
agencies of all kinds. We further urge that the loaning activities
of the different Government agencies be graduall:i reduced until they
can safely be taken aver by banking institutions and be terminated
within a reasonable time.
We again urge that the rate of interest on Postal Savings deposits
be reduced so as to do away with the unfair competition that this sgency
now practices in opposition to banking institutions.
Federal Reserve Bank of St. Louis

The Commercial & Financial Chronicle--Proceedings Convention of
New Orleans--Nov. 1935

Address of Pres., James C. Bolton, Vice Pres. Rapides Bank & Trust Co.,
Alexandria, La.
i'Lgs 57-58

We continue to be faced with competition from the Government in
the form of the Postal Savings System. Surely with deposit insurance
in effect it is time for this system to reduce its rates of interest
paid and received and otherwise to eliminate or restrict their
activities in communitiEs where adequate banking facilities are available. The funds of the various communities should be available for
the communities' development and upbuilding. Now is the time to give
this long-standing question real attention.
Competition for loans is more serious at the moment than
competition for deposits, although the banks must have both to prosper.
In this field we are seriously handicaped by the competition of many
governmental agencies, most of which were organized as emerEency measures,
were doubtless necessary, and have accomplished a good work. With excess
reserves at the largest point in history, confidence fully restored in
the sound banking system which the country has today, and bankers willing
to consider lending on a norms1 basis, the emergenc:/ has passed and it is
time to start curtailing these extra governmental activities.
We heard President Roosevelt in Washington last fall tell us of
his desire to return normal banking activities of the country to the
banks as soon as they were able and willing to take over the responsibility.
We say to the Presieent that we are now able, willing and anxious to take
over the lending functions in our own communities that many of these
agencies handle. The President, with his customary abilit, to illustrate
his thoughts by a timely and seasonal reference, outlined hiE aim of an
all-American team on which banking was to be one of the players. Since
we are again in the football season, I might illustrate the present status of
banking as that of a member of his all-American team sitting on the bench
yearning to get into the conflict, asking permission to do so, but is only
being allowed by Coach Roosevelt to play for a portion of the game. During
the remainder of the time his place is being taken by governmental agencies.
The banker was glad to see the national team benefit from the efforts of
this substitute during the time he was injured and groggy after the wild
orgy of the '20s and the piling on in the very early '30s. Bankers want
their place now and ask the coach and his assistants and advisers to let
them stay in the game longer and carry the ball more and guarantee to do
their full part toward reaching the team's goal.
Federal Reserve Bank of St. Louis

The Commercial & Financial Chronicle--Proceedings Convention of ABA
New Orleans--Nov. 1935

Address of Pres. of Savings Div.--by T. J. Caldwell, Vice-Pres.
Union Nat. Bank, Houston, Texas

Page 73

Postal savings continues as unfair competition with the savings
business in banks. Most of you know that the sponsors of postal
savings advocated it as supplementary to banks. It was to give
opportunity for savings in those areas where population was not
sufficient to make possible the support of a bank, and to act as a
depository for money of foreign nationals resident in America who
were familiar with the postal savings system abroad and who needed
a little time to become familiar with the American banking system.
Otherwise the money would have been shipped abroad.
At first a large number of depositors in postal savings were
foreign nationals, but now the great bulk of the depositors are
American nationals. Frequently it is found that in those remote
areas where banks do not find it profitable to operate, post offices
do not accept postel savings. Conversely, in the populous areas of
the country, where banking service is adequate for all the financial
needs of the community, the post office affords opportunity for postal
It is not necessary at this time to rehearse the efforts which
have been made by the American Bankers Association through the Savings
Division, to bring the operation of postal savings in line with the
intent of the sponsors. Stripped to the core, prior to the Banking
Act of 19530 the deposit of postal savings in banks was simply a bondbuying proposition. Banks eligible to receive postal savings deposits
bought bonds in an amount equal to or greater than the amount of
postal savings to be received, and deposited the bonds in Washington
as security for the postal savings deposits.
The receipt of postal savings deposits by a bank did not aid the
bank one whit better to serve its community. The enactment of the law
which insures deposits in banks up to e5,000 eliminated the necessity
of the banks' depositing bonds in Washington aEainst the amount of
postal savings deposited in their institutions.
A great menace both to banks and to the progress of communities
exists in postal savings--that of syphoning money from areas where it
is most needed both to insure the permanence of banks to the oammunity
and to form a backlog of funds for community development. The "Federal
Federal Reserve Bank of St. Louis

T. J. Caldwell
k'age 73 (contd.)

Reserve Bulletin" of October 1935, indicates that postal savings as
of the end of May 1935 amounted to $1,237,000,000. Of that amount,
according to the "Bulletin", only $412,000,000 was redeposited in
banks. The rest, over $800,000,000, had been taken out of the
various communities and sent to Washington for investment.
Since the amount of postal savings deposited in banks decreased
by almost $100,000,000 in the five months preceding the close of May,
it can readily be assumed that if the ratio of decrease has been
maintained to the present time, the deposits of postal savings in banks
is not now greatly in excess of $550,000,000.
The greatest hardship is not wrought on those areas which have a
great backlog of savings deposits, but rather in those States where
funds are particularly necessary for the upbuilding of the community.
In some States from one-third to one-half of the time sand (sic)
savings deposits are in postal sevings, with only a small percentage
redeposited in the banks pf that area. It seems wasteful for the fundF
needed in the helpful development of a State to be syphoned to Washington
by one agency, later to be returned, and at considereble expenses, by
other Government egencies.
At present the rate established by the trustees of the postal
savings system, the Postmaster-General, the Liecretary of the Treesury,
and the Attorney-General, and charged banks on postal savings, equals
or exceeds the maximum rates permitted by the Federal Reserve Board on
savings deposits in banks. The rates are also higher than are yielded
by the short-time obligations of the Government itself. In other words,
the Federal Government is paying to postel sevings depositors a rate
of interest higher than that at which money can be borrowed in the open
The pity of it is that the greatest injustice from postal savings
has fallen upon the wheat- the corn- and the cotton-producing States,
whose people have become impoverished through the unjust policy of this
Government over a period of one hundred years, which policy has gradually
but constantly worked toward the destruction of the foreign markets for
these products, because of the fact that we are not permitted to buy from
those to whom we must sell our exportable surplus.
In the report of the Secretary of the Treasury for 1924, in discussing
Tressury Savings Certificates, generally known as War Savings Certificates,
he said that, because of the strained financiel conditions in the agricultural
sections of the country, all publicity and sales of the Treasury 'Javings
Certificates had been suspended in many of the agricultural States, and
that shortly thereafter, because of the fact that such Treasury Savings
Certificates paid interest which was out of line with
other interest retes,
Federal Reserve Bank of St. Louis

T. J. Caldwell
Page 73(contd.)

it was deemed advisable to suspend all such sales throughout the United
States. The heaviest toll taken by the postal savings iE in the very
States which were mentioned in this report by the Secretary of the
Treasury. Is it too much to hope that similar action may now be taken
in connection with postal savings?
Eventually the leaders and the voters in the agricultural States
so adversely affected by these governmental policies must join hands in
an endeavor permanently to stop them.
Federal Reserve Bank of St. Louis

•/. -

,77 1

The Commercial & Financial Chronicle--Proceedings of Convention of ABA-New Orleans---Nov. 1935

BUSINESS, INDUSTRY AND TAXATION--Lewis H. Brown, Pres. Johns-Manville Corp.,
New York

Page 32

And so it seems to me that the greatest problem that this country
faces to-day is the problem of whether the total cost of government is
going to continue to increase until it absorbs all of our national income,
so that there is no field whatever left for private enterprise. In the
field of banking to-day, Federal agencies are lending $5.00 for every
$8.00 loaned by private commercial banks.* ...

4United States News", Oct. 14, 1955, p. 15, column 1.
Federal Reserve Bank of St. Louis



DEPOSIT INSURANCE AND SOUND BANKING—by Mr. Marshall R. Diggs, Washington, D.C.
Executive Asst. to the C. of C.

Page 9

As most of you know, the Comptroller of the Currency said in
Chicago in October, 1933, that he saw no need for postal savings
with deposit insurance. I have been somewhat following that up,
because there is the question of the Government being in direct
competition with the bankers in postal savings. Eventually it will
be worked out.
There are several plans, and, absolutely off/the record about it,
there is one plan which has been suggested which seems feasible to
me, and that is, that you reduce the rates on postal savings in towns
where there are insured banks to one per cent, and see if the people
really want to put their money in postal savings or if they have gone
there as a question of safety.
Some of them are not familiar with the safety ot the deposit
insurance. Some of them are. Let us test it out and see. That is
one of the ways. That is one of the plans. Whether it will work
out this year or next I do not know. I tnink there is something of
that kind in the offing.
***** **
THE MAIN ISSUE -- by Mr. A. D. Whiteside, N.Y., Pres. of Dun & Bradstreet
Page 27

Then I find another inclination in banking which may be dangerous
and which may not. They are having difficulty making money because
they have the Federal Deposit Insurance to pay; and they are not making
any money because people are not borrowing money and the Government
is putting their funds out at very low rates and the government is
indirectly loaning the money, your merchandise, to your customers at
a low rate and prevent you from making money. That is offering to you
an opportunity to do something.
Federal Reserve Bank of St. Louis


The Ohio Banker - July 1935

of the Fifth-Third Union Tr. Co., Cincinnati, Chmn.

Page 39
The existence of federal insurance of bank deposits removes
the need for continued operation of the Postal Savings System.
Therefore, we urge that the national administration and Congress
consider the desirability of abolishing the system as soon as
such a step is feasible.
Federal Reserve Bank of St. Louis



Report of H. C. Timberlake - July 6-13, 1935, Attached to air. Peyton's
letter of July 24, 1935

PaFe 6
*** * * ****

* * * Two bankers complained of the handling of the FDIC
legislation, saying that some depositors were getting tired of the
way Congress was playing politics with it and transferred their
certificates of deposit to Postal Savings.

Mr. Peyton's letter of June 27,


Mr. Core hints at one other fear of the bankers which is
becoming prevalent in some parts of our territory, particularly
North Dakota. The bankers report there is an increased tendency
amongst individuals who ultimately may be perfectly able to settle
their debts in full to attempt a compromise with the banks. Some
bankers state that the Government commissioners' loans and Federal
Land Bank settlements hav- been made with local borrowers on a basis
where the bank was forced to compromise, and this has had a tendency
to weaken the morale of the borrowers in general.
Federal Reserve Bank of St. Louis

Address by James E. Davidson, Pres.,
Michigan Bankers Association
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)

*** ** * ** * * *

The 1933 Banking Act which was put through Congress, needless to
say, added restrictions and supervision and all banks have been
functioning under these new laws since they became effective. We find
today a great cry on the part of many people, and some in the manufacturing industry, for the banks to make loans. On the other hand,
we also find the bankers saying that they are ready to make the loans
regarded as acceptable bank assets in the minds of the banker and the
bank examiner on the one hand and our Federal Government, whose bank
examiners have for years, and are today, closely scrutinizing the
bank's assets on the basis of good, sound loans, on the other hand.
At the same time we have this same government, with its alphabetical
agencies, condemning the banks for not making loans. The truth of
the matter is that, as a result of the depression, there are fewer
good loans than there used to be. Banks have been put through what
is known as the "asset wringer" and their assets have been scrutinized
and all inflated values wrung out. Regardless of what the government
says, the bankers are not going to be fooled into carelessly lending
their depositors' funds. It must be remembered that the banker and
his associates have their capital invested and in order to safeguard
this investment it is also necessary for them first to safeguard their
depositors' funds. Every true banker regards first his depositors'
safety and second the safety of his stockholders and tries to make
for his stockholders a reasonable interest return. Bank stock has
not been very profitable during the last few years and banks would
indeed be foolish to begin making loans which would jeopardize their
depositors' and their stockholders' interests. Such is not going to
be the case as long as real bankers are running the banks of the
country. However, if it happened that scrge of those in the present
national administration realized their ambition, the banking industry
of this cauntry might possibly be controlled by the government.
Federal Reserve Bank of St. Louis

* * * * * *,* * * * *



Orval W. Adams, Ex. V. Pres.,
Utah State National Bank, Salt Lake City
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)

** * ** * *** **

Consider now the effect of an increase in the holclings by banks of
the obligations of government:
In recent years sixty per cent of new government borrowings have
gone into and remained in the hands of banks. This could have occurred
only because of the confidence of bankers in the obligations of government, and because the banks were unable otherwise to make advantageous
use of their resources.
By rendering impossible loans in competition with government
agencies, the government has forced the commercial banks to limit their
activities largely to serving as a clearing house for their customers,
and to speculation in government bonds. While a stabilization fund
was employed to maintain a fictitious value for obligations of the
government, opportunity was afforded commercial banks to make a profit
out of this speculative business, but that such profits are those which
should be prohibited to commercial banks is elementary. Government
bonds, as a secondary reserve, were justified in the past because of the
limited volume of such bonds in comparison with the market therefor.
When the volume so far exceeds the market that in fact no market exists,
the justification for holding such bonds fails. The simple fact is that
the commercial banks today are investment bankers dealing exclusively
in obligations they are unable to market because no investment market
exists for them. They are therefore violating that principle of banking
which says that the funds of depositors payable on demand should not
be invested in long term non-self-liquidating loans. In fact, it is
even worse than this because we not only know that we are using demand
deposits to speculate in such securities, but we know further that the
government may refuse to give back value equal to what it takes from
us. We know that it is likely to do so since it has already developed
the habit, and since its demands are becoming increasingly pressing,
and we know also that in the event it elects to do so, there is nothing
we can do about it.
Federal Reserve Bank of St. Louis

********** *

Report of the Committee on Resolutions
39th Annual Convention, Indiana Bankers Asso., June, 1935
(The Hoosier Banker, June 1935)

******** **

4. Postal Savings System.
It is a recognized fact that the Federal Deposit Insurance
Corporation has obviated the necessity for a continuation of the Postal
Savings System, and that the Postal Savings System should beaolished,
at least in all communities that are served by members of the Federal
Deposit Insurance Corporation. Such a step will prove advantageous to
depositors and banks alike.
Federal Reserve Bank of St. Louis





Pages 669-670

There is no logical reason why banks should not negotiate loans
for discount with other Government agencies. I wish to emphasize the
fact that the logical instrumentality for mass credit distribution is
the banks of this nation. For example, if an industry requires a
three-year amortized loan the bank should be permitted to make the loan
and Government agencies should rediscount the paper. The Government can
with propriety discount paper at a comparatively low rate in order to
furnish a larger turnover of money. The policy of the Government in
making direct loans, except in a national emergency, is fundamentally
unsound and destructive to private business.
The Federal Land banks were brought into existence because of the
greed and bad business practices of lenders. Private agencics should
have produced the mortgage loans and the Government should have, when
called upon, discounted the paper wad sold the bonds.
Federal Reserve Bank of St. Louis


"Banking and Legislation"
Address by John S. Wood,
Federal Reserve Agent, St. Louis
39th Annual Convention, Indiana Bankers Asso., June 1935
(The Hoosier Banker, June 1935)

***** ****

Production credit to agriculture is being furnished, in large measure,
credit agencies. Some of this credit could be safely and
by commercial banks. Inquiry in the Eighth Reserve
District has disclosed the fact that a aubstantial amount of this type of
credit is desirable for commercial banks. On the other hand, much of
this credit would be unsafe for commercial banks to handle. The desirable
part of it should in time return to banks.
Federal Reserve Bank of St. Louis

*** ******


Conducted by tilliam McChesney Martin
Governor of the St. Louis Federal Reserve Bank

(Page 126)
Chairman Martin:
I feel that there are a number of loans being made by what we
may call governmental agencies who are getting the interest wftich
should be going to the local banks. Frankly, when I have sometimes
said that, I have been told the local banks won't make them, and,
therefore, the government must. I see a danger in that, not for
today but in the future, that if the idea gets abroad that banks
won't make the loan and the government must, the first thing you know
this sentiment for nationalization of banking will receive considerable impetus. I just mention that to you in considering this.

(Page 134)
Chairman Martin: You are exactly rignt, and there never would have
been these government agencies if the banks had made the loans. Now
it is perfectly true that in the emergency the banks could not have
stepped into the picture, and government agencies were necessary,
but you are perfectly correct in saying that the bank should take over
this duty and meet the situation, and that is exactly what I am trying to develop out of this meeting here, that we must lay these bogies
of fear. The picture has changed entirely; there is no reason you
should turn down loans, as I am afraid has been done, and I want to
correct this thing.
Federal Reserve Bank of St. Louis

4F- rat



President's Annual Address, H. H. Chambliss, Pres.
Page 5
*** * * **
Among other agencies set up by the Government for the restoration
of prosperity in our country is that of the National Housing
Administration, which organization has been in active operation within
the borders of our State for the past eight months, and the popularity
of this Act is apparent throughout the State. There is no one measure to
which the Government has committed itself from a recovery standpoint
that has been more beneficial in its employment of labor and restoration
of realty values than this Act; the two things fundamentally necessary
for any permanent prosperity.

*** *****

There has been a great deal said about Government in business. It
is evidenced on every hand that the Government is in the banking
business, the railroad business, the life insurance business, the
manufacturing business, the real estate business, agricultural business,
and in practically every line of endeavor, and unless all signs fail,
the Government will continue its activities until the larger business
interests demonstrate to the Government that they can and will travel
under their own power.

M. D. Brett, State Comptroller, Dept. of Bank Supervision
Page 36
* *** *** *

* * * With concerted action you have only one competitor left as
regards interest as now paid and that is the Postal Savings System.
It has long ago served its purpose and is no longer needed from the safety
feature held out by it since advent of the F.D.I.C., and most all
communities have banking facilities, and the Government will no longer
be a competitor with you, seeking and bringing lower interest rates in
other activities, when you discontinue accepting postal depository
contracts for these funds. Also discontinue accepting $5,000.00
Certificates of Deposit from other banks offered you from Kalamazoo
to Kankakee and other points of the compass in relief of their interest
burden and for F.D.I.C. guaranty. This puts further burdens and responsibilities on you for the proper investment of funds in an effort to
prevent loss on the transaction from an earnings standpoint, and which
brings about at this time the peculiar situation of competing with yourself.
This procedure is nothing more or less than borrowing to lend or invest
and certainly none of us agree this is now proper.
Federal Reserve Bank of St. Louis



ADDRESS OF THE PRESIDENT-H. A. Brinkman, Retiring Pres., I11. B.A.

Page 24
** ** **


In recent months bankers have again been active in protesting
the competition of the Postal Savings Banks.

Under the conditions which prevailed up to 1929, the Postal
Savings Banks were not serious competitors of the prtvate banks
but served to meet the demand of certain citizens, particularly
those with a recent foreign background who might otherwise have
kept their savings in hoarding.
With the change in the earning value of the assets of the
privately owned banks and the consequent necessity of reducing
the rate paid on time money to 2% and even li% and 1%, the situation
is materially changed and the Postal Savings Banks have eome into
definite competition with state and national banks for the savings
of the people. This development, while not so serious at the
moment, may easily become a real danger to the existence of the
savings banks of the nation. The Postal Savings System has always
been advertised as a non-competitive bank and if Congress is sincere
in this description of the System, there is no good reason why the
rate of interest should not be reduced below the level which the
bankers of the country have found by experience is all that can be
safely paid on accumulated savings. In order to place the System on
an actual non-competitive basis as intended in 1910, it should be
reduced to at least 1%. In fact, there is no resson why Postal
Savings Banks should not be discontinued in communities which are
adequately served by banks which are members of the Federal Deposit
Insurance Corporation and our Association is definitely on record in
Washington on this point.
Federal Reserve Bank of St. Louis

The Ill. Dankers Association Bulletin--May 1935


Zu,e 43
There are now some thirty Government lending agencies,
many of which are in direct competition with banks. These agencies
are, in many instances, getting a large volume of desirable loans
for no other reason than their favorable interest rates. While I
have no doubt many of the lending agencies sponsored by the Government
have been necessary for recovery, yet I believe, if the public in
general had known thc fundamental principles of banking, many of
these agencies would never have been necessary. I admit certain
classes of loans are being made by these agencies which banks will
not lanik now make, which they never should have made and which I
hope they will never make again. wn the other hand some of these
agencies are making certain classes of loans which the banks could
and should make and I see no reason why banks should not endeavor to
make all uuch loans their reserves will permit them to carry. The
sooner business is able to take care of its own requirements the
sooner these Government agencies will step out of the picture.
It behooves all of us, both as bankers and citizens, to
cooperate in every possible way to get this country out of its
present depressed condition, but I cannot subscribe to the idea
that a substantial part of the lending for business and agricultural
purposes, for current needs, should be continued by Government agencies.
Governor Eccles, in a recent speech before the Ohio Bankers,
"The more business the banks refuse the more will be handled
by otheregencies, including the Government, and the less room will
remain for the operations of the private banking system. I am fully
aware of the fear with which bankers view the extension of other
lending agencies and the uneasiness they feel at having to rely more
and more on holdings of Government obliEations, or those guaranteed
by Government, to keep up their income. I might point out, however,
that these developments are a consequence of the failure of the banking
gystem to perform its functions adequately. If the banking system would
utilize in real estate loans and other long-term investments the savings
and excess funds that it now possesses, business activity would be
greatly stimulated and the Government would then be able to withdraw
rapidly from the lending field.
"The bankers also feel a deep concern about the constant growth
of the Government's deficit and of the public debt, and yet a considerable
Federal Reserve Bank of St. Louis


F. Leegaior
?age .43 (contd.)
part of this debt is incurred in refinancing mortgages and in under—
taking other functions which the banks have failed to perform. The
release of banking funds in these fields would enable the Government
to diminish its expenditures and to reduce the rate of growth of the
public debt."

L'a_z_e 44
May I again quote Governor Eccles, this time from his testimony
before the House Committee on Banking and Oarrenay
"The banking system must be made to provide the money and credit
required--for business--if it is going to justify its existence.
"The Government is doing the lending through the Government lend—
ing agencies, such as the Home Owners Loan Corporation, Farm Credit
Administration and Reconstruction Finance Corporation, so that it has
been a process of banks liquidating their private loans and the Gov—
ernment taking them aver and the banks providing the funds to take
Government bonds or bonds guaranteed by the Goverument. If this
continues, it seems to me that the banks are going to have very great
difficulty in justifying their existence."
While it is well known in banking circles that bankers are eager
to make good loans, it is difficult to convey this attitude to the
public in a manner which will convince them that the business man, firm
or corporation with a good credit background and a sound financial stand—
ing can readily borrow from banking institutions.
Federal Reserve Bank of St. Louis

The Ill. Bankers Association Bulletin—May 1935

Page 50

In the first instance, it has been said that part of our problem
of loan making has come as a result of government competition, because
of the creation of so many lending agencies. That, possibly to some
degree, is true, but in the main I should consider that an unfortunate
and an unfair statement to make. The Government, with its agencies,
has served a very important and a very fundamental need this past two
years and I don't know what we would have done without such agencies
as the Reconstruction Finance Corporation, and especially so in 1933
and what took place immediately following, and one of its units, the
Commodity Credit Corporation, which, if I recall correctly, in 1953
made loans on corn at 45 cents in a market of 50—cent corn. Certainly
that was of great importance, of great assistance to the farmers of
Illinois, and I venture ta say that not a banker in this room would
have engaged in similar loan making.
The Home Owners' Loan Corporation and the Federal Land Banks,
speaking about governmental lending agencies, in the main I do believe
have been of great benefit to the bankers of this state.
Partially, the reason for government loan making, I tiA afraid, is
the result of lack of confidence in ourselves. I am afraid that
we have been perhaps overcautious, that we have had insufficient
confidence in the future, insufficient confidence in values, insufficient
confidence in character of the business men and of the farmers, and, if
I may be a little bit caustic, insufficient confidence in each other.
I think we have improved materially in that respect. I think things
are looking better, business is better; it is not nearly so bad as it
has been painted in one or two of our presses. I see day by day that
bankers are feeling a lot better about it. I don't think we all agree
witla what was said last night, as accurate as the record may seem to be.
Things are not quite so bad and I think our persective has improved a
lot and that if we apply ourselves to the fundamentals that have been
advocated in the past, if we establish our confidence again in our
neighbor, in values as we know them, we can look around, we can improve
our asset position, and I think by the same token improve our earnings
to a point where we need not worry about the end of the year.
Federal Reserve Bank of St. Louis

The Ill. Bankers Association Bulletin—May 197)5


PaRe 72

We believe that the best interests of our rural communities
center about the community bank, and the establishment of banking
facilities should be encouraged in those communities where the need
exists. In many instances Postal Savings Banks are in direct competition with existing State and National Banks, the development of
which is hindered thereby. For this reason we recommend that
legislation be enacted prohibiting further deposits in Postal Savings
Federal Reserve Bank of St. Louis


Proceedings of the New York State Bankers Association-1935

Address by Dr. H. Parker Willis, Prof. of Banking, Columbia University,

Nikes 126-127

Look in the Federal Reserve Bulletin, the May issue, page
279, and you will find there a remarkable table. It is a table
which shows the operation of some 17 Federal agencies that
are engaged in extending short credit, long credit, intermediate credit, and fossilized credit. (Laughter) In all, they
have done between three or four billion dollars of business
solely with public funds, as well as some fraction of seven
billions more carried partly with such funds. Governor
Eccles when bcfore the Senate Banking Committee a few
weeks ago, used some remarkable words. He said that at the
rate we were not going there wouldn't be enough business
left for the banks very soon. Iwould only amend that by
saying that at the rate we have been going, it is already true
that there isn't enough left, for the reason that it is being
done by government agencies who, by the irony of the circumstance, are financed by the banks themselves in order
that they may compete with and take away the business of
these very banks.
Where is it in the Scriptures that caution iE given against
seething a kid in its mother's milk? I think that the Governor of our Reserve Board might well take that injunction
to heart in connection with his suggestion as to the business
of the banks. lany persons assert that the purpose of the
government agencies is to meet annemergency." Well, now,
let us be reasonable about this matter. If you are meeting an
emergency, do you pile a table at a bankers' convention with
pamphlets that inform people as to the way to make certain
kinds of loans? Is that "relief"? Do you send our organizers
throughout New Ingland to organize Federal savings and
loan associations, giving t3 of Treasury money for every tl
of local money, and then authorize them to pay three and a
half per cent to depositors? Do you compete with every
established agency in existence? Do you form hundreds of
production credit associations which finance the current
liquid business of the sourthern farmers in the same way that
the banks used to do it, but now do not?
Federal Reserve Bank of St. Louis

Proceedings of the Mrd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 19U

** * * * * * * **

D. Gordon (Secretary of Banking, Pa.):

** * * * * ***

In reeard to preferred stock, I think our state has a relatively
small record in regard to the preferred stock sold to the R. F. C.
That is due to the fact that one of the requirements exacted of our
banks was in many instances that they create a voting trust and turn
over the voting power to the R. F. C. When the banks were asked to
sell a certain amount of preferred stock to qualify for membership in
the F. D. I. C. they agreed to sell fifty or a hundred thousand dollars
worth, principally the small banks, and they insisted that was the condition under which they were taken in. A month or two months after
they were taken in, they were called to Washington and told who created
this voting trust giving the voting power to the R. r. C., and they rent
back and discussed it with board members and invariably the m,
, mbers refused to pass it. Secondly, there is an agreement whereby in the
earlier statutes in the sale of preferred stock, it miaht be retired,
in Pennsylvania, with the consent of the R. F. C. or the Secretary of
Banking. As long ae that remained in, the banks went along. They then
specified the articles of agreement had to be changed to say °with the
consent of the R. F. C. and the Secretary of Banking", which of course
meant I could be overruled. Then a third obstacle arose, it mtated
that any new set of articles in connection with the sale of preferred
stock, that the preferred stock could not be retired by any bank unless
the entire amount autstanding was retired. If a bank borrowed $500,000
and felt they were liquid and strong enough to pay back some of the
money, they couldn't pay back and retire a penny's worth unless they
paid the full $500,000. With these provisions anr bankers have rePused to go in, with the result that relatively little preferred stock
has been sold in Pennsylvania. * * * * * * * * *
**** ** * **

Douglas Meredith (Commissioner of Banking and Insurance, Vt.):
****** * * *

So far as the matter of centralization is concerned, no attention
is paid to it and I am surprised to find so much attention paid to it
here. You have R aentral bank now, in the R. F. C. and in the F. D. I* C.
You have merely been accepting it as a matter of fact. I have been
asked how soon I will accept F. D. I. C. examinations in the state examinations and my reply is: just as soon as the legislature authorized it.
So far as the Federal Reserve is concerned, we have no state member banks,
but if a banker came and asked my advice I would be inclined to urge him
to join. We have a few branch banks, and if a banker asked about two or
Federal Reserve Bank of St. Louis

- 2three branches I should slap him on the back, and as far all centralisation is concerned, with the matter as it stands the R. r. C. has voting
control with all banks in the F. D. I. C. and you might as well recogniz
it is now highly centrali
examinations are much better than those we were doing.
Federal Reserve Bank of St. Louis

******* *


Address by Senator Arthur Vandenberg
Convention of the Michigan Bankers Asso., June 22, 1934.
(Michigan Investor, July 7, 1934)


I want to say to you now that although you of this association are
loyal to the idea of deposit insurance, under which only two banks have
closed in six months in the United States, a record unprecedented in
the history of this land; although you are faithful to the theory of
deposit insurance, under which 97 per cent of all the depositors
beneath the flag, are assured of their birthright; although you are
faithful to this thing which has ended hoarding, and which has restored
a confidence in the banking function of the land, there are still those
banking influences in some of the larger metropolitan centers of this
country which still snipe at the deposit insurance idea.
Just so long as they continue those tactics, just so long as
there is any agitation and doubt whether deposit ingurance is a
permanent part of our banking regime, just that long you cannot hope to
repeal the Postal Savings law. If these gentlemen should succeed
ultimately in their purpose to reject the derosit insurance idea, if
they should succeed, the inevitable alternative will not be the retirement of the Postal Savings System; it will be the broadening of the
Postal Savings System into complete commercial banking.
Federal Reserve Bank of St. Louis

**** ****


Address by Prentiss M. Brown,
Michigan Member of Congress.
Convention of the Michigan Bankers Asso., June 22, 1934.
(Michigan Investor, July 7, 1934)


I am not going to
in detail, but in view
in his opening address
act, I am going to say

take the time to discuss the banking act of 1933
of the remarks that were made by your President
on one or two matters in connection with the 1233
a little about details.

I note that he opposes the continuance of Postal Savings; and I
may say that I have been, was before he spoke, and am still with him in
his opposition to the Postal Savings System. I think there is no necessity for it at the present time, in view of the bank guaranty system
which we have.
I want to let you know that I endeavored very hard in committee in
March, April and May of last year to lighten the competition of the
Postal Savings System with the banks, and I think I succeeded in a
small measure. We were unable at that time to see how well the Federal
Deposit Insurance Corporation was going to work, and, therefore, we
could not do as much as I think we will be able to do in the near future.
I felt first that if we could reduce somewhat the benefits of the
Postal Savings System, so that deposits there would not be quite as
attractive as they would be when money went into commercial banks, and
thereby into the channels of trade, that would be well, and, therefore,
I was able to get Section C into the act, as an amendment of the Postal
Savings Banks. We provided that unless money was left in the banks to
a certain definite length of time, agreed to by the depositor at the
time he put his money in, that he could not get interest upon his deposit.
Federal Reserve Bank of St. Louis


Address by William B. Cndlip,
Counsel, Michigan Bankers Association
Convention of the Michigan Bankers Asso., June 22, 1934.
(Michigan Investor, July 7, 1934)


What of it? Just this--that the entry of the Federal Government
into the field of large scale money-lending, plus the restrictions which
it has imposed upon the private bankers have opened questions of exceedingly vast importance to you and everybody--questions of social and
economic implications. I do not say and no one can say that these new
activities and restrictions are wholly wrong. Many of them appear to
me to be proper. Within certain limitations our Government can properly
lend money to its citizens. In the long run the present policies do,
however, involve considerations which the banker must recognize and
protest against unless he wishes to be simply a keeper of a money warehouse. Today most of our governmental policies are predicated on the
theory that an emergency exists. I say that the emergency as it related to banking is over and it is not fair to lull any one to sleep
with that slogan forever. Let us find out where we stand: Is it the
intention to completely socialize our credit system and for the most
part permit it to be directly and indirectly operated by the Government? Is it the intention to hedge the banking business by law and
regulations so that there is no profit in the performance of the banking
function? Let me say that without profit there can be no private
banking system. Is the banker to receive the deposits of our people,
buy Government bonds, and let Uncle Sam do all the lending? Is the
banker going to be a banker or a warehouseman? Are unit banks to go?
Is banking to be controlled by a political bureaucracy? Is the banker
to be simply the town bookkeeper for service charges? Is the ability
of the private banker to function properly to be measured by the
ability of the least able of the professions, with the consequences attendant thereon? I simply pose these questions. I do not know the
Federal Reserve Bank of St. Louis






One element which always is considered in connection with the
c.uestion of interest rates is the postel savings system. During
the hysteria of recent years this system has grown to gigantic
proportions. It is in active competition for savings money. At the
suggestion of our headquarters office a nationwide survey was
conducted by a daily banking paper which revealed that, contrary to
law, post offices in most cases are paying full interest on postal
savings deposits paid on demand.
To operate such a system in competition with our banks puts
these institutions at a great disadvantage. Certainly, it would
represent no more than fairness and consistency on the part of the
federal government to discontinue postal savings and turn the business
over to the banks where it belongs. * * *
At this juncture, should we not ask for a clearer interpretation
of Regulation Q of the Federal Reserve Board? I am afraid that this
regulFtion still is not clear to a majority of bankers. We should
have a definite and officiel ruling on the difference between time
and thrift deposits.
Federal Reserve Bank of St. Louis






Page 29
it- -X- -X-

In other words, where depositors in postal savings converted
their savings into bonds, that would not shoD a true picture of the
decrease in postal savings.
I have stated on many occasions, end this is one of the points
that I urged before the American Bankers Annual Convention last
year in Chicago, that I believed if we would establish e sound,
permanent system of insurance in banks of this country, we would
give such competition to the postal savings that there would be
no need for the duplication of these two machineries of Government.
The proof now is that the postal savings are feeling the competition
and money is coming back where it should come, to the banks of the
No doubt there are places in the country, small outposts where
there will always be a need for such an institution as the postal
savings in which people may put their money. But we can meet the
competition; we can see that the interest rates are not such that
they attract and give unfair competition to the banks.
But it certainly was a danger signal when postal savings passed
over the billion dollar mark in this country; it was a danger
signal when those deposits increased in five years 675 per cent;
and yet nothing was done. There were the mounting deposits; there
were the bank failures; yet the great banking fraternity stood still.
Federal Reserve Bank of St. Louis


CALIFORNIA - June 30, 1934

PaRe 16

The June, 1934, statement is also notable in disclosing a decline in
postal savings, in contrast to the increase shown in a similar comparison--contained in the 1933 report of the Superintendent of Banks.
The decline of 0,976,000 in public funds is due to inability to employ
these funds at rates in excess of interest demanded by public officials
in compliance with statute.
Federal Reserve Bank of St. Louis


Address by C. B. Axford
38th Annual Convention, Indiana Bankers Asso., May, 1934.
(The Hoosier Banker, June 1934)



*** *** *


Thether we can by some means so navigate nationally that the same
national follies in economics will not be repeated again is probably the
major problem of the banker of today.
Upon this question and its answer depends the nature of his problem
of running his bank. If we are to have another ten years of illusion
and disillusionment such as we had from 1913 to 1920 and from 1925 to
1930, the banker has his job cut out for him.
And it is complicated by the fact that if he does not satisfy the
popu;ar demand for easy money, local development, and business ambition,
he may find the Government chartering a competitor across the street to
supplant him, or actually going into the business of financing competition with him with Federal money through Federal agencies. We have seen
something of the sort in the farm mortgage system, which came at a time
when private capital was getting tighter for farm borrorers as a result
of a realization that farm capital and production expansion was no
longer needed in this country.
Thereupon the Government stepped in to save the individual farmers,
but in doing so, it guaranteed the ruin of American agriculture because
it maintained a competitive production which was entirely uneconomic and
which today is still an unsolved problem.
* ************

The Government, answering the demands of a people for an unearned
prosperity, will violate every economic princ4 ple to get it, if the banker
refuses to, unless there is a vast reawakening of public intelligence
about investments and thrift, and solvency, about economy, about the good
old-fashioned virtues of sound national and urivate economics.
********* ****

Are we going to escape being ground very fine between the effects
of Government offering of loan money at 4 per cent. and 5 per cent. to
real estate and business borrowers, and offering guaranteed investments
paying 2 per cent. to 4 per cent. to our customers at the same time?
Are we going to be prepared for the effect on our banks as the
sources of local capital and as depositories of our community's cash
reserves of the financing of vast projects in our territories, the securities of which will be held mostly in vast tax exempt estates in
the great financial centers? Where will we fit in if the circulation
of financing becomes thus from Indiana to New York rather than as it is
largely now from local borrowers to local lenders right in our own home
Federal Reserve Bank of St. Louis

******** *****


Report of Resolutions Committee
38th Annual Convention, Indiana Bankers Asso., May 1934
(The Hoosier Banker, June 1934)


WHEREAS, We call attention to efforts made in several bills before
Congress to enlarge the present laws on postal savings accounts by increasing the amount which may be deposited, and to permit the privilege
of checking against deposits.
BE IT RESOLVED, Shah bills should not only be defeated, but we
further favor the gradual aurtailment of the present privileges offered
by the system which definitely competes with private business. By
virtue of safety afforded small depositors through deposit insurance,
there is no longer any sound need of Postal Savings System.
Federal Reserve Bank of St. Louis

*** **** ****


Address by Dr. Edwin Walter Kemmerer
38th Annual Convention, Indiana Bankers Asso., May 1934.
(The Hoosier Banker, June 1934)

** *** * * * * * ***

Kemmerer, Walker professor of international finance, spoke on "Inflation and Stabilization" before a joint meeting at the Claypool hotel
of Indiana Sound Money Committee and the Indiana Bankers Association.
* * * * * * * * * ** * *

The progressive and rapid withdrawal of the government from
competition with private enterprise, in all lines where governmental
operation is not permanently desirable, and the reduction of wages on
all governmental relief work to levels substantially below the fair
market value in private industry of the labor concerned.
Federal Reserve Bank of St. Louis

* * * * **** ** ***




Page 27

* * * Then again, the extension of credit by government
agencies in competition with banks may have had its effect, and if
lending agencies are incubated by the government as fast in the
future as in the recent past, it is doubtful if private banking
loans to industry will ever greatly expand. In thatcase it may be
that the only outlet of any consequence for banking fund will be
in government securities or government instrumentalities issued
by the various lending agencies. While I do not presume to speak
for the members of the Association on this subject, I believe that
the creation of governmental lending agencies has gone far enough
and that the interests of the country can probably best be served
by their gradual withdrawal from the banking field. The banks are
now prepared to take care of tne business needs and they should be
allowed to do so. It is highly desirable at this time that the
government gradually return to ordinary governmental functions,
balance its receipts and expenditures and encourage business and
industry to proceed with as little interference as possible. With
that an accomplished fact, undoubtedly we would rapidly go forward
to a sound prosperity.
Now that deposits are insured,
indtvidual may deposit in the postal
reason to continue that organization
repealed and the funds now in postal
on the same basis as other deposits,
into channels of industry and trade.
Federal Reserve Bank of St. Louis

to the extent that any one
savings system, there is little
and surely the law should be
savin6s returned to the banks,
where they could find their way




ADDRESS BY J. E. LOVE, Supt. of Banks--"Banking Conditions in Mississippi
Today as Compared With One Year Ago"

Page 37

With all of this we have learned many lessons; we should be
able to profit by past experience. It is indeed a new day in
banking. The old methods in banking have passed. New conditions
have come and new rules have developed. Through the various
Government Agencies it is no longer necessary for banks to make
or carry frozen loans. Through the Land Bank, banks are able to
bail out frozen loans on farms and get the cash or good bonds;
through the Home Owners' Loan Corporation banks are able to transfer
loans on homes and receive for a slow note a marketable bond selling
above par.
Through the Crop Production Association, it is no longer necessary for banks to take chances on advancing money to make crops.
These accommodations can readily be procured through Government Agencies,
all of which means that banking now is more or less confined to
commercial business. It is not necessary for banks to take any further
ricks. Policy loans or capital loans are no longer made by banks. The
fear that a competitor may make a loan that the banker feels, in his
judgment, should not be made, no longer exists.
Federal Reserve Bank of St. Louis

The Mississippi Banker -- May 1934

REPORT OF COMMITTEE ON RESOLUTIONS--Edgar Brown, Chairman, Pres., Bank of

Page 39


tHEREAS, the Commercial and Savings Banks of the United States
are furnishing adequate banking facilities to the people for all
types and classes of banking business, and
WHEREAS, the two great banking systems with a record of more
than a century and a quarter of constructive service to the Nation
and its people are now giving to depositors the same measure of
guaranteed protection as afforded by the Government operated Postal
Savings Banks, thus rendering unnecessary the continued operation of
said Postal Savings Banks;
BE IT THEREFORE RESOLVED, by the members of the Mississippi
Bankers Association:
(1) That they are strong in the conviction that said Postal
Savings Banks should be liquidated and their operation discontinued
at the earli-st possible practicable date.
(2) That a copy of these resolutions be forwarded at once to all
Mississippi members of Congress.
Federal Reserve Bank of St. Louis



ADDRESS OF MR. GILMER WINSTON, Chairman of the Board of the Union Planters
National Bank of iiiemphis

Page 11
We hear everywhere that the Government is entering the banking
business in competition with private banks, but I am not afraid of
this as long as business generally carries its part of the burden
of restoring buying power to the masses, and this includes the banks.
While I feel it is the duty of the banker to do his part in the new
deal, I do not think that he is expected in any way to violate
the fundamentals of sound banking, nor do I think he is expected to
waste the money of his depositors or stockholders. There is no doubt of
the fact that the future of this country depenas on a sound business
structure, and, therefore, Lny liberal credit policy should be sound
and based on sound fundamentals.
Federal Reserve Bank of St. Louis


(The Nat. City Bk. Of N.Y.)

Page 31
** * *




There are certain means by which credit can be withdrawn from
the markets. The Federal Reserve Banks can use the discount rate
when the member banks again reach the borrowing stage, and the former
have large holdings of Government bonds which they can feed out to
the market, thereby absorbing purchasing power. The R.F.C. can wind
up its affairs, collecting its loans and retirine the credits, and
the withdrawal of the Government from its other extraordinary activities
would have a restraining influence, but this policy is one calling for
exceptional qualities of courage and judgment. ****
Federal Reserve Bank of St. Louis

qe •


October 1955

Page 65


I think bankers will appreciate the provision of the Banking
Act oC 1933, which will in effect restrict the operation of
postal savings to bona fide savings accounts. Due to loss of
confidence in commercial bankF postal savings deposits have
increased to approximately one and a quarter billion dollars.
This represents cash withdrawu from commercial banks. It amounts
to more than one-fifth of the total money outstanding in the
United States and evpry dollar of this sum is virtually hoarded.
It cannot be released to commercial banks for employment as a
basis of bank credit unless secured by liquid assets easily
convertible into cash elsewhere. It subjects commercial banks to
competition unfair to them and destructive to basinEss. The
Banking Act of 1933 will ultimately restore practically all of this
money to banks in the support of trade and comlaerce, and it will
under normal conditions result in increased earnings sufficient to
cover a large portion of the expense of deposit insurance.
Federal Reserve Bank of St. Louis

* ***** ***

Address by Senator Vandenberg of Michigan
32nd Annual Convention
National Asso. of Supervisors of State Banks
Chicago, September 1935


Let me illustrate this latter point. Bankers universally condemn
the postal savings competition. They correctly urge that these postal
banks sterilize the free funds of a community and completely withdraw
them from essential credit uses. Postal savings money is hoarded money,
to all intents and purposes, so far as industrial and agricultural credit
uses are concerned. It is dangerous competition for the normal and
essential banking functions of the nation. The average banker would
make almost any reasonable concession to free himself of this competition.
Yet--strange anomoly--when he gets into convention he not only inveighs
and resolves against the postal savings but also just as enthusiastically
he inveighs and resolves against the only practical means for his relief
When ordinary bank deposits are insured up to $2,500 (which is the
postal savings limit) as provided in the emergency insurance formula
for which I plead, there is no further excuse or necessity for the
maintenance of another warranty depositary. The demonstrated success
of the former will effectlinfly argue for the discontinuance of the latter.
** ******
Federal Reserve Bank of St. Louis

SOURCE: BANKING,--Journal of the ABA--August 1933

eage 43

To the Journal:
The Government should either get into the banking business or
get out of it. It has planted a branch bank in the Post Office in every
town of any size in the United States. These branch banks were dormant
and inactive until the country banks began to feel the pinch of the
depression and the effect of low prices. Then, when cash reserves began
to fall off, the Government, through its Post Office banks, began to
gobble u- what cash reserves the country banks did have and take it away
to the cities.
The Post Office bank is only half of c bank. It does not loan any
money, and it makes it impossible for any one else to loan any. If we
must have Post Office banks let us make banks out of them, and loan the
money--not hoard it. There never was e time in the last 40 years when th
country districts needed money and could use it to good advantage ss they
could now. It would add new life and start things going in the country.
When live stock is sold at farm sales on six months time it sells for twice
as much as when sold for cash. Before Post Office banks came into use every
farm sale tas advertised on six months time.
I repeat, "let the government get into the banking business or Eet
out of it."
H. E. Trader.
Marceline State Bank
Marceline, Missouri
Federal Reserve Bank of St. Louis

Report of Resolutions Committee
57th Annual Convention, Indiana Bankers Asso., June 1933
(The Hoosier Banker, July 1933)

*** ********

WHEREAS, We call attention to efforts made in several bills before
Congress to enlarge the present laws on postal savings accounts by increasing the amount which may be deposited, and to permit the privilege of
checking Against deposits.
BE IT RESOLVED, Such bills Ahould not only be defeated, but we
further favor the gradual curtailment of the present privileges offered
by the system which definitely competes with private business. By
virtue of safety afforded small depositors through deposit ineurance,
there is no longer any sound need of Postal Savings System.
Federal Reserve Bank of St. Louis

***** ** ****

"As Applied to Rural Bank" - by J. A. Allen
Proceedirws of 44th Annual Convention of
Minnesota Bankers Asso. - June 1935
(In: Commercial West, June 24, 1933)
** ******

Then came the Federal Reserve System and with it the loss of exchange, and the loss of income froa our reserve which hit the profit
side of our ledger very much, with it also came the Federal Land Bask,
the Joint Stock Land Bank and the Rural Credit Bureau, and last, but
not least, the Postal Savings System. This so curtailed the income
of the banks that a number of them strained their banking facilities
to such. an extent that they got themselves into the speculative and
of banking, and. with the drop of farm prices and farm products this
showed up very quickly, and from then on we have had high vaudeville
in finance.
Federal Reserve Bank of St. Louis

** * ** * **

Resolutions Committee
Proceedings of 44th Annual Convention of
Minnesota Bankers Asso. - June 1953
(In: Commercial West, June 24, 1233)

WHEREAS, The members of this Association are opposed to government competition in any line of business, and
WHEREAS, The United States Government is at the present time
competing with the banks of the country in paying interest on postal
savings, thus tending to draw money away from banks just at a time
when most needed, now,
THEREFORE BE IT RESOLVED, By the members of the Minnesota BankPrs
Association, that we deem the practice of paying interest on postal
savings as unfair competition by the United States Government with the
banks of the country, and we hereby express ourselves as unalterably
opposed to the payment of any interest whatever by the United States
Government on postal savings.
Federal Reserve Bank of St. Louis


//"As 4plied to Rural Bank" - by J. A. Allen
Proceedings of 44th Annual Convention of
Minnesota Bankers Asso. - June 1933
(In: Commercial West, June 24, 1933)


Then came the Federal Reserve System and with it the loss of exchange, and the loss of income from our reserve which hit the profit
side of our ledger very much, with it also came the Federal Land Bank,
the Joint Stock Land Bank and the Rural Credit Bureau, and last, but
not least, the Postal Savings System. This so curtailed the income
of the banks that a number of them strained their banking facilities
to such an extent that they got themselves into the speculative end
of banking, and with the drop of farm prices and farm products this
showed up very quickly, and from then on we have had high vaudeville
in finance.
Federal Reserve Bank of St. Louis

*** *** **




Page 184

Postal Savinu System
We hear loud and vigorous protests against the Postal Savings
System and the unfair competition resulting from its operation by
the Federal Government. This is indeed a vexing and serious problem
and hes put the Government into direct competition with banks, at the
same time forcing the whole load of caring for these deposits upon
the banks themselves. Were it not for the unfortunate record of bank
closings during the past decade and the reflection this has brought
against all banks, with slight basis of justice, we would be in a better
position actively to open a campaign against this governmental invasion
of the banking business. We realize that it is
pernicious practice
and believe that as the banking system isttrencthened the Postal Savings
Eystem should be progressively restricted. In actuality, this iF an
out-and-out guaranty of certain deposits by the Government, with banks
compelled to pledge their bcst assets to secure these deposits, or else
permit the funds to leave their communities and so lessen their capacity
an6 value as credit agenciEs.
Federal Reserve Bank of St. Louis

The California Banker--June 1933

BANKING ON THE GOVERNMENT--address by Lane D. Webber, Vice Pres.
Trust & Svgs. Bk., San riego

Page 263

If you believe there should be a deposit guaranty or insurance
law, say so, and help to create it. Contrawise, oppose it. If you
believe, as you must, that the Federal Government, through the Postal
Savings System, is offerinE an almost ruinous competition to the very
banks it is trying to save, say so, end make vocal your demand that it
retire from the field entirely or reduce its deposit limit, rate of
interest, and withdrawal privileges below the point of competition. * * *
Federal Reserve Bank of St. Louis



Page 101
* **** *
The Postal Savings Pystem has made alarming inroads into the
legitimate banking field. On February 28, 193Z, Postal Savings
deposits reached a total of *1,005,572,570.00. Unquestionably the
Postal Savings System constitutes a serious menace to commercial
banks. This system has been encouraged by the government, but as
the general banking structure is strengthened, the Poetal Savings
System should be progressively restricted. We urge the passage of
H.R. 5203 introduced in the House of Representatives by the Honorable
Ralph F. Lozier, proposing a reduction to $500.00 in the amount any
individual may have on deposit. In no event should the scope of the
system be broadened by permitting larger deposits from individuals.
We believe, further, that only a low rate of interest should be
allowed on Postal Savings deposits, and that sixty days' notice
should be required for withdrawals.
Federal Reserve Bank of St. Louis

Proceedings Missouri Bankers Association—May 1953

Haynes McFadden

Page 110
The golden age of country banking began to decline more than
twenty years ago. In rapid succession the Postal Savings System, the
Federal Income Tax and the Par Clearance System were inaugurated. With
a breathing spell, too short for country banks to fully catch their
breath, the Federal Land Banks, the Federal Intermediate Credit Banks,
the Regional Agricultural Credit Corporations, the Federal Feed and
Seed Loan Funds, the Reconstruction Finance Corporation, the Federal
Home Loan Banks and other governmental agencies of finance were created.
Uncle Sam has become our greatest banker.
So far as these measures relieve a temporary emergency, all well
and good. It is only in their direct effect on bank earnings that they
come in the range of this discussion. In that respect it is germane to
show how, in conjunction with other forces, they have contributed to the
impoverishment ot bank incomes, until country banks in particulsr stand
with their backs to the wall fighting for their very existence. It so
becomes more apparent by contrast that some remedy must be found before
it is too late. The remedy to be suggested may not be a panacea, but it
is at least the best thing the combined wisdom of man has yet advanced.
Just a moment more with the external causes that have bored in on
country bank incomes. Through the Postal Savings System, established in
1911, the government has created the most unmanageable form of competition
for deposits thst country banks have to cope with. Even now there is
strong talk of Congress raising thelimit, with checking privileges attached.
It appears more than likely that nothing less drastic than a Federal
guaranty or insurance of deposits can head off this development.

Page 111
Other manifestations of the government in banking may be passed
quickly over. It may be said that the government is welcome to the
billion dollars of farm loans which it took off the banks' hands, and
to similar amounts assumed in its other activities. My point is that
all these forms of governmental banking activities, though not composed
wholly of desirable bank credits, yet narrow the range, contract the
volume and subtract from the profits of all banks and particularly
country banks.
Federal Reserve Bank of St. Louis




******* *

A nation-wide survey was made to ascertain if the drop in
deposits was caused by the reduction in interest paid on balances.
The observations and comments from the replies received lead us to
believe that very few deposits were lost when interest rates were
The following comments are very interesting:
Experience has demonstrated that regulated maximum rates are
proper and work to the advantage of properly managed institutions.
That public reaction generally was very favorable--the desire
being for safety rather than for profit.
Decrease in deposits can be attributed largely to Postal Savings
and Federal Government financing.
A great number of our friends think that the National Government
should step out of the banking business as a competitor to the
existtn bank.
We are paying too much on public funds. Our competition through
United States Postal Savings is draining tbe country banks. he cculd
lower savings and certificate interest if it were not for Postal Savings.
This should be stopped by reduction of rates paid by the Government.

PaRe 104
We think that all banks have been paying entirely too much
interest on accounts. A nation-wide move now to regulate and restrict
indiscriminate paying of interest would be a wonderfUl move. The
desire for mere size of deposits has made many banks overbid themselves.
To our thinking a smaller bank, less loaded with overhead expenses,
iE preferable.
The reduction of interest rates has caused but little shifting,
as depositors now seem to be more concerned as to safety than as to
Required minimum balances helped get rid of most of the unprofitable accounts.
Federal Reserve Bank of St. Louis

F. C. Hunt
Page 104 (contd.)

The mejority of the banks report that their large drop in
deposits is traced directly to Postal Savings, and they advise
that is their worst menace and a constant drain.
Federal Reserve Bank of St. Louis

Federal Reserve Bank of St. Louis



Neynes McFadden

Page 111

The next step in the evolution of country banking cane the
very next year, with the creation of the Federal Rest-,rvc System
in 1914. After first accordint to tUs magnificent system its
just deserts, which cannot be gainsaid, there is yet no denyink
ite disastrous effects on the earning power of country banks. The
loss of exchange by country banks has never been offset or replaced.
The float which in olden days ran in their favor has been reversed
and now runs against them. The daily debits agAnst them must now
be pettled in cash et twelve arbitrary centers, which contmsts with
the old-fashion settlement by offsets at the naturo. destination of
the merchandise or commodities financed. LtilI not content, IA has
recently been mac ea thet keCeral heserve Banks may lend to inuividuals, firas and cor.orations and at lower rates than commercial
banks can meet in competition.

Address of Wilber M. Brucker, Governor of Michigan
46th Annual Convention, Michigan Bankers Assn., July, 1952
(Michigan Investor, July 23, 1952)

Let me just, in conclusion, suggest one other thought, and I am
through. When this is over, and I meen the economic readjustment, the
people of America are going to look to your profession, that of banking,
and the allied interests, for lladership in the direction of sound
legislation. These are days when all sorts of hare-brained suggestions
are being made. I would not discourage, of course, suggestions, because out of then may grow great and good things. But, when the day
has gone when we are in the midst of the twenty-four hour worry, and
we look for the long-tins success of America, let me sketch what I think
the public is going to be thinking about:
They are going to be thinking that somehow or other confidence, as
great as it has been in days; gone by, in the home town banker, and in
the home town bank, has got to be builded in larger units than that.
It has got to be done, not by the government, because the government
ean ill-afford to get into private business ever. The government must
never compete beyond the necessities of either the time or the circumstance with private initiative, but in that twilight sone between
the government actually operating or owning, and the government staying
clearly aloof, in that sone, there must come a field of development
pointing to an altogether better end, and you must in that direction
lead toward the old-famhioned„ old time banking, which was not only
mud, bat looked forward somewhat, not to speculation, or to the
encouragement of it, but to the encouragement of character and confidence.
Government must remove itself, if it is in, and stay far out
from the standpoint of its actual ownership or operation, but there
must be more of that business of government discharging to the average
man its relationship by the loaning of its name, national and state.
How that is going to come about I am not qualified to say.
Federal Reserve Bank of St. Louis



Page 232

This first wave of widespread difficulties of urban banks was
stopped by the psychological effects emanating from the creation of
the 14ational Credit Corporation in October 1931, a sort of co-operative
institution backed by large banks all over the United States, which
was to grant emergency credits to banks temporarily embarrassed by
withdrawals of deposits. The psychological effects did not, however,
last for more than about six weeks, bank failures again reaching
dangerous proportions as the year 1931 drew near its close and totalling
nearly 500 million $ (deposits involved) during December and January.
Federal Reserve Bank of St. Louis

Referendum-No. 63 on the Report of
the Special Committee on Banking, Part I
Chamber of Commerce of the U. S. A.
December 9, 1932
Committee Report

The Corporation's (RFC) power to make loans to financial institutions
other than ordinary banks and trust companies, such as building and loan
associations, insurance companies, mortgage loan companies, credit unions,
Federal Land Banks, Joint Stock Land Banks, Federal Intermediate Credit
Banks, agricultural credit corporations and livestock credit corporations,
has contributed to easing the general situation and to an increase in the
volume of available credit. This is true, too, of its loans direct to
railroads, loans to farmers, its agricultural marketing loans and its acceptance of drafts and bills of exchange growing out of the export of
****** **

In our judgment, however, it is undesirable to continue as permanent
features of the Federal Reserve Act, either the power of a reserve bank to
lend upon types of assets of a member bank that heretofore have been
ineligible collateral or the power to isaue federal reserve notes with a
minimum cover of 40 per cent in gold and gold certificates and remaining
cover represented by United States Government obligations. Even under normal conditions it is difficult for the reserve administration to determine
upon the proper volume of reserve credit or notes that should be released.
The permanent existence of such powers would open the way to too ready
acquiescence in public demands for more and more reserve credit.
The Committee believes, however, that the power granted reserve banks,
under the Glass-Steagall Act, to issue federal reserve notes with a minimum cover of 40 per cent in gold and the remaining cover represented by
United States Government obligations, should be extended for one year beyond March 3, 1933, the date when it is now due to expire. * * * * * * * *
**** ****

The present permanent grant of power to make such direct loans, even
under unusual and exigent circumstances, is not approved by this Committee.
It was adopted without adequate time for consideration by the banking and
business community. It imposes a burdensome and improper obligation upon
reserve authorities. It produces distortions of the operations of the
reserve system and of the relations between banks and their customers.
The Committee recommends that:
The emergency power granted to the reserve banks to make
direct loans to individuals, partnerships or corporations should
be repealed at once.
Federal Reserve Bank of St. Louis

* *******