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NEW YORK, States in The Convention and the War Central evident to That the outbreak of it did less than the American European war, occurring as month before the one Bankers Association Sept. 24, for its annual convention, assembling of at doubt. can short But time for a even three on upper¬ delegates, four weeks or the most the was most consideration in the minds of the one Seattle, are no too discerning banker to The been war for down the ing consequences, or that the series of Poland States. repercus¬ indeed be said incidents, since Germany invaded Sept. 1, on its economic It may little basis for conclusive gave in Stock own market's once a on had At the outbreak of collapse, had shut In September, 1939, wild carnival of prospective speculation war orders, in stocks, especially of companies manufactur¬ materials, war shares from sold 15 advanced under transactions which of States Exchange, dreading the complete into rise, based United the nearly five months. it rushed at and in the United of events our not been even now readers. hardly less bewildering. which military course American for Europe, has American in 1914 envisage the duration of the conflict, its/ political sion No. 3877. OCTOBER 14, 1939 points or more brought the monthly total almost since the World War to the the smallest August largest September since judgment regarding the duration, probable charac¬ 1932. ter and porarily fallen, under unprecedentedly large selling, longer results of the war, repercussion upon our markets, own public judgment as to the States United Actual period developments been had manner shall best preserve news in all regarding its or of up the in confusing. In of Germany's bloody an week from a Yet intervening subjugation of Poland, the beginning of sive submarine below their issue neutrality. respects Europe they had been made regarding or in which the The low-interest Government bonds had tem¬ aggres¬ campaign against British ships, in¬ the a price of few weeks later the nearly average Wheat had advanced par. 68%c. at Chicago to 89%c. stock market lost United States Government bonds had risen gain. again above The 80c. par; wheat had fallen from 89%c. to beginning of debate in Congresvs on pro¬ posed amendments to the neutrality bill at introduced the cleavage dently under treaty arrangement with the German opinion to Government); the slow advance of the French army belligerents would decrease the probability of in the West into German own of vasion Poland eastern On fications. these by Russia (acting evi¬ territory guarded by forti¬ considerations were superim¬ posed the enigmatic attitude of Italy toward Ger¬ many, which may or may not mean a rift in the alliance of those two countries—an attitude paper possibly forced by Herr Hitler's astonishing league Soviet with Russia—and, finally, Herr Hitler's own speech of Friday, Oct. 6, to the Reichstag. This came on the bankers' Convention had ad¬ Actual significance of that two-hour deliv¬ journed. erance after which, while asking for peace, conditioned it Herr Hitler's having his Send for own our new way with weaker as widest imaginable restriction what on our expected that probability. even It could scarcely • 1 ■ i' Bensonhurst: such at a moment, to suggest financial plans policies, which must necessarily depend measure Of on the future progress in of events. resolutions approached the war problem cautiously. They wisely applied their own analysis to the position in which the United States faces the shock of European war. The report of the Eco- Street 86th Avenile J and and 19th Avenue Coney Island Avenue BROOKLYN, NEW YORK At 6:25 P.M. Assets Over $232,000,000 Surplus Over ★ ★ ★ eco¬ nomic Wednesday Friday or large necessity, then, the Convention's speakers and " Flat bush: en¬ lightened speaker at Seattle would have ventured, DE KALB AVENUE AND FULTON STREET Monday- our the most impartial and TUNE IN WMCA of sales to booklet called "Five Ways to Borrow Mortgage Money'9 ♦•At the Top of the Dial" once possible involvement in the conflict and what would increase that be on third of its early impulsive a 33,500,000 Established 1859 BANKERS' 10 nomic of pend war on such unforeseeable factors as on the consequences of the conflict and the nature of the to They warned that the huge participants." volume of of "will de¬ the duration our own economy nearly idle deposits and the vast excess in reserves banks "might easily be used in our that would produce unduly rapid price ad¬ vances and foster undesirable forms of speculative ways Therefore the Committee activity." advocated a policy of "prudence and thoughtful care" in use of these our It thus regarded resources. the question of foreign trade, which had such remarkable vicis¬ situdes in the war be so; it has always been the case that a This may Policy Committee declared that the effects European a CONVENTION real involving emergency, tration surround itself with to ciers and of affairs, even if men experienced finan¬ it had theretofore public policies from young idealists or its taken class-room economists who had little or Convention's own experi¬ 110 Yet the of economic life. the realities with ence public safety, public public credit, will compel an adminis¬ and resources feeling obviously was that some¬ thing more than selection of an Advisory Commis¬ sion, temporary otherwise, or will required. be Fred I. Kent told the bankers at Seattle what was absolutely essential : going 011 says to our Govern¬ uncertain terms, that they must get together and take such action as is necessary to restore industry in the United States or we will be unable The great war that is now of 25 years ago: and ment Probably the volumes of our exports will be increased, our foreign trade with neutral nations will be ex¬ and panded. These effects will be partly offset by the fact large areas of our foreign trade have already been eliminated by the war, and that even those combatants which continue to purchase goods from us will limit their that to hold to our people, our rescinding that that in own or prevent in no world the turmoil. This requires clarification of all laws the jound functioning of private enterprise correction and in existence today. are takings to war-time necessities. burden of the But the speeches Mr. Kent added much was more war emphatically to the effect that a policy should at be once proper adopted to put the United States in the The Con¬ position to meet an emergency. vention's resolutions expressed own belief that the emergency may make less "no throughout the year, and that the Nation's banking institutions are prepared to meet adequately and But they added that "it is promptly all demands. our belief that should be the approach to an a primary object of balanced budget our fiscal policy, to the end that sound national credit may tained." The profit "is almost criminal," neverthe¬ a right-minded This is wish to union within of measure necessary we need The that we our should own ican manufactories verted on terial. after be main¬ a Indeed, the Meanwhile the drastic changes more now by legislation. It is events of digest them. What our inaugural address took Robert M. Hanes, in his cheerful view: a more During the past decade the world has been engulfed in economic there and seems have courage political to be and a are issues and panaceas. turning of the awake, a new tide. Now To those who . It war. than anything else is stability. President, new imposed opportunity to to have an had . peace-time goods were sequel, when peace con¬ war ma¬ returned fact remains, and was cordially recognized at the Seattle Convention, that recovery recovery, have of 1918, must itself have taught its lessons. full We Few people prodigious scale to output of accomplish is the end of dis¬ borders. unquestionably the feeling which repeat the experience of 1916, when Amer¬ in American least wishes to further the prevails throughout business circles. retiring President of the Association, Philip A. Benson, declared to the convention: The person building of so-called war profits at the expense of a Nation." present increase of business activity will continue that, while the passing of unwise laws because of fear that somebody . day is dawning. industry is rapidly in progress. though it may September, did not result from European was predicted and foreshadowed, both the markets and in the reports from industry, weeks before hostilities began. out of That have been hastened by the line with such This advance on many recovery, predictions, not has already brought the pace of industry back to what it was in the summer or early autumn of 1937. ' "V-r- • Index to Advertisements '>"!' ' ,y ■ .. ■ . •' ' V / '■ , : 'Jy-r; 'A 7y' :~. ■■■' ■./■/:■=.A.;>V\ .v.:;-. >-■: ' ■;:. AA'- Viv^e, Page Page PHILADELPHIA, PA. BOSTON, MASS. New England Mutual Life Insurance 2 Co Corn Exchange National Bank & Trust Co . Tradesmen's National Bank & Trust Co - 4 4 BROOKLYN, N. Y. Dime 9 Savings Bank of Brooklyn SAN CHICAGO, ILL. Pure Oil Co. Outside Back Cover (The) FRANCISCO, CALIF. Crocker First National Bank ___. Wells Fargo Bank & Union Trust Co DETROIT, MICH. Chrysler Corporation — - __ _ 7 SEATTLE, HARTFORD, CONN. 6 The Travelers Insurance Co___ Pacific WASH. NationalJBank of Seattle (The) Seattle-First National Bank JERSEY 3 5 CITY, N. J. Commercial Trust Co. of New Jersey.____—... 2 SPOKANE, WASH. NEW YORK CITY Seattle-First National Bank Chase National Bank (The) Dime Savings _— Bank of Brooklyn Empire Trust Co ___ U;: (The) __ 8 9 2 _____ Fulton Trust Co Home Insurance Co. — — WASHINGTON, D. C. 2 1 Riggs National Bank (The) 13 SESSION GEN ERAL American Bankers Association Sixty-Fifth Annual Convention, Held at Seattle, Wash., Sept. 24-28, 1939 The Future of the Metropolitan Bank, by H. Page Economic Effect of This Country upon The American Way, Immediate Task 15 Inability of Harrison Senator 18 20 ... Strengthening Greater Service to Nation's Needs, 22 by Philip A. Benson Invitation Accept to By H. Donald Campbell, President The President Benson, in introducing Mr. well known in your lie here, I came Campbell, said: city and needs am informed, no introduction to a Seattle audience, 33 some years ago, after graduating from college and from law school, and made Seattle his home for a number of In 1912 ho entered the service of years. have for many years a bank in this city whose officers Vice-President and director. He back to my City of New of one was York, and he did of the greatest so, Later, he had a call to come to accept the Vice-Presidency Since 1930 he has been an officer New York banking institution. City of New York. Chase National Bank, New York, N. Y. banks in the world, the Chase National Bank of the This gentleman is a Mr. I in the realm of However, there one. we can are $nd but will ask you to keep in mind the symbol sometimes attached to balance of the care right, except for errors the outset, however, At qualified prediction. small, have In of the American take the services we background of render danger of being relegated to which we un¬ and significance that the trials of the present will recede far into the are one opinion, banks, both large and so our outmoded that some Not memories. we as stand in The work in museum. engaged is much too vital and essential in the are conduct of the business of the country. In the development of the United States from fringe of Services special functions Economic activity and growth transferred readily from one In the pre-Civil War of New geographical area to another. period, the Suffolk banking system England, the commercial banks of New Orleans, along with many of the country, and savings facilitated, and funds practice. continued individual institutions in different parts established high standards in banking policies The post-Civil War period witnessed the development of State banking systems and the growth of the National banking system. Through the entire history of this country, the banking had to adapt itself ditions. It has survived It has continuously to changing economic political antagonisms. severe con¬ depressions and deeply rooted One hundred years have trust depart¬ many personal trustee, a as wholesaler of credit for the a as an agency markets, and ago, anti-bank purposes corporate and as of international payments and provider of credit for foreign trade, and correspondent as a depositary for banks throughout the country. The process of growth and adaptation has tinuous one. In recent years, been a con¬ investment service, oil and public utility departments have been organized. Personal and checking instalment loan the provided. convenience functions the departments of do not differ services which Aj a Branches have been opened neighborhood so metered and customers. much in kind, small These in magnitude as banks habitually matter of render to fact, the facilities which a big bank renders to its banking correspondents places at the disposal of smaller banks and their customers the services of the an metropolitan bank. This bank system of ours provides extraordinary example, vastly beneficial to the develop¬ ment of the country, of local self-government in banking. The financial power of the United States of customers country, some 14,000 banks, ranging in size from the farming communities to while some institutions all over the neighborhood bank in the metropolitan of them compare is held by the scattered in the centers of industry and commerce. system has been in a constant state of development. small, all or all buy Govern¬ of the Metropolitan Bank' the security and commodity of their customers. have been financed, the use of can, local trades¬ time, the metropolitan bank has developed same from dispensable contribution. or their customers. to great nation, banking institutions have made an in¬ respects the relation many banker to the farmer obligations, all buy bonds, sparsely settled communities along the Atlantic Seaboard a yet a ments, and most of them hold securities in safekeeping for for a nor large business is precisely the same as the deposits, all make loans, when they ment industry be borne in mind that banks, whether they be large services have been Adaptability of American Banking iniquitous thing, an surroundings. In relation of the country and omissions. I should like to make adaption to environment, banks It must always a soon financial demands of big enterprises. enormous big bank to At the future in this country, and a future of such a consequence yet my was /V:;--"'"'- ■■ Size in and of itself is not sheets—the letters E and O. E., certifying that the account is all the importance of well-being Many had to be large in order to take commerce grew. man. certain under¬ country's In this process of constant a appraise, and certain forces which I shall attempt to do so, test. look Any attempt to forecast future events lies lying truths which can a prophecy, and the lot of prophets is not particularly happy we take this ani as located in centers of industry and commerce grew as dangerous thing. him. the to .'..-i^ size is relative to asked in this short talk to you today to into the future. institutions realized. leader in metropolitan financial Campbell's address follows: am In that situation, as in others, barrier. credit affairs, and he actively participates in the commercial life of the country. He is well qualified to speak to us on this subject assigned to As serious particularly violent. was inosity seemed at the time, it proved to be but a temporary first elected Assistant Secretary in 1912, Bank. a Metropolitan Bank been close personal friends of mine, the Washington Mutual Savings later becoming a with 26 sentiment privilege this morning of presenting to you a speaker who is Elected Nominations—Newly on Officers 23 The Future of the 25 Remarks of President-elect Robert M. Hanes Report of Committee to Address Convention... I have the 25 Remarks of Andrew Price for Banks of Report of Official Acts and Proceedings of Executive cil, by Richard W. Hill by Ernest L. Pearce by Dr. Bruce R. Baxter Constant 12 the Present European Conflict, by Dr. Paul F. Cadman The Future of the Country Bank, Leonard P. Ayres. Page 23 Coun¬ 23 Report of Committee on Resolutions, by Robert V. Fleming. _ 24 Remarks by Chairman of Agricultural Commission, F. Lee Major 25 Report of Economic Policy Commission, by Donald Camp¬ bell.. The PROCEEDINGS TO GENERAL CONVENTION INDEX banks situated These big banks, in size with the largest financial abroad, do not comprise a group of four cr five great banks which, through their myriads of branches, make up practically the entire commercial banking strength of a country, as is the case, for example, in France and Great GENERAL Britain; but each almost any States. We in all respects except size with compares 14,000 banks in of the other one all subject to rules and are the United regulations, ai every banker knows, but no one bank in the exercise of choke off the flow of credit to a thrifty business power can it possible in almost every year the worthy borrower, and almost every season for whether large small, to get a loan or when he needs it, irrespective of the bias predilection of or How much this has meant to the individual banker. any outlets makes This vast banking net-work with 14,000 man. arbitrary growth of American industry and commerce no man can justly appraise. ever SESSION 13 tion charges of many thousands of dollars a year on funds received last spring from nervous Europeans. And thoso deposits are merely lying alongside the rest of the excess reserves. And now, in this same general connection, I want to say a word on a sensitive subject, that of service charges. In their efforts to meet the existing situation, many commercial banks have been foiced to charge for services which they formerly did for nothing. The imposition of these charges, although necessary and justified, cannot in itself, in my opinion, restore bank earnings to a reasonable level. Such charges are no substitute for an adequate return Common Future for Large and Small Ban s banks and. What I have said about the likeness between big small banks in the that also they render the public, suggests services speak about the future of cannot we ihk one in farming investment** banks will be equally affected progress or retrogression. subjected to the same either the large or small stresses and strains, the same practically universal Europe. These the future of bank without attempting to forecast whole. Exclusive emphasis on present Guide to Future sometimes charges sistence level of bank earnings, The bare sub- a the legthened character of decade of Federal deficits, the sub-normal level of economic activity, the vast unemployed, readily This are ever brings present in our numbers of consciousness and could me to the question which I think underlies our Will future conditions in the United States whole discussion. on the Continent of open to American banks. are imposed for inactivity also, Causes of Low Earnings Business borrows one major cause money when it can use still demand services from banks in Another is the wide- of low bank earnings. spread decline in commerce, both domestic and foreign, and a third cause has undoubtedly been the apprehension of war. than the smaller institution, The large city bank, even more has suffered from the decline in loan and investment return, Interest rates in the financial centers respond much more The deposits of the large bank turn smaller communities. over more quickly. Its assets must be of shorter maturities, volume sufficient to a Bad know it? support the vast banking apparatus as we though the current situation is, the experience of the past has shown that frequently prophecies based Beyond wrong. our on current conditions are limited horizon lies that I feel will be far different from the dire some of a future predictions of Banking Service in " contemporaries. our The great Washington, D. C. American system of commercial banks has as its primary function the supplying of credit in response to the While the field of credit legitimate demands of business. has become immensely wider with the passing of the years, the extension of credit to business still remains the function to which once we are accustomed and which I believe will most again attain significant proportions. In addition to the function of banks have taken form for the are on frequently supplying credit, American innumerable unconscious of the as indispensable to a be rendered performed for customers, which smooth operation of by some organization. banks have done this work in the past to do it In serving as credit heavy costs. and try in the They Nation's Capital The'commercial and have the facilities Banks in Services Rendered The magnitude of these is little appreciated our own However closely ranks. to keep down operating specialized services deposits. What a press expenses, heavily we v-ateh costs George O. Vass President and Vice-President Chairman of the Board and Cashier means of revenue, but as an bank which pays over $100,000,000 In other Founded 1836 proceeds of lending mockery it is, in these days of ever mount¬ of Resources the outlays for upon us. ing deposits, that we have come to look upon Robert V. Fleming the banking system is involved in days they were easily met out of the one Bankers, their clients and friends are the bookkeeper of the country and as a source information, outside of these business. opportunity to serve in the future. Costs Incurred by of American banks, in the welcomes the than those in other countries, are generous so multitude of functions must ilBlli The 1118^ Riggs National Bank per¬ services banks many perform as they are of the air they breathe. more which they services Those outside the banking profession public. the Artifically low interest rates constitute quickly to changes in monetary policy than do those in the despair. cause us to banks Earnings are low, of course, because the volume of normal bank borrowing is low. Average rates of interest on loans have this year reached the lowest levels in financial history, and yet low rates have not perceptibly stimulated increased funds profitably. conditions could easily make the future of banking. commercial bank assets, among imposed despite the fact that those in- Not only are activity charges imposed on accounts, but borrowing. Present Conditions Not Necessarily a as to are the development of the country, banking system of the United States as a the future of the In this connection it is worth noting that service charges are The work they both do—indeed, is impossible to foresee that it pessimistic Cost analyses should be ference between profit and loss. stitutions have sources of income not institution, whatever its size or character, the work they have done—for one In the case of the policy of making service charges. of- many individual institutions, they have made the dif- the specific services rendered. every similar approve economic and political environ- trends and developments. so earnings. Lest I be misunderstood, I want to emphasize that I fully a common by those factors that make for is small proportion of gross made carefully and the charges imposed should be related to in thei services rendered, all will be a associated is large or small, we communities, whether primarily commercial or Each.and At best, they loans and investments. on account for but are we Whether located in industrial regions or ment. without Whether the in- speaking of the future of the other. stitution with which live and work in can them, not as a added item of expense! I know Federal Denosit Insurance Corpora- Member Federal Deposit Insurance Corporation BANKERS' 14 In consequence, to an extent greater institutions, it has had bonds, which, low small return on, as than is true of smaller the return to forego long-term on it is, is higher than the infinitesimally is the fact that varying extent all banks must face the competition of a Government credit some I would not call atten¬ agencies. tion to this competition unless at the time I same were to or reserves element of excess no money must have an insurance rates if we are to lend our safely in the midst of and undivided those profits accounts wrhile the boom capital There post war liquidation came. than resemblances betwreen the Government credit agencies tion that, sooner or later, we shall and to make use To beyond this go of funds borrowed from commercial banks at of interest fixed rates in the matter of financial recon¬ the great depression. perately to sustain themselves, seems to me Effect of Easy Money Policies are pot alone in experiencing the conse¬ of the present national monetary policies. money policy permeated the entire The easy The economy. thrifty and prudent have been penalized through its effect the return from their savings and investments. they are paying more money for life insurance which versities and endowed institutions have had to tial services, possess increase capital, whether much In my a ment reduce ciytail essen¬ salaries. The heavy tax a upon all who a an In It has had to adapt itself to chang¬ living thing. a searching for needed sometimes lending, sometimes disguised by Govern¬ deficits, by the financing of these deficits through the sources of income, commercial ventured far into reluctantly, fields of new sometimes tentatively, One of the most important of experimentally. these is that of term loans, which have come to occupy a significant j>lace in the portfolio of the large bank. study by the Board of Governors of the Federal A recent Reserve System revealed that the total of such loans comes to well over SI,000,000,000, or 25% of the total volume of commercial, industrial and agricultural loans of all reporting Over half the total volume of such loans has been extended The growing equilib¬ savings and the demand for long-term funds. time the true situation has been rates of by the Newr York City banks. competition for such loans has led to lower interest, to longer maturities and to of payments concentration a in the latter part of the life of the loan. view of the risk factor attached to banking system, by the swelling of bank deposits, and by such possibilities of changes in management, in business Until the excess reserves. beginning of September this made for tion in the bond market ket a decade ago. has become and I have less comparable to that of the stock artificial mar¬ That this could not continue indefinitely strikingly evident to no infla¬ an us in ditions, tries, in time will rise to levels. any one The question of bank ourselves who The country. importance concerns not It why earnings reasons one earnings operating banks. are a I have men important to the business life of the country as a whole, do not pay their own way and therefore, dependent are, upon the general earning capacity of banks. The second reason this activity become that the Association of City Bankers sponsored are extensive study of a very The Commercial Loan Demand \ Given mercial improvement an loans will important to the conditions, business in experience a between increased June 30, 1936 and June to $6,700,000,000, by $1,300,000,000. or This own vided for the future. America has and American business will need ing system. on a not stopped growing, strong and growing bank¬ The need for adequate reserves against losses loans has been amply demonstrated in the past, and na¬ tional and international economic life has hardly become so stable that losses are not to be expected in the future. this risk factor is taken into When consideration, I sometimes won¬ der if in reality we are getting any interest today on our loans and investments. I am not banks. suggesting Such would a be mandatory capital-deposit ratio for the height of folly. particular capital ratio is adequate tendant circumstances. are as very large now, The cash Whether a not depends upon at¬ holdings of banks, which must be taken into consideration as well the quality of bank assets. that a All that I am suggesting is growing business, subject to unpredictable risks and uncertainties, should have a growing capital account. present low level of bank earnings, to or influence banks to building up be war The condition which tends greater loan risks, makes the of the capital account In the midst of extent will assume a a difficult task. uncertainties banks to an obliged to revise their conception of the risk factors involved in fixing rates of interest on loans. The recent trend of business activity has momentum but that it will impetus from the new Excess of markets available to the world because countries of been encouraging, also receive improve of its decided a very conditions prevailing abroad since the early part of this month. us of I also have in mind the broader in Latin America and other parts of the inability of the large industrial Europe to devote as much attention to them as in the past. Thus bank we may deposits, expect an increased use of our superabundant a quickening of productive activity, a capital values, and finally, greater employment and utilization .sequence of and equipment. And I need wre are now fuller To set this experiencing should be sufficient. hardly add that when business with confidence to the future ment, rise in a in motion complete recovery is not required; the improvement ward existing plant the pace of men can look for¬ policies of the Govern¬ the improvement wull be accelerated perceptibly. Already there is increased borrowing demand. interest have shown have a sound ago. applicants for loans. remember to apply all how rising tendency. Banks are Rates of going to larger income from current operations than seemed probable six wreeks increasing was one comparable period of time. is to be maintained and if pro¬ 1937—a in bank loans ever experienced in a and I believe that it will not only continue to banking capital is to be 30, period of marked business expansion—from $5,400,000,000 business public of the country is that net worth must grow if a suitable ratio of capital funds to rising deposit liabilities new com¬ It will be sharp revival. remembered that the commercial loans of all member banks the most rapid rises why bank earnings So im¬ personal loans and retail instalment financing. like Banking upon. are so of which would greatly alter the position of the the whole matter of national already touched non-lending nature, which a only concerns to see, and I shall run over them briefly. are easy The first is services of are con¬ this entire field. Matter of General Concern a always are , portant has Earnings There Existing conditions have also forced banks into the field of Reserve Low Bank reassuring. not are in the competitive situation of particular indus¬ or borrower. the past few weeks, doubt that interest rate, concessions In long-term capital loans, the growth in time suggested beforC'the banking system of the United member banks. little. or Existing rates do not represent rium between capital'struc¬ Lending Fields banks in recent years have Uni¬ opinion interest rates cannot remain pegged at their present levels. For charges and policy has constituted easy money Millions their families and dependents. to protect carry strong a future. quences has find ing conditions in the past and will continue to do so in the . of individuals As I States is General and readjustment. New to be both unfair short-sighted. Commercial banks war but I have great confidence in the proposi¬ des¬ » on of differences more of the last adequate liquidity exceedingly welcome in an on— artificially low levels in order to at compete with these same commercial banks, struggling and ture and be may course the present war, was their salvation when the were reserves give full recognition to the effective work done by certain struction during In the a great war. both banks and businesses increased their surplus war and we our reserves, substantial sort in a depositors' last short-term obligations. Added to the handicap of low interest rates to CONVENTION to We should and will lend to all If a war boom develops, we must those safeguards that bankers know apply in protecting the quality of bank credit— 15 GENERAL SESSION must do this in we justice to our vast sound All the day. every of the great reason more Surely, no nation established under the sun has ever safeguards of realized in like degree the ideals to which we all aspire- cash liberty of thought and speech, freedom of action within the for a rigorous standards. of credit application one Our country's finances. namely the necessity to watch our banking position remove reserves excess The A?nerican Heritage depositors and in fulfill- ment of our duties as trustees of the law, individual power to rise as high as the native capacity Within this frame of law, our people— of each allows. thrifty, industrious and self-reliant—drew upon the stores of our The Alternatives national terial May I reiterate faith in the future of banking for both my There will be hardships and large and small institutions? difficulties to ahead of There will be inflationary dangers overcome. The way us. Yet I have con- will not be easy. The fact is that the American banker, more than problems. before, fully appreciates his responsibility to depositors ever and to the sacred He realizes that his office is a general public. trust, exercised be to prudently and diligently, It to seems and the that me that those the paid for paid for—are of such paramount not are by performed functions banking system—both those that are importance to the economic welfare of the country, that they have to be continued. If there are no banks to do the work, someone And that else must do it. someone else is obvisouly the Government itself. He the is Either alternative: employees of the central authority. of this discussion It does not matter for the purpose Republican or whether Democrat or some- restriction or be identical might be in control; the only differences Opportunity for oppression or thing else. political misuse of the lending power would whatever party would be tho^e inherent in the can very simply, the question is whether the people want commercial credit selves, administered it want American business by political man controlled by district doubt which of the two systems Stated that way, there wants. man question how the American voter would decide no matter were left to his open that, through as we voter of attrition, the banking system a process know it may realizes it, be that answered worn away and before the American the change from one system to the Congress, powers the possible? A couple of years ago, I should have not once but many times, has reasserted the Little by little, and granted to it by our forefathers. people have re-learned economic laws, have found that actments oi other 1 But since then there has come a change, yes. American if the The danger and shut decision. will have become complete. Is Does any on loans decision leaders ? the American business is appointees. want to have the Stated that way, there is no is quality of the administrators. Ameriadministered by themtheir friends and their neighbors, or whether they Putting it they cannot be set aside by violated by Executive action The Economic Effects legislative en- without penalty, introducing Mr. Cadman, President Benson of the who are has the happy speaker. He is an economist truly interesting. He the University of California, earned a Doctor's faculty of making economics received his early training at degree at the University of Paris. He had been successively Executive Department of Corporate Finance and Investments in the University of California. Since 1936 he has been in private practice as a consulting economist. Since 1933 he has been an instructor in current economic events in the San Francisco Chapter of the American Institute of Banking. During the past summer, the students at the Graduate School of Banking at Rutgers had the privilege of listening to a series of interesting lectures that he delivered there. At present he is President of the American Research Foundation. Dr. Cadman had kindly consented to talk to us this morning when we discovered that it would be impossible for Senator Pat Harrison to fulfil his engagement with us here. At that time we asked Dr. Cadxnan to discuss the subject which is on the printed program, "America's Stake in a Free Banking System." This all happened, of course, before the outbreak of the war in Europe, and since that subject was assigned to him, we have Secretary of the San Francisco Stock Exchange, head of the these recent of fellow citizens have been trying to carve out a years, livelihood, the standard of living in America remains for the vast majority the highest yet attained by any nation. In these days of economic adversity, it is easy to lose sight of these accomplishments. We still have we change. are new on frontiers to conquer. Scientists tell us the threshold of revolutionary industrial In hundreds of laboratories, in a thousand drafting r'ooms, in the fertile and numbers of our inventive minds of uncounted citizens, there are fermenting and growing schemes and methods and new ways to increase wealth, Technology is still an active force and a dynamic people will always develop new techniques and better methods. The American people will not be satisfied with an illusion of rights." Property rights are human rights, built out of the sweat and toil of millions and tens of millions of our people who have labored all their lives long that they and their families might live each year a better and a more abundant life. My own optimism as to the future role of banking rests upon my conviction that we shall return to conservative fiscal policies and that economic activity will surge forward in this country. My conviction that such will be the case arises from my faith in the spirit and temperament of the American people. I have great confidence in the ultimate good judgment and indomitable spirit of our people, and, in the long run, political and economic activities reflect a people's temperament. It is my reasoned judgment, that the spirit and will that conquered a continent, that survived a civil war, that lived through past depressions to enjoy a richer and fuller life, will not die. The American spirit is the spirit of the pioneer, of the innovator, of the trail blazer. It is a spirit born of a vigorous and self-reliant people, who will not be content to rely for long upon the largess of a paternalistic government, Our pressing problems will be solved, in the future as in the past, through the combined efforts of a courageous, independent people. European Conflict Research Foundation, San Francisco, found it has been treated Calif. by other speakers at this convention, and in view world conditions, we have thought it wise to ask him to discuss of the topic in the printed program, "The Economic Effects upon of present this Country fortunate in the selection of our next reverses despite the adverse circumstances in which not a few of our instead Association, said in part: We economic Upon This Country of the Present By Dr. Paul F. Cadman, President American In the the limitation of output, the dissipation of savings and the loss of individual initiative. The present attitude of negation is but a passing mood. Let us remember that no party, no group, no man, has any patent on an easy road to a land of plenty. Let us remember that phrases and symbols are dreams, unless they are keyed to the realities of life. Let us not be led into error by the oft-repeated slogan, "human rights before property prescribed in Washington and interpreted by the central authority is commonplaces, other nations economic security obtained through the pegging of prices, operated according to rules and centralized banking system regulations The ma¬ great and prospered. as with by the friends and neighbors of the borrower, or a tered regard adminis- banking system a 14,000 outlets through which commercial credit is we ultimate hopes. as Despite that competently. American \00k to generation of bankers to solve future fidence in the present resources, grew things that and I am sure Dr. Conflict." Dr. Cadman has been I know it is a subject that concerns us all, all intensely. of the Present European good enough to agree to do this. that his address will interest us Cadman's address follows: Mr. President, Ladies and Gentlemen: If I had not been so and far-seeing remarks of the two previous speakers, I think I would feel in a little face¬ tious mood, for this is the first time that I have ever been called upon to pinch-hit for a United States Senator.* Not so very long ago a good friend of mine, who is VicePresident of the Chase National Bank presented me to greatly sobered by the wise Mr. *U. Campbell, and I was reviewing with him in 8. Senator Harrison address the Convention. of Mississippi who had his office originally been scheduled to 16 BACKERS' of one be to in debate with the champions of a explanation the functions of of and said, "We are rose half billion dollars. that that is However, when the audience there to came MacDonald's told son little respect for conservative, Empire to some one which story a when he years ago Ramsey touring was everything that is sedate and invited frequently the politicians the of occasion they had was spired profusely. He sentimental. a only a moment that his conscience evening, warm was not At portly gentleman who a very very very per¬ portly, but he was he struck so a pose as best he could with his portliness, and he stretched out his this to arms student audience and said, or started to say, "If I should die of moment too a There back of the . tonight," but he waited just long, and a very fraction one disrespectful student in the audience put his hand up to his economic the for even have may that this is no mouth and the But and either through experience study or the on high time that this is vied may to the American persuade who deliberately sit down men the people in outrageous thing, and it is an people understand that these forces of our supply and demand which though they at work, even are be interfered with and though they even from time are time curtailed, are so great that no government or no to coalition of governments or no individual interfere with can What you had deeply the fact that the whelming opinion of the American people, over¬ expressed not as in these recent weeks will be curtailed, when the and what you recognition that was a when 10,000,000 men are under arms, the had also production goods recognition that was a shipping of the world, both that of belligerents and neutrals, is either handicapped by hazards drafted for the exigencies of is actually or the transportation also war, becomes scarce, and you lift off from the surpluses and from present production the pressures, and you create by natural seller's market instead of processes a buyer's market, and a there isn't anything you can do about it. spend recognizing that in this country than $500,000,000 more we It is the for rubber. a year largest single item of import into the United States in terms of money spent. commodities days. you very attempt selfish are crisis like ficult feeling with not at all are racketeers have political of every stage to benefit by the sufferings of propose time of a sugar. am The deliberate people that there part of any who attempt to analyze and review these dif¬ I When be curtailed The second commodity in that category is you and have these tremendous demands for these recognition either that production will a that transport or demand asserts will be difficult, immediately itself, and not only nations but purchasing only by their officials but by the polls, is the declaration agents and individuals, yes, even the housewives, begin to that "we wish not to participate in this struggle." lay in supplies, and what happens is that there is bidding for neutrality is perhaps an that sides, and that is do we is mean clear an take not that not that unhappy word, because it implies not opinion will prevail, only time that this at moment have we overwhelming degree that What so. do not wish to participate. we I think expressed will in our otherwise condition of of would not if emergency, our If we had declared we participation would temper in were a then all war, complete support to our criticism and whatever would offer we Government agencies had to be established, But since no to discuss fully and freely and frankly the state of no matter liberty which war has exists, in we are Sound our own been in cautions progress given to were less than now a our upon this morning us regarding that, and I shall speak of this again in just moment in the But most as a the things that threaten the deliberate appeals to people we to are and the guard against deliberately stir discontent sense of psychologies that up our persons defeat, to have those inefficiency There are segment, at least, who and come Well, war. America finds herself moment she has certain dials of my radio the the world around, but wanted in this country because of the arms and taken out of tion is limited, then the price rises in America mean that we are not are only faced at this moment with the possibility of boom conditions. market has been careless assumption that somehow of what and there is the many, we may have repetition a happened between 1914 and 1918. deeply impressed with the wisdom and validity of was findings of which is there is The bulge in the stock misinterpreted by Committee your on Economic Policy. I findings just this word of evidence already known to that Committee, namely, that a vast difference betwreen the conditions which prevail and the conditions which prevailed at be to the and are either 1914-1915, war, nothing but conceal the facts. any one now of the war, you at this moment to be have turned the persuade a large 1915-16, or any period do But if you take the condi¬ will find the evidence "which strongly against that for the most part workings or tions at the opening of that war and compare them with the opening of this seen to under inevitable but in the long run they are uncontrollable. under the classification of planned men are production, and because transporta¬ useless and averages for the wrhole must and listed to organized discussion quite obviously programmed and the at wanted, not only threatened shortages and because 10,000,000 one I are period we agencies who ineffectiveness week most wants. position where supplies which It is last the epochs, because generalizations about that whole result of the operations of the in in other of the laws of supply and demand since the declaration Four times long epochs of the last and I have watched this appeal to discontent come as a of the great of If thing to have of money was too you a call the business cycle, and we that reflects his reactions toward the existing stocks of the all peoples at all times among has begun to produce and save the the failures. and it has length which wave a is that answer the human weakness, to The and Europe, and in¬ destroyed people to discontent, for the appeal is| the appeal futility in living. a tho,se liberties discontent, and that if the escape influences burden of our man things that he most needs and that he I liberties of 300 millions of people in to sweeping the among philosophies on America is to have prosperity?" would like to add to those that an be denied. quantity, his estimates of value have fluctuated in a before I do that, I feel very deeply the are can never throughout all time, since extemporaneous review which your President announced. saying prices which But this not not escaped the consequences month, and already there have been the effects markets. position a it exists here. as Needless to say, we have this how arbitrary they seemed. state of emergency freedom and of of affairs of state own possible. some on Some people say, "Does this mean that because there is war, in with any consciousness of the importance of national us our be existing stocks, and the bidding for existing stocks is fluence 01 But it is do not wish to participate. we analyzing and reasoning about which we Whether tell. can That very fact alone makes it possible for us to do * racketeers. We have been slow in time for pride of opinion or exploitation of the special advantages which come in been knowrn, and they ever for distent ion in this field. called out, "Then the fat would be in the fire." It is patent racketeering, and nothing to racketeers in human society are history that has was and he in his harangue he wished clear, was and all price rises in the any due were their operations. down and addiess them. It to say restive and the heckling was public speakers, and that the Oxford Union, come candidate. very and away two unanswerable argument. an mind my which should be the seat of On in opponent rny He said that the British students have really very America. a money, going to give rather, or, people that our markets could be further from the truth. the theory that Do you want it, or don't you want it?" And I submit to you began, American supposed was elaborate and carefully prepared defense debate a I generate wealth by spending money, and after a can very number of experiences in this regard, in which association my and memory played me a very happy turn. you ( ties was low, a so our having appears a war boom. firming of prices—we have already it was good, because the price of a as the price great many commodi¬ too low in terms of the human effort that it takes to produce them. What we witness today is a different set of conditions, and there is little likelihood that this market will suffer—and I use the term advisedly—a boom, firming in its price structures. even though it The reasons may enjoy a why it is not GENERAL likely to enjoy boom—if a enjoy one—the reactions structive. Let a market does usually too violent and too de¬ for trace me think that you are tory. They and France they had to organize though it is said they ready not for war. They had to mobilize quickly, taken by surprise. were were In 1939, they had forces. meager been preparing for war for more than years, and even ready, their preparation was were not It they want. In 1914, England and France had immense purchasing and their credit, power, concerned, In far so international credit was as 1939, they, in extended their credit far so by said to be social and processes said to be for reconstruction, that that credit is which is not to say In impaired, we faced with shortages of are those forces ought to be are an shall I or, no That free enterprise of saved a way. time in the history of the world, primitive man handful of grain, in little, a The interesting thing festations activity—first of all, he human exerted there prevails. that have elapsed since the outbreak of the In 20 years great World War, the productive capacities of the entire world have increased enormously, the capacities and France and England have increased, as have ours, is in the world of and there the of inflation which type scene we boom capacity. reaches One ought to reckon remote. production, market which have been presented to you so One ought to see that set for one of those furious purchasing power will reserve that may develop if they hold and of their present One matter. against the emergency sober in very reactions / to this our help the flurries of human hysteria can never The stock market itself may have been in the stock market. at levels in which there was a genuine reflection of the with¬ held demand in this country which was beginning to express itself when this catastrophe the "war babies" is thing that is was announced. The boom in thing that you could expect, it is a a very easy to understand, because the speculative down into the mind is seldom analytical, it does not go history, it does not consider the figures, it is not often con¬ cerned with and it has great strength within it It always has, itself. because it has been I time. can see price structure it to boom But that market will correct balance sheet. a heavily liquidated over a long period of of the forces that will unsettle our none I nor can see any of the forces that will bring these price structures, they will be immensely valuable, and does not need to apologize one listen to the shallow argument nor that we advantage from the suffering of Europe. country of ours, there were vast in and the storage, alike brokers have taken In this Western and the producers and the growers which losses they again and again through the past four or five in the countries that country, our own one cent a are affected by the crisis but within has strengthened the p>riees as little as pound in dried fruit and has changed the picture at work and that supply and demand somehow they transcend all of the desires and all of the ambitions of those who would dictate our economic life. This is not to say that the dictator does not have powder over prices Government does not and to say are a nor can is it to say that an arbitrary not regulate prices, but it is that the great, sweeping forces of supply and demand reflection of what behavior and as men want and a reflection of what are which is to say, worth something and their scarcity, and device called price. racketeers, and I know that they operate such as long a of human history, work today at are them are stage every that They in terms of their desirability I know there in of measuring value, means things worth to men? interpret that worth by as we we but these great forces the natural forces of human are may recognize them and respect do not abuse them, and this free enter¬ prise system has significance for us for many reasons. have the opportunity to should I If people against participation, but when we have taken sides with France and put this question: England, I should like to What is the outstanding and deepest today ? I believe it to be this: activities to economic ask the American penetrating question in this hour, when we one great, have declared ourselves a How far they surrender their can centralized Government without losing their political liberties ? question be answered not by oratory and not by Let that answered and control, because at all hysteria and not by emotional appeals, but let it be by the review of every free institution which we enjoy, it is not times we a question of control or no have submitted to reasonable It is regulation. a question of the degree of control, and at the heart of a free enterprise system there stands or should stand a free financial is the manifestation of working of the principle which I mentioned, system, because the financial system modern the namely, work and sacrifice financial system gives values and us sieve helps us a determining values, and the the instruments to measure those to conserve them, through which whether it has and helps not only in productive force, but acts as the every project must pass to find out reasonable claim upon the savings of the provident. Therefore at the heart of every free system there must be a free system of finance. system of finance? of enterprise And what is a free How far is it possible to legislate con¬ activities of individuals who wish to invest? cerning the How far is it possible to fix the values of money by decree? How far is it possible to extend the credit structures, since credit and money go hand in hand and perform the same exchanges of How far establish those bureaucratic controls general function, namely, the facilitation of goods between individuals and between groups? is it anticipated loss to anticipated return. There is evidence that the forces of are some The bidding for those stocks taking place not only years. from shall enjoy quantities of fruit processed, facing heavy losses, were are men was the vast stores operation of that pattern of human behavior there the development of every proportions. With the firming of to you gave us been It possible the standard of living which issue which America faces and when this becomes a long war. ought to be we The doubt be conserved, they will not be no spent quickly but will be held in check So the stage is periods of demand. which France and England have in terms of American securities which gold accurately and helpfully this morning, and in the findings of your Economic Committee. not conditions in the things those two unwilling society. out this What with the immense powers of ought to reckon with the paralyzation of one transport, one ought to reckon with the money On the this moment is contrary, it seems to me that inflation at and, secondly, he Out of Nobody invented it and nobody forced it enjoy. now came which indicates that it. human behavior that of wealth that made In the nothing in the present save pattern of human behavior which has a that pattern of upon an can see to badly named and which is badly called capitalism. today not only stored up goods for this war I sacrifice arose activity but there is the immense capacity of a vast and developed and modernized industrial output. lined with about the operation was two mani¬ constructive of of which No such situation today if it was only was keep out the rats, he had potential capital. allies, to Russia, to Serbia and others, $3,200,000,000, most spent in America. even rough brick kiln, that a exerted the effort to create that surplus, was in It did not thing called capitalism. a little, and when he saved a lime to met together at any moment men ever history and invented some It is not of life. who have been classified degraded by all of the language of abuse today, say, group happen that humble in their namely, that situation which,is euphemis¬ free enterprise system. a at work. are very evidence of the thing that we the selfish product of a group of men that it is destroyed, for it is not. 1914, England and France advances to their eastern they so system is a part of the American way At with all of the democracies, had common that me because they tically called the peak. was at to seems And wish to preserve, for enormous. t what presence In 1914, England and feel and think when men briefly the his¬ very you 17 SESSION possible for us to which never cratic controls life to men escape we from political influence, in which bureau¬ surrender the direction of who have not had experience? our financial And what is the difference between the controlling influence that is by men of experience and the controlling influence exerted by the politician? It is all the difference in you exerted which is the world, because in one case bring to bear the judgment of men who know what can be BANKERS' 18 done and what cannot be done with safety, case bring to bear the wills of you and in the other that men CONVENTION concerned are and Now somewhere in this moment, when we have time when we criticism, in the period of emergency that stifles not yet are and this is not to say that the and and that legitimately put are but it is to give in simple defi¬ men, nition the meaning of a free bahking system and of class¬ the extent to which Govern¬ 1 don't have to review for you control has stitutions and taken now charge of functions, but I do wealth which promises, to were has pay not, or and if And if opened the door for disaster. the 18 States last November by printing of a spurious money the organiza¬ become if that measure take of them, distributed from have been in California it will passes a that wealth is a throughout this Nation who have 1hat somehow there is which is source bounty be to named, and they never produced by those who work and it is who and that save, con¬ alone is able to group semblance of security. any Your afternoon program after 12, and I is two paragraphs which I Let me and it is nearly 20 minutes these over for just one or pages eagerly anxious to bring to you. am repeat that at the heart of a free enterprise system there must be free a call political freedom. I listened to your with he deep a speaking was President's closing remarks this morning of appreciation. sense a There banking system, because political no to me while came little phrase from the English prayer book for us be brought reassertion of a beautiful prayer lived who which In strain, it One Service Is Perfect Freedom." in being Christian rejoices totalitarianism the of him free, choosing a why this Nation reason modern because the right with agent, by the in be what to of his consequences judgment. And so, my friends, period of great stand, we President said, in as your Let emergency. be carried away by us not the forces which would influence price structures temp¬ our orarily with hysterias and bad judgment. history look carefully ano them line by line, for and when you and I what is happemng called in that what as to and if now, the issues of human are put every safeguard about the free in¬ us stitutions of this country which economic and political are hand in hand and cannot be separated, and moment and your upon compare realize that the great, upon to underlying issues in this conflict and the two go rely us bit of data is available as to are Let the conditions and upon every happened in 1914 and will do well to guard you prerogatives as system at the heart of The Future of the is world individual and recognized the he would be and to stand or fall own a men "Whose written: was opposed to the paganism as the of respected Christianity a very repeated for centuries by was and in stress and since up, faith, 1 venture to our bring it to you without any excess of emotion. liberty, then let on, thumbing am good, and in that activity is the heart of the thing that or we campaign of 1940; and deliberately kept from the knowledge of the fact served by those give dramatic a the illusion that somehow the Government can to care my people vote for it in California it will be only reflection of the millions been led It has project. on a issue in the Presidential an million one In because it appeals to the appetite, but make mistake, if no propagation of the il¬ could get something for nothing. shortly vote sort of name, of choosing and of selecting powers their judgments whether they are bad which I had the good fortune to necessary you will we personal own appealed to tion of discontent and the deliberate State of their on nature, it was because there had been years of lusion that willing to work and venture and are and in the operation of that system is the liberation save, he created, The those who operate a free serve through issuing yet been proposals to distribute wealth by increasing the velocity of money banking system should through the distribution of bounties, not or the ballots of on democracy a policy of distributing wealth or redistributing that Government has there financial in¬ our in¬ all industry in its hands. great meaning for a free banking system. a enterprise system, who this, that whenever say Government, whether it calls iteself embarks upon a There is and of standing by economics. ment any free a enterprise system—and this is no recapitulation of room the destiny of domestic itself engage in lending to private can public and private corporations, then it has dividuals and to free far that it can fix the value power goes so foreign exchange and influence the of interest rate and will not accept the we which regulations the selfishness of upon will not recognize social im¬ we provement when it was due, controls in America, must review the state of freedom we field the political and extend its credit, and when it can operate in of money only with the popular approval of their constituents. be trusted with the function of lending money. agency can When any functions your the representative of free financial a free economic system. a Country Bank By Ernest L. Pearce, Executive Vice-President The Union National Bank, Marquette, Mich. Had instead to been I of dispose of fellow the subject assigned "The Future it short in bankers. of the A order purchase that if member young will "what heifer. a lived he would if of finally "Well, if I die and go to heaven if to I go we hell I'll simply hand wonder no expected are to Bankers manner: high any, pay too who we wants a It is so For I too low at any, in this moment's a fortunate convinced, for When as I for by I are the the and always notice and be to never the long results very successful old the metropolitan bank great in his address of army yesterday. bankers country the country banks train, as bankers competent little of future Campbell Mr. know so and the there future a that me that able expect may long and idea, such over we so and the in me turn Mr. to Campbell country predicted banks metropolitan develop big the manage city for them. there is a need were Despite the fact that there banking wheel A bank. as Reserve banks a one definition not time Act "country outside of which banks are used located located number cities at any still half just as as of them as there cog a in under United States 91% in banks. 15,000 com¬ under of towns These bunks same 47% of the total deposits of the system. The Federal Reserve member banks show 94% to be country banks, the total of 14,000 deposits. banks, country trained and banker describes to trusted give this 75% of which, American the Bankers and men the the face of the earth. on thus located are country as approximately the banner of highly average we the American Bradley, writing in with to best say, the banking are 170,000 over with cooperate metro¬ services recent issue of "Banking," a service: "In their various fields, proud are Association, women, v , within the limits of law and sound practice, they finance his birth, education, and marriage; build and furnish his home; cash his checks and collect his debts; clip his coupons and receive his dividends; safeguard his money and other valuable personal possessions; finance his funeral, execute his will and ad¬ minister his estate. sell and deliver his crops and collect the proceeds. They furnish funds to help build, equip, maintain, and operate our American factories; supply raw materials; finance the manufacture, sale, shipment, and distribution of their products, and collect the payment therefor. * "They register and transfer the securities of American industry and faithfully administer the terms of their trusts in the interests of the American investor. They finance the shipments of our exports and imports and arrange the payments therefor in by member central in a This is and sections permission simply to meant reserve similarly considered classifies In area. include to cities of central carry the in banking circles. and domestic currencies. and, reserve same a the all in reserves They in painted to keeping the with future a social the for the uninformed Surely there is facilitate trade and commerce, serve Through the purchase of their securities they required by government." and picture of the economic of the Nation the of changers" so is often American banking system. banks functioning today in for 14,000 country widespread and effective welfare "money These manner. the are institutions in 6ame type which set up and followed in the footsteps of the people who trekked in covered stand country we Federal banks member sought addition, and contribution hardly such metropolitan banks" reserve outlying granted people many within foreign producer, distributor and consumer. the in banking history. required to be carried by country member banks. are many important Country Bank—Its Definition, Position and Traditions general bank as but are 20's, the country bank is The on 29% These speak of "the little old country bank" those outside of banking the the furnish much of the money circles may possibly be inclined to associate it with the "horse and buggy" days. figures with has who anyone interest, of rate a without owners impressively outlined am banks, for his task from in "They help the American farmer buy equipment and stock his farm; plant, harvest, indeed sustain And outlined money rate of interest for it, loan it without limit to everyone a for account politan direction, considering the job banker accept to and moment a banks 500,000 population and thus qualify banker, the I'll have to mail it to you, but that in said analysis of the banking structure shows that of all the mercial penny. was and he was convinced to you." over country expected ready to return it to the lose it headed Some do. are borrow to all are a are The lad thought replied, It's make of our told, was loan with which the boy told should die?" you we obligation,'"But," the pay to Club, An Banker" the Country experience of one 4-H a endeavor an The banker he do you relating the by interviewing his local banker in to "The Future of Country Bank" it would be possible for me be as the are wagons today, the new along the Oregon seeking farms institutions same frontiers in and Trail homes that the gold to followed rush of this '49 very ground stability. and in the on steps this which on These country those who of The coast. same lofty ideals of these pioneers who sought the wilderness, unafraid, cannot reserve In practice non-members are These empire builders, forgotten. continent with iron rails; there these railroad steamboat mighty rivers with their craft—these actors in ican life—have for generations worked hand magnates pioneers who who linked filled our the living drama of Amer¬ in hand with that rugged, GENERAL conservative, been helpful the on The history American individual, frontier American of the American of who banker, country always haa progress. business is ; written of development the in forward in cadence with the almost incredibly rapid development of business, had it been less responsive to the needs of a new country, America would be far different than the America we know today. America would not have the far-flung frontiers, the intricate system of manufacture and commerce, banking. Had banking our the completeness of life and nor had banking not placed upon it. Surely there kept system marched not high standards of living that now prevail met the demand which progress has and pace 19 SESSION "streamline." who But "knows witness stuff" his because Where would term implies? cities tradition and such for future a which bank the country record of achievement. a such has a Before became made third of a Can Country Bank—Home-Owned, Home-Ruled and Independent The country bank we independent an new if as like feel that new definition best, branch of the successful elements future of the country and a bank will permitted not are in this banks, chain banks, banking in especially to supersede the long-established and typical American system of unit banking. We should bility the management basic policy, away from Americanism financial for independence in the flag carry for for believe we We fields. that and banking and local responsi¬ financial local of the path resources that when the money are surrendered to the absentee interests, control are hot later or the political do what tration long in following. usually considers and we life if only the of community States has as been well. as cause developed in Great Britain and bank," terms. by We often hear public under It is and of individuals to render governmental banking system which is democratic in number the of What supervision. its banking service a Thus have we origin, it people ownership, its its supervison, of the number large world, constitute of The democracy serves. have in this country, as contrasted with the very few we the older countries dual a of the most democratic institutions one the and do we under which authority is granted by which our banks locally-owned of banks in greatest guaranty against our monopoly of banking. The banker should country especially in system, Washington, all there is bankers leave not they will chance to the their views the of in the are sure, branch this banking, of They should 14,000 our using control clearly and single State. a with greater control of which credit, is courageously There banking over bankers employ accomplish never heart very must to changing the these when needs and be and the this in network the ing faith in here world of then, is it it has only to for We it has up. As We We We which will successful a the to the for Lank on with extent same the are its in as but it demands future, a future frontiers which country must one that be products abreast keep It is manufactured; that is, improvements in the mechanics of haven't discovered this. bankers many bank's the with properly have today change little competition with the in "to will America back get for the undergoing are to normal if again we Progress from the top down, hanking will lead the activities to our just Our way but toward in improve and the preserve same use of the way recall Just in money. the purpose gas a and a these cheap gas. customer, policy money The thrift. of as is triumph in Federal financing, a a of the our but if it can It is indeed with keen regret which they depended. on portrayed in a study of United States Treasury securities which reveals that interest rates have declined so low that an investor would have to to than that 1 of worth $100,000 own year, enough get Treasury have to maturing notes, purchase return to would He own in newspaper a $100,000 a little over one the of Worse day. every worth near-term obtain enough income to purchase a pack of cigarettes But worse still 1 Had he purchased a million dollars of 91-day Treasury bonds to day. December he could not from the entire income have bills last Treasury single newspaper or pack of cigarettes. these examples of yields on the short-term issues are not fair. Let's put it another way, using some comparisons with the '20's. To obtain an income of $1,000 per annum from Government bonds it purchased either a You may say would have And it so been required 1933, $30,200 in of such and the gamut of tendency; do to thrift." of before to rates for 1920, In the from its cheap of the thrifty. this Let and is go us to we the challenge and encourage make our slow interest cutting real 14,000 country banks deposits away; let turning in further; rates let us find new will permit at least respectable interest vast army of savers. the Nation's hanks must meet we provide earnings which ways in investments which heretofore the requirements to cater to way one cautious The $17,637 is rapidly succeeding in killing off thrift, the security. We country bankers must be concerned, its "laboratories be approximately for it combat thrift, of it will be the Government that will suffer most policy, backbone must investment throughout runs designed long run money an $42,735 in 1939. or bankers of America throughout the history of our banking have persistently, consistently, and insistently preached virtues of thrift, the economics of saved money or surplus. The country's the deposits of all the bankers in the country on to June 30, 1938, which amounted $52,195,000,000, is something to think about. The remarkable picture more than 44,500,000 thrifty savings depositors who in 1938 had accumulated savings of approximately $24,500,000,000, or $200 per inhabit¬ wonderful achievement and reflects favorably on the country metropolitan hankers of America who encouraged this thrift and provided the facilities for its safe in gasoline and the modernization up to the pump, requested this direction has been plished in in sell the country every merchant community and who does not repository. The good they have accom¬ illimitable, yet they have gone further seeing that, so far as is humanly possible, idle funds are industrial and business situations which, by financial aid, set to work would give employment and wages to millions of men and women who otherwise might have suffered hardship and want. This would seem to be the time of all times American in hard work, individual disseminate right and shall thrift, instead to improve to and privilege to help, to serve, that thrift and truth still are prevail. bank is linked with this doctrine. Go research of individual initiative and thrift are to be rewarded and not The future of the country Third, the virtues our own responsibility the time-tested doctrine It is penalized. to history when sneered at in high places, should be extolled. All that the public needs today is some assurance that the homely virtues being in days. becomes make regard the success of The of banks primarily Said the banker, "How far are you traveling?" what may savings banks have been obliged to cut their interest rates to the bone. extent to which the so-called cheap money policy has gone is that of look at the methods of the chain stores in first-hand Government pride in this accomplishment it is a hollow one, for it is at the from their savings temporary job as a gasoline drawing Thrift of of that great mass of people who have been brought up to believe virtue and who now find it difficult to derive a sufficient income expense thrift Laboratories Banks improve and preserve the country bank we should to take any in except The customer explained his journey in detail, whereupon the banker said, "Don't you think you could get along with five?" We can well reflect on this story in a comparison with methods pursued by some of our witness its change Why not do the same ourselves? laboratories banks of a should Make and the manner in which service has business slump got * ~ bankers thing. very Second, that stations marvelous strides 10 years, banking business We have credit and service to sell thousands of the that The be that ease. country American attendant, a this and the commercial field, in as an It may ant, is truly a We should perfect the functions mind he works. create methods—should change interior installations—should change the fronts—yes, should streamline and let the American public know that we intend to continue to grow in business for the next 50 years. We are encouraging and financing the restaurants, the retail establishments, the gas stations in our own communities to do of Banks banks. our bear must at We a those institutions, of genuine America. the years, not basic commodity to sell. boot." gallons of Take feel us stressed. bankers Too often, a bank's rooms, beautiful though atmosphere of austerity, of aloofness, even of even some comparatively inexpensive altera¬ tions of the cages, of the check counters, the installation of air conditioning, remodeling or placing of comfortable chairs will aid in creating an air of cordiality, will help extend an invitation to the public to enter and may unfriendliness. our the upbuilding of America. in merchandising, country banker in station 10 accounting and equipment, for this is a machine our appear merchandising today is devoting close attention to the packaging and As had new banks of the past, in direct we these stations, even A We alone. through. us service a expect elimination through progress must one the much been pull the "World of Tomorrow," banks there is the may needs. buy and sell the service We command. legislation to render require worthwhile future a perform. now is of their this Nation keep abreast of the predict unit indeed, Yes, First, we should streamline selling, We enterprise. mentioned with derision, are Streamline in It may country. bookkeeping machines, the transit machines, the typewriters and Recordaks. measure hank ? country we in We suggested that the on convinced that the attention, as bottom the How, free at leaders institutions independent evolution. horizons new whole vested a the American Bankers Association, on optimistic to changing community come from bicycles in the The old pen-and-ink method on ledgers, remittance letters and tanking. large, which fail to keep abreast of the changing times in meet¬ maintain will depend we in the spirit of are we are of alert and fundamental small and if buggy" days "good old days." constant nation-wide hostile to the fundamental facility banking our our we and But the or that courageous far-flung individuals are see respect and admiration of the people. country banks. horizon end our days when "horse the as of subject. that the country banks, of it times command available every organizations, see In 400,000 were year. banker the every this on to sit back and count expect State express effect concentration of control, especially the philosophy of the American way. Just one more comment while cannot bankers country facility available, to every confidently believe that such concentration is our last that important rage there eyebrows to lift when it is stated that nearly 1,300,000 were It would that The branch banking issue is more important matter. the outcome of this attempt to will they fight The future of country banking will depend in large Washington. country independent the which with measures efforts far-reaching than the boundaries of the the was wheeling, few We must streamline age. in favor not are Nevertheless high in National Administration circles who would like to on to further centralization the the system of home rule in money and credit combined trend. new on perpetuation the Administration in from we scale. throughout the United States, this combat concerned when, the instrumentalities. are require scattered large any 011 for public understanding of which much growing propaganda for a banking should be these times The people of America, government. branch It for 'Two," a passe? Back in the days of mutton when the popular ditty, "On a Bicycle and it seemed that almost everyone had becoming high gaiters, be, to groups hanking system of bicycle which methods of the it? and "swing" the portable phonograph they America. of Is bustles and did What orders. their behind far were radio-phonograph, setting in Nation or chartered this the radio began to take hold. year Last year about 35,000,000 records were sold, equal makers all manufactured American banking system incorrectly referred to our system of chartered banks a the its almost synonymous are The next few individuals and their friends for selfish interests. is State chartered in peak. display of a product it may be well for the banker to consider also the a to "private bank" If you feel that Decidedly not! private banking system with the implication that the banks are run have the bank," "unit flexible freight transportation has more such changes? the correspondence would "Country a and music. taken should of railways street because 100,000,000 phonograph records were sold in the United was combination Built Canada. as 1912, The is such banking concen¬ any to sooner We been have the way out, just take a look at the experience in on given up for dead. sleeves, political strings purse abandoned the of industries to streamlining, with all that the buses which made the railways obsolete streamlined Diesels became the rage. up for faster, escape some That of self-defense, to control are By the late 1920's, when all else flourished, the phonograph industry was in or There technique in tune with simple industries which have staged a comeback. 1921. States. and power credit of local social and in the development of prevent United controls He who controls the necessary, economic to can the in it of political in is it local matter a centralization of democracy whether know as In bank, and home-ruled home-owned a that much so these We preserved We hear we bank. central be when era envision bank. independent way. $22,000,000,000 invested in steam railroads useless. the banking two very tracks the ripped outmoded country banking is The the modern automobile the and they had not taken years had been themselves railroad the today if in recent Similarly, the demand is progressive alert in their merchandising •■'.v;" -'"'i"• they have developed modern needs. /'"X: v./ our the especially merchandises and examples of successful independents who have no fear of the "chains" many carry and preserve for Research the country bank we should go in for the business of the country bank into broader and more business line of large concerns and need these should bankers in There is not the Nation who should not be going in his own way. the whole of the United States and involv¬ banking groups, will also be necessary in order banking reform may be determined. In order to find solutions to all the varied problems which arise from time to time it is apparent that each bank will need to study its own position indi¬ vidually in regard to earnings and costs of operation, as well as in regard to the service that it performs for the community in which it operates. We are now in the midst of a period of the greatest increase in bank reserves, bank deposit expansion, and the accompanying forms of inflation ing the cooperation of all the broad outline of has witnessed been ever in All this has civilized country. a credit. instalment of period same governmental both institutions, financial specialized the During to changes those modified be must that study It also careful involve designed find to business and of in ments directed toward the institutions will to for manner what for future Unless public practices of played ferent should we improve This logically should be developed in three dif¬ banking knowledge. out bank the country preserve directions: Education of ourselves, with constant desire to raise the professional Education of employees, standards; using every possible method to improve the efficiency and broaden the knowledge of the personnel; Then the education of our customers and the Improvement of our public relations If country hanks are to have a worthwhile future we have the responsi¬ bility of giving the Nation the time same tion. The the degree intelligence by hunches through There add is As do this we who people a operate applied. is We depend will upon our hanks and are in the scientific a intuition. it but of an intimate knowledge acquired application proper systematic for deep thinking, of those effort persevering store of knowledge. our wise shown years a times. phenomenal We facts. can we As we survey our tasks we fresher viewpoints, for Bankers Association lias for that Outside an sponsored make all of country by hankers keep to the is years bankers' best in it which was over pace most available to the making has almost launched, was today are activities the national the that Banking attempt banking in recent growth realize of there these of American the for self-education little Institute success leadership program knowledge in tion by that time is the and 40 and that ago the with continued improving their with its progress. education in Further, by on there current attendance at is the inclination these destruction of and work honest and prospered back to that enterprise through which this people that they should get our free great. grown its is preservation indispensable an he should income to defense in front although with people than more any The system. system of private industry a nevertheless, distributed other system in the history of the has, faults, '■ i' v . of that of functioning the in part in out which, confronts every that issue an employment, Government itself depends. There isn't a job that wasn't born of individualism and created by enterprise. There isn't a home that isn't maintained and made possible by earnings and savings from those earnings. There isn't a church building or a hospital, a college or a school, that wasn't made possible by saved earnings. The very security of the home and Nation is reliant upon earnings. Why, then, isn't it a banker's job to lead the return to the sound policy of personal initiative and private enterprise with a minimum of government? It does not require a great program of legisla¬ tion or of new governmental measures. The problem is rather to profit by the lessons which we liave learned, to remove the handicaps which now prevail and release into new activity the pent-up forces of the Nation. There is a simple formula outlined in a story concerning an old Negro. American of enterprise, production, Ho it your We and fact, of they "Put your folks need all, the in not worry about unquestioned meeting an •every Let the yet assurance the He replied this old depression. golf game. put future initiative financial whose resolve us American material the It required Ford your in just three the shed, and of banking if we can enterprise, actuated country and private economic institution them. cure a God; of source which on worthwhile service and the hope of a reasonable profit public need. These constitute the backbone strength. Anything that weakens them weakens a for America's in in individual preserve revenues field." by the ideal of of the use faith primary the is thought would something was First, putts. put in asked what he was that and, after system devised, comforts for and therefore of private giving in welfare to the liberty lead in is in the any enterprise—a dependent way to uphold fight system upon and justify superior to any number of people the most greatest The of action. of—Freedom, Justice, and Opportunity! American way is in our Therefore, to Let us The Let us Improve It; meetings. Let us Preserve It. problems. various experience that the general by learned have speak in defense of the American system of private for dissemina¬ avenues banking ideal world. other important development information profit has with remarkable growth of banking conferences a associations. should years it bankers keeping in bankers 40,000 regional and State conventions possible been banking. and money We must abandon the dream that the Govern¬ enough to plan or control all agriculture, We We must convince business restore result a America such It requires horizons. American iti with which 250,000 intelligence fact-finding question no realize must the by or accurate immeasurably to wider for efficiency the that be at progressive civiliza¬ serve and banking, or any other business, in fact, cannot lie run successfully age, oi of of which in manner sound banking structure, which shall a adequate and modern enough to to living cannot be raised by policies of scarcity and has bankers and more improve and to industry. must because . to pertains as role of preachers, for it seems that we the "old-time religion" of working arid saving and enterprise business man today; because it is a system that, under the Constitution, has made America, and because the chartered hanking institutions of America have We Improve Our Banking Knowledge Fourth, economics on income. our and country therefore, demands research. country banks, assume should assume the return soon American the past. in public coast to Precisely it contemplates in communities from the Lakes to the the role of instructors who shall bankers country coast is all-wise and all-powerful of wealth. competitive new have done they as the needs changing meet to the serve they standards of banking services, the needs of demand in operations. and adapted arise worthwhile arid extent structure are the business general public may be better served through improve¬ hanking hanks public the of what to educate living within improvement in an from Possibly must change less study out commercial A the none and do. another and important job to 14,000 our Gulf have to take account of many problems. Naturally it will deal with earnings and operating expenses; with the income received from different types of loans and investments, and with the relative costs of different methods of doing business. But it will will We must create a favor¬ integrity tangible and easily understood. and ment that research therefore, follows, earnings business knowledge that the to masses banking institutions. our of the We have still result. desired the the educate without impression that the This is discover the precise nature of the possible to it is achieve will business. in constantly endeavor for our banking must the necessity hanking and of of the system. We must so adapt the policies of our institutions and of our relationship to our public as to create these beliefs and impressions. In other words, we must make them justification for stimulating research, since only by means of fundamental careful changes We relations. public science must survive cannot able real with accordance in the Wo system. of commercial profits of the effect favorable of interpret the of future We must educate the public mind to a proper under¬ standing of the way in which banking serves business and industry and the way in which it contributes to the welfare of the community. We rnuBt arouse an unshakeable belief in the necessity for our banking their operations. developments Last and by no means the least in providing country bank is another phase of education—the system to the public. hanks, cither by increasing costs of operation or by reducing the income derived from earning assets, and if profits are to be increased to a more satisfactory level in the future it is apparent that the commercial banking system All bank we should cultivate the country preserve public relations. the for and improve to cultivation into competition with commercial banks, while sig¬ have also occurred in the methods by which business enterprises finance be favorable have private, and in this changing stockholders, and customers employees, executives, Cultivate Favorable Public Relations developed and entered nificant lines. various along hanks are to keep abreast of the times, directors, educated, must "know their stuff." Fifth, com¬ types many new efforts their must indirectly an important individuals, and directly or and corporations loans; lifted; managed currency has world Banks themselves have undertaken a bewil¬ dering variety of new operations and instead of operating primarily in the field of working capital loans to business, have become the largest savings institutions in the country, an important factor in the market for invest¬ ment securities and real estate mortgage loans, the leading fiduciary agent source years. of in the nature of banking problems have changed in for instance, the ■ growth of investments and kinds of loans, such as term, personal, and Federal which the We have, If the country profits of country banks. for available in the to be found is probably education increased this for educational pletely changed our banking environment. During the last quarter century there has been an almost revolutionary change in the factors influencing the we go the whole foreign exchange picture has had its replaced the gold standard; the growth of Government agencies which compete with hankers for loans and invest¬ ments; gold sterilization; deposit insurance. All these things and, many others have kept the bankers on their toes to try to keep abreast the times. If they succeed in maintaining the pace it will be due largely to that that condensed as Housing Administration ; in his own bank, and town, own research, covering in realize full-time research for us and make it in with decline face his in recent , country banker in a research for to organizations. Nation-wide rapidity State, county and in on much do can these in carried be form their studiously acquirer about our daily tasks that scores give us We must engage Impetus be confined to the not which has not only early Bankers Association, men published reports of our commissions and committec-s. of made remarkable strides in this direction, but local associations. We country foster, promote and encourage research activities and the need recognized should development Its American the of responsibilities and opportunities the face of There is an imperative much for banking. as we as times. changing activities do can research for associates our knowledge. the day for many of our It has saved industry. or where in any research in banking is just as necessary as Scientific fields. useful other CONVENTION HANKERS' 20 The American Defend it; Way By Dr. Bbuce R. Baxter, President Willamette University, Salem, Ore. It would be a sad mistake for attempt to speak to bankers expert in it. as who one comes from a I shall bear definitely in mind the fact that I But every banker is to the man that a man before he is a am a banker, and it is of the are three forms of government competing for ascendancy. This is probably the clearest fact that These three forms of government Naturally, to participate in our vote is cast Democracy will succeed in the anywhere else, only when there is men it and democratic form of government rest down in peculiar fashion upon and man from the European tangle. of government. our bankers. assumed This is because, by the very nature of their profession, they have important responsibilities significant that in these last years ^ Everyone understands that there form in layman. I would speak. ism, fascism and democracy. i should like today to discuss certain attitudes and responsibilities which college campus to if the speaker understood banking and were a nowr emerges are commun¬ its This all indicates, it United dens that he has carried for that or We America community hears no leaders. more i think of the silly it is banker the Bostonians call them, sophisticated crevices, poking fun at the bank¬ ing profession. of the sufficient number of good and intelligent direct as for the democratic States, as one stories of the glass eye and ice water variety, no more of the wisecracks, or, seems to me, a definite appreciation leadership that the banker gives to his community and of the bur¬ Now- if the community. banker is to make his rightful contribution to the American are Way, which is the application of the principles of democracy, he must, in the humiliated by the fact that even in the most stirring ITesidential campaigns, first place, be an intelligent world citizen—he must have the international, thirty million qualified voters do not take enough interest in the issues at the world, point of view. stake to cast mind," which simply means the curse of being unable to a ballot. activities. in One w-riter speaks of "the curse of the township see beyond the GENERAL of one's Limits community. own On Sept. 27, Paris newspaper 1938, a the street to interview 50 men chosen at random, sent a reporter out upon asking them what they thought would come out of the Munich Conference. Number 17, a workman, replied, "I don't know anything about it at all. This I live in the suburbs." was wholly a foolish answer. It is a tragedy Any who merits characterization as a man world citizen would under¬ historical background of this present conflict, some¬ His knowledge at this thing of the racial antipathies that enter into it. point would be in marked contrast to that of the school "Martin Luther died a horrible death. his essay, by He was excommunicated The boy's understanding of church and secular history was bull." a very boy who wrote in One who has the international point of view will normal individual passes through three distinct stages: rather long time. goes far toward making a man a world citizen. Truly, we are the man who is going to do his share toward making American that which he owes the nation than in that which the nation owes him. Whenever a coasiderable percentage of citizens gives more attention to that which the government owes them rather than to that which they owe the government, we are headed for trouble. is There far greater demand a true in former and able to sleep at all quirement for and who could not secure loans under the then stringent regulations— money had 142, and in 1934, 306 Certainly the re¬ understanding of one's government in Detroit, or any other far more intelligence in 1934 than It did a century Father of our country had far more United States of America." than a local, The American citizen will be scrupulously honest in all of his higher dealings with his government, for national integrity cannot rise any tion not only in This principle finds applica¬ individual citizens. governmental relations but in faithfulness in all of a man's responsibilities. Bishop G. Bromley Oxanam tells of a night airplane flight when the pilot discovered that the landing gear of the plane had been so He Brought the plane back to the home damaged as to be utterly useless. field and with almost unbelievable skill and daring landed it in such fashion that, although all the passengers were dition of the plane, he If himself. a did not use his parachute and bail out and thus save man were alone in a plane and such an accident occurred, he would, of course, do this, show shaken up. none was seriously in¬ The question that arises is just why, when he discovered the con¬ jured. one sengers but the record of commercial aviation does not bailed out and left his pas¬ single instance where a pilot has ever In the plane. I do not No man who takes his responsibilities seriously ever of profession do not realize how young people do look up to This banker who is an ideal community citizen will not spirit of intolerance. them. be touched by any Intolerance I take to be ignorance plus emotion, and distance. I am greatly disturbed over be not only a wave, but a rising tide, of intolerance ignorance is always a by-product of that which I believe to in the world magazine points out that if a swindle perpetrated and a Gentile is at the center of ft, one does not label it a Gentile swindle, but places the blame upon the individual, where it ought to is some However, if a Jew is at the center of such unfair dealing, there narrow people who at once characterize it as a Jewish swindle, the misdoings of a certain individual. This is wholly unfair and wholly un-American But this spirit of intolerance is not directed solely against the Jews. tarring an entire race with Louis Adamic, in his recent book, "My America," tells of a brilliant second- professor, who writes, "I think I We second generation people can hand up generation Scandinavian, now a college have never quite the spices do the been taken in. and the spoons but the old-stock Americans will still continue to cooking." I hope this is not a typical case but only an aggravated incident. The American Way is the way are not races of tolerance. Tolerance and indifference Tolerance is the principle of active good will toward all synonyms. and all nationalities. It is a desire that all persons should share in the ideal American citizen who, from a assumed by the banking profession, makes his contribution to the American helpful in all his personal relationships. Way, will be genuinely Zealand woman, writing and height of their place of leadership such as is flight , tells how they had been for so long so close to the feeding grounds that unknowingly they had lost the power of flight. threatened and the birds were warned but they The poem our A New of native birds which had been noted for the length Dan¬ could not fly away. ends, "Their wings had vanished—they had lost the sky." What to men who in these difficult years have "lost the contribution sky" ? Many there are who, discouraged over personal losses and unsettled world considerable point to the story of the country affairs, have felt that there was newly-made widow, reading, "Due, $50 for to the time of his death." Some feel that this physician who sent a bill to a curing your husband up foolish story represents the present Ian McLaren person state of world affairs. makes a character in one of his novels say, "Be that you meet is fighting a hard battle." kind—every Well, if Ian McLaren bring contentment and recognize You older men will remember the of the Oriental king who, in the midst of great depson- dency, called in his philosopher to ask how happiness might be restored to The philosopher told him he might get it back again if he would wear him. the shirt of the most contented man in his to find that most man This is nothing How Rome when Justinian United the preparing his legal code, was was uine success is not attained As maintains his faith in others. one writer reason A courageous. grown his fellow fortune, gen¬ is men who one you know is not true. one has lost faith in men does not that it is necessary for him to lose faith in man. represent a profession a does the best of which he is man That capable and then faith enters in. mean his says, faith is not a synonym for Faith is not believing something which credulity. delivered . has the proper relation to leader who Lincoln that goes along with the making of is something significant or in his laboratory, or the Abraham History's judgment is sound, for unless there second inaugural address? is when give the name can writing and teaching, or was Louis Pasteur States of you many when Socrates the richest man in France wrhen Faith fortune in itself do&s not a at all save the repetition of unhappy king. of the richest man in Greece 'in was in the play learned from man achieving of History has a word at this point. man The problem then the play "Yoxi Can't Take see discovered that the wealthy the old story of the richest kingdom. and when they found him, behold he had Then the other day you went to shirt. no contented that is so largely based And so, to those o faith, remembering the upon foundations of a credit system—faith in the integrity of men and in their their obligations—we make a plea for the maintenance of desire to meet faith in one's fellows. would I , offer two suggestions as to methods whereby one may be now and standard of values helped to attain that point of view the desire worthily to meet his responsibilities. come development of one's cultural appreciation. out of which can The first lies in the The happiest is the person interesting thoughts; therefore the necessity active, busy days of building up reserves within oneself upon which he who thinks the most person in draw in times of unusual stress or in days Avill the most interesting thoughts make this same of retirement. Then only for the happiest individual. In connection, it is significant that former Premier of France Leon Blum defines the truly free man as the man who dares This means that all of his thoughts his thoughts. to go to the end of are such that they could end in acts which would have only good results. Is it not significant that the word amusement originally meant "away from the muses"—away from business men there are that nothing else music, art and poetry ? who have found in music These "died with all their music in them." Dawes was a How many avocation, successful release, a are men who never gave any Does any Vice-President, poorer an Oliver Wendell Holmes speaks of those who could give. or one suppose that Charles G. Albert Einstein a less able physicist, Hendrik Van Loon a less capable author, or John D. Rockefeller Jr. or because each played the violin rather well? able financier, a less Does anyone believe that Walter Hampden was less able to portray Shakespeare's char¬ acters he played the because cello, or that Dean Cornwall painter because he played the cornet, or was Charles Schwab less a poorer financial a leader because he had a pipe organ in his own home and played it rather well, William or composed ness Woodin a less efficient Secretary of the Treasury because he some good music? because they These are men who gain a measure of happi¬ think interesting thoughts based upon cultural apprecia¬ ''' tions. My final suggestion is that every normal man must have a fixed point outside of himself and that fixed point I take to be his religion, his relation to his God, expressed through all his other relationships. three British scientists, members of the Royal Academy of Science, went up from London to Oxford Uni versity and Oxford student body, fact is a cause A few months joined in saying to this "The youth of this present generation who religious are non-scientific." good things of life. The must go with it. thought to the cultural side of life. today. A recent writer in an American be placed. He will then understand that the making fortune does not necessarily in itself a can individual who makes his contribution toward the American Way will be an intelligent citizen of his community. I am im¬ pressed by the number of young men who, coming to college to prepare for a banking career, say that the chcice is made because of the position of some banker whom they have known in their local community. Possibly all men In the third place, this of how a community leader today can be of very much help to see standard of values for himself. "bails out." this said, "I am people who have lost their sky until he has an adequate philosophy of life and a That ger untimely passing, in a remote South Sea Island, a victim of a own dread disease which had made him an invalid for years, when he State-wide or even a point of view. are comfort in the quotation by Robert Louis Stevenson just I take great the richest man in will understand that he is a citizen not but of the entire nation, and he will vote and act accordingly. We recall the preamble to the will of George Washington, when he said, not "I, George Washington, a citizen of Virginia," but "I, only of his city and State, than the integrity of its , necessarily bring happiness. ago. in battle." is fighting a hard It With You," and American city, demands The intelligent "Be kind—every person that you meet their judgment. not be too harsh in In the year 1834 the City of Detroit had George Washington, a citizen of the would perhaps if they undeistood the burden he was carrying they that the old man in the tenement that the This intelligent American citizen him for the enormity of his act. because of his worry over clients in that bank who needed for intelligent citizens today than was simpler times. 24 civic functions; in 1900 it forget the agony in the statement of the stricken wife, never However, if only people could know that for weeks he had been scarcely school reader's story democxacy, that is, the American Way, must be an intelligent citizen, interested far more in one I shall that other acquisitions members one of another. In the second place, banker who had taken his life. Investigation showed dollar had been misappropriated—his financial record was bigger than anything that can happen to me." First, the period of dependence, which among humans in infancy means ;; Second, the period of independence, which comes with adolescent years and the desire to strike out for oneself. Third and last, the understanding of interdependence, which realization a not clear. before his comprehend that every I midst of the depression to speak at the memorial called upoix in the that limited, but is no more limited than that of some who talk in glib fashion of the European war, with but meager understanding. much more true it is today. could have that said a generation ago, how was service for a young who said that she was not trying to excuse whenever, in relation to world affairs, one "lives in the suburbs." stand something of the 21 SESSION ago present are non- These scientists spoke truly, for back of every and back of every cause is purpose and back of all purpose •"•'•• is God. Some time ago '• ;; I saw a letter that a small child had written to friend a It was the first letter that she had ever written to anyone of her father. outside of the immediate family. She was careful of its composition. "And now I hope that you will live all of The last sentence read, The little girl spoke far better than she knew, for no philosopher could your life." ever have written a more profound wish—to live all of one's life, to fulfill all of one's responsibilities never having lived. ing lived. worthily. It is entirely You and I have known possible for men a man who have died to never die hav¬ Merely to have lived a long life is not good enough, but to have lived a good life is long all of our life, enough. May it be that each one of us shall live being faithful to all of its responsibilities and obligations— that men upon whose shoulders are laid the responsibilities for the financial welfare of our nation, which involves the happiness or misery of so many of its citizens, may worthily make their contribution to the American Way, the way of democracy. BANKERS' 22 CONVENTION Immediate Task Constant Strengthening of to Nation's Needs By President the A. tlie of Philip A. A., B. It is my great privilege this morning to formally open Benson, While I to it.i elected officers these to the extent that upon My the highest honor that has ever come to me. President has year as your exceedingly interesting and gratifying year. an Through its Insurance Committee, the Association has effected another reductions It has offered oppor¬ affaire Association of the during the year call particular your this office is assisted in its work by our unitedly strive for sound banks, impossible for refer to the year's work without paying tribute to the me to They headquarters staff. of and men are individually and collectively of personal friend. Of they have been under the influence course all of among us spiration of Ifal Stonier's personality and ability? done educator and an as No name ran group but I will always remember and value Indeed who inspiring leader an able an One and all they have my gratitude and my admiration. women. I cannot take time to name them, each one as a It would be do as an has not felt the in¬ been faced at far reaching implications. control exercised now contribution has been some small the where point would they through Federal the and State bank supervisory trated In on the Mead bill addition, there was It was concen¬ for insured loans. was deal of other legislation which occupied great a attention. Under the leadership of your Committee on Federal Legislation extended of pertinent information was made to the appropriate com¬ which and had committees believe we helpful to the members of the was definite bearing on the disposition of the proposals a in question. made. In any rase, I believe we have made progress this year. in legislation to broaden the was to proposed in several measures, but the effort in that direction mittees of Congress, I hope you will find One Joan associations Another dealt with the general idea of credit aid for small business. presentation judges of that. ably agencies. began—and possibly a little better for his having served. You the been has virtually establish a third banking system outside the existing supervisory members find their organization as strong and effective as when that term of course, extraordinary an His work and that of Committee Washington this year with two major items of legis¬ and of savings The Washington office. with our are, effective. most were To Hal, and all he has executive go our sincere thanks. has We powers than hope that at the end of his term of office the more Committee lation Finance touches the lives of nearly all citizens, and it is country as a whole. our Mr. Wiggins has brought ashington in behalf of all banks. the unique service improved banking methods, and intelligent public relations. done through tribute to the out¬ Yet he has spent banker and merchant. amount of time in Y his in their inteiest as well as our own that we work pay a the to exceptionally intelligent, practical, and effective ability. an busy a have brought to me a greater realization^)! its usefulness and appreciation of it renders, not only to the business of banking but to the attention In mentioning this I wish to Wiggins, President of-the Lank of Hatsville, S. C. experience, and for the making of freindships that will be forever treasured the $300.000 annually. additional an I standing work of the Chairman of our Federal Legislative Committee, Lee He with banks May Washington office? to contact Recently the Insurance Com¬ mittee secured a reduction in the rates for forgery insurance which will save tunity for useful service, for as fine fellowship as ever a man ran hope to Intimate During 1937 and 1938 premium blanket and fidelity bonds which reduced the secured on were annual insurance costs of banks §2,735,000. the highest honor within your me In return I ran say to you straight from my heart that it was give. power to conferred you permit of a detailed exposition of Association activities. not saving for banks throughout the country. the work, and this is indeed heartening. our Ten months ago been actively participate in you Your presence here indicates your real personal interest Association affairs. In We who serve you for a short time as your only serve you effectively if we have your counsel and ran We have guidance. Time does I shall mention but one or two of outstanding interest. grateful to each one of you for coming, the meetings are am and it is your Association. yours President of The Dime Savings Bank of Brooklyn, N. Y. this 65th annua! convention of the American Bankers Association and to bid you welcome Banks for Greater Service That is in membership particular at least. one fiscal year 76.62% of the country's banks supported membership in the A. B. A. We have done our activities have welcomed five more date, we more significant in our through On Aug. 31, the end of the immediate past fiscal year, that percentage had risen slightly to 79.76%. members. new for progress, this I Since the latter job not only increasing have done the we public interest was bankers is to operate sound banks and to do all as function in atmosphere conducive to sound operation. an be contrary to the public interest. Our first paramount. we can to see that they To do less would It is in that spirit that the Association has expressed its views and presented data in regard to legislation. Recently the A. J. A. has undertaken think of nothing can indicates In all that so At the end of our previous public relations deal with Up to now to program a and new the effective step in Its misconception of the public recognition of the Association's services but recognition of united interest regarding lending by banks. and loans have been figures by governmental agencies on leans outstanding on a a disposition toward common action with respect to common banking problems. Our Association can is proof that banks of all types, State and National, a and do work together. hope there as well as never There should be will be. the largest. issues that divide no The Association exists to serve The banking needs of the country by its 17,235 banks. There seems to be us, and we the smallest bank being fully met are no present need for any there should iterate my We banking system. longer go individual ways. our our Whether for for worse, the issues introduced today are of a national character or and they ran More re¬ The problems that face banks and the public they serve are no longer local problems better I faith in that system. no ran be any change in our American than be dealt with only through ever need we our common action on a national scale. national organization for crystallization of opinion and unity of program, and it is gratifying to witness recognition of this If I were to express any regret over my year of official service it would be regret over my inability to meet all the have to remain dissatisfied It would be ideal if all fraternity at sentation at a on our that time. any one members in person. But So we have tried really expect 100% various to ways our officers have made appearances at your State Conventions and other A number of members of the headquarters staff have accepted meetings. invitations to speak at banker's gatherings. in 13 States. I creasing regret was the Some was greatly inspired by my experiences and felt the fact that in what has been less over physically impossible to do Twice during the winter New York to other centers. regional conference Bankers Association. March, enabled States. us at an ever one year the Ohio, in headquarters cooperation month same Minneapolis in conducted we staff a with conducted we cooperation with meet with 1,500 bankers Through these useful conferences we the a North I cannot City in Atlantic able to meet with 3,500 representatives of our banks in three sections of the country, and strength and inspiration from them. Ohio tell we these meetings successful. how greatly you we not State Secretaries have been unfailingly helpful, only in connection with these special meetings, but always. ledge, too, the We acknow¬ help of the associations of mutual savings banks, generous both National and State. several divisions, commissions, and councils the line. continued their along have researches and have produced a number of practical reports and studies of value to the intelligent management of tributions to intelligent banks, and have made definite thinking about banking. Let me con¬ compliment the officers of each division for their splendid work and cooperation during the year, and to express my thanks to them and to the members of all com¬ mittees, commissions, and councils for their loyal service during my ad¬ ministration. One of the first major activities of this administration mation of the second step completion of the series effectively with on current related financial matters. understanding on make intensive was the questions about and criticisms of banking and Seven thousand sets of these booklets have been use matters. It is of these booklets. of July we has made a real contribution to the hoped that many more on banks will of borrowers do not They do not give a largely respon¬ on The significance on this subject on two display And I soon as If you return have not replied to A sound our every We I suggest that you our most questionnaire, please do so as and how much important job, for public under¬ will determine we serve our future, other way. relations program involves sound banking, sound a readiness to inform the public concerning our services and a operations. sibility. work is we serve public attitude, and here. are our home. Our public relations legislatively and they have of its newspaper clippings some boards which comment that you give this most important program your urge you Pennsylvania. by the reception they and especially by the editorial press the on by banks, the their books, and the oxtent to which such figures is indicated new Our News Bureau has mounted study them. have undertaken to we We began with two States, Ohio and of these have had in the provoked. credit, And have been assembling figures loans and renewals made We must must strive develop an even constantly for endeavor to extend the usefulness of of greater sense better our respon¬ We management. must institutions to their communities. our And above all, we must run good banks, A friend of mine who witnessed the launching of the liner America few weeks ago told me he saw a a new trans-atlantic bronze plaque mounted on News Shipbuilding Corp. at Newport News. Va., bearing the following motto: "We shall build good ships—at a profit if we can, at a loss, if we must, But always good ships." We might adapt these words to our kind of service institutions. We meeting in the shadow of another great are ands. perhaps millions, of people are at stake. the world may be threatened. not even 3,000 miles away from the we, war. The lives of thous¬ The economic structure of No people can completely escape its effects, prepared for whatever shocks scene of conflict. We must be may come. Our immediate job in such a situation is the constant strengthening of the condition and the management of our banks for greater service to the nation's needs. In addition, we ought at all times contribute our share of intelligent opinion to the solution of such problems It is to be hoped that in a arise. as of developing crisis there may be time an abatement of the conflict between the philosophies of business and govern¬ own The least that borders. legislation. need now we should accomplish is the end of disunion within We have had our full measure of drastic more than anything else is stability. our changes imposed by It is necessary to have an opportunity to digest them. What we Labor, management, and government should act as a unit to rebuild our economy to meet the strains and stresses that the The struggle Perhaps it Mill be have it in our war overseas our will inflict Again I on us possibly drag down democracy in Europe. mission to keep it alive in the world. In any rase, we power to may make this country the citadel of freedom, and certainly ought to be about doing the part of bank people of current popular opinions use the middle credit is being used. consum¬ in our bank employee training program, the "Talk," designed to equip bank people to deal purchased by 3,000 banks and their economic and financial Since ment. The activities of the Association have been intensified all The number same job to correct this misconception. our it, amount of open lines of gathered appreciate the cooperation and support of the State associations in making bank They do not take into consideration the new similarly Minnesota the from the were from successful A third regional conference, held in New York to that of money one year as another number and dollar volume of in¬ it fact granite in the yard of the Newport transferred Early in February Later in the conference than more. we Columbus, at Bankers Association. successful I myself have attended meetings the or picture of bank lending activity, and they have been It is do re pre take static figures same amount standing of how together for counsel and come cannot we Association to you, the members, in your own section of the country. of true are on sible for giving the public the impression that banks do not lend. But I shall score. members could time like this. borrow the full support. evidenced by our figures. as seasonal trends substantial increase in the number of banks, nor is there any reason whatever to believe that These single date. the only figures published we so want to reiterate my faith in true representative democracy and free private enterprise, the American political and economic system, and to express my abhorrence of Socialism, Communism, collectivism, and dictator¬ ship in every shape and form. mild approach to them. influences. Our strength and in a Let us have none of them We have not been free from here, some nor even a of their baneful WThat they are at heart, what they lead to has been made clear. our hope lie in renewed faith in the God of patriotic devotion to and opportunities. oiu- favored land with its our fathers and liberties, responsibilities, GENERAL SESSION 23 ' Inability of Senator Harrison to Accept Invitation to Address Convention Again I want to President Benson announced the following from the Senator Senior communication Mississippi who had been from to attend A. B. meeting and Be assured my every scheduled to address the Convention: disappointment; and regrets over my inability express my Appre2iated deeply invitation to address A. Convention. would only illness have prevented my filling engagement. good wish for most enjoyable and successful meeting. Ci.v PAT HARRISON. •/' Committee and Officers' Reports-General Session the Chair¬ Report of Economic Policy Commission by Leonard P. Ayres, Vice-President of Trust Co., Cleveland, Ohio man, Two conclusions about the probable effects of economy appear Cleveland well regard them as The first is that the effects will be of and some clusion is that in the long run the results will be adverse to us, for immense calamities which impoverish not are wars great only the participants, but all the nations of the world. During the early stages of the conflict American industries which produce needed by the belligerents will undoubtedly ex¬ perience increased business and firming prices. It is not as yet possible to know which lines will be so affected. During the first year of the World of commodities which showed the most groups advances were grains, hides, nonferrous businesses are already Our export and import important price metals, and chemicals. feeling the effects of con¬ restraint resulting from the advent of increased, and our foreign neutral nations will be expanded. These effects will be partly Probably the volumes of our exports will be trade with already been eliminated by the war, and that even those combatants which continue to purchase goods from us will limit their takings to war-time necessities. The volume of commercial bank loans has been slowly expanding in this country since last February, and with the development of the war crisis there has come a much more rapid increase. This expansion of commercial loans may be expected to continue for some time to come. The banks have over five billions of excess reserves and they are amply able to take care of offset by the fact that any large areas of our foreign trade have demands for increased credit which may develop. important economic in the long-term trend of high-grade bond prices. This appears to have already happened and if that proves to be true, the development will be a highly important one for American oanking, for business men, for investors, and It may well prove to be the case that one of the results of the outbreak of war will prove to be a definite downturn National Government. for the of high-grade bonds have char¬ acteristically followed two sorts of movements. One of them has been made up of the relatively short wave-like fluctuations of expansion and con¬ traction that have accompanied the business cycles. The other movements During our national history the prices longer duration, and typically have have been of much continued through several business cycles. period of hard times which is often in the covers levels in this country in 1842, referred to as the Debt Repu¬ Our only index of the prices of Depression. diation that period shows that high-grade bonds which best State bonds in December of that year the advanced for nearly 22 years until in 1864, during the Cviil War, they reached nearly 115. The long advance averaged about $2.90 per year on each 100 dollars of principal were selling at about 52. From that level bond prices amount. one-half years during $7 per year. The index stood at 75 at the beginning of 1870, and then its advances exceeded its declines from business cycle to business cycle during more than 28 years until the price was just under 163 by the middle of 1899. That was an average annual increase of almost $3.10 in each 100 dollars of principal during that long period. The index during this period is made from the very carefully compiled data of the National Bureau of Economic Research covering the yields of the highest grades of rail bonds capitalized at 5%. During the next 21 years the general trend of bond prices was a declining one, and they fell from 163 in 1899 to only 91 in 1920. That was an average annual decrease of about $3.43 per 100 dollars of principal. The following advance has lasted for 19 years up to this past summer, and the index has risen at an average annual rate of about $4.24 on each 100 dollars of principal amount. That brings the record up to July of this year when the index stood The next move was an bond prices which abrupt decline lasting five and fell at an average rate of more than bond price 172. at total realization of $1,207 on a amounts to a return of amounting to 7.75% reversed were significance. This $63.53 per year, or an income from a Federal bond If the trends of bond prices for 19 years. per year that the purchase was made at $1,220 and the final sale at Clearly it makes a great deal of difference to bankers and investors year. whether they are One of them is that they have doing business in a period of declining long-term interest rates, or in one of advancing long-term rates. It should be noted that the bonds that has taken place precipitate decline in the prices of Federal since the outbreak of war in Europe is a most Such characteristic of the long-term trends that we have been discussing. long trends are normally made up of slow and persistent upward or down¬ ward drifts recent made up of a succession of shorter are wave-like of idle seeking investment that no long continuation of price declines at rates is to be expected. Our Federal bonds continue to be the business funds tides which or fluctuations corresponding to the expanding and contracting phases We have at present such great amounts of nearly cycles. soundest of all investments. V Two Reasons for Downturns demand for downturn in the long-term price trend. One of them is the development of greater attractive¬ ness on the part of competing investments. These might be stocks where the ordinary investor is concerned, or they might be commercial loans in the Normally there are only two fundamental reasons why the high-grade bonds decreases sufficiently to bring about a of the banker, case The other factor which might cause a downturn in the long-term trend of from them have of the prices of high-grade bonds is a general realization on the part investors that prices have mounted so high, and the returns fallen so investments have become great low, that the risks of making new enough to outweigh the meager attractiveness At the of the income that can be payments. realized from the coupon present time bond prices have combination of both of these types turned downward because of a Bankers have developed a of causes. bond prices had mounted too high and returns from them had fallen too low, and because there has developed a recent sharp increase in the volume of commercial loans which may continue and furnish a more helpful and appropriate employment for bank funds. Individual investors have a diminished interest in bonds because they are hopeful for better returns from stocks. transitory for they are abroad even before been coming into evidence in the economies of Germany, France, Italy, and Japan, and they may now be developing in England. If they make much progress they will result in advances in the prices of commodities and in higher interest rates abroad. .f--f1' 'fy ;;;v;1 Clearly the nature and importance of the effects which the European war may have on our economy will depend on such unforeseeable factors as the duration of the conflict, and on the nature of its consequences to the These developments are reinforced by conditions the advent of war. not likely to be merely that were coming into being Symptoms of monetary inflation have - We have in this country huge participants. deposits and vast excess reserves. be used in ways volumes of nearly idle bank These monetary resources might easily unduly rapid price advances, and foster that would produce undesirable forms of speculative activity. Your Economic Policy Commission not only calls attention to the prob¬ passed a new downward turning point in the longthis opportunity to remind all the tragic outbreak of another great war marks the beginning ability that we have just trends term bankers that of a of bond prices, but it takes period in which the ones these swings of bond prices There are two features of so 19 years, his original investment of $820. preference for liquidity both because Long-Term Trends prices reached their all-time low Bond He would have received interest amounting to $807 during the or His something been $S20, and his selling price than $1,220, so he would have made a direct profit of $400. more exceptional development, and one that should not be interpreted as being flicting influences of stimulation and war. purchased one of the 4 H % bonds of 1947-52. $820, the income from the transaction would amount to about 1.75% per goods or commodities War the initial investment would have major im¬ will probably develop more slowly than we now of them will prove to be unexpected. The second con¬ portance, although they assume, bought a Liberty Bond at 82 in May of 1920- He could have sold his bond in March of 1923, and %. with the proceeds he could have which he could have held to June of this year and sold for over 122. the European war on our to be so clearly indicated that we may being virtual certainties. An investor could have The coupon was 4 H granting of new credits and the expansion of existing special prudence and thoughful care. should be conducted with which are of special characereistically been of such whole generations of bankers and investors have un¬ consciously come to accept them as representing permanent conditions in the conduct of their affairs. An upturn or a downturn in such long-lasting trends constitutes a most important change in one of the fundamental factors of business, and it is a change to a new set of conditions which is Report of Official Acts and Proceedings of Council, Presented by Richard W. Hill, of A. B. A. of most of the policy forming executives. The other important characteristic of these long trends is the wide amplir tude of their swings. The average yearly change has been more than $3 report the important leverage on the profit side during the long advances, and an even more seriously important one on the losing side during the declines. The operation of the leverage tends to increase both profits and recoveries from investment portfolios during the advances, and to increase losses and diminish recoveries during the long declines. of the convention at Houston, Texas, the Executive Council has held meetings at Houston on Nov. 17, 1938, at Hot Springs, Virginia, on April 25 and 26, 1939, and at Seattle, Washington, on Sept. 25, 1939. At the Houston meeting on Nov. 17, the long duration that quite outside the experience per 100, which constitutes a most Benson: President last met. action is needed on them. Hill: Secretary Committee, astonishing to find that the June of this year. If we capitalize 53 in 1920, and vance year low price works out at just under becomes almost 141. That is an ad¬ little less than 19 years, or nearly $4.70 per these yields at 3%, the the high price in 1939 of almost 88 dollars in a principal amount. In practice it has not been appreciation in the values of the Federal bonds at during the years since 1920 because the issues have been for each 100 dollars of possible to realize on the so high a rate capitalized replaced by new issues at lower coupons, and because they were without assumed maturities, but even so somewhat comparable ciations could actually have been realized. appre¬ 1 of the Association, Mr. Hill, will Budget We will now hear from Mr. Hill. Since the adjournment Commission, and other appointments presented by President approved. At the same record of the Federal bonds during this latest long upswing of prices furnishes results that are even more extreme than those of the highest grade corporate bonds. The Treasury Department has recently compiled an index of the yields of all Treasury bonds having maturities in excess of 12 years. The index begins in 1919 and the highest yield is 5.67% in August of 1920. The lowest yield is 2.13% in It is somewhat Secretary Secretary Official Acts and Proceedings of the Executive Council since we These are read to you for the purpose of information, and no Benson were Federal Bonds The Executive taken on the following items: the Chairman of the Finance meeting favorable action was report for 1938-1939 by Committee 2 of Paton's Digest with regular annul Publication of a new edition supplements , Revewal of lease for one year tion's branch office at Washington 3 4 Amendment to sonnel of the Bank of premises occupied by the Associa¬ of per¬ with the appointment Association's By-laws bringing appointment Management Commission in line commissions 5 Employment of Harold Stonier as Executive Manager of the Associa¬ tion for a term of five years beginning Sept 1, 1938 6 Report of the Committee on State Legislation recommending a of other uniform statute covering bonding of bank officers At the meetings action was at Hot Springs, favorable Association's By-laws establishing the Public Rela¬ Council and the Graduate School of Banking as activities of the 1. Amendments to tions and employees. Virginia, on April 25 and 26, taken on the following matters: Association. Recommendation of the Committee on 2. CONVENTION BANKERS' 24 of statement principles State Legislation proposing a appointment of supervisory the governing authorities. applicants, where necessary, to put proposals,, as presented, in bankable Authorization 4. of President the to Association the inform to the Secretary of the Treasury that it is the sense of the Executive Council that Congress be urged to adopt such n odifications of the revenue laws as will give relief to business and industry, thereby aiding the economic recovery At the meeting taken Seattle, Washington, on Sept. 25, in favorable action national credit may be maintained. a balanced budget should We take advantage of this opportunity fellow bankers, and to institutional and private investors, to express to our continuing conviction that the bonds of our Federal Government our are We are not disquieted by temporary fluctua¬ in their market prices, tions do any the following matters: on approach to an objective of our public fiscal policy to the end that sound the safest of all investments. of the Nation. was belief that We reiterate our be the primary 8tEtUt8 I form, and to see that no sound and rea onable credit need is denied. Recoirir endation of the Committee on State Legislation proposing an 3. for these securities embody fully than more others the qualities of marketability and safety. * 1. Amendment to Association's By-laws consolidating the Insurance Comn ittee and the Protective Coirn ittee, the new committee to be known The Burdens of the Insurance and ITotective Coir r ittee. as of the Bank Managem ent Commission raising the amount of no protest it en s from1 $10 to $50. 3. Establish!) ent of the office of Director of the Public Relations Council, and the appointn ent of William T. Wilson thereto. 4. Authority to the Executive Manager to invest in. sell, exchange, or substitute obligations guaranteed by the United States for direct obligations United States, or to exchange securities of one type for securities of the of the other. , ministration Committee on Resolutions, by Chairman Fleming—Banking and Credit Facilities, ment itself. certainty about its results for us, and that is that they for be detrimental, will vast tragic calamities wars are which impoverish merely the participants, but all other nations as well- not prevailing agricultural large and are prices are still relatively low. reached new high levels, and excess reserves are greater Bank deposits have Our banking institutions are prepared to meet adequately than ever before. promptly such demands for needed credit accommodiations as may and develop. orders than as rather symptoms should indicate that one threatens to develop it will be prudent that such periods always leave heritages of remorse and to remember us result of orders that have actually materialized. a banking should be resolutely directed The policies of American regret. restraining and restricting any excessive war boom in trade, toward dislocations which can occur in our of the and abroad, conditions the shoulders of every our national economy due to war the responsibilities banker which increasingly rest upon the custodian of the funds of the people of as country. lengthy periods of time, conditions they as change from time to time, to may sound and stable Nation may be able to maintain a tax is fixed, structure so Association the end that our regard to stated with was the dual system of banking, banking and the autonomy of the laws of the separate States with banking, and opposing any proposal or device looking to the to establishment of branch banking privileges across State lines, directly between conflicts resulting from uncertainties jurisdictions. taxing for the creation of proposals should We particularly the to respect we success State and both by ments huge supervision governmental of banking in the public of democracy in and strength America is largely due to the afforded by the wisely conceived checks and balances which We believe, furthermore, that regards banking supervision this as same principle of checks and balances, which now exists, should be maintained. be should groups are too numerous The factors concerning which the membership of this Association does desire to make record of its convictions, and that is attempt should ever be made to use bank examinations as instrumen¬ of credit control. Bank examinations should be just what their designation implies, and no attempt should be made to use them for other of mounting banking before the is now adequately meeting the present production, exchange and service. Senate Committee on abundant evidence that needs of be high so our The should gressively narrowing and be without merit. States would be shared first by the banks Under such programs hinder business activity and con¬ of diminishing returns still stands. finally closing equitable avenues for measures of escape pro¬ from sharing Continuance obligation willingly to contribute through taxes to the financial an of Appreciation The American Bankers Association takes this opportunity of expressing appreciation to our retiring President, Philip A. Benson, for the splendid and has he service rendered personal conduct to he our has Association. set By his character, integrity high standard a of professional ethics which has enhanced the presitige of our Association and its members. To Robert Second M. Hanes, our Vice-President, First go our Vice-President, and To our D. Houston, endeavors earnest on membership. Harold sincere P. appreciation and admiration for their teamwork, support and loyalty, and for their behalf of Stonier, appreciation Executive our for Manager, the able manner in we desire which he to is express our conducting the affairs of our Association. His unusual qualities of mind and character, his painstaking and thorough attention to all Association matters, which are handled and with such its assure broad vision, add to the strength of Association our functioning with the greatest efficiency and effectiveness at are due also to the members of the staff of the Association for their loyalty and effective discharge of their duties. To Mike H. Malott, our retiring Treasurer, who for so many years has generously given of his time, thought, and energies to the interests of membership, extend we our our heartfelt good wishes. public life and the other speakers who have appeared before the various meetings of our convention, and given us the benefit of their time and their for valuable counsel, we desire to express our sincere appreciation for contributions to the their hotels, exceedingly the press hospital Pleasant recollections of success of our meetings. our and the treatment citizens of this throughout beautiful city convention. our visit here will long remain in our memories. Resolutions Committee Robert inefficienct businesses in destructive managed men already a system Most of these plans provide for the capital of being supplied by the Government. ones At present relating to our our most wholly adequate. seem, in our judgment, so that investors may be encouraged to being inadequately employed. again upon our members that they continue to explore fully possibility of making their credit facilities available to all worthy borrowers. We P. Ayres, Vice-President The Cleveland E. also urge again that they continue to cooperate with Washington. Trust Seattle. Co., Cleveland. Clark, J. L. Dart, Vice-President Florida National Bank, Jacksonville, Fla. (Vice- President American Institute of Banking Section). Paul S. Dick, President The United States National Bank, Portland. . William S. Elliott, President Bank of Canton, Canton, Ga. (Vice-President State Bank Division). A. George Gilman, President Maiden Savings Bank, Maiden, Mass. (ViceDivision). President Savings II. II. Griswold, President The Elmira Bank & Trust Co., Elmira, N. Y. (Chairman Bank Management Commission). Rudolf S. Hecht, Chairman of Board The Hibernia National Bank, NewOrleans, La. (Representative of Public Relations Council). Hibbard, Chairman of Board and President Union Bank & Trust Co., Our most pressing credit need rather is for better business returns Bank, Vice-President National Bank of Commerce, Portland. Maine (Vice-President Trust Division). A. T. Helena, Mont. productive enterprises the redundant amounts of credit already available and now urge types of loans National Ohio (Chairman Economic Policy Commission). Powers already granted existing governmental agencies to participate with the extension of certain Riggs Arnold, Chairman of Board Seattle-First National Bank, Roland governmental finances, are not those calling for additional institutions to make loans. for The . credit needs, other than the prospects President Ore. capital credit banks. venture in Fleming, Wash. ones. Plans have also been under discussion of late for the creation of the institutions A. Leonard temporally large numbers of competition with the solvent and well V. D.C., Chairman. M. and then by the Government. the making of loans to marginal business close to insolvency should tend to maintain We or to law be given to support of our Government. They involve the unsound principle of creating new forms of easy credit with resulting high percentages of losses every larger indebtedness eventually must be repaid the tax burden which still remain open in certain directions. banking system is now providing these facilities guaranteed by Federal funds are fundamentally un¬ or sound and appear to to be a of the American people to the seriousness stifle initiative as to unemployment. to full consideration Also, proposals for legislation by which bank loans to small businesses be insured banks in purposes buy the State and political We recommend, however, Taxes should be paid by all who are able to pay them, but rates should tribute The recent hear¬ Banking and Currency produced fully, more flexibly, and at less cost to the customer than ever before. Recent pressing of A large volume of these demands thrift, and for the financial mechanics which are essential to our encourage national activities of of govern¬ We also desire to thank most sincerely the bankers of Seattle, the local business and of individuals for credit accommodations, for facilities which which on expenditure public expenditures, both local and Federal, and again remind committees, the would the by all of the people. Banking and Credit Facilties more urging Federal Government for local they pertain. them of the fact that the resulting purposes. ings citizens our among We again call the attention To the leaders in American strict economies are degree of restraint in respect to all such demands. and too complicated for discussion in these resolu¬ There is, however, one principle no with broad study of the a that not only out if warranted at all, borne, which to Our thanks Washington looking toward modifications of our present systems of bank examinations. that accord all times. Bank Examinations Various proposals are under consideration at talities interpretation essential.to lessening the burdens of taxation, for non-essential projects. subdivisions fine pervade our composite governmental system. tions. avoid so as to to as fully in are Federal, but also the withdrawal of pressure special sums which believe this is wholly in keeping with the broad principle that sound safeguards involved We commission to make a point Government operations our Banking Supervision With of duplicate and problems here referred to. in or indirectly. interest, re¬ Then their subdivisions maze It should be possible, aiso, to clarify the laws Resolutions respect States and avoid the present to as The American System branch revenue economy. We reaffirm the action of previous conventions wherein the position of the with of individual freedom in this Nation brings to every resident of the United pledge ourselves to spare no effort or means in our power in meeting We Federal expensive controversies not The American Bankers Association and its members are fully cognizant necessary overlapping taxes to which both the Federal and State governments have in¬ dustry, agriculture, or the security markets. and would be enabled to make future commitments with reasonable contributed. little evidence that a war boom is in the making, but if There is as yet for business activity that has taken place month has come because of the anticipation of war the present study by changes of rate within this structure. met for expenditures are made upon the Most of the sudden expansion of during unchanged for adjust their laws can Most harvests have been good in volume, but carry¬ months of the year. overs advances will continue through the remaining this their assessment. m being Once the or has been increasing in this country since last spring, Business activity and it seems probable that the commend They should be written with the aim of providing the remain taxpayers There is only one We certainty. policies and readjust their plans because a great war has broken out in No one is wise enough to know as yet what the nature of the certain. Preferably, the basic structure of Federal tax laws should be fixed "and quirements Europe. and and should avoid imposing controls or restrictions on business, or Taxation, &c. conflict will be, or how long it may last, and no one can forsee its outcome. efficient more of their economic effect upon all classes of taxpayers and upon the Govern¬ should business and American banking must revise their Federal tax laws our Federal tax laws should not be passed hurriedly, without thorough study Robert V. Once more American studying objectives. its revenue of Taxation now are the announced intent of making them more equitable and their ad¬ with uncertainties Report and the Treasury The Congress Recoil n endation 2. Fred I. Kent, Director Bankers Trust Co., New York, N. Y. Commerce and Marine Commission). J. C. (Chairman, lvlinck. President Kings County Savings Bank, Brooklyn, N. Y. Francis Marion law, President First National Bank, Houston, Texas. GENERAL Lee Major, F. Mo. The Boatmen's National Bank, St. Vice-President to his Louis. President The Farmers & Merchants National Bank, Los cut Houston Vice-President Rouff, National Houston, Bank, Wattam, Secretary, Dakota North Committee ' had operation. Chairman by Agricultural of merchant. first He Commission, conceived in F. Lee Major, Incident to Presentation of Placque to Oregon Bankers for Outstanding Banker-Farmer Projects He naturally performed He the was . I mentioned it only to show friendly spirit and has been a the first major He built the first home. the first store. ran But enough of this history. was Remarks the was first Justice of the Peace. ■' ' But he lot of things to do. a He O. Howard Wolfe, Cashier The Philadelphia National Bank. Philadelphia, ;;r y1V Some of the other early settlers who city. city where friendly tribes could come and meet, and he prevailed. Federal Legislation). on a followed him wanted to be farmers, but he wanted to build a city, a friendly Fargo, N. Dak. (Vice-President State Secretaries Section). Pa. timbers and sent them to San Francisco, all with the aid of or He wanted to build man. Mass. Association, Bankers A. L. M. Wiggins, President Bank of Hartsville, Hartsville, S. C. (Chair¬ man can¬ money they these friendly Indians. Texas (Vice-President National Bank Division). C. piles fish up a For ready Dr. Maynard was essentially a man of trade, a wall-educated, progressive Charles E. Srencer Jr., President First National Fank, Boston, C. Maynard and set They actually packed fish that first year. nery. Angeles, Calif. Melvin word, Chief Seattle brought his friendly Indians w ith him and these Indians immediately set to work with Dr. (Chairman Agricultural Commission). H. Rosetti, V. 25 SESSION been lots of welcomes extended, but none, you since. so ever I can that Seattle There have assure you, more truly from the heart than the welcome which the Seattle bankers have extended to you at this time this occasion. on President Benson: 1 should like at this time to present to you the Chair¬ of the Agricultural Commission of man F. Lee the American Bankers Association, Remarks of President-Elect Robert M. Hanes—Task of Major, Vice-President of the Boatman's National Bank of St. Louis. 18 States have attained the 1,000 point goal of the of Oregon bankers The For achievement. have made consecutive 10 a remarkable' record in agrciultural they years reached have the goal of Oregon is the first State to attain this record. for special Because of this 10year achievement, and recognition by the American Bankers Association, I have the Oregon Bankers Association; George J. Greenwood Jr., Acting Oregon Bankers Association; T. P. Cramer Jr., Former Secretary of the Secretary Oregon Bankers Association: and Clyde E. Chairman the of Committee Agricultural and Williamson, former President former of the Association. My first words of privilege last year to have personally to connection with inspiring times in most of the work my I had one Major and Mr. Oregon. Gentlemen from Oregon, want we to recognize the achievement of your State, one in which I believe more than 90% of your banks have participated, and in doing that, we of the American Bankers Association have a great deal of pride in presenting to you a only in your State, but it has been an example and an inspiration else¬ where, which is indicated by the fact that during the past year have followed States a 18 other example, not having reached, however, your mark. We realize that your activities State and being contacted in us of the Agricultural constructive manner, and that a Association splendid and mombers of its all We example. Extension Service. is the large number of farm people who means more relations, and that is a subject in which the customer record, your and better American Bankers deeply interested. are appreciate are what So you set you a done. have And now, Mr. Parker, as the President of the Oregon Bankers Association, will you accept this Parker: K. President For award. Oregon finances, Association Oregon Bankers the a are head as kindly and of inspiration source happy in the thought that am men who formed this or¬ I know will have outstanding you in their various fields, and I shall depend on them I am glad of the opportunity of presenting them tonight. The incoming President of the Division having to do with the work of banks—Melvin Rouff, Vice-President of the Houston National Bank, Houston, Texas. The who man will preside over the destinies of the Savings Division— A. George Gilman, President of the Maiden Savings Bank, Maiden, Mass. The conduct of the work of the State Bank members our Division, with which many of associated, will be entrusted to William S. Elliott, Presi¬ are dent of the Bank of Canton, Canton, Ga. The chief officer of the Trust Division will be Roland E. Clark, Vice- Portland, Me. The head of our educational section, the American Institute of Banking, during the coming year will be Harry R. Smith, Assistant Vice-President of the Bank of America National Trust & Savings Association, San Fran¬ cisco, Calif. who will represent the State Secretaries Section The gentleman President will be C. C. Wattam, Secretary of the North as its Dakota Bankers through In the visiting members who might have 144 banks which carry in we not be excess familiar with of $300,000,000 Director of the Agricultural Commission, efficient your you gentlemen have extended to us. Andrew I thank you. Price, Chairman of Committee of city like Seattle, here in the Pacific Northwest, for its annual am sure Rainier, situated on markable geographically. the foot At that lovely body of water known become the port as It is most of snow-topped Mount Puget Sound, Seattle has of call of ships from all of the seven seas. It has had a re¬ growth and development, and is destined, here in this Pacific Northwest, to be one of the great, the mighty cities, of our land. it has grown from the In fact, 150th city in rank to, I believe, the 19th in short a Se we are very happy to have the privilege of coming period of 30 years. will tions As prevail at times in the future, rather, been a us. The Chairman of that member of the Executive Council of the Association. active Association in affairs and in banking affairs for He many He is President of the National Bank of Commerce in Seattle and years. today than at any time in its history. ciation loyalty has done for us that I present to you Mr. Price—It was just I suppose you 27, in 1852, might 82H years say, was may Why? ago when Dr. Maynard, a that the first speech of welcome, on this ground. He was It was on pioneer from Vermont and that the Association will continue you bankers is to serve the interests of chartered banking will fail and fall. on the During him the advantages of this a today are interested in banks as service The work of the Association this year to Puget Sound near Olympia, but "Banking and Business Development." and other public contacts, we Indians from eastern Washington, too, would (Dr. Maynard) that these tribes would welcome him, that they wanted to trade and of course they wanted a medicine man its greatest results So Chief Seattle, with these friendly Indians, in March, Banking attains prevails. sanity During Business the past has been engulfed in economic and political issues the world decade economic when regional our banking serves our usefulness in times of normal business development. achievement and Men have lost their heads, false gods have been worshipped, panaceas. a doctrine of something for nothing has lured people to chase economic rain¬ bows—all to avail. no and are awake in a new day is dawning. To those who have pursuit of false illusions are losing ground. is returning, and as courage Those who have great followings less debt creators are on the defensive. I see Reckless spenders and care¬ evidence that economic sanity it comes bankers can again be useful servants of business development. 1852, spoke Maynard as he arrived on the waterfront. a True "Know Your Bank" ment of our institutions. 12 months. the activities of the Bank will be focused many is a pharse you will hear The work of our educational section, Management Commission and of the Research upon ways and means of helping to know our better. Their problems, opportunities and responsibilities will be viewed from Studies will be made, conferences will be held, results of angles. findings will be published and studied to the end that we as will better understand how our banks can meet the need of the bankers public for banking activities that are at once sound and serviceable. The interests of the depositors and of the borrowers are not when economic cannot But even be sound unless bankers know their sanity prevails. made mistakes during the past 120 years incompatible in times of prosperity banks banks and how to American banking has had a long and honorable record. of which we run them. Individuals have are all ashamed. Banking like Government is founded in law and served by men—neither is in their midst. word of welcome to Dr. Through shall show business and makes for employment of men and services. particular location, where he said he knew there trade, and that he could assure him ever will be built around two phases. The first is conferences our of trade, because there was a secret pass right back there where friendly institutions than We must continue to meet our responsibilities in this regard. college good bay and which location would be particularly favorably served from the standpoint of office I shall my term legitimate needs for bank services on the part of the general public. before. Council Chief Seattle, hearing of him there, went to call upon him and urged upon was a depositors, who our We must be true to that faith, mobilize every force in the Association to help our members better serve banks urged to do this by Chief Seattle, for down Asso¬ kind of loyalty. Our first duty as March whom the new town was eventually named. Dr. Maynard at first settled an to give the best us banking, with the help of the Association, President, may I remind to need that graduate, arrived and established a fishing camp about where the King Street Station now stands. It is stronger Because there is meet the responsibilities put upon it in the interest of public welfare. As your often during the next Andrew Price. extended never The Association has been, The second aspect of our work will have to do with the internal manage¬ great deal of pleasure and with deep appreciation for what he a No doubt similar situa¬ that transcends all else and challenges have to the end that American we General Chairman of the Convention Committee. It is with ex¬ the vast forum where our many points of view have been presented. a Now there seems to be a turning of the tide. The committee of bankers of the city and all of the committees have done perfectly splendid work in preparing things for member¬ for the Association has attempted to curtail expression of thought. here. committee is it is to be our a result, throughout the history operation of our banking system. structure and conven¬ that those of you who have been here for a few days have enjoyed the beauties as well as the hospitality of this great city. favorably vast nation, a organization we have had many internal struggles regarding the of More people President Benson—The convention is indeed fortunate to be able to come I over have faith in us and in our institutions. Bankers at Seattle tion. this, spread pressed and even fought for at times. or Remarks of as It is logical, therefore, that divergent points of view should be ship. Dan Otis, and at this time I wish to extend our appreciation for all of the courtesies organization such an expected that we should have various interests represented in Despite these periods of general internal controversy, however, the Asso¬ ap¬ We have enjoyed our work with the American Bankers Asso¬ deposits. ciation over I ciation has grown in strength and prestige through the years. Benson, preciates this trophy and the 10 years of continuous effort which brought come men during the year. National token of our appreciation for your splendid work? [Presentation of Plaque.] A. has members alike. presided over by a President. for help in Oregon have developed better and closer representatives county What particularly pleases to a intelligent, Association. relations with the officials of your State College of Agriculture, with both in His year. for another three-year period on the Administrative Com¬ us service from these yet as 10-ye?r record and that there are 15 other States well past the halfway this past Realizing the scope of Association work, the each Wholesome and a stimulating effect on bankers' agricultural activities over the entire countiy, not the President of the National Bank of Commerce, realize that your activities have had we and ganization years ago allotted certain functions to sections and divisions, token of our appreciation. In doing this "Banking mittee of the Association. the association with American Bankers Association in attending one of their meetings at Cor- valis, during all—officers and us he will serve I want to say that seen some being done in the State of Oregon in banker-farmer cooperation. of the Around President of the American Bankers Association as organization our to you President Benson: This is indeed a notable occasion. it was my happy Built spoken in appreciation of the service rendered by Philip Benson pleasure, President Benson, of presenting to you, A. K. Parker, of LaGrande, President Be to Development" effective handling of Association affairs has been During each of these years Oregon bankers have peformed an outstanding job in banker-farmer projects. Business Agricultural_Commission. 1,000 points set by the Agricultural Commission of the American Bankers Association. Association Ladies and Gentlemen: During the past year, Mr. Major: President Benson, divine, both blamed if some is banking. have erred. Government as an institution is not to be of its servants prove weak, inefficient, or dishonest; neither Government and banking, on the other hand, are constantly BANKERS' 26 trying to improve their services and raise the standards of their business has banking. lish new in do has America finer record a The phrase, records; we must estab¬ challenge in it for bank—small or large—in the lands. "Know Your Bank," has a the fraternity in every every man in This is neither the time nor the place for an I conclude by again ferring So may in con¬ accomplish¬ determined by our willingness to for the advancement of banking as It undertakes to serve the year work together common by reminding you that the this great honor and on me extended address. expressing my gratification for your confidence ahead will be largely welfare of the people declare him elected President now The Nominating for First Vice-President of any American National Bank of other nominations for that office? ballot of the Convention for Mr. President Benson: Houston for First Vice-President.] I have before me a ballot bearing Nominations—Newly Elected President Benson: Bankers Nominating Committee. this time by the Chairman, H. Lane Young, of Atlanta, Ga. Mr. Young: v , of the Nominating Wednesday, Sept. 27, 1939- Mr. Chairman, a regularly called meeting Committee was held at the Second Are there any The next report is that of the that report please be made at Will office of Olympic Hotel on The unanimous recommendations of that Committee are as follows: it to the name of Mr. elected First Vice-President of the Association. Henry W. Koeneke, of Ponca City, Okla., has Officers P. D. Houston, Nashville, Tenn., Are there the Association for the coming year. [Upon motion regularly made and seconded, it was voted that nomina¬ tions be closed and that the Secretary be instructed to cast the unanimous American Report of Committee on Association Committee's report included the name of Chairman of the Board of the Houston, and I therefore declare him of the nation. of Mr. Hanes, and I of the American Bankers for the coming year. But we cannot be content with our ones. ments of the in educational effort than I have a ballot bearing the name President Benson: office¬ holders and personnel. No CONVENTION been nominated for the for the coming year. Vice-President of the Association other nominations ? [Upon motion of M. Lathrop, of California, regularly made and voted that nominations be closed and that the Secretary be was unnanimous the cast Second ballot of the seconded, instructed Convention for Mr. Koeneke for Vice-President.] President Benson: I have before me a ballot bearing the name of Mr. ^toeneke, and I do declare him elected Second Vice-President of the Asso¬ ciation for the coming year. President, Robert M. JIanes. First Vice-President, P. D. Houston. Second Vice-President, H. W. Koeneke. For President Benson: is that Robert M. American other you. - C., has been nominated for the office of President of Bankers Association for the ensuing year. Are there any [Upon motion regularly made and seconded, it was voted that nomina¬ tions be closed and that the Secretary be instructed to cast the unanimous President.] offices for which The constitution requires that While this formal inauguration takes place tonight, in order to comply with the constitution, I hereby declare the newly elected officers installed in their respective offices, day's session. they be installed at the close of the last and as evidence of that fact I now hand the to your nominations? ballot of the Convention for Mr. Hanes for elected officers have agreed to serve in the they have been elected for the coming year. The report of the Nominating Committee Hanes, President of the Wachovia Bank & Trust Co., Winston-Salem, N. the Thank The newly President Hanes: If not, symbol of authority, the gavel, newly elected President, Mr. Hanes, t)oes anybody have who will adjourn this session. he wishes to bring up? any matter I declare the meeting adjourned. [The meeting adjourned at 12 o'clock, Sept. 28, 1939.] NATIONAL Association Bankers American DIVISION BANK Seventeenth Annual Meeting, Held at Seattle, Wash., Sept. 25, 1939 : INDEX Social Implications of Banking Page _ Banking System, by Preston Delano Address of President H. E. Cook-. 27 Remarks of Robert M. Hanes, on Wagner Study of National Banking Policy.. Report of Committee Page Resolution for 33 33 Nominations on 31 ... Social PROCEEDINGS. 29 Changes, by Dr. Howard H. PrestonThe National DIVISION BANK NATIONAL TO Implications of Banking Changes By Dr. Howard H. Preston, Dean and Professor of Money and Banking, School of Economics and Business, Univer¬ Seattle, Wash. sity of Washington, / Some ago years well-known a entitled "The Habit of hoped achieve to to was Going to the Devil." to was bring together frightful within century a prophets of devil. a or changes that history it has been this year founded only has and aware, For but 1907 In In only are deposit the of debts secure In and Chicago which closed affecting the State banks of no Savings National less striking. deposit and note issue taken only on time were were non-existent; mortgages busi¬ taken to trust been had that upon made It followed were permitted real urban in may 25 the estate, central fairly years five-year with reserve farm a mort¬ proviso/ cities of New be stated that the decade ago of the Federal Reserve in American banking. not less so. The Federal Reserve banks financial organization was upon us. Stock panic, the gold standard was universally abandoned, of the investment Post-war years saw the affiliate, broadening of loaning powers, ex¬ foreign banking facilities by American banks, a great merger movement, the development of group and branch banking systems, and the wave of stock speculation which culminated in 1929. Banking has not been static and the great bankers have been those pansion of fascinated by reading the story of "The Growth of been my I have recently Chicago Banks" by boldly faced and overcame the problems of their day. who achievements and As one turns its pages, he finds portrayed the of Wm. F. Coolbaugh, Lyman Gage, John J. Mitchell, George Cyril James. friend Reynolds, Arthur James B. Forgan, Melvin Traylor, and many other giants of former days. We in the Northwest recall With pride the contribu¬ tion of Wm. S. Ladd, Dr. D. S. Baker, Dexter Horton, Jacob Furth, A. L. F. Backus, and other pioneers who built well the founda¬ banks. I commend to the perplexed banker of today that he Manson Mills, of tions our for the solution of his tasks by reading the story of how the leaders of other days met their problems. The title I have selected for this paper does not impose any time seek inspiration limitations however, offices the upon to the banking changes to be considered. center attention primarily upon those It is my purpose, changes that have out of the catastrophe of 1931-33 and subsequent years. The dis¬ cussion will deal principally with the public or social implications of (June all is in 1939) 30, American little a public peak. the post-war at than in State True, decade. a decline the its infancy; But branch banking was in ago in operation. branches 3,607 are the net reduction in the number of banking 12,000. assumed to he somewhat typical of Washington may be which in over is not as drastic as the reduction in the there branches added, more 75 bankless communities in in operation subsequent In 1933 there were bank a banks or been had of these by reopening banks under stabilization, by the establishment of branches. Inter¬ community mergers and voluntary liquidations—we have had no failures for six years—have about kept pace with the creation of new banks. As a 1920. to towns Banking service has by chartering result still we banks which have by this situation. of analysis three and score It bank. ten without towns might be expected that local residents of the community inconvenienced some Improved highways and the automobile have made un¬ a bank at every cross-roads town. My own conditions in Washington leads to the conclusion that bankless few in towns this in commonwealth which a part of the reduction in number of banks has come about through elimination is due to still In in existence better the down with of 479 during the years 1921-35. in the number of banks has been Fewer banks has from In general, the answer is yes. No serious inconvenience has resulted banks. : - . danger that the evils of monopoly will manifest them¬ 15,000 For time some number. there greater selves rectives? of it some where banks merely has that the reduction public interest? possible cutting communities, those towns and cities corrected a grossly overstriking example is found in the Chicago area. In A conclude we the made one-bank in in this cases Illinois, only 98 banks were operating in 1935 out had been May in the number many condition. County, which institutions of small reduction a operate. banked in local a would prove economic. While the the now are some uneconomic and necessary reestablished in been approximately boasted once since banks, by moving existing banks, new pride would be stung and banks than decades two If 30,000? with what are the cor¬ pursued a very lax so, authorities supervisory It was easy for any faction in the community which felt the existing institutions were not giving adequate service at moderate cost to launch a new bank. Some of these banks were "spite bank chartering institutions" this As policy. and of many them but uneconomic, were of In recent existence the right effectively prevented any charge of banking monopoly. a for adopted a policy of rigorous birth control in banking. consequence existing banks have what amounts almost to a franchise have we carrying usual A on the banking of their communities. of exclusive franchise, for instance in condition field the of In banking rate regu¬ maximum rates of interest public utilities, is regulation of rates and services. lation been has loans their limited investments and earnings declining through Bank rates earning hand, power must justify have to borrowers and for checking charges on making through exercise moderation Bankers, hazardous loans. in their policies, must on be the other able to fully charges, and must be prepared' to accept moderate profits. pointed to clearing house agreements, relatively high rates who have only limited access to banking facilities, the failure commercial paper, loaning rate to fall as as low as the open market rate evidence of monopolistic elements in commercial An examination of the data shows that thus far there is little As bankers eagerly seeking new business and banking. for this criticism. ground harassed agencies, these charges may The reports of the Comptroller of Currency show that dividends paid by National banks in recent years seem have to by you not the The of chafed at the lower earning power have sought means to recoup their have various types of service interest of the over-the-counter of fixing any new Critics the to savings accounts, and similar measures. patrons will pay reasonable service charges and accept lower interest on savings deposits rather than have the banks try to build up cutting privileges, on principally Bankers deposits. savings on of grown these changes. the decades Two country as a whole. this existing bank assets doubled in 6ix years. prices soared, banks. of with years for business when the World War with all of its disturbing our upon fall be Louis. this 50% reduction present Is first were legislation highly dynamic era years and at even ■Cook real estate loans not St. exchanges closed in a Tise same one-year and not opened effects From discount, of with the establishment a was The had The should loans York, hanks 1917 to 1921 we 1923 we granted to the super¬ with respect to bank chartering. departments only departments banks. loans such 1909 officially recognized by the The Federal Reserve Act first authorized trust departments savings National that power in it. served that number of banking offices the number previously contracted. 1903 gage In hanks of explain in there authorized fiat. selected for banking Most noteworthy structural changes are the decline in the number and the spread of branch hanking. We have today only half the our Mergers, failures, voluntary liquidations, and the spread of branch banking hank century. bond the banks number we guaranty. the of By 1915 earlier had been the sole form of banking institutions of turn lawful; Comptroller. of serve Department; again the changes have been arena deposit; not was our a Banking 1933 discretionary essentially were after certificates ness this law remained earliest banks were few of the larger towns requirements were high decades capital legislative by celebrating State, young VcVV.'- the national until recent the needs legalized territorial incorporation of we in Washington. hanks In me. barred by the Organic Act/ Only few of the major changes a for to permit them to State a system. only a limited number have been The first of these have to do with the structure of changes, many Conditions Our three whose 1886 and ended was for the first time In than bank hanking, with experimented that fact earliest banks were in that relatively brief period When we became a separate even institutions. created we branch Washington, These a of banks was private hanking, which 40 years visor are we changes. more National a the from interest great Statehood. of incorporation pioneer communities. prohibited in comfort some a of operations too restricted scope hanks. held ago, unincorporated maintain could of than change—political, remained confronted with trends or are Since territorial banks were illegal, i.e., the to gone analysis. such periods. many marked territory. unchanged. private, are decades 1853, the find may Jubilee undergone territory in world had not us had all privilege to delve into the history of banking in this you seven who today always Golden our hanking creating As Practically line. century the Bankers has my Commonwealth. been In spite of the dire forebodings of the date and that seldom have conditions normal, perplexing are The statements sounded the Of an The method fear of change. glance at history shows years. banking has survived Banking years earlier. more cursory many American the read one social—is and for allay the public's purpose and the perils of progress. early nineteenth the Even economic static until The article that the authors published series of forceful quotations showing the iniquities a of the rising generation very American periodical the competition been years of credit new little less than fantastic. unreasonably high. On the other hand, the net profits since 1936 represent a fair return upon the investment. banking is also causing changes In the structure spread of branch banking in certain sections of our country. Visiting delegates from East the arid Reserve Branch from local ment branch bank area. district permit State-wide branch systems. this in the Twelfth be aware that not may Nation's the is Federal of the All largest it became of ing. Policies of management modified were gradu¬ the bank's patrons have scarcely been taking place. The retention of local As a consequence, change that was the to the growth of branch bank¬ the branch bank is able to give a wider variety of has allayed public opposition management In some cases and services Pacific branch. a if at all. ally, conscious the in systems extend to It Is an evidence, not a cause, of a changing economic order. implications. half century business units ago local. Today they cover trade An illustration drawn from any were States or even the entire Nation. areas, Washington community will illustrate what I mean. A generation ago each community had a local power plant, a creamery, locally-owned sawmills, grocery stores operated by individual owners. Western typical the picture Today sold been to The local lumber mills have changed completely. is the of some interests timber larger hauls which logs its its large and efficiently equipped mill. The power and light company has become part of a large system with quarters in the larger cities. The creamery has become a branch cooperative organization. Of the retail stores in the average small considerable distance to increasing number .are chain an motive the tourists of the great along the highways is sold with is What headquarters effect the local mill owner, pany banker funds. Today With banks has New the of York and The less also can get the best can into the go salaried a is terms market open ito the business money deposits. bond The figure. It makes loans at call It buys the commercial paper of the corpora¬ absorbing the local business. are institution local from the The bank becomes credit-granting point the In ditions. Our out the of five units by established purchasing an on is that the exten¬ bitter taken developed hostility and made gradually, has been have to appears be can engendering or Progress branch banking lias place rapidly in in normal a this section it is safe to predict that we will continue to operate years, unit and be may in a wholesome manner with¬ on condition banks. unit new Although branch branches that adequate banking service only and absorption in the past providing over-banked an branch manner. by banking has been carried creating between have with branch banks unit have My observation on the whole, therefore, existing bank. sion of excellent States adapted themselves to changing con¬ protected existing banks from the pressure of competition communities in bankers laws bank branch Northwest Pacific three Progressive banking side by for side many to years if come, tions. In the first to mind, my number a of changes in banking may be and how dependent they may be upon existing economic conditions. decade A All eight, including collapsed. The failures. conclusion general that was been dismal experiments had demon¬ these strated the fundamental unsoundness of deposit insurance. banker felt bank of that been had he vindicated More far-seeing Taussig, who was wrote shrewd a than more his in American Professor It F. W. af¬ fected by actual experience. A succession of conspicuous bank failures, bringing great loss to depositors, would immensely strengthen the movement for deposit guarantee." Subsequent and ers banks by Panic of a It others this as depositor opinion that deposit insurance be down of but is of the a kept also may to deal will with 0his insist upon from his deposits saw probable is order to in at a Federal Deposit like The minimum. that calm Insurance of be allowed this be prevented? to go The best State without of the deposits. If more far- am even is that insurance before The safety of deposits. The not are to assure After premiums recognize that the depositors. which the program, you incidence are of but it called the may upon cost of to of sufficient In that the solvency ultimately reduce pay. It is well insurance is must we 'bigger a ment to I don't to the would heavy runs on Jan. 2, 1934. years millions of preferred public fire depart¬ banking system in case there is a general conflagration? answer, but I do not believe the system will be allowed the save the know the still RFC Must banks. owns hundreds of its existence as continue we a is forced to Busi¬ ness men, and in fact I believe the majority of voters, will join in your desire to preserve the private ownership of banks. I am hopeful, therefore, that improvement in the quality of bank supervision will so reduce the number of bank failures that a fire department may be unnecessary and to collapse absorb the did as State public ownership averted. An important result of deposit Government the If systems. to take the next step may be heavy losses, broad having insurance the banks. over social conse¬ is greater uniformity in banking supervision. There were many who wanted Congress to seize the opportunity to bring all insured banks quences Federal under Senator supervision. Glass gave opposition his up to the bill provided for compulsory Federal Reserve membership of all insured banks in two years. Early amendments removed insurance when deposit this banks (deposits under $l,000,00d), and post¬ banks were required to enter the fold. swept away entirely by action of Congress last requirement from small The the when date requirement larger ■ effect in supervisory the Nevertheless, State examination. Comptroller, toward commercial banks. There of all or the revised by the Federal Reserve, banks State the complete abolition of State your own declared policy. or This, I note, accords with certain are part ago year be to are a are For the time being at least, the steps preferred to enforced Federal Reserve FDIC. and the uniformity adopted effect into by unwilling membership have examiners procedure put banks Insured marked subject to annual have had a the FDIC of powers unifying bank regulation. examination the the was spring. implications deposit of that insurance appear may be highly theoretical. To my mind they may become quite The first of these is a belated recognition that deposits are not ordinary business debts. They constitute an important part of our medium of exchange, greater by far in volume than the coin and paper to to you practical. Depositors and bankers have looked upon a bank ways. To the banker, deposits are liabilities; depositing public, they are "money." Which is right? At least respect to demand deposits, our verdict must be that the depositor in quite deposit different the to with is circulation. in money correct. The money" banking. f is understood, poorly banks economist, prominent monetary a of held and long vaguely view, of Treatise Money" on to the use guar¬ the literature of money finding expression in now "Keynes that, "creators and are bank includes deposits. Laughlin'8 "Supply of Money" also deals with deposits. A century fund the notes of banks were ago substance from the in not superseded was mutual for by in National Banking System, where it My college York 1838 in generation the on other hand, exercise to withdraw been bank Today, from holders that be able to to influence of circulated notes bank were Depositors, depositories sound policy their by bank. managed notes widely. select bank upon unsoundly an The right has result deflation, and heavy losses to loyal depositors. hoarding, runs, conservative a assumed were restraining a funds This notes. used for more than seven decades. was since bank of bond-secured note issue, first over whole-cloth into the carried and taught was York, under the safety New insurance of system a adopted New liability differing in form but a deposit liabilities. provided first system, method economist writes: "Deposits are deserving of the same measure of protection which the Government has long accorded in connection with bank notes." t Lest in think his statement radical, I you with connection opposed adoption the notes bank notes were steps looking It nent. public will "money." more bank drastic banks insurance is Under seem safe to assume, is must provide discontinued, be made in may For decades deposit. on par. No furthet is order to to be immi¬ will pass through however, that the safe a it Federal the form possible assure bank of that even safety for the Of the reforms currently advocated having this objective plan reserve deposits is at remittance is universal. par It notes. the that deposit money. 100% taken abolition of all collection charges as in which he customary when out-of-town were or everywhere necessarily follow that bank deposits demand If payment received far-reaching changes country's the not made it is that plan, proposal. of check collection, toward does in hasten to add appraisal of the 100% exchange charges been evolution same that of received have Reserve system the masterful a hundred years ago A bank all this contribute deposit six stock put Corporation through sound banking, fostered by rigid Insured banks have everything to gain by supporting super¬ Not only will that (a) Admission of thousands of weak bai.ks with heavy potential losses FDIC: or (b) denial of insurance to a large number of banks which probably have precipitated view Government aid. • , permanently maintain a Govern¬ and better Reconstruction Finance Corporation—to aid the banks in the next crisis. The Federal Deposit Insurance system was instituted with the cooperation of the HFC. The capital of'thousands of banks was so badly impaired in 1933 that the sale of approximately a billion of preferred stock to the RFC alone made possible the inauguration of the insurance program. Without exten¬ sive use of preferred stock' the alternatives would have been: personal the way of the State systems. is * , suggested corporation—perhaps adopted, present I hazard the prediction way even corporation. been has It ment-owned bank had s3'stems 1930. Corporation 1931-33 of the depositing public, not that assure eight days I ,for protection upon it bank. regular of the adoption of deposit stability of the insurance insurance to jumped But postal savings The banker visory policies that will minimize failures. the used Insurance supervision. toward city before a was little savings postal the depositor. comparatively crash present temper the confidence. This were eight-fold increase. discontinued Federal insurance will How bank¬ many Deposits returned to the facilities its depression, an will be demanded the in withstand the nor public consequence must resources to prefers the reaching changes broken came deiray the to paying the premiums. Indirect taxes encourage extravagance. Un¬ payment of insurance premiums tends to make the depositor indifferent to the burden which unbound banking may impose upon the deposit for public restoring followed. Then >, movement by bank-shy depositors just when he needed them most. away second prophecy. The of means has the of consequence average A a depositors, pleased neither the banker failures his the postal savings system. $150,000,000 to $1,200,000,000, drained belie accepted reluctantly by was result 1907 gave us timid for to they stayed through the recession in 1937. 1934, and As 1930. irresistible. evidence that refuge seemed conspicuous bank failures." welcomed in The of of proved is There had experience "succession helping are were and ago: patrons As I stated six years ago, this is entirely better if depositors were conscious that they deserving of special protection "The course of legislation on this matter, as on others, Is likely to be much insurance be would bank compulsory charges, reduction of interest on savings conscious to the which by proper. that insurance rude awakening! a economist, decades two The conservative conclusion But he had deposits could not succeed. had programs in Washington, had own our deposit guaranty State ago methods are and interesting implica¬ place, its adoption shows how unpredictable important insurance has, entirely proper." * Increased service demand deposits, on of deposit insurance. antors Deposit interest place. expenses words Deposit Insurance taken effect accounts not indefinitely. in elimination of taken view. found. has This of account large a if the Federal insurance plan works, the cost will be passed along beueiiciary—the Insmed oeposltor—which to the poned houses. paper growing to grown purely a big corporation It is organization entire banker is forced in ever-increasing amount these market. branches whose less the independent from were manager the of but instead of loaning the for outlet an country in The loans. the commercial the community the for seek needs the meet centers. through paper Bank deposits increase, tions They local The effect? what to over-the-counter on its interests of the bank. the of customers borrowing the financial in available sell State. ago never bank. The official. to of the generation A looked outside of his community to invest his these same lines of business maintain an account in the practically community to banker? men local done important cities more country operating on a small scale, borrowing their money banker over the counter at the regular rate of interest. business the the in the upon logger, dairy man, merchant, and power and light com¬ valued all were service stations controlled by from The farmers sell their produce through cooperative oil companies. associations replenishes the supply autos and of local a local head¬ of a town The gasoline which furnishes institutions. for hundreds power analysis of the Banking Act of 1933, immediately after its passage an writer stated: insurance larger lines of credit. coming of branch banking seems to me to have rather broad social The In the "in tiie loi^g ruJi. Northwest have evolved in most cases earlier group organization. The transition has been gradual. The .bank was acquired by a holding company. The existing manage¬ was unchanged; the bank was still known by its former name. Later A West Middle District States seven CONVENTION BANKERS' 28 seems in that the the overhauling of to be widely most position adoption this banking system our bank plan would to make it as if It would, discussed. bond-secured of of My notes. require such a undesirable an reform. The argument that deposits posits without narily eavail are deposit insurance is "money" the balk at deposits banks are in the putting not that savings In deposits in were for insurance before the * American one-tenth law of the deposits Economic Review, Volume 23. inclusion are was to savings who "money" that category taken of bankers and deposits interesting to observe, however, that only approximately the Economists demand fact, pains belated recognition that bank a for account program. concept insured. eligible does insurance make originally ordi¬ yet savings mutual savings and enacted. It is 48 mutual savings banks, in this class of page de¬ accept will institutions, with are 59S. t Watklns, Leonard L., "Commercial Barking Reform in the United States." NATIONAL insured. now "money" It is It does, of of of plan of for who the based is classification is bank deposits. called The renewed. not or well may exceed the direct fear the depositor, of troublesome a of passage the the Banking 1U0% reserve indirect losses social banker the losses Federal Reserve dominate the money market. The Board in its annual report for 1938 has concluded that the power of the Treasury "to influence the volume of member bank under System." be expected to adopt a may bolder policy. of importance. real a this objective. Most examination the of the A accounts. asset the investment an investment Examination that in Coast West the not diversified and investments of banks member loans to make portfolio of very extensively. banks member all reveals an for Government securities, in small sound keep and equipment credit gave the creation banks of personal opportunity an render loan an is toward economic will loans commercial that are not their regain Bankers may be forced to seek still banker may thereby contribute The progressive funds. for With their conservative traditions, the aggregate volume of consumer credit. bad for the borrower and economically unsound. upon place in the banks' portfolios. outlets been social service by supporting the move¬ a legislation. eye indications further to unemployment and enabled them better to credit Overextension of Present have been evidenced by making of moderniza¬ The expansion of personal loans should give regulation and control of consumer credit. entering. interest bankers should former States of methods improved and progress financing business discussion A the of implications of banking changes would not be com¬ in our credit system. It is with considerable temerity that I approach a question so full of dynamite. The entry of the Government into the loan field was largely to meet the emergency. Participation is through loans made by governmental corporations and credit agencies; through the ownership of stock in State and National banks, savings and loan associations, agricul¬ without some of consideration tural credit institutions and other classes of certain of credit the The made by banks. leans Loan Owners' Home Governmental corporations and of insured loans are those under the Title I loans were made by all classes banks are the largest single holders of National banks. commercial Aggregate holdings of Title 11 National and State banks are well in excess of half a billion. FHA mortgages. Possibilities the for be future are that mortgages OiY participation governmental by in the Many existing agencies were created to meet the emergency. It is obvious, however, that even those institutions that were presumably temparary are liquidating slowly if at all. The same is true of insured loans. The period of Government guar¬ field loan will gradually terminated. modernization credit loans (Title I) was twice extended with some anty of 1936. It time, and revived was In that in the record of the past 1, 1938 meet to was at first to terminate in lapsed for a modifications, the recession. The Government 1937, and six years it, too, other stamis extreme the possibility the Government that may of the commercial that this will take place. Business men are generally opposed to Government ownership of banks. Thie history of Government credit-granting shows the dangers of political influence and stands as a strong deterrent to a complete transfer of the control of credit from private institutions to public hands. The take over banking all lending not see any strong probability with which banks seek to adapt their credit policies to changing economic conditions will have a significant bearing upon future develop¬ ments. It must be conceded that the public interest is paramount. It is eagerness that this interest can administration of credit. I continuing responsibility of the bankers to show the , served best be by retention the of private suggested that the breakdown of deposit insurance might result in Government ownership of the banks. This means that the banks have already must failures The may administrative sound be minimized. vigorously outlook support for the future, policies to the end that I expect to to as I see it, is for a continuation of the banks with supplementary governmental extension of the use of insured loans, but see an President Cook in introducing Comptroller Delano said: gentlemen, let me tell you that it affords me great pleasure. I am proud of his record which has been most successful and most active in the country's service. He served in the World War as an officer of the United States Army and in various other official presenting to you the next speaker, of public service, and on Oct. 24, the Comptroller of the Currency. capacities, in each one rendering the best Mr. Delano's address follows: of a the restrictive policy with sounder banking structure. more investment of reasonable affiliates, and service having branches manned by men with an interest in the local banks Unit that of It a the was to answer a was The Federal program may be If this proves inadequate the Government a Government-owned corporation or disappeared. systems have broken down and by rigid supervision. preserved will probably either through in step the surprise to most bunkers and students due to a "succession of conspicuous bank failures." the public's demand for banking safety. Eight State adoption Its banking and was outright assumption of the bank's liabilities. It is to the interest of the banks to support rigid supervision to the end that this contingency may be averted. A consequence of insurance has been the tendency toward uniformity supervision. This is a desirable outcome Reserve membership or complete banking in to enforced Federal abolition of State commercial banks. and is A preferable deposit insurance is the recog¬ and not ordinary business implication of the adoption of broad deposits demand that nition "money" are deserving of special protection. Less than one-tenth of the deposits of mutual savings banks are now insured. This does not indicate any conscious recognition that deposits of this class are an investment whereas demand deposits' are "money." It does suggest, such As liabilities. they are attempts to differentiate the two classes of fundamental difference. volume of bank deposits contributes to deflation. If deposit insurance results in more confidence on the part of depositors and bankers and thereby mitigate deflation it will achieve a real social the that however, current deposits rests upon will a the in Instability basic argument in favor of the 100% reserve plan is that it changes in the total quantity of "money," including This proposal would entail such a drastic revision of our The prevent violent deposits. It may come in some unable to achieve greater stability. changing function of the commercial banks is evidenced by the in commercial loans, the growth of new classes of loans, and the that its adoption is not favored. system form, however, if existing machinery is The decline of bank expansion banks member by investments. are Government Nearly half of the earning assets of the securities or bonds or loans guaranteed Government. the credit system is a moot early withdrawal of govern¬ agencies from the loan field. On the other hand, outright Govern¬ ment ownership of the commercial hanking systems is undesirable and unlikely to come unless the present system breaks down in some future crisis. A growth in the use of insured loans of the type of those used by the FHA is anticipated. Bankers should use their influence to see The future place of the Government in our There is little reason to expect the question. mental that they The the and are basically sound. increased of powers the monetary authorities is a change fraught possible consequences. This responsibility is divided between Treasury and Federal Reserve System. Policy is not clearly defined the boundary line between the field occupied by the two bodies is still great .YY' '•"determined. System Currency, Washington, D. C. interested me for its colorful presentation of a in its broader aspects not human endeavor, banking, or any The quotation truth applicable only to travel but to other lines of whether they be government, business, of the many activities of civilized man. reads: "He who would bring home of the the wealth of the Indies must carry the wealth Indies with him." The travel, will have we Deposit insurance has been a major banking change growing out of depression. Capitol is confronted traveler leaving the National a community. in their own field. combination of unit and branch bank¬ safeguarded from branch competition are are ing at least in the proximate future. quotation from the Spanish, cut in stone on the facade the Union Station. This particular legend has always The by and banks has given new The National Banking 1938, became meet the leaders of Moderate profits than those prevailing in the boom days mergers and stock split-up. If earnings are adequate, existing banks need hot fear pressure in favor of letting down the bars for creation of new banks or the possibility of more rigorous regulation of rates and service. Branch banking is changing the structure of banking in some sections, notably in the area. It has come, in part at least, in response to changes in economic conditions, especially the tendency for business units to operate over wider areas. Observation of the trend in the Pacific North¬ west leads to the conclusion that the public is primarily interested in himself to By Preston Delano, Comptroller of the In success banks number of the charters with present system of privately-owned agencies. In. fact, the respect Limita¬ upon the number of banks makes possible development of monopolistic practices in commercial banking. At the present time there is little, if any, evidence of the evils of monopoly. The public stands ready to pay a fair price for banking service. The banker on his part must accustom to operations by outright ownership I do system. of the points raised in tliis discussion? some have undertaken to show that change is normal and we 6eas. Having banking withdrawal of the Government from the loan field. the the Federal Reserve the possible conflict changed eco¬ of other eras has large part to their ability to pilot their institutions through in uncharted bank At place, conditions. due been gain. July of and banking leadership has always proved adequate to nomic has been extended. Viewing does not offer much prospect for the early prior to that credit control of problem me. first the guarantee of insured mortgages under Title II was at first limited to those insured whole outweighs conditions existing briefly summarize May I greater Corporation. important example Housing Administration. insured allotted to the Government lending institutions; and by the insurance most Federal of place of reported $8,500,000,000 of loans and preferred stock on 1939. At the head of the list stand the farm credit agencies 30, and the agencies June and between the two monetary authorities is one of primary social It appears, however, to be beyond the scope of this paper deserving of more careful analysis than is possible in the time Indications enterprise. plete Treasury tion Modernization possible for them ment He did not explain that lending contracts in a field which they had previously abount hesitant is its United the Government's drive on in new bankers been have electrical on departments. participate It for his ' famous fully guaranteed. or credit loan banker, " an modern bank is a ' combina¬ a shop." pawn has The "pawn shop" activities tion a loans trust of and by revealed is the to Acting together, they are in a position to policy and recent/months two-fifths of the assets and two-thirds of the invest¬ ments direct trust of 'banks functioning ability to coin terse epigrams, has said that tion of ' ' 1 change in striking given have gold The caused To the extent tliht deposit insurance mitigates the deflation by hoarding and the banker's fear of his depositors, it'will achieve social gain. There is some evidence that it lfas contributed toward of powers. reserves insurance deposit influx ircreased failures bank from If depositors. to y-v^'/'' '' yYYc '■ Y\Y/Yy. Y\,/< yY ; y banking change frought with great possible social significance is the powers of the monetary authorities. Legislative changes and the A increased great been a banks; -maintain high liquidity; loanb is tied, up in failed power or of selling them to the Federal This , losses ? failures have bank the past, In Purchasing hoarding increases; banks feel compelled to are the since been has the expectation Association. investments. of deposit insurance is its effect upon the stability ; deflationary factor. allays the with longer maturi¬ National Mortgage practice is likely to bring repercussions. Should banks make loans that they believe to be unsound? Will the Association long permit itself to be the dumping ground for the weaker loans without expecting to have a proportionate share of good loans to average its ties with in the difference actual deposits should be restricted to loans that banks are willing to hold account. I observe that banks, loaded with idle iunds, are own making FHA loans in the higher loan-to-value ratios banks. savings for segregation savings deposits as generally choose to treat of mutual programs stumbling block for advocates of a implication of an upon of supervisory authorities It volume serious record of deposits. and the 1933. splendid their for is not. opinion, it my 29 DIVISION believe they between difference the of In that the oft-proposed deposits these classes final A time ana the to recognition a savings account? a suggest definition problem Act tribute a however, demand The evidence of the bank and rather nature this Is in BANK inscription a man goes on to explain that it is thus must carry knowledge bring home knowledge. To my with with him if he would mind this principle holds 30 BACKERS' true of all enterprise, and it is certainly true in CONVENTION chosen our field of banking. It 76 There Is old, has met the requirements of years Spanish jjroverb. this old Since its inception in 1863 it has brought home the wealth of the Indies, but it also has carried the wealth of the Indies with it and has given richly in return. It is difficult to overestimate the contribution made national banks to developing from a the intricate to both rude frontier, reflection plague to a understand to agricultural community, an and involved industrialism which is boast and our the was today It requires study and us. difference vast which exists between the America of the 1860's and the America of 1939. Students of social and scientific progress insist that the pace and change within these is without years precedent. In 1862 the "Washington Standard," published Olympia, at United States paper for this four-page weekly a served the as official Washington Territory, which then contained about 12,000 inhabitants. the subscribers noticed year Detector." a On Jan. 4 of that advertisement headed new "The Would inform all the descriptions citizens of & BLACKSIIEAR . . this at was Olympia and the surrounding country that for . which wheat be will taken in exchange, still was what sort of notice how much has accepted an progressive, growing community, that a the National Banking System was born. a country ours Let look for us a that time, and was at disappeared, changed, grown, and come being. Until shortly before the Civil War horseback or by courier realm of not yet by stage coach. by such crude devices or medicine, anesthesia was tion an we unknown and Pasteur had remotely our States 27,000,000 lived 8,000. as great a discrep¬ When own. at¬ we ment, there being providing primitive. The was on Any piece of some or in its was no this total, early develop¬ very 30,000 miles of trackage in the United service which a Of in small towns of less than we still was electric lights, would a no regard today as curiosity and there telephones, no auto¬ mobiles, no so of the conveniences and ingenious devices by which many radios, no airplanes. There also was live that it is practically impossible for us project ourselves back that far—and it is only 76 we The the economic nation were own and to lack of mentally financial problems which confronted from our they again illustrate this great gulf between the two It was largely because of one of these financial prob¬ The person to whom one of them ing, had little choice but He scrutinized the probably more those worn Whatever may be are many our financial and serious, wrestle with the difficulties created of bank we and economic do not have to by 7,000 different kinds notes, ranging in value from par to the dollar, and so a heavily counterfeited that few cents an expert on is required to tell what, if anything, each bill is worth. It wras precisely this condition which was responsible for the creation of the National was Banking System. In 1863, when the Senate deciding whether the Federal Government should throw its power into the confused banking and currency field, its leading financial expert, John Sherman of Ohio, later Secre¬ tary of the Treasury, said: "There are 1,642 banks in the United States established by the laws of 28 different States, and these laws are as diverse, 1 was about to say, as the human countenance. this country that has have the power to divested We have every diversity of the bank system in been devised by the wit of man, and all these banks issue paper money. With this multiplicity of banks. of its says: but useful dirty hundreds of banks were The bank-notes bits were bank¬ scrap for two or three minutes, regarding and dirty than if it was clean, be¬ was worn proof of long and were It is A merchant turned to his 'detector.' successful Ho circulation. through it, because it the custom was of the banks to file the notes on slender pins which made holes through them. If there was were many "I ask you, 4to, such holes the note had been in bank and its genuineness tatified." Sir," said John Sherman, in the Senate, "How is it possible have a currency—and hew is it possible for the genuine from the honest any to detect man counterfiet, j-vhen he has to select from 7,000 different kinds of bank bills, and the bills of those banks have been counterfeited ?" The supplemented the bank note detectors newspapers readers that Standard" in January, large numbers of in circulation in California and that extensively most For instance, the informed 1863, counterfeit bills new counterfeited, and had found their way some being dangerous," and the citizens difference in shade good imitations advised that were a are slight almost the sole reliance for distinc¬ was tion. On the other hand, it said, "the counterfeit ten's easily recognized female figure, which is five toes on bill there are their from on imperfect four toes execution. on the right. the left foot and three on are The the right of the spurious bill, has the left foot and four The National its were "The five's," it announced, "are oeing Currency Act passed was on In the true the on right." Feb. 25, 1863. The national banks grew slowly but steadily during the early of their authorization. years The problem of counterfeited and unstable currency was met. institutions, with their sound a greater importance there 1874 was and wielded revision a The Federally chartered issues, gradually assumed note of the a larger influence. National hind it, From this with its first important job well done and be¬ the Nnational Banking System character In Currency Act bearing the title, "The National Bank Act." which assumes the more recognize and becomes the dominant we factor in the field of commercial credit. From the close of the Civil War to the great panic of 1893 there cial was an ever quickening development in pace these of expansion and United States. commer¬ There was a great surge forward in the field of science and invention. These were the years of the winning of the West—one of the most romantic did much to the periods in national banks deposits of of history, and the national banks our steady it and give it financial sinew. had grown practically $2,000,000,000 $3,000,000,000. and with total The population had 63,000,000; the number of States had increased that re¬ grown to to 45, and significant shift from agriculture to the communities of great cities was population, over already taking place. 18,000,000 now we were Of the 63,000,000 lived in the larger cities, beginning to feel the impact of the business cycle The crisis of 1893 first called attention to fiscal organization which was later to be so-called of the "Paper Panic" of 1907. nation's currency. 1890's to meet the note By 1890 in number to 3,500, with and troubles, and they advice which the people were accustomed. and of the difficulties of industrialism. today. "Banknote carry offered, if unskilled in trade and to take it. and 'go< d' if it as features was and Banking System came into being, particular problem would appear fantastic to us the to with the prestige of money; the came lems that the National this . by shape, color, size and engraved work. which had these only thing in the shape of money to sources years ago. widely different in character so a that eras. paper time forward, inaugurated in was 32,000,000. some farms telegraph course, of history years in this respect. Banking System The steam railroad of In all other 34 States in the Union and the population were of the United States and compares When the National were, era quite You will search in vain for any 76 even become not whose notes circulated in any given community. In the again struck by the wide gulf between these two 1863, there some signal fires. examination of the social and economic organiza¬ are periods. which as startled the world with his discoveries. exists between that tempt traveled only on man He transmitted messages only lines of the applied arts and sciences ancy did of paper recognizable as a species into the Territory. period, when barter of trade in moment at into detector' difficult for the modern student to realize that there "Washington delivered at the Tunwatcr mills." It attempted Sumner, in his "History of Banking," bank note rnanufactuiing WAGONS, CARRIAGES, and BUGGIES of are now means publication as contemptible function until the National Bank System was founded. cause . enterprising house an knowrn with fresh tips on the latest counterfeits. "STUART they publication This issuing banks. "Olympia Wagon Manufactory," which made the following announcement: . the validity of various notes and the standing of the to as meeting this situation, weekly a turned it up to the light and looked newspaper uniform a control." or To asbist in it of momentum check no started by the civilization while that civilization our different organizations, it is impossible to have upon national currency, for its value is constantly affected by their issues. properly be said that the National Banking System, can now depending This was No attempts growing demand for a defect in our emphasized by the a the inelasticity were made in the less rigid system of issues, due probably to the fact that the silver question drew away men's minds from consideration of this question. There was some currency recognition of the necessity for at least smaller national banks and The more in the Act of 1900, permitting the organization of taxation on a larger proportionate circulation. circulation was reduced. The privileges thus granted led to a marked increase in the establishment of banking institutions and in their circulation. to 1913 the number of 7,492. The From 1899 national banks doubled from 3,595 to circulation nearly trebled 1911, from $254,000,000 to $759,000,000. between 1900 and This period, which extended from 1890 through the troversy silver and bi-metalism and into those over *K BA NATIONAL and the forces of of the Twentieth Century just prior to the World War, saw The These a of science and invention, the growth of progress individualistic society an questions which are flux for to us are answer tion of the automobile, the radio, the airplane, members of my staff who are here accentuate the and economic banks during this financial demands 1913 by the introduction of the Federal Reserve System. lishment of central elastic an time the expansion and contraction of One year later—in 1914——the world was The last few weeks indicate clearly that questions of technique what credit. forces which make years treated must be constituting as habit and method continue apace, social over all those and economic but there is added This ended with which started in 1914 and which war the armistice in a we of European Power, Their all too fresh in are , the lack of perspective, of it is minds to need in It would that we witnessing the beginning of are ience,. of life Committee / Officers' Address of Performance furnish to Division of such is Bankers societies. are the always striving, various committees and State United States. Thus within its vidual which study questions Special emphasis this proffered aid to single banks in the solution of their indi- problems, and it is limited only by their needs. It is available members. to all In a category broader differing not at application, the the' of problems. Division as a deals and embraces such items It general its likewise Division which affect all members ments section all in This group with their constantly serves more with a develop- much larger a important common National banks, legislative developments, regulations under which member banks to all operate, banks. and The for suggestions advice and improvements assistance and members of the division at large have work, and the degree of in a considerable very response to success practices and common committeemen upon freely in this attained in its performance is traceable to measure in of officers been drawn the on all leaders in the intricate and live, and there will be need for Whether in terms of gold and banking assets, we have banks have held and still hold their all Their resources of free today exceed thirty-three billions history, gentlemen, have your part you been collec¬ in the great decisions which funds can be convinced of the superior services offered by banks. A great number of our banks, particularly the larger institutions, have found it advantageous and profitable to install personal loan departments under the management of experienced and capable executives, thereby serving a s°urce of credit demand which is essential in our present system. It meets the requirements of a large number of people, is profitable for the banks, retains borrowers as potential patrons in other departments of our organizations, serves to stabilize and maintain fair and equitable rates of earnings and expenses of concern as but purpose, watches we centers Bank Loans toward of the ends consideration of such questions has been advantageous. nerve As conditions now exist there are ample bank funds available for loans. nor is there any doubt that banks not only are willing, but eager to lend, This Division has investigated this subject to learn something of the degree of determination with which new loans are sought. In some cases lack of continued effort to make loans brought about the result of lack °f response on the part of the borrowers to use bank funds to expand their businesses. In communities in which constant efforts to place additional funds have yielded no results, there Is in evidence a lack of that aggressiveness which is always found to underlie expanding business activity. This may be accounted for in some measure by the type of local business which, because of its nature either because of the type industry or agriculture does not find that bank credit under existing conditions can be profitably employed. On the other hand there are many outstanding cases of gratifying results attained by demonstrating to borrowers the advantages of dealing with banks. Banks know they can offer more satisfactory loan plans, and a considerably greater percentage of the curtailed total lending may be within the reach of banks if borrowers who find ways to use additional ordinarily might not come to its attention, and it feels that this collective is laid upon responsibilities placed the broadening their services to their clientele. well as throughout the as to us. republic in unfolding both to the east and to the which power to Vice-Presidents, to keep informed of the been able all of young of revenue which many banks have found to be advantageous, as well as The and the needs which arise from major has it hand, and the free economy on a ie ahead. Essential to the success pedal problems of banks in different localities, entire or Never in your changes which command wide attention, the Division has sought, through its one be reserved for this tively so strong to play seem policy of the National Bank Association. struggle between Reports—National Bank Division President the general understanding on and witnessing we are great of dollars. of the nature of member banks' needs. recognition a supplement to be to a important position and influence in this greatest re¬ Bank, Bucyrus, Ohio character of helpful service American creed banks which of every of the a National members continues its Therefore, H.E.Cook. President Second fundamental America is equipped for the job. The national it. fundamental strug- a operation for some to me the much deeper than mere goes of cooperative attitude and prompt appeals for expert guidance. interest, and is altogether a very necessary development of modern Expenses and Earnings 1 he latest tables prepared National banks showed all bank factory progress However, operations. to the of bank of it Is With deposits before assembled, the lessened opportunities for employ- funds present problems most difficult to solve. The ad- ditional vast sums in private hands, seeking but unable to find investment, add materially to the seriousness of the dilemma. diminished for the total year, of loans and investments in However, despite the ^National banks q^e satis- highest peak in banking history and bolstered by a capital structure greater than ever ment more casual observer apparent that some additional improvement must be made. at the expenses toward the goal of even reported the more recent slight increases are mildly encouraging, and inability of banks to obtain assignments of proceeds of Government contracts * as security for loans, granting of loans which makes impossible in many instances the under other circumstances would be highly de- Seemingly, the most that can be done at tho present time is to sirable. fjje instructions with the Government to have the contractors' banks, though in many cases this is unsatisfactory. t0 of checks sent The desirability amendment to the statute was studied by the Division's an Executive Committee, which sought also to determine the probable difficulties might ajs0 be encountered. certain other organizations which ^ satisfactory solution, have an obvious interest in it. including the method of accomplishment, has not been 1929, will be reversed. Division is seeking ways to have further consideration given to it. developments Europe—has abroad—particularly the outbreak of least at in all likelihood banks will experience an increased demand for substantial additions not only a have and been made by most banks to their An analysis of out banking operations has pointed substantial saving in operating costs but new sources coverage also, is being made by an increasing number of banks, particularly the smaller banks. with consequent increased earnings. service, thorough analysis of commercial accounts and services operating revenue. to us * Protest against the requirement that they provide collateral security for certain deposits protected by the Federal Deposit Insurance Corporation rendered to patrons, and the application of proper and equitable service out Double Security for Deposits elapsed By closer analysis of operating expenses, the curtailment of costly charges, be merit in the proposal and the the ultimate effect upon American business, temporarily loans, firmer money rates, unnecessary found, but there still appears to in business activities in our own land, and given stimulus to while these developments are so recent that sufficient time has not to accurately gauge war which The advantages of such a move were suggested give rise to the hope that the decline, which was almost continuous from Recent banking. Assignment of Proceeds of Government Contracts by the Division on earnings and some no consider wealth in terms of the necessities and conven¬ we a norrower sense, to the national banks of the United States? are steady hands. difficult to appraise. very Banks men. seems regimentation now involved system by significance is another matter, which, because What may all this mean to banking, and drama the National the regulations which bettle of great moment to a civiliza¬ since 1914, culminat¬ our This is thought ing in the recent resumption of hostilities between the major view. social start west, there will be heavy clash 1918, is again breaking into The events of those 25 years flames. a greatly imperiling organization intangible but precious things which make tion. the grim Technological development and the change in significance. or policy, because or the Whatever role may quarter century of great a Comptroller's office portfolios of individualistic society an the other. the epoch from that fateful decision to the present day up and of be to seems economic plunged into war. the But it witnessing here we are being asked in pertinent to this should make it clear that there is we this point. on thing a time to exercise banking system able for the first over and currency I think bond the Comptroller's office has now had in and 1907 had finally resulted in the estab¬ machinery to provide control some were Government contemplated change in the policy supplemented in increasing the banks. with pace ever The panics of 1893 toward The large increase of national period and their effort to keep have met, and which me are That is the attitude of the situation. metamorphosis taking place in both the social organization. tell the corridors and which, of course, are very production, all served to mass one number of questions that I a rapid moment at this point to most informally digress for just by free economy However, I would like to changes in standards of living brought about by the introduc¬ the economies effected hand, on one a too deep, and is too properly plumb. population and of wealth, the shift to urban centers, the and, above all, and the other. on the practical completion of the industrialization of our coun¬ try. economic'and social regimentation gle between con¬ years 31 DIVISION Their contention that all banks should be freed from this double burden is sound. However, there are only three types of deposits on which the collateral security ordinarily required may be omitted to the extent that such deposits are covered by the FDIC in- They are postal savings deposits, bankruptcy funds and moneys belonging to certain National banks being liquidated by the Comptroller of the Currency. These exceptions are statutory. surance. BANKERS' 32 Postoffice accounts exceed not Security of the much cause $5,000 each. still require a pledge of of dissatisfaction this Though they when do they under FDIO protection, they are securities when carried in banks designated by the Treasury funds must be placed in Furthermore, depositories. Federal as such the have country postmaster less than $5,000 each. it because of the fluctuations in amounts The Department is as liberal as it feels However, the lack of justification for this double security is the cancel banks designation of small Government depositories as when requested by them to do so, in order that they might avoid the require¬ ments of collateral office security, especially for postoffice accounts Department partment do can fore, the demand such security and cannot so The Post- Treasury the only if the banks are designated depositories. cancellation of such designation would remove De¬ There¬ the necessity of While ample capital funds is absolutely essential, just as necessary capable, honest management, which in the final analysis is the greatest safeguard for depositors' funds and profitable operations. banks, each with From 600 National random in all of the at to be Division 10% of deposits, while 57 banks each have a problem in this recognizes number of elements which a A weakening of the stability of banks is something A relaxation out of which would develop guarded against zealously. speculative organization of National banks would be undesirable. wise laws which would require adjustment of capital to deposits at would intervals unsatisfactory and impracticable demands. impose unstable, perhaps deposits, meriting as Division is expected soon to be able to announce completion of its The To a of inatters deep Federal to others as well. or whether they apply to such Therefore the Division had of laws new are One and of affecting enacted into which bill them, law, executive of vital and provisions of the Joans Social be repaid to may Security Reserve Act to and revision of the National Housing Act National include Another banks extended the banks such and The Glass 2150—extending might Security amendments of 1939 bo the Of importance to which inter¬ The Social vetoed. was passed by Congress, and now National were entire our under time continued, banks are subject to the provisions of the Social Security Act. study of the monetary and banking policies of the Federal Government. National Bank Division the Governmental Reorganization bill has given much concern, for the reason that the office of the Comptroller the Currency was not exempted from its of The provisions. known the as office of the We ,Brown bill, which would have had a vital measure effect on the reasonable of series Legislation broadening the of the powers various governmental been given diligent attention by those of our organization responsible for our legislative endeavors. by Association, in continual cooperation with A. M L. Wiggins, Chairman Legislative Committee of the American Bankers Association, has loyally and well the interests, not only of the National Bank Division, but of the entire. American Bankers Association. Robert M. Hanes, First Vice-President time and their abilities to safeguard the welfare and the stability Inactive Officers time limited to time by statute. some the Division and directed attention Normal with no part the to seemingly of distinction between borrowings from tljleir own banks were were prevented, and good loans borrowings of the most desirable customers could officers, though sometimes were with no be made not voice in the because they granting of credits in the determination of policies or actual management of their banks. Division has given much attention and sounded sentiment toward several proposals to give effect to that considerable volume of thought which assumed unleash to necessary that the liberalization a forces of of loans Likewise refer will it bases evolved through fication of those The to encourage either local found in unwise The upon of lending experiences, and also which will not members are the or of the Currency, bank to proper modi¬ upon any in its status which has in are unwarranted accord with the desire extension. expansion of credit The dangers those to inherent whose capacity employment of such credit is limited would eventually create might readily jeopardize the soundness of our banking last of the office of the reflected office encouragement of deterrents to questionable under the weight of their operations, The eagerness of member banks to practices business which revival, likely would be the wiser would course to rather break through with other purpose potential borrowers, but the by ignoring vital lending experiences generate or to quicken the recovery accomplishment cannot movement so of that be expected either to sorely needed in the United States. Throughout banks are the for a new the smaller bank be created make volume country the required to maintain of plus the a high are same amount an The attitude by influence many Currency be funds National increasingly heavy burden, of surplus minimum which business available in many places Almost as years and continuing to the present there has been a in the assurance is United the States, Those demoastrations its Bankers existence gathered from practically effectiveness the time unanimously of the office participated the the that Comptroller of the diminished. not that support insistence an of time to -v: : ■- Therefore, the National Bank Division is opposed stronglj to elimination of curtailment or work the of the Comptroller of the The Currency. independent office for an chartering and for the examination and the supervision of National banks alone; be of which action sponsor be centered administration its in one April of this year same State as the Executive Committee of by resolution its faith in the ability and the efficiency Comptroller's office responsive would the partisans cf banks under their control. are the Division expressed other in which agency and the champion of National banks, the At its spring meeting in oughly only to retain the independence it be restored to it the fullness and the characterized should functions bank commissioners of the not but that there should These the be allowed, it should that holds, now Becuase it is completely attuned and thor¬ the needs of the public and to banking alike, to the Division expressed its conviction that the strongest possible efforts should be appear made whatever show to exclusive supervision over unsoundness and develop to curtail undesirability or may abolish the Comptrollers' National banks. Appreciation The Executive Committee of during last year, though smaller Division the groups were their the views were gathered and the promptness thoroughness responded made work with them cooperation to capital burdensome tendency for with in the work once several which and each members the The corre¬ in same type of Vice-Presidents and members of the State Their willingness to contribute Division the by the given was Division at large. ance subjects, distinct pleasure. a but upon In addition, through other upon assembled was called together occasions to consider matters of importance. it undertook a full gave of assist¬ measure practical assurance of the attainment of its objectives. Particularly do I Bank tribute to Edgar E. Mountjoy, Secretary of the pay Division, and Deputy Manager of the American Bankers His loyal, efficient service in the interests of the Division, capably directed to its welfare and its efficiency, has lightened the burden responsibility of officers, and again to him I pay this tribute of your appreciation and respect. Then the official staff of the American Bankers Association—Phil Benson), President of the American Bankers Association; Robert M Hanes, First Vice-President; P. Executive D. Houston, Second Vice-President; Hal Stonier, Manager—all have given of their abilities and their efforts to the strengthening of the organization of the American Bankers Association essential Nation, when the a part. So to these men the economy responsibilities and do we give our fullest under which its measure which I have prized highly. absolutely Nation operates, our full share to an serve the needs may of the of appreciation. The privilege of serving as President of the National Bank one who have uncertainty of the times demands great understanding hearts that the business of banking, factor in fulfill its ultimately must total capital structure too high to be supported by the in other instances is the minimum of $25,000 capital and a final like surplus for a bank in existence prior to passage of the Banking Act of 1933 In recent of years opinions indicating and minds and $50,000 on in acclaiming its accomplishments, and the cross-sections banker given devoted service capital and surplus imposing communities some number of cities throughout of which this National Bank Division is Capital Fund Requirements particularly in until Comptroller of the Currency. the folks National follow. expand their loan totals is well knoAvn and issued recognition of the high type of public service rendered by that a Association. of the However, contemplation. in a year, of some Orders appropriate exercises commemorated the 75th anniversary of the creation National . The removal of the possible future of the oldest upon Federal Government. much respect, will be preserved. won so in complete reor¬ given there can be no confidence that the present position of that office, instance , actual and Comptroller's office, and there is no public knowledge that other changes spondence credit in the of that grant of authority so far have had little effect President of the Division, representing it before the Senate com¬ mittee, expressed his approval of the ends sought to be attained, but in¬ all banking reports of President of the United States to focussed attention supervising agency pursuance sisted to be brought ganize the Executive Branch of the Government within stated limitations, situation which than need. the meet the Comptroller of the Currency authority granted to the jeopardize the safety of depositors' structure. that to subsequent improvement publications numerous The Office of The Division the sound means, but they cannot agree that National interests would be best served by disregarding rules requisite and seemed suggestions, practices, ■ operating element business through any safe for the proper a years bases Division be to to Congressional was business development. approved heartily the principle of ample credit extensions funds. of statistics which are looked upon a shelpfui guides in bank management. in any movement which may Small Business Loans The high degree of required details elimination as may seem proper. years. hardships which resulted from the lack .active and inactive officers whose to the to The Handbook also wiil emphasize the importance of budgetary control. independence From directed Through them the performance of each feature of work may of the banks of the Nation. unwarranted the Division insists that there should be maintained Bankers Asso¬ of the American ciation, and Robert V. Fleming, past President, have continually given of their maintain to miscellaneous The of the and into review to test its effectiveness and for such of Washington office of the American Bankers Association, under the leadership of D. J. Needham, General Counsel of the American Bankers served being expended constantly in all banks to hold levels questions supplemented Only that all this is definite trend toward centralization in banking and monetary a agencies to compete with banks of all classes has given much concern and has A Comptroller of the Currency, failed of passage. make mention of these in particular for the reason indicative of control. at and carrying no restrictions upon changes in the office of the Comptroller banking system is the authority given to the Banking and Currency Committee of the Senate to conduct an intensive the of statute. bill—Senate locking bank directorates To of effective the efforts or Likewise, necessity expansion more State proposed to the Fair Labor Standards Act, had The undue costs The extension they been enacted into law, would have simplified compliance with some provisions of the and efficiency. 1944 the time in important also. was System their banks. number of other organizations. as a of the amendments Federal the continuing importance to member banks, as well some of the measure extending until was officers' members all guide to a periodic a operations. wastes prompted the search for some formula which might refine or make direct interest in many a bank in avoidable costs banks exclusively bills proposed in Congress during the year just closed. which is intended to be against constantly guarding followed practices upon Federal Govern¬ banking laws and enactment concern, Survey Handbook, check of banks chartered and regulated by the group changes in ment, Bank but adjustment, some of individual banks or of the National system as a whole. Legislation The would avoid diminution of the strength adjustment of such character as issues of Government securities and pay for them Federal Like¬ frequent Division looks upon this situation, aggravated as it is by abnormally high, though posting collateral, but would not affect their right to subscribe to future by book credit. show both Ratios in individual banks d surplus of between 25 and 50% of deposits. ar difficult to correct. are capital of $50,000 or less, picked a found that the capital and surplus was deposits. than surplus of less The States, it One hundred and fifty-four banks in this group have a capital extremes. and of the 15.32% equals so apparent that the Treasury Department is considering a pain under which it would their charters and operate under State charters support the deposit structure to capital be in dealing with such deposits. can surrender of capital fund requirements. to the severity to inability of the Department to know at all times the exact sums deposit in the various banks. on amounting The collateral requirement is more or less vexatious also to the Treasury Department, and the postoffice accounts or National banks to instead, and it is believed that the occasion for this trend may be attributed is such depositories if one exists in the town or city. Figures gathered recently reveal that approximately 400 banks through¬ out CONVENTION Division is It has given me inspiration and pleasure. And the opportunities afforded for closer association and a better acquaint¬ ance with the splendid with the choicest to come. members of the Division have experiences to be called up and filled enjoyed my in memory the years NATIONAL Remarks Before National Bank Division of BANK Incoming President of A. B. A., Robert M. Hanes, on Wagner Resolution for Study of National Banking Policy F In response to a request from President Rouff, newly elected President of theNational Bank Division for as a fewremarks, Robert M. Hanes, speaking First Vice-President of the A. B. A., spoke in part as follows: Mr. Hanes: Thank you, for myself and my running mates here, for this opportunity of breaking into if should I in that I be shall elected President have to have a your of lot this afternoon to tell program American the of help from Bankers you, DIVISION I might say there is is a Division great of the American of your bank is concerned. influential, a the of all the work of the Association success say a mittee that has been set up in some my in time in the next 30 or Association, very depends in. large degree upon Washington and will probably start hearings America. It may my That has tremendous imports, in associates, for the future of banking change the whole trend of banking. Certainly, it puts a large responsibility on the American Bankers Association to properly present in testimony before this committee the bankers' our connections and sat down with and told them oux relations in the various members our trying to bring them to With which this see any pressure we it from the this spirit we shall are Washington, of the but, feeling viewpoint. we have gone In there and Congress and the committees story as honestly and frankly they would list to them. as we knew how, our contentions had not merit, that If they didn't have merit, we couldn't expect same viewpoint in view and mind, as we we did. are now making certain studies hope to present before the Wagner committee. going to have to ask for help from hope the help which National we are Bank going to need. as the future this most important work we have before us in the next 60 or 90 days. LThe Wagner resolution the Senate in for providing policy by the Senate Committee on a study of National Banking and Currency, was Monetary passed by August last.—Ed.] Report of Committee President Cook: the American give us Division will Mr. I will call on on Nominations Francis Marion Bankers Association, the report of the Committee Law: who on comes Law, Past President of from Houston, Texas, to Nominations. Mr. Law is Chairman But in bankers throughout the give us that support and The report of the Nominating Committee of the National Bank Division is as follows: We beg leave to submit for your consideration the following nominations: For President of the National Bank Division—Melvin Ruoff, Vice-President Houston National Bank, Houston, Texas. For Vice-President of the National Bank Division—Andrew Price, President National Bank of Commerce, Seattle, Wash. We have four members for the Division's Executive Committee: The Second Federal Reserve District, the Fifth, the Seventh, and the Twelfth. These are Second for three-year terms. Federal Reserve District—F. Raymond Peterson, President First National Bank, Paterson, N. J. Fifth Federal country in offering the testimony, in preparing the testimony, and I sin¬ cerely far of this committee. few words about the Wagner Study Com¬ 60 days. opinion and the opinion of so you the work of the National Bank Division. just this investigation, So if you are called on for help and assistance, Association— fine membership, hard working and intelligent, and certainly I wonder if I might matter how serious it is in your bank, no 1 hope, no matter what you are engaged in, you will drop it and help with too—I hope 1 may Bankers nothing, that should surmount in importance expect from you the same loyal support you have given Phil Benson. This 33 National Seventh Reserve District—James D. Harrison, Vice-President First Bank, Baltimore, Md. Federal Reserve District—John" J. Anton, Vice-President First National Bank, Chicago, 111. Twelfth Federal Reserve District—O. A. Ilouglum, Vice-President First National Bank, Eugeue, Ore. iThe reported was duly adopted and the officers installed.] DIVISION BANK STATE American Bankers Association Twenty-Third Annual Meeting, Held at Seattle, Wash., Sept. 25, 1939 INDEX What Profiteth It Some Constructive „__Page Worrying, by R. E. Gormley Address of President PROCEEDINGS. BANK DIVISION TO STATE Nation? by Wood Netherlands-., a Henry W, Koeneke 34 Remarks of President-elect William S. 37 Report of Committee on Nominations What Profiteth It Nation? a Louis, Mo. By Wood Nethebland, Vice-President Mercantile-Commerce Bank & Trust Co., St. view of certain economic situations in In the world and supposed to be new and opposing political situations, I have taken the liberty of departing complete from the usual custom to speak to you front the more or to the in history. written the on . respect all over people are those the ride again. with increased tempo, itself foe alike, and with much to seems blended in are the air, He who are wept stand one Little great red burial. scuttled at the road of new holes underground into that cludes struggle and be may the over and contemplate the aghast, before the world civilization lies and current con¬ desolate prostrate from its effects, we somehow sense its utter uselessness. With and may may Faced be of supplying on way well be with a now engulfs the world crucifixion of mankind that the resur¬ such an recheck imponderable, and seeking to grope our figures, to retrace would it not our steps, examine the route the past which we have driven too fast, if markers possible lost our along which we to re-read have come, to discover how, when and where we may that so we have ing now to go back can, of the human the lessons of either a enjoy in at his to origins to find as race, history, moral peace or some light on the to why man, conscious of the oneness even after centuries of experience and seems legal unable to work out and accept code that abundance which will of life enable which is him so to freely disposal. Currently we much of Nazism individual, as opposed older than the State Independence by the colonies. American and Communism, impersonal supreme According to Hegel, the State is an It is the highest form and will, and all dutiful citizens possessing absolute power. being, universal the reason according act and live must to it." of In the even being a member rights whatever, a essentially new in so philosophy is concerned, but represents this brand of social theory that appears and its cuts tyranny, people off from the reconstruction on The full the famous encyclical to such a doctrine is found in of the social order by the late uplifting Pope Pius XI, whose whole life was devoted to the of the the and who yet had a fine conception of proletariat, harmony among all ranks necessity for wealth society, especially as regards their superfluous he nevertheless strongly condemned the contention socialists that economic production must ried in the social Keenly conscious of the obligation of men of order. come, absolut¬ right of any life. appeal, and deprecates the value of human letter German to be inherent in the Obviously such a doctrine opens the door to nation. ism Socialist National present the that Thus decrees. to live, unless the State so observed regime in Germany presents nothing as individual has his short, the individual has no right be may demands. ethical idea or ethical status only in ethical and existence real and needs its It is the objective spirit, and the spirit. conceives excessive kind, such it, without unthinkable of necessarily be car¬ is on the one hand the of use impossible and compulsion of the most the other it fosters a false liberty, since on scheme a in¬ "Society, therefore," he said "as the collectively. on Socialist no place is found for true social authority." As opposed embraced ticular, cannot by that to the theory of most the civilized individual be surrendered at These are away from called personality. hear of of the State over the certain personal or inalienable rights as so and possesses in way? So it is, in a spirit of reason and logic, that I am attempt¬ Question, if I His philosophy the doctrine of absolute and forcibly stated in the Declaration of of George the German philosopher, hundred years ago. restatement a of an ancient version democratic theory that man is to the toward matter of centuries. a out of the depths that threaten us, to of life abundance an the globe, we grow sick thought that the strife which end in such rection our in science and invention, with a pro¬ progress plant capable happiness to every family at the but was matter of fact, both are no a modern iliany philosophers, including Spinoza, especially supreme power answer our ductive As the Friedrich Hegel, over a far wrought than and Bentham, it of Jerusalem must city race. less Hegel says: "The State is the realized grief. helpless destruction and effective instru¬ Behold man at his worst! rats. be bowed down in this this time be tottering. of many we from human no ideologies which offer a difficulties that con¬ to the manifold solution doctrine advocated by bloodshed, much so more monsters As banished The culture of the ages is in danger. whose pinched faces blanch Surely We have of death—only children, now as of thousands of the flower of youth, friend Again tens so now Once more, back and forth plains that have known ments of destruction. Civilization be as by the hope, we emotional as religion world; swings the long engaging scythe like it will Certainly, in Europe, the Four Horsemen countries. of the Apocalypse and doubt no age, Ages, followed, Certainly dictatorships across of those great periods one when the great Crusades were made. were many this to Dark the as Renaissance. It is move. When the pages of history have been . . with important they briefly with respect political philosophy of our time. Humanity is Page 39 39 Elliott 38 the absolutism is the doctrine nations, possesses democracies all, even to his own government. inalienable because they individual They in par¬ certain rights that without doing cannot be taken violence to his include the right to live, the right of self-defense, and religious liberty. From this point of view a other human being is valuable for himself apart from any human being or the State itself. In democracy, "a human a being retains his value because it is intrinsic to him." is reason . . . ments. . . . sought be to These endowments whose principal element is a spiritual soul. person, "The by alone, and man These possessions invest man By means of them he of intrinsic value. intelligently'and freely in deciding between is enabled to act Obviously, he could not merit happiness right and wrong. if he did not understand what he was person forbids others to harm will This quality the quality of inviolability. possesses Wars doing, or if he were Because of his intrinsic value, every not free in his actions. injure his person in any way." or and until governments acknowledge not cease respect the inviolable nature of the individual, whether he be friend which heaven of There foe. or Now, to sidious. which imposes of these rights planned economy a it is in¬ Although at its climax it may break forth in the form of revolution, it is brought about often though cooperation unwitting, with the full, people themselves. the of It has its genesis usually in the States. necessity of some: economic The detailed, and tolerance will never and This is not to say respect against a common leaders with foe, citizens of certain defense"—and thus in common a necessary democracy intrust their "to provide for the powers emergency is of dren sacredly unto themselves. reserve is no there going rights but indefinitely, this of ger of giving up thought usually, of the "for the duration it is departure At the time of this fore¬ to been had perfected, these from basic A seldom repealed, the period of the or of free a emergency are is so pro¬ longed that the restrictions which tend to stifle fundamental rights become cal whereby an permanent and accepted part of our politi¬ a This unfortunately provides legal economy. ambitious Administration actually may vest in itself certain dictatorial powers should intended processes which the electorate be lodged permanently in any never branch one in been of factory Moreover, the regimentation to which we have been sub¬ jected in the past few years arises from the idea just men¬ tioned quent the divine right of the to as unfortunately seems, must State, which theory, it be tried and disproved at of the this, efforts more invariably has for its basis the concept of reformers, who would have us believe that government should occupy not only the position of arbiter or umpire, but also should enter the into trated comes game quarterback. as This is graphically Relations Board, which be¬ by the National Labor prosecutor as well as judge and jury. ment, impressed with erant and omniscience, its own vindictive, too often and all Such becomes intol¬ its people president, legislator, after all, Of himself, merely he has a no or they prefer not to do. tially equal, each has fellow statute, men, and essen¬ intrinsic worth and Hence a public official, in his has no right to bind the wills of his do can clearly and right to do. same men. do things All human beings are the importance as every other. personal capacity, bureau executive being like his fellow right to oblige others to which for government human so only unmistakably as they given have, Under our concept of government, where this right is not positively and affirmatively given, such a right is specifically reserved either to the individual or to the If citizens. its citizens what supplement the to attempts government a its whatever government, agency an as do to assist, and assumes to do for its or could do better, they themselves it becomes paternalistic and stifles natural initiative, the life-blood of oppression, If than supple¬ government does less a and shows itself indifferent to injustice or assist, or it the opens door and anarchy to its own destruction. here tried have I between line this that the suggest to line is demarcation of demarcation of in the full civil liberties, personal liberties and realization an intangible boundary which changes constantly with prog¬ But America in its beginning instituted a system checks time from balances and designed this redefine to some time, in so far as it is humanly possible to to is That is the either 011 inherent danger banking creation slowly drifting other branches. States of power in American there be a lest preserved Washington, State autonomy, toward which we surely. but Federal Reserve System and the have thought and action. independence their surrendered Departments of Let, so long as both the State and banking systems exist, they serve as a check on National other and Grant, for the and that we might have a efficient banking system by regulatory authority and and control political concentrated of power, yet in one for can possibly be is a step machinery FDIC the While that consoli¬ weapon would provide the most powerful we direction time cooperate in their work. same supervisory all economic the at sake of argument, economical agency, the proposal that Insurance Corporation some State Banking Federal Deposit dating be instruments of Since the advent of the more of any sovereignty to the Federal Gov¬ must system and the ultimate end of each in That is the compelling reason why the ernment. are both or shall continue to yield their further of our Government lias an judicial branch or influence undue That inherent in any proposal that the executive, the danger legislative, cumber¬ be, strikes at the heart of this republic. it may of boundary do, and he who would destroy this system, however far so it in the has been splendidly managed and, so long as a bank may, if it meets certain requirements, convert system, vice and from the State to the National and versa, membership in Reserve System is voluntary for checks and balances is the Federal State banks, a measure of maintained. What little is left certainly should be preserved. I through him the official The dividends without for of labor unions capable of every so supplement imagined. from the status of free men to that of slaves. pass A a govern¬ must use force to impose its will upon its citizens—and gradually is, illus¬ night. who had never up Time and education have cured much regarded be of than exploited the formation bargaining, is to form, grew women were poor has as collective fre¬ This condition intervals in the history of nations. welfare. spiritual or home, could not cook, sew, or keep clean. a of regard to the future. dual of the Government. physical for concern generation ress. emergency a no Children worked from six in the morning to seven at phrase, an at was No regulation of labor, no protection, no homes stock tenets people is that either the laws voted in coal in, come prepared, and abstract The grave dan¬ had steam starving. natural the use revolution; industrial the of days premium, hand labor was doomed and hand laborers were inherent emergency." dark first the of eco¬ and chil¬ pictures a situation which should be avoided now—machines spirit of patriotism volun¬ a tarily forego rights which under normal circumstances they to reduce labor to a condition The story of the factory women ment that prompt action its citizens, all of welfare economic should be permitted nomic servitude. national welfare. realizing em¬ particularly the low income groups, nor to say that capital In case, and employers between that the State should not be concerned the to crisis within the State, or by the fear of war from without. either effective substitute for an prove understanding Morality cannot be established by government fiat. ployees. with the of presents a dangerous threat Its machinery is too intricate, too to be unworkable. prove administration of manner Relations Act contract, any in my judgment will in the end to freedom of bodies be quite as unnoticeable as nationals may its on life government which of form from a prerogatives to the protection form of government a high under law material considerations. the transition its moral no gives a nation the right to take human other nationals for confines exists several National Labor are not found in any being are in the world outside of man. with the quality of choice freedom of intelligence and powers possessed in¬ of powers They are the endowments of a telligence and free choice. human the are The endow¬ inner certain in 35 BANK DIVISION. STATE have said ment which that limits the to one which dictates us ere we aware. of our are transition its interference a from with a form of govern¬ private initiative, planned economy, often steals upon You are too familiar with the history past few years for me to detail the various specific that measures weaken branch both of the to which the This does not augur judicial and legislative that while branches of declined. has Its repercussions have been some¬ well. what mitigated by the of the executive power expanded, has Government the to lodge more and more prodigious and lavish expenditure of from the public treasury, and yet we found ourselves money this spring facing with more unemployed than we had in 1932, and debt of $44,500,000,000 by a the end of the fiscal of 1940—with an annual interest charge, even at low year rates, of three times $1,000,000,000. over the This of amount the item is more than one entire cost of annual the budget in the Administration of President McKinley. four to six million Federal the Government Federal the people are directly or indirectly indebted Government through its labyrinth Thus either through legal ing agencies. Some becomes economic or and more of lead¬ means domi¬ more for I I am of those who believe that all one of the blame difficulties attaches to those in high places, for in a our democracy at least leaders lar demands. who usually responsive to popu¬ are But the fault, citizen average has it to me, lies with the seems forgotten, who or has learned to think in terms of the general welfare. yet not No better usually makes its greatest strides during periods of which measures seven criminate spending and ence—most of in groups penditures us large is by to time one activities we so initiated during the that deficits demanding of the A favorite news one been view both are substantially now have at costly or mounting debt tive have While holding years. and ineffective—a view sure the dangerous proven by experi¬ another joined pres¬ or Administration local which only added bitterly assailed at the ex¬ the to same time. release, and unfortunately most effec¬ a favorable a com¬ parison of them with the amount of taxes collected therein. do need not to enumerate to the you instances many wherein the citizens of this country have either supported, have been adamant with respect to unwise and fantastic or proposals simply ficiaries. As what member of need, and what we Congress have if we must terms of "my country" district," and Moral constituents rearmament find its cannot rather who the Senator Joe us years some to retrieve are of touch the "my It must first my with a if we failed to say that the complete confidence however, which should obtain in such a situation does not now exist. will It a part what respects After was as going we I been had rest record he then were both During the conversation pride he evidenced as he old me I of some citizens shared of sugar, of as him sacrifices and will self create can best the This was then the when the time soul what of national we will that America, think sacrifices national badge of honor, and I comes we recovery, as a can little citizens Treasury while which dictates we pull for in the more can about make back us can a way necessary the present have gone a long way on of this transition free government to one a look at a our and senses for draw decade. a our I feel con¬ compass. tragedy in other lands will bring If, us closer as one than together writer has sug¬ the White House and bring the realization that no one has a monopoly patriotism on this in "the country, moral and political atmosphere in the United States would be instantly transformed. There wrould confidence altogether the future without age." the at to the come lacking anxiety, in people and today, feeling of a face would they calm spirit and cool cour¬ a I have the feeling that the recalcitrant members of Congress much who declined the to repeal the neutrality legislation to did session last because not so objected they but because they have repeal itself, so reached the end of their tether in risking the dangers of a one-man If this be true, it is a happy omen, for what¬ government. ever may that it be the justifies there emergency, further trends is in other emotional have men mine, and not the least of these privileged an visit to the city inspiration to stand for like none the important so direction of to return to auto¬ mounts the reverie, I dome am of the before It that I for building. not the I see them with Lee and panions in world sake get from of is being attempted, then at of figures my I stand and me, in go from that of a spot great a venture Which has a which thousand to com¬ make Unconsciously, almost audi¬ own, my native land," and I would with like you: Freedom in life by love of silent were late voice invariably leaves thinker, pass national our in the forebears, simple folk They nebulous safe for democracy. my there through history our the which Washington at Yorktown, with Appomottox. somewhat bly, I murmur, "That is the out of this confusion and that am always From there who led unostentatious lives and were motivated the and events rather visions of see, but As all about great emer¬ duty It is hundred yards from some the eyes my is con¬ that Washington. I few moments in silence beside a oblivious to have I so at times when soldier at Arlington. spot a of experiences, occur Capitol and observe Crawford's statue of Freedom, with recovery so in planned economy, and that it is high time a been country. to you the States gested, the Angel of Humility will but wing his way through words we to have the after to the side of the road, shut off the engine over which is the our for we while, and have a of confidence United the fident that the appalling Grant say of original conception of self-denial. revive that rather than what begin to construct wTe me appropriated affairs. of world our mist similar spirit a a Only time and Mr. Roosevelt him¬ atmosphere an interests It seems to from permanently be not has passed. emergency review. flour, and other commodities called Other States showed gency. of convincing be granted him will not be abused, and that these may powers the with practised in order to help carry through Because of his the necessity large segment of the population that such additional powers out by the Food Administrator, and other economies the State had confront him. now faced with now two completely the is the tomb of the unknown self-denials Arkansas had made during the war in the servation of in this country, I called on our implicitly with sufficient power to deal with him to trust I of which of the victims of Mr. Roosevelt's been bludgeoning, and on whom he must now rely for assistance, visit I had separation of a elements substantial those for difficult be population who have cratic power. good friend the late my We would he less than frank, lective defense and security. As often recall rights in the interest of col¬ forego many of our personal stand. later became charmed with the emotions and with State. same of their approve think can terms Robinson, who unfortunately like the during pay in begin at the top. war largess of the New Deal. to bene¬ place in the heart of the individual citizen. close of the last years, the aptly suggested, we than will Illustrative of what I mean, I at were so position, is representatives in Congress who our in because they themselves one and critical in this difficult responsibilities that are his situation, and thus normally all would be quite willing to we member of Congress standing for reelection, a Government has made in his district, and I No one of us desires to criticize or to in Europe. war hamper the President unduly in discharging the tremendous the indis¬ recapitulation of the expenditures which the Federal a A pertinent case in point is the neces¬ unity now confronting us as a result of for national sity condition recovery democratic a omy, national emergency. generally shown in country with respect to the so-called from government to one which dictates a planned econ¬ of to our transition the that of form proof of this could be manifested than the attitude almost past also said have concentration toward trend this before it is too late. the critical issues that nating. Nor unmistakable avoid power Government, nor can anyone fail to our National the proportions note tended have which enacted been have gradually States rights and power in to CONVENTION BANKERS' 36 charms to show, slaves, howe'er contented, never know. me to as I the leave • Some Constructive been Lave outside, I affected as or talk to by to outside you myself being as viewpoint of banking on viewed from the as hesitation for the reason that I some much primarily too banker to present properly a outsider. an cannot manage long as influences. this assignment with accepted regard the requested Worrying Superintendent of Banks, Atlanta, Ga. By R. E. Gormley, I recognize, functions mental, not of that however, banks, which together have lack a certain with developed knowledge of within other recent the of largely factors, actually destroy the American system of banking as we Without govern¬ if have known it. threatens years, and purposes to warp banking, and of present time in thiB position: In a land of plenty, with unmeasured natural resources, with a plethora of agricultural and manufactured products, with an amount of available credit at an all-time high, and, at least as far as banks are the boring which grief concerned, economic of with even befallen profit a history of summary a us, ourselves find we which position be might the at have an great deal we worse, system, apparently badly out of kilter, and there is a dissatisfaction Whether which with you has and these has in unrest conditions served land. the able in to the to for us the had of number a American banking and years, whether people, by few a believe, increased recently. Its to our economic has, I it would conditions controlled been resources record of accomplishment does not serve to offer a solution ills. I do economic plan there the is the American accept such to America N. to prophesy of banking will forces is the least of way Council, this time present unless the additional Federal agencies, as of of these agencies, one managerial is private established. over-supply of credit, legislative forces and at critical time there is hue and cry from standardization for liberal more that as When repaid. that and through the have rather of than for possible, Granting it balances, pushed we production by provided legitimate might be it the future, thing fine a geared which if in in would result unemployment, and the system a lever a uniform of its extraordinary which currency has it powers prices, demand Yet in spite requirements; its influence speculatino conditions by reserve and to its of reason continue come power to market operations by discounting control fluctuate, in go the capital over requirements, margin over prices rise and pretty much fall, and cycles same suggested System has been policies should the of Board Governors hampered in its efforts to examination restrictive booms in as the policies, be more closely allied with Reserve Federal certain agencies unduly being are are too badgered restrictive of and harassed by such policies, are as old and as the hills sedatives to Now, all on had the just admit, question as but well can we business. governed by fundamental laws visors which and At best the most end of time. tives I The advocates of banks regard it part of a of bank come which we to continue which conditions we have examinations: a don't so-called a human exist to nature, until hope to do is to administer Basic over will of material all I will no continue the purga¬ to be think and that of a that apply as banks in as all super¬ fact which is of similar Likewise, Georgia. in A supervisory policy which regulations, without regard to peculiar local banks well small, in as banks in located which service the in cannot but in industrial centers, located curtail and they have cus¬ > there and certain are basic And, enforce. Supervisors, as tell gentlemen, if you, be eliminated to by that of principles which all it all, after hope can only these basic The responsibility is enforce. to supervisors plishing permit you State Banking Departments your authority to become subrogated or overshadowed their or Federal agency, you have gone a long way towards accom¬ any centralization banking, of monopolization of credit control or with possibility accompanying its of the abuse of such control for political purposes. This brings question of centralization, to the us or unified banking a system. For been served by a dual system of banks, State and National. I believe I may add it has been well served. The creation of the National system led to the development of a school of thought in banking, advocating the conversion of all banks waned of banks. National into 75 approximately banks State by this years country sentiment This the through successively Nationals. for has unified a system has gained and retention of control remained consistently in the Advocates of years. the separate The of course have States banks, nationalizing all the the of operation that we has pretty much systmes two time, I would say, the possibility such, is farther away than at any time in At the paralleled each other. present as past quarter century. In have the 100%. of respect greatest gained It has It existence. is influences. To newly-created be cross which and or to or my then whose agency would, in dual would functions opinion, be detrimental to the service with its functions, as banks, to provide an elastic member banks, &c., advocates of the Federal Reserve System, exercise to centralization saw supervision opportunity an over Federal accomplish to control over 25 years of existence only a comparatively it advantageous to become members. To In its have banks State the it implies, to hold reserves of member currency, few While department. remarkably free from political merge its independence in some banks render. the operation name of efficient and kept main function its agency, purposes, National In the in transfer other at well-seasoned a has it do, a the Comptroller's office, for in politics from time to time, as we State Supervisors have dabbled may sometimes its I would like to say I and I am for it wealth of experience by reason of its 75 years passing, and as an advocate of State banking, deemed contrary, smaller banks in number of States have regarded member¬ a the System a disadvantage. Yet I have a most wholesome regard ship in Bank Reserve district our Federal the say times of between relations The accomplished. are Reserve and for the system been have System the Federal that I could ask. all justified has and what it has and department my its I creation many over. As result a holiday, created disturbed conditions of and as aftermath of the banking an factor entered into banking. The the Federal Deposit Insurance Corporation. another Deposit insurance not was and banking groups a new but thing, by several States. National Congress had been attempted by In each instance it had proved unworkable, and the idea was generally regarded by bankers im¬ as With the prestige of the Federal Government and its seemingly practicable. contributed by the Federal Treasury and the Fed¬ behind it, it has impressed even a large number of superior capitalization, eral of in Board better a on the creation of Directors, of hanks, been a has had the with basis competitive that it has effect of placing banks. There larger stabilizing influence. FDIC, with the extraordinary together with the popular appeal (and there is deposit insurance has only larger to consequence banks question but no its present plan of insuring deposit accounts up to $5,000, while Its direct no smaller is banks Reserve bankers. no powers vested which the in idea question but that it has), I see of ever accomplishing a unified banking system. means and I believe the intent of its original advocates, was that it should function as an insurance agency and hot in a supervisory capacity. I do not believe we can expect banks to function of needs the meet to with past, supervisory be its will of control hazard as American vested in business, an as they organization guarantor, rather than have whose in the primary the efficient operation banks. I Title of the FDIC the power right not only bank, but failure tion, of to also Banking Act make such to to make to issue of 1935 vests in the Board of rules and regulations as they Directors of see examinations and cancel the insurance call for reports of conditions and to fit; the of any require fines and penalties, and, in the event of any bank, to comply with any direction given by the Corpora¬ publish any or all portions of reports of examinations and of publication control. realization practice, not uniform large recognize concern Personally I have reached this conclusion: which of control. monetary managed economy have reckoned without certain phases do within separate States. operation we, conditions pertinent to the operation factors and My conception of the purpose of FDIC, classes which is determining loan policies, soundness of investments, &c., must necessarily with the management of the bank. of that certain in that true should monetary control. and to policies, methods of valuing , which even enforce their is principles the investment for examination and investment policies to be made dangerous we It examination and they admit are not become so dominated (which minds our to examination as tomarily rendered. further economic stability by- that and the of While there may be some merit to the criticism that examining policies of hamper Yet been has It exist, agricultural sections order. old peculiar Montana circumstances, to banking over its provided; open depressions in various by raising and lowering and develop to necessary permit to are States continuing &c., if we are to condition, of reports by the Federal agencies we of of the several purpose for only result in State Banking can Washington? undertakes to only can could we response expand and contract credit through and or cannot but we in are variations inricate system of checks operate to banks would economic stability—an of care borrower by the Government, in call substantially all banks. production. Reserve System, with facile business a loan policy for the purpose of creating spending a Washington, in individual the and funds for from earnings generally repaid are made has unquestionably been a stabilizing influence. money, the of legis¬ our popular demands these to answer There individuals of production. The Federal ana number and from business men only afford to make such loans as will be whether insurance assure take to such absorb more policy of those already established. can magnificently pulled or in is which motivates large a money, reducing spending power control which would and loan the of question the soundness of power, It power. of loan effect from to easier repayments, form a the purpose consider that loans we such the minds of its examiners, becoming as demand a means bankers realize as examining of the policy of at seeking the establishment of additional credit agencies are liberalization a We is a spending politicians and their for banks of a if be the will Supervisors, or shelving State our elimination assets, &c., are attuned to the beat of a pendulum, the stroke of of their purpose to occupy a position seem understand to There credit freer legis¬ banking, supervisory. difficult forces. lative for than not well as and of the thoughts and ideas our to our business life. necessary so majority, and the number of State banks has at all times exceeded that of remote. to What is examinations, perfect), that an our be should same of condition which, according to a some examining agencies breakdown the part of our competitive designate loans, that when at the equally on factors already may you possibility of the a another seems disposition factors such of powers Federal seer a Certainly such a possi¬ occur which of increasing an mechanicalized, it would It It disseminated by will be foresee to should there possibility make loans, to of take not practices and uniformity of method of valuing assets, with so its management has, in my opinion, has been responsible for the rapid of which policies, standardization of forms, &c., and which some that forms devised accept addition to in does It which propaganda the at demand for the of one failure least study by a branch of California. of A. seemingly inconsistent that under subnormal two S. of political affiliations, a financial welfare. our under is study commandeering all banking. create increase to It our noted to & make to by up and been never which has been raised by some of the Federal agencies cry taken Departments. I interesting to learn just how. they propose branch economic and business ailments. remote, have we T. difficult banking—the Yet or cure seems your and credit in have I everything through the same hole 6ee diversity very examination thing, one rest to be Government's private and the the Chairman nature will It rather is Federal lative the to Council. bility there now for been has the very vital to so social to This uniform (which I hope will be always) management. of bankers to more latitude that The hue and for which permits of absentee professor in one of the leading universities, is also economic adviser- Bank It one banking, the dissemination of information about branch banking. purpose a to this Even Council interesting to note that being factor accustomed banking contrary of founded, was system. a Economist American people, system a influences at work undertaking to overcome public powerful are opposition stated will the monopolization of a control and Yet believe not liberty, which this Government on wall. for uniformity development of this country and which is banking of type have large groups, as advocates of multiple banking contend, or whether the trend would have varied greatly under a system of Government-owned banks, or banks the control of which was dominated by the Government as the piesent trend seems to be, are questions which, with your permission, I shall discuss briefly, though necessarily somewliat abstractly. Now, in regard to multiple banking, we have had branch banking with different been accomplish get two or the banks of this country; that direct the operation of the or have privately-owned banks we controlled attributed be can as cannot we made I 37 BANK DIVISION. STATE of same, to assess correspondence between the Corporation and such bank. BACKERS' 38 Thus make we may fit; see visions, insurance an see rules such and the such governing with regulations such enforce to power penalties, imprisonment of officers, fines, as vested with the unusual authority to the operation of banks as it agency regulations punitive pro¬ and threats to unfavorable in the eyes of its depositors by advertising crucify any bank The been enough undertake to relieve to responsibility of where such the of me State banking law—and in enforcing provisions of violations admittedly created no condition of hazard to the Corporation. our cases will have? you with the gentlemen in charge of formulating and Now, I have no fuss Corporation. I am personally acquainted with most of them and count them my friends. It has been a source of some satisfaction to me to hear, within the past year, several of these declare men the that policies the enforcing in being as in of the dual a the is could be testifying before in the Banking Act of 1935 on banking, and stating he did of control ever record on and Currency Committee losses but remember Yet I can't help system. Corporation of centralized favor bank believe not of favor Chairman Senate Banking the of eliminated until had we unified a I is wondering whether the dual system to which he refers as favoring am not system of National, State, and State member banks, a sole supervisory control or I personally am insurer. an I much very opposed to increasing the Corporation's potential liability am I am opposed to decreasing the Corpo¬ by lowering the present premium charge, though I recognize the present method of assessing premium In short, I want to thing given this see cost to be unfair to large banks. The only question fair trial. a worth is heads certainly uncertainty control to stand conditions failure and especially to protest bankers and State bankers business is it and in undertaking go under¬ difficult to not the have of that business has government is and for the unholy the President, Henry W. Koeneke, Presi¬ Security Bank of Ponca City, Ponca City, Oklahoma annual round-up. our Ten months ago Tex. At that meeting you honored me with the sion. You bestowed for useful service and pleasant association we gathered in Houston, now among the out¬ So have banks dogree because of our service, for the year ended today was set forth in Throughout the year here, to hold Committee for statement of a have tried to maintain close contact with we seeking their advice and guidance. developments of the Division's which the our Executive of the significant one Our Division is the machinery through year. State chartered banks express themselves and it is appropriate for them to do in through their representatives, the State Vice-Presidents, so Your Committee It year. can point Federal on to one existence and your support. Legislation has achievement great been this effective most alone which justifies Reserve membership provided in the Banking Act of 1935 for banks with This effort on our was Federal part and this step taken by regional Reserve was Federal Congress and the President Reserve systems as coordinated a voluntary through the the culmination of The establishment of the 12 Federal Reserve banks an This struggle continued right up to the time of the debates over the Reserve system under the Wilson Administration. the a of American was economic fabric and a a recognition of reflection of the fundamental characteristic of American life which is local, regional, Compulsory Federal Reserve membership and current efforts to center financial control in Washington represent an attempt to undo and reverse the principle that has prevailed through 150 years of struggle. Such a centralization allusion to the past. east, the cannot America did other single city. in Middlewest, be justified not grow up by a "horse and buggy" in Washington or Wall Street America grew up in the Northeast, in the South¬ in the Northwest, and the Southwest. Each section developed its own economy and habits, its social life and customs, even permanent, profitable a stake in assuring the liberty of a been my by charged those of some connected with the Federal that I do not have the broad, In short, I am provincial—for which I being narrow in my views; turn, of my fellow Supervisors accuse me of being an alarmist, some about that I shy at imaginary "boogies," and that I worry too much things which are of no consequence. It is Nation. its strength to the a new idea that each must depend for its Washington. strength on We expected to be able to report you in success to boards of two banks. our efforts to have While both houses of Congress passed the extension, the President vetoed it. Of greater legislative concern to us, however, was the Mead Bill, pro¬ viding for insured loans to business and supplementary proposals to estab¬ lish government The alleged purpose of the Mead Bill banks. available loans to with better established and of publicity marginal business enterprises was to in had a part. make competition A great barrage The Association made of constructive information President in which your we better managed entei prises. released in support of this project. was effective presentation measure, at While hearings this on this measure was its reappearance in some form at the next session may expect of Congress. A great onslaught was made on the banking system this past A larger been the establishment of objective seems to have with under system of theory. new a a Government witnesses appeared before Congressional Government banks. committees year and capital not available through the The proposal for insured loans was but a small phase. normal channels. Briefly, the theory held that the countiy had achieved economic maturity, that there that longer is room for great industrial development and expansion, no industry no offers longer opportunity for investment. Therefore, capital is not being invested and the economic machine is slowed down. Hence the works. It the Government should its own accent and sometimes its Thus would confessed was Government undertake to economic activity assure the discredited pump priming by one would units of the country. scheduled by Government official that ultimately come to own the own vocabulary. Each contributed under this most of the program productive That means the end of free enterprise. entire by the passed Wagner resolution on be made permanent. banking set-up. Senate, hearings There is no doubt but will what be a challenge will be made against the dual system of banking, seeking ex¬ clusive Federal These control. sometime during the month of One can enterprise. readily hearings October. see that which is "Two expected to get under way This Division must consolidate factual information to this committee. socialized One of the leading daily papers of men, are lending can easily stifle private I am sure that the American people are not ready for this. which illustrates the viewpoint Sure as of Oklahoma recently had some an editorial of the thinking American business follows: Signs—Until there is more demand for money, all persons here, although they may hope that it is Today money is going begging. Banks continue to remain little demand aside from routine financing. Interest rates may be sure that recovery is not on the way. full with are low From economic, and social development. or any not thankful. say The triumph of the con¬ federation of 12 central banking systems diversified nature most is have begun to wonder where the connection lies talk and the title chosen, "Constructive Worry¬ may general outlook which they have. am historic struggle between two schools of thought dating back to the establishment of the first bank in the United States in 1791. of you its efforts and be prepared to present Board. banking system. ception of there work. independent dual system of banking you are maintaining thread of the have I We cannot look with favor upon the current efforts to centralize control of the which for people. some Under conception of the act creating the Federal Reserve System of and of time. agencies with repealed. keeping with the spirit of the dual system of banking and the original federation believe that I lend in guarding against an can believe to be the greatest single factor Now its Under its leadership the compulsory Federal deposits of .$1,000,000 or more is in confidence. public warrant supervisors taking savings and investment capital and investing it in industry and public councils. our we permitting the creation of banks which are eco¬ an intimate exchange of ideas and for the planning of a future This increased mutual assistance has been program. our We plan while we joint meeting of State Vice-Presidents and a which the guise of efforts to provide credit Vice-Presidents in each State, keeping them informed of an to manner a unsound, democratic Your officers and Executive Committee have sincerely endeavored to carry it out. are in field by not protecting what I defeated principles adopted at our Houston meeting. State of the few who believes the It seems to me there is a great deal more at matter of your jobs, your investments, and your life's low-rate The that contribution will be or own reward. activitities and one upon we. closing has attempted to carry forward the tradition, If the Division has been strengthened in some Division's when banking will be done on a basis probably am insurance, preferred stock, or other Government assistance I like to believe the bankers of today are capable of operating the ravages an our I than just the service, and principles of the Division, adding something original of its own. The program future— In Divi¬ opportunity me an that have been your Each administration has built experience and achievements of its predecessors. administration the in deposit from serving on the Presidency of great honor upon me and gave a standing experiences of my lifetime. the which may those policies Government on extended the time limit of the Clayton Act amendment prohibiting directors Independent Banks Meet Public's Banking Needs This is wielded Officers' Reports-State Bank Division of dent, this country will get their take time out to study and policies—certainly Government be can the assistance In in my opinion, reason, of forward, credit, sell privately-ownd bank operating basis, we can maintain a banking system which will withstand dual system passed, had we bankers look can't you banking since the holiday would not have varied greatly regard¬ overcrowded vigorously. The Committee Address banking, more brings to mind this: which which through to the extent to which Government would as business, their Which fear disturbed and and when time a The independent, those related to business. and control. with numbered. is business—exercise and coordinate the influence which is theirs, on of of less bank country the of come the If trough personal confidence. course frankly amazed at the apparent apathy with which the day I believe the time will come again of accepted the provisions of Title I of the Banking Act of 1935, yet looking at never for. the of influence vast a will fighting their affect the trend of population is towards larger the remote sections. legislation analyze that and the seemingly unsolvable condition Economic laws will force an adjustment of these con¬ There out ing." back with the potential influence has, in my opinion, been a potent factor in our persent the more in even between was and unemployment. favor? I some economic situation unsatisfactory of centrations. the FDIC officials and a ourselves to be completely be placed on our authority. And please keep not permit will only suffer knobs to still butt with may their long horns, as their most cherished natural their being behorned. will we tell you that centers This concentration between myself is just what kind of surrender trust we will Econimists do they that so nomically the FDIC and its success as interested in by raising the maximum coverage. ration's income the primary which shall be vested in the FDIC. over the glory of to that at most we industrial their banking system. I realize bankers. great deal of a all is mind: There is no other class of people this of of pressure has been brought to bear to accomplish the uniform examination form, and the acceptance of FDIC reports in lieu of examination by State Departments. I know of no surer way to accomplish centralization of banking. If we surrender our individuality to the extent of relinquishing our right to devise forms and supervisory practices best suited to the needs of our respective States, what will be the purpose in retaining State Banking Departments? With¬ out enforcement authority vested in someone in the State, what will be the purpose of State banking laws? What kind of State banking system A adoption sincerely dehorned; antlers, were to the extent of even I in forced plains Western increased Now course, naturally expect more regimentation, as the cattle, which formerly the roamed Of the past. population increases and the country becomes more congested our as must number is in to or In numerous instances its examiners have with that of the FDIC. kind subrogated been has Supervisors State of authority conflict paid too little attention to government in that we possession, information. . CONVENTION but for all the types of loans, especially low for those favorably secured. viewpoint of moDey, there probably never was a time in the history of pay investments when financing was easier. But few persons are asking for loans. "When one borrows money, he not only must make enough to pay back interest and principal, but also give him whatever profit he is entitled to make. The only inducement to borrow beyond actual needs is the profit motive. When that is absent, people just don't borrow, and it is apparent that the profit motive is lacking now and has been for a number of years. It is possible that the cracking down one hears so much about from Wash¬ ington and the growing burden of taxes have something to do with dimin¬ ishing profits. I "The American people are individualists, full of initiative, willing to adventure. Is our initiative killed? Have we lost our confidence to see country's STATE BANK DIVISION. thing through successfully? Are we lacking in courage and the spirit of adventure as applied to business? We believe not but must admit that for some reason we have been greatly subdued. "There are ti?ro sure signs that business is picking up, that recovery is on the way These are when interest rates begin to increase and loans to a selves with One may then know that business men themselves and in the country. in When this regaining confidence are shall be catching occurs we up with that corner which we have been trying to turn since the depression Our Committee American has State on Bankers Legislation has actively cooperated with the Association's Committee State on without regard to party affiliations. Europe is at Vice-Presidents of the State legislation, Division with copies of the together with the 1939 supplement (1) (2) (3) (5) (6) what bills to as Our Committee toward the of State on For many various States. Secretaries Section made it degree of cooperation the with supervisors The commiteee's purpose at five-year intervals, the Division has conducted its as a of determining means The material for their survey, which includes information appointments, of term office, and salaries duties of being made throughout the country The fourth such survey is bution. It Committee being made and will State on annual Bank of survey and earnings published. Research charted of resources survey be ready for distri¬ soon by legislative committees recodifying their State laws. valuable statistical data of State eighth bank whole in State bank supervision. as a will be found exceptionally valuable in the respective States in Our State of expenses If you will take and the and compiled banks in the 48 States and the and the fifth banks supervised study this report, to annual have you been will be well repaid. The Public on Relations of the State Bank Division has cooperated with the Public Relations Council of the A. B. A., in the dis¬ tribution and been have use of the valuable information contained in the talks which use and being prepared are by Public the Council Relations for of bankers and others in addressing public gatherings, in an effort to bring about In better understanding of banking by the public. a dealing with this iusse, it only from a selfish point rests in the defense the independent Besides, and may public interest credit bring we serve the does system require public. are difficulties to should banking by group a We such any issue. At the banking the moment should state like like to see believe we branch our banking the see economists state be clearly stated. contemporaries the in Likewise, we West should clearly the nature and purpose of their relationship, if any, to the branch banking interests. But whether they do this or not we regard centralized control of banking opposed to the democratic American way of locally owned and managed credit institutions. The State Bank Division stands this question as it did two years ago banking question. Boston the the convention porting the autonomy Association of branch do want privileges problems country. years and a resolution sup¬ across State lines, directly have underlaid the it when has been through considerable alteration in the last several initiative it has greatly widened its services to people. of endless legislative innovations. What need we is a resting now period in which to absorb the changes that have been made. I am every old fashioned enough thinking American rests form of government and that our responsibilities reluctant to sponsibilities me we exist today to so I make an we attitude are personal by them. our our as we I democratic our individuals, to accept While we am business wish to forefathers, sacrifices. make the statement that shaping the policies of of loyalty to all willing, partisan politics, if us know definitely what efforts we banking system and the the to task of and powers meeting these and fortitude, and with the courage new common well for served at all costs if are to we task bequeathed to we can well very dedicate ourselves and, us in a spirit of in the days to come. be my purpose to keep you advised, as members of our Division, to the changes that occur, as to the as was and which has been maintained by the sacrifice and, oftentimes, by the cooperation, strive to meet the issues that confront It shall of the forefathers. our To this progress economic system must be pre¬ our years ago, and preserved down to this good day blood of and enjoy the freedom which by the founding fathers 150 us advancement of living and the fundamentals of way country during the many years our the obscure the great fact that the fundamentals of the American dangers that threaten, as far as we discern them, from time to time, and to ask your cooperation as we present a common front toward a common enemy. 1 want to bespeak the cooperation of our Executive Committee and the cooperation of every member of State Bank Division. our to write to us if we can serve you. to We want time, because the organization which of the American Bank Division is we primarily for We want you suggestions from time your maintain within the Constitu¬ Bankers Association and the By-laws of the State benefit and to preserve and foster the your principles of State banking and the rights of State banks to continue to exist and perform the useful functions of which they are capable for the benefit and the prosperity of our common very well dedicate ourselves, and I ask with us as we I believe your country. will succeed we in the measures To this end the will we new Association enjoyed it for year. properly undertake to the rights and the life of the State banking system preserve we can consideration and your patience enter upon and pursue our way along have as we so many years. Report of Committee President Koeneke: "We will now call of Abilene, Bank Committee, for a report. on on Nominations M. H. Malott, President of the Kansas, who is Chairman of the Nominating If Mr. Malott is not in the audience, we will call M. Plin Beebe, President of the Bank of Kimball, Ipswich, S. D., for a report. Mr. Beebe: Mr. Chairman and Members of the State Bank Division: The for For following names for the ensuing year Division: our For President—William S. Elliott, Vice-President—Harry Bank, A. President, Bank of Canton, Canton, Ga. Bryant, President, Parsons Commercial term expiring in 1940—L. C. Parsons, Kan. For Member of the Executive Committee, Palmer, President, Citizens State Bank, Arlington, Wash. For Members of the Executive Committee, term expiring in 1942—Wood St. Trust Co., Louis, Mo.; Frank P. Powers, President, Kanabec State Bank, Mora, Minn.; James M. Shackleton, President, Saginaw State Bank, Saginaw, Williamsport, Pa. Respectifuliy submitted, M. H. Malott, President of the Citizens Bank, Abilene, State we sure men are enjoy to the must accept re¬ you should become will more agree active Government by familiarizing our¬ Kan., Chairman, H. Raymond Beyer, President of The First Bank, Guthrie, Okla., M. Plin Beebe, President of the Bank of Kim¬ ball, Ipswich, S. D, President Koeneke: You have heard the report of the Nominating Com¬ mittee. Are there any nominations from the floor? nations from the floor, believe that deep down in the hearts of understand heritage left and when and assist in as participate in fullest extent the with to which hangs over the We do not want the emergencies and the exigencies that has proved its value to the welfare of the The country itself has been kept unsettled for a long period of time by means war We do not know what the future do nor banking structure of wrought American people. or its own years obscured with clouds of or Mich.; Peter G. Cameron, President, West Branch Bank & Trust Co., adopted It has on have known it for many of these suggestions emanating from some ourselves they arise with as I would remark that the dual system of inde¬ pendent locally owned banks as intelligence born of close cooperation and loyalty to the principles which indirectly." At the risk of being trite, well Perhaps at no other time has the as we Apart from the threat of dedicate to o^the States with respect to banking, and declared banking as something of the find economic conditions have produced suggestions for we itself "definitely opposed to any proposal or device looking to the estab¬ lishment you Netherland, Vice-President, Mercantile-Commerce Bank & on when the American Bankers Association restated its position on the branch At The two speakers, seriously threatened Nominating Committee offers the should motives clearly their relation, if any, to this campaign. to We on for the extension of branch on Elliott authority and usefulness of State banks throughout the Nation. a of university economists whose letterhead indicates campaign, more be made to change the dual muddied affiliation with the branch banking interests. In today, Citizens banking highly publicized campaign is being carried been S. But us. branch the reopen ahead? front. united a The waters In these circumstances it is unfortunate that one segment of business defend is in progress which tends to obscure issues a great war new we The future of independent banking degree to which time to revive intra-family quarrels. no enough. of view. last analysis on the of This is must always act from the we The independent credit system will not survive if standpoint. William have told banking today. privately chartered banking, may tion Committee Division, our hold for chartered banking, can gathered liabilities State time has immediately years the acceptance of an honor of this sort may permit comparison between States and to show progress that is to as liquidation of banks, is obtained from the These five-year surveys have been compiled and codified commissioners. of change from various quarters, banking system through close contact with State commissioners, banking boards, bank examiners, desired bank legislation, chartering banks, that high places in the Federal Government. in improving the state of State bank supervisors in the qualifications, on the President-Elect I realize retiring President world State of the status of State bank supervision the progress made will be able to keep out of it, we in be builidng it up to render the greatest possible doubt and uncertainty. and to unite with them in achieving the chief objectives years, of in this country, for the betterment of State banks. survey Remarks President Elliott: future of banking departments in the 48 States. bank supervisors, ought to we difficulties that confront State Banking Departments is directing its attention is to strengthen the State face to service and to contribute the greatest amount of stability to the country. the being introduced in other States. were possible greatest that can say have involves responsibility of the highest order. Their continued cooperation with the associations shall we 1937 program of possible to keep the States informed through the secretaries of the various as ourselves, which provides the Uniform principal and income Act. Holiday bank transaction statute. Model banking board statute. Model bank chartering statute. Model bank employees bonding statute. Reporting violations of banking law. (4) Who war. trials Instead of tearing our structure apart and introducing now conflicts among and Legislation following recommendations: so what or supplied all officers, members of the Executive Committee, and the State confronting the Nation, and be willing to accept the responsibility of leadership and go down the line for sound principles . pick up. 39 the problems I will entertain a If there are no nomi¬ motion to accept the report of the Nominating Committee. [The motion was duly carried and the officers installed.] President Koeneke: You have elected members of the Executive Committee. with the government of your Division, a new set of officers and additional So you may be thoroughly familiar we elect four new members to Executive Committee each year to serve for a three-year term. this the The reason for the odd Charlie Laird, of Moorestown, N. J., is in ill health and asked to be re¬ one year is that one of the members of the Committee, lieved of this responsibility. DIVISION SAVINGS American Bankers Association Thirty-Eighth Annual Meeting, Held at Seattle, Wash., Sept. 25, 1 >39 INDEX Good and Bad TO SAVINGS Money, by Julian T. Baber Page Today, by Dr. Fred I. Kent The World PROCEEDINGS DIVISION 40 Address of President P. R. Williams 41 Report of Committee on Nominations Page 44 46 Good and Bad Money By Julian X. Babeb, United States Secret Service, Treasury Department, Washington, D. C. while attending State banker conventions, I many bankers, including Past Presidents During the past two years, the privilege of have had the of responsibilities is fault that our that this is why bankers know However, it related. closely so is we Briefly, reasons the of fact, we oldest well we this are your the States that perhaps it me May I today, for program say President. We of England, taxed our connected Since and perform failed keeping share accept us rests and the money, in selecting time must you efficiency in deposits. Many feel I that measure friends. it is Chief Frank J. daily An before pass examine experienced on and perhaps him in years countries. value We Wilson's desire that all which is the of spawn Washington, and review and it the portrait is each on Jefferson, It quickly as long training he as teller your by the face of can spot acquires of sort a a sixth familiar with follows tributing The finished character of our counterfeiter C., makes because is this they ignorance by the serial line, the of Bureau in surpasses because of Engraving excellence genuine our numbers and dot, every notes the and Treasury seal, which dash every feiter cannot meet. to on a fibers are belief, this are genuine from our inclined by numerals the to not discern intended steel appearing average in identify in the terms workmanship, superb general high-class appearance of our I have best of in mind a everything grocer the inspected his offerings dealers daily before of and, by each to and paper distinctive to popular not take time appreciation. in the large He and is of and a Fully his which aware he visited stock, demanded his the customers the wholesale shopping at various strange and "un¬ apprehended Peter home-study to criminal when he the imitating preparation. fairly a he This note we began in a few 1930 in needie a Terhorst days Visualizing easy an turned he currency, have embezzle¬ for swallowed a States, Stales United whom arrested After United Terhorst, photo-engraving of career was trial awaiting hospital. to to own original Raphael, an counterfeiters. deceptive $10 note circulated the in to after larger agents arrested Terhorst under the name of Henry in He was sent to Atlanta Penitentiary Before 1935. contacts his departure, for three however, he made he depended for aid in returning which upon his deportation he obtained passport a employer in Krefeld and, States as through the port of New York. convinced believed they Agents personality, York they agents identified and New to Within This few months a from conducted was partly deportee the arrested representatives originated was theory of a City flashed certain the these counterfeits the in investigation York. name New York in appear eight varieties, each of which were which returned under the Hans Neuwerth, he returned There New Because of this inferior identify $1, $5 and $10 notes began to on same imprint the theory confirmed when in 1938. October, Unfortunately, /there was no direct evidence to connect him at this time with any illegal activity, since it could not be proved beyond a doubt he responsible was innocent people He then was reentered the flood of Chief by to States worked elaborate time and After night March 6 attention providing months five and in counterfeiting a other persons day in the of sections officials, He with held hundreda which in the of as of country. much under Terhorst with these picked corps New York in evidential inspired he as bond $5,000 new counter¬ of agents to concen¬ an effort to re-locate background investigation, enthusiasm, necessary included with to during which Terhorst Village apartment surrounded which identified was intensive Greenwich outfit, closely with appear. complete and incomplete counterfeit notes. six notes many immigration illegally. failure to connect our atmosphere an him. recaptured in Wilson assigned a specially their whole in involve new being defrauded surrendered United the Undaunted him for were hearing, at which he failed to a agents clientele can counterfeit our lacking, reproduced are their unworthy sires. elsewhere. had generally is features the distinguish States. his former Terhorst's trate values While jail fled City. deported he denominational printing our underworld after which obviously are plates metal to values facial provided impediment detail to ago seriously Germany, from and diligent until United However, the counter¬ serious dangerous counterfeiters with frauds. New York and source. feits, impressed skilful This man's years. leave" the United is not notes months most Krefeld, gigantic of to He money. afforded. replenish These the recent cities Soon new arts. experienced Secret Service agents recog¬ can so himself rapid wealth by in a the art connoisseur few a transferred months and graphic the in transferring of photo-engraving and produced Eastern for does note. for freshness and quality, sun-up every clearly contrary quality engraving who catered to market Except printed, up feature. person of currency comers artistic strength. glance protective a the age to stands plates challenge which the counter¬ a tensile first at as seriously money habit surface are note in all of impregnated with tiny red and blue silk durability and fast-moving consider by its difficult they In The paper is increase dis¬ Printing output currency printed are distinctly and the composite design presents fibers and of skilled shadow which in known of of one town was son of fidelity reason, as an agents characteristics superbly engraved by hand by the finest craftsmen in the world. for not are and coinage, and currency capital of wares. product D. nations, It quality and the his worthless Washington, other the that counterfeiter? or in home the that unwittingly transfer to their work the label of their who applied contended certain the of engraving processes purposes. finds and counterfeit on technique became six distinguishing it is unnecessary lack expression and vitality. eyes faces York German, lines portrait Remington, Braun in about photo-engraving to build enough echoing the base character of the New study I second a deceptive quality with years, engraver incapable this the Rembrandt, to the in Just and hand a is individuality. his but displays he currency tell-tale Since the ago. in recent photo-engraving For notes. Counterfeiters and the compared in years hand-engraved workmanship, usually of be which process, coarsely and the nize instances, as his scan reveal not plate suitable for their to turns particularly to it this genuine separating the chaff from the wheat—a sense enabling him to distinguish between good and bad engraving and printing. But what about the butcher, the baker, the candlestick maker? Why are they victims many shall or copper who to must in the zinc years of years be who have learned just persons road He stranger before his cage. Through does strangers, will that unaware was 100 of hereafter in handling his surprise you to know that most present-day counterfeits are made may feiter by He grocer out care bill. cannot circulated impossible for incidentally, he makes few mis¬ instinctively the strange, or "un¬ spot can which proffered it this much as vegetables. himself "phony" counterfeits "French instantly and, teller the took note. The grocer knew most His indignation reached lofty 95 in strangers money fruits and hundreds Franklin, One whom he did not know, failed to people, other by he will exercise reassure of ment of Grant rapid minutely counterfeit note a recent unofficial Secret Service agents, as portiaits the sees Jackson, reject the notes or responsibility, in and the criminal printer. teller They this in Secret list. his labeling it counterfeit. many passed particular friendly," the upon which foreign with guess Current issues after note are his to marks by squarely problem a into even shall regard themselves stop and friendly," face sense hazard up a combating the manner. interest common a coping with in cooperation, and Hamilton, takes. clean money the country, average to our the common delicately-cut banker our the qui vive for that shady commodity on times. him from In counterfeits particular. general this retained in and $20 note. a man, nearby bank for change. a counterfeiter customer in to the determining the quality their in attention clerks This additional duty every of items stranger patronized his store, and this a printing have been simplified trenches choicest heights when the clerk returned with the announcement that the bank had organized racket with underworld connections extend¬ an criminal engraver The innocently our assistance with them upon bank employees Lincoln, this receive Bankers rely your always through service to come baskets with but occasionally and defense the register with him until a few minutes later, when he sent the bill by one of his be to royalty, visiting suppressing counterfeiting would be retarded in great to throughout highly in of line front obtain the King and Queen passing through their hands. included first developed into ing the the happy to say the arrangements am first line our of elected person protect to honest effort to an 6tranger purchased six a comparatively small field force scattered at strategic points, the a we the and successful were are splendid a counterfeits Service. lias but I occupy the money responsibility of and family, occasionally President the protecting their judgment and discrimination in efforts in With task banks tellers your counterfeits we dual Nation's upon Tellers of being their Majesties, the limit, to this with the detecting our upon responsibility character of new called his who visited the United States in June. counterfeiter, depend of resources anniversary. seventy-fifth and other fiscal obligations of the Government, members are recent most our in the Government struc¬ our in of his customers, want we the responsibility of preserving the integrity responsibility great and observing year charged with are as United of to interests our in the banking field. on are we investigative agencies of the currency and coinage the has occurred booths day, when his display of strawberries attracted more than usual attention, strawberry sale to a neatly-dressed little about us when so not better known are of the one one In ture. if and to know that the Secret Service as a division of the Treasury Depart¬ you ment as of some of the duties bankers, these inquiries have been a bit perplexing, and I Coming from have since wondered are Associations, unaware Secret Service. States United the State inquiries they were by their of and Association Bankers American indicated whom meeting approximately was by an $50,000 in Simultaneously, agents arrested the conspiracy. Terhorst con- 41 SAVINGS DIVISION. feBsed been fully, naming other under surveillance, This list. suspect our important including figures acted group They for or year of the United It various sections character agents of approximately 250 persons as distributors and With the materially does concern not of issuance curtailed small the the size activities himself with detail expense doubtless were theme of The each carrying a standard denomina¬ think notes issued are 11 in denominations, Irrespective portrait. characteristics, identifying other of A is application drop of this acid silver plated A spot. the at coins Aside of from making primary our issues. quality Sinai In and like of Moses, we currency, our we down coming are the spreading are truth hidden have we the glare highways and byways, activity As hazardous more of forerunner a with this under light our so his campaign characteristics of Secret 93,909 persons, members of the defects including business . movie subjects More than 100,000 store employees were instructed orally and approximately 900,000 were notices warning counterfeit describing notes distributed were the While New York campaign than more and customer due and effects York different 2,285 of the Notwithstanding New we of influence as the country Losses investigations nection, received work of New in of some in the country. of their the banks tellers, loss notes. from educational This is banks, campaigns distance in last year. by the passing and against Our for a public, figure in coins and violating year 557 notes, excess reduced was last agents counterfeit 2,980 Dr. States we by represented much not of intensive enlightening throughout drives banks the as other of $1,000,000 from arrested for making laws and which in $69,745 448 well, have decreased in to The public 1935. 1935 $50,873 to making and passing counterfeit coins persons under come for the investigative Feed I. Kent, Director Bankers Trust Co., In introducing Dr. Kent, President Williams of agent as em¬ will attract collection of counterfeit We participated in approxi¬ attended year, by than more 160,000 few months we shall have available be will featured We shall also give to special is detected in a issued the tremendous number of 148,967,048 year checks unauthorized into fell naturally hands. of relieved preventive effect part of checks bearing 24 additional the 48 or hours, a In this will then case of the check, with copy the circumstances concerning The ques¬ a obtain interview the depositor and the bank to negotiated. was con¬ If a bank us. office handling the our photostatic possible as incident to work their endorsements. has been bank request information such measures deposited is located at a point some office, and it is impossible for agents to arrive check the to 20,000 than more intended to forgeries and expedite investigations in such manner nearest our and in investigations in as which procedure under Secret check Government the payee which a means it. unable to further a above for of instrument it unless is endorsed assisting commercial checks not cash do by Why should they establish satisfactorily. who satisfactorily cannot depositors your for to protect themselves Work Projects Ad¬ on the front near identification procedure and instruction* on reverse of the be printed to following warning admonition the persons have caused we "See This depositors identify themselves checks checks bottom: check worthless a Your means against forgery, check." is and carries the last endorsement of a person known to the agency negotiates in is also reproduced all on ink red in red ink on the back of the "When cashing this check for the individual payee, you should require full identification and endorsement in your presence3 as claims against endorsers may otherwise provided space for the signature: result." May I business in conclusion that alertness is of primary say which in is the possibility banks. their I the it may commodity? main mistakes. salvage value in depositors who claimed from is money If your be paid out know of banks able the witness to bank's not claim. only faces" these on the depositor controversies amount Sometimes a important. subscribe to avoid the in the discovery, When trace theory rarely is the bank arise, there is a that counterfeit or to know counterfeit note, innocently. I know again in full sincerity that this also importance in any We bank accepts depositor's account after the customer left the bank. last year amounting of assisting the bank, and also the payee, in obtaining restitution speedily. A there the you station Service adopted this only with the thought of locating the forger quickly, but as attribute it to the splendid with Service service and depositors, molds. In a which forged within direct check the little American Division from tionnaire, loss of $62,002. a Secret or shop-keepers, asking the banks to cooperate further with forged a scene forward The World By the on amount coupled and United the in has most dangerous the comparatively small a and years, the York, which $20,228, aggregated by this bank against those who violate the counterfeiting laws. counterfeit loss which in of are we the in reported your last placing of be may in years many skill counterfeit sustained as banks in steadily during the past four years, the reduction $302,512 the number reduce counterfeits $40,000 can benefit for the retail merchants in the detec¬ your bank officer together with a conducted now identity? reduction sponsorship plates and these year are As genuine 7,094 counterfeit notes for alone State our We that last of their than the responsibility to investigate forgeries of Government checks, last agents lost $723 and detected $14,347 the educational our considering the record of former cooperation Some was reduction marked than you police authorities, whenever a counterfeit larger New York banks, with and banks deposit. ministration more year convinced counterfeiters last year accepted In intercepted are the of loss of $4,800 in counterfeit notes in 1934, a base for operating persistent local Government Government noticeably One This bank last We notes. the the been time deposits. to with cases. / picture qualified agent cash traffic in counterfeit money in the way decrease to sections. branches, took same counterfeit is other in 60 the at began area also observed under was „ represent, the convenience, experienced agents who will employees. program. an strangers through the mail. the he would not have of be your meetings their furthering this made in line with this educational activity. and short and Now if that depositor had been coin. a not may with our meetings attended by small or such and motion Since it is our so employees, police and postal officials, shopkeepers and others. Radio talks bank clubs, teller the be in the teller's voice a tone may merchants, your specimens, 2,000 checks. in counterfeit apparent may coin sound The strong that the counterfeiter finds his proposed victims forewarned. under Chief Wilson's direction, an and money interest who customer's was genuine will and cate campaign Service agents lectured before 2,160 money. effort making little with in our educational talks be" pleased to supply your banks instructions concerning counter¬ feits to your tellers. Incidentally, we feel that your tellers should know that counterfeits should be retained by the banks instead of being returned to unfortunate depositors, and also that the depositors should know what action to take whenever they are placed on the spot by a passer of counterfeit money. Your banks will render a fine degree of cooperation if you will notify our nearest office by telephone or telegraph, or communi¬ conducted in New York City early last year to familiarize the retail business man and his associates with the identifying educational a An occasional meeting arranged by your bank money? public auditorium, with merchants a Here¬ fraudulent money. bushel, monopolizing, a service banks are overlooking an genuine service in which some strong probability a or program public counterfeit mately to speak, certain information which should be available to anyone. Now that the bushel has been removed, the luster of this light extends to the tofore is genuine and counterfeit notes, note from our the public that so be better prepared to protect itself against may of the general public through acceptance of counter¬ to educate the business man to recognize the character and, was supplement their lectures with exhibits of large photographic reproductions endeavor our which counterfeit, a There there relations of sympathy. to register banks by supplying, at your are we You earlier this built around customers. large groups when properly advertised. The Secret Service believes it to be its duty to provide this education, and we shall be pleased to cooperate with silver. counterfeiting, suppressing in of any ployees, determined effort to reduce the loss in genuine money sustained a by banks, retailers and feit interest their accomplished detects by the bogus note better a lecturer, Genuine coins, as well as die-struck counterfeit resist the acid test. will silver, history, our convention program depositors be may bank a by the bank, public of the having for its object the education of in in year depositors, and others who may not be your depositors, of a campaign tion should be scraped first and the acid applied coin point of abrasion. made their to work When the your will produce a black made of base metal coin a render regret intended In a of nitric acid and nitrate of solution of a on cost. forewarned , content, with departments relations to missionary been deceived note should be recognized only by the portrait it bears. If one will remember the portraits on genuine notes, he will not be deceived by the note-raiser, notwithstanding the fact the swindler may display amazing skill in con¬ verting a note of small denomination into a note purporting to be of larger denomination. The following portraits appear on the various denominations: Washington, $1; Jefferson, $2; Lincoln, $5; Hamilton, $10; Jackson, $20 ; Grant, $50; Franklin, $100; McKinley, $500 ; Cleve¬ land, 1.000 ; Madison, $5,000 ; Chase, $10,000. / Counterfeiting of coins seems to attract criminallv-minded persons of meager means.; For the most part, counterfeit coins are made of lead or babbit metal in plaster of paris molds. Some "coiners" treat their products with a silver plating bath to increase their deceptiveness. These coins are generally light in weight and produce a dull sound when dropped on a hard surface. They tarnish quickly and have a greasy "feel" when rubbed between one's finger tips. Molded coins fail to reproduce accurately the parallel crevice lines on the rim erge. This feature, often identified in error as the milling, is known as the reeding. Probably the surest test of a doubtful coin, unless the coin be counterfeit with genuine silver tional impressed with bankers' California the discovery notifies the depositor. of previous any relationship public attended public effective little convictions for the fiscal and Arrests exceeded public relations. opportunity a close a year specialist in his own right. He tampers with genuine currency, erasing the corner numerals and denominational lettering, and substitutes in paint or ink the artistic flourishes necessary to increase, for his purposes, the original value of the note. He may even tear off the corners of $5, $10 or $20 notes and paste them over the corners of notes of smaller denomination. Genuine This swindler is printing plant. photo-engraving and establish who Government Service. 1939, being secured in 97.03% of the cases going to trial. known that the successful banks in any community are those gentlemen the counterfeiter who of assembling a of type and Secret 30, well which passers. the notes, currency another of the is the June convictions arrested promptly and convicted largely upon Terhorst's were of ended Italians long on wholesalers, and Capture of Terhorst removed from the scene a most dangerous whose activities in his chosen field resulted in the arrest by testimony. our jurisdiction months had many gangster distributors, as maintained connections with other dealers in States. who of group a a came counterfeit to a Unless he is present ever convinced of the is the ultimate loser, which is more good depositor is lost because the bank does not involved, but also that "the customer in prestige, is always right." Tellers may unpleasant experiences by learning to recognize the "unfriendly counterfeits, for, after all, by their faces shall know them. ye Today New York, N. Y., Chairman Commerce and Marine Commission, Bankers Association the said, in part: only sity, was but this honor conferred upon Dr. Kent by a univer¬ he has been exceedingly active in university affairs, particularly New York University. It may have gentleman for many years to see designated on the program the final speaker as "Doctor." While it may have been a surprise to a good many of you, I can this it is no surprise to me. vouch for its authenticity because I was present when doctorate I know, as you do, surprised some of you who have known this was conferred California of Southern an honor better deserved than some upon him by the University Never was such in this particular case. Not years ago. that any introduction of the gentleman would be inadequate at best, but I just want to remind you of some During United of the the States been called things that he did WTorld as War in was Government, and an during the World War. Financial on many Adviser to the occasions he has adviser by foreign countries and has had honors bestowed upon was he him for his work. Europe addressing the Quite recently he International Chamber of , 42 BANKERS' Commerce, authority. In that so he is a who man spite of the fact that he is a he is also to comes CONVENTION with us banker by profession, women any economic purpose with the resultant fall in the building of consumption and capital goods needed by the people up scholar. a better living for their Dr. Kent presented his address follows: as statement conditions of standable without The comprehensive that under¬ nor left by the structively, has steadily grown to lie entirely in the fact that after the Armistice problems left The in World War, instead calming down and enabling mankind to think and act in by the sufficient reason proportion to down past proved the wrorld understanding to the were those whose that that had been materials raw only is to purpose going which nation done stop the system once a It the armament intent of has sufficiently in in armaments There is war. might have been full started the hope of was the competition short of on this started with so such might have progressed we that believe to of to be impossible. our solve millions many breaking the of seems and the diversion of into con¬ did not return to work Instead, war. The worse. men articles destroy men and the creations of men. no taking it into consideration. turmoil mental be can useful from World psychology has developed in such manner in the production of goods that are useless for and some reason accomplished if the development had its government not utilize to provided with buying power for doing nothing, which in¬ the creased false nations will¬ could not stand, or in going to war to obtain its purpose. their unrest Added recovery. and started the world upon given to those who power was a were ing to promise the people prosperity through false methods. This equally was economics those and disruptive safe who wished worked procedure had utilize to prevailed. power As together, whether the their ignorant way multitude of matter a those fact, or for these that into Even peoples of whether toward the their two own groups under¬ the will relieve the first class, of The result the was despite their ignorance. development fo intelligence the part of millions of on ful attitude people, accompanied by the wish¬ thought, with which they hypnotized themselves, they could have something efforts of others in for complete nothing happiness. constituted, happiness is based one's on live and As own that off The the efforts development the not of such to do that good, in themselves part, purpose but indirectly or to was the officials. Such procedure is and world of the world greed their fellow men, desire better a do to basis of misunderstanding, could only work to In the policies United States tries of the world. their have we been inequities in practically all and under such itself in outstripping unwise I a provisions allowing a new competition asked by M. was the reparations north of the I be to armament that was The a people of the world postponed the and impossible country recommendation to put was order certain was into a chance follow most Hungary people unfortunate. were It When made it a parts of the line between changed, parts willing to have "No, that is not a that That after those treaties was one went of the the changed in League good change, because it needs to be where it is in order to have able to prevail." and I made make it possible for Hungary to live, the Nations said: that to Czechoslovakia for them to live. have certain and Czechoslovakia in military strategy things that happened through. No competition in armament between many nations has ever been sons why this should be true. of stopped short of necessity lowers involved. This the comes war. There are impelling standard of living of the peoples about because of the strain of expen¬ diture upon governments, the utilization of the time of rea¬ Competition in armaments men Such an the change in a only can make to about come revival of spiritual faith which will restore the a of individuals to make the good that lies within them economic problems that must be solved require such change of heart upon the part of the people equally with character- of other every situation. difficulty that within lies the Ways must be found to provide employment in fields for those engaged in now the meet become available. needs of and war A great war. tion of trade between the nations is necessary such if sufficient transfer a the resump¬ is to Ways must be found, through the meet¬ ing of the minds of those in government in the nations, as to how best to correct the treaties and all and the countries which will bring the of sense overweaning power Ways must be found to increase production and none. its to made in the past through errors pacts between about fairness to distribution on basis a that properly rewards ability and integrity, furthers private initiative and makes possible the best hearts justified in was $30,000,000 loan, I had were through of only natural Hungary, and the condition right straight difficult order to of found, for instance, 600,000 Hungarians Danube taken away from Czechoslovakia was whether he development treaties. Treaties the goodwill work for the benefit of all. Poincare to go to Hungary to see a terrible a It in Hungary might obtain what of other similar activity in its history. any to those built of conditions the world should sequence investigate that country to see coun¬ together with the resulting forces Versailles, Trianon and St. Germain. When directly affected by with individually part place in which to live. employment to it, Europe has also been obliged to struggle under up under find that In addition to this unfortunate psycho¬ logical movement, that government their detriment. this development, as has been true the of the on con¬ bring about to integrity in their thought and constructive approve, ability replace them production of instrumentalities for to nose of willing to sacrifice their are and majorities have been by the after¬ aftermath from peoples upon governments naturally followed into coercion and the great unorganized led the such outcome is inconceivable unless the and envy their upon pressure any the morale of the power conditions of the strongly peoples, must realize that their dependent women hatreds, active peaceful strain out, so The governments involved, through their of Sufficient toward fought minds humanity may find itself unfit for civilized or accomplish men obtain to through they could bring to bear upon as Government and whose important directly of such power legislators minorities to through psychologies inevitably led of organized general for exercise is otherwise is followed by discontent. formation favors the mankind his part in the world, and any temporary satisfaction may come tinuation peace. "gimme" a being other humanity and allow the consummation of a peace based upon war the demands tions of the the that ways their turn bluff either in is war must accomplishment it ised—were therefore, to obtain added force because of the good inten¬ them, present world living for generations. clever than the first group, and were able, to up stood the futility of the means to the end that they prom¬ more creating to was the the that ward it giving while of those striving for power—who as force The to of use and the for forces good that lie within the minds of every individual. development of isms offers the greatest obstruction the accomplishment between the nations. dustruction of of economic They also are and democracy that has been the world since the Armistice. political peace the bottom of the at progressive in so "The political of the power isms is forstered through a development of so-called ideolo¬ gies that presumably methods of In living that general, the represent are final attainment in aimed to attract the people. the ideologies in represent, important part, conditions of life that all right thinking people would wel¬ It is due to this fact that the ideologies have become come. a menace to mankind. Most of those by certain phases of them means who attracted are incompetent to are see that the suggested to the end make them impossible of plishment. They cannot fine forces that self-picked dictators advocated to ideologies are envy men must bring about to be lived People do not arouse make see seem to and that regimentation men and within prevail better are if the of accom¬ all conditions in are which the followed. realize that those who deliberately hatreds within them cannot lead destroying their happiness—regardless of the tensions of those would-be leaders. there are of that ways without ward the the control moments when them pre¬ As history moves for¬ strong men must take con- SAYINGS trol in order to Such disaster. save strong men, however, DIVISION able justify can those who their all see of temporary the of rest by ignoring processes of other world among being as dulls through life themselves are striving during their daily One since the ground preaching ministers of their fellow the to right criticize. or so of of into from turn a condemnation the by without proper knowledge as men wrong Sermons has been due to war Gospel the of the acts of condemnation whom those this on basis, b. destructive whom they actually sound to decry may bad as community life they as be—if would made are such to vitally important to the well-being of individuals those as as persons the for and from inducing envy men their political leaders to do and hatreds hide can its should not be Government opera¬ Political forces enterprise Even continuity the be finest employment True of the developing through protection amounts of that to people to methods of the may be. that the hardship independence The foregoing, ultimate in the in basis must lead to In time of in wars—both interest the This is true peace. of of needs, should dishonest and world detrimental. This that should have it be be solved in a churches of attention than to all is denominations being stantial progress the people and will lead to not in economic who In held to the more Gospel there be sub¬ that After saying this, depend a are them, upon in the tearing sane part, to help and unnecessary which must tur¬ about before come the part of all, on powers deep cliques. For better the understanding might be well here to state briefly the elements of it true a State by repeating the description of such a State made by this speaker at the meeting of the International Chamber of Commerce at I want you State to think about this because has been tries. In advocated in Italy the people Europe in are for the a very dip into coun¬ State and not the State for the people, and they have developed a very inter¬ series esting let us of works why that upon think of the true State from the "The true State is should be but so, standpoint of reason: of protector the people, economically If, 2. with protection of the people That individual b. That the higher of grades of 3. ability work for the may benefit of the whole; grades of intelligence may not be submerged by the intelligence with reduction in the standard living That the incentive to the accumulation of private property, not at the of the a True protection be requires that stimulated sound governmental regulation a. and The mentality of major b. urge for proper or The to of all by production needed encouraging by private the people enterprise and the of a people Such of bureaucracy, to reach country's business management of the enterprises of in placed the United the States by government in and nation a in positions million a men a war emergency where they had and power operations of business and industrial to man¬ men cur¬ carry that be the speeding up the of Nation would production be where needed possible only after great and unnecessary waste that dous the interest of in on the previous given to the million, who is tremen¬ powers proportion would experience work had not into positions provided their where them with under¬ standing, would of necessity sabotage the smooth function¬ every The character of enterprise. of experience beyond any millions and country for expenditure, manner the great of doubt. millions of airplanes dollars and the World War proved Witness the millions and by this that fact American airplanes were that never spent after got into all this such the battle areas. thought leads into another most important consid¬ develops their to own greater efficiency in their undertakings The demand of whether they may be man has the minor importance; good earn initiative of his the people is own living and better served something wants and desires of individuals goods and services that the contacts of men with each can when over every that my help provide and because form the basis for supply and only be measured from the currents other and that are, money and time of and credit of its citizens. again men that Government, a of therefore, not avail- the developing Government must have in the enormous interest of waste. its people steady income under which funds reach it each they are needed to enable things that may be required. time that production for emergency even very themselves, cannot be put in possession of huge sums of money without What It has been proved because payment It is only for services until can be accomplished purposes require funds of war, where some funds its and and period of a on sound basis a Government obligations become are year over under because: men protection, government and growing culture, c. of to as capacity for happiness and in the public interest if they are allowed exercise to ability agement, it is inevitable that the ability of experienced is the few, but for the general good, be furthered. many nor distribution its be nature of expense means management instance, into reach the consistent all; and c. of by the State requires: safety and proper satisfaction in living in order: a. lower Under the functioning of manner. eration which has to do with the receipt by Government of That mankind be allowed to live in peace and comfort; That there be the greatest possible individual freedom 1. matters must its various departments. for and Eocially." True and purposes. though government temporarily has even should be absorbed This the necessity complicated and multiplied when it tries to are the through different of the some of govern¬ emergencies in for such power time war The problems of government, regardless of their difficulty, ing of Copenhagen. is exactly in as effective in serving all of the people and more the industries. and organized of external. of case the other any exist and be effectively exercised without the can into would by creation and people intelligence and necessity for government, by tion the on emergency powers that are essential in time of war. State—a State that is not subject to dictation and domina¬ toward made as produces practical problems that must the their Government tailed, be must promptly in practical a be made can true approach quickly as though in time of even act War State" should of thinking. way the world, large "true everywhere, among us in be better conditions of living can churchmen great above and whose influence for good has been humanity to existent there and progressions those themselves order to allay the unreasonable moil of will men, political Such ministers must we restore and give credit have men farreaching. and preaching other of direction of part toward greater happiness on the part of must we down of other so the to this higher standard of living. a time our in the on spirit of criticism but for purposes of better under¬ a standing, of given damnation the turn a in all or represents way, greater freedom to meet may aside. set the Only when there is to and economic order people its government that have to do with theoretical always be done before anything of the kind is carried to pulpit. confined Differences of opinion on the part of those in and out of feel duty bound through its ministers to check and recheck are in in part government the consequently it must have greater claim use and basis any to restore of internal who want to utilize the church for their critics sound a government as this character war essential State, that political be spending on general great a true must and its live to means suffering to and order economic for character. State expenditure aimed financial individual in Government operate involving better a productive is requires required emergency and make the income of the people and prevent upon furnishing 5. successful, when intent, ment the efficiency individual ability that under of which, results but being able to see the errors of men here and there and, in of growth governmental bureaucracies engaged in enterprise expand and grow until they become private progress normal for particularly, being subject to the statements of self-seekers process the in and because: with should destroy the exercise strives furthering as The church, not having actual experience in business life every the expense of all the taxation at in errors break regimes public good, what it is as so. own of competition with the people—a condition industry in or parasites that live as people that their spiritual leaders keep themselves free from false criticism of other finest were It is appear. a the stagnation in production and retrogression in the national cause Changing cases just with through killing incentive of the workers; they which easier to prepare and are more spectacular, are are to private why the churches of the world have lost who government destruction of individual initiative which a protection requires that there business Government d. much the bring about betterment in the world. reason in men because: a. c. activities to of people; sapping and undermining the honest forces of who men and experience consciousness only regiment with intelligence, dissipates happiness and lowers national efficiency. of certain matter how fine they no historical can True 4. dis¬ living under improper motives. Ideologies cannot be achieved, be, the not are tion honest and may control the to intent who 43 due. does In not case needed for plant expansion, they can better be obtained through borrowing than through excessive taxation. The people are better able to take something from their income for government each year under an opportunity to 44 oarn BANKERS' income through the years than an to upon their profits whether develop ment and if they time one which lies forces the within its the people increases ability of their waste and is morale if tliey being are time those what know handled flow constant to of for the that in who such at handled with¬ and of their their there that whom they home at care ability country be can and profits at the expense of war be may a further to earn something the the unwise laws just because of of or but when by emergency fear that each is suicidal. men, other. pass¬ somebody may They have nothing to do required are Capital should, therefore, be to fight to have needed may live. its left be order so. that economic those at the power pos¬ front may supplies of all kinds and that those at home Such with natural their people in the conservation people in to ways earn of capital requires order that they income an for may their that it it in use living and for Government. gentlemen going to be faced with all kinds are of tax laws aimed to do things that can our Government to meet the emergency that it may be led into, and destroy the of power must use your most careful thought in think¬ you ing about these things and not be led away by emotion into feeling that because script capital. is It isn't conscripted it is fair to are question of fairness a question of protecting the a tal men destroy the you nomic problems. It is ashamed to stand for. that you will way to have a not be for their right; or that you must be made to feel The condition the Federal that though eco¬ be such a want you at the front. men at men the front; It will it will be protection. demands sales of property It is not realized in jeopardy by such to carry on that prevails in the United States today, face on corrected very real a to says disaster. tain terms that will we or that is war all restore industry in be unable to hold laws year to have to going now people in our our no the United in own uncer¬ that States this world This requires the rescinding or correction of will we they must ge together and take such action is necessary to as The great Government and to our deficits from immediately or turmoil. and clarification prevent the sound functioning of private in are existence today. Government must ascertain from industry what laws are involved and industry must cooperate and collaborate with When this obtaining their amendment soundly, the is elimination. or accomplished and industry is unemployed in large functioning proportion will be ab¬ sorbed, thereby decreasing the expenditures of Government, will increase Govern¬ ment income on reduced taxation and the United States will be able to balance its budget and move into position to meet that may befall it. emergency We must realize that this is is going on it may as we be must a think. serijous very in the world, and that we We must put are situation that not far from as our hours in order. willing to do what is necessary to put our We house in order, and it is simple to do it if we are willing to demand that laws that prevent the functioning of industry sound a on The basis corrected. are intelligence of the whole Nation immediately to this great problem. do it do it alone. alone. Neither Government can and torial methods which by in those out of Government the people Government this crisis opposition to Government willing to do its ceivable that it It is the will must to as to by the people, uncover success. prevail. The solution of our It will bring peace nearer, will at we the have same of the people They can found time This must problems will help the world. strange the to find only find it by way as to the uncover it may seem. economic best stability to means false peace as the aftermath of the horrible a intelli¬ Unruly if Government is working together faithfully and in confidence. When the Dicta¬ ruinous, and it is incon¬ of Government and way/ to economic stability. be done. attack purpose. not essential would be part, can the duty is applied Government problem together and in full accord gence be must Those in war we prevent now in progress. by Government that result in forced by its citizens in depreciated markets duces the national put budget is running huge be must year, financial situation you want of the of the expense it not It will be put before you in the evpense at the Money something its battles. are take under which nearly 10,000,000 persons are unemployed and If you conscript capi¬ men. sound governmental to do that at con¬ of your Nation to meet its power fight its soldiers to its curtailed. cannot You must of procedure and that the ability of Government the nation's conserved and utilized that so give Government the greatest sible the lives any Men battles, and capital is required to protect them in doing will those .who Government in because there is war, in peace. belief that it will pro¬ greater profits will be available that Conscription of capital in time of conscription of tect that a profit, it is almost criminal. a Government of in time of clamor for Government men the wealth of its citizens in the earning power of its people and the war difficulty war or over creation nation, a the military units, among the either in time of enterprise that wishes person nation to produce for it a same able to are protection own increases and on rarily forgotten when the better morale—is much manner ability of with be may are finances kills make either protection disrupting industry. better a government ing give help government. so-called those living materials to them while at the war No right-minded of to up Govern¬ of the greatest without infinitely they require for their over their waste who war that dries nation a Those power. protect themselves—because of greater prevent great war have a much better chance of coming a governmental Again, to carrying This simple economic fact is either unknown or is tempo¬ to earn the civilians its or intended through if the finances of their country out ployment called are which restricts other purposes, any which under decreases be may production; military front in it levied for is or businesses and its at sums ability to live and to help others to live. Taxation, the large out pay CONVENTION wealth, curtails industry, causes re¬ Our minds, hearts our and our souls must strive for understanding. Our destiny unem¬ will be as our faith determines. Committee / Officers- Reports-Savings Division Address of President P. R. the Bank of America Williams, Vice-President of N. T. & S. A., Los Angeles, Calif. I say they are lodged in the New York office, I do not are mean that the reports buried in the archives, labeled for identification with the year 1938-39, promptly forgotten. It has been in the minds of each Chairman and then The Year's Work If I should take literally the assignment as it appears on the program, it would take much more than the time allotted to me today. Also, it would that the cobwebs of disuse shall not be permitted to collect on this year's work. To this end certain constructive ideas have been developed, and it will be the business of this Division to provide the opportunity for bankers make it desirable to call to the platform, Chairman of various committees throughout the country to make full of the passing, let us remember that in speaking of the Savings Division we include savings banks and the savings departments of commercial banks. Savings Division, during the past deavor in a year. very who carried out our Savings Division program That would not be practicable, and few minutes bring to to a sense, it will be The question a report of our stewardship in has often been asked so I will your attention some of the lights of the accomplishments of the Association to as year a very just that now en¬ high¬ ends. the purpose having several divisions in the American Bankers Association, and perhaps same question is in the minds of many others, but has not been given If in doing this; we succeed in whetting the appetite along any particular line, or if more facts are desired about any of these topics men¬ expression. tioned, please remember they committees to which I are yours shall refer for the asking. are lodged with genial Secretary, Deputy Manager W. Espey Albig. him at the New York office will elicit a The full reports of our very able and A line addressed to prompt and full response. they represent $10,000,000,000 is of the the This represents approximately and In condensed form. what When use of them. In 45,000,000 savings depositors (44,738,752), $25,000,000,000 of savings deposits, approximately of which are in mutual savings banks and $15,000,000,000 in savings banks and in savings departments. about 51% of the individual These savings deposits are deposits in all banks in the United States. Perhaps are you will grouped. Mutuals National Let us now be interested in knowing how the saving depositors also are as follows: They — .14,132,000 .15,934,000 quickly take a State.. Trust co lpanies— 8,881,000 5,761,000 glance at what has been done. Perhaps first, it would be appropriate to speak of the work of the Com¬ on Savings Development, for we must have the savings deposits mittee SAVINGS v DIVISION before we can ahead with the savings business. go This Committee has been fortunate in having as its Chairman, Stuart C. Frazier, Vice-President, Washington Mutual Savings Bank, Seattle. A particular study of this com¬ mittee this year has been that of Methods of Computing Interest on Savings Deposits. There has Smoot of Salt Lake bona fide also City, been work at Wendell sub-committee under a It has been endeavoring to find out just what is a thrift account. In regard to methods of computing interest this expected, has shown so study, might have been as great a variance in practices, and therefore in the results obtained, that it is, to done tremendous amount of research and the results should be placed In the a hands even fair of bank important, that more both to the questionnaire the Union. responded in far as least, startling. the interest sent to It In a report as exhaustive a hint orate schedules and obtain the results, the general locality should follow a So objective our analyses that bankers is among this one, it is not possible to give as to what it contains. as are found that 97 Yt of the bankers who same than one. more To 53% of these, and the findings was feel that all banks in the much uniformity and what is 3,500 banks, and these comprise every State in were received from that number. on The Committee has possible, the methods used should be as uniform method of computing interest. popular of depositor and to the bank. wras Replies therefore based say the executives would There require number of elab¬ are a study digest to them. With respect to the use of actual methods of computing interest, the Com¬ mittee found that 22 basic methods Of these 22 reporting basic methods in use, banks, and Committee studied. the interest the 10 of them therefore 10 basic in comes the amount of interest that would be earned methods, four actual savings accounts savings account activities. highest, the Exactly the 2% same by of each of these 10 one 2% rate another the least types of 330%. as In one 15 cents by one method and was method computed was produced 10 different varying from results, that of $7.70. $7.70. at at the 15 cents to .... Surely the banks of the country should find The results of the labor of the , Committee, as Another Committee job being lines and in a of great interest is that time deposits, the on Roy It. Marquurdt, Assistant Vice-President, First Na¬ tional Bank, Chicago. This Committee has pursued a study along original field that apparently had been untouched the present time. neglected up to or The investigation seeks to determine the relative value of time deposits and demand deposits in different parts of the country, in cities of different sizes, and in various types of trade areas. matters, it will ascertain, if possible, the extent to which Among other time deposits are used, whether seasonally or continuously, to finance normal banking opera¬ tions or banking operation of a seasonal nature. made Federal by Reserve districts that are These studies have been complete Reserve districts, and the study will continue until all districts You been have in few a Federal 12 Federal Reserve surveyed. In mu.ual learning something about the turnover of savings banks in 1938 the turnover was 24.6%, while the turn¬ of time deposits in all banks in certain Federal Reser ve districts studied was 43.7%. A few which above drawals the bankers, years would stated a ago make there seemed to be considerable favor for it compulsory amount. questionnaire of our If that give to sentiment notice existed ever Committee indicates it with¬ upon is not among in the the present time, for only 29% reported favorably to such majority at legislation, while 71% were opposed. Also, it is matter of interest that a 87% of replies indicated that no notice of withdrawal is required at present, while only 13% require notice. fact Another indicated while It that which requires further study is that the replying banks to mittee in Committee has finished its work that I the am satisfied that when the results will eminently prove worthwhile. being W. Robert Bank, New York City. that on school savings, Vice-President Sparks, of the present Bowery Savings A notable incident in connection with this Com¬ mittee's work is that of the annual regional conference, held in the spring in York City. New The attendance very largely England States, where mutual savings banks school savings figures available are as are comes from the chiefly located. New Latest follows: 8,448 Number of schools $12,854,113 Committee on personal The Com¬ money management. mittee is preparing a manual of money management which will shortly be ready for distribution. We have talked about the development of savings business and we will consider what we are doing with the savings deposits after we get them. Under the chairmanship of Walter R. Bimson, President of Valley National Bank, Phoenix, Arizona, is the Committee on has made many new observations and some very This Com¬ constructive has pointed out that the change in the nature of the In the brief period of five years from June 30, 1933, deposits in all banks of the country increased over $17,000,000,000, while portfolio imperative. in the same period have decreased $1,371,000,000. This huge deposit increase is now evidenced in our banks by increases of $8,153,000,000 investments increase in the and $9,339,000,000 in cash. There proportion of assets invested in has bonds. been a steady Recent market changes brought about by the European war conditions have not lessened the problem. Mr. Bimson says: conventional safeguards, the choices that confront us in attempting to minimize the risKS. We know that a portfolio with regularly spaced maturities may safeguard us against the necessity of selling depreciated bonds at a loss. We know that the short maturities and the highest quality bonds are likely to fluctuate less than the long maturities and secondary grades. We know that our investmeot program should be carefully geared to the special conditions of our several institutions. We know the advantages of carrying bonds on our books at par, or if we haven't sufficient reserves to do that, of amortizing the premium. We know we should not speculate. We know we must distinguish between the credit risk and the money rate risk. We know we must analyze our investments carefully and maice use of all the expert advice we can obtain from hired "We are familiar with the can our con¬ a expirienced investment counsel? "No dogmatic these to answers principles, so frequently stated, of much help." The Committee meetings study such the This, are recommends State as problems bank problems can be given. The general of necessity, perhaps, too broad to be that in connection conventions, uncovered. prepared, along with that Tentative programs, and such bankers with conferences conference be plans group held to been have plans are available for your use. think, is splendid and constructive work by Mr. Bimson's Com¬ we mittee, and do we hope that State Associations will immediately profit by it. Another matter of very general interest is the work mittee Real on Executive Mich. Estate Mortgages Vice-President of Chairman under Plymouth United done by the Com¬ Russell M. Daane, Savings Bank, Plymouth, The particular studies embraced uniform mortgage law and uniform mortgage foreclosure procedure. and some placed more less or The statutes in In obsolete. many States some are cumber¬ the law Is thought to cases, A great burden in some instances is the borrower by making it necessary for lending institutions upon charge greater a of Interest rate to or lend smaller a percentage on security than would have been possible had the statutes been equitable. There is great variance in foreclosure costs and in the time necessary to foreclose. New In closure York State, four months. was where 3,500 of foreclosure approximated cost average has the shortest foreclosure a termed foreclosed Committee ideal the for is $30 Texas time; about 21 days is required for publication Massachusetts has what has foreclosure procedure. and the $4 out of every $5 kind of legalized waste. and the average cost of foreclosure is $5.18. been analyzed, were cases $490: the average time of fore¬ It has been estimated that spent for foreclosure in New York State is requires only 60 cooperating with such A $5,000 mortgage can be days accomplish to organizations Our this. the American as Bar Association, Federal Home Loan Banking Board, U. S. Building and Loan League and others. The goal they are seeking is uniform real estate mort¬ procedure and foreclosure law. gage will This is an ambitious program and one require years to accomplish just as did the uniform negotiable instruments law. There seems good no why It cannot meet with reason The work of this Committee is certainly to be most highly commended. The savings Division obviously is also interested in legislation. Standing Committee our the of Savings on Division. Bank, Maiden, Mass. A. George Oilman, This Committee is the States there ficial was or as whole a during the law of vital no concern restrictive, enacted. past President, This is an Maiden Savings watch dog of State of sort a Regarding the legislation of either proposed year, to the We have Chairman is Vice President State Legislation. legislation which might affect savings banks. or enacted, Savings Department, either bene¬ important Committee, but its duties important in any one year only to the extent that banking legislation is are enacted. This would be seem to an off-year in that respect. The Committee on Federal Legislation has as purpose Chairman, W. W. Miller, Savings Institution, Bloomfield, N. J. of this Committer to keep business and to affecting savings a watchful by HR-6971. This is a Bankers Association and HR-5535, later superseded bill to amend the Federal Home Loan Bank Act, the Home Owners Loan Act of 1933, Title IV of the and for other purposes. American Bankers the At the spring meeting of Legislation. Administrative Committee of the American of the Executive Council there was a discussion of It is the Federal legislation on eye with cooperate Federal Association Committee on National Housing Act, The American Bankers Association Committee on Federal Legislation was instructed to attend the hearings and to take what¬ ever action the Committee felt was desirable. but intervened. considered not was The Division Savings by The bill House the cooperated present In general, our testimony testimony. preceding Congress. to drift more by having repre¬ House hearing and in opposition was We pointed out that there and more away from the reported out of was before adjournment closely to the Bulkley Bill in the proposed legislation, just as we were opposed to the was a continuous effort expressed intent of Congress and that this treatment is against public interest. It was our opinion that a pronounced effort was being made to make of these Federal savings very and loan institutions banks of deposit, thus upon projecting a third banking sys¬ The chain of legislation leading up to this the country. point clearly shows that Congress' purpose was to assist in home loans and home With that program and with that objective the banks of the United States were in accord. were bank assets during the past few years has made the close study of the bond in borrowers leaves mind that a great many of our members are from small institutions in which the difficulties of the problem are somewhat intensified by the smallness of the investment portfolio and the unavailability of trained and financing. The Committee from local stantly growing vol"me of cash to be invested. Increasing cost of bank operations press urgently upon i s the need for earnings. And against this stands our never-to-be forgotten responsibility as custodians of the people's savings. "Uuder these circumstances, what can this co mittee do, having in tem Investments. suggestions. the loans insolvable, nor can we turn it over to some magician, who by a deft working of the puzzle. Increasing deposits po- r into Decreasing demand for funds sentatives from various parts of the country attend the Also under the same Chairmanship of Robert W. Sparks much work has been done by the mittee vaults. Committee, Total deposits 2,543,472 Number depositors now . as amaze us the One of our standing committees is Chairman , President of Bloomfield be quite impossible to do justice to the work of this Com¬ brief summary such as this is. a problem 58% of them commingle their time and demand deposits, 42% do not commingle them. seems , equal success. over legislation . "It is our unfortunate lot to be faced with a problem in this matter which be evaded. We cannot, however difficult it may be, give up the which might be interested in time deposits. . Dasis. cannot to I stated before, will be made available to member banks which desire it. Chairman obvious. Otherwise how could we account or the fact that many banks have drastically changed their views of the market and their policies of invest¬ ment, changing from a preponderance of short to long maturities, or vice versa, within the last five years. How else could we explain the fact of divergent policies at the same time by soundly managed institutions. For example, one important financial institution follows the practice of buy;ng government iss- es the moment they go to or approach a no-y eld basis. Another, equally important, sells these issues as they move to a no-yield directly hamper mortgage activity. degree of uniformity some in the computation cf interest. "That the observance of these sou ad-principles will not eliminate worry or difficulty is known to us all. That within the limits of these sound invest¬ ment principles there is a wide scope for individual judgment and error is of interest amount high was as counselors, Investment services, bond manuals and our tanking associates. All these and many more of the rules of the game we know and have tried to follow. the To determine the cases. use figured by the 10 different basic methods same account rate, from identical accounts, on account same by the were taken to show various Variation the earnings computed at a exactly that practices regarding with¬ drawals and the treatment of the interest in su^h case methods the first of the month following commences on The great variance earned to the used by 90.39% of the were these was 79 variations of these. It appears that in the preponderance of these cases, the accounts on deposit. it in use, and are 45 The words, home loans and home mortgage emphasized throughout all earlier related legislation. words home loan and home mortgage appeared in the Bank Act of 1932, and in the Home Owners amendment of that Act Loan Associations. The hyphenated Federal Home Loan Loan Act of 1933 when an provided for the organization of Federal Savings and The hyphenated word "homo-loan" thousands of times since, including the new House Bill 5535. doubt that original the has been that of other kind. purpose used purpose no of Congress providing home loans and home mortgages, and not some section it proposed to change the words home mortgage and substitute the words first to continuing been This leaves This new legislation flagrantly proposes to change all of that. In its very first eliminated. and the has mortgage, so that the word homo is completely We believe it to be a dangerous procedure and one which tends change completely the character of the institution. There are many other proposed changes which at this time are too lengthy to discuss, but those interested can obtain them in detail by procuring the copy of the hearings before the House Committee. If proof were needed of the correctness of our position in regard to the bill, it can be found in the Eccles, The Chairman letter is of the letter of Marriner Reserve System. Board of Governors, Federal addressed to Henry B. Steagall, Chairman, Banking and BANKERS' 46 Currency Committee, House of Representatives and dated June 7, CONVENTION 1939. (Three-year Term)—Henry M. Hart, Vice-President Mr. Eccles says in part: Commerce, "The proposed bill contains a number of provisions leading to these ends and in my opinion its enactment would tend to establish a separate and Fred F. Lawrence, So says Mr. Eccles. Treasurer Maine Oliver W. Roosevelt, complete banking system which would compete on favored terms with savings banks and the savings departments of commercial banks. I, there¬ fore, do not favor its enactment." First Vice-President Dry Dock Savings Institution, Respectfully submitted, So says the Savings Division of the American Bankers E. L. F. J. Report of Committee. Committee on Nominations CHARLES that the concerned to give some time and thought to the nomina¬ names selected weeks was ago, they bring in will be names that have been thoroughly I should like to ask Charles Deppe of Cincinnati to present considered. the report of the Nominating Committee. Mr. Deppe: President—A. George Mr. proposes the following candi¬ President Maiden Savings Bank, (The motion Vice-President—Roy R. Marquardt, Assistant Vice-President First National Bank, Chicago, 111. (One year)—W. W. that the nominations Are there any remarks? to be unanimous, and, Mr. President President Valley National Bank, Phoenix, Ariz. Secretary, Savings Bank, Pittsburgh, Pa. TRUST you are It instructed to cast the The ballot is cast. Williams: The ballot is cast, and elected no are this notified to be now we have some I might say some of these names that were mentioned installation for them. a Some of the other men and, they were to as far as we were concerned, receive this office because So the only new years new were men There one-year term. They have just had two You know conditions that have kept not here. convention, that something might slip. Charles F. Chubb, President Dollars the Any other nominations? who, for some reason or other, had just been given from Bimson, be closed and that in favor of the motion signify by saying "aye"; against. their term to make it complete. Slocum, President United Savings Bank Detroit, R. move seconded.) ballot. will be Mich. term)—W. I was President Williams: If not, all officers. For the Executive Committee: (Two-year President, Secretary be instructed to cast the ballots for the candidates named. Secretary Albig: Gilman, Maiden, Mass. For DEPPE, Chairman, Nominating Committee. seems Your Nominating Committee dates for the various offices: For H. We have changed the order of procedure somewhat, in this was tions, and the Nominating Committee therefore so ROBINSON COLWELL, I should like to call for the report of the Nominating respect—we thought that it was fair and a beneficial thing as far as the Association Savings Bank, Portland, Me. New York City. Association. President Williams: NationaljBank of San Antonio, Texas. added to who have been a number away they were not you neyer know, member of the Executive Council installed is Mr. Lawrence. DIVISION American Bankers Association Forty-Third Annual Meeting, Held at Seattle, Wash., Sept. 25, 1939 INDEX TO TRUST DIVISION PROCEEDINGS. Meeting for Elections Only ..Page 46 Meeting for Elections Only The Trust Division of the American Bankers Association convened p. m. There at the Olympic Hotel, Seattle, Wash., at 1:00 Sept. 25, Samuel C. Waugh, President, presiding. were no addresses, the business before the meeting Roland E. Clark, Vice-President of the National Bank of Portland, Me., was elected President of the Division; Carl W. Fenninger, Vice-President of the Provident Trust Co., Philadelphia, of the Division. Pa., was following elected Vice-President seven men were elected to membership Richard G. Stockton, Vice-President, Wachovia Bank & Trust Co., Winston-Salem, N. C. Louis S. Headley, being that of the nomination and election of officers. Commerce, The in the Executive Committee of the Trust Division: Vice-President, First Trust Co., St. Paul, Minn. Preston B. Doty, President, First National Bank, Beaumont, Texas. A. V. Godsave, Vice-President and Trust Officer, The Pacific National Bank, Seattle, Wash. Jamei C. Shelor, Trust Officer, Trust Co. of Georgia, Atlanta, Ga. Henry A. Theis, Vice-President, Guaranty Trust Co., New York, N. Y. Joseph W. White, Trust Officer, Mercantile-Commerce Bank & Trust Co., St. Louis, Mo. SECTION STATE SECRETARIES American Bankers Association Annual Meeting, TO STATE INDEX Advantages of Bank Research Program Held at Seattle, Wash., Sept. 25, 1939 Need of Coordination of Bank Regulations, by Charles F. Association in Plans, by Don E. Warrick All Year t Program for SECRETARIES SECTION Page 47 State Secretaries, by McFadden 1 Zimmerman Page 48 48 Remarks of James E. Baum Report of Committee on Nominations Haynes 47 48 Advantages of Bank Research Program in Association Plans By Don E. Warrick, Secretary 1937 In in on the decided, with all the research going President, Mr. Enlow, our might be it country, wise for to undertake us research some Indiana Bankers Association with their Indiana, told them Mr. Enlow last the School for and factual some did the edited some journalistic the was The and $300 some or trip a they then secured the services of $400. They had to the go to and Washington, to prepared gather information and with them, committee, in cooperation our of of they of of departments banks to our banks of the examination because Nation, where back several years ago might be called investment portfolios. the what needing secondary was dealt they credit And with reserves, so they made the was personal new coming to loan departments the Bankers' Indiana, and Bond Act, analyzing the bonds, commenting upon the bond policies as to market¬ course, Indiana have in we department in our a whereby system our bank examining State take a bond account of the State bank and keys it, then they send it to the School of Business at and felt the Indiana University, they have a staff there, supervised by some members of the faculty School of Business, who analyze this bond account as to market¬ ability, and ratability, diversification, then they send this analyzation All Year Program By Haynes McFadden, At is risk the from in Association work that promises to demand factor one of That application. himself alone, spread the is by wandering of meetings. my our No areas. earth's the most studious lives to They do now, in fact, surface from a county cover to We In '30's he led a Secretary's domain stopped simple life. the at the boundaries of Since the advent of the thrilling banking has become rapidly more and more complex. members have led of our of these to possess its days when State, us into a variety of new The interests fields of interest. Each segments or tangents of the banking circle requires the Secretary accurate working knowledge of its foundations, its operation, an and overlapping its with dovetailing every other segment it touches concerns. or Typical of these segments and tangents of the banking circle that impose the on straight duties, new part of thinking and extracurricular activities, are such agencies as: so to speak, in No name in the of Babel to true (indicating) This was more expensive We had interesting situation in this last project. (this quite an issue) was four five of them or upon in on "Labor Unions in Banks." They took the attitude it. That gives you is all. bird's a picture of our work eye i make To the a success a job requires the of as got be 100%. delicate a balance as a high balancing-pole is your daily contact with This may be an interview with an individual, walker, and your only safe fraternity. banking with conference vention bank of Then committee, a examiners, or Graduate a we of Banking, School in the halls of Congress, a con¬ hearing what have umbrella right under our own nation-wide you. have national conventions, the regional conventions, State bank State and local A. I. B. activities, group and county nation-wide mid-winter trust conference, regional trust conventions, State trust conventions, regional bank management confer¬ ences, and in the majority of grand subdivisions of the country an annual conference of the State Secretaries themselves. conferences, study the meetings, the You have not not minus one, but single member; every literally meeting are is has a it of these to to a a death, logical positive yet and every useful of these destination. one advantage from each of There is still a day It all of way the of illustration, it is impossible for a in which it has a natural meetings to different meetings. men is By meetings. attend highly departmentized bank can solve the riddle by sending The the bone I It answer. out. and that derives The Secretary says grace over them all. bank tematization its ourselves purpose group overlapping that has a tendency to defeat the purpose of more or all Some definite certain a meetings. That calalog I have listed is an extra string to your bow. single one of these stories in our modern Business of through the maze you have got to steer a straight course. You have to be true not alone to your Association as a whole, you have got to different supply others I cannot think to name, but certainly by merely reading something out of a book. School only got to read a whole library, you have got to master every facet of the banking mind, every interpretation and angle of thought, and then small Secretary can keep up with a tower something like $1,500, including what to defray their expenses, clerical project cost us very that believe interest. infinitum may principles of banking, and we think, all in all, Indiana. less Organizations Commission Housing Administration Savings and Loan Association memory is couldn't be Labor Relations Board Et cetera and ad every book. in Social Security Your a chapter certain The Securities and Exchange The Federal It from the School of Business some of those gentlemen who to as "rather liberal in their thinking," and they our I these Bank Supervisors The Commodity Credit Corporation The Congress of Industrial worth while. referred coming, We The Reconstruction Finance Corporation The Federal into was There The National Bank Examination Serivce T he Federal banks have majority of the has been thicker. is there were meetings Reserve System The National Association of State that expended money stopped, and the only wise and constructive and intelligent course for us to pursue was to recognize its coming and deal with it accordingly, and they were very much disappointed that our committee refused, after quite a bit of pressure, to incorporate that chapter the State Secretaries The Federal Deposit Insurance Corporation The Federal believe, I repaid. the to faculty a application. its in printing these books. ran think wire the old own last the sometimes wrote and been have it the on are and Indiana, the fundamental as help, &c., a continent. hi? as because salaries, financial conditions, and specifications, the working conditions of employees Secretary Georgia Bankers Association subject, there man also done by the School of Business for State Secretaries in particular, are finding their duties increasing subdivision or of multiplication and State Secretaries, constantly over unit every seeming to begin was incentives, working hourB and that tangible but we have had a lot of comment on the fine educational medium to the banks in some of the elementary donated we the of prove we Act in effort to think I felt the that I That job analysis, University, Hours that well as an by which the employees might work in the light of the current and have hard it ability, maturity, distribution, ratability and liquidity. Of hours booklets, I think—we The next year it was decided that examination of bank personnel, that is the last bore quite a bit upon the hours for We banking State Association. non-financial and incentives and the project on bonds. have completed. we Indiana the we and under bank the to over year—all of you have seen these undertake project examina¬ an Indiana banks, touching upon loans and our that picture very when bank examiners were advising the banks the days earning assets of and discounts, consumer Indiana had recall were the of the service charges to decided to make an committee typical all we the service sell to as research to every would we department, banking that turns turn, next of service our banks the We recommend it services. they had noted in the 1937 transition in the asset structure of our Indiana banks which was guess the them sent in this in Then The second part had to do with part of the report. the year report such a tion and in University who did the fact-finding maybe and work, first structure what we happened public. next assets then Indiana, and Indiana had what that the study some do work Wages Indiana few of delegated by was after and investigation expense, Chicago, trying intelligently the an the information, merchandising bank I of Chairman, as Just program. a Meyer it. That and that Bob research. of banking in Business entailed It committee and outlined a some make to years of Louis do to undertake decided 20 us. St. appointed wanted to committee the he and he the to examination. got the idea from Minneapolis. Some of the same people who for the Department of Financial Institutions in Indiana did our Indiana in back comments department, of some is a throwing in the ring. am demands the new best thought, the meeting schedule in cur bank of simplification and sysits most general sense. who is smart enough to work and the closer our application to evolution will be speeded up. Daniel will rise up process evolution, study the faster this process of I don't pretend to know 48 It BANKERS7 is is not of my an At curricular must Each possess fall. marked the tions have by the turn of will we You have if your one ends or of well-rounded a is not annual your collection annual two follow it, to of set members and dues. periods, who though so fiscal a is in different ness by the character and and defeat of your efforts success is associa¬ their money's worth gauges useful¬ your to enact beneficial injurious legislation; another set puts the the is members The loud pedal laws the on wrapped are result schedule for fiscal that I your with omitted have with thing for the by of a and .many convention, or the for useful blundering the Set system. synchronize year, service. blows up of convention your a definite a year, that each will keep step with so activities sake the among meeting. group the is and calendar disciples, of opportunities obtained be program and practice from the associa¬ program of the annual success bristles never work the the important Combine year, other. uniform of of their respective or can The giant. promotion increasing number an in up literally sky-line desired blind in the the younger generation is best served by the public relations is enlisting bank study conference, your with I. B. committee; viewpoint The bank management rules and principles; another concerned exercising trust powers; militant A. tion leadership for concert of action in service charge enforcement spread of correct chiefly banks the modified sequences. or figure they get clicks; another set of members program that that uniformity no and heavens year year There 49 The consecu¬ the the calendar, another naturally follow 49 different one farm extra¬ organization. it is to lay out a as convention, membership of latter the and that begins with year with 60-called the committee important so work program systematic You begins has of its functions and be squeezed into it. can emphasizing association's 6et of established routine. Each associa¬ appeals to a diversified membership. injury variety a avoid to want the to association sequence tive in activities I Secretary needs average with about twice the usual number year a everything he has to do time same but program, that so the tion definite conviction that what the very all-year months CONVENTION I have brevity, mentioned and others many will you find yourself possession of an all-year program, an every-month, every-week, every-day combining program the usefulness greatest to members your greatest satisfaction to yourselves—a good job well with the done. Need of Co-Ordination of Bank Regulations By Charles F. Zimmerman, Mr. Chairman, to use offering the of some perhaps might Secretaries refer something to the here under a project regarding suggestion a I of head would New Business, taken have we Secretary Pennsylvania Bankers Association that be in on of by Penn¬ sylvania. We tion a As live, very the the have to President as result Pennsylvania country banker. courageous State, of the that of the conduct of supervisory policies There visitation he been has sold idea the on render is to can My resulting from lot a of Federal legislation much of will . . . the send in is he concerned service the to observation doesn't to banks refer a has imposed the upon the President of as B. A. State our the to the see in been far as A. start our and out their defense. in this of believe the Comptroller's office or find to the bankers in service ball a B. be done and the the through the in in be bankers decade a heard will in permit of small defense, rights and talk woulc( find the their the hearings, would men Federal to the of Bankers through Legislative A. to a and so we lot of could do you the Association a A., We State Division Bank the of perhaps help wants legislation. Committee B. together and two Board. coordination also. respect the Reserve practical Senate you thought officers the time to Pennsylvania in we and first think you I the sun and if that he If respect idea two put State that executive can the Federal which needs ... opportunity recognized your in in for promised opportunity." rolling, A. through we it an be the get place any the A. of to real a don't starting and is signal very a resolution, have whole as can the to or system to do the job. Wagner has banks that Council, to of small and out, Nation Senator privileges Corporation the get in and help Senate a Please thing to do with the solvency is that wants smaller the result of as banks because that Insurance is against straightening Under regulations. that hasn't it The result of all this ... Association a business, particularly of smaller banks, banks, and bank. render the been has business of a Deposit criticism and Associa¬ committee, information that has to do with the handicaps placed upon a of Bankers He has made it his business visiting the small banks throughout Pennsylvania. greatest service that the other member banks to My America happen to tour Federal do to are B. A. A. the Research job for the a good of the independent unit banking system of this Nation. Committee / Officers* Reports-State Secretaries Section Remarks of E. James F Only week before a left we Secretary Baum, Insurance of A. A. B. York New had we annual our conference with the National Bureau of Casualty Insurance Underwriters, regarding rate we reductions, the use used for five in bank on same burglary formula that the and robbery than 20 years, the smaller more insurance. Underwriters' National Bureau if has banks of this country, at least forward with years The Bureau has to as in make the total of 550 odd thousand dollars too small for rate adjustment that is, too small purposes; base for clipping off a a reduction here and there, but I submit our whole argument with them dollar as more than 20 years, namely, 25% loss ratio, mea going back to the banks in losses, based base. a of now ing25% of each as a primary, are use entitled to 25% reduction I doubt, however, if we can get that, unless we can arouse the insurance 45 some States into action, by your State associations' protests. I in speaking about it am this now simply to emphasize the Importance of it meeting, and I will follow it up with figures, premiums and losses and whatnot in you explanatory letter an a few weeks, and I written in already are 1918, and the old New York form is about 35 an¬ old, years the Massachusetts form is about 40 years old, and each one of those forms, in order they to can, make them conform with up-to-date conditions plastered with all kinds of indorsements, are nearly as as of which any one might be adopted. If they haven't all the indorsements on them, a loss might occur which is covered not but which would be covered if the indorsement there; but companies for the most part that are against this perhaps, for the close vote which accounts, had been San Francisco, when the commissioners voted 16 new form. tabulated here in was to policy, and new 11 favor in of the with There are few States that have really come out openly against the very form and I can't give you the names of the 11 it, but when you get my letter in a States that voted against few weeks, I do hope you will find time to study it carefully and see the differences between the and the old forms, even There are They will be tomers do hope a a lot of forms new though they have indorsements. advantages the new forms not on the old forms. on great service not only to your bank but to the bank's cus¬ throughout the country. will get busy with your insurance commissioner and let him know this is the Underwriters' The other item departments in (and there are own which your formula you are talking has the same about about. approach, States, namely to get 20 of them that need that is the insurance approved by their own some inspiration on this) I don't think it is possible to exaggerate the importance of this fire policy. insurance is own; on There are so many idea how important the kinds the banks loan on, some in many cases the fire insurance contract is the last bulwark for collateral and I nesses property. We have can stand here an hour and a half and not cover the weak¬ of the three forms used in this country the last 10. 15, 20, 25 years— fire insurance, only. Briefly—there States, 35 were States, two different and then in chusetts" form has been used. the New York forms in other 13 on States a use in about so-called Nominations—Newly Elected Officers to National Association of Insurance Commissioners in San Francisco last June. Report of Committee insurance commissioner your insist upon the new fire insurance policy, the new later 1939 form that was or I said, One of them, for example, the new New York form, so-called, bur¬ and last month. departments of help them 1939 form, which, briefly, does this: new It brings up to date the three forms which, as five years' past experience, Using that formula, the banks of this country which glary and robbery, with payrolls as on can a few weeks ago was based on their own formula which, as I said, has been used for forcing the adoption of that tiquated. come the plea that the premium income has dropped so much You immeasurably by insisting upon the Insurance Department of your State was burglary and robbery rates, approximating 25%. recent Briefly, six thousand of them, maybe ten, are entitled to another reduction or Now, this is of great importance not only to the banks but to their multi¬ tude of customers, who aren't borrowing on property. Committee 30 "Massa¬ C. C. Wattam, Association, American L. S. ciation, Bankers was Fargo, elected Scarboro, town, N. Second was N. D., President Association at Secretary of the the of State Section's the North Dakota Secretaries annual meeting, Denver, Colo., Secretary of the Colorado elected First Vice-President, and Armitt H. Bankers Section of the Sept. 25. Bankers Coate, J., Secretary of the New Jersey Bankers Association, Asso¬ Mooreselected was Vice-President. William Duncan cisco, Calif., Jr., Minneapolis, Secretaries tions, respectively, were of the Minn., and Lauder Hodges, Minnesota and California elected to the Board of Control. San Bankers . Fran¬ Associa¬ . ROUND TABLE CONFERENCE American bankers Association Meeting Held at Seattle, Wash., Sept. 27-28, 1939 ROUND TABLE CONFERENCE INDEX TO Expense Control for Better Earnings, by J. L. Dart Page Assignment of Life Insurance Policies as Collateral Security, by Robert C. Tait 49 Loss Prevention 53 The Credit Facilities of Banks, by Herbert 54 Meeting the Public Need for Personal Credit, by W. B. Harri¬ Industrial First—Indemnity Always, by K. C. Bell Remarks of W. Laird Dean Investment Problems Confronting Trust Today, by O. Paul Decker partments Basis for Analysis of Municipal De¬ and Savings Research as an Aid to Bank Customers, H. White —Page 55 60 — 61 V. Prochnow 65 58 Opera¬ 67 tion, by J. J. Card 56 Standards, by Frederick M. Babcock 64 . Selecting and Developing Personnel, by Ray A. Ilg Work Simplification and Organization for Efficient Securities for Bank Invest¬ 59 by Bert ___ son ment, by Edward A. Wayne Modern Mortgage Remarks of W. P. Albig and Raymond R. Frazier.. 51 Account Analysis as a Guide to Charges, by 68 Claude L. Stout- CONTROL OF INTERNAL OPERATIONS AND EARNINGS Three talks given under this head, by respectively, J. L. Dart, R. C. Tait and K. C. Bell were Expense Control for Better Earnings By J. L. Dabt, Vice-President Florida National Bank, Jacksonville, Fla. There is unqualified certainty in the meaning of the subject I have an been asked to discuss today that is pleasant and quite refreshing. not ourselves with concern translations. or Earnings." but is controlled we I expenses. truth, which we could have better could control we improve and increase am sure goes that measures success." will be whatever the idea our expenses, probably a earnings by controlling that filled with such sound philosophy and Underlying the positively prohibit the In other words, one upon the principal we must secure 100 cents, or important one, most make but what you considerable portion of my a controlled expenses dollar spent in operating costs dollar is item costs is of little value unless you make use of the pare your will be worth, in value. not a person present information. answers you get Com¬ neighbor, with other banks, with average figures your banks in your section of the country or the nation as a whole. Find out why they differ, let your curiosity run rampant so in the to speak, and regarding the difference between your figures and the others you will have a valuable lead to reduce and controlled expenses, or you will have performed a service to our profession by giving the other fellow something to think about.' Suppose, for example, your Item cost of "on us checks" were out of line with those of another bank comparable in size and type of service and you the a different method of posting its ledgers, permitting it to handle number of items'with several less bookkeepers than you require. same "Would such information be useful to you? your rendered, learned that the other bank obtained the more favorable cost figure because of Would it result in a decrease in Similarly, comparisons of other costs may reveal operating cost? which you can reduce and perfect methods of controlling expenses. ways in So tempted to assert—in fact I shall do so—that figures with from groups of has heard hot once but many uselessly, foolishly, or unwisely. money that for every you our something like this—"It is not what you save approach, of every one remarks spending of am if our expenses, or we can old saying, simple, yet times that V I "Expense Control for Better imply that possibly say or direct and positive statement, meaning but one thing and that one a thing is simply this, our "We need variety of possible meanings, interpretations, The subject is unequivocal: It does not earnings if a I repeat, one suggestion for increasing your earnings through expense control is to compare your expenses with other banks and give serious and here today would object to learning how he might increase his bank's un¬ thoughtful consideration to the adopting of those procedures found profit¬ divided profit account without augmenting its income able by them. I am by a single penny. It has been my exp.rience that no matter how careful you might quite sure I should not object to receiving such information, and I am be or not, please believe me, intimating for a moment that I know the absolute think you have been, that at any time you go to the and undisputed answer to that detailed and itemized list of expanses charged to a certain account such as problem. I have the good fortune to be connected with a splendid distance quite some from Seattle, in Jacksonville, Fla., bank, located which had has during the past two years average deposits of $35,000,000 in round figures. Compared to many banks in the country the one with which I am connected is a small bank and this, together with the fact that my experience in bank dates back to the time when probably makes it permissible for its deposits me to counsel were majority of banking institutions throughout the country, those that the final analysis the backbone of our that 2H million dollars, with those from that great are in American banking system, the small mention memberships or donations, value of which is decidedly questionable. that I suggest you This, then fore, is another thought follow, venturing the assertion that if you do so, studying of usefulness and profit to your bank, many charges made during the period under review will not be recurring items in the future. unwise Naturally each such expenditure eliminated means that your net earnings have increased by that In same amount. reference to control of expenses for stationery and printing let me might profitably consider, realizing full well thought they might appear penny wise and pound foolish, but suggest a few things that you I shall discuss today, ideas that experience has taught me are well worth that at first serious assuring you that many dollars can be and have been saved by men, consideration, strike may responsive chord in a some of you gentle¬ with the result that after consideration and serious thought they will prove beneficial to Obviously, obtained cause or you and perhaps I should say theoretically, better earnings can be by increasing income. increased income in this agencies over which we have I use the word theoretically mainly be¬ day and time, due to certain competitive control and to certain oppressive powers no and policies of a regulatory nature, is largely, if not entirely, a matter beyond our dictation and in the realm of conjecture. mention of income and since it refers to no by controlled expenses, we Our subject, however, makes earnings only as they are affected shall eliminate that problem from our discussion. I feel certain you will agree it is reasonable to assume that before we can control our expenses conversant in they point of service The larger progress in of doing business we We should have at least of them and know why means costs or with them. or are a should be reasonably fairly good knowledge what they are and what their dollar value usefulness to metropolitan banks of our our have made remarkable the installation of cost finding procedures, and have, through facilities departments of the bank? in A simple workable system, easily adapted to expenses. even the smallest bank, is productive of much good, and if properly applied and used can save many, many prepared dollars. Booklets numbers 5,9, and 15, especially number 15, under the supervision of our various forms you printed on a cheaper grade of paper ? sell them to you? counters Are pads of deposit tickets placed on your customers' used by them as office or home memorandum pads? Association's Bank Management smaller pads or having them unpadded would prove profitable to you. Have considered the advisability of doing your own printing? you Membership, Subscription and Donations thoughtfully spent in consideration of the items that appear A few hours a on list of such expenditures will no doubt show several opportunities for reducing this classification of expense. various of item costs as applied to service charges for, while I readily admit that earnings can be increased by their installation, that we are application discussing, of Increased of them namely Expense Income. For the appears Control, purpose aside from the subject being rather In the realm of our discussion, however, I be¬ will find their determination most valuable, not only for com¬ lieve you parison with similar figures from Institutions comparable to yours in size and type you of service rendered, but also because I am sure that in so doing will find some things now overlooked in your operations that can be eliminated or changed, quite likely with However, for the purpose of expense a reduction in operating costs. control the mere determination of per Are you getting face value from the organizations you think you must join ? How about the large number periodicals that clutter up the post office box of the average bank ? value do you receive from them? are study and consideration. per If so, the back might cost less than the cost to of supplying such convenient scratch pads. Maybe putting them up in printing of certain rules or an ad on the Commission, are valuable and informative contributions on this subject, subject of Can they be Do you receive competitive bids on In other words, do you buy your supplies or does some and I commend them to your serious their cost can be reduced? they be purchased in larger quantities at a cheaper price ? orders of any size ? control its What about the size of the Can they be redesigned so that by permitting the use? printer to use all of a certain size piece of paper Can printed If improperly housed considerable loss will result year's time by dust and injury and if no one attempts to a one banks willing Do you have supplies of stationery and made to control their distribution to the various cations, if not in the periodicals I shall not dwell on the your distribution considerable waste is inevitable. provide elaborate system of determining costs in order to benefit and to control an matter of reducing expenses. housing I do not feel, however, that it is absolutely necessary, desirable as it may be, for us to install or our for Is there any attempt forms ? their efforts and experiences along this line, contributed much to our general knowledge of operating and per item costs. this approach seriously you operations. country to adequate organization's profit account. your to few, you will find many dollars spent for things and services the carefully and seriously the appropriateness of each expenditure in the light banks. It is my sincere hope that some of the things pertiiient to my subject that a subscriptions, advertising, stationery, trouble to prepare a furnishing. What I dare say you will find several dupli¬ then in the service or information that they If a certain official wants one magazine and another a different one, both furnishing the same information, maybe one subscription could be eliminated and both officers share the one periodical. Careful consideration ought to be given to expenditures of this character, many of which come from depositors particularly interested only be justified on the . especially when they can ground that a certain customer suggested them. hard to control, is Another vexing problem, and an expense frequently donations. Here again many of us give all too much consideration to who is making the request and all too little to the good the granting of such request will do. Banks are considered legitimate prey for every organization, club, association, or group that think they need money for any purpose whatever, and I realize it Is easier to talk about saying no than to actually say it. 50 Relief BANKERS' be had, however, by cooperating with your neighbor bank or by can clearing house agreement under which such expenditures are limited and controlled, or by setting expenditures. for such Frequently contribution a first of each year a budget figure for such up at the we or unfavorable reaction. afraid are straightforward statement that no CONVENTION to say but no I have has in provision had been made in the budget new that no device in intended provide talk to the subject up the a budgetary control little later For degree of control highest although excellent results necessary cash basis of accounting. sirability of making an for doing that tunities such action a accrual system an I purposely spoke two-fold: dollars of many reflected by a expenses are few moments ago of the de¬ a First, I budget to itemized and detailed list of various expenses. was My I suggested, for the oppor¬ as would give for consideration of the usefulness of such expenditures, and second, for the that you then have reason In preparing your budget for that expenditure for next year. of your expenditures all but since a of accounting is be obtained and can saved by its use even when income and expense reason of like in and manner set figure to a use Follow through up, on previous experience, less the useless expenditures, the amount basis of a should you spend for that particular classification of expense next year. If you will then break down these figures into monthly amounts and compare them each month with the amounts actually the previous budget, of month and the you will have your a most Variations expenses. expended, accumulated provided will as well as with the year date, to figures for both cash and important procedure for the control of occur course—increased Salaries important thing is, you will have before black and white comparative figures that can't help but challenge you in curiosity and demand your an investigation as to why the difference. increase for instance in your light and power bill over the last month's figures might show that some lights not are budget An or over being turned off when not in use or that fans are left running after working hours. Again let repeat, the opportunity afforded by such comparisons for reducing and controlling expenses is almost unlimited. A careful check of your long distance telephone calls and telegrams may show the unnecessary use of me such services, with a letter answering the purpose just as well and at con¬ siderably less cost. laborer is Efficiency of Operations departments and if its or is progress impeded at any point operating efficiency is lacking and expenses begin to pyramid. It is, I know, frequently difficult to keep every one busy at all times, but the inauguration of systems that permit an even flow of transactions through the bank is an excellent way to reduce operating costs. This not only frequently results in reduced personnel but also allows benefit fuller utilization of a will pardon another personal reference, I will cite two instances in my own bank where thinking along this line has resulted in improving efficiency and lowering operating costs. In the early hours of day our transit department is concerned with the our banking proving in and distribu¬ incoming cash letters This must be accomplished thus received enter posits our by lent closing time such transactions are keep this work flowing ments, and after this is accomplished of our qualified to quite sure all local items A numerous. sizable we are concerned with the of the personnel and equipment necessary The entire transit and proof by the following procedure: departments, during the first two hours of the day, concentrate on first proving in the cash letters received from our A small crew then takes up the function of the proof correspondent banks. department, proving and distributing the small volume of deposits that have been received by this time, while the remainder of this force prepares cash correspondents for credit and remittance, effecting a balance of them against the figures used in proving them in a short time previously. This means that by lunch time all cash letters have been proved in and all foreign items received therein written up on our outgoing cash letter forms and proved. Upon returning from lunch the entire force centers its efforts letters to to a proving and distributing of customers deposits, and then, leaving skeleton force to balance the proof department and prepare the local items on clerks other banks for clearing the who receive we forenoon, made up adding them ones. with the to of items received from writing up additional use our correspondent banks, or by This,as I said, enables the items but from the cash letters. a certain separation was us This meant that made entire process these checks our analysis of them on for the day they were distribution to the description thereon calculated the were the float This virtually meant that in the being handled twice. By separating these transit department for proof purposes according to the out¬ standing time necessary to effect their collection and in conformity with our method of clearing them through our correspondents, we have obviated the necessity of our analysis department's calculating the float since this information is or exchange, now obtained as a by-product of the proof operation figures showing outstanding time and non-par items are noted on the back of the incoming letters when they are proved in. and the I am am quite aware that there is nothing unusual about these procedures also aware that many of your possibly are doing the same thing, but I mention them solely for the ways to like should refer to to in which expenses can reason that they do represent definite be reduced and controlled and the efficiency of routine operations increased. might I also mention them in the hope that they cause you to think about some operation in your bank, with the that some ideas may suggest themselves and your expense account benefit accordingly. result necessity be trained than less educated and we important, more em¬ seriously and honestly are of study available courses improving their mental capabilities cannot are play in expense control. in a manner nor or other educational institution profits the inevitable result. I to and education because the efforts and performance business and organization, with increased earlier reference to the part comparisons my My knowledge of the benefits to be derived and of the savings that can be made by such comparisons is the result of expe¬ rience with for accrual accounting and control system successfully operated an eight years in the bank with which I over operation security, mortgage, or item, as the form and lated compared with the quarter Through its for the The accounts. difference may with be. compared Expenses comparison between these accumulated income and some expense for Since for every known operation expense, also making daily pro¬ also accrue vision to compared, similarly broken down into daily a figures for previous with are are on accumu¬ figures is naturally the bank's net profit from that day's operation. we note, This is tabulated accumulated date year. of control and purposes case to year previous on calculations made for each date of the preceding month, same compared accumulated figures for date to and quarter, date connected. am daily picture is presented showing the bank's daily income from a class of earning asset, predicated every dividends and for reserves figure is ment, by studying this sheet—and I exactly that—that day's contingencies, this daily net profit net profits. assure Obviously the you it is manage¬ the first report the Executive Committee, which meets daily, looks at—is enabled to exercise a fine degree of control the operations, of the over immediately informed of the effect of are assets, or of unusual or become oral an The sale question mark and loan the or that under sirable or of payment income from the our bank, and through it also change in policy, in earning Any difference between previous comparable day or period a some one has to explain. Since that is tell you the explanation has to be good. can purchase of or any unbudgeted expenditures. the current day's figures and those for block of securities, the granting of a increases one, reduces, of or date such transaction is a sizeable bank's the course, consummated, but the point is operations such change is noted that day, not month a or later, and steps can be taken immediately, if any are de¬ necessary, to correct, improve, or change the situation policy or of the bank. Accordingly, the answer to this question of expense control would appear be irrevocably bound up in control of operating procedure. By that I efficiency of interior routine, a thorough knowledge of costs, the budgeting of expenditure, and serious and thoughtful consideration by the mean management of their improvement and application. Discussion Following Remarks of Mr. Dart Chairman Dean: I know Mr. Dart must have stimulated in your minds questions you would like to ask him. some To the best of his ability, he will be delighted to answer any of your questions. glad to hear B. (Port Angeles, Wash.): I would like he has any suggestions for State associations what not. work on will be us or There is notes /on compare committee about to a ask Mr. to perhaps groups salaries, Dean if as to what charges and costs, be appointed in this State to that matter and perhaps revise our charters, perhaps study our know down in central California there is a I costs. The rest of your suggestions. N. Phillips they might do in order to of banks, all group about the same size and within a radius of 50 or 100 miles, that get together and compare notes on various items, salaries for bookkeepers, salaries for tellers, and maybe even salaries for vice-presidents. We kind are as as of should we should we groping around as as what to here. salaries We realize ought to don't we be. We to what it costs to do this or that. know don't know as as I would like to know whether he has any suggestions for our committee. to make the fullest departments, and they were of course listed for proof Then the following day the analysis department employees and exchange cost on the non-par items. and must of paid you a more efficiently operated Mr. Dart: problem. No. sir. I will admit I have Many of the States, no suggestions on your particular you of course as know, through their State associations and through research committees, are various banks throughout the State and parisons and some very obtaining data from the developing some very good com¬ good figures. On your question as to what you should pay an officer, I don't see how any man can that. answer What a man might make in certain type of work or for performing a certain I tried to far as as bring out the point that in we can figure them particular routine figures that will for one job, would not place for a necessarily that in another location he should get the same thing. mean racks and took the cash letters and from the in who through efficient way, or help but give much department obtained float figures and exchange costs, used in analyzing our bank accounts, the day following the receipt of the cash letters, not from items larger amounts individuals who perform the multi¬ by encouraging them tasks Recognition of those employees who of those you If this is true the dollar values is bound to benefit your organization, much Formerly purposes. the that see I firmly believe the paid small salaries, or are con¬ unskilled and untrained worker an through the American Institute of Banking foreign items received Another procedure that has resulted in saving considerable time, in addi¬ tion to permitting us to reduce the personnel of one department, has to do with the analysis of our correspondent accounts. various those trying to improve themselves by pursuing the the letters prepared during the of both personnel and equipment. received perform who employees from fertile field for a golden opportunity to a women only qualified to earn small salaris, are ployees. following day, the remainder of these complete the outgoing cash letters the counter by either over from receive and it is only expenses paid. have our the consider their Note I said consideration, operation perform it in the most effective cannot is dispatching its that reflects credit to his institution. to crew bookkeepers and other depart¬ so received to our correspondents for credit or remittance. been found possible to coordinate these functions and to make full use total we and men in necessary No matter what the task is, accounts. A very small volume of de¬ foreign items It has better training. until noon, and from that hour until to the of your value for the amounts organization and the our several months correspondent 10:30 in order to make clearings of that day. are received over our counters necessary to by us suggesting am you trying to present is the taking of steps to am usually my job I equipment. of the I tasks If you tion 40% worthy of his hire and that become 20 A matter that should be given the utmost consideration is the question of your routine operations. Does the work flow through your bank In an efficient and speedy manner or do you find bottle necks and traffic jams that impede its pi ogress and movement? For the maintenance of proper safeguards and lecords an item in passing through the bank must be handled by several peisons the market, but on they possibly might represent tudinous daily and your for some account receive commensurate business, additional personnel, increased taxes, rising cost of supplies and many other things will be the cause—but the placed sideration in this question of expense control. moment ago I will do so now. Its installation purchase and installation of every control and reduce expenses attempt to and the idea had brought with machine that is or your natural to suggest that Budgetary Control I not advocating the am possibilities to this end. business new ideas. I worthy of consideration. instances improved routine operations and reduced oper¬ numerous ating costs. expenditure accepted without question and with This applies also to the many opportunities the bank has for the purpose of schemes, systems, and aveiage the seen New and improved mechanical equipment is constantly being developed and perfected, and much of it is no are my on the man's opinion salaries should be based ability and up, as doubt prove valuable to I have no suggestions, State associations. They will and various data from the The comparative I just said, by your State associations you in arriving at figuring costs and establishing service charges. that, not so much on the detail operation he is performing. or being worked some reasonable basis As to how best to do to obtain the figures through your doubt be able to get the various figures banks, and they can be compiled in except no member the form in which you wish them, or the form from which you can obtain the necessary data. William O. Grauel (Indianapolis, providing forms to be printed. ment to do Mr. of all Dart: our Mr. that, We or Doe6 Ind.): You had your bank have a a question there on printing establish¬ mimeograph? operate a small printing department which takes care inside forms and the imprinting of customers' check books. Grauel: Have you found that profitable? Mr, Dart: Yes, sir. Mr. Grauel: We have only one bank in and I understand there was Indiana that I know did that, considerable expense to putting that in. You have to have printers conflict do that work, and it is a matter of getting in to be left for the printers and those who and that printing should livelihood in that establishments in suggested by some of the printing and stationery, and it is of supplies distribution the over only take care of our II. Referring back to the question this I might state in all modesty he mentions in central California. The gentleman from Port Angeles asked a while ago, that I father of the little group am kept rather accurate comparing it with similar information from other institutions. At a meeting of our Com¬ mittee on Banking Practice at one time, I suggested the idea that we organize a group of 10 or 12 banks all located in agricultural territories, as ours is, and for the purpose of carrying on uniform studies, starting in with our capital structure, our gross income, and right down to the net loss organized in 1934 prior to which time I had group was data institution without any opportunity of on our own considerable ourselves By Robert C. Tait, Assistant Trust Chairman Dean: credit purposes to their life insurance to protect the shrinking collateral against existing loans. Second, interest rates fell and the insured found he with the pledge already some held we a series of clinic meetings, for convenient insured the to finally, Mr. Ereidenthal, of Kansas just this central point, was reserves and speedy means of credit. easy to believe that borrowing against life a banking and not an insurance company function. last This siderable point is aDout wmch there has been con¬ the time here to discuss the various question moot a I will not take argument. whole question of whether borrow¬ a banking or insurance practical. The fact is that at the arguments pro and con, for I think the ing function is reserves than academic more is properly have insurance policies in their them. So the problem of proper assign¬ any case, and it seems to me it is likely to continue public, moreover, has been educated by the insurance banks all over the country time present insurance life against collateral files already assigned to to with is ment insured The be. companies their and contained values values, sold be and made by and as these with of Most effort should values quickly and easily a with contracts company to from the fact that it is a peculiar arises third a an And party. individual to pay money it is the rights of this throughout the law's the beneficiary, which have been disputed third party, their present life insurance as distinguished dealing with property conditions certain under of which cause us most of our trouble. assignment of life insurance for collateral purposes, therefore, almost development The and subject, the on three parties other than the assignee—the insured, the cohipany, and the beneficiary—and the bank is sometimes not only assignee but beneficiary, as trustee under an insurance trust. Another distinguishing characteristic of life insurance as collateral is the fact that a policy has a definite and fixed cash value which increases in accordance with a definite pre-determined schedule, providing the involves always whereby Kansas City, or some Those officers came to over. of calling in three to five million, and sat around the table. the Collateral Security as insurance money against the reserve, would be the his with this fundinental change in the extended term of reduced paid-up insurance; and given the right to change the beneficiary and to assign applied either insured was to not kept pace The law has the of character would loan company provisions whereby if the policy lapsed the reserve non-forfeiture insurance policy; life cases subject this on may of this early legal and the effect down to the present time. divided roughly into two general concept is felt in many jurisdictions be groups: ■ , the beneficiary has an interest In the policy at least sufficient to require that any act of the Insured which would affect his Inter¬ est be done in accordance with the provisions of the policy: and that even if the in¬ sured has the right to change the beneficiary he does not have the right to make an assignment of the policy without the consent of the beneficiary unless he first changes such beneficiary in accordance with the provisions of the policy. 2. The second group of cases holds in general that the beneficiary has no property right in the policy during the insured's lifetime, and that the provisions of the policy prescribing a procedure for changing the beneficiary are for the protection of the insurance company, not the beneficiary: that where the insured has reserved the right to change he Is the owner of the policy and has the right to assign it without regard to the interest of the beneficiary. IIe has, in other words, a mere expectancy, or as the lawyers say, an inchoate right. 1. The first group of cases holds that hope and believe that The number and standing of the courts, however, that continue to adhere to the first view are so impressive that we cannot feel safe in accepting an assignment without first being sure that the interest of the beneficiary has either been removed or definitely made subject to the assignment. We must is gradually increasing, and we This second group it will the prevailing be ultimately also bear in mind the law of the land. fact that, regardless of how the courts may interpret of the insured, all courts appear to agree that the beneficiary's interest becomes a rested right immdiately upon the death of the insured. A most important point and one frequently not given due consideration, in my opinion, is the fact that the legal relationship between the insured and the assignee is simply that of pledgor and pledgee. The pledge of a policy for collateral purposes does not transfer title or ownership to the assignee, regardless of form of assignment. Many banks, through the use the in difficulty forms wherein contract one he chooses. the other from policy the banks to perfect a means whereby the insured may realize on these credit in any manner is long as policies are written on representations, I believe every insurance companies and the of important of the most the most of this think I value emergency one as purposes contracts. the in important basis credit or the regard to agents collateral for reserves in us City, Kan., conceived the idea of banks, from one to two million, from group and five million and And had come essentially people many insurance managing compared with all other banks in that class. The his life insurance provided an and which we Then size of deposits. 15 in all, and got the active officers of their banks to show their value policy. charged than interest of rate May I say elaborate studies for the last four or five years in rather broke down the classification of the banks by the cash values of his life insurance at a by the companies. Third, it wras deal with his own local banking institution, his bank against the could borrow at lower First, thousands of people found it necessary depression. If I could be glad to do so. this also: In the Kansas Association we made of one group with another. information on our group, I would be Officer Genessee Valley Trust Co., Rochester, N, Y. big increase in the use of life insurance policies for The idea if various organizations could organize, and then maybe have a comparison Assignment of Life Insurance Policies came expense. I think it wrould be a splendid (Watsonville, Calif.): Lopes wouldn't be of value, and still we would have information got out it in position to furnish any proving quite practical and economical. L. code so that if the those comparisons. I have worked up schedules for that, and-since 1934 I venture to say there is not a member of our group who would give up his membership and the securing of this information through getting together three, four or five days a year. We take each item of income and work it out in percentage and expense. By those comparisons we have saved profit, with everything confidential according to net or of our stockroom and has printing but the young fellow is also in charge supervision We We solved our problem in this way: locality. our printer and a young assistant, and they not a make their manner. We have naturally had that Mr. Dart: have We feel in Indiana that banking is a profession, basis. get very far on that I don't think we would In Indiana, another line of work. with 51 TABLE CONFERENCE ROUND interest beneficiary's absolute so-called of during the lifetime assignments, attempted have but it is universally held to put themselves in that regardless of form insurance the insured submitted to show that it was the intent of the assignor (the insured) merely to assign the policy as collateral security, and that therefore, though absolute in form, the assignment is collateral in fact. The assignee holds a lien against the policy, not title to it; a mortgage, not a deed. In other words, there is no such thing his continues payments, but which may rapidly decrease premium to the vanishing point if the insured fails to pay his cash be value may by the. next, relatively small one on premiums. can than value actual the that time uninsurable the policy is insured is at than the actual reserve, reserve and indeterminate As this to really worth more to him which is based on the company's tables for average be anywhere between The actual value to the insured may insurable risks. the enforced surrender deprive the insured of a considerably greater reserve at the time of surrender, because if the life insurance policy may a the full face the of value factor of the imminence of matter of the beneficiary, that where the insured has not reserved his depending policy, upon the death. has only a are vested there interest which it is almost universally conceded the right to change the beneficiary, contradictions be cannot between divested States but frequently within the themselves. States This extent confusion of the respect insured's actual the rights of the beneficiary and the of his life insurance appears to to ownership between insured and the company; when a policy was merely a contract on the part of the insurance company to pay a sum of money to the beneficiary on the death of the insured, provided only that the insured paid the premiums regularly until his death. That's about all there was to the early contracts; the insured had no rights except the privilege of granting a gratuity through payment of premiums; policies possessed no surrender values, and by their very nature there was nothing that the insured could enjoy in possession during his lifetime. With the development of legal reserve life insurance, as it is known stem from the the old beneficiary days when life insurance was really a contract and the insurance today, this earlier concept of the pany that company, not the contract as between the insurance com¬ and the beneficiary changed. It became apparent that the reserve being accumulated in a policy was really the property of the was insured who paid the began to appear, at first premiums. simply Surrender as company values and various rights practices, and then by express the contracts, and later by statutes in many States. The policy underwent a complete change: It became a contract between the insurance company and the insured, not the beneficiary; and the insured became the real owner. It also acquired a cash value which could be provisions in withdrawn or make pledged as collateral security by the owner, a loan provision purposes. Only the conditions so-called absolute assignment a The bank, as assignee, assumes a properly entitled thereto. similar respon¬ this point which has been cited by the Supreme York (Toplitz v. Bauer, 161 N. Y. 325), and portant case on the of law if the bank, for merely New let us say, holding an of the pledged property. Thus, assignment absolute in form but collateral purposes, surrenders or otherwise disposes observing the legal requirements of foreclosure without policy expressly waived in the assignment), it may version of the property to its own use and is only Court which pledgee really becomes trustee holds that a not with collateral surrounding an assignment—a gift, circumstances sibility as to any surplus of insurance avails which it may receive either on surrender or maturity of the policy. New York State has an im¬ as without his consent. Where the insured has reserved the right to change the beneficiary, the case law of the various States seems to be hopelessly irreconcilable. Not he for or sale for value— actually absolute. There are a number of other important points in this relationship of the insured, the insurance company, and the assignee. For example, the insurance company has a responsibility under its contract to fulfill the terms thereof and to see to the payment of the amounts due to the persons the death complication arises from the fact that the further A assignment absolute an as and of the insured. of position of owner; assignment evidence may be day and many times greater of the immediate maturity of the policy on reason Also, this of of the (unless be held guilty of illegal con¬ liable to the insured. And the bank liable but many insurance companies fear that if that may be interpreted as constructive notice that assignment is actually for collateral purposes, they may, by allowing the assignee to surrender without proper foreclosure of title, be equally liable with the bank for facilitating the conversion of the pledged property. Another problem arises if we require the beneficiary to join with the insured in the assignment and note. He then becomes an accommodation have anything they an with the same rights as a surety, and any change indebtedness for the performance of which he is liable party to the obligation in the contract of his consent, will either discharge the surety injured by such change. And, as you all know, there are any number of such changes that might be made in the contract of indebtedness over a period of time. This is why it is most important to banks that the assignment specifically permit the assignee to release security or co-obligators, and to grant extensions, renewals, indulgences, &c. The modem life insurance policy confers upon the insured a number of as surety, entirely rights, or a without to the extent powers, essential to made bank in any he can presumably assign. It is of these rights and privileges definitely be assigned privileges which and that certain for collateral purposes; other rights are particularly important to a bank-assignee; and some assignment neither necessary nor rights are held by many not companies to be peculiarly the insured's and really assignable. In a simple assignment of "all right, title and interest" is considerable difference in the points of view and practices of there various life insurance companies. The assignment should therefore cover ' 52 BANKERS' these points. wish to I We consider wrote haven't time in all discussion the this subject on them discuss to them of some thesis my but now, you lateral; may period. that arise, use ance Association to was been of so-called of and disadvantages absolute bank purported several the At included These trustee for the insured in using was collateral a originally developed In drawing assignment considered, by assignment to absolute form separate 1. with and National First Bank of White and Basil S. from the B. committee A. various methods of for preferring this collateral involving arrangements the so-called agreement: It reflected the actual collateral purpose of would never signee and the conditions of the contract of indebtedness. 3. By thus revealing the whole situation to the insurance company and recogniz¬ was not entitled, it permitted beneficiary subject to the assignment, and did not relieve the insur¬ responsibility for proper disposition of any such surplus; and I believe the hanks would receive more payments of the exact amount of indebted¬ ness and have to assume far less responsibility and liability for distribution of sur¬ pluses than under any of the former arrangements involving so-called absolute company of all assignments. The banks form included was before going to tion of Life Insurance Counsel had submitted of Association the these the advantages further its I member companies of this assignee "A of issue form banks. entitled this committee, Chairman of insurance all this for It the was, the assignment, but of any Life Insurance of Association had sent a of had not P. II. and B. A. uncertainty England First of National generally accept Bank of Boston, of been has interpretations of various the greatest disadvantage of per 100. It has been and bears the official Commission of the American Bankers Association officially approved this form and is offering it to banks at $1.75 designated "Form certification, No. 10—Insurance quickly identify the notes it compare it. legend word When "Approved for has think is by," with word Counsel insurance an the &c., will it great Management insurance have not the companies receives this form company which form approved—a that to read Association advantage the to and Life of insurance Now, that I most I that mean people including itself. the it the country to adopt case to result Life of Insurance Counsel and the proposed standard use to stay all line with in the other their dealings with of assignment form, in who at present may be reluc¬ with its terms will be companies, banks will the have to borrowing in the force. I written, or instead entire understand companies regularly billed fairly said banks the is the of effect that show records the that not that companies one 26% of the large Eastern of the interest their policy loans is paid, the remainder, on loan interest, being added to what on keeping existing insur¬ is, of over policyholders' have may principal. loan about 74% or This probably is representative of the experience of the average life insurance com¬ and the lapsation of encumbered policies is extremely high. In the pany ; case of bank loans made against life insurance cash values, on the other hand, interest must always be paid or the loan is called; in only a very few cases is interest paid by increase in the loan, and in a few others increases in loans I have other had banks abtain to (because in precise and for), follows, increase increase such figures loans some collateral, used are known to be applied toward payment of premiums. study of this situation made in my own bank and several Rochester, and although it is difficult if not impossible a can't we the are comparable straight always experience of those to insurance be the in loan in loan in in about about 95% of the 98% of the cases; some increases loan cases, insurance and reporting the average: both premiums and on loans what sure banks of is in interest also have the mixed loans are is as paid without paid approximately without 50% of loans are being reduced regularly by repayments of principal. Lapsa¬ policies assigned to the banks is practically non-existent. So from the standpoint of conservation, at least, the insurance companies should be glad to see their policy loans go over to the banks—that is, the underwriting departments should; it may be a horse of a different color to the investment departments. tion of Perhaps here, loans, should outlining policies with I chapter of a first forms though again there isn't book that deals my themselves, policy mention, what by and must someone with provisions to discuss it procedure in making insurance be .determined in time from an analysis of the bank who and their requirements is thoroughly for the familiar good col¬ the at lot a other practice of insurance surrender the companies, the of policy? With a great insurance A man in came He had it in his own possession, Figuring what the cash surrender case. loan, a the assignment. an and We found absolutely they refused to quite cocky about the whole proposition. were loans policies of that on protection. They ought company. make not loan, a in whole a all know, make just temporary, urgent loans. We are Some think the companies would like the banks to of I think they hazard about said I reason want to that loans. because was them themselves. carry making those said I the That companies is record. our assigned policies to banks is infinitely better on and rapidly, so the underwriting departments lapse The the let is ratio of these high. very did I com¬ I say the of Generally, the wants loan, the there has insured over they pledged his original loan with are ahead of the loan, our but policy it doesn't in cash the to some require policy the not. or lien. prior We is clearly subject insurance value is his which which in to for company insurance loans and is the purchase of the for one reason another or doesn't want the bank to take By their contract of first lien the company. but us, if the that with in comes situations the assignment our few a have the have to will Most them. on fellow a paid off with are they they assignment assignment running course, company but policy, an used many who my taking that. require A good remaining whether have we indebtedness of still the against where former or amount their policies. several to surrendering, longer no companies, most by mean companies difference any loan a loans keep are policy, a You it. Most insured there make have few a surrendering require policy. the and doesn't of longer no original an business of ago, they impair way any sufficient right under our collateral as to cover us. Incidentally, the new proposed assignment form specifically gives that right to the insured, hot to increase without consent but to recognize the prior lien Mr. that Petrikin: their on might exist. The insurance point I made policies, they that when people want to borrow was need the immediately, money urgently. We understand the assignment isn't good until recognized by the company, but you are so far away from the home office you don't know they have already obtained the loan. the insurance when It loan. a have Tait: though that Mr. Petrikin: and I notice to "You should find assignment immediate Mr. Gibbs when it is if check?" man with arise in that two-thirds of insurnace can continue the practice, Mr. sole so Unless they they lot there is upon that. cases default in that say of owner demand when bank and con¬ they go through the policy that fact can and that companies spite of the the a and the great all and Motors, beginning. What bring about things said what and do we we to uniform some agreed the have guarantee a the upon may lot A of to pay reason be, be form, your what date the time never do any¬ a non¬ at them is your for it. in covers may the that assignment form situation circumstances of most think to pretty good assignment defaults. done one-third—I not beneficiary's the he they about will They have what the the right which premium They make at you will the defaulted. provision, insured contract. exactly whether or he has of the you predetermined issued, Will basis? collateral our has who without going in the he money. General the company about companies that if, cash loans safely? demand. what of Tait his assume doing to one-third least our on their bank, the company, the companies efforts or on the in of one upon know was thing until a have the been have reason at check defaults, forfeiture is The instance, policy demanded you its money consent to Mr. the will great about one-third of direct to make these That not may insured the as a particular In they get our the still are work correct; order his man pledge in their possession are stock liquidate we getting check a about. probably the of fine Tait: arguing telephone must our bank do business a should on they There deliver everything pursue as right way, business not have such the beneficiary. will say: them, brought note—we that sort—"We want a loan, his prominent How to questionnaire to a very Association our right circumstances of of like to ask satisfactory to the makes whole the most has assignments the companies want it give In and proper ditions you them. on About still are signatures. think carry something of but there about the there until you know man on give I and course right a to or the that chain the further Of bank money doesn't would I procedure to send our disappeared, us loan. the from loan a the that. right J.): unfortunate inability of yes, N. exactly admitetd an shows is stamped form been has say, policy (Montclair, the get value—it prior a makes to comes shouldn't advance the loan prior a T. we and is who man he recognized," but that Frequently, existence of and been Then there that You out. has practice if what you complained about. was policy. bank nice a relief. Tait: Alfred to the the it wolud be me on complain about the keeps no the it insist having the policies surrendered The insured would have to turn in his policy, come to you and make a loan. wouldn't I to seems would Mr. company is companies they make he are approximately interest and companies to care of some what the these and sent him any some lapse ratio this them when companies call conservation—that insurance the been from insurance ance of be simplified and become interesting point in connection with this subject, about which little appears require policy. a made I don't. The lapse to knowledge, forced to do hope with we Do if lot of correspondence. a loan made be wonder I I will tell you why. on a the companies, with possession By they would— certainly Tait questions you any respect. urgent an had you is Tait: As father than gone thought here. nearly standardized. An life already ever, Association the insurance companies of some that more the the have subject accept it and comply strictly order in so of this the ball from carry The thing that will consolidate this gain is for the banks throughout which tant followed members many to insurance companies have who to the banks up probably and think the investment department feels the other way, of course. so companies. would panies do worry about this situation of their loans, because the incumbered Assignments," "Form Approved by Bank Commission, American Bankers Association"—so was to record of than Life, wtihout objec¬ this form to different companies' as circumstances Aetna Chairman as assignment heretofore used. Bank Management Insurance there Mr. The It both expressed confidence that the committee, now Counsel of Mutual I subject, this ought to be glad from the standpoint of conservation. policy. appearing in the August Associate New White K, would various Cavanaugh, Iloague of ask to policies, money haven't we ought know all article it people, as to an of which have had, and I this on made him we the loans. years in some protected at all. carry by by insur¬ an opinion, except that they have the policy surrendered, because lot of Counsel submitted reproduced it saw you when provisions its Insurance Assignment" D. A. of many Life with in loans company There my these—that copy is recognize any preference and If now and had all only insurance it. Colo.): this country I had and course, that I the thanks to Hal Stonier my without on you experience general practice? in value have has may not of type Association compliance George forms of The it to the semi-annual meeting December. the they make borrowed and and of the under the that at the opus had Is that the advising them that their committee recommended accept¬ companies And rights and "Banking." succeeded the to Perhaps Form who tion. last mentioned recommended committee own ance had York printed my advantage to banks—more important than been had it New in in want (Greeley, companies company after the committee of the Associa¬ press, publicly Banking, anything We Petrikin have policies standard proposed last minute just written Dean: B. M. insurance of from time. J. ing the possibility of a surplus to which the assignee the naming of a of exhaustive study very Discussion Followinff Address of Mr. were as School a have Chairman this the transaction and did not purport assignment of such of the lasured's rights 2. It expressed clearly to the insurance company, the insured, the beneficiary, and the assignee, in one Instrument, all the rights and powers conveyed to the as¬ ance made have Since then deemed necessary by the assignee for proper security for loans against his life insur¬ ance values. inquiry trustee-beneficiary under as I should like to express Graduate The never when form very similar to the the reasons the of any be anything other than an to conclusions I gave as my typp of ► passive forms of collateral assignment. form, matter. sort of a including that of the bank bank forms surplus that might exist over the indebtedness; by what tc do in the most common situations trust and other forms of separate agreement in which ; Boston, largely through the efforts of their Henry K. this and and with separate agreements (not revealed to the insurance company Collins, the former of whom became Chairman of the A. on collateral determined discussion of procedure in regard to this confusing a beneficiary and In conclusion subject alone insured the time, my bank proposed new the to assignment that had provided by the insurance companies; to act as any bank special of pointing out what I considered the each. of approach my methods various assignments, of dispute) case dry trust of or forms absolute the bank and in except the discuss So Counsel. Insurance being used by banks, were so-called between the Life illustrate and and advantages of the be must and finally, of matter development of the new proposed standard form of assignment for banks' by the joint committees of the American Bankers Association and the what next, company; School before the the Graduate for CONVENTION any a time, to surrender technically means the it policy can't payments, but it isn't be itself practice of giving the cash value but in many cases is exercised unless their practice to insist that isn't on a demand part of to the ROUND TABLE CONFERENCE Mr. loan Gibbs: to still refused with cash interesting in say and writing that insisted that buck He said the making to had give perfect he in Mr. pretty Tait: does in of assignment. won't clearly, Mr. I do the policies handled determined read to which part, what is he that case because that it takes is he the was long pretty a this of care pretty disappearing note just our Mr. Tait: Mr. Gibbs. arrive Mr. White, has order, whether they our outs on it that in argued that be can arrive at so so can basis of understand¬ some of need, case it in case of our Loss Prevention whole that It of it going to do of the point to you hope is the the steadily forth move B. and that I claim No be the force one comply. In compliance court, without still have you having to prove of this Counsel— conjunction be may it stand¬ The anyway. to go on from can use Insurance who companies paid them the that Life of the approve releases clearly. very not. Mr. assignment to check a and on, Association this of Counsel that so headed by A., development Insurance provides or A. but the committee approval of that in thing is to get assignment, is Life covers approval committee—will that and my That sole order, our of committee specifically on. perhaps not officially, get into detailed discussion, this Association are the liqui¬ can it, and I think it is important pursue ought to recognize it and that. just and we other type of collateral. any sir. satisfactory conclusion. course the on ought to we directly to plus with ing with the insurance companies, think Association assignment liability, from, you, done This all as with Of form. our same I getting becoming unhappy with the bank, or the 6ome form, 53 agree our at Tait: but to by the local bank—should I enough that and Association, recognizing that the loans on banks—and to his in now here want Bankers vital in comply. don't we are this clause a his on He simply supplemented the assignment by a companies know I evidence they is American our insurance be there providing Gibbs: feel and attempt assignment, but to up terms. have that direction, I owner. They normal a letter strong took rather reluctantly and they did consent in writing, but only after their policyholder put it them date and to pledge the right customer check a us and customer consent, company His policy demanded they would our a insurance an Connecticut. they back he in in everything company the passed company. experience the utility field the gave to We his value an We us. demand. up had prominent in man to they upon it a in came I With court. perfectly good going into court, if you had to, are won't have to. you First—Indemnity Always By K. C. Bell, Second Vice-President Chase National Bank, New York, N. Y. this In last briefly treat phase of of afternoon's discussion our certain rarely stressed "controls" on of aspects shall we insurance—insurance, that is, against losses of physical assets or personal property. "Loss Prevention Loss The particular theme of this paper is, as announced, Association. by no means a Physical safeguards and have been repeatedly But possibly it loss preventive. stressed (as subject of discussion for new accounting and of them some be somewhat novel for may this controls auditing earlier this afternoon). were consider insurance as a you to Yet it is principally of insurance in its loss prevention aspects that we shall speak during the few minutes at our disposal. Prob¬ ably all too little thought has been given to that phase of insurance treat¬ dends. In times of abundant bank earnings, as well as when earnings are meager, we form. should not overlook the advantages of loss prevention in every Also, if loss must of it, so far as why not occur, possible does not fall see to liability which is properly its liability. Far from it! All too banks fail to carry the insurance which they should carry, such many forgery insurance, and merely because they But claims. there frequently involved when an are are self-ii surers where cases a as they resist all transaction is customer insurance arrangement is both possible and proper whereby the burden of any loss will fall upon the customer's policy. the bank's loss record is not made worse, and the bank's If that is done, own initial insur¬ premiums will ultimately be lessened, and reinstatement premiums for ance the bank can be avoided, or at Our domestic surety our disposal excellent loss prevention devices in the form of their bankers' blanket bond and fidelity taking full advantage of them ? not find in such Have vention. for your own questionnaires at you, bank? least a few If not, might try it, you helpful ideas for devised and applied ever bank that a as a novel loss can¬ pre¬ questionnaire a And experience. further suggestion, why not consider loss exposure and general insurance as a matters the problems which among conferences? staff loss fective Self-analysis along prevention ance loss loss record of doing recovery Insurance premium rates Even though m:rit toward trend the or applied in blanket bond underwriting. should not expect others to bear any as the are so well as other principle far generally a very Per¬ of insurance. I trust that In that field, sizable we of reflectors public liability fields, there is of that extension desired insur¬ any credit rating has sonally, I feel that that is as it should be. shall see as in any it soon other, we portion of the penalty for our tion at Hot premiums are costly. Speaking before this Associa¬ Springs in 1933 on this same subject, and referring only losses of the previous year, your genial to crime Insurance Secretary, Mr. James E. (premium) outlay (i.e. $17,009,000 in 1932), made for the purpose of securing indemnity of losses through crime only, I estimate that reinstates ent charges or the amount of premiums duplicated totaled $2,000,000. Translated into preventive measures these rein¬ statement charges, which accomplished nothing more than to restore the banks' insurance to original amounts, would nave defrayed the cost of installing adequate protective equipment or stronger auditing procedure within the banks." least at Now, directing our attention more closely to our specific bank insurance I ask how many of you have ever given any thought to the coverages, may loss prevention aspects of even our commonly used bank fidelity and bankers' blanket bonds and of our bank burglary and robbery policies? fidelity bond and the filing of The mere requirement of a for one an application probably constitute effective deterrents against any crook seeking employment with a bank, particularly if the bonding procedure be coupled with a minute checkup of the applicant's prior business career verification of his signature all along the line. record, with a and school Once em¬ ployed, the realization that the bonding company would prosecute him even if the bank, did not, may tend to keep a wavering employee on the straight and narrow path. Surely loss prevention at the outset is most desirable in the fidelity field, which absorbs 80% of all blanket bond losses. In the burglary indemnity and robbery field, while such insurance primarily provides for actual losses, still the voluminous well as the cooperation has more construction of bank vaults and bank buildings. The ones Suffice it for me to witih emphasize that coverage for those hazards is unquastionably the most essential insurance protection for any bank to Blanket bond risks deserve carry. our utmost consideration, both from the approach of loss prevention and for loss indemnity. Having thus inadequately dealt with and disposed of all-important our blanket bond and related coverages, let us turn to consider briefly the prevention aspect of other types of insurance affecting Safe deposit legal liability policies provide through insurance. our excellent an lotjs banks: example of loss The older standard types of safe deposit insurance had very limited value in my opinion, particularly because thev restricted recovery to 10% of the amount of the policy in regard to the contents of any vault one few years does have real merit. tion of vaults been posures exercised. loss to to predicated on by rare, safe our of liability where cases especially when proper probably deposit the vaults and (2) most loss burglariz4- of any access ex¬ (1) the are claims on safe controls threatening subject are the lapse of memory or form domestic underwriters in the last our loss, misunderstanding a legal place, the loss of contents Accordingly, which the Except in the few has actually taken deposit box has been extremely have But compartment. which has been brought to the fore which are the part of the box renter. The insurance protection which banks and safe deposit companies vitally, includes adequate legal defense against assertions of loss where no need loss has actually occurred. Even considered solely as a means of providing without further cost first-rate legal talent for the defense of claims against a bank, safe deposit legal liability coverage should prove attractive to us. What better example in a concrete policy form can we find of "loss preven¬ tion first—indemnity always" ? Very similar in nature is public liability coverage. to the actual cases of imjury or death wrhich are Here too, in addition covered by and compensated greater injury cr number of improper or exaggerated, if not fraudulent, claims for damage advanced. of Therefore, the legal defense feature of such importance to the insured paramount bank, as well as policy is the to writing company, in keeping policy losses at the minimum. a As under¬ have we already said, experience rating is broadly used in this public liability field. The losses accumulated and charged against the record of the insured in of future premiums include the fraudulent assessment be compromised, as well as the act mil injury cases. claims which the must Probably every bank in the country carries public liability coverage as a matter of course, few of them may have given much thought as to how indispensable is tbe bijt Another mobile example policy. staffs to of defense insurance is the contingent liability auto¬ A great not regularly. the in such form as so or permit members of their bank business, occasionally if should certainly carry adequate liability insurance. It can also take advantage of both indemnity for the bank by having as a first line policies which such to protect done, automatically. connection with any the bank. persons As themselves carry maintained of fact, this is generally a matter But it is important for the bank to see to it in such personal insurance arrangements that the policies indicate that the insured In banks direct Any bank which does loss prevention and loss now many their personal automobiles on use of defense form of insurance coverage. addition, there is cars may a be used for both business and pleasure. fourth form of liability coverage which is often important for banks, particularly in connection with premises leased for the bank's own the bank tion. occupancy, or as a -in connection with properties leased to others by part of its trust activities or as a part of a loan workout proposi¬ What I have in mind is insurance coverage, or indemnity, for so-called "contractual liabilities." Such liabilities usually arise out of lease agree¬ ments, wherein one party undertakes to hold harmless and fully to indem¬ nify the other party under certain circumstances. be much These circumstances can far-reaching than has been anticipated, particularly if the more agreement be one inherited from some third party. All of a bank's leases should be thoroughly scrutinized to ascertain if there be any contractual liability or "hold harmless" agreements to which the bank has committed itself, intentionally or not, where the potential loss exposure is sufficient to warrant the obtaining of indemnity in the form of Both loss prevention and loss indemnity Policies Most losses. are providing protection against such risks of us an insurance contract. of great value in such are look upon our fire policies as providing only Primarily that is the case. cases. usually procurable. indemnity for I mention fire insurance only as an example of the sort of coverage which, upon consideration, we may be duced premium costs, as well as for reimbursement for actual losses sustained. and robbery types, with the re¬ steadily lowering our insurance costs for indemnity against With continued improvement in the construction of banking are these of Federal and local law enforcement agencies, supplemented these bank and surety company activities in recent years such hazards. For amazed to find is susceptible of treatment for loss prevention and for re¬ lessening bank losses of the burglary sultant effect of coverages report. and State statutes for crimes against banks, increasing severity of Federal in for more profitable and the part of the banks have resulted in amazing progress in the assault-resisting as urge underwriting by the insurance companies and the desire for lower rates on Committee's previous insurance discussions and in the literature limits of contingent Baum, made this remark: "Of this huge in into them at this time. Blanket bond coverage generally provides for the reinstatement of losses. reinstatement Moreover, these Insurance your loss prevention feature of that negligence or indifference. These of you. which you have been made familiar in the past, we shall not delve further ef¬ very A bank with unnecessary. has little difficulty getting been restricted to the compensation and definite in fidelity and burglary have just referred briefly may be com¬ we many under the policy, there are, as many of you are well aware, a much makes loss generally business. experience. own lead to may Careless banking increases insurance costs, coverage. costs these lines well as to the needed loss indemnity through as The prevention of loss low discussed regularly in your bank are insurance coverage. proper a There is scarcely yourselves, length most stressed Bank interest in these questionnaires is steadily growing. questionnaires. Are you at with deliberately false allegations least, minimized. companies have put at that bankers' blanket bonds and also and because these particular types of coverage have been the prevention Now, by that last remark I do not mean to imply that any bank should evade any with reasons, it that the loss, or the cost banks? upon our aware robbery insurance to which monplace coverages Loss avoidance through the proper use of insurance pays real divi¬ ment. well am and dealt First—Indemnity Always." prevention is I We shall not include in the discussion the prevention of, or indemnity for, any credit or investment losses. premises and with increased police protection, these losses—and therefore the cost of insuring against them—should continue to decline. As an example, when coupled a breakdown of the premium rate struture for with a careful inspection of the premises by engineer or other competent person, may any building, an insurance reveal not only opportunities for improvements which would result in lower premium rates, but the survey CONVENTION BANKERS' 54 which and public reduced, if not eliminated. That is real loss We should give constant thought to possibilities of this sort be substantially can prevention. In bank insurance policies and of public liability coverage, ties. Now, let which as look at us banks we have few types a has insurance a and, so far as the bank is desirable coverage. As you doubtless know, the standard forms of depositors' forgery bonds undertake to protect positors, it nevertheless has a real value for them therefore eliminate deposit. of deposit The rates P From of many you know, the use of mechanically signed checks is because of the internal For the paying bank, these mechanic¬ ally signed checks are exceedingly dangerous because there is no possibility of their detecting a forgery or a wrongfully issued check. Therefore, as a important and effective means of loss prevention for our banks, very from of forged authorized specimens on file with tions I As Such centers. is also important, if the banks are not to assume an surance bank's paying even of the effective most for measures are Often losses should collect from it But frequently policy. a customer degree. some of the insured night which a control of loss payments, for which provision form. The mortgagee afforded the bank at of the bank is some one a outstanding an of the insured insured with the co¬ property be located provisions in the fire policy have to absorb a portion of an un¬ as mortgagee may loss. developed used in building and contents policies. A number of the larger New York banks have, during the past year or so, been requesting to whom of their customers they make loans against the pledge of commodities copies of such endorsements executed for attachment to policies covering loss warehousing, or processing. (2) payments, cause, has recently been adaptation of the principles of the mortgagee clause, so long an By this means commodity ship¬ the bank (1) controls has due notice of intended policy cancellation for any and (3) also has protection against the voidance or suspension of the policy through acts of the insured beyond the control of the bank. bank commodty endorsements are extremely they be applied to inland can fire policies. to or ocean valuable. When appropriate, marine insurance just as well as to endorsements, but probably they must be prepared by the bank, and certainly they must be requested loaning bank has constitute a an excellent adaptation of a banking needs while at the loaning by it. The real insurable interest in such commodities which deserve Like the mortgagee clause, protection. same these commodity endorsements customer's Insurance to meet his time providing proper indemnity for the group loss indemnity through customers' insurance lies in the The device of insuring the lives of all such borrowers in decreas¬ ing amounts which will at all times reflect the outstanding indebtedness of1 the borrowers estates. a are is involved, excellent safeguard for the W. is important enough been to have the centralization of insurance The insurance problems Even with centralized supervision uniformity are not easy to achieve; without situation suggest that, whatever the particular me be bank risks that are or customer find in future considerations of insurance problems by brief our discussion value, however slight, to recall some this here namely, afternoon, "Loss First—Indemnity Always." of W. Laird Presiding Dean, Chairman as Laird Dean, President of the Merchants National Bank. Topeka, Kan., spoke as follows in opening the session: In the last five or six years the force of social striking at the very worries have been what "ism" is thinking men all over our country have worried reform, that in fundamentals of the judgment of many has been American our Europe going to control quarter of a century. again at are war to continent for that try to find out just the next century, or All of those worries about social reform: all of the worries about this titanic struggle that has us All of those economy. immensely multiplied in the last few weeks, since across the water the nations of just begun, make worry about just what kind of a system we are going to bankers, what kind of a every one of live under when this is all over, what kind of an economic system, and then, because we are banking system. We have differences of opinion as to just what kind of a system 's best for America today. completely by Some our say it should be Federal Government. regimented system controlled a Some men tell that in us men's hands, men if possible endowed with unusual wisdom, should a few lie the ultimate control and the policy-making part of our entire financial system. Others of us believe that out of the individual unit banks can come some contribution at least to the best financial thought, and in those unit banks found are some bankers, some who men destined are to lead unit that system to its glorious conclusion, and following with the sort of an economy that has made America great and, we hope, can be continued here. been wondering about and we have wondered what we could do about it. Regardless of all that, it doesn't make Federalized system, if well as be can our the loss coverages, we prevention aspects mentioned of that form of defense the indemnity provisions of such made with respect bank customers. to the But there is public lia¬ protection. Similar protection of the real a estate further point which should be stressed for the protection of our banks in their operation of trust prop¬ is, that in any repair, or alteration, or decoration jobs we are to have have the broad unit system, to are difference if any a we are t«> have a closely controlled system or if we the success of any one of them must in the last analysis depend on the kind of operations inside each one of those the Whether it is the operation controlled by one or the operation con¬ by many, most operations the operating problems, important thing to which are sound, then we we the operation of can business our devote ourselves. have time to do some If those clear thinking about general problems. 1 when discussing bank bility insurance and That of Remarks financing loans. erties. banks. multiplying daily. you may theme Prevention is comparable arrangement, banks require from their customers, at holdings of our urge upon you respective banks that it will be of your , banks. policy, as me be covered may be and whether it ducted Previously, Probably be the first step In arrang¬ bank does not already have it. So, in conclusion, let to the bank and for the debtors' an their expense, insurance against loss of, or damage to, automobiles in sales comment banks our for point—although it of Here also, loss prevention and loss indemnity are provided without premium cost to the bank. By a All of those things are worries: all of those things are something we have and life insurance arrangements of banks which Hhve small personal loan divisions. maybe paying record are not of the highest type. coverage final a your bank. Another example common these days of the practical combination of loss prevention as supervision, if These Little, if any, company or cutomer opposition will be made the issuance of such special indemnity any about In connection with customers' commodity policies, there ments, in for the asking—well, be removed But improvements in coverage are seldom offered to check -up on the standing of the company should protection But even here, the cooperation else's expense. policy, if the insured State which requires or permits coinsurance Otherwise, the bank example of to assure compliance by the necessary insurance conditions is clause frequently can centralization the problem must be still more difficult. is protected against is also made under the standard which insurance policies, indirectly, for loss prevention as well as for loss in¬ proper protection, economy and particularly the be as important to the mortgagee as is the in addition to the few hinted at scarcely necossary for me to mention here that no insurance or seems And Under certain circumstances this phase existence of the protecting clause. of the insurance protection can But which it accepts from customers. or are many ways except upon our own demand. ing suspend the insurance or render it void, were it not for the serve to appropria¬ insurance cover¬ risk exposures, and analyses of rates and forms can be or or stressed at the outset—let beyond the mortgagee's control and which are customers' insurance, itself of the sufficiency and the assure There company and its loss also used in the case of individual mortgagee clause without contribution, the mortgagee acts their From either approach, undesirable policy limitations or omission coverage It time been accustomed to the use of the use of the clause, by In such dis¬ indemnity policy is wisely purchased if the standing of the underwriting Therefore, we shall not discuss them at length but emphasize that merely directly and probably impolitic to 1 'robably all of you gentlemen are familiar with these standard mortgagees. clauses to shall of hazards us fire policies, to protect their interests as mortgagee. These standard clauses are carried, or contemplated, in the insurance arrangements. sincerely helping its customers safeguard be can persistent asking! is willing to pay at the outset the pre¬ In the trust field, banks have for some mere no Any ensuing benefit to the bank through the avoidance or utilized, of benefit. the standard mortgagee clause in bank recital of the coverages gaps which it purchases for itself, demnity. specific insurance arranged by the bank for his particular mium cost of the surveys of reinstating a loss under a bank's own customer the cost even a in this fragmentary discussion of the subject in or estates It is exceedingly difficult occur. a Yet it should go further. be possible to arrange for specific may Of course, use. teness, for the purpose of providing loss indemnity, of any The oftener, and under unusual transit policies to absorb the risk for the customer's account and at the customer's expense. Such an arrangement exempts the bank's own blanket bonds or transit policies from loss and saves the bank reinstatement premiums if particularly for big corporations recently released by the as was bank for deal of significance unless there be coupled a great bank should first of all a least, where special transportation of securities in large blocks must be handled, circumstances. of insurance, such of Credit Men has Whether dealing with its own insurance, or with its the larger city banks instances occurring occasionally at be enlightening and beneficial to both parties. understanding of the insurable hazards and exposures of an interests. age* Then there be served by the customer's to be really incidental. can And, better. the unless we have a direct But a frank discussion between the purposes minimization of losses for the bank, while important from its standpoint, the very frequent daily return, if possible? return of canceled vouchers, even a the but to indicate serve own of knowledge of the policy terms and of the amounts of insurance, and, a cussions protracted forgery preventing schemes, where facsimile checks are used, may I suggest at may these their own forgery policies. Otherwise unwilling to file claims under one with it policies, since the bank also is indemnified, if the depositors are customers' as under Association the customer. entirely unfair premiums on losses reinstatement the bank his coverages furthermore, I can see no objection to a burden in honoring facsimile signature checks. invite the responsibility of persuading we to their insurance arrangements a statement or National listing of banks in several metropolitan Indispensable. But depositors' forgery in¬ resolutions are Nor should possible starting point, advantage might be taken of an insurance a survey, adopted by These indemnifying resolu¬ the bank. and insurance counsel and they as invade the field of company representatives, regard insurance cannot help being required by the already are that customers as customer facsimile signatures resembling the bearing checks in themselves up insurable interest in their coverage. their boards of directors which win relieve the bank of all liability for the payment not avoid setting agents and brokers. mechanical signature checks, in addition to our requiring use indemnity agreements in the fo m of resolutions them should our forgery Insurance from all de¬ that we should require depositors' suggest must commenting upon specific However, that service must not be overdone. Our some cases. banks considerably more in the future than we have done in the past, possibly to the point of analyzing and which such device affords. positors who And for further in¬ that, because of our own these few examples it would seem to our customers' coverages attention growing among our larger business organizations economy Contractor's insurance in such insurance are not excessive. r even policies in as It would be wise for each of us to check up bank in this regard. which protects both the bank and the contractor, is direct interest in such insurance, we may have to pay agents. Also, where the insurance to adequate and proper carry vital loss prevention requirement for a bank. very well as the named insured. as not demnity, contingent liab lity coverage should be carried by the bank itself. This coverage can be looked upon as anti-litigation insurance. It is designed to any direct cause of action between the customer and his bank of That feature of the policy is often stressed by the companies' banks did the practice of our own on adequate amoutts, concerned, such policies provide very the held them liable for injuries of those contractors, employees indemnify the injured persons. depositors' forgery insurance. While limitations in its attractiveness for our de¬ certain by even themselves contractors For the first example, let us take such sustained death or real concern. a the public by or of the contractors or sub-contractors, or have excep ion the with only, have held the banks—liable through the operations property—in the case of trust properties, the of the for injuries or death inflicted on mentioned has been a form of employees' automobile which applies also to trust proper¬ of strictly customers' insurance in each of the types of insurance we have So far, liability insurance. surprisingly large percentage or our States the courts a owners in connection with ail of our insurance coverages. of of proper workmen's compensation and will furnish the banks with evidence light certain actual existing fire hazards of the premises may also bring to think it is very wise that the officers of this Association in their major meetings to give some attention problems of banks, qualified to to discuss particular problems, questions you wish. have decided informally to the operating bring to the bankers of the country the Let the discussion and then to ask run you men best to r .ise any free from the floor, and let's get at the problems in the fashion that all such problems can be ult imately and properly settled I we am by free discussion, by free expression of opinion. going to introduce these speakers to you, all of them men who, in should do business only with actual contractors and only on a contract basis. the judgment of the officers of your Association from their broad knowledge Moreover, we should restrict our relationship to such contractors of as carry men studying the problems of banks throughout our country, are best TABLE ROUND qualified to lead talks the discussion. don't stimulate disappointed if their all will be They ask some questions and to get out of each to you of these subjects the very most we can possibly get out one CONFERENCE The first subject a of them. 55 our program, on as you have read in the bulletin, is discussion called, "Expense Control for Better Earnings." This subject is to be discussed by J. LeRoy Dart. INVESTMENTS AND MORTGAGES Three talks were given under this head, by respectively, O. Paul Decker, Edward A. Wayne and Frederick M. Babcock Investment Problems Confronting Trust and Savings Departments Today By O. Paul Decker, Vice-President American National Bank & Trust Co., Chicago, 111. period allocated to this address, it is possible only to suggest the In the wide They are, to be sure, only variations of the age-old today. partments confronting trust and savings de- problems variety of investment In the case of problems that have always confronted both departments. the trust department the beneficiary of problem is the a trust at same of providing income for the life one time that proper security is provided for the remainder- the assets of the trust in order that the trustee may deliver to the man sum the testator originally provided. In the case of the savings department the problem is one of earning a sufficient sum to pay expenses and to pay an adequate interest return to depositors, while at the same time maintaining the and the liquidity of assets to provide for withdrawals quality of assets to provide technical the case necessary necessary selection of the has In each solvency. proper investments increasingly become difficult as the legal safeguards or controls surrounding management have increased, as the political, business and become has ment confused, and more background of invest- monetary there has been, in as some cases, a lack of agreement by management as to what its true function should be. be the purpose of this It will therefore few of these to suggest a paper difficulties and a few of the methods that have been used to solve them. These risks certainly such a pin-chase assumes. Should increased public expenditure, inflationary price movements, war or social upheaval eventuate in this country, heavily increased taxation and circumstription of the operation of corporate enterprises, with all their impact upon earnings and the price of equities, would become the order of the day. 1 Certainly on the point of what inflation hedges should be used by trustees, if the assumption is made that it is a trustee's duty to hedge those estates with whose management it is charged against price level changes much additional thinking needs to be. done. Any policy now adopted must be pursued with great care, particularly if the laws of the State in which the trusteje operates do not recognize this feature of its responsibility, A second problem that has faced trustees in the last few years, in an aggravated form, has been the problem of obtaining an adequate interest return on funds due to the unprecedentedly low rates of interest which high-grade securities have been yielding and the ever-growing income and personal property tax burdens such securities have been forced to bear, Cases exist where tax rates have forced changes in investment policy and have made necessary the inclusion in accounts of tax-exempt securities In order to obtain relief.. Beneficiaries have suffered reduced standards of living due to reduced income. of securities Probably the foremost investment problem—in reality the major problem or A number of methods have been ing income. has been the problem in part by having was the duty of the trustee to seek for the income beneficiary only as many dollars of income each year as the corpus of the trust would pfoduce from its investment in legally qualified trust securities and whether it was the trustee's duty to deliver to the remainderman at the so far as its duty was the trustee to protect, both the corpus of the trust estate for the benefit of both the beneficiary and the remainderman. income as the original as its human judgment would permit, the purchasing power of the income and face number of dollars same contemplated, or whether it trustor in maturity of the trust the Particularly has this problem charged with the entire responsibility for investment—a trustee under an agreement that grants it full discretion and does trustee operating confine its investment operation to the usual not in any manner of group They the corpus a legal list range adopted to solve this problem of declin- from the somewhat ingenious a ones of dodging the portion of the fees of the trustees charged against of the trust rather than its income, or by arranging to revise amortization practices so as to reduce premiums paid on securities more slowly, or to charge such premiums against the instrument permits. In very rare cases have been construed as income. of the trust if the corpus where the instrument specifically permits such discretion, principal has been invaded or profits securities on By far, however, the most usual methods have been to vary the percentage of the different classes of securities con- tained in the corpus of the trust or to extend the maturity of such securities to obtain the so as In some cases higher rate of return borne by bonds of long maturity, other method, one namely, the of preferred stocks as use investments, has been adopted. securities known as "legaLs for trust investments." The changes in accounting Surveys have disclosed many methods being used to solve this problem. limited to were limited by statutory requirements. were of investment policy that has had to be faced by a trustee in recent years— problem of whether it Particularly have trustees been faced with these difficulties where their investment powers Specific Incestment Problems Facing Trust Departments Today to be relatively practices that have been adopted have proven unimportant methods of solution, for although they have These methods range from the methods of the distinct minority who, in all made the results look better, actually they have not improved the results, honesty, deny that this duty is part of the trustee's obligation—who deny The next two methods, the methods of varying the percentage of classifica- this duty from the firm conviction that it is a trustee's sole duty to protect tion of the different investments and of buying long-time securities, contain the number of dollars of principal intrusted to its care—to those who suggest definite elements of danger. that class of securities has recently been increased because its rate of return protection of purchasing power is a trustee's duty and advance method of protection 30%) of the much as the suggestion that a given portion (in corpus the one point, however, obtain of a trust be invested in that as a some cases as stocks. common On is not fulfilling its duty if it seeks to a trustee riskless rate of return—a rate of return equivalent only to pure a interest on capital—does there seem to be On how far be- an agreement. If the percentage of the holdings of any one certain that if the general level of interest rates changes the rate of return on such class a or group of securities will also change. It is axiomatic that the securities which bear the highest rate of return at the present time bear such return because they embody features of weakness because of which yond the point of obtaining a riskless rate of return a trustee's duty requires borrower must pay it to go there appears to be no agreement or to have developed even a com- to change these features of weakness, he will still have to pay a mon The problem is too ground of agreement. new as yet for standards of what constitutes good trust investment management to have developed. a Historical precedents seem to be of little value in solving this problem. world decided or been forced to free their currency from a managed in some cases for the express purpose of reducing the burden of increasing a country's internal price level or improving its position It may be that well a new concept of the trustee's The that t ust fund mortgages cry an and capital. funds theory of what is proper investment will appear in the law as a result of this forced to recognize that, new economics. while the last part of the 19th centuary was not a period of stable prices even though currencies were tied to gold, the fact that they are no longer tied to gold makes the possibilities of instability in the future much greater. that common stocks have generally been assumed to be the proper of corpus a trust. Only very real or This is unfortunate, for it must be recognized by every trustee that, in times of political as well as economic upheaval such as the stocks, representing the final, ultimate equities in themselves subject to the greatest upheavals. Hence, a any busi- policy purchasing common stock becomes a matter of timing and of good judg- ment as to what stocks should be included in Even this is not all there is to the the question with size should at such times trustee it when purchase a common stock. a trust problem, for investment portfolio. every trustee may well raise himself as to whether every account irrespective of its have common stocks is actually obtaining a is made of a purchasing stable, If the common stock it as hedges and whether power as hedge for its account depression-proff dividend-paying purchases is not a stock of that type, it may well then raise with itself the question as to whether its purchase is an investment or wrhether it is a speculation. the that nize market bond has substantially declined since which would to seems This failure of funds to flow into the bond market be due largely to the fact that long time, permanent investment funds have never sought use except in countries and at times when political and social peace have existed and where the sanctity of the lender's contract War, in spite of whatever action governments could bt enforced. has always caused capital to become valuable and interest its Such problem. purchases create problems for may not have the trustee increased operating expense, of difficulties of distribution—particularly those cases where distribution open to in kind is impossible—and possible charges of mismanagement. even when assumes and principal can have if it now buys long time securi- political and social conditions are in such a state of flux and the risk of a substantial market decline and an inadequate income for several decades to come. , Some trustees have assumed that the way to obtain a satisfactory rate more was purchase high grade preferred stocks which yield to compatable to the normal rate on high grade bonds than of their dividend for failure of a a year, and in a perfectly sound activitieis of politicians, business may depend upon seems to rate other have been that such a high grade bond, nevertheless offer a certainty of income that is comparable. Such In stocks have sold the given year to fluctuate in value more governments, The general assumption a any reasoning would seem to be fallacious, for though it is true that preferred best of stocks to fluctuate in price in a single day more than the amount than 50% of their value at any one time during that year. to of lay the trustee It Is hot unusual for rates A question well be raised as to what justification a trustee charged with the duty of preserving income ties more if for no other reason than the fear that they would go up. go up may class of securities. depression-proof, take may short of the actual conscription of capital to prevent a rise in interest rates, stocks, while they do not offer a security equivalent to that of high-grade, of now have failed to attract any substantial amount of the available funds into the bond market. appointed, but if it makes investments In first are have looked extremely attractive two months price level is evidence of its desire to exercise the discretion for which it was dividend-paying common stocks, it should recognize that it the August, that rates have risen and that the increased rates which of income The desire by a trustee to protect beneficiaries from the vagaries of the solved in re- While one might think that this plethora of funds would make it impossible ago purchasing power of the income and occasionally are other hedges, such as investments in commodities of seen excess under which all banks labor. in the ness, are has aided in forcing interest rates to the low levels July this year and produced in part the tremendous supply of serves available and present, common has rates In addition the cheap money policy of the Federal Government of this country investment for a trustee to use if he wishes to obtain a hedge against changes estate, discussed. level of interest This has prevented the free flow of trade for rates to rise even under present unsettled conditions, we must all recog- It is interesting to anyone reading recent literature on trust investments to find be obtained is fre- aritifical condition created by an intesne desire for national self- and its relationship to prices, and a new trust can not are must recognize that the recent low Trustees been sufficiency over the entire world. Trustees appear par- being obtained and their advantage* of short maturity and amortization still remain as real as ever, they duty will have to be developed as a result of these new concepts of money for a point of reasonableness by eliminating particular classes of items of in-, vestment. or per- ticular trust, but it does not seem proper to reduce diversification beyond quently heard, but actually foreign markets. seems corporation bonds and mortgages contained in the investments of level: and to turn universally to the use of a managed currency, a currency debt higher than Within relatively narrow limits it usual return in the future. gold and hence free their economic systems from a relatively stable price in a high rate of return and that, unless something happens fectly proper to vary the percentage of government bonds, mu licipal bonds. Only in recent years, certainly in the last decade, have the main commercial countries of the was greater than that obtainable from other classes of securities, a trustee can be in recent times to yield a rate of return comparable to that normally obtainable from the highest grade bonds, their divergence in return from that obtainable on a trrialiy lessened. bond of the highest grade has not ma- At the best they offer the trustee the rate of return at which they are puchased in perpetuity. Irrespective of their quality they The success or still contain some amount of the risk inherent in the ownership of an equity and and they do not afford a protection against the potential rise in the interest the action investors and the general public/. rate on maney. i 56 BANKERS' CONVENTION The solution to this problem probably has been the acquisition of a group of securities of diversified inadequat income an has maturity in order to minimize the risk of obtaining been somewhat hard Obviously such long period of time. over a the income beneficiary, on a policy meet the qualifications of the statute. as to whether but it appears to be than the only one that, over a period of years, affords his income the maximum of A third problem of investment facing trustees at the present time, in such items are aid the at such subject to The courts a ception that certainly in extraordinary The able diligence and prudence in reaching the decision. only Both rules, of course, give freedom to the court, the first rule permitting retention if the trustee arrived, and under the second rule the that ordinary care was used in arrived or on the assumption the particular investment rule the burden is such that good were theoretically of the unauthorized, As judgment justified the result, therefore, under the first a upon the trustee to prove that original, security within or had not that the special circumstances surrounding retention of the security indeflnttely. it did dispose reasonable time, a decision on which depreciation in in the country should could in or still an return which appears necessary the or an Nor is people is without market, a illegal investment, it pays the stock's market inflation either rule high rate of own bank, concerning now reflected price. necessary protect its own position, irrespective of the effect of that protection of the income or corpus of the trust. a tion the on The proper solution to this problem probably lies in the trutee using the best judgment of which it is capable within the limitations of the rules governing in its particular juris¬ diction. While each trustee may regret the rigidness of the particular rules governing in its jurisdiction, the possibilities of in error Judgment at the present time due to present conditions make it imperative that the trustee does not to render assume investment service which the courts an the or Legislature have previously decided it should not render. The last want investment problem confronting mention to the trust department that 1 today is the problem arising out of the decline in the required to be invested in "legals." The magazine "Trusts and Estates" in its July issue points out that the latest change in the legal list of New York State, dated July 1, 1939, removed from the list of eligible investments $940,861,000 $2,580,000,000 an addi¬ value of railroad securities and left only approximately the same eligible, to compared $7,600,000,000 in par of 1931. split investment . between The possibility, however, of diversifying the investments issues and between as of securities types has definitely as been lessened. the passage of laws increasing the list of eligible items New York State/some authority to a Banking Board or or by giving, as by in Commission upon application to add items not otherwise eligible. Tennessee and Minnesota, for example, have recently passed statutes permitting investment in single or anniuty contracts. Arkansas and Missouri permit investment in building and loan association certificates; Illinois in Federal and savings Nebraska and Ohio savings and loan loan association certificates. Florida, Housing authority obligations permitted in California, Colorado, Rhode Island, Maryland and a number of other States. are The theory of the "legal list" itself is subject to grave question. Prof. George W. Edwards of the College of the City of New York has made a study of the effectiveness of the provisions of the statutes of those States having legal lists that pretty definitely proves that either the provisions of the statute were not satisfactory in their inception or conditions changed that they can no satisfactory unsatisfactory from longer be used trust as proper standards for investments. have so separating Undoubtedly, too, these attempts at enlarging the list of eligible securities by the inclusion of new types of securities trustee who are must invest for definite cost to the In bank a preparation of very for savings program for program trust The accounts. sole controls over its are the regulations governing the percentage of mortgages that Institution may own, governing the quality of investments that it may an buy, and the amount of The to problem is individual investment in relationship to capital. an of making the one investments earn sufficient income a the expenses of the operation of the department, which normally H of 1% of deposits, the interest rate guaranteed to the de¬ pay run about positors, Such of investment an departments hampered by statutes than it is in the preparation of far less is same a institution because of the interest rate they bear. an investment a this instances, do not have the liqidity of commercial deposits, do not require the proportion of the general overhead, and a a program bank a recognize may that while the profit. a commercial department the present time be justified in placing not at may than more 75% of its entire deposits in loans and investments, the savings depart¬ ment is justified in placing 80 to 85% of its deposits in these types of assets. Mortgages, unquestionably, should constitute the backlog of the invest¬ for a savings department. The experience of the mutual savings banks throughout the country, as only palliativse in solving the problem of the funds in legals. but upon the trustee still rests Undoubtedly they are helpful, the obligation of selecting items which will protect the corpus of the trust from within that whole group of items that Basis for well the experience of the insurance as companies, leads very definitely to the conclusion that good mortgage, a properly amortized, offers security, steady income, and reasonable maturity in better proportion than any other asset. The experience of banks with mortgages during the deflation of the last decade, difficult contradict cannot perience with acquire has greatly has this and the Moreover, by that for savings the Federal lending for Housing field FHA to date than to to banking investments bears reserve ex¬ Administration because never previously the frequently out backlog of insured mortgages is used funds only a small been, the bank a available they have as it has as better ability of mortgage similarity of them such The experience of the investment the liquidity a measurably was mortgage made assumption that if a items it bonds. provided a for guaranteed enlarged created enjoyed. fact, corporation mortgages institutions need be to provide provided for default. Although the last did war not produce substantial reduction in the a quantity of savings deposits in the country, even though the drives were put on to sell bonds to the public, the increasing with bonds, and the better rates of interest familiarity of the public they bear, may lead in the future by the public in Government bonds, particularly of the baby bond variety. Therefore, it is probably desirable that the balance of the investments of the savings department be concentrated in obligations of the United States Government, for while it is impossible to predict the course of the market of United States Government obligations, it is well to recognize their price stability compared obligations. of the The present war United States in Europe rates and may Government can well to all other forms of well produce a world-wide cause a further una balancing budget, but, nevertheless, must all we recognize that the ultimate payment of United States Government securities, irrespective of what may happen to the price level, will be in the form of a monetary unit that bo passed out to the customers through the While the holder of a security may be taxed substantially income, it is obviously impossible for the Government to tax itself can teller's window. on so Michigan, permit investment in building and loan and also in national mortgage association obligations. now or rare operating staff to provide service to customers, and yet do have increasing trend in interest A number of States have sought to solve this problem for themselves premium, life, endowment The basic that savings deposits, in all but program is to increased investments Actually, there has been an increase in the par value of the eligible securities in Now York State due to the tremendous increase in the Federal debt since 1930, the larger list of eligible utility bonds and the inclusion of other items, particularly municipals, which were not included prior to recent years. the well develop it amount of securities available for the investment of trust funds tion is ments The problem Is not solved from the point of view of proper trust admin¬ istration of investments if the trustee simply takes such action as is to Frequently, of concern matter a reason or if it is one a whole value it has special knowledge but which value is not in of for the maintenance of the necessary income if it is the stock of the trustee's or piece a a quickly restored if general business dominant where, though beneficiary, be improve, if the price level should rise helpful if the security has been cases make must bond selling at a substantially depreciated value, a value become psychology should of the who trustee particular security, especially if that security is a real estate or a stock or of those a of the institution. its deposits come from its savings department and it may and practical matter neither rule a to of co-mingled deposits accord¬ sum program specific investment program for such deposits. actions As time present investment when the quality of mortgages becomes ceased to be prudent longer to do so. helpful at the may their savings deposits from their commercial deposits, but the general an extremely the policy whose main justification, be couched, is expediency. a investment under the second rule the burden is upon the beneficiary to prove that the trustee retained the unauthorized, or original, investment after it had is it proportion of the theory on convert as If the scientific Investment program is to be followed by a commercial bank with a savings department, it may well consider what court can Lee the trustee deciding that the time to of econmoic forces segregation of deposits considered. in deciding that the proper time for conversion responsibility for retained non-legal investments either use substantially smaller degree of risk for both a to co-mingle them and invest the entire ing to has not yet it involves not to segrgate ex the trustee's decision to retain is made after it has used good faith, reason¬ reasonable judgment the on problem confronting the savings department today is generally not reongni ed because it is the practice of most commercial banks the securities may be retained where cases much as of military forces. While the temptation to take forms of investment is undoubtedly great to every beneficiary and the remainderman than reason¬ able time into cash and to re-invest the proceeds in legals, makes the use new Irrespective of the word in which it The second rule, one year. duty to convert non-legals within the upon patterns of trust investment at the present time may not be popular, but can and the terms of the trust, the universally, construed a reasonable time to be which imposes on the trustee a a trustee on whom the pressure to obtain Income for life beneficiaries has not have generally, but no means seem to been, but their ever ment decisions, has been subject to the confusion of what court different than they have are no decreased but has actuallly increased, the need for using good, sound judg¬ is still greater than ever. A decision to follow the old and tried by court de¬ or he reasonably as soon as the proceeds in accordance with the "a reasonable time." from they are approved by the judgment required in the making The economic system of this country is state of migration and the economic system of the world is in¬ advantage of the The first rule, in the past. same manner duty to sell such investment a re-iivest uses ever is investments. is based confusion. greater even by the statute of the State in which the trustee operates, was More than fluenced by war which is based but their application has been subject to much present time is namely, that a trustee holding an investment not sanctioned by the trustor, to purely legal job. itself in The two general rules regarding origii al investments. well known, they have opjrated in much the cisions has even if solution is far from easy to see. These two rules theoretically are widely divergent, but as a practical matter statute or a facing the trustee today aggravted form, is the old problem of retaining non-legal securities which come into a trust as confusion A reasonable question can be raised items, new In summary, therefore, It may be said that the problems of investment protection. an number of these a statute, should be used by a trustee attempting to do a satisfactory rather his that it will destroy its only ability to pay. In setting up this to stagger Government account, it is maturities over a reasonable now period particularly to protect necessary sub¬ against stantial changes in the market prices of securities that might affect sol¬ vency. We can only estimate the possible effect on prices and bankers' psychology of a falling bond market but the great gold imports of recent years certainly have increased the lending banks to power of the a point where they probably can continue sidered desirable to cushion the Government market. from the lack of a cushion we have all seen, in the we and as Federal long Reserve it as is con¬ The impact resulting last few weeks, when watched the precipitous price decline of the railroad, utility company, industrial trend corporation securities. Mortgages may fluctuate and the bond prices may turn downwadr, but if the investments of the of savings department are concentrated Government obligations of in mortgages always be sufficient to and not more than medium-term should always be sufficient to pay present rates of meet United States maturity, earnings interest, liquidity should requirements, and the operation of the de¬ partment should always be profitable. Analysis of Municipal Securities for Bank Investment By Edward A. Wayne, Chief Bank Examiner, Columbia, S. C. The topic afternoon which is "A Basis Investment." I that clear one than makes it approach one to am been for assigned Analysis to of me to discuss Municipal in the beginning that I problem. In may appear relation It correctly to unorthodox. some with Securities particularly glad that the small "A" this approach. of my views has in this you for Bank included, for simply presenting to you infers the existence of more am bases currently advanced, some Before nitions we seem sustains; a can in intelligently consider order. foundation; ciple"—something is "an rately, cussion upon examination or in this "Basis" their of together defined this "that as topic, certain which defi¬ supports or the groundwork; the first or fundamental prin¬ which we may rest with confidence. "Analysis" anything to distinguish relation afternoon is no to the reference whole." is made its component parts, For to the purpose obligations of of this any sepa¬ dis¬ State 57 BOUND TABLE CONFERENCE assessed of counties, cities, towns, obligations States. It seems appropriate to define one other term in the topic assigned to me, that is, "for bank investment." This assumes, and I think correctly so, that there can, and does, exist a different problem in considering an obligation as to its appropriations for bank investment as against its desirability for purchase by an individual or institution, such as an endowment fund or insurance company. An individual has, undoubtedly, the right to speculate with his own funds, but I hold that no bank has that right with its depositors' funds. Therefore, speculative obligations should be excluded from consideration by banks, and only obligations which are "money certain" should be considered eligible. The funds which a bank has differ investment for funds institutional from in or fluctuations unpredictable to must endeavor to sideration. under Therefore, my In that they are a fundamental a bank another of the second, and, "Will do so?" he of necessity, we Let In Philip of "None one must know the whole truth about any unit the unvarnished truth is not always easily un¬ to the historical record happened remember what can a That Our cities go on hundred years ago. why progress in municipal finance Is so difficult. but the citizens who have to administer them, and the other citizens who buy their bonds, change from generation to generation. . . . for century after century, Consequently the cities themselves and the successive generations of bondholders are prone to go on doing the same old thing over again once or twice in every cen¬ comprehensive and valuable studies in this field which the most of One to my come attention is a book entitled "Municipal Bonds—A Century D., then Director of Research, Municipal Finance Officers' Association, published in 1936 by PrenticeHall, Inc., New York City. I want to quote briefly from the first chapter of Experience," Millhouse, M. A. J. book: that of by . "Until the present found in with valuations relied and general business pros¬ taxable been have counties. Prior to 1918 the yearly totals of State and municipal Municipal issues for averaged close to 400 millions. . . .. The years 1919 and 1920, however, witnessed a marked increase, and by 1921 the era of over-borrowing was 'hitting a heavy stride.' From the vantage point of what Ls known today, the rapid pyramiding of municipal bond sales during the decade 1921-1930 can be surveyed. The annual average of municipal bond sales for the decade 1921-1930 stood at the unprecedented height of $1,147,618,500—'more than the total amount of municipal debt outstanding in 1890. . . . More significant than sales, however, were the net additions to total municipal debt, which averaged approxi¬ mately $845,500,000 annually from 1923 to 1931, inclusive. Thus, within a short . . of years financial ills were crowded into our history in such number as to keep municipal finance in a turmoil for two decades or more." space What we are whereby we may do is to arrive at endeavoring to now an acceptable basis profit from the experience of the past; whereby, at least generation of bankers may distinguish between the "sheep" and the "goats" in the field of municipal borrowers. My studies in the field have convinced me that the majority of our municipal units are in satis¬ this their obligations sound. The bankers of the evidently convinced of the same thing. The last annual is But you debt 44 since capita debt per been $64.00 Let us maximum counties. Your which figure inci¬ 100 capita, which I have advanced. seen the obligations of 29 counties would would you of the per such standards obligations purchased have of 71 would have been in your favor, for of the 29 defaulted within six years. But that would have for of the 71 eligible counties, 37 defaulted to you, in Let apply the us of the differs not value true 44 the other, from States the basis this Becond In perhaps so 6%%, yet of property in excess defaulted. have sharply criteria and see what happens. same single county has a ratio of net direct a taxable of State is not enough." one In this second State 44 county look at another State. us here included nine assessment you prefer to valuations. If so, you would would not have escaped altogether. Thirty ratio of 8% or below, and 14, being above the ratio of direct debt to assessed on fared these better, but counties 44 you have a have been excluded. would figure, the 14 Of above the 8% ratio, defaulted, while three of the 30 below that figure experienced default. six then Turning is let units 1930 rely of and 27 estimated to be adopted. figure to averages studied. were the Of Here there debt. capita reliability of such a measure, "A study of what happened say, so not infallible. per period. same Admitted; ratio the to debt to overlapping of estimated value, true acceptable ratio of 10%, only one county excluded, and it did not default. Forty-three of the 44 would have been difference several years had advanced standard, your as counties, the experience, • . "The 13-year period 1918-1931, which preceded present default difficulties, must be re-examined, since the causes thereof can largely be found in over-expansion of bonds Issued combined had not exceeded 500 million dollars. one indicative, but have most little consolation and credit during those years. and median the excluded within units assessed valuations side by low ratios. True base upon which the debt under consideration you adopted as your would Again the excluded been the years, the Union, and I in relatively is property 100 cases over eight the past States having all, the acceptable at cases below well is perity had taken the sting from debt payment, so that a borrower's day of reckoning conjured up no unpleasant thoughts. The depression era 1929-1936, with an almost unprecedented crop of municipal defaults, has taught municipal officials, bond men and investors alike a new lesson. The downward swing of the business cycle has made them debt-conscious; and for the majority of the present generation this is a new during dozen a units sometimes upon figure of suca long period of rising prices, increasing public revenues true, occurred over other of criterion figure dences faith; likewise, local officials knew little of past default troubles. is in defaulted within six years. 13 of them defaulted in the 50 high ratio of debt to a valuable is that in the dentally pals.' genuinely honest and implicit faith in the Gibraltar-like character but that your assume us properly used in relation to other factors, the ratio of debt to maximum of 'munici¬ Pre-depression bond literature of the present century was replete with evi¬ . have scattered with acceptable that A units values and, if have a Sad 36? Let would have purchased the and again the average counties, 100 wide differences of opinion both as to the are belonged irrevocably to the past. Defaults and railroad subsidies somehow had become inseparably connected, and were assigned together to the realm of forgotten limbos. The present generation of municipal bond men and Investors grew up .with reliable. You 10%. here is of the overlapping debt to assessed valua¬ net more any which being default rests, and of ., depression it was generally believed that municipal defaults counties 100 opportunity during recent months to study defaults have tury." has is ratio 36 Using that figure says: here us reason (which did not exceed 8%. the of 68 favored the had side assessed in Cornick H. Also available 1928. in Let us assume that in 1928 these counties whose ratio as I have noted in this of any valuations at the ratio of that only studied assessed the United States. "The Debt Problem of American Cities," published in August, 1933, debt that the which valuations are reliably units, For of the 64 units excluded, of actual units Stated of Another give at this point a little consideration us fallacy. or sorry period, a percentage of error of 36%, which is too high. have I of of ... municipal and I am existed it as same securities of assessed to if see what same assume covered. those for acceptable favor. your "What will be, at maturity, the ability and the willingness way: consideration—and under of terms?" its its truth prove instance, approximated true values. debt look then us and obligations issuing unit to pay?" First, ls with have counties 100 of obligations maximum whole—affecting the obligations of minor civil divisions so as to accordance this in investments. Let tions relation their in and property real a You would have included in the study, and the average would have been in your favor, for of the 32 counties whose obligations would have been excluded, 31 defaulted within six years. But the sad part is that of the 68 whose obligations you did purchase, 33 defaulted within the same period. You would have been 48%% wrong, and that is entirely too heavy a percentage of error for to the determine the suitability of such securities for the employment of bank deposits. We are endeavoring to answer two questions, and these questions are the same questions we endeavor to answer in connection with an application for a commercial loan, namely: "Can the borrower meet the obligation separately, parts, component as do approximated true values also) purchased examining the various fac¬ for taxable of that thus and known are to to purchase direct net case as to theory principle facts valuations to decided you But then tors—both in assessed of the unsound, and sound attempted overlapping, estimated malady. seek value true simply does not support a standard so easy of application as that. State I have been able to secure a record of the debt, both direct one are be confined to the medium and short maturity obligations, with maturities so arrange, or "staggered" as to provide a steady flow of funds, through payment at maturity; will include only prime obligations, of obligors of recognized reputation, and will avoid speculative investments as a wise man 6huns a contagious We have I and bank investment will eligible for otherwise) estimated to or between where cases record secondary, and yield the last con¬ securities (whether municipal or marketability definitely consideration, and volume, in plan its whole investment program so distinguish That bank, therefore, include only obligations which can be more or less rapidly converted into cash either through maturity or shiftability, without any appreciable discount of the principal. One further theory of bank investment which I hold is that securities purchased should1 be bought always in anticipation of being carried to maturity, with payment of principal at maturity the first subject valuations debt above a given ratio is unsound, and by inference, that a debt below that ratio is sound. Well, "the test of the pudding is in the eating thereof," and to my mind the most satisfactory way to test any theory is to apply it to some case will and such like civil divisions of these United parishes, that the ratio of debt to Someone advances the thought 10 years. past "municipal securities" is being used to include villages, townships, school districts, government, and the term using the included per we as nine the of defaulted. 43 And here a striking capita debt in this second State? noted. is the In State mentioned first the found we median studied to $64.00, whereas here find the median to be only $13.00 per capita. Again using the median our maximum acceptable figure, we include in our portfolio the obliga¬ debt capita of tions of and what of per And maximum same the included, States these maximum exclude and counties 26 26 the 100 figure of median the Of 18. per figure capita debt far below is the But defaulted. four acceptable units 18 excluded, five defaulted; in both of we used as our the acceptable figures usually mind figure which that bear in advanced. fallibility of the criteria heretofore mentioned, The further illustrate the let me point ratio interesting following the out the mentioned direct of debt to In facts: assessed State the valuation (which in first that estimated true value) in the defaulting counties varied between a low of 2%% and a high of 24%%; the ratio of overlapping debt to assessed valuations between a low of 5% case, and In previously noted, also approximated as high of 38%; the per capita from a low of $15 to a high of $205. counties which did not default the ratio of direct debt to assessed a the varied valuations between low of a 1% to high of 9% ; the overlapping a factory financial shape and ratio United States found the following variations in the defaulting counties: Ratio of direct debt to assessed valuations from a low of 6% to a high of 25%%; ratio of direct debt to estimated true value from a low of 1%% to a high o^ 6%%; ratio of overlapping debt to estimated true value from a low of 2%% to a high of 9%%; per capita debt from a low of $8 to a high of $31. In the 35 counties in the second State which did not default we find the following: Ratio of direct debt to assessed valuations varied between a low of %% and a high of 26% (higher than the highest defaulting county) ; ratio of direct debt to estimated true values from a low of %% to a high of 5%%; ratio of overlapping debt to estimated Insurance Corporation shows that during calendar year 1938 the total investment of insured commercial banks such obligations (including in this instance State obligations also) of report the in are increased used in In Federal 16.8%, search never thumb which the unsound, not exist. increase of of analysis basis any and finds he the never pot will always separate the and we never find said: "The it are general asset head sometimes like a is said to reppse at the end of the finds the end of the rainbow, and We gold. of we seek some simple rule of good from the bad, the sound from for the simple reason that it does Hamilton basis for public credit is good faith." considerations? In the "Financial and Investment Review" of 1935, Dr. Laurence R. Lunden observes: "Willingness to pay and ability to pay are not coordinate factors in the case of Neither governments nor, as a rule, individuals, are likely to show unwillingness to pay until their ability to pay has been reduced lrom what it was at the time the debt was contracted. , . . In general it may be said that the criteria of ability to pay forecast willingness to pay." seek, that be true, and the record of the past seems to support it, we then, "the criteria of ability to pay." Here let us frequently of glance for emphasized as a moment at some criteria of ability to pay most they appear in the light of the record of the $15 a having a of high of low a $1 higher to the with different tical, nay a a high of 15% $80. of %% the per debt from capita a the second State mentioned we In high of ; to a $42 high 12%%; of per capita debt three non-defaulting counties (with capita figure than the highest defaulting county). therefore, that with the wide variation in methods of States (and for that matter within States), per appear, in assessment of a from low would It to 3% to of low a value true but who can foretell "good faith" a generation hence, and are there other county bonds. If low from Alexander July, of rate sound a seeks He therefore not largest the for the pot of gold which seeking rainbow. True, Deposit that report. our child the from various controlling statutes, powers limitations and it is imprac¬ impossible, to develop any acceptable ratios of "measuring rods" nation-wide application. I submit that State basis. State bankers' members and the Here is only practical approach is apparent associations to government. county-by-eounty, by some each individual to unit. The an unusual render a on useful Within each State banker county a State-wide, State-byfor the respective service, both to their opportunity most a study should be made in the county, and within each county studies should pay special attention to BANKERS' 58 the economic available foundation all to association. through such In trends. and then If little it be which And so municipal be facta as what directed has for indices of thing, one far approaching investment I that the suggest What is the trend in the What is the composition of the 5. What is the trend in that industry as shown by a period of years: (a) Invested capital; (b) Raw material consumed; (c) Annual value and volume of manufactured product; (d) Average employment, net profits, Ac. 6. If mining of any character is of any importance, how near is depletion of known difference And here in may You have the which probably noticed that in the it appears at any Now let should item mentioned in the suggested every developed here? I submit that trends, trends. on and to answer the not position in whole problem. our basis—Financial Analysis. You should know the actual levy in dollars for the with the amount and percent of levy delinquent for each of these of the date of the statement, and with additional year columns to show the as of the five preceding years. Thus the trend in year-end and past ten years, Data on total receipts and disbursements. Probably Important index no more of ability to pay exists than the trend in Income as related to debt and other require¬ Here again the ideal statement would cover the current year, the two pre¬ ments. ceding In if the years, fifth and principal sources of income items under disbursements so tenth preceding The date should years. reveal the Units with rapidly developed debt have shown marked susceptibility sails study of default cases has emphasized: Heavy and continued reliance the maturity schedule of the then existing debt. Poorly arranged maturity schedules have contributed in no small degree to municipal default in the past. 7. What sinking funds are on hand and how are they Invested? I need hardly remind you that the temptation to "raid the sinking funds" by borrowing therefrom for current purposes is hard to resist. 8. What is the amount of and trend of overlapping debt, so that you may deter¬ mine its effect, if any, on the fiscal policies of the unit under consideration. In the "financial analysis" the in as "economic analysis" trends are basic. The to third in and factor great evaluate, likes too which consider must we expressed often opinions dislikes, and yet—no other is heavily be found can Hard management. influenced answer by to personal cases many the "crazy quilt" of municipal defaults of the past eight years, except management. Why has one unit, with a high debt by any standard, been able avoid to equal The or even answer with lesser debt to debt factor ment in involved with and cope some other default? And More and our the municipal equivalent economic answer attention units, with unit Our studies covered population of most water its of each streets and two is small must their as in be paid to problems plant; its department, health and not above are the in one incompe¬ the manage¬ become more and State, about 40 miles apart. neighborhood of paved, has good schools, has light sources cities citizens enjoy sanitation the average for Mr. did an a 15,000. excellent department, like cities. City "A" has well-operated municipal police and It has its a department, economic low tax Modern re¬ rate, a half to outlined, how¬ so-called on credit risks; obligations of short very units the And, care. be must maturity. committee a file credit a nevertheless is their is unsound, the President of the National Association ago evolved study to municipal the committee to date. on which, while recommended advanced not the in belief as that, basis for analysis of municipal a investment. wandered inexcusably, but it is a big field and have to attempt to sum up remarks my into simple any in one excellent them! to very ment and times do, has our credit. If election and entitled to A. W. political of buy how with securities in an The God problem had bad manage¬ rebel, they as competent some¬ manage¬ election before giving administration in or business con¬ years one. that has gives the next idea new into people that same 15 an take the other, pay; enters county the the for accursed ability to wait until good under an As you. forcefully, One had had a to very operating or and talk my that management city a pressed for time and was in other good very the we a Calif.): of Do town a out the State. have For only 710 on a the administration, then know you city or about there the has city, every of them two next they are about the Suppose we something are? we three or efficiency been of basis to prepared school every the State in county-to-county hundred the miles management district, of South have staff a in However, what States, to like is available, hold I buy. in however, Carolina—we reliable some that Michigan, capably managed, but that have we that is municipal a has the no only my right advisory council in own of the to tell practical must develop some medium have banker the endorsement department my submit I without every taxing every study the units in his county, and that is available in department. bank State my That very the administration find you In department. is apart, difficulties new (Martinez, could the county that does situation city? endeavored the a of kind illustrate background. people support the Wayne: unit—we Some now. political ability of the counties right around where that county has Where department continue local a you would credit. Hale to Mr. miles character a if that economic condition own the of which few a suffered ask such questions ask to pay? definitely. I felt I very same elect shot at may like administration; The have been ability to high degree. and ment, in want size, business Wayne of Mr. figures will probably have questions you situations just and you illustration an two cities help a Very, of same excellent the Address to facts You me should I into include ditions, these last speaker. enter small two As it seems to Wayne: not away, clearly to be seems organized usually made been hazardous average, concerned, limited Frazier: the illustration resources? Why have units the on are a has Preston: often not than sufficient economic resources, more more life complex through public demand for increased municipal services. more fire have obviously to be sagacious management. seems management. The which comparatively low debt, with experienced tent troubles the has counts." ask to Dr. floating on districts, The principles comment of State Banks appointed bank rapidly, very . debt financing is a fairly reliable symptom of impending difficulties. The schedule of debt should be complete enough to make possible preparation of a chart showing and permitted which like ing (a) full-faith and credit obligations, (b) special obligations, not full-faith and credit, and (c) floating debt. Here let me call your attention to another thing which a No Discussion Incident . „ here to special I have had the pleasure of serving Chairman A complete break-down of the debt existing at the date of the statement, show¬ be pay it would be this—that in municipal finance as in private finance, "it isn't the strength of the wind which blows but the set of the 5. 6. been We must such that you may determine their stability, and in the main that dlspensible and indispensible expenditures may to default. the has might case statement, be segregated. has shown. restored and after unsound, and where the foundation all-inclusive, be Case extreme year for 25%, nearly must be constructed and observed with so A summary of debt over the preceding ten years so that the trend is apparent. Here let me call attention to something which a study of a number of default cases are, is these remarks I I other administrations. practically has by citizens. properly used and understood, it presents securities years, the The default records for the past eight years clearly units committee or 15 on investors Supervisors That delinquent accumulated delinquency is revealed. a obligations. ideal The tax collection record. 4. of as debt the of issuing obligations. applicable. watched and About valuable. years, as far so past "B," management. foundation superstructure in City the incompetent of defaults, its on scant attention such that carefully 1. Assessed valuations and estimated true values on a comparative basis—the the first, second, fifth and tenth previous years. 2. The tax rate on the same plan—this year, last year, year before last, five years ago and ten years ago. An understanding of the treatment of delinquencies is also amounts show economic I suggest: turrent year, 3. to purpose believed are ever, for prospect pleases and only man is vile." every paid sole debt the burden tax single-industry towns. apparently traveling, given moment, is the be carefully handled, if not series a reduced has city, the attention have "A," administrations; had ago corrected the ease the years City bottom. cited, "Where more business has been unable Management alone is the answer units. two the citizens of City "B" rebelled, and elected new officials In four years City "B," with efficient management, ago to of to for economies. the second step in our consider us trends What is unit And what trend is evident? which, analysis" stress has been laid which road problem growing a disrupt municipal cases some "economic have we of public assistance? four until completely I How serious is the problem these' in outstanding top able supply? 7. had credit industry is present? What two or three occasions on city employees for short periods. the from it valueless? comparison of the following indices over a heavy debt. Its economic resources are, City "A," and yet, in the past eight to principal and interest; it has had judg¬ pay has an than slightly greater to Four years Are the crops of a nature which exhausts the land and leaves almost is It and yet it has very it has been in default as recorded against it, and hand, 4. If the unit depends to any extent on agriculture, what is its record? What they? What is the trend In crop production concerned, to has crops are produced and how stable are and money value? are extension. City "B," in so far exact duplicate of kind. any form of special sewerage Streets are paved, it has good schools, a municipal hospital; police department, fire department, health and sanitation anything, years, population? Static, or up or down? and why? population? What racial groups predominate? 3. Into what principal groups do the gainfully employed fall? What is the relative importance of the main sources of employment, such as agriculture, textiles, mining, Ac. And what is the long-time trend in employment? t rendered and fair a ments 1. debt trouble of any department, following paving and water for experienced services has of developed: 2. obligations never as it trouble only nominal outstanding special debt in the an City "A." too step for bank securities Well, the hand, on assessment careful analysis of the economic foundation of in the development of a basis for analysis a first then? to small general obligation debt, no floating debt, a sizable cash surplus very I have suggested, that no standard of nation-wide as been a become State banking departments. your possible, has be detected in may units. of true, appears attention then should will receive hearty sujjport of all super¬ you visory agencies and especially application studies The central file, probably in the office of the State a plan a CONVENTION plan. which for gathering information. Mortgage Standards By Frederick M. Babcock, Assistant Administrator and Director of Underwriting, Federal Housing Administration, Washington, D. C. Currently all topics are discussed in terms of the world situation. will the war will modern mortgage standards hold up under the our affect housing, the mortgage business, and real estate? How rather than to the credit status of the borrower and the How estate impact and shock of conditions created by the opening of war? in the near What will those conditions be future and what policies may we adopt to direct our operations ? (• The Federal Housing Administration insures lenders against losses introducing an element of control into the mortgage generously discussed during the five years that has been in operation. results obtained. In general, the Construction has market has this governmental ustification has been found revived; reemployment has been agency in the by-products of the system, such as better construction standards, better control of neighbor¬ hood development, better selection of credit risks, and better facilities for flow of Investment funds earmarked for the mortgage investment have indicated that this insurance device is ment may a means by which the Federal Govern¬ safely and effectively cooperate with business. The system does present one element of danger—one my knowledge, been brought out which has not, to sufficiently in meetings of this character. I refer to the tendency which such an insurance system has to cause lenders to feel less an responsible in the selection of risks for investment. There are increasing number of lenders who rely more and more on the examina¬ tions of the FHA's underwriting organization and look to the or insurance this policy-holders, it is But, in to be so is most far as it does represent on lenders deplored quality of the real flattering to the FHA under¬ as a a shifting of the by their stockholder!, depositors, bad tendency. It is only fair to point out, however, that the tendency appears only in a portion of the lending Institutions with whom that these market lenders anyhow operations are lacking if they resulted; confidence in the quality of the risks and in the insurance protection itself has made investment funds available; and numerous Admittedly, responsibility properly imposed re¬ sulting from the Investment of private funds in mortgages secured by dwell¬ ing properties. The wisdom of the use of the insurance device as a mean of security. writing organization. would and essential were be that, a by bad element reverse we in do business and I suspect the competitive reasoning, the not provided The presence of the Government by a governmental in this mortgage FHA underwriting and beneficial safeguards which would be utterly agency. relationship with private enter¬ prise has a number of good aspects. The facilities which the Government offers to provide market guidance to mortgage lenders are superior to the facilities now available or likely to be provided outside of the Government, Statistical surveys to secure information on housing and real estate can be made by the Government activities were on a scale which would not be Congress has authorized the inclusion of real in the 1940 this work as possible if such attempted solely by mortgage lending institutions. Census. While there has been no estate and mortgage data specific appropriation for yet. It is confidently expected that there will be. What items of information will be included in the enumerations is not yet known, but it reasonable to suppose that data covering rent trends, costs of home is acquisition, v tancy statistics, types of financing, and significant fields will be adequately covered. numerous other operation of the FHA system of underwriting has long The mechanics of since gained a It is based on the concept that each general acceptance. proffered mortgage loan has a degree of risk attached to it and that the We use what we call the risk-rating system which embraces of probability. a number of direct analy es risk is directly meas¬ which the amount of the loan bears to the estimate of the ured by the ratio Rather it looks directly to the varying qualities of value of the property. the many elements of relative rating which determines whether or At least we may say it works if we are allowed to The syetm works. preliminary judgment based on the record of the last express a only 856 properties as a result of foreclosure by five years. We have acquired We have insured more than 416,000 mortgages to date. lending institutions. We have sold about half of these with an average loss of about $575 and a total charge against the mutual mortgage insurance fund of about $237,- net 000,000 or less than 1% of the assets of At the time, same achieved a In the fiscal year ending June 30, 1941, we will have self-sustaining basis. income of $20,000,000 or more. This will enable us to pay all our expenses without having to ask Congress or the Reconstruction Finance Corporation for any expenses of $13,800,000, as now contemplated, against an expected funds whatsoever and to add Builders, capitalizing on the war situation, have commenced to complain bitterly about the advancing of prices of building materials. instances, using this as a sales argument some Building costs shows during the year more than $8,000,000 to our The character of our neutrality or, Some acteristics of the first two, namely the of physical security or locations and Of course, 60% are refused because of low ratings of the borrowers, over this primarily that the builders and developers are now better aware means At the same time it also indicates a lack of awareness or public. ness foist inferior housing on the standards and less disposed to try to our our dustrial of credit risks estate risks. Perhaps, however, the traditional bad habit of relying real estate security still persists and that the more security and the acceptance it should have. data shows that lenders may not be classed in a good borrowers has not yet gained here again our single category and that a surprisingly large percentage us few of Institutions send temptation to offer plan like FHA as though It a all the problems in the construction, housing, mortgage world. Few of the officials of the FHA are prepared to do We feel considerable pride in the achievements this. which this particular constantly seeking formulas and refinement of the system. The part to be played by making FHA a more effective instrumentality is, or should be, of Government has made but we are agency for improvement bankers in obvious. I that, from the Administrator himself on down am sure By and large, we are the types who cannot only take for suggestions. but really know vice through find few persons who are not open-minded and hungry the ranks, you will we ad¬ need it. For example, we have set up the FHA and are operating it under a number geared to the probability that real estate was in for a of policies which were to meet depressions of serious proportions. future periods, to have During the five years we have had really violent changes in the price levels of real estate, rents, or Now this European war breaks out. building costs. the Let tions? look for a us Are some radical changes needed in our. regula¬ minute at the probable effects of the war on the market for mortgages the purchasers of mortgages, back to the purchasing of bonds This has had the effect of removing, to some especially the commercial banks, switched the opening of the war. upon banks, mortgage companies, life insur¬ companies, building and loan associations, and other sources of mort¬ degree, competition which savings ance have had to meet. gage money Some people say. quite wrongly, I think, that a pickup in mortgage loan business whole have more than We can, at this immediate juncture, do know of no reasons as yet to abandon the their portfolios for mortgage loans, especially those investment return than most period of years, with less risk and greater commercial loans can possibly offer. And further than that, of course, heavily in the FHA have large amounts of long-term deposits which quite naturally must be segregated against longlending most term institutions which And there is. assets. probability, no long-term asset more in all these deposits than FHA in¬ liquid and more suitable as investment for sured mortgages. 4% and 4J£% money ap¬ 4^% money for insured mortgages is be no longer available. available. This has also helped the traditional mortgage lenders to compete to Upon the breaking out of war a few all mortgage lending except sufficent uncertainty to institutions shut down on It is supposed that this means nothing temporarily. wish to observe trends before changing or adhering to present lending policies. Prior to the opening of the war, selling at a premium, typical prices now declined 102-102H. Mr. Chaffee: course, tendency to reverse the placing on the being 104j^-105. of origination costs. were of houses is continuing at the same peace. cancelled in some instances. However, the market revived that fear is a depressing factor demand for houses should reach its flood just it this juncture in world affairs when a sudden change in outlook may make it impossible for us to satisfy the demand. I say this perhaps unfortunate that the pent-up only because all of us want more followed a series of That was before the opening the corridor discussion of a familiar. There has been no discussion except 5%. change upward from 4M% to Under Title I, Section 3, I should (San Francisco, Calif.): Mr. Baker like to ask whether it is contemplated FHA will be credited against the that the amount of recovery of the 10% insurance after foreclosure? Under the existing regulations, as Mr. Babcock: I understand it, claims Where the Government has acquired a property through foreclosure after the Government sells that property, the proceeds will be recredited to him. Mr. Baker: One further question. Can you now give us any idea as to the approximate average amount of the FHA loan and he average term, with Its present reference to what it may have been a year or two years ago, in other words, whether the average loan is smaller or not, and the term paid are scored for what they are worth. shortened ? There has been a decided Mr. Babcock: the trend has been to lower give you, I am sorry, but loans. Olswang (Seattle, Wash.): C. H. tendency for the amount of the I do not have exact figures to loan to be smaller. Foreclosure costs are naturally differ¬ Do you have any data as to whether foreclosures ent in different districts. the costs of foreclosure? definitely been localized in five concentrated in certain districts in relation to are Babcock: Mr. Our foreclosures have is the great majority of foreclosures we Our experience to date districts. to relate to the costs of foreclosure being greater or less. Frazier: Chairman districts. information that they did not seem districts, and greatly less in the other just in my mind in giving you this It is Have you any further questions you ask of Mr. Babcock, gentlemen ? would like to I am sure you feel as I do, that the round I did not expect the number of members that we have had here today. In fact, there are two and a half times the number we thought would be present. There seems to be nothing further so we will close this round table meeting at this time. table discussion is something that ought of Remarks Albig P. W. to be encouraged. and Raymond R. Frazier, Presiding Officer procedure incident to bringing under way the Round Investments and Mortgages in con¬ nection with the convention of A. B. A. follows: The Table Conference on Albig (Deputy Manager, A. B. W. Espey The bringing of a order. the American Bankers I It represents some¬ value to the assnual meeting, You might call them "grass am The meeting will be in meeting of and because of that it is our meetings of this type will be introduced at every annual conven¬ thing of real hope that A.): round table conference to the annual Association is a new adventure. root" meetings. exceedingly gratified that I was called upon to introduce the presid¬ He came as a pioneer into this country at a savings institutions and banks had not developed in this ing officer of this meeting. time when the His record bears testimony to the part of the Western country. he developed principles He is since he settled in this State a good many years ago. introduce to this meeting Raymond R. Frazier. Chairman of the Board of the Wash¬ ington Mutual Savings Bank of Seattle, a banker and a gentleman, and it gives me great pleasure to [Mr. Frazier assumed the Chairman Frazier: than anything else to maintain America Chair] We are all familiar in a general way with the basic the management of trust funds. We have today who will address themselves directly details involved in this problem. It is not my intention in principles which should govern several experts on our program to the technical way to anticipate their contributions to these discussions. that most bank failures are caused by bad manage¬ It is safe to presume ment,—and oftentimes we may lay the entire blame for the bad management thing—Inexperience. Someone has said that a man is not equipped take over the responsibilities of bank management until he has gone to one to through at least two major in the market. is anything concern¬ FHA rates from 4^ % to 5% in view The reduction to 4H% last summer, Mr. Babcock: During the defiitely scared and sales con¬ ptomptly and there is no evidence to indicate It had previously or his talk? I would like to know whether he can say conditions with which you are all any first week of the war new purchasers were tracts have any questions you would like to of the circumstances existing today? The price has been a borrower. The purchasing you ing the possibility of an increase in the Because of this decline, there has Instead of virtually buying business by appealing to builders with low initial costs mortgagees are now tending to place this expense on the builder and, of decided of insured mortgages in many instances, were to any that have come to your mind during any under 4% % seemed to disappear almost immediately upon the opening of the conflict. for business. Do Babcock, any questions that you may have ask of Mr. tion. The makiiig of mortgages at rates pears month ago. a Discussion Incident to Mr. Babcock's Address Chairman Frazier: have participated will continue to do so if only because they program had It Is commonly agreed that banks as a enough excess funds to take care of almost any given Government and returning a substantial yield over a long insured by the we the demand for commercial money, and that there will still be plenty of room in First problem will be the of construction. Other and to devote their excess funds and energies ex clusively to the commercial field. amount of increase in the demand for banks to abandon their activity in the commercial loans will cause many costs than suggest that we more confidence which have had have been in five business. the secondary In higher and problems will arise inevitably. no What does it do to mortgage insurance its volume and take only the it do to our Should FHA start to close down on business ? exceptionally safe loans ? mortgage does What business? mortgage its present tasks. valuations between and mortgage investments It is probable that the early effects than retarding. The FHA will carry on at gradual improvement in early years but certain, at no the war by this country. probably depend on its duration. relation States Government. booms gather headway is prasumed to depend which such will be more stimulating panacea to cure and real estate foreign markets and the United towns, that such and other Items of the revision of neutrality laws and, ultimately, of course, upon of the war. requiring rejection. cases There is always a great were a steel-mill The ultimate effects of the war on real estate modern shift to a recognition of the fact that good mortgages combine both good But upon for actual participation in eligible borrowers should have. solely appreciable reaction is a strong probability of booms in in¬ somewhat later due to oders for arms come both trade careless¬ It would seem that the picking would be easier for most institutions than the selection of real on people who would otherwise do so from undertaking especially ship-building and areas, booms will will greater business to the war crisis. It is generally agreed that there war accompany may check building, and that the uncertainties of the Thus far we have been able to see no home ownership. in building costs rising that lending institutions with respect to the character¬ the part of some on istics which feel people industrial activity and will refused because of the char¬ something like 37% of all cases rejected are Or they could advance to high levels. heavily currently We The 1% only since Sept. 1. Heaven forbid, participation in the war, Costs could remain well in line. The extent to Since those earlier periods we have seen a shift so that be precise with respect to building costs. hope) that no pronounced advance occurs. (possibly against Department of Commerce says that costs are up which we rejected were deemed unacceptable for a great variety of reasons. The causes for rejection were divided almost equally between factors related to the characteristics of (1) the physical security, (2) the locations, and (3) the borrowers. tendency to increase somewhat, principally steel. a It is too early to attempt to will control. They are, in saying in their advertisements until Oct. 1—thereafter $6,495." that "the price of this house is $5,995 reserves. During the first and second years of our operations, the cases FHA's home-building program. present crisis will deter the fund. have, after five years of operations, we anticipate will greatly reduce the willingness of lending institutions to participate in the hope proffered loan is eligible for insurance. not the I do not think, on the other hand, that an even greater American economy. industrial pick-up than anything we now strength and relative weakness in arriving at a final conclusion or mortgage pattern and to continue our efforts to rebuild and revive the in its peaceful ways of the relationships which various factors have The system does not assume that with another. one risk predictable by groups of risks inte ms is subject to measurement—at least 59 TABLE CONFERENCE BOUND have had to do a up depressions. Even so, life is very short and we individual experience. As have undertaken to set something to make up for lack of result. Congress and Legislatures of rules and regulations through the generations. many States based on the experience of our forefathers down BANKERS' 60 There be can CONVENTION ment creditor.—That kind doubt of the wisdom and value of legislation governing no the pooling and the Investment of the surplus earnings because savings are the base of all prosperity and seconomic advancement "trustee" bank fails in China, the State corrals all the officers and a directors of the bank and decapitates them. We cannot The fear of having one's head course Of ment laws which, of recognized I State, for example, That's given by the bankruptcy courts. been who has In New You do not want good law. a judgment or the greatest interest pay on individual danger of which accounts do not classify genuine as big for the community there is savings overwhelm¬ an with mortgage investments, we should bear in mind our There will not in generation be another your HOLC bale to you out. a May I ask listen attentively to the words of wisdom which these you to You all know the subject of this afternoon's round table conference is "Investments and Morgages." first speaker [O. lodged against him within three months after such judgment,—unless he appeals Paul Decker] is Our former lecturer in Northwestern Uni¬ a versity, and at present he is the Vice-President in of the American National Bank & Trust Co. of and files a bond in form and amount sufficient to protect the judg¬ case good as director—or a That would be savings bank which must distinguished gentlemen will utter here. fails to pay a personal bank to lot of deposits on which they are not a volume lurks When you get too In connection Also the laws of the two States mentioned provide that a savings bank forfeits his office if he have may a ing temptation to reach out and make improper investments. Neither do I. savings funds. oftentimes this fact: failure to the extent of bankruptcy, to manage your a behind desire for accounts. are savings bank who has had his debts, his individual debts, I mean, for¬ the States The desire to be big leads to the acceptance of deposits to the legal limit, York and Washington State no man is permitted to serve as a director of director (other savings bank is called. banks of discount have trust company or a trustee think and The laws of New York State and Washington mutual a that besets the management of savings institutions. other things, undertake to insure that only men among of banks. man those laws all deposits. high character may be permitted to manage savings funds calculated to insure the high character of savings bank trustees. a with director In a course can a It is possible, however, to provide better and better invest¬ legislation. as required to pay interest, and they can afford to take bigger chances than endow a man with intelligence or character by cannot you two good law for banks of all kinds. a effective deterrent to looseness in bank manage¬ an well hope for the adoption of such a short-cut remedy here in the Occident. Of Moreover, the laws of the better)—prohibit the lending of savings deposits of If us chopped off should prove ment. familiarity greater everywhere. They tell of law helps. States mentioned—I mention New York and Washington State because of of thrifty workers, chaige of investments Chicago, Illinois. ADDITIONAL BANK SERVICES Three talks given under this head by, respectively, Bert H. White, H. V. Prochnow and W. B. Harrison were Industrial Research Aid to Bank Customers as an By Bert H. White, Vice-President Liberty Bank, Buffalo, N. Y. Research The Scientific facturers held most a of American invited sit in to to which emphasized belief that one making benefits It first small, and who Statistics problem. hundred a has the of hand in with good facilities research endeavoring to develop was few a hand goes Manu¬ been had intro¬ were remaining 99 management, worthy means conscious more of the the of one Dr. Karl T. Compton, who, general sessions at last year's will recall, you made the convention, tell research. them about the more We all like winner. a products being developed new as result of a Let's whet their appetites by showing them some of the plums their competitors have plucked." That seemed Then another American finding the backed logical and enough able very We Cyanamid Co., gentleman, Dr. received. Bell, B. W. President the of ties In carrying through on a research project so that this movement doesn't turn out to be a boomerang." Dewey, President "is it get its going to whet a do to benefits? facturer about And, the central for how office to started of where is the was next whole talk told if Marine know such me such both Mr. in its do nor have ignorance." for may, research get where to a go and written I were Commercial of service Wachovia of in existence. It is Harris Hartford-Connecticut These their contribution respective The strengthening cooperating and inquiry. the to their It castings to of other to North institutions, Carolina, The among National The Rhode and offer it, Syracuse Island Trust Hospital The Co., National of without charge or obligation, as growth and development of industry in their the of the and the increasing taking technical industry, goodwill and be Research so? capital in the field in for report is formulated and a generally process later tumble had heard of that here in sand-blowing it vogue them some was to is the give them foundries them, manufacturer a and were he custom a the be boiler. to wanted to Problems I This the best the change from coal to oil for fuel under a I it?" and "Who does it best?" have been tannery do It to was nated, but, need it?" solved I with problems frankly, we didn't I We again visiting by work these and research again—why couldn't 192O's the you said: a wrong told about as the him that medium accomplished with The average with customers senior or and the manu¬ butter, and lead him, not or that should been have but when has the played record is his part in And the of best appropriation premium manu¬ why shouldn't safeguards of industrial an that it for capital must in credit risk. On the contrary, are you Advisory trying to do—get the banks a million free services? performing out the on what will program the without customer charge? think interested I as possible this about hadn't we in, as could, at results. was been a able banker, a of free to as I small didn't service do before to was the a care so long in bring cost as whether any as it other expense. of bank a feels that he has more important around and swap aimless chit-chat when he knows from a few test calls But go he can depend on an interested hearing and an appreciative recep¬ tion, he finds reasons for going out to make such calls instead of finding reasons to stay at his desk. After a while he finds that he knows customers their operations better than is of have that on '30s, are customers largest prospects. him hand machinery, help its customers keep ahead to were help officer feeling the intelligent problems, which questions about this Research things to do with his time than just They know that he's the one stronger a was unreasonable great take as their banking. insurance "What brought something how banker to that, service a banker be to answer, I on the which without way calls many and what outset the the research the they laboratories get the and abroad and witnessing the doing, the thought would come up itself The be when realize at facturer, who in part at least is his bread banker the to in that pointed some begin early seems of furnishes origi¬ situation Banking customers processes, years, figures of than will was were have generously in the long run. A com¬ the benefits of modern research is more likely to and service men such few takes tangible steps the research is We answers. will not die. these that here and more as laboratories both of customers definitely who should that past 6how proved such began to study the industrial is the industry. asked One toward was. after type of have been possible, or and, complexities our bank?" and cope that the pay¬ only the desirability, but the necessity of industrial research, and dcing their part in carrying the ball. will dip running the whole gamut from "How should get bank not Why brass in industry which presented hundred. the the can to the our to answers know the exponents materials, plan our Service employment for the people of a given community were to hit the toboggan, the banks of that community wouldn't do so well. Every bank, in a sense, owes its existence to the community it serves. Therefore, banks, more and more, are beginning to recognize sand-blow know tell point on for the are with business neither does anyone ourselves. We "We help * people facts has expand a advisable "Where the into We not only directed him to a dip that enabled bright golden color, but one that was non-fuming so as to decrease the danger to employees working with the process. Another company wanted to check on the procedure to be used in manufacturing and distributing fresh orange juice. A third wanted to know whether it would if to Service. purpose. obtain borrow back to do we will which is getting pany the bright finish. beginning with obtain know work own. says, that understand to connection Advisory engineers we industrial the competitive struggle, to develop new products, save money and improve its methods—that bank will benefit accord¬ of to advantage. Others, like answer. it is nothing bank Suppose instance, its do during that industry so by represented best full-time case—to At like customers After all, we have been given some rather uncompli¬ the to invested company pay manufac¬ of number of laboratories selected a experience thereby toward problems the bank. vary; instead designed to help was relationships consists specialized castings and for Co. As the laboratories respond, manufacturer him extended Chicago, Co., now submitting them to In dip of Advisory Service customer problems valves. brass Trust toward inquirer by The Trust banks bank. with ance Trust communities. Research turers been & Albany, The Merchants National of Boston, Equitable Trust Wilmington, Providence. has Bank an sure facturer, is every which harnessing the test tubes of laboratory research to the needs of the I The the then the research of to some bank. am in one to help in men problems; or to qualified Motors believe nicknames mentary service simply to Research any pretend well have we a the Some banks, a each ours. the on information problems surprises originate by in purpose Under even the General there is if What business advise We know nothing about the but is years. markets certain do not have chemists instance, answer, use? to no many identical with engaging in Kettering of the service for Cleveland, employ basic theirs. All quite enough Mr. Frontier. Since exploit The sources of in remarkable laboratories to considerable length City of officers specialists, packaging, Research Advisory Service and was started after years of preparation by the Liberty Bank of Buifalo for the benefit of manufacturers on the them mind Buffalo, from We our intention no the Niagara of research. manu¬ Let's out from today 800 com¬ assistance reorganizing and modernizing industries. money—is employ. cannot how Dewey already in Boston, go operation. more and over industrial for nothing enough; grew, of behind purpose had customers diverge to he good opening, and he because a service a find can in Trust of make the laboratory of his own." a and upon, England's tell to available. already manufacturer a of exactly doesn't he facilities surprised—I because he had given my do to is to show this fellow who has called person something for going help if he isn't big enough to maintain I New of one "What good," said Mr. Dewey, something research use Almy, & appetite good it to begin us Dewey man's what failures I think the way for laboratory of the next speaker. was the have like the National industrial Bradley that banks Shawmut methods idea of associations activity here and abroad. engineer to assist in roll, "Isn't there too much of this going on already? We can't tell these boys that all they need do Is go in for research and from then on everything will be milk and honey. That's going to develop repercussions. Let's tell them about the difficul¬ good old companies, of prospective men and Simple The Liberty Bank itself does not advise and said: arose field maintain Others, that. laboratories research universities problems? to about the to the enthusiastic cooperation good National begins well was by conceivable most but schools, solution complicated or the suggestion: "Let's departments, technical the of and ways sales to panies, or informal meeting. an addressed large common of Present were repre¬ the fact that notwithstanding a generally accepted committee least at Association industrial research. of was joint both a research in company This name. of industrial National the meeting last spring. industry, help solve duced only Committee of important sentatives not be can is shoes. a tough, Besides, did before They in his aren't life, and their afraid of him. their is, why should the laboratories extend such assistance? dollar and many of cents world. these laboratories Scientists' are babies have to have simply the research depart¬ companies like United States Steel, Goodrich Rubber, International or one of the oil or motor companies. They aren't charitable ments of Paper, ever different. team, hoping they will be successful whether always say yes to every request of theirs. A natural question This he entirely foundations. Why twice—aren't or no they fee? And going to when bellyful a gratis, once problems start out, do help they suppose get the answer situation. find He's problems—the of group machine a willing to them or for it, he in will do and he So something like the desired article. story—and be surprised, exposing the limitations of They talk don't like for their manufacturer as realize not mettle of claim to too or much, little-known products, and they are for that would discredit them as in the future. rubber laboratory developed a large synthetic gasket for a manufacturer of electric refrigerators and got at least one new customer on the spot. A candy manufacturer found a chocolate coating that would not melt when shipped in hot weather. A button manufacturer was looking for a mechanical means of attaching buttons to cards. We put him in touch with a company that had just So, perfected a We found Now packing them you a thousand-fold, eaten was that if Suppose that they only get other nine times technical people about can't Other product to customer new able make to this a those companies get angry. time in 10, and that the one That's employing companies fine, service can, and But they the time welcoming the necessary. strike just or they So, are at available with when work it is our Let prospects; with ment with Not of one fine a men, calls test on both After we customers man myself, I the discussed in 15 minutes, office began at 2 and In the meantime I had company's Treasurer at quarter to five. Two months later this substantial five-figure account. explained the service and gone through his plant. went on company done never sent in into it very of a had been that with business any one books with our institution Another in business for bank, heard our Vice-Presidents, their We carefully. who spent over about the day a repeatedly stated have 75 years, but had service. with me They looking that the service was are name accustomed have to this us. broad as ago, years with single any as cares one to but if I make them, who manufacturers of group therefore and fields technical experience of the use can especial advantage, since it enables their own technical concentrate to development new on instead work losing valuable of others. Is it far-fetched to suggest that such voluntary cooperation as this among technical men in a free democracy, financed by banks which will benefit, may compete effectively with the totalitarian method of regimenting the technical men in on national a of scale? and error of trial each repeating Many think not. I five years ago the Bank recall that about undoubtedly you Management Commission of the A. B. A. made a survey to determine the building up deposits and goodwill. Their conclusion was "Personal solicitation has no rival as a means for obtaining new business." We agreed, but concluded that the method of approach should be improved and modernized. So now we no longer go in as we did, with just the old glad hand, the cheerful smile, chat a bit, and leave with the threadbare "Now don't forget, anything we have is yours for the asking." Instead, we try to give the manu¬ facturer something that will help him. We start talking about research and tell him what the service is doing for others—what it can do for him. most productive What for means from then happens which to in things about the manufacturer's times of the banks smaller the when in inquiries loan Sometimes as we our carry of heard we in manufacturers Pont's du to They should, published gesture a they and will who carried it interested. were to You we gave the brush may say, already know about these products." brings the bank toward the community which publicity. free of series a men, experience has been that they don't, and you are a you are actually giving the manufacturer some¬ our continued of revolutionary synthetic bristle, for the time he is giving you. is service might For instance, because caller thing in return The new and Buffalo, but that products new laboratories. research with new-business our "These manufacturers should welcome of telling business, things constantly coming to our atten¬ contacts our as $300,000. message a manufacturer's information group, aggregating result of a columns business without snooping. Some¬ In one week one a result of research calls, received get leads for our trust or travel departments. we good in is plant, case, use varies. Sometimes it is a trip through the a present customer, the officer in charge on it if bank a learns Our Chamber of Commerce recently booklets, each for a specific industry, showing Buffalo. It used the service in every case as a advantages of locating in card. drawing the In ing to From to looked the upon surveys think best the public gauge having as Many of prospect. various munity. One are broad a that true of simply scrambling with other banks for the immediately set apart as a bank which has special instead you usefulness prospective customers, and especially new industries com¬ of case town, business, feeling m., p. to time I made an appoint¬ for courtesy, but short- Our conference started. we actual call who predicted that the reception would new-business a their men this has been adopted. reputation would be out of the I where back but I left this being that made we schools again revert to case histories. new-business our but cordial, operation of rpe manufacturer who had one windedness. be plan our technical where the service and in other cities case determined and universities and service like right ahead and use unsolicited, they opened a and they must be satisfied, entirely more other companies to and opportunity to widen their circle of friend¬ an giving industry, in the two was still is would we I told him to go week, following That that intimate books. our on non-customer alike, customer and for gesture even need this urgently than any other, I should pick concerns which are now receiving what industry calls "educational orders" from the War Department—companies fitting themselves to undertake new products as part of our national defense program. These people are going out of we often needed by the research men giving us, this in that are assistance I account for service tion living problems of industry which they would rather work on than do shadow boxing. " Probably the question that most of us would put first (and you can ask other questions later if you care to) is this: Of what benefit is the Research Advisory Service to my bank? One way to answer that question is to tell you what has happened in ships did The asked were affect offer. we cooperating are rather careful, technical a cooperation reciprocal which us most needed. is which their for reasons laboratories their a that supplementary assistance are hard products. new ground particular a had the number of such problems a increased pretty they have to write their the cover when company letter— good business for them. Some of the leading companies have men traveling around the country for the sole purpose of telling still it's away we be would it A that knew better. pump see can that had to lot of trouble by the acids, and leakings resulted. job. very its manufacturing operations in solutions the A do this machine to new acid because have resulted. sales many pump impartial information dependable, Uses wants see how frank they are well as the advantages. that the service, already to products, service. account. salesmen, but none of general survey of the a the the Their technical men give us the I think, They salesmen. directing would-be buyers to new their sources community a time because functioning through 11 banks, is likely to grow into an important channel on as no $50,000 field, and finally narrow the matter down to three or four companies who make in at for knowledge, a of make we the particular on something better or cheaper. plenty sees wants. exact you'd and there's a considerable search their For another, fact—in which largest, in what depending parts, men, by nature. material that a pay offered have dozen a scientific thing, one genuinely cooperative are to For half in comes installed company's account accumulating in volume? The 61 TABLE CONFERENCE HOUND ways of relations standpoint, it is unfortunately opinion indicate that bankers are public in their customers and the com¬ banking system should be Government-owned. for persuading the average man that bankers are little interest the and rather decent people at that, is to offer practical cooperation it counts and where it will be appreciated and discussed. This people, where service, offered modestly and unpretentiously, cannot for the individual bank and for banking as a whole. help creating goodwill The Credit Facilities of Banks Prociinow, Vice-President of the First National Bank x>f Chicago, Chicago, III. By Herbert V. No one who has examined even superficially the development of the banking system of this country will contend that the methods of extending credit over the years have remained unchanged. swift whirl of economic and The facts are that the political affairs through the decades has left an indelible but changing impress upon the bank credit structure. We are It threatens to ride to its distiny in a powder There are some who believe that the world's economic machine is financial traditions have been repudiated in various parts of the world, and that unless somehow there be a release again of the great fountains of private and free enterprise, the of decades may be lost. progress No one can mistake the fact that in recent years an older order of affairs to have been shaken down about our ears, in part due to the economic hangover of the last "war. However, it is not necessary to accept these But it is imperative not seems facts wholly in a as If it had not Forces Paralleling the decline in interest rates, there was a of those major forces bank credit. In a that have had so great an influence in the extension of period of approximately five years the monetary gold stock of this country has increased by about $12,000,000,000, with result that the excess reserves more than $4,000,000,000. the of the Federal Reserve System have risen to The pressure of these unprecedented idle re¬ which was promptly felt in commercial banks. Short term assets rapidly reflect such changes. In recent months we have witnessed commercial paper at H to 5^ of 1 %, serves resulted in a sharp reduction in interest rates prime bankers' acceptances at 7-1 5 of 1%, the best grade 10-year municipals 1%, long-term Governments a little over 2%, Treasuries due in 1941, with a yield so low that it took $75,000 par value at 1^ to 2% call loans at to earn on enough just to buy a morning paper every Bank unfavorable. As the "Monthly Review" of the Treasury bills sold during so day, and Interest rates The effect on bank earnings obviously Federal Reserve of New York for August pointed out, the average yield on new loans at the lowest level in years. has been that an investment of for bank July at no time reached a level sufficiently high $10,000 in the bills for three months would produce would few years to use 1932, of the industry did not find it bank credit in large volume. inclusive, approximately 54% For the 14 years from 1919 of all active manufacturing com¬ earning The odds have been almost two to one corporation earning a in the best of times, little over three reporting a profit in against the possibility profit. The hazards of business are never small, and in recent years they have been little short of 10 corporation filing an income tax return a the probability of profit greatly decreased since then, with only a a out of every even An examination and 46% a loss. corporation income tax returns now reveals that recent years. of comparative lack of interest rates and profitable in the past In spite of abnormally low loans. panies reporting income showed a profit Affecting Bank Credit (year ended Dec. 31) dividends declared, and In 1938 IH% on their common capital and surplus. to background for this discussion, let us, therefore, sketch briefly some a ^ securities, the member other words, without any return to the common stockholders. If it had not been for recoveries and profits on securities, the National banks as a whole in 1937 (year ended June 30) would not have been able to pay half the dividends on their preferred stock and would have failed to earn any return for their common stockholders. In 1938 (year ended June 30), using the same comparison, they could have paid their preferred dividends, but would have earned only about one-fourth of their common stock dividend and billions of excess reserves, As bank credit and Interest (year ended Dec. 31) would actually have operated at a loss, in demand of the economic structure. grade corporation It is too early to deter¬ point in rece it trends. Reserve System in 1937 have been able to pay less than half of the of credit, but also that we facilities over the years. for years. been for recoveries and profits on only that we understand the important credit, is in many respects the corner stone The yrld on the highest mine the ultimate effects of the European war upon spirit of defeat or resignation. forces today affecting the extension be familiar with the development of bank credit For the banking system, with the granting of 50 cents. rates, but this crisis may provide a turning banks of the Federal grappling today with a great many new forces, for the world is running down, that its soundest business and cart. much as securities has been at the lowest level And the present period is no exception. economically disheveled. income of insurmountable. Of the 2,101,000 active commercial and industrial business of the country, approximately 20% go ou the same number enterprises of existence each year, and about hopefully start in again. Business is not invested with For every retail store that lasts 14 all retailers being about seven years. The difficulty obviously, in the great majority of cases, rests with the management. Confronted with such facts, the banker must have a basic understanding of the fundamentals of good management. A western banker, located in a city of 12,000 population, has recently measured perpetuity. years, the one It must fight to live. lasts only one year, the average life of mortality rate in his community. 100% of the retail He found that as a general rule merchants are eliminated every seven years, 100% 62 BANKERS' of the automobile dealers every four years, and 100% of the farmers every CONVENTION This bank employs a man who has had several years of experience as a land appraiser, farm manager and salesman of farms. 10 years. These of the significant some are sideration in factors which require sustained discussion of bank credit, and in a the direction of our thought. no small With this background, let con¬ dictate measure then examine us of bank credit—as expressed in four questions. four major aspects diversified into ventures take his and car Can Individual the Banker Bo Facilitate to the Sound Extension of Credit ? the first place, In is the at he will make twice what can the Individual banker do to facilitate the sound extension of credit? There need a for principles of granting bank credit, business and industry operate, still a better understanding of the in view of the hazards under which and in order to reduce the losses drive into the country to loans. on the rate 25% yearly. was holders have received profits securities, total losses and depreciation of the member banks on 1937 in excluding depre¬ Exclusive of recoveries and of the total net earnings. 80% of the net earnings, and in 1938 actually exceeded were over It is a reasonable presumption that a better knowledge operations would reduce these loss ratios and increase profits. the net earnings. of loan our We need a thorough knowledge of the five kinds of financial statements: Balance sheets. 2. Profit and loss statements. < 3 Reconciliation of surplus in the case of a corporation or reconciliation of the net worth in the case of a proprietorship or a partnership. this country, he was unable to find assets in There such no was 1909 about until backed by financial a a single accounting firm here. Later with John W. thing as accounting practice. statement became American accepted banking practice. We shall examine only three phases of the subject of statement analysis. the single item of inventory. When sales increase, prices rise jjslness conditions improve, and Finally, public resistance sales, may not improve. and The inventory decline. sales The sales This frozen. is large in is add sets in to inventory in¬ to with even volume and The business takes falls. turnover become even the natural tendency is to Consequently, the turnover of the inventory, ventory. rising rising prices, high losses in price. and may simple but often-repeated experience of a business. As recently as 1937, bankers and business men might have profited greatly and reduced their losses substantially if there had been a better understanding of the item of inventory on the financial statement. When between though than manufacturer, a $50,600 jobber, and $259,600, of two-thirds is in the of excess net extreme has working $250,000, the a should care is satisfactory, the inventory turnover worth wholesaler or inventory ordinarily should with tangible net worth a should be than greater no in excess the net of $50,000, working the even In the tangible net be no retail business a inventory generally capital. An excessive in¬ ventory often cripples a business seriously, due to unexpected losses from depreciation, changes in style, perishability and price fluctuations. Closely connected with level of commodities. to which with weaknesses. slight patients. the item of inventory is the wholesale price Of the 2,101,000 active businesses in this country, referred earlier, we insufficient A capital, probably 20 to 22% heavy slight decline improvement helps in liabilities, level thorn goes or other wipes out thousands of them. to survive, just as oxygen helps ill If oxygen is administered long enough, If the price businesses, receivables, business single factor affects marginal businesses level. are marginal inflated up, more No other some recover. than the commodity price selling prices rise and an unexpected profit results, particularly if the inventory is large. If the present world hostilities develop an increasing demand for commodities, a rise in prices may enable many businesses to earn profits on inventories. To a mar¬ ginal business, on the brink of uncertainty, that means a longer lease on life. On the other hand, when prices decline, goods be must sold at Consequently, the level of commodity prices is perhaps the greatest single factor in the life and death of businesses. tangible net worth between $50,000 and $250,000 should be carefully analyzed if the depreciated value a of its fixed assets is greater than two-thirds of the tangible net worth, if the current debt is greater than two-thirds of the tangible net worth. If the tangible net worth is over $250,000, the respective figures are threefourths instead of two-thirds. In no event should the funded debt exceed the net working capital. These comparisons are important tests of finan¬ cial strength in businesses. / No financial statement is pehaps less understood by the banker than the When it may be somewhat of an imposit ion to ask a trial balance. to prepare a asking for a borrower balance sheet, there need be late trial balance. no 1. A closing of the books compunction, as a rule, about Briefly, the trial balance discloses five portant facts subsequent to the issuance of on an a im¬ balance sheet: irregular date, or the possible inaccuracy of the last balance sheet. 2. The amount of inventory required to maintain the same amount of capital as that shown on the last balance sheet. 3. The approximate inventory on the date of the trial balance. 4. The approximate overhead expenses of the business. 5. Unusual transactions not apparent from a condensed balance sheet or income statement. The foregoing comments, indicating the necessity for a better under¬ standing of financial statements, apply in all banks which loan to businesses. But there is an exactly parallel situation in the smaller banks of agricultural communities where loans are made to farmers. comprehensive and adequate farm credit files, and country bankers are There is a need for a great many pioneering in the development of such files. more far-sighted A Colorado banker has prepared on a large card a special finacial statement form for farmers, the card also having a place for photographs of the property made by the bank's farm inspector. A Middle Western banker in a city of 10,000 population began the development of credit files on farmers nearly 20 years ago, and his files now farmers in his trade He now has a cover area. young man the almost incredible number of over 6,000 He began this work in the horse-and-buggy days. who devotes his time to gathering current farm credit data and increasing the lists into who borrow in a little broader territory. All those excess of $500 furnish statements. Farmers are encouraged build up their credit to the point where they can borrow on their own names without chattel mortgages. His losses on chattel mortgages have been greater than on personal notes. An endorser is not required if the reputation and statement of the farm ujustify credit on plain note. to operations a development—bank new investment or collateral But with the investments. on If every bond in the port¬ credit files no less complete than the investigation and the same on regular of com¬ persistent follow-up same What Have Bankers Done to Meet Changing Credit Needs ? We come, then, to the second principal question in this discussion—what have bankers done to meet changing credit needs? credit problems and new with an earnest Bankers have faced banking situations with new mind and open an desire to contribute their full share to business and indus¬ We have already discussed what aggressive bankers in farm try. munities have accomplished. There have been several the past few years in credit facilities, of which we shall Term loans or intermediate in so-called the term larger cities Under years. whose turity, briefly comment personal loans: insurance loans; or loans, included in a with rather substantial in on and a volume"rof maturities running ordinarily six years, with an average of two-and-a-half regulations for the examination of banks, present ultimate payments not are have made intermediate or from one-and a-half to five loans com¬ developments assigned accounts receivable. on Banks to three loans; reasonably certain, regardless of are classification by separate ma¬ The examineis. question of ultimate ability to pay is determined by earnings, by the nature and value of assets, by pledged collateral. or different purposes, such many These loans the refunding of debt as charges, the expansion of plants, and are to made for fixed reduce increase in working capital. The interest rate is probably 1% or more above the short term rate for secured machinery. borrower. same by mortgages The major portion of such loans are property, on There is naturally a an warehouse receipts and chattels on wide variation in the size of the loans and in the arrangements for repayment, which are made to suit each individual situation. It is important that unwise competition for these loans should in the excessive not result rates at extremely low lengthening of maturities, the fixing of interest levels, and a laxness in applying sound loan standards. There bankers who feel that for various are some it is unwise for reasons their institutions to enter the field of personal loans, and they have made little effort to encourage this development in bank credit facilities. How¬ ever, our purpose report today is not to enter this phase of the discussion, but to oojectively on what has taken place. The greatest impetus to the personal loan movement, other than the small volume of local loans and low interest rates, 1934. probably the Modernization Loan program initiated in was It has been estimated that prior to that time perhaps not more than 150 banks were prepared to make personal loans the type contemplated under this program. addition to many industrial on character and income of By 1937 almost 6,000 banks, in banks and savings banks, loans in almost every county in the United States. personal loans is of sumer vast proportions. on making such financing the Personal loan departments of banks Unlawful lenders. Pawnbrokers Credit unions — Remedialioan societies . Total loans Credit Credit Extended Outstanding $285,000,000 234,000,000 129.000,000 $423,000,000 350,000.000 195,000,000 160,000,000 165,000,000 80,000,000 54,000,000 $1,427,000,000 Retail instalment sales. Retail open accounts consumer — credit ; 119,000,000 110,000.000 55,000,000 34,000,000 8,100,000,000 $966,000,000 2,600,000.000 1,500,000,000 ..$12,600,000,000 $14,027,000,000 $4,100,000,000 $5,066,000,000 4,500,000,000 .... Total merchandise credit Out of total personal loans estimated at $1,427,000,000 and made principal seven banks con¬ reports the following credit agencies in 1936: Personal finance companies^ Industrial banks Total were The potential field for A recent study a loss and the marginal concern dies. It is wort h emphasizing that a business with commendable achievemnet. required. are similar loans to the When greater than three-fourths of the net working capital. be The average capital. a folio represents a loan of the bank's funds, the information on that type be exercised, an average The earning record Many banks do not have separate bond, statistical tangible net worth if the inventory is larger For about 20 a year. This distribution has aggregated ough investment credit files becomes obvious. four: Consider 16% large amount which banks have invested in bonds, the importance of thor¬ are the first accounting firm in this country. It was not that loaning money on single-name, unsecured paper Barrow he formed or credit files. mercial loans. only on the threshold of an understanding of this important subject. As 1883, when Edwin Guthrie came from England to evaluate certain annually. to include as a part of this program of improving our knowledge of loaning Budgets. late as A We may digress Trial balances. we 16% pays bank, its development of comprehensive farm credit files, and its loans to farmers constitute 5. that It account. of about 6% annually on the capital stock of the bank. of that 4. are than is the success one-half of the earnings above $20,000 per year has been paid into a loan should surely Although some bankers may assume that the subject of financial statement 1939 more Prior to that date for 10 years or more departments to provide credit information 1. analysis has been thoroughly explored, the probabilities com¬ During the life of the bank since 1865, the share¬ fund distributed to employees. interest and discount earned, and all losses, The final test of his return which averages a for National banks for the years 1927 to 1935, inclusive, were about 24% total The number of loans is profits This has been the rate since 1933. years, of the visit the farmers of his The bank has $100,000 capital and $100,000surplus, undivided substantial a 12,000 loans. than One cannot dismiss casually the fact that the losses on loans and discounts ciation, were 76% new the reasonable banker made over 10,000 loans: in 1938,11,000; and in more great as it was five years ago. as earnings of his bank. plus outset He studies about involve may munity. In 1937, this What which agriculture, At the close of the day this banker believes it pays to extension of credit. by the credit agencies, the personal loan departments of consumer had loaned only $195,000,000 in 1936. An examination of the practical experience of two banks with this type of loan reveals established Dec. loans. 31, some a interesting facts. small loan A bank in department in a city of 65,000 population 1928. 1937 this bank made 57,460 loans. From In August, 1928 1938 they made to 8,435 At present they have 10,000 notes in their portfolio with loans out¬ standing of Without more than disclosing $1,000,000. the actual ment "has been and is a lucrative Their losses are close to ^ of 1%. earnings, the banker reports this depart¬ earning department, and the management is very pleased about its successful operation." There is a western bank with resources of about $2,500 000 which esta¬ blished its personal loan department in October, 1935. The outstanding loans at various times in the succeeding years follow: Dec. 31.1935—Dec. 31, 1936 Dec. 31, 1937 Dec. 31. 1938.-- May 15. 1939 $15,500 54,000 96,000 138,000 175,000 It will be noted that each year the total increased about $40,000, the middle of 1939 this bank had $175,000 in personal loans. The and'by approxi¬ mate interest collected for the respective years follows: 2Yi months of 1935 $700 1936 5.000 1937. 10,000 1938 17,000 To May 15, 1939 7,200 The approximate net losses charged off were: 1936 1937. 1938 $201 217 78 63 BOUND TABLE CONFERENCE and discounts believes the esta¬ This particular banker summarized the reasons why he blishment of low." personal loan department is desirable as follows: a 1. It brings great numbers of people into friendly relationship with the bank, many of whom may look upon banks as lending institutions serving only those who have relatively large financial interests. 2. It holds these loans in the banks. 3. It opens a new and desirable field of income. 4. It 5. It may be of assistance in teaching people to save greatly increases the number of borrowers. It is suggested that bankers read carefully the There also has been because of the sys¬ splendid material on this Bankers Association. increasing volume of loans secured by the assign¬ an There is still a difference ment of the cash surrender value of life insurance. of opinion abandonment of the liquidity and marketability of local long-term paper; But the increase in insurance loans simply reflects again mortgages." a bank would rid itself of poor paper. The local bank would still conduct its business so of events course could it depend that in the ordinary collecting its loans and selling real on demands. its The writer who made the the endeavor to increase bank income from all types of desirable loans, and estate to proposal believes the rediscount institution would prevent sales During the depression many in¬ satisfy the need of bank customers. dividuals borrowed policies. financial The much as the value of their insurance surrender cash Most of these loans mere the small fact that look beyond Consideration should earning asset is being acquired. an wish to credit which banker may find himself with a only be liquidated by cashing the value of the life insurance. can There should also be that the borrower can meet his insur¬ some assurance premiums without further borrowing. ance . In many cities today banks are making an intensive would - . study of loans on against assigned accounts than is necessary with the As early 1905 as more the first require more technique complicated of secured loans. specialized finance company advances against accounts receivable. ized finance companies. a customary type Today there began making In making loans against receivables, the finance companies cite such advantages to business as the following: 1. selling or 2. capital stock. more 3. financing, overhead expense proportionately reduced. Larger cash balances may be maintained at banks. The most important advantage to business in "cashing its sales" or, other words, borrowing on three are already is frozen. 3. Concerns which are in such poor financial condition that accommoda¬ tion against assigned accounts is the only way in which the bank can protect itself. assigned accounts yield a better than average return and the properly and carefully made, has been satisfactory. We reasonably stable interest basis? deposits reported in the March, April, Reserve Bulletin",spxight be studied. Recently a banker in a city of 60,000 made an analysis of his savings de¬ partment with its approximately $6,000,000 in deposits. The following figures give a concise picture of that department: general subject of the behavior of June, 1939, issues of the "Federal No. to come that then to question may of credit this country reserves—the largest First, we have gold had Second, reserves four times are have $16,500,000,000 System. as great as Our commercial banking facilities Is What the answer lending gold in possessed by any nation at any time. those upon are which the tre¬ Third, we have had for time the largest excess reserves in the history of the the legitimate credit The more 1929 at the peak of that in even we mendous credit expansion of the 1920's was built. some Federal Reserve thoroughly adequate for requirements of business. Banker's Responsibility Regarding the fourth General Credit Problems of place, it may be fairly asked, Wrhat is the banker's re¬ cannot too examination, often challenge although the Pied Piper who has every responsibility to banker a new think through loaning our cannot chase credit fairly, and to understand specifically what Let simply outline four of these problems. us First, it is said there is and a by methods down a critical the selfafter street theory relating to bank credit. each It is our problem constructively and is wrong or right about it. bank credit problem relating to gold holdings The substantial excess reserves today do not large excess reserves. represent savings primarily. of Government bonds by the They have arisen largely from the purchase Federal Reserve banks beginning early in the depression; the issuance of approximately 1 1-3 billions of silver certificates as the result of the purchase of about two billion ounces of silver by the Government; and finally, by gold devaluation, combined with the import of billions of dollars of gold. It to was hoped that the monetary policies of recent years would lead borrowing by business, help the security markets, revive the heavy goods industries and raise commodity prices. But it became apparent that men would not borrow solely because interest rates were low, nor would they risk a capital unless they had reasonable confidence that they might earn fair large expenditures of governments over the world have in¬ herent in them significant problems relating to bank credit. If the large expenditures which are made by nations to prosecute war, to prepare for war, or marked credit for other purposes, should lead to a heavy demand for goods, a rise might requires a in commodity follow. It a recent development of such conditions which issue of the "Harvard Business Review," a Middle Western professor states "is the and a widespread expansion of bank thorough understanding of sound bank lending principles. Secondly, in and is prices that the country banker "has been losing ground" today fighting for survival." 3 .7 27 1.2 69 12.1 699 1,586 4.2 28.1 46.2 100.0 $6,228,589 100.0 8.3 236 11.3 ? 4,991 $464 fact that 28% of all the this bank close within one year and 52% having individual balances less within 2% of all the deposits. The results They are probably typical. A approximately aggregated in this savings department was in ac¬ than $100, the total balances of which analysis are not wholly unusual. of this careful might indicate with some degree of accuracy to actually similar to demand deposits and to what study of savings deposits what extent they are extent, as now carried in than the typical What methods banks, they could bo invested for longer periods short-term earning asset provides. might be developed to encourage permanent, less active, steady saving and more savings deposits, which might be used more freely types of credit, possibly longer term credit? Every banker ought also He reminds i or that "local loans to have some appreciation of the problem liquid in contrast to those which must assets which are shifted to obtain cash. In other words, there must what has been called of be be a clear understanding liquidity as contrasted to shiftability. from a bank to buy finished product This is the normal procedure by which the great majority of bank loans to industry are liqui¬ dated annually. They are liquidated when the commercial transactions of which they are a part are finallly completed. But a portion of a bank's funds are ordinarily also placed in assets which must be sold or shifted in case the funds are needed in order to meet the demands of depositors. To what extent, then, may a banking system place its funds in earning assets which more or less automatically liquidate themselves through ordinary commercial processes, and to what degree may it properly place its funds in To illustrate, a raw manufacturer makes a seasonal loan materials which he fabricates, he retires the loan and out of the sale of the within perhaps six or nine months. assets that must be shifted or marketed to be liquidated? blocks of assets They would further contend that the business cycle can never be reasonably stable until the danger of such whoesale shifting of assets is eliminated. Some of those who hold this viewpoint believe that assets which must be shifted should be bought largely with savings deposits or capital funds. And they suggest more permanence in savings accounts to permit the acquisition of shiftable Some bankers would are contend that it is the fact that large shifted which greatly aggravates conditions in a depression. assets. These return. However, $7 .1 41,636 72,874 701,003 752,606 1,753,008 2,880,168 7.8 22.3 7.8 Over 42% of the activity 1.3 to 1. counts of the difference between imperative that bankers also understand the more general credit problems of the banking system and the suggestions for their solution. We 16.5 11.8 importance with these figures is the Of equal bank loans sponsibility regarding general credit problems of the banking system? It is Totals Bal: .3 $20,374 6,840 in the extension of various the Banking System? In 13,418 1000.01 to 2500.00 2500.00 and over Aeer. Although the savings department was designed to assist in the accumulation of savings, the ratio of deposits to withdrawals was only discussion—WThat bank credit facilities ? be concisely stated. expansion. These gold reserves 577 50.00.50.01 to 100.00. 100.01 to 500.00._-500.01 to 1000.00.- Amount two years. Credit Facilities1 the third principal question in this agencies today than period 21.3 10.00 .01 to $ Cent 2,860 2,221 1,579 1,045 2,950 1,081 1,105 10.01 to Per Cent Per of Accts. savings accounts opened in the facts regarding the adequacy of are savings loaned or invested? Are they and permanent, or are some of them demand deposits on It is suggested in this connection that the survey on the have we analyzed our deposits, to determine how they may be $ What Are the Facts Regarding the Adequacy of Bank of the exact We know that the capital funds determines in part how they may be for example, how carefully, But used. which loans against receivables Concerns which have lost working capital, but appear to have sound prospects for profits. 2. Concerns which appeared to be good at one time and in which a bank on problem involving the consideration loanable funds of a bank. with the bank permanently and that Inactive accounts experience so far with such loans, of the banking another for years. There is a third credit character of the Balance Range types of borrowers to crisis, the banking situation in a merely move the frozen assets from one part in 1. Loans rediscounting institution of slow assets which a receivables, is the possibility of earning a definite generally made: are by banks to in one form or profit by discounting all invoices. There loss—the bank or take the These are only some of the pertinent inquiries which be made of this credit proposal. The suggestion has been presented must and If the volume of sales is increased by this may be in part¬ rise sharply with marked decline, land values after the last war, the rediscounting agency? Does system to another ? an Businesses obtain additional working capital without taking ners does it or are 1,500 such special¬ are paper If prices of farm products should declined in value really improve have assigned accounts to determine the possibilities of adding to their profits. Loans rediscount long-term corresponding rise in farm land values followed later by a the transfer for the eventual retirement of the loan, the ask whether banks and be liable on bills payable the wisdom of this proposal one might such, for example, as the decline of farm who If there is no income available community will one. be given to the purpose for which the proceeds are or have been used and definite program of liquidation. being made unless the country banker enters again, his future role in the farm mortgage market a would a meet to he concludes that And In considering also to a market possibly for years. rates. When banks make loans of this character, it is necessary to the be in sacrifice. a With declining interest rates, many borrowers naturally I repaid their loans at the insurance companies by borrowing from banks at lower at the of some insurance companies showed statements 28% of their investments in policy loans. as made at 6%. were against and the It is his viewpoint that country banks in recent years have shunned farm paper because of its lack of liquidity. The liquidity feature has raised the value of market¬ able bonds over that of equally safe local farm paper, which difference is not a premium for safety but liquidity. He holds that the answer is to establish a rediscount agency to permit the Federal Farm Mortgage Corporation to rediscount for commercial banks mortgages having a maturity not to exceed 10 years, with a five-year renewal privilege. This agency would only be used by banks in an emergency and banks should not permanently borrow from it. It should not be the agency whereby regarding the desirability of making loans of this type in sub¬ stantial volume. total assets and that earnings are smaller portion of a provision of rediscount facilities for farm tematic method of making payments at a bank. whole subject prepared by the American are He suggests "the theories of bank assets; the acquisition are only a few of the general credit problems, which as bankers we of regular banking hours, and regard¬ ing which it is not too much to ask that all of us have an informed opinion. In conclusion, it is important that bankers give every encouragement to might profitably study after the close sound requests for credit and be helpful in every way in American economy in the period of safeguarding the Let us world stress which confronts us. hazards and financial problems of all types of business enterprises, so that we may continue to contribute our full share to the advancement of business. For the cooperation of business and banking through the years has played a significant part in the steadily increase our understanding of the progress of this Nation. BANKERS' 64 CONVENTION Meeting the Public Need for Personal Credit By W. B. Harrison, President Union National Bank, Wichita, Kan. Banking effort to meet service I Most banker, had of with peting pergonal is part that In grown the need, majority a loans than banking of than bank while the finance had 90 they made for old for 18 of borrowers note made for a better months, 90 of piece of to than note a The first when We we awakening the the were these loans. never had It been good because days wasn't good before. A they instead was true always all call on Uncle ments met were days after The prior days' the good. The In Title our own a mercial and ours, We do note learned we the Title I fact, insistent were notes they just fell and require ever from to and six there lend we him small, so instal¬ the and the had expand about were is that to cash not in do banker the We aim years to with bank the give he loans want to highly service to our for something which instalment account regular them to pay to plan, expect we be it other of customers for pay have, may other be but cases, made collateral, it is this also that true without. collateral advisable is if the personal credit loans and credit extensions files carefully are in many can safely built and up only those are given credit who have a good reputation, a record of paying current bills, living within their income, and who are not inclined overbuy. Resistance to high-powered salesmanship and full realization to each that individual is law a himself unto and not of the competitor a Joneses in high or fast living is essential. The banker must be able to accurately judge the moral risk as well as the ability to pay. Two-name paper is not only twice but several times as strong as single-name paper, though the endorser has even The wife's signature probabilities. and throw light their back their and convincing P. not notes. interview their to Sr. accustomed Pujo asked was to information handling meet direct bearing obtained it is by member a only banks of will Washington, the how unsecured, said the great J. P., "I might lend him knew bankers in which help have ability. his on form worth banker of he—not He who the loan, of without as a personal backed up good judge credit must credit with files judgment. close Considering all toward his personal community, judgment in department not need We have it. carrying its is main, extra plaints the because is 12 work as notes of rate. By need the is case with today He note the best exercising can volume courage personal Kansas be I to around six $400,000 but meet changing credit in are here million 6mall but personal in he sane loan may conditions. big a deposits way. that instalment extra work monthly is authorize instalments made And to us entailed. clear avoid to to Our with bank's it 6% discount. and to that each evolution is first in the him for growth banks in United the It is integral part of an when and that a generally man But become with in industrial civilization. our the the of proportion of the existed his those development. the enterprises the on Our degree. We call it This management. new had that "mass intelligent decreases the is political wealth purposes, all at production," but has very system the new existed management skilled engaged account for not people our and increase to avenues, of Nation, a people and before the scale That own social intelligence that products as more of will than high a stenographers increases. does encumbrance; America, their on payrolls it as indebtedness and proportion for cash, I still believe or More and clerks, hands, develops uses that Experi¬ to buy lien more consideration democracy. and new less without liabilities, large came believe that accumulates one sense by giving employment in and only in intelligent into private of intelligence 6till rainy day. a much true assets, factory American country projects, new I successful, industrial farming and other and buy for cash. mind. my keep out of debt, is credit instalment be much better to encourage no the in civilization our has increasing are This movement family with small assets and take its to how and Probably and earners, As he large must we new wage artisans. in happier, family entirely what a or citizen much striking loans banks. today rapid the most paper. demand for the his earnings for of so that man be or living. is individual matter with the instalment States care private enterprise a of of their volume of instalment can the know to it made or is also us the country in the world, where the masses of our people have by far the highest income of any workers on earth. We produce and distribute production cur distribution. these among At when becomes clogged and on producing have depression, we and more If distributing and make more increase we distribution and consumption. production, must fail to do that, the machine we despair, and decay. more, further we have peace, we If keep we prosperity and patriotism. Our Industrial Civilization Our civilization essentials for the out is what with call the the to that utterly different we until ages, confined last 10% in century 15% or the "upper" nothing. They existed hands. own of progress and America, the of constituted their form its in prosperity from anything in history. on Today the what the in market population wealthy or in for classes. The do States goods civilized every they could United its in Through¬ masses for of them¬ America the masses constitute the market sought by every big industry from foods, clothing, housing, machinery and automobiles to silks and diamonds. industries are absolutely dependent on a high standard of living Our giant for the must Now, some masses be account it also true regularly. When the not up They will on not the sustain their into way. lay to taken share pay- We produce masses. step, every increase would at the our take must companies and later in finance other bankers, for that month this as of patrons We One of against this something varying and of doesn't good borrower, we have no com¬ delinquencies in payments, we require account banking or changing are instrument protest the to live. we civilization. put away a part it the the charge his which observation, and study have changed best is in program, to steadily moving an to it, and better service of in is and useless is done to offset patrons, our needs It people to withhold their purchases until they could ence, is notes. it is also giving service to its community. carry a larger net rate than single payment should field business, government opposed to it and felt that it would bought almost it, of enterprise. industrial many was selves, a the likely to continue. in patrons, courageous paramount are preponderant amount of the private a own they attitude have business a our as his warrants as a Change Must as communities one-third of banker's serve money and the equal to does if to country he can applications. and one small in note involved to borrower he and making Instalment notes such on bank How stockholders? wants What in bank That he credit one extension ? and his passing if Instalment credit the of have business in which in which the social duties of reflected in as something is These out. in rapidly was Courage and Judgment of these factors, what should The new. private business, and a as interest and private making in a if he Few security. only was extends character was that explained purpose while. 1906, lend million dollars." a calmly the dollars successful as The Morgan approved million things judgment his Mr. and one been accomplishing and largely enough advance to history in character rely flabbergasted. well man hesitate but money of his not in would he for opportunity entirely surrounding and on richest who committee, much better something banking department a a the personal credit, develops frank, as found in characteristics debt cut, of banking, banking needs of in clear technique and methods it gave seen imposed obligations today unless to fade evolution nature the character be and the are and our in I do not say that this should be so, but I do say that than can that withhold credit. committee would very program on not to in of finances, is best The he a promptly, and family social the apparent that movement wife it idea predominant a banking remarks of obligations man was payment and lack or the in investigation large little husband a earnestness and purpose, the to the the note is Many with whole-heartedly if the in cooperate, the borrower. Always have her sign with him It helps. sacrifice to to merit as Morgan not these little things have a witness a do character are character, and, than resources alone. banker's a cooperate All of When it on willingness to the note of of their on husband of payment. notes course ability problem. and husband credit in the payment, wife the financial more her husband's note also adds much on the plan to agree Personal made J. If risk with poor no is Like auto on old situation this Character and Credit taking the and society rather is to and have we recently Banking It toward as banks. As has the is same and few a practices and regulations now governing our business. than that improvements the system 1932 paper. our find and two bank not have the on whatever We us. do profits. months individual an carry with public the credit personal our far private interests. us garb of banks of the plug hat and well-dressed fathers. as pretty close to the time when it is regarded come the one telling thousands today banking deal largely with the so-called "social functions" of banks and with the public interest as affected by banking practices. In other words, we have few more the changes that took place in the banking structure practices a short-time they habit of of of picture the confined to since But not delinquent department separate from banks many payments when If loan personal a desire needed encouraged to were know to as from same notes. have who full. it in we We customers drifted were the backbone of out characterized strengthened and days, on because into that regulations did the bank examin¬ so imposed, were generation Gradually through the years many excellent restrictions more and more with each recurring cycle of financial operation. be know out¬ reconstruct this system to added security and service has given this the was the were 90 same is the affairs, world in necessary and investment portfolio in the last 10 years and purpose of the national debt. Com¬ case that time our couldn't surprise, 30 as to regulations But within loans In much aB coat service. had the unique the amount in which is Albert stress, made dollar loss and did not our lesson—and a era, citicizing In payment satisfactory that is so not case. it of been paper, ago, Prior and that ceased maturity. instalment of bank's note has by the I portion much as and a To small very never that was case, insurance. with but surprise experiences of other banks with instalment notes as it. any banks. these average there as was 1934. because were loans I That proved made said, objections did not have we dollar date, to examiners 90 friends our in was that time a of That full. in pay who, been banks, one that experience From banking, losses. agreed as payment failing to ers for for multitude being renewed. Sam loans. making these loans, and they all no in many other I followed precedent. had never were of territory our just experience—practically paid in Title some done who banks our bank only bankers astute made forward which step a of Prince bank had to the merit of instalment credit our reluctantly very Surprise to Bankers surprising Reconstruction has been It with the bank. and system, ' years A banking click off the payments 20 years since our Nation was founded. every patrons in days and renewed paper done, borrower experience. of been has because the and of prompt sure Each reconstruction to bankers we are seeing many of the banking practices and regulations which were orthodox before 1932 thrown out of the window and new regulations and practices take their place. Practically every political objection to banking made before 1932 was eliminated in the 1935 statutes, yet there is still demand for further revision. There has been as great a change in the character of about from come i8 monthly instalments. payable in growth loans borrow to American The per¬ such them business; a of the both to Banking the then, did they not for two was all prefer Why, fogey idea that years satisfaction much a makes bank, the to coming past This understood. clearly And the interesting waited soliciting the was in instead keeps down and com¬ bankers had the Not are. would the banker if his saves due paper. Only a verbal agreement is required because the right to charge the account is really given when the note is signed; but it is highly advisable to have the charge intention of demand for a banks their banks them be would the enjoy now finance company. a Because company an bulk the of from first? days the but payment, communities give to finance companies. to away paper, ment branch Is there such a them This date. intelligent the past two decades. in up fewer of credit, instalment of nine-tenths rather an enough existing loans originating in are slip to bank the banker is particular of are have meeting today. to every the In millions of dollars borrowed not banks testify clearly to the Hundreds institutions volume that bank service This business. sufficiently alert to keep those loans in suitable go in including credit, mitting them the need yes! been there normal nearer are these him United States a institutions of scores need. If the service. be, speak about, that need is personal credit. Emphatically, through been should human a to am need? and is, is The If of they their do cash not by a buy plan. only adding to his This new feature of civilization our sound financial analysis. wage them will earner do not something They save useful, cannot buy his spend and never they for will cash, in money will save squander desirable a as majority of them do not have the cash and will the hard purchase articles instalment the of income. be, because the that bulk great market. in any for road of sacrifice and their comfort and If the banker encourages profit and usefulness in use them his persistent savings. and to own pay do for this, them he institution, is but 65 BOUND TABLE CONFERENCE he is for contributing actually soundness our of other services lines which each share and prosperity the to would It impossible be simply wash¬ travel bureaus, household appliances establishments factories, ing machine and civilization. refrigerator plants, radio factories, automobile plants, great and substantial a industrial our turn hundreds out millions of dollars of in goods which they are now operating without instalment selling; and unless they operate, unemployment will increase, business troubles will pile up, and bank the will income services the to decline. dentists, comfort, be not of operate to year To anything on these doctors, scale institutions industrial and the like professional other on can we the unless CW In instalments. them using one ' could which lines ,: • It be said that this is may encouraged, and taken way that but to democracy can business our and move, of distribution obtain employment not or a to the It and other better and tunities—a the an steady people. not with means educational means the development would in the living radios would would century? Not the natural our in future the this conditions and bringing as in which prophesied homes today? But this Such prophet a next quarter do know, that we democratic form of our be Who ' millions that predict the can have we will in products new of ascending the among of live. fulfills mission—the past—even the as government of constant in uplifting of the of all the of our If it or external. that Now fact, degree some that with destiny of we were weeks for than saner activities. If deeply in very No, business today. banking We do not, we the through paying are stupid when consumption threaten. be must willing wake We nose. which gives may we we the wonderful sad day and some up do to us must all we had abundant opportunity in our we funds, is States adjourned after United those a unemployment spend Somebody more. the instalments, replenish bounds know that credit of purchase to depleted of sound we are useful wardrobes, services, That condition does not constitute a supervised lest limits of purchase the living it credit of will known or and ability If he months, banker take unwise credit. should Unwise be or credit Must Members reaching of this Shake into Association, city and every influence of a can most come in six to the repay should Neither propaganda extend to one. no Off Lethargy scattered all holding town, 18 disastrous reverse full well by influenced helps the six to of in large volume beyond borrow. to loans kept within ability to his known permitted risk undue any Beyond be not uplift carefully be must period a recurrence a bankers in this day know unexpectedly and ruinously. 18 and labor is it in to pay inviting extension is as other goods Instalment credit that such vacation, needed a spending. such volume. dangerous but if it is extended time, appliances, household procure any added months, the danger is small, cycle of credit such credit willing to advance take create lending inflation, into grow borrower's the which will carefully, extension, borrower. irrational mean form of the of But more spending spend or chaos and spend wisely, obtain hospital, medical, or dental treatment, or to the must multiply, will help private enterprise can transgressing in applauded. If Uncle Sam quits cause. decline, worthy children, win all We government. to must bankers repayable educate in business Without let can the Congress of necessary will We fruitfully. we the economy private : the over the purse - United strings . States, of credit, in great measure the extent to which private industry takes place of pubic activity1 in the next few months and after. Either private industry will shake off its lethargy and pull us out of this 10-year depression, or Government eral is if fall back Which road shall Let worth will we into the bottomless slough debt, political control, perilous public decay. as of management, increasing and gen¬ bankers choose, and lead others to each answer that question candidly and truly, and measure a banker and a citizen not by words but by deeds. America we as calling for that kind of leadership And America must have it today. private enterprise is to survive. PROBLEMS given under this head by, respectively, Ray A. Ilg, were and so ago PERSONNEL AND OPERATION Three talks interested vast program of increased appropriations and taking a positive applause is much, his directly connected in of instalment credit and personal loans, problem the Citizen country, our in instalment credit for ,"i. a follow? Banker's Duty as we enjoy. we why few stand so the way internal survive any crisis, and part his had been, we could have saved we the and hands. A added this the constant and masses it, interests our rejecting can only did fpportunities commodi¬ is doomed. it by carried ignoring on weren't If ago. ideas lowering costs is path, burdens bankers us work much too is much so is he bankers for the society and government as wonder known of uses of such terms That that raising of their standard of living—it will new diffusion the and America. Georges speed. unfodling of services, and follow to accelerated an farm, measured measure, fails at constant and goods scales earners If it in factory desired wage wage can the be manifested The we would autos of depends decade a it because effort," and banker the If his bit. just wanted to be let alone, and let George take care of the public interest. use of conveni¬ of 90% of these subjects or general dreamer! wildest have else. free enterprise of democracy its into 30,000,000 who And anyone is the only true ties, which oppor¬ the masses of instruments the to American in or that even ago insane. I, multiplication products, means cultural system of free education for all—we will continue to progress commodities, wealth of 1890 Not years enjoyed or progress expressed standard of tremendous streams of enlightenment, uplifting our people our through 25 even you, in 1939? declared fruits society, in be been have and the nature and composition predicted roads dared have to dreamed. have our prices but it family conveniences, housing, upward even could Who article an automobiles, refrigerators, radios, washing food, happiness, in they consumption for costs wider and used; which program, many credit time my society. our because of his intelligence— If the banker 6ays, "I worse do to one costs, produces which of About success. with employment continuously rising a only and production generally production American common line of out reduce not or march It yet crowding And other some available more clothing, comfort, and have and throwm are utterly incalculable number and variety of ence', of men This not only means machines, of in decline with production. pace of As heretofore must consumer living. more wealth. labor-saving devices which service must keep that by industry one is and services, goods its fails instalment in much too who citizen of maintenance part, he is no better—even industrial our own upward, continuously is in be recognized There structure. that continuously increasing wealth measured requires can that should building and interested not am has his duty to perform, his niche citizen, American an as the humblest broaden people which should not our weakness a the add V weakness of a seems in account into it me than ourselves Living Standards Must Advance be us, in his any these services for pay of fill, shirks add health, and happiness of the people, which services would utilized Each to J. J. Gard and Claude L. Stout Selecting and Developing Personnel Vice-President National Sliawmut Bank, Boston, Mass. By Ray A. Ilg, Selecting I hope because developing we it impossible in is can the Personnel as placement, job personnel delve that subjects and and into the 20 of to under my subject. I of here "expert" little In most in personnel in Indiana may is It of 1939 banks. a It School the a one definite a who a not is just dogmatic on beginning to state¬ understand information new opened was to two works you distribution, wide is of The banks first and these on but which but it Banking of the American to me or that I by produced contribution my subjects general 60 a report of The second is Research This thesis is personnel work to Banking on Institute of Leslie that I to our Currie, K. Co. Louis, Mo. discussion today should hope to give can Assistant of St. enough to apply to you large and small something worth, thinking about. After I wrote to me a to 75 various the with idea "feel" of on the I the subject asked the and discussing naturally, with country officer my it what addressed answer to with associates, representing seemed eight personnel work. These questions were framed of receiving specific information, and, in addition, to get regarding the throughout fair cross-section. questions the works banking business, and, banks their their attitude toward personnel they had made in the solving of them. problems and the progress The questions which I asked were: (1) Who in your institution hires help? (2) What type of young man do you look for, what are your requirements as to age, education, <fec.? taj (3) The third question was the same as the second, only It applied to young women. (4) What do you do to train young people In your bank ? (5) Do you require A. I. B. courses? Do you have a regular plan for advancement and compensation? (6) the cooperative and enlightening. like to give you a little most was details, but I would to each question: answers (1) A personnel director or a Junior officer hires the help In banks, depending size of the institution. lie is usually backed by a committee of two or The senior officers' contact with this hiring procedure is usually by application blanks. All banks look for young men with at least high school education, clean business appearance. They look (2) and (3) between the ages of 18 and 20, with a good, for young ladies, single, about 18 years old, who have had a high school education and shorthand course in some other type of school. have taken a typing The average bank puts the young man on the bench as page boy and shifts him from there to the transit department and from there to whatever Job is open. (4) that much attention but are put Into a department and until marriage or old age Interferes. The young ladies do not get in most cases stay there Banks, as a general rule, do not require A. I. B. courses, but do encourage them to the extent of refunding the whole or part of the fee If the course is passed. (5) It is a rare bank that has a regular plan for advancement or (6) Most compensation is taken care of on anniversaries compensation. by a review on the part of department heads and those in charge of personnel. There is in most Institutions no charted course of advancement which takes into consideration the individual talents. The majority of banks have a "build from within" policy always (7) hedged by the statement "except when experienced help is,needed." The last few years have seen great stress placed upon public relations training in banks, For the most part it has not developed into a practical procedure. Here (8) apparently is getting results. and there banks have evolved a system which and large it banks When that and used a real the have Relations, tendency a the money Public I that and forget to if. there is a There is one step is Employee Rela¬ think that We can give all on your the organization Public Relations, through Relations its most then you have wasted work. Therefore, important part, contact with Public Relations programs are own all often top-heavy. They are so complicated they fall weight at the first lapse of enthusiasm. permanent and of is that banks bite off more than they can chew. plans, both direct-to-the-public and through-the-employee, Relations too it Employee back at the employment officer's desk. He the employee, and his is the responsibility of seeing that the people he hires become satisfied, enthusiastic workers. The other fault which comes to view in studying the various types Public the prepare starts right really first all working unit within and that Relations, is Public all programs to me, two fatal errors. seems of all sorts of material to be if the employees of your institution interested in the welfare of the bank and do not consider them¬ time your follows relations what meetings, Public Relations work, but to selves we conduct not are public plan ahead comes tions, But by Is a spasmodic or hit-and-miss type of education. tendency to make, courses, reading outside friends trouble you with not of xipon the may submitted Personnel Program for Banking Institutions." a job, specific enough the of survey a reading. I do not know; thorough report Association. contains worthwhile most the is Bankers which I received response shall resume or world of had The I of three of the senior officers. that definition use you check Mercantile-Commerce Bank & Trust subject banks and con¬ and training, employee records, course as Indiana in "The Value of very seems on of selection working (8) Do you have public relations classes, and, if not do you have any other way stressing the public relations side in your business? such given subject." discussion. our Cashier of the be a have not be available, the subject, This about management Graduate the is expert probably for Committee or procedure cover enlightening and filled with information which cannot possibly covered be on to me standardization, May I take the liberty of referring which subjects, found "An knows he to me. up detailed salary personnel, unless on serves preparation for this talk my to discussion, Do you have a definite "build from within" policy ? (7) activities. of open v.' -a,;,'1 expert an as which always ments—namely, how our promotion and employee relations, all of which might be said not am in allotted Department, the methods multitude a them minutes ditions, health, charting employment come of many classification, ( covers by their The few banks which have effective Public Relations plans have started gradually— BANKERS' L66 mastered and In assimilated modestly program and one it is banks generally routine job, original questionnaire it struck my follow the medium the borne of hiring of that into value It is spirit All all, it different The two It is The the sensitive a a is the actual pumping of fresh body," banking business, finger the on is execu¬ pulse—has from problem. which me bound perhaps being such as in time to bring important my institution trying to learn. are Planned "The are of Help upon but known, which Man-Power." factor and had which, one banking institution a overlooked, if serious personnel a problem. It only natural that throughout the years, with placed last the upon few little years bound is executives to that is mechanical or these service, type and work. That the longer educated, place plan employment your either of one ambitious things, are and turnover banking of the executive routine are mechanical. for such For spent company of worker feels into if of has If it, no you better for your labors. It cal to 6eems that me someone as and the executive type. routine worker a employment but low for stifling ambition. are whom salary does not The best example of this that I West Point where they produce Second executives. as salaries, schooled as would the If they they favored a not have ranks is given are not perhaps, essential him, better a this not You in be of has fair, army, a executive training is paid are continually exceptional, man he top is is, Whether start. only true but or absolutely mechanical the He will the work, free country and a who the and that, a He takes a vital in this way the vernacular, In out do to exactly paper on research much too "He the this on type of man to and hires him. job, I an jobs mentioned before sometimes the will touch that on job to or man for prepare an this in talk, to chance fair a banks most talk to method a the bench, use train to of filled training. what I have just said. in about be which must provide department we to who person side of this employ¬ have institution be considered when later qualifications necessary will is one struggle to them. banking bookkeeping unless uphill the part of the on who for order and put him type which is not suited the human me people in the fault have not to are have that material course, and of type that a not a time individual gets a in the long, it is you executive an all work, a hiring which executive jobs, of remain that this agree to it is does say in comes certain are what him expect hire to versa, executive he Therefore, and remembering with job should I side does not enter that the human determining of qualities in the world, the on future relations human disappointing to the bank and extremely harmful which for way the or Every time business There all, The human side is in hiring the right type, will not prove unfitted for the work. To hire one prove start top. his after job. executive not make ment stifling. prove point out work a person job will the succeed whether he hires three to the future. eye made that figure and mechanical him an will or individual, and vice a reach As with comment but I wish to earmarked to the need for the has into hiring the help, man so much too preparatory you executive to does hiring people is a part of human relations. true, that so business is our They say that a have to hire and the kind you have to reject, has a tendency to the woman routine or This for is executive If these figures either mechanical year the from number a of ranks. young When a young college business or In mechanical are officers jobs, this or find we that what you might This figure figure, the does not percentage of 81%. jobs is the transit, but we training for employees, the proper continually filled by executive training and testing ground. the as are to its needs. In each case, however, a careful show what is the normal need for mechanical material. are material, which will naturally impair service and run up the officer entrusted employees must clearly chart the market ratio is such must me for man-power that avoid he the his requirements. he must needs 10 know what mechanical he is help with When the he job goes looking for. and three If executive tendency to overbire executive help. Of course, ability generally make a better showing. the people that have the -executive They have takes greater pride in better personalities and background. The employment officer adding them to the payroll, but if he cannot pro¬ vide jobs for them in the future, he will have a turnover in his executive material which will be not still. He sit tinually increased Therefore, it properly take execptives, provide time is must costly, because these either remuneration better care most to of. which is these executives hire This most with provide or they will a chance leave executive insure valuable reasonable will only the are you to to a the people who promotion him for material long organization. any expand and jobs it mean the employment officer's organization)\to pick those people who duty are to in his better with the bench and it ago things that so work. After clerk will also This feeds where they a one In the In men. work of case machine job, the in duty mind (and by and They the procedure about six serve transit department work at messenger as Some first. to Btep they is strictly under normal messenger the transit as placed are another in circumstances, to and take their normal advancements. years usually trained for are even broad as this is still if secretary's a first there expected, are take department. bank. into the stenographers, there of this type are around job in this department a stenographic department, and from one, of to follow this men Now, the proof machine has changed from period of girls, they case, routine or seem education. put that and and they do not get the mechanical for those training in the transit department given are job for a specific job, such a training as a young because they true, more the as the bank is large enough to have job job or a as secretary-clerk a All in all, this does not present a particular problem It is simply replacements, a of case which, in having enough people coming along this particular work, of type be can gauged pretty accurately through past experience. The type of that we of can employment which provides executive training. take of care On the other hand, we can build our Here because must have we is always the on young four man apparently chances, hired executive your mind, hired for him. In most the be own 22 people, to expected possibility. of in placed in our about is cannot men not to hire sure investment than more through turnover. sufficient force coming along a and that so avoid can going You bank or are much better banks, after that expect perhaps job. those the as At any he his of the one this will least, would you the bench, on outside an day some of Otherwise, as He starts long as President. than session a transit department there college a of age. years stay He has been picked because he the mechanical a 23 to five years his junior. or Vice-President a young is has but our is generally older, because he has had and cases, bench lose disturbing and usually expensive. This type of young man off with the greatest problem is us must be we will we personnel through education, in most have not young If messenger. man it is a large department, he does straight messenger work, and eventually is given a job as transit clerk or sorting clerk, or perhaps some job in the book¬ keeping department, bearing in mind all the time that this trained. The which ideal takes method him used into by all mental that knowledge of he be may preparing him. think we ment He or him, not the an he job of selected and been him meet is in is all a have group, far as the or bookkeeping,, credit, procedure as job his him, about progress, manager for talk know yet goes, which you have to see to have with that as the department many young first man. time they we might officers heads get men call and to whether opinion, my young an acquainted decided ahead in I of The depart¬ this become these so are part which one the funda¬ a They should have had Therefore, use. to lieutenants" and the not position to fill. a "second do five years, being scheduled a I know that you do. bank the is man have bank, and I expect that our they want to If to trying to give him are handle fact, four something meet departments. in of for followed these to do they have personnel is simple enough, but there is we officers someone the You business to matter of training know to to is the banking equipped know As when opportunity various I yours. heads has better This miss. do in you the few banks a departments, tellers, auditing, analysis, trust, foreign, &c. man individual school then necessary clerk, department with can is stick to opportunity jobs. it this, they settlement or will you high are They do nothing but possible for was success Most of the young to 20, messengers. con¬ employment It grow. is the the and that average ambition and makes possible the highest grade of work. In the selection of those to fill mechanical I on hired are help in all phases of the department. course Whether the bank be large or small, who be the best way to handle this situation? 18 of ages be 6% at least jobs, in basis, a those The banks which have had the mo6t particular institu¬ our as consider us regarding the boys hired. the men overhead. hiring let What has proved to make force, not kept in an approximately correct ratio, you will dearth of executive material or a too rapid turnover of a First, work. any staple hiring policy makes "forgotten man." That group, too, a group bank include we Every institution varies his into that the business and all is some and in then be at the age level of review of past experience will "duty" human to pudding is in the eating." strictly banking business not If mechanical material. of this is fair break." a outside, which taking routine help, After all, mechanical in requiring executive ability. his be heard that you in progressive graduates. include officers. into you fair deal to the men and women he hires. He does not send blind alleys, and he does not hire people for whom the job them have division call of develop may he any employment willing to He has the the to the the time, same way our have the selected They are to the top. his 80.73% of the jobs in and their taken into the bank after graduating from high school, six years of experience he may well develop into fine years, and Of I bank force. that each so are men do and are they the way not a developed five is or work They favored at were efficient, an These executives. If he fight get the idea that such "The proof of the tion, of can regulations At fight his commercial a that mean This has to be done; otherwise, does true and carefully the can he is formation an not executive material. school it mechanical 18 had when hired for enter man men picks originally as great deal higher than the to the top should be a go year, a either gives outside Lieutenants. officers. than those who man the must man but seems whether it be can will months advantages, completely shut out. hard, and is ambitious he against must these whom finding out what he will need in the future, and a up think of Generals. group. army odds the in gives Therefore, the Government to up or more selected or efficient work or live day be Colonels some whom the money is spent to produce on higher in An army cannot be all officers. they will group we those the Federal and city authorities, and your neighbors. 300 or them earmark you life has work The fact that his of rest Army. earmarked The mechani¬ expect to be satisfied with steady you the is the a who work. assume us interest must definitely plan your hiring of employees you select fall into two definite classes: you routine worker or you before, out of employees. that the people 6o year These for pointed percentage except your wife, the police, your boss, the life insurance company, anyone the State, by from more country is one where you can do what you please without considering the somebody and They do not want nor would they accept free, and the man who has the goods can get to the top. free due due and mechanical expect benefits I will all you efficient more are percentage of those who are picked primarily for a certain type of routine turnover you As the that agree executives or consideration, he is the reap they do employee training money to one training. continual a who good this have, will this on for the better type either bank picked preliminary You your or employees she will stay there. or taking job, a of woman or the job, on without dissatisfied a be must a one other business organiza¬ any executive happens: have person, thinking routine man except schedule handle will you the they work things to promotion, or other some two person rapid be continual a ambitious this in the in been have certain jobs which are will that means the cases, highly bank a be picked with the idea that he permanent to always perhaps, may in order to produce efficient, smooth and accurate necessary, jobs should normal in There concern. which subconscious different from no that you do not have of these Ill bank is there think conception of the public and the into the banking business stone—although, to who works everyone a and jobs it is inclined the general permeate manufacturing or been have base—that type; but actually tion marble and pedestal of we sand at the which will dullards, but mean who people material, but if the officer who picks them is capable, into executive become is By this I do not certain are responsibility. great before never there that happy with routine employment. he Hiring general statement about the personnel of potent a two "The Studied Development of a generally is we selected I on "selfishly" because say other, and any which subjects I to concentrate workers. routine or Let selfishly logical seems Long-Range Basis," and struck is mission. a of inspired by a long-range executive interest in the one man-power. the responsibility than rather "corpulent First, I would like to make banks task a keeping of of this personnel a the most part department of hanking in which the new one cal really touched. in no of banks, small which, after all, help, spirit—that and size often-termed tive not yet On their that, large and me procedure, and for same necessity rather than of the sadly neglected. is built admit hiring help is usually considered appreciation parts have procedure which has developed by evolution rather than revolution. a Consequently, in blood They time. a soundly. studying the replies to small, at step CONVENTION it is heads know the this in them, have of the young in training, they will be able to select for minor positions in their departments a candidate in whom they have confidence and feel that to some day will become truly mechani¬ more responsibility as an the executive years go for on. them, that he It is only a can take more human trait that and an 67 BOUND TABLE CONFERENCE executive take will in interest more a young duty if he has something to man in investment the invested afford of young make in good a all as a banks and companies from bringing in their many to be trained men ing to make them bit little regarded in usual which heads department whom for he Before I this If there close take can is and home point I want to make which one to your bank, not apply take to heating type of decide cage feel a good deal of their you are going to put in air conditioning, install minimum no of bank the devote bank will devote plenty of time to it, because they an investment, because they feel it is their your making is is and attention more which I to one thought. believe every banker is giving more and It has been my observation that banks throughout the country are today operating with greater is in in the commercial, interest rates, today's volume increasing efficiency, which handling of our customers' business whether savings, exchange or any other department. With improved the reality of with present working hour restrictions, and everbusiness, bankers must recognize that conservative operation of their banks must include this important part—a tion with economical yet good organiza¬ or a the of group in the the efficient and practical operation. to consider in steps puts them into execution. While there must acting as liaison bodies between the Board in favor of a strong centralized form of control officers committees executives, I am of management, where important problems are considered and There must be evidence of finality and matters laid way decisions before of be necessarily and first rendered. them must be dispatched with promptness and regularity. The understanding of the authority granted 1iy the Board and, in passing judgment, every effort must be made to gain full knowledge of the facts in each case. Too many times our judgment is only as good as our information. Next to consider is the division of duties among individuals in key management points will and offer must have certainty these men touch our a that new clear their fields are well defined. explore and latitude in thinking responsibilities to This and authority granted to them. Consider the advantage an officer or employee has who understands what is expected of him, in contrast to the confusion that can exist when he does not know with reasonable certainty the extent or limits of his responsibility. Under the latter system it can be expected that advancements and needed changes will fall by the wayside for the lack of someone to concentrate on pro¬ posals and see them through. There is no better method to develop subordinates than to give them responsibilities. On the other hand, if the management is to guide the destiny of the bank it must have the proper control over all functions and be fully apprised of the operations in each division. Important matters must be referred for consideration and time is required for these conferences and reviews. Officers and subordinates must be instructed how to differentiate between the essential and the non-essential, thus enabling the management to keep in touch with the operation without resorting to the analysis of countless details. I feel that the foregoing principles apply to every organization, large or small, and if practiced will clearly disclose the objectives and will filter down through the ranks and instill confidence and understanding. A large city bank should give thought to the chart system of operation, which discloses, along engineering lines, the divisions and major depart¬ ments, such as loans, investments, commercial, savings, internal operations, audit, &c., and the executive head or heads of each. There would be departments within these divisions; for example, under loans there might appear commercial loans, real estate mortgages, instalment and finance paper, credit department and controls. Under internal operations there would be the multitude of departments functioning for the entire bank, the number of such divisions and departments necessarily depending upon the working out improvements within the Banks are known those who are holds which provides excellent training but are and loses worthy of a chance for men young those who Let discussion today and from picked for future executive position. men, who are eager to learn, place confidence in them. make also us sure that ambitious to advance, and loyal to are we See if See if they are the type of doing everything in our power to jobs so that they may so much that can be done to help the latter group, who are usually without advance educational advantages, to lift themselves to higher earning levels. The young men that you have picked as the future executives and the young men that you will develop so that they can become executive material are the life blood of your bank. You cannot afford to ignore them. You must realize that these young men require special training, more personalized attention, if your "second lieutenants" are going to guide those who are serving in routine themselves executive material. There is help and 1 young protecting our investment in them. are we another thought out of this which I know are going to arise in this meeting, let us institutions and see whether or not we are properly own those guiding of make become generals. Operation National Bank, Portland, Ore. A bank. the of size should not be created unless it ia performed by one individual or assumed department required and the work cannot be It is just as inefficient and costly to create too departments as it is to under-departmentalize the bank. In creating it makes no difference if the duties assigned are per¬ formed by one individual or by a group or a department. The theory is by another department. many organization an just the same, and it can be carried out in most any size bank. In some might be restricted to loans, investments, functions in the main the cases Nevertheless, the management must decide upon assign¬ way as a large city bank. examining banks I frequently made the observa¬ tion, and it was apparent, that the officers, or officer, were directing their energies far too much toward details and the more important matters were neglected. In others the details were lost sight of because no one was delegated to look after them. There were still others where the officer tried to cover the executive duties and a large share of the clerical activities, such as tending the note cage, resulting usually in loose opera¬ tion. All this is needless if the organization as a whole is set up to and developing a smooth organization is the division of responsibility between the Board of Directors and the management. The technical definition of executive is "to carry through so as to affect, put in force, or accomplish." The Board of Directors formulates or approves policies and the management in the form of one One That is because the bank questions By J. J. Gabd, Vice-President United States topic to our biggest expense—man-power. Simplification and Organization for Efficient Work My is do not get we review in other words, if the put in a new service such as personal loans, or checking accounts, you will find that the counter, or handle to will It may be years ahead, but you have hold him or you will have a shortage of why I say that we pay too little attention to our interest and That guiding If the ventilating equipment in your bank building, build a new or senior officers and keep his training ground for executives for other businesses, just as they in most cities as a fine training ground for stenographers a the I think all of of the proposition and in deciding whether or not If accept or reject it. new interest active him in their category of of the future. is your stop-gap to to interview applicants senior officers in the bank on this particular type have placed and secretaries. please do not put in on. an has been made or broken. The time first in the bank. I know it is was promotion. invest in new machines for one purpose or the other, and the investment runs into $25,000 or $30,000, the senior officers of your will he when was known If you are to bank for experts biggest investment, new time to the consideration him known the public, and on whom depends I dare say that in 99 out of 100 cases the senior in a man is after he has been with a bank eight or and after the young man executives. If your institution is to start advertising campaign all the senior officers will show an active interest in it, they will spend time and help in the preparation of it, and, •11 in all, the result will be a composite effort of the leaders of your Institution.' / ■ have as nourishing food for thought. find it very does statement does not fit, cap to He Perhaps it will come up again in the discussion. now. years, got You have a long- works. of your institution, future for jobs, but once of work have selected a second lieutenants or execu¬ tive training for future Vice-Presidents, then he should have the attention of the senior officers. They should meet him, they should follow him. He is one of the selected group in which you have a big investment, not only a yearly investment of dollars and cents, but you are counting on him to be in the bank when you need someone in an executive position. in most cases is including interest, in these investments in man-power, on on these investments on expenses, the in interest first 10 man do this us time, to item of was these on public's goodwill. the prize of all. A proper job of tailor-fitting this only be done by frequent interviews both with him can spent officers' investment in this man and you can afford to spend time on him. not feel that it is right to take time to go into more detail on range I work the with and time The total bill for all expense, 1938, investments impossible from that the biggest single National 30, people who will represent the bank to the as effective. responsibility in saying correct am we wages. the is these the highest his to man of as judgment upon the pass call it investment, although it is an investment from principal can never be withdrawn, on any bank's statement is June time charge of personnel, whether he is handling one in man directors, to as banks of the United States for the year which $585,882,000 ; of this, $239,643,000, or over 40%, consisted of salaries and wages, and yet by comparison, how little ended of 30 such young men, must make each one an individual case. This type of man does not catalogue as easily as the mechanical type. You must study him, keep pace with him, and see that his interest in his job never lags. It won't lag if he has enough to do, if the work is interesting, and if he can see that just efforts are rewarded by promotion and more responsi¬ bility. Remember that this type of man, if he is good and if he is one you are going to keep, is hungry for authority and hungry for responsi¬ bility. You cannot give him the authority early, but you can feed him a The I shall and running executives, and the time may not be far distant when they will feel the effects of this gap in the flow of man-power. I think it is safe to say that there is now a shortage of young executives who have had the necessary seven or eight years' train¬ of young quota or the salaries an are bringing up for executive positions, it will organization at a later date. All of us have been matter of fact, the very bad years of the depression your through this, and stopped which that you men hole a only not of lose them to expense, executives. them, future be used in mapping the training can To start with, you have a considerable investment of money but you have your business in those young men. You cannot or even a sizable percentage. If you lose one crop those young of course of thumb which rule no also believe I progress. There is perhaps and officers as action. following his about his training, and has taken a personal interest in say operations. the in ments same During my experience in produce the best results for the and from the For credit of the bank. goal we should strive for is entire staff. Teamwork is the desirable feature, the maximum service as is practical in your bank might be delegated to keep the files in current condition and to see that proper analyses are made example, new someone statements. Often one officer or employee is assigned to oversee systems; he performs much the same as the operating head of a very large bank. One may be interested in auditing and could be utilized in making periodical checks for the management, the operations and daily conflict. You may have a bright and to call on your customers in the A part of his time might be devoted are numerous other ways to distribute the so that all have the attention that is essential provided his other duties did not energetic various a who is qualified development. There functions and duties if the bank In business enterprise. this to employee of interest is to be termed "well managed." recent article which appeared in a well-known financial publication, technical adviser to banks, in summarizing arguments in development of an organization with proper controls, said, N. Stronck, a H. favor of the other things, that it proved an "aid in the determination of sound policies and detecting and eliminating unsound ones," and tended to "foster the development of a well coordinated, energetic, cooperative, loyal among That the foregoing system will prove Board and the executive head in skilfully carrying out established policies and practices to the finest degree, there can be no question. Our bank for a number of years has adhered to the chart system, and we have found this method to be of distinct advantage in distributing duties to the various desks. As it will not be possible in a few minutes to follow through each component part of a typical organization, let us take for example the operating angle, and bend our energies toward the personnel, operating, and comptroller departments. Some banks combine the control with per¬ sonnel or operating with control, and in certain cases these combinations have been demonstrated to be entirely satisfactory, although it is my belief that better results may be realized if each is separate and apart in positive form. For example, the Cashier may supervise both operations and personnel yet have assistants in each division working independently and of self-perpetuating organization." the greatest benefit to the 68 and BANKERS' I without influence functions may the other. from be performed by only In CONVENTION bank the three different your individual, and, though this is a one fact, for the purpose of this analysis each will be dealt with separately. The personnel department acts the contact between the management as and the employees, and is interested primarily in their welfare, fitness, and development. The officer in charge does not give particular attention to operations systems and is more concerned whether an employee measures or up to the From right standard and his the If organization overlook is the atmosphere responsibility in the with management. beer, accepted bank and with the changing conditions? .'-'.v'v'' Many banks are utilizing single posting in bookkeeping, The the Working conditions play a prominent part in the efficiency and wellyour staff. Experts have proved that faulty equipment and poor method photographic More and banks more and tion absorbing a large to Every bank has is extent work. there has which is As value financial difficulties because control. Group insurance life of those misfortune a pension and is duty our their justice do for which over they have their part that are today offered in the market. large bank equipment companies have laboratories where tests are consistently made to give us better and more productive machines. There are too many current topics dealing with the mechanics and operations to discuss here, and my purpose is to urge you to have some individual or individuals in your bank designated to keep the foregoing objectives in mind, make reviews periodically, remain alert, and eliminate unnecessary activities and lost motion. How many times have we heard' the following paraphrase: "This system is not altogether necessary, but no the in upbuilding of morale, and tend to strengthen the ties between the employer and the employees. We must officer the forget the problems of the employees, and in dealing with be must Decisions fairness. if not there them is firmness, reached favoritism, no be must the retain to based and employees' all above facts and goodwill and on spirit a sound of is reasoning confidence. nice In that of this me sympathetic a and understanding heart well as an as intelligent head. The adhered banking from supervision to business, day accommodate the that loads The demands. practices and and this requires needed. as full end Peak which day to to followed. or officer staff Lacking valleys must routine always are prominent are arrange sufficiently the employees his to be in flexible will and An that so small no and to Still times in trained with be fill operating head smoothly. A income have the personnel developed vacancies for where if because upon divisions. experts some¬ are and help new must resignations. and the managers, organization employees is or informed that requiring An mistake there certain employee judgment by a the is few such amount of an problem required. was mighty were a by error in new responsibility no loan He places of was, that and be offer as We have a in general this also is a matter of planning and supervision, and in many cases overtime can be corrected by changing working hours, time of starting, and giving time off. Adjustments may be made so that the work be can number concentrated in few a hours instead of spread over greater a by giving the department in need experienced help at certain day. This latter plan lias been very helpful in our bank and goes back to the shifting crew principle which has been advocated by well-informed bank men for many years. The result is more flexibility times and or the of much employees, The less expense taxes of banks for both will be assessments based employees and, to to say our mercial line, net old wasted certain rose-colored glasses. look Tradition, like at if Security and of more salaries, It burdens a act manufacturing is tradition, convey or without must be other the of use in put the thought that com¬ we the should methods for the sake of changing but, on the other hand, when something new has demonstrated its merits, we should not decide against it without careful analysis and application to our own organization. our Many banks have coped with the peak load problem, and while in cases it is counteract not practical to eliminate the some of these excess demands causes, on there the staff. are ways For some open example, to a which system and have selected the 25th in a number of a delivery the first day of the succeeding on few exceptions, are prepared between month. our offices. All the 25th and state¬ 31st Account Analysis By Claude L. for We have been doing Stout, Executive Vice-President and our topic, but which have a and in in system his liabilities, income and expense accounts provide bank the certain be used use establish' the to information needed showing trends, efficiency into analyses include statistics would and arrived efficiency of this principle indicate Some banks work unit the personnel officer and a Those helpful in department. a tlxat at items of output item handled. per transactions relative of with him Volume of items handled should be gathered,: These costs. the can conjunction with comptroller should analyze the output of against with it is very reasonable of carries of his on the accuracy personnel in research and to to the most me tests contractor a its to guard and even It is The comptroller's duties a small bank as building a can are apply separate department. a top-heavy a very upon easy to create one department to check proper a number of balance the management should employees in non-operating any Too much staff in the comptroller's department that of are no find efficient operation but may be of deciding studies many just are dimensions of the as plans to build it. caution, it is in against bank a organization, and keep detailed records at little cost and the expense department. too who the in the comptroller production by the various formulas measures important in the bank, and even own word of a decrease or In other words, The studies made and measurements taken important to the management of are good clerk to measure The comptroller must know increase an department. any work department. of cause the operating head, the an average who may not be doing his part. one number particular will produce Sometimes importance. overload in the supervision an which we can expensive. more realized that every bank cannot have a comptroller or a personnel department, but I do believe it is the duty of the management of every bank to study reap of some staff of the advantages and share in the results. Consistent methods, routine, and systems is bound to bring forth improvements, which is the tonic needed to keep employees interested and thinking. part and The They can share observed competent personnel, course is us but remember performance twentieth not necessary organization Let who be these in seeking improvements new ways take to expedite by that its it their in a work. happier and prevent rust. Such only to show the capacity and capabilities of insure to enthusiasm, and increase pride the day's thought is not to burden employees, but to maintain more as a direct bearing upon the future progress of banking. assets and safeguards. its takes officers very a and foundation and perpetual a an existence. well-organized bank to bring about good staff, and that they cannot serve a century business world with horse and buggy methods. Guide to Charges Cashier of the Poudre To lay a foundation for some of the things I wish to emphasize, permit me to direct your attention to certain underlying facts which may appear unrelated to ' the accounting results good making comparisons. ments ments, with and board of his office. purpose over effect proper employing number of banks are following the plan' of staggering customers' state¬ throughout the month, or rendering them on a date other than the last working day, which is usually heavy. We have followed the latter net profit? our the comptroller must be well informed, bank's possible by adequate records, and he must be satisfied that in weighted another, syphon from a as have As me dollar from a the employee and the salary and total cost per These for very operation made operation, create the number of needless is of without will Act unemployment. operating costs it By this I do not intend to addition and. increase with with that, the during slack periods. benefits extent, must we from Social the age the payroll on profits, and enterprise, background. change be under all these hew assessments and that life a result would whose time would inclusion additional than by from the entire bank and translated In found the The control be must / , working hours. on banker wrote to a department must be carefully planned and adapted to the bank's require¬ and are ago checks because of minor many loaned properly his function, smooth system up Not long too reduction of $1,000 in expense is equivalent to the' at 4% for one year; that each dollar of a established defeat of the have we important as officer. limitation the run course, training before assignments sometimes can - ments. an were when subtracts expense fulfill he The trained not are to returned banks especially $25,000 policies For department and things some and management, and must have the ability to sense and understand that which is desired. He must interpret instructions with practical and intelligent application. From the angle of bookkeeping, almost any trained accountant could act as comp¬ troller, but actually to perform for the bank he must be able to view with perspicacity everything that he sees, for regularity, accuracy, and propriety. His examination of activities that come within his scope of authority must be minute and thorough, yet broad enough to prevent merits. promotions this decide to planning Outside its This planning a standards A committees head. in is avoided. continued established manager by hand a department crippled little made. is keeping activities correctly advancement caused have must for possible organization lost motion developed have To of bank. bank requires our operating large that said past fully seasoned. are that felt on additional and unsatisfactory situation, and errors result¬ bring criticism against the bank. I recall once that an appli¬ position in the bank stated that he preferred a job as a desk may cant in others responsibility needed is a that a any Each of these plans has must to banks capable a cooperation employees and systems,' and have employed. In itself, Some and others ing needed, make as efficiency of almost overlapping, duplication and chore thought. methods to the form of department heads, important duty of the operating head divided is key position in add he fully recognize that to clear understanding of the activi¬ a Lieutenants in the increase rapidly. employees and routine that the in endorsed by responsible firms and corpo¬ rations. Considering the expense of handling return items, this may be a good point for consideration. Remember this, that every unproductive motion removed from operations today will save for tomorrow. Do we ties, the bank will flounder in inefficiency, service is impaired and expenses may were our have We without going that far, completely disregarded new theories advanced. Now some of these proposals are an accepted part or, irregularities, operating head and his assistants must give the organization, large small, or have." to impossible counseling with them good judgment must be exercised, and in many cases requires studies of the organization is not complete unless someone is making The become plans have equipment or in a system and considers the problem solved if not forever, right there he makes a serious mistake. in advantages and capacities of machines health insurance involved in and who capable pf machines electrically operated volume of items. This use of new equipment appliesdepartments. Whenever a person sponsors a long period, a Your to the bank, the part of coming to photographic records to avoid duplica¬ are operating the of most change to affairs, own always cannot accident group assisting of It of management this interest on of in welfare. their impaired are development a untold in conservative finances outgrowth an been of interested and whose employees their large investment in its officers and employees, and to a vitally thrift encourage as be overlooked. and by using departments. transit their streamlined have developed highly to of that is: has someone in your organization been charged, the question responsibility of following trends, making tests and observations what should be done to keep systems abreast of ever- determine to being of fundamentals must not the note install a special for this work. There is a certain volume which seems to make such a change advisable and more economical, which must be detected and the situation corrected. This is likely to occur in any part of the lighting and air have their adverse effect and in judging the qualifications these in consumer system spirit of cooperation must emanate from the top and, if given the proper encouragement, will soon permeate throughout the entire staff. employees This should help in reducing hours. or retail credit has increased of growth department, and many banks have found it necessary to must not respect we every Furthermore,, and it has been of real value to us. year, working day. The In nearly every instance the condition rests right the for be successful to that should prevail. a has change last question of training before him and, while this paper stresses efficient systems, I do not believe we should permit our mechanics to reach such a point that incentive vanishes. In other words, there should be a happy medium between the force of mechan¬ ism and the construction of an intelligent body of employees. about for by our customers with satisfaction. In. looking at time cards of employees who are working under this plan, practically no increase in hours can be detected in the week the statements are completed. I have observed that some banks are delivering statements on the second and third of the month, although preparing them on the turn out an appropriate volume of work. can constantly keeps the angle he this this Speaking before Chairman weeks ago: of the Valley National Bank, Fort Collins, Colo. the Wisconsin Federal Bankers Deposit Association, Insurance Leo Corporation, T. said Crowley, a few pursuing his search for profits, I believe the banker would do well to apply Ingenuity he expects from his customers in "In to his problems tne standards and the other lines of business." the transaction justifiably of In other Crowley said: words, Mr. "Be what expect your customer you be." Apparently We bankers have studied everybody's business save our own. we department, that the dairyman the that abandon farmer production costs. close out his unprofitable shoe the general merchant have insisted that Yet fallow soil, boarder cows into producers, that the manufacturer curtail his convert and have deliberately ignored our own merchandising we problems. The bank's a income net be immaterial to appears first on service on a the social this But charges. reviewed question, takes light, the broader in security, and wage not or we The adequate it is satisfactory charges, is earnings not uncontestable proof is this whose word breakdown a the not by the form government. of theoretical or in the words, capitalistic has system Surely seek who banking such not were reason political All discretion credit of banking which then ment far from made Colorado Springs, appeared to be radical indeed—a prophecy which appeared fulfillment. actual in and 1934, leave statement trial its the in determination to whether of follows: as light of is on This statement becomes developments, recent banking "Independent Government-owned That banking is and if the trend checked within towards centralized or the next five years, if the people of this Nation are not willing and ready work to made of shoulder five years human the of is actual fact. If the barometer according to a demonstrated ability to lead rise to unsound, not privately-owned banking, this prophecy have become will highways over castles shoulder with to ago success people into an financial theories, then banking—• unworkable impractical, of principles, business destructive We and many instances cause of record of in places failure favorable dominated conduct management by which bankers lawmakers, the for the man the on who men make them to office. that street expect can laws the Our business the of presence a community bank has a constructive influence upon the volume of business in that community. transacted owned of affects the wage scale, a the privately- jobs avail¬ labor, and the value of homes and real estate, whether actual cash able to value He must be made to realize that favorably bank community which taxes These value. assessed or home banks directly be levied and collected may for any affect the amount particular phase of including educational institutions. I question whether the person ever realizes the extent to which locally-owned banking is the preservation of industry and to the preservation of a demo¬ government, average vital to that mind in of form cratic according dislikes the man bajance of the If it is important that we keep constantly perish in the future misunderstandings, the or the street—that on or the likes and of citizens who today hold group of America have faith in our free and independently- ability to stand on our own feet, without any more governmental aid or subsidy of capital structure. We do not for a moment doubt your sincerity of purpose, your determina¬ tion banking system, let's demonstrate do to your we ate seriousness in or utmost do question But of this brief address this of failure to further the whether a is There fessional one men, structure Sooner or of privately-owned banking. that reason we wish to direct bearing upon a have we so carefully emphasize the built in the we later If successful, we pro¬ small, whether farmers, merchants, doctors, we must deal in facts—we must must turn our minds to this other tool The of upon cooperate banking to costs frequently been ignored or lightly It is imperative that bankers by the majority of bankers. the and extent of charges. adopting a uniform method of arriving at Bank customers whose interests necessitate that you fair charges to Nation and its people. banks that have consumers, your given ever that one individually away, contributed structure of any the assimilation dime to of little to the very convince the that dollar, in behind running be would depositor funds in if or institution, never loss. a feel I justified in well-being and friendship of bond bonds, represents sound, a invested bonds in conserva¬ And care. our is invested submit 35% yet in concern a institution of an questionnaire a asking permission particularly violation a in I ponder this situation I wonder what to institutions our safe instances, year, As were operating are we are many every we Government in public their deposits of if inquiry to or explained of this that known fundamental every 35% invest to we conscientiously explain to the public that to banking structure our place to this be reasonable of light public I recover the invest than An they would their costs public's and accurate price? The day is overhead is not a distant far not will loan there deficit the lifetime a public bonds could in believe to institu¬ our preserve the that such as only not through demand would schedule of charges is impossible of accom¬ cost of survey your individual own Deposit fixed employees should be recovered, but protective taxes, depreciation of building and equipment, Federal that investments. high-yielding, questionable funds in accurate, careful an but approve system of adequate charges rather a Corporation Insurance social costs, security, and hour requirements, and other actual overhead, should be allocated wage through accurate cost survey and passed on by account analysis to the an person who directly benefits therefrom. if expenses the Placing It to incentive bonds fraud a on invest on ledgers is myth, a because it is mis¬ a the stockholders. will, extent, a cost-plus basis in high-yielding, questionable bonds. invariably acquired for the are theoretical, then theoretical are expenses our on issued in payment of such have been issued, never is institution your the remove should expenses of funds. application If these of serving the individual portion of the expense voucher mythical or costs—that allowed have Not only salaries of institution. insurance, his balanced—because his trained presumably for in uniform fair plishment without expenses, that merchant not allowed to view this scene of banking in the proper were sure am banks all funds we to face this public and explain to them upon finance, their can sound basis. a upon the If sound of investment the is How sound banker must take in a know not selling who are men tells he does his in that budget his he and I will be called fundamentals tions load bankers, we the when because profit when you why borrowers, approved income—because merchandise. our on We make such costs and therefore are unable our policy with the position with dealing not mark price institution is solvent, our in better ^condition. never was do not know we intelligent an reconcile though even to great a Such of obtain¬ purpose express ing income to offset dissipated earnings. In their anxiety to seek earnings, or in their search for earnings with which to meet an ever-growing volume overhead, many of our institutions have already placed themselves of in Government bonds represent approximately 35% of illiquid position. an earn¬ ing assets, carrying interest coupons which are the equivalent of investment An starvation. 10% additional approximate invested is collateralized by the full and unconditional guarantee interest by the invested in more Still Government. in obligations principal to as 15% another and 20% to is less illiquid industrial, railroad, or municipal bonds, will be paid other than by substitution of similar or which of few very Federal obligations. In cost 1933 installation the 50% of Today, for our sum completely recovered of $2,000 for the first in 45 recommended by the cost accountant. system rendered. ever This was of one In order to made. have thereof, the recov¬ profitable expendi¬ most obtain this of income amount expand bond our case 200%. investments Cer¬ in service charges that there might be in in these types of securities, particularly in the volume stated. is not the lost never That's loans. lieu in or there a days loans, it would be necessary for us to increase our present note investments a why I being brought upon of the of paid the approximate was institution's annual net income is composed of institution 1/3%, tainly We our services eries tures institution own which amount survey, after 33 our risk dollar service charges, in have little so sympathy today to supplement us our but lost we with the shirts in our pressure that is incomes by the acquisition illiquid long-term capital banking investments. It is not discussion, universally balance make of The itself recoveries national results of their of American careful 23," the to subject balance in all 25% more recoveries a as and for in study are set Bankers consideration. forth by Association. the This balance, so the wishes to rendered. that certain is one field of study banking have on "Commercial in Bank Minimum analyses. services the into Colo¬ institution importance to justify a thorough recently released of northern average your guide to charges prominence balance average account than not or of that banks state whether 100% reputation No. the or into subject of cost analysis Booklet your merely approximately resolves 75% The bring to but minimum use recovers question men intention my controversial deemed of sufficient industry. subject of cost analysis has too touched appraising and to the do have a valuable and scientifically adequately sell solvency ? fact, because capital deteriorates, wears out, and must be replaced just the same as any price contains offered is is results rado have in common with all business and or this well. as in foremost convinced are budget is not balanced. success century. thing that whether large dentists, or manufacturers. know costs. For factor which has banking this cause not the average banker realizes the immedi¬ situation. three-quarters of a course or our be whose from power. bankers we owned understandings the to of So government. privately-owned banking will survive clothes, he suit of a being depositor's loanS and by the people who elect convince must actual of their own. from treatment still apparently be¬ of a Government the in understanding public is the one means An are acquired high have profession or problem of psychology—of counteracting men who in too a leadership of these false prophets, these notable their business with faced squarely are influence account my fixed overhead, such as light, of profit You cannot which that individually-owned banking—is in fact rapidly on its way out. the the that statement you the question probably will not survive." life, and significant submit today I to your substance, in was, for more But fulfillment today than it was five years ago. not it is much nearer or system, between under complete Government domination. Colo., in June, 1934, I made a state¬ those banks and address at an present our on well-being of this thin endeavor to exceeds under operating money logical defense no merchant knows that that strengthened the capital institution, Government It is intended to differentiate only banks. unit or privately-owned In institutions all includes branch mark price a margin should service one has it We his reference to privately-owned or independent any of amount charge you customers. our Finally, let us the individual. of part in mind that Please bear whether the on the never contributed every Democracy places but yourself you free that an he necessary banker to the profits, the of do collectively, in the last 25 years, never produced a single cent of undivided of is the only form of government which permits pri¬ vately-own banking. Every other form of government, either socialistic or totalitarian, dominates its banking structure, eliminating all semblance ignored. until statements rights certain a They have "Why includes not only the wholesale cost of the garment, &c., and is essential citizens. If important adjunct to government it would be the regulate to asks: at always prepared to answer such a question, because he When taxes, the banking is subjected to such vicious attacks by power is his merchandise. We that is the Hence have must meet overhead. customer indispensable service which obliterated. those the this price lent, pricing This It is completely institution operate and costs. reasonable Second, let us been now to when merchant heat, tive The revolution Is won." obtained control of the army and navy. identical be of arriving method the together with its proportionate share of all a upon Karl Marx said, in substance: to his followers. "First, let us secure control of all banks and financial arteries. secure control of all transportation and communication facilities. other wise. any because, obviously, not all of the not amount ?" The system, foundation the broad teachings of that eminent Socialist, Karl Marx, very is scripture erroneous banking present our but democratic great present of cornerstone certainly their that which offer to saying far-fetched, not substantiated In solvency— of greater obstacle to progress than a breakdown no system, fact our is be can in rests statement service of financial our because showing of sound institution. a Certainly there which not in position to evaluate your note case or are mere system have of than with public bond necessarily indicative of satisfactory investments. On the other hand, a note case of solvent loans, a bond portfolio composed of investments which will be liquidated from income rather than by refunding, combined with an depositors but will charges and costs country, that whether of and such in all sections of these costs should be as nearly uniform as possible. Too many bankers install service charges in a hit-or-miss fashion, with no better reason for their installa¬ the knows question a Every service any plans can be correct, and so all stand convicted as incorrect. Naturally, and hour regulations, and other uncontrollable expendi¬ itself into resolves portfolio. you schedules. of these differences as possible, his investments. Your price knows shall seek this margin of net income from additional investments of a permanent, fixed capital nature, or purchase a sufficient volume of bonds at their present extreme prices to insure temporarily profitable operations. Either course involves relaxation of our vigilance as to the quality of these loans it tures, of wide divergence of opinion a many different With bank overhead constantly increasing in Deposit Insurance Corporation costs, rising taxation, Federal of charge plan when wide discrepancies banker should industriously seek to eliminate soundness the in profound aspect. more form of as tion of source thought, whether from bonds, loans and other investments, or froip adequate in various sections of the country are banking business skeptical they find such to 69 TABLE CONFERENCE ROUND Management booklet is their part. Management Commission commended for Let's stop from water the since the the 25 years done in trickle from the spout. a respectable Bob President, at their priming the of "free our note This investments. We banker from our back yard. own recently Hanes, said Oper¬ bond yields In the near future. Yet there are banks today which have not made any effort to analyze their costs and lack of sufficient courage to ask for adequate compensation from those they serve." "New in York Analysis," Uniform lack appalling analyze checking account September issue of Burroughs Clearing House, entitled Sponsors the cerning the informity of by accounts counties, resulting in a variation The investigations State However, could cost to not there was a that charge and they bankers the employed to hypothetical A of the one the expense their realized the services of personnel own based of a not was To meet this situation it actual on feel to that The competent such of would survey sufficiently accurate establish of It is the duty of every fulfilling the position of trust occupied unquestionably is far valuable too as an discharging in duties for us to attempt to enter the field <pf cost analysis. of hiring an expert to peform this service for our institution expense So I if repeat, Let's be Let's fulfill by in our income this function the of making its source, proper shall we the in have not our feet. own And their pay let's do spirit proper to worry and effort that deriving way, which is service to the public. and manner proper Then on service. services our independently-owned and to stand subsidy through capital stock. or community costs and from in free our demonstrate our ability true our knowing our faith have we let's independent of Government aid understand. If we public will the about the future of inde¬ pendent chartered banking. Those of country time our the knowledge that us best of the to stake who us with carry So I leave you join together in obtaining a consultant for group study result themselves is, after all, only a small fraction of our bank's annual earnings. suggested was time our banking 6ystem, they competent position operation. satisfactorily are we supervisory do to $15.00. up bankers tendency for the arrive at accurate cost figures. and methods State. of 16 banks in group a no efficient most If con¬ of this committee revealed that bankers in New York individually afford analyst, that these the that of enlightening inclined to agree that service charges should be were costs. from certainly in banks the submitted, for analysis, to was is availed have in the matter of cost analysis that the expenditure has in inopportune time to pinch pennies. an executive, annual convention: of Improvement In interest rates or An article of the bankers to be schedules. critically to examine his own operations and to base the conduct his bank's affairs upon an accurate knowledge of costs combined with the manner. is who those of charge service the most profitable investments ever made. of one opinion unanimous the medium, profit today offers a very real challenge to management with no promise a is It workable and satisfactory been that the cost analyst would institution each for recommend to Ever "The banker who does not know his costs Is simply working In the dark. ating at data cost expert guidance 20% of the income derived a primed this we checks and checking accounts as opportunity of cleaning privilege and State own as of usage circulating consumed newly-elected his much so our For investments. portfolio, of the income from our sound get the job Our of has bond have Let's of sound of turned to the portion pump and yet wells public major service" case priming that old, worn-out pump of free service, using clear the and have received not pump CONVENTION BANKERS' 70 we this in have served enterprise should community and our our ability. our with this motto: + "Let us, then, be what we are, speak what we think, and in all things keep our¬ selves loyal to truth and the scared profession of friendship." EDUCATION AND PUBLIC RELATIONS There were talks under this head two by, respectively, H. R. Smith and S. N, Pickard Meeting Held at Seattle, Wash., Sept. 27, 1939 INDEX The Front R. Goodwill Line—A TO EDUCATION Focal Point, by AND Harry PUBLIC RELATIONS Pago Smith 70 CONFERENCE Our Experience with Public Remarks of Meetings, by S. N. Pickard J. Page 71 Rudolph S. Hecht 72 The Front Line—A Goodwill Focal Point IIahry By It. Smith, Assistant Vice-President Bank of America National Trust & Savings Association, San Fran¬ cisco, Calif., and President American Institute of Banking Section In Introducing Mr. Smith, Chairman Hecht said: Our public education program is an endeavor to educate the public con¬ Our first speaker originally came from the East, where he entered the banking business as a messenger. He gravitated to the West, where he entered the employ of what is now the Bank of America National Trust & Savings Association. He is a graduate of tho Graduate School of Bank¬ ing and is President of the American Institute of Banking Section of the American Bankers Association at this time. cerning banking. The activities of the Association during this past year, in cooperation with the various State Associations and the local chapters of the American Institute of Banking, are a record of a remarkable piece of work, engaged in by thousands throughout the country; literally hundreds of thousands have comprised the audiences who have heard talks The address of Mr. Smith follows: ing and kindred subjects, talks for which the outlines Mr. Hecht, Ladies and Gentlemen—It is a privilege indeed to stand before American Bankers Association. in this session devoted to two very important subjects, closely related, you "Education and Public Relations." Unfortunately, however, reach but we were a small fraction of the population, and this is partly due to the fact that the public does not wish to be edu¬ Anyone who studies the history of banking in this country cannot help cated. It is difficult for the public to understand such economic phenomena as banking. of swings out of their busy lives to be willing to investigate and study. busy, and therefore of public confidence in banking. There are periods in which is full of confidence, a period of expansion both in banking and in the number of banks, and public confidence runs high; no one questions the banking structure, the banking practices nor the individual institutions. Those periods of time in history are followed by other periods in which con¬ fidence suddenly to dissolve seems Francisco, or as quickly as quickly the fogs dissolve in San as wish they would. as we That confidence disappear overnight and people who the day before were ssems to perfectly calm , they resist, complex set of a but be impressed by the fact that it Is marked by an almost continual series everyone It is difficult for them to find the time not consciously but They they impossible that shall we parent-teachers' reach the vast majority of the people with ever public education program purely of less, we should continue on the outside of banking. efforts to reach our associations, civic clubs, them through the schools, the radio, and we should over banking structure, suddenly become seized with hysteria and lose all banking in language that is clear and plain and which is not technical. a con¬ period of time in which those experiences face from memory, business picks up again and confidence goes on seem to again. It seems rely that in years gone by, at least, bankers appear to have done noth¬ upon a period of distress except America's tremendous capacity to forget its economic lessons. America forgets very easily. tress itself is the ing toward the resotration of confidence following to Too often That explains why after those periods of dis¬ confidence gradually came back until we had the same story over If we cannot and abstract fidence in not understand understand. this country took time out long enough to adjust some of the effects of the services, bank chartering. over-liberal policy of .< enough to rely for restoration of confidence a short memory. We realize now on it is not the fact that the public has that confidence of that sort is not really confidence at all, but is rather indifference, and the bankers of this country have therefore resolved that this time they shall do something actively, not only to restore confidence but to give it fore In we a sound foundation. There¬ have this program in the American Bankers Association. addition to our desire to see confidence founded on a engaging in public education and public relations this at reason time. so (for If you look again at banking history you will observe that all the major pieces of have been enacted immediately following periods of great banking distress. They were enacted, therefore, at a time when public confidence in banking was not particularly strong and when, there¬ fore, the bankers who should normally guide banking legislation were on the defensive. Thus it was made more difficult for and constructive banking legislation. banking to promote sound This, then, is another public education in times when confidence is high, be made more sure We stop for obtained such a and things stick out more sound, is moment and say, a poor a so reason that confidence may forward-looking step. or banking ? If The first is this: especially when it behaves in Two The public has not we a manner which we do not what then is If we can some of our even car a tend to But we realized the other garage. as car began to falter. over what was then Fortunately for We stopped there and explained He lifted up by distrust, understand. as Sud¬ us we best we the hood and sort He puttered around there for 15 it," and sure enough the man He hadn't known anything about it. about the was We had got to the of the no same as the first. confidence in a screw or driver 20 minutes, car started up third garage, and this was one, the various was seem to quite different in ap¬ over possibilities, and finally, by was He didn't quite businesslike and asked He proceeded to check car. We stopped at an¬ him. paratus which was very impressive to us at least. one great many particularly long, arduous stretch of road. how he'd fixed The mechanic pearance. a handn't gone very many miles before it began to falter, and know his business. Later we so on. individuals, "We have confidence in this say You have confidence in from Bakersfield to Los Angeles dismay, his our wrench, and symptoms con¬ number of years ago when my brother and I far from the garage. and he "allowed we the our though they do reactions to people, could the situation to the grease mechanic. a con¬ which achieve that, we have achieved which you do not understand. you incident an driving in his denly, and to and complex Just which psychological factors determine examine we called the Ridge Road, a were not very hope of building our build confidence in something we functions, organizations, and I well recall again. guard against lack of confidence is something which is exceedingly difficult to determined what it opinion of banking in past periods of distress?" very prominently. why "How did it happen that the public understood banking and what we do not understand we must of looked around inside, scratched his head, looked around for sound basis It will be permanent and not disappear quickly, there is another banking legislation Can particular individual," why is it? were So hope to fully educate the public regarding this people who do things for But this time the bankers of this country are convinced that the process. give the public confidence in bankers we In the early thirties we had another period in which banking confidence subsided, culminating in the Bank Holiday of 1933 in which banking in an as business of banking, banking? Can fidence of apt to explain a banking process in language which public does not understand? end. to tell the story of language which to us is plain but to the layman is not. again. post-war deflation and to adjust the evil effects of are difficult to understand as use we a Neverthe¬ continue to grasp every opportunity that is afforded u Then, after are too nevertheless resist, efforts to educate them in the principles and foundation practices, the legal restrictions which characterize banking. Therefore it seems dispassionate about their consideration of individual banks and the whole fidence in banks. bank¬ on supplied by the This is doing a great work. us all about the the motor with ap¬ Then he checked off, a process of elimination, that had caused the car to fail, and in very short order he fixed it. The way he went at that business my brother motors, garage nor I knew machines, ignition. machinery, but we inspired us anything about the with confidence. intricacies Neither of automobiles, We didn't understand garage mechanics had confidence in that mechanic because he or gave 71 EDUCATION AND PUBLIC RELATIONS We had confidence in convincing evidence that he knew his business. us I am thinking now of two insurance agents in Take another example. San Francisco, one who used to write my I got it, but that was all. quite insurance and one who now does. If I asked him for a certain type of insurance, The first was an ordertaker. He has made This other agent is quite different. study of what he thinks I need, and, surprisingly enough, I pay less a for my insurance now and get more coverage than he has given me I did before. sufficient evidence that he knows this business so that I without I have confidence in him because I feel he knows his question at ali. If that is the type If the correct impression, we can convince understand give the impression, and that them, know we our "I know my business, and therefore whenever the customer contacts me he is inspired with confidence because and he goes away I talk with him intelligently, I explain things adequately, The real point of contact for many of feeling that I know my business." is not your own desk but the desks of your junior your customers clerks, note of head the collection department, your and your officers, As they have contact with the public either telephone operator. in the bank outside the bank, the public is gradually or and President the of your Chairman but very definitely Therefore, it is not enough that your forming its opinion of your bank. Board Executive Vice- and your It is essential also that the man Present and Cashier know their business. Consider the frequency the note clerk Fifty-two times as compared to one It is essential therefore that our note teller know his business. contact! ciation, through its Educational Section, the American Institute of Banking, equipped to educate the young men, the young women, if you please the and your front line and the older women on your front line, men extends from your officers down through The Institute the most humble of your employees. is equipped to provide for each one in your front line the basic business to be performed and will give that impression in contacts with the cus¬ tomers. Does your front line work like automatons? Do they work me¬ chanically or do they have a grasp of the significance of the things they are doing ? How can we best assure that they know their business ? We in the Institute are very proud indeed of the growth of this Educa¬ tional Section. It is now 40 years old. It has grown up considerably. In the last 10 years, under the guidance of our Educational Director, Dr. Harold Stonier, it has made perhaps its most startling progress. It is no longer really a training school for juniors. The Institute has become the training and education so that he or she will actually know the Educational Section of the Association in fact as well as in name, and its and graduate formalized courses leading 20 including now program, standard certificates, matter of interest to every one are is wide enough which areas institution own their living and look for their future earn Would it be suggesting too officer the wisdom addition of a great pleasure to me if I could educational work formal is not in the catalog. stitute units, oftentimes is of much value and sometimes greater value than that which as they may derive from their actual study courses. Those of who us active in the administration of the Institute naturally are would suggest that upon your return acquainted with the this phase of the work, not only but because them, that each of assure enthusiastically promoted It is of the reactions and benefits we believe we derived to the ultimate result of bank commuhity to know the undeniable facts as uncontrolled Government spending and what it to the individual citizens as approaching a compared with a National budget that balance; to know the effect on all people, and particularly those of modest means, of what is commonly known as a control extent that free enterprise is almost entirely lost; to know planned economy, wherein a centralized authority is able to exeicise and monetary policy to such an strangled and the rights of the individual are the truth about interest rates; what causes them to so-called cheap money on be low and the effect of general business, employment and the savings people; to know the real story of heroic service rendered by the banks of America to its people in times of both war and peace, during depressions Nation's banks in meeting the credit needs of business, both large and small, and including farmers, working men, and all people having a legitimate need ? Upon reflection I believe you will conclude, as we did in Wisconsin, that it is highly important that these basic principles and facts be told our people in an open, public meeting. As a matter of fact, is any group better quali¬ prosperity periods; to know the actual record of the present these matters than bankers—who should be, and in the the real leaders in their respective communities? majoiity of cases are, the customers of banks, as well as our citizens in general, naturally look to this leadership for direction and guidance in the problems front a day finance and economics. up to this point, I have attempted to show you the reason¬ most outstanding and line its know The family gathering sit and down own In the introduction of the which to build the as and discovei the American Bankers problems, their common aims, their their common discuss which will enable them to interpret it to with every one of the know their own bank in a way The Asso¬ their own customers. discuss the details of every banking matter ciation does not propose that you a of constructive within the bank, where officer and employee can within the bank, and also enable them to staff, but there are undoubtedly a great many questions, great many matters related to the history, the policies and the experiences of the bank which the officers are common knowledge, but which the to staff frequently has little opportunity to become acquainted with, unless it is by some such means as the constructive customer relations meeting suggested by the Association. We have then these two things by which we can utilize the the contact people of your bank as a for your own bank, and the proper If front line: potent factor in developing good will public attitude toward all banking. will utilize the American Institute of Banking and The Graduate we School of Banking as a means of training our staff so that they will know will utilize the family gathering within the bank under bank, then the puolic in its contacts with your front line will own come away saying, "I have confidence in banking and in that bank because they know their business.' Two very important Neenah, Wis. factors entered into our consideration of this venture In order to achieve our objectives we had to have a speaker qualified to put our story across to people of all ages and in all walks At the of life. time same we recognized the necessity of engaging enter tainment for the program that drawing power to ¬ would have sufficient popular appeal and bring out a large and representative crowd. The com¬ As President of the Wisconsin Bankers Association at the time, I visited plans of the association's public relations department. prepared for Wisconsin newspapers and tractive printed ments in tickets for localized banker the for delegates, the unit around university towns made it easier to obtain large auditoriums and good sized audiences interested in the program and entertainment to be offered. customers benefit of the five stories At¬ planned to were been reached were prepared—all In the meantime, Asso¬ About 10,000 people in the five cities Carter and Mr. Irwin. The meetings along with dispatch in special consideration of those move who found it necessary to able seats and public host cities. and local banker committees worked conscientiously complete local arrangements. previously mentioned beard Mr. were news folders, local newspaper advertisements, special advertise¬ ciation group officers to Special banking publications. banking publications circulating in Wisconsin, lobby posters and taken. if larger stand through the entire program after all avail¬ In some of the key cities more people could have auditoriums had been available. In Madison, for example, the University Stock Pavilion seating 3,600 was fiiled to capacity, with over 500 on the outside of the building and in listening to the program over a public address system. who may have been nearby automobiles Some of our bankers bit skeptical when the plan was outlined were pleased a with the public response. After the first five meetings to which I have there was referred had been completed, immediate demand for a similar function to be held at our an State convention in In response to this appeal Milwaukee in June. we staged a public meeting at the Municipal Auditorium in Milwaukee on the evening preceding the opening of the annual convention of the Wis¬ Bankers Association. Conflicting dates of the artist and speaker who starred on our fall series kept them from appearing at the June meeting consin out on a very the talent in their place. had excellent we size of the audience was below our crowd they would be would have from expectations and looked smaller seating capacity of the Milwaukee Auditorium. tell you quickly where the mistake was made. in Milwaukee were concerned that if a a The 2,000 people who came hot night were enthusiastic in their praise of the program but public meeting idea in Wisconsin a year ago Appleton, LaCrosse, Marshfield, Madison, and the five cities selected, four of which being college and officers and local bankers on the There followed a rapid succession of advertising and publicity possibilities. because of the 7,000 sponsorship, and the annual meetings of these sectional 100% on each appearance. each of the five key cities to sell group me the occasion. Waukesha were It is also essential that Here again bank. ambitions, can be a potent factor in developing an excellent morale common fascinating piece of public relations work. this month we concluded to start by using our groups as groups will interest relations. customer but ing back of our approach to this project, which we were soon to was continued Association has taken a very progressive step in its program were from them. Would it not be desirable and worthwhile for the customers of your and the other citizens of your remarks your It is not enough that our front line know banking. our relate to you our expe¬ objectives and the plans of these public meetings and then mention briefly In my and local Institute units will be held up to the same high Educational Director of the A. I. B., was a happy one and they both clicked I would like to tell you something about the of modern because of the benefit which will come to participation their our Wisconsin with results which have been most of nine such meetings in as many Wisconsin so, local Chapter and established by the A. B. A. in these efforts inspired us cities within the past year. be your bination of John Carter, young radio star and tenor of the Metropolitan riences in handling a total If this home you investigate or become re- of administration in type the junior officers of your own institutions to become active in encourage claim that the idea of holding In the few minutes allotted to me. I propose to fied to The experience which that activity is something which women derive by Opera Association of New York and our own William A. Irwin, Associate try the experiment in as the administration of the local in¬ the Chapters and the study groups. these young men and with Public Meetings gratifying to both the oankers and many thousands of citizens of our State. money Institute, there is I refer to that experience which comes to young men and young women who participate in know its equal success this year. is at least of the we interesting to note that the idea was continued by President Phil Benson with The great record part of his personnel and trainnig a constructive customer relations, so that the front line will of the principal cities of the country. and developed it in several as banking, and if in banking. tion oi Orval Adams, who conceived the plan and well to improve themselves by "pur¬ much that you discuss with your personnel including the to well as return you employees and of educational experience which is not in the curriculum, which another type from the outset. our when your stitute, to the end that they might know their business better? know, the A. B. A. blazed the trail for such functions during the administra¬ of among policy the participation of your staff in the educational work of the In¬ public meetings for bank customeis originated in Wisconsin but, as you all over which the program of proud of the fact that there are at present 65,000 members, or It would be means not now served by the Institute. are inquire you pre-standard, Our Experience some Many of those are situated right in of the Institute. Many of served by our Chapters now By S. N. Pickaed, President The National Manufacturers Bank, to active are there is another include subject to to of the Institute throughout the United States; that of this number— more, are situated in are your all if at this juncture I mention that the Asso¬ It won't surprise you at We 65,000 who alarmed at the fact that are junior officers have taken sufficient interest in the business in which they Take one of these instalment loans of contact. 52 times—that is, he is supposed to. older we standards for which the Institute has always stood. the woman on the front line knows his or her business also. —the borrower meets the loaning officer once and he meets is But Would it be out of place if I were to suggest here that to commercial tellers, and it goes beyond that, too, to the bookeepers, your messengers, or them In How can we impress them, business? It is not enough for the the public? executive officers of the banks to say, vour thatT25,000 have earned and 170,000 bank officers and employees in this country who are not yet touched cities which business. our At what points do we contact convince we can the public that we know our busi¬ have confidence in us even though it may not then the public will ness, Institute. the students, were So I repeat we are proud of the by the Institute program—170,000!' of impression which will create confidence, that seems pretty safe course for us to follow. a least—40,000 at year suing the educational work of the Institute and which have not? business. like in In fact, willing to entrust my insurance affairs to him now practically am last standard certificates. him, in the man, even though we didn't understand the business. big name Let Some of the larger banks artist was engaged to draw embarrassed in the tremendous rush for tickets they their large numbers of customers. deferred to their judgment but we Consequently, we found that it is a mistake to expect a large audience in a metropolitan city with its many competing without a "drawing card" entertainment feature. attractions 72 BANKERS' If we had followed standing artists we hold public meetings. Just However, we resolved not to make the we three benefit of it in the event weeks ago sponsored last year. had we These Claire, respectively. We three discouraged not were with public meetings such more of as we bit successful as as details play in all solves American our way of living. I say that I do not claim that the public meeting relations problems. There are many other public our mediums for work in this field which are both effective and necessary. In Wisconsin we have been endeavoring for the past several years to follow, under the leadership of a full time director of public relations, and our State I will not discuss secretary, a well rounded program with which to develop a better and more constructive relationship with our bank customers and the general public. This includes the preparation of conference material for use carried out in the and same manner as a year ago. definite start committed the on to giving it their by bank staffs wholehearted be made until project should an No support. enthusiastic local interest is shown. solutely necessary to engage will not detract from the a top tickets as large city is concerned, it is ab¬ a grade artist or some other attraction that dignity of the occasion and yet will have that all important, quality of drawing Inasmuch throughout the State who thousands of given out by the banks in the city where the are our bankers our fill speaking to with the press banking through preparation of subjects of includes interest to mention. numerous to informative So you releases and special articles on news can relations but these public meetings proved in and In other words, the psychology of the affair is to make each person receiving a ticket feel that he is fortunate to have one and that there is a large demand for them, there actually should be, as unable to come, and even if to have empty seats. some Many holders of tickets will be people are turned away, it is better than A house jammed to the rafters is always the very best background for a meeting of this type. entertainer and it is much more It inspires the speaker and thrilling and exciting to be in an audience that is large and enthusiastic. With the exception of very and the speaker brief introductory remarks, brings the the message the time of the affair should not exceed one program the artist who is to enter¬ bankers want to the citizens of the community who have assembled. accross to mum who vital I pleased am have had to and a put The maxi¬ and case to be fascinating a an opportunity to speak to brought with me pictures of our public meetings to show to any¬ wljo may be interested and they will be available for examination at the Public Relations Booth in Parlor D until Thursday night. In conclusion, I would remind you that much has been made of the claim that the bankets of Ameiica cannot agree on the basic principles of their business and thus own affairs of the Nation. cannot I qualify mental aspects of our ground. However, but manner a statement which is entirely and do agree on many can economy which should provide a common be action immediately and of the most virile type. Do you know that the American people are again turning and looking to must half hours, thus send¬ county asso¬ the event very substantially. to customers of the local to attend reason that it gives official In this way an invitation can be extended banks in the city where the meeting is being held "open'' session of the convention. an impression for the which strengthens the background for be to and seen sions where heard banking profession the leadership it once enjoyed. This applied to the presidents and executives of smaller banks, too, but our large city friends lead must the way. Fortunately an excellent vitation to public relations hear the inside story of how interesting reactions have very which have convinced us banks function. come out of our of their value. young people. Each audience included a boys and girls who appeared eager to learn more about banking and its problems, as well as to try to get the economic importance. This, we considered one of the happiest results of our efforts in sponsoring these meetings. Here If can put out story to across young people our are offers the the Bankers Association. a survey of a A school teacher said, "I learned second of the first series of meetings was held at the Purdy High School Auditorium, the "News-Herald" said editorially: "Marshfield and the surrounding area are indetted to the bankers of of Group 6, Wisconsin Bankers Association, who opened their meeting to the public Tuesday night. An audience of approximately 1,?00 persons John Carter, brilliant young Metropolitan Opera tenor, and the address, 'The American Way.' by William A. Irwin of the American Bankers Association. The response from both singer and speaker should delight the hearts of the bankers who arranged the meeting. Both scored heavily with the audience. Speeches usually are dry, but not when homely truths are pointed out in a commonplace and understandable way. Marshfield will be glad to play host to similar bank meetings at any time we are given the opportunity." same songs of newspaper heard of our on public meetings scheduled three its editorial page. '.The program given here last year outstanding. Mr. Carter has an unusually pleasing personality and one of the finest voices to opera today. Irwin's speech enthralled the big audience which heard him. All we can say is that we regret Marshfield could not be chosen for this year's meeting but perhaps we should be thankful for past favors." meetings sponsored by the Wisconsin Bankers Associa¬ have made consin citizens. a favorable contact with The constructive newspaper 16,000 to 17,000 Wis¬ publicity resulting from these meetings carried the message of the speaker to many additional thousands who have had some banking and economic truths brought home to them in simple language. These meetings have shown a willingness on the part of bankers to discuss problems of mutual interest which has won for them public support and understanding. We believe there is a need for public as me that our need we scale, were furnished, they could be our message out into the We hope to develop this idea further in Wisconsin. Public meetings help to overcome the notion highways and byways. long held that bankers enjoy the music of a a your so that we can close ranks and our of Rudolf S. all hope move ahead to on our own a part Hecht, Chairman, Public Edu¬ Commission—Comment order, Hecht: Ladies we will start this and meeting Gentlemen—If on Congress on on The building will you please come to Education and Public Relations which for the past several years has made up an of the convention program of these several interesting and worth-while part sessions. of public good will toward banking is, of up course, the Educatioa and Public Relations Committees, and you will hear from several excellent speakers tonight who will tell you both of past main object of your performance in that respect and take you far into the future, telling you what is ahead of us in the banking world. Dr. Stonier has asked me, something of somewhat a however, to take just different development in which we experienced recently and which I was in attending in New York last month the a moment our to tell you educational work particuarly asked to look after Congress on Education for Demo¬ cracy. Dr. the Stonier has for teachers of this New some done years country, some vary remarkable work with and particularly with Teachers' College in York. of Teachers' came over Democracy College of Columbia University. especially to deliver was It held under the auspices was a world-wide congress, including Earl Baldwin of London, who an address, and it was one of the finest addresses it has ever been my privilege to listen to. The purpose of this Congress on Education for Democracy was to bring together laymen and educators representative of all phases of American life discuss the question, "What is the responsibility of education for the defense and advance of democracy?" two weeks before the war clouds in unusual The Congress was held just exactly Europe finally broke, and it was a most experience to sit down with these people, representing all phases of American life, and also there was the international atmosphere which the important representatives from England, France, and some of the other democracies brought, including one which has since disappeared temporarily at least, Poland. One of the main speakers of this Congress was a very fine artist and to absorb the In any event, it was a new experience for us, and we felt that the American Bankers Association and the individuals representing your Association at Congress got a great deal out of it, and we believe the been developed in this manner with of great benefit to us in the future. ' "• to closer contacts Teachers' College will be • As I said at the outset, it is not my purpose as are customers and friends ideas of an outstanding kindly feeling towards banking in general and your bank we little of the patriotic spirit that comes with a more Chairman which have educator creates ultimately become involved in we neutrality, and God knows Education for Democracy but if high-grade musical and speaking talent Meeting in public with that the present situation complete understanding of banking both by the splendid people of this great country. cation that distant and aloof. we can say As I close, I therefore call upon you, the bankers of America, the finest I know, to fall in line and Forward March I ! meetings to be held in smaller cities, possibly sponsored by local clearing houses or county bankers associations. Such meetings would naturally be conducted on a somewhat smaller carrying thought eminent Polish official. f most effective in no real work. any men to The nine public the field is opportunity to unite its forces for service attended by very eminent people, was but useless in the judgment of most of us. This Congress on Education for it said tion thus far well as more bankers have done to acquaint people with the problems of banking." The Wisconsin press, seeing news in the event, spread the message to thousands of Wisconsin newspaper readers In Marshfield, where the When this an able to maintain are time like the present better and public opinion made by the meeting about the problems bankers face than I would in a month of study." A housewife commented, "Our young people should hear this address by Mr. Irwin." Another said, "One of the finest things the weeks ago nothing of doing A. B. A. our own it will be the latter. Jt seems to this thoroughly enjoyed the say banking profession war or and pray by us bankers, by thousands of bankers who have given effort, to to our country and our people whether Remarks comments from some metropolitan future is secure. Wisconsin at we of the War is horriole, terrifying and good per¬ centage of certainly example has been set for few However, with all its evils, perhaps what a splendid contribution the bankers had made towards the education of the community on the importance and value of banking in everyday life. Third, we found a surprising degree of interest in the meetings on the part of students and certain a wide open for action public meetings First, many of our bankers were amazed to learn that the public is really very receptive and sympathetic on the average to the problem of the banker after being given an opportunity to understand them. Second, another result that had not been anticipated to any extent in the preliminary plans was the almost miraculous effect it had on the bankers themselves. They came to the meeting, saw, and heard hundreds of their customers and friends applaud the program and tell them afterwards We need be aggressive and the senior be willing to appear in person on occa¬ are being discussed and allow themselves to important subjects of the day in order to help win back for disseminating propaganda, it very definitely leaves the thought with the bank customers that they are being favored with an in¬ to need to we must banking problems be quoted on leaders and Some in public: large banks our the Thus, instead of giving of meeting by and think these things in a self-satisfied something about them. In other words, there do executives of local clearing house group, the un¬ funda¬ we cannot sit must we counsellors and leaders in as believe this is It is well to tie up a public meeting with an annual gathering of bankers —whether it be a State association, sectional organization, or you one their bankers for counsel and leadership in the Nation's affairs .' color and sponsorship to the affair too important field of public our ing everyone home wishing it had been longer, rather than to have them weary and tired from too many long and boring speeches. ciation Our services they brought direct and worth¬ as justified because the bankers of America should definitely be confined to the appearance of tain this other about them. I have Do not hesitate to give out tickets in the proportion of about twice the do in to thrilling experience and inasmuch while results, if the program has been arranged properly. capacity of the auditorium to be used. need we magazine readers. and that public meetings are just one see they of what part and newspaper advertisements meeting is held, it is highly important that all officers and employees be thoroughly sold on the idea and not just pass out the tickets as though peddling hand bills. before civic clubs and engagements meetings of various other types of organizations and close cooperation with program power. are in their third year of activity along this line; "Your Money and Mine," which is being shown to citizens throughout Wisconsin; a speakers' bureau organized motion picture, our new to send holding a public meeting in as were discussion of mutual a regard for the value of community banking institutions and meetings further because the preparations for them and all other were So far The public learns the a, b, c, These meetings The banks in the sponsoring city must oe completely sold on the plan In advance, and that not all the criti¬ same are true. those of last year and our new State President has every reason to be gratified with the showing made. this year's the are impression of the value of banking service. new a Beflore closing, may Willaim A. Irwin, who teamed up in their inimitable fashion to entertain every a the part they idea fortunate to again have John Carter and and inspire 4,000 more of our Wisconsin bank customers. were problems and held at Janesvilie, Stevens Point and Eau were were banking and gains Public meetings create an atmosphere conducive to the again. same error community cisms leveled at banks and bankers of you decide any At these public gatherings the public learns that the interest of the banker and the audience of 7.000 no matter what an I pass this experience along to you to show some of the pitfalls and to give you the to In particular. original Idea and engaged one of America's out¬ our would have had kind of weather prevailed. results, but CONVENTION Chairman of this meeting to take your time, because we have a very excellent program ahead of us. In considering this subject of "Education and Public Relations," it is but fitting that we should begin this program with a representative of our Educational Section, the American Institute of Banking.