Full text of Commercial and Financial Chronicle : October 14, 1939 : American Bankers Convention Section, Vol. 149, No. 3877

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Bankers Convention
SECTION OF THE

Commercial and Financial Chronicle
Vol.

149.

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

even

three

upper¬

delegates,

four weeks

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,

its economic

It may

little basis for conclusive

gave

Stock

own

market's

once

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

from

sold

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

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

all

regarding its

the

confusing.

of Germany's bloody
an

week from

Yet

intervening

subjugation of Poland, the beginning of
sive submarine

below their issue

neutrality.

respects

Europe they had been made

regarding

in which the

The low-interest Government bonds had tem¬

aggres¬

campaign against British ships, in¬

the

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

Government); the slow advance of the French army

belligerents would decrease the probability of

in the West into German

own

vasion

Poland

eastern

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

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

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

widest

imaginable

restriction

what

our

expected that

probability.

even

It could scarcely

•

■

Bensonhurst:

such

moment, to suggest financial plans

policies, which must necessarily depend
measure

the future progress

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

European

war.

The report of the Eco-

Street

86th

Avenile

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

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

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

third of its early impulsive

33,500,000

Established 1859

BANKERS'

nomic
of

pend

war on

such unforeseeable factors as

the consequences

of the conflict and the nature of

the

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

CONVENTION

real

involving

emergency,

tration

surround itself with

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,

will

required.

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

hold

to our people,

our

rescinding
that
that

own

prevent

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

the

approach to

primary object of

balanced budget
our

fiscal policy,

to the end that sound national credit may

tained."

The

profit "is almost criminal," neverthe¬

right-minded
This is

wish to

union

within
of

measure

necessary
we

need

The

that

our

should

own

ican

manufactories

verted

terial.
after

be main¬

Indeed, the

Meanwhile the

drastic

changes

now

by legislation.

It is

events of

digest them.

What

our

inaugural address took

Robert M.

Hanes,

his

cheerful view:

a more

During the past decade the world has been engulfed in
economic
there

and

seems

have courage

political

and

are

issues and

panaceas.

turning of the

awake,

new

tide.

Now
To those who
.

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

1918, must itself have taught its lessons.

full

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

That

have been hastened by the

line

with

such

This

advance

many

recovery,

predictions,

not

has

already brought the pace of industry back to what
it

was

in the

summer

early autumn of 1937.

"V-r-

•

Index

category

broader

differing not at

application,

the

the'

problems.

Division

deals

and

embraces such items

general

its

likewise

Division

which affect all members

ments

section

all in

This

group

with

their

constantly

serves

with

develop-

much larger

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

considerable

very

response to

success

practices
and

common

committeemen

upon

freely in this

attained in its performance is traceable
to

measure

of officers

been drawn

the

all leaders

in the intricate and

live, and there will be need for

Whether

terms

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

but

purpose,

watches

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

hand, and the

free economy on

ie ahead.

Essential to the success

pedal problems of banks in different localities,
entire

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

and

witnessing

we are

great

of dollars.

of the nature of member banks' needs.

recognition

supplement

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-

operation for some

to me the

much deeper than mere

goes

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.

the

bank

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,

loans

and

investments

However, despite the

^National

banks

q^e

satis-

highest peak in banking history and bolstered by a capital structure

greater than ever
ment

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
*

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.

checks sent

The desirability

amendment to the statute was studied by the Division's

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

least

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

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

consider wealth in terms of the necessities and conven¬

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

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.

greatly imperiling

organization

intangible but precious things which make

tion.

the grim

Technological development and the change in

significance.

policy, because

the

Whatever role may

quarter century of great

Comptroller's office

portfolios of

individualistic society

the other.

the epoch from that fateful decision to the present day

and

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

this point.

thing

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

rapid

moment at this point to most informally

digress for just

free economy

However, I would like to

changes in standards of living brought about by the introduc¬
the economies effected

hand,

on one

too deep, and is too

properly plumb.

population and of wealth, the shift to urban centers, the

and, above all,

and

the other.

the practical completion of the industrialization of our coun¬

try.

economic'and social regimentation

gle between

con¬

years

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

the

much

cause

$5,000 each.

still require a pledge of

dissatisfaction

this

Though they

when

they

under FDIO protection, they

are

securities when carried in banks designated by the

Treasury

funds must be placed in

Furthermore,

depositories.

Federal

such

the

have

country

postmaster

less than $5,000 each.

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

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

can

fore, the

demand such security and

cannot

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

to be

Division

10% of deposits, while 57 banks each have a
problem

in this

recognizes

number of elements which

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

Division is expected soon to be able to announce completion of its

The

inatters

deep

Federal

to others as well.

whether they apply to such

Therefore the Division had

laws

new

are

One
and

affecting

enacted into

which
bill

them,

law,

executive

of vital and

provisions

of the

Joans

Social

be repaid to

may

Security

Reserve

Act

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

the

Of importance

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

The

provisions.

known

the

office of the
We

,Brown bill, which would have had

vital

measure

effect

the

reasonable

series

Legislation broadening the

of the

powers

various governmental

been given diligent attention by those of our
organization responsible

for our legislative endeavors.

Association, in continual cooperation

with A.

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

time

by statute.

some

the

Division

and

directed

attention

Normal

with

part

the

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

be made

not

voice

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

necessary

that

the

liberalization

forces

loans

Likewise

refer

will

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

of the Currency,
bank

proper

modi¬

upon any

its

status

which has

are

unwarranted

accord with the desire

extension.

expansion of credit

The

dangers

those

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

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

rather

break

through

with other

purpose

potential

borrowers,

but

the

by ignoring vital lending experiences

generate

quicken the

recovery

accomplishment

cannot

movement

of that

be expected either to

sorely

needed

the

United States.

Throughout
banks

are

the

for

new

the smaller

bank

be created make
volume

country

the

required to maintain

plus the
a

high

are

same

amount

The

attitude

influence

many

Currency be

funds

National

increasingly heavy burden,

of surplus

minimum

which

business

available

many

places

Almost

years

and continuing to the present there has been

the

assurance

United

the

States,

Those demoastrations

its

Bankers

existence

gathered from

practically

effectiveness

the

time

unanimously

the

office

participated

the

that

Comptroller of the

diminished.

not

that

support

insistence

time

-v:

■-

Therefore, the National Bank Division is opposed stronglj to elimination
of

curtailment

work

the

Comptroller

of the

The

Currency.

independent office for

chartering and for the examination and the supervision of National banks
alone;

which

action

sponsor

centered

administration

its
in

one

April of this

year

same

State

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

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

banking alike,

the

Division expressed its conviction that the strongest possible efforts

should

appear

made

whatever

show

exclusive supervision over

unsoundness

and

develop to curtail

undesirability
or

may

abolish the Comptrollers'

National banks.

Appreciation
The

Executive

Committee

during last year, though smaller

Division

the

groups were

their

the

views

were

gathered

and the

promptness

thoroughness

responded made work with them
cooperation

capital

burdensome

tendency for

with

the

work

once

several

which

and

each

members

the

The

corre¬

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.

but

upon

In addition, through
other

upon

assembled

was

called together

occasions to consider matters of importance.

undertook

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

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

part.

So to these

men

the

economy

responsibilities and do

give

our

fullest

under which
its

measure

which I have prized highly.

absolutely

Nation operates,

our

full share to

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

years

opinions

indicating

and

minds and

$50,000

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

Association.

of the

However,

contemplation.

in a

year,

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

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

President of the United States to

focussed attention

supervising agency

pursuance

sisted

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

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

Congressional

was

business

development.
approved heartily the principle of ample credit extensions

funds.

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

the

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

miscellaneous

The

of the

and

into review to test its effectiveness and for such

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

agencies to compete with banks of all classes has given much concern and
has

Comptroller of the Currency, failed of passage.

make mention of these in particular for the reason

indicative of
control.

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

statute.

bill—Senate

locking bank directorates

effective the efforts

Likewise,

necessity

expansion

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

the measure extending until

was

officers'

members

all

guide to a periodic

operations.

wastes

prompted the search for some formula which might refine or make

direct interest in many

bank

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.

difficult to correct.

are

capital of $50,000 or less, picked

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

capital

be in dealing with such deposits.

can

surrender

of capital fund requirements.

to the severity

inability of the Department to know at all times the exact sums

deposit in the various banks.

amounting

The collateral requirement is more or less vexatious

also to the Treasury Department,
and the

postoffice accounts

National banks to

instead, and it is believed that the occasion for this trend may be attributed

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

called

and

filled

enjoyed

memory

the

years

NATIONAL
Remarks

Before

National

Bank

Division

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

should

that

shall

elected

President

have to

have

your

lot

this afternoon to tell

program

American

the

of help from

Bankers

you,

DIVISION

I might say there is

Division

great

of the

American

of your bank is concerned.

influential,

the

of all the work of the Association

success

say a

mittee that has been set up in
some

time in

the next

Association,

very

depends in. large degree upon

Washington and will probably start hearings

America.

may

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

it from the

this spirit

shall

are

Washington,
of the

but, feeling

viewpoint.

we have gone

there and

Congress and the committees

story as honestly and frankly

they would list to them.

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

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.

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

study

of National

Banking and Currency,

was

Monetary
passed by

August last.—Ed.]

Report of Committee
President Cook:
the American

give

Division

will

Mr.

will call

Nominations

Francis Marion

Bankers Association,

the report of the Committee

Law:

who

comes

Law, Past President of

from Houston, Texas, to

Nominations.

Mr. Law is Chairman

But in

bankers throughout the

give

that

support

and

The report of the Nominating Committee of the National

Bank Division is

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

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,

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

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.

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-.,

Henry W, Koeneke

Remarks of President-elect William S.

Report of Committee on Nominations

What Profiteth It

Nation?

Louis, Mo.

By Wood Nethebland, Vice-President Mercantile-Commerce Bank & Trust Co., St.
view of certain economic situations 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

to the

history.

written

the

respect

all over

people

are

those

the

ride again.

with increased tempo,

itself

foe alike,

and with much

seems

blended in

are

the

air,

who

are

wept

stand

one

Little

great red burial.

scuttled

at the road

of new
holes

underground

into

that

cludes

struggle

and

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

Faced

of supplying
on

way

well

with

now

engulfs the world

crucifixion of mankind that the resur¬

such

recheck

imponderable, and seeking to grope

our

figures,

retrace

would it not
our

steps,

examine the

route

the

past which we have driven too fast,

markers

possible

lost

our

along which

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

enjoy in
at

his

to origins to find

race,

history,

moral

peace

some

light

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

freely

disposal.

Currently

much

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

it."

the

even

being a member

rights whatever,

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

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

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

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

necessarily be car¬

is on the one hand
the

use

impossible and

compulsion

the

most

the other it fosters a false liberty, since

scheme

in¬

"Society, therefore," he said "as the

collectively.

Socialist

place

found

for

true

social

authority."
As

opposed

embraced

ticular,
cannot

that

the theory of

most
the

civilized

individual

be surrendered at

These

are

away

from

called

personality.

hear

of the State over the

certain personal or inalienable rights as so

and possesses

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

George

the German philosopher,

hundred years ago.

restatement

of an ancient

version

democratic theory that man is

to the

toward

matter of centuries.

out of the depths that threaten us,
to

of life

abundance

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

modern

iliany philosophers, including Spinoza,

especially

supreme power

answer

our

ductive

As
the

Friedrich Hegel, over a

far

wrought

than

and

Bentham,

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.

many

from

human
no

ideologies which offer a
difficulties that con¬

to the manifold

solution

doctrine advocated by

bloodshed,

much

monsters

banished

The culture of the ages is in danger.

whose pinched faces blanch

Surely

We have

of death—only

children,

now

of thousands of the flower of youth, friend

Again tens

now

Once more, back and forth

plains that have known

ments of destruction.

Civilization

be as

by the

hope,

emotional

religion

world;

swings the long engaging scythe

it will

Certainly, in Europe, the Four Horsemen

countries.

of the Apocalypse

and

doubt

age,

Ages, followed,

Certainly

dictatorships

across

of those great periods

one

when the great Crusades were made.

were

many

this

Dark

the

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

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

his

include the right to live, the right of

self-defense, and religious liberty.

From this point of view

other

human being is valuable for himself apart from any

human being or the State

itself.

democracy, "a human

being retains his value because it is intrinsic to him."
is

reason

ments.

sought

These

endowments

whose principal element is a spiritual soul.

person,

"The

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."

and

until governments acknowledge

not cease

respect the inviolable nature of the individual, whether he
be

friend

which

heaven
of

There

foe.

Now,

sidious.

which imposes

of these rights

planned economy

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

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

necessary

democracy intrust their

"to provide for the

powers

emergency

dren

sacredly unto themselves.

reserve

is no

there

going
rights

but

indefinitely,

this

ger

of giving up

thought

usually,
of the

"for the duration

it is

departure

At the time of this fore¬

been

had

perfected,

these

from

basic

seldom

repealed,

the period of the

free

emergency

are

is so pro¬

longed that the restrictions which tend to stifle fundamental
rights become
cal

whereby

permanent and accepted part of our politi¬

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

been

of factory

Moreover, the regimentation to which

have been sub¬

jected in the past few years arises from the idea just men¬
tioned

quent

the divine right of the

unfortunately

seems,

must

State, which theory, it

be tried and

disproved at

the

this,

efforts
more

invariably has for its basis the concept of reformers, who
would

have

believe

that government

should occupy not

only the position of arbiter or umpire, but also should enter
the

into

trated
comes

game

quarterback.

This

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

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

only

unmistakably

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

to the

citizens.

its

citizens what

supplement the

attempts

government

its

whatever

government,
agency

assist, and assumes to do for its

could do better,

they themselves

it becomes

paternalistic and stifles natural initiative, the life-blood of

oppression,

than supple¬

government does less

and shows itself indifferent to injustice or

assist,

the

opens

door

and

anarchy

its

own

destruction.
here

tried

have

between

line

this

that

the

suggest

line

demarcation

in the full

civil liberties,

personal liberties and

realization

intangible

boundary which changes constantly with prog¬

But America in its beginning instituted a system

checks

time

from

balances

and

designed

this

redefine

some

time, in so far as it is humanly possible to

That

the

either

011

inherent

danger

banking

creation

slowly

drifting

other branches.

States

power

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

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

control

political

concentrated

power,

yet

one

for

can

possibly

is a

step

machinery

FDIC

the

While

that

consoli¬

weapon

would provide the most powerful

direction

time cooperate in their work.

same

supervisory

all

economic

the

sake of argument,

economical

agency,

the

proposal that

Insurance Corporation some State Banking

Federal Deposit

dating

instruments

Since the advent of the

any

sovereignty to the Federal Gov¬

must

system

and the ultimate end of

each

That is the compelling reason why the

ernment.

are

both

shall continue to yield their

further

of our Government lias an

judicial branch

influence

undue

That

inherent in any proposal that the executive,

the danger

legislative,

cumber¬

be, strikes at the heart of this republic.

it may

boundary

do, and he who would destroy this system, however

far

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

the

Federal

State banks, a measure of

maintained.

What

little

left

certainly should be preserved.
I

through

him the official

The

dividends without

for

of labor unions capable of

every

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

Time and education have cured much

regarded

than

exploited

the formation

bargaining,

is to

form,

grew

women

were

poor

has

collective

fre¬

This condition

intervals in the history of nations.

welfare.

spiritual

home, could not cook, sew, or keep clean.

regard to the future.

dual

of the Government.

physical

for

concern

generation

ress.

emergency

Children worked from six in the morning to seven at

phrase,

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

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¬

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

welfare

economic

should be permitted
nomic servitude.

national welfare.

realizing

em¬

particularly the low income groups, nor to say that capital

case,

and

employers

between

that the State should not be concerned

the

crisis within the State, or by the fear of war from without.
either

effective substitute for

prove

understanding

Morality cannot be established by government fiat.

ployees.

with

the

presents a dangerous threat

Its machinery is too intricate, too

to be unworkable.

prove

administration

manner

Relations Act

contract, any in my judgment will in the end

to freedom of

bodies

be quite as unnoticeable as

nationals may

its

life

government which

form

from a

prerogatives to the protection

form of government

high

under

law

material considerations.

the transition
its

moral

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¬

powers

They are the endowments of a

telligence and free choice.
human

the

are

The

endow¬

inner

certain

BANK DIVISION.

STATE

have said

ment

which

that

limits

the

to one which

dictates

ere we

aware.

our

are

transition

its interference
a

from
with

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

the

to which the

This does not augur

judicial

and

legislative

that

while

branches

declined.

has

Its repercussions have been some¬

well.

what mitigated by the

of the executive

power

expanded,

has

Government

the

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

the end

of the fiscal

of 1940—with an annual interest charge, even at low

year

rates,

three

times

$1,000,000,000.

over

the

This

amount

the

item is more than

one

entire

cost

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

and

of lead¬
means

domi¬

for

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

to me, lies with the

seems

forgotten,

who

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

groups

penditures

large

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

mounting debt

tive

have

While holding

years.

and ineffective—a view

sure

the

dangerous

proven

by experi¬

another joined pres¬

Administration local

which

only

added

bitterly assailed at the

ex¬

the

same time.

release, and unfortunately

most effec¬

favorable

com¬

parison of them with the amount of taxes collected therein.
do

need

not

enumerate

the

you

instances

many

wherein the citizens of this country have either
supported,
have been adamant with respect to unwise and fantastic

proposals

simply

ficiaries.

what

member of

need, and what

Congress

have if

we must

terms

"my country"

district," and
Moral

constituents

rearmament

find its

cannot

rather
who

the

Senator

Joe

years

some

to retrieve

are

of touch

the

"my

It must first

with

if we failed to say that the complete confidence

however,

which should obtain in such a situation does not now exist.

will

part

what

respects

After

was

going

been

had

rest

record

then

were

both

During the conversation

pride he evidenced

old

some

citizens

shared

of sugar,

him

sacrifices

and

will

self

create

can

best

the

This

was

then the

when the time
soul

what

national
we

will

that

America, think

sacrifices

national

badge of honor, and I

comes

recovery,

can

little

citizens

Treasury while

which dictates
we

pull

for

in the

can

about

make

back

can

way

necessary

the

present

have gone a long way on

this transition

free government to one

look at

our

and

senses

for

draw

decade.

our

I feel con¬

compass.

tragedy in other lands will bring

If,

closer

one

than

together

writer

has

sug¬

the White House and bring the realization that no one has a

monopoly

patriotism

this

"the

country,

moral

and

political atmosphere in the United States would be instantly
transformed.

There wrould

confidence altogether
the future without

age."

the

to the

come

lacking

anxiety, in

people

and

today,

feeling of

face

would

they

calm spirit and cool cour¬

I have the feeling that the recalcitrant members of

Congress

much

who declined

the

repeal the neutrality legislation

did

session

last

because

not

objected

they

but because they have

repeal itself,

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

the

justifies

there

emergency,

further

trends

other

emotional

have

men

mine, and not the least of these
privileged
an

visit

the city

inspiration to stand for

none

the

important

direction

return

auto¬

mounts

the

reverie,

dome

the

before
It

that I
for

building.

not

the

see

them with

Lee

and

panions

world

sake

get from

is being attempted, then

figures
my

stand

and

me,

from

that

spot
great

venture

Which

has

which

thousand

com¬

make

Unconsciously, almost audi¬

own, my native

land," and

would

with
like

you:
Freedom

in
life

by love of

silent

were

late

voice invariably leaves

thinker,

pass

national

our

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

always

From there

who led unostentatious lives and were motivated

the

and

events

rather visions of

see, but

all about

great

emer¬

duty

It is

hundred yards from

some

the

eyes

con¬

that

Washington.

few moments in silence beside

oblivious to

have

at times when

soldier at Arlington.

spot

experiences,

occur

Capitol and observe Crawford's statue of Freedom,

with

recovery

planned economy, and that it is high time

been

country.

to you

the

States

gested, the Angel of Humility will but wing his way through

words
we

have

the

after

to the side of the road, shut off the engine

over

which is the

our

for

while, and have

of confidence

United

the

fident that the appalling

Grant

say

original conception

of self-denial.

revive that

rather than what

begin to construct

wTe

appropriated

affairs.

of world

our

mist

similar spirit

Only time and Mr. Roosevelt him¬

atmosphere

interests

It seems to
from

permanently

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

the tomb of the unknown

self-denials Arkansas had made during the war in the
servation

in this country, I called

our

implicitly with sufficient power to deal with

him

to trust

of which

the victims of Mr. Roosevelt's

been

bludgeoning, and on whom he must now rely for assistance,

visit I had

separation of

elements

substantial

those

for

difficult

population who have

cratic power.

good friend the late

We would he less than frank,

lective defense and security.

often recall

rights in the interest of col¬

forego many of our personal

stand.

later became charmed with the emotions and

with

State.

same

their

approve

think

can

terms

Robinson, who unfortunately like the

during

pay

begin at the top.

war

largess of the New Deal.

bene¬

place in the heart of the individual citizen.

close of the last

years,

the

aptly suggested,

than

will

Illustrative of what I mean, I
at

were

position, is representatives in Congress who

our

because they themselves

one

and critical

in this difficult

responsibilities that are his

situation, and thus normally all would be quite willing to

member of Congress standing for reelection,

Government has made in his district, and

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 pertinent case in point is the neces¬

unity now confronting us as a result of

for national

sity

condition

recovery

democratic

omy,

national emergency.

generally shown in

country with respect to the so-called

from

government to one which dictates a planned econ¬

our

transition

the

that

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

CONVENTION

BANKERS'

charms to show,

slaves, howe'er contented,

never

know.

the

leave

•

Some Constructive

been

Lave

outside,
I

affected

talk

outside

you

myself

being

viewpoint of

banking

viewed from the

hesitation for the reason that I

some

much

primarily too

banker to present properly

outsider.

cannot

manage

long

influences.

this assignment with

accepted

regard
the

requested

Worrying

Superintendent of Banks, Atlanta, Ga.

By R. E. Gormley,
I

recognize,

functions

mental,
not

that

however,

banks,

which

together

have

lack

certain

with

developed

knowledge

within

other

recent

the

largely

factors,

actually destroy the American system of banking as we

Without

govern¬

if
have known it.

threatens

years,

and

purposes

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

with

even

befallen

profit

history of

summary

us,

ourselves

find

which

position

might

the

have an
great deal

worse,

system, apparently badly out of kilter, and there is a

dissatisfaction

Whether

which

with

you

has

and

these

has

unrest

conditions

served

land.

the

able
in

the

for

the

had

number

American

banking

and

years,

whether

people,

few

believe, increased recently.
Its
to our economic

has, I

would

conditions

controlled

been

resources

record of accomplishment does not serve to offer a solution

ills.

economic

plan

there

the

American

such

America N.

prophesy

banking

will

forces

the

least

way

Council,

this

time

present

unless

the

additional

Federal

agencies,

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

that

When

repaid.
that

and

through
the

have

rather

than

for

possible,

Granting it
balances,

pushed

production

provided

legitimate

might be

the future,

thing

fine

geared

which

would result

unemployment,

and

the

system

lever

uniform

its extraordinary

which

currency

has

powers

prices,

demand

Yet in spite

requirements; its influence

speculatino

conditions

reserve

and

its

reason

continue

come

power

market operations by discounting
control

fluctuate,

the

capital

over

requirements,

margin

over

prices rise and

pretty much

fall, and

cycles

same

suggested

System has been

policies should

the

Board

Governors

hampered in its efforts to

examination

restrictive

booms

the

policies,

be more closely allied with

Reserve

Federal

certain

agencies
unduly

being

are

too

badgered

restrictive

and

harassed

such

policies,

are

old

and

the

hills

sedatives

Now,

all

had

the
just

admit,

question
as

but

well

can

business.

governed by fundamental laws
visors

which

and

At best the most

end of time.
tives

The advocates of

banks

regard

part of

bank

come

which

continue

which

conditions
we

have

examinations:
a

don't

so-called

human
exist

nature,

until

hope to do is to administer

Basic

over

will

material

all

will
no

continue

the

purga¬

think
and

that
of

that

apply

banks

all

super¬

fact

which

of
similar

Likewise,

Georgia.

A supervisory policy which

regulations, without regard to peculiar local

banks

well

small,

banks

located

which

service

the

cannot but

in industrial centers,

located

curtail

and

they

have

cus¬

there

and

certain

are

basic

And,

enforce.

Supervisors,

tell

gentlemen, if

you,

be eliminated

by that of

principles which all

all,

after

hope

can

only these basic
The responsibility

enforce.

supervisors

plishing

permit

you

State Banking Departments

your

authority to become subrogated or overshadowed

their

Federal agency, you have gone a long way towards accom¬

any

centralization

banking,

monopolization of credit control

with

possibility

accompanying

its

the abuse of such control for political

purposes.

This

brings

question of centralization,

to the

unified banking

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

approximately

banks

State

this

years

country

sentiment

This

the

through

successively

Nationals.

for

has

unified

system has gained and

retention of control
remained consistently in the

Advocates of

years.

the separate

The

course

have

States

banks,

nationalizing all

the

operation

that

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

past quarter century.

In
have

the

100%.
of

respect

greatest

gained

It has

existence.

influences.

newly-created

cross

which

and

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

centralization

saw

supervision
opportunity

over

Federal

accomplish

control

over

25 years of existence only a comparatively
it advantageous to become members.
To

In its

have

banks

State

the

implies, to hold reserves of member

currency,

few

While

department.

remarkably free from political
merge its independence in some

banks render.

the operation

name

efficient

and

kept

main

function

its

agency,

purposes,

National

the

transfer

other
at

well-seasoned

has

do,

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¬

the System a disadvantage.
Yet I have a most wholesome regard

ship in

Bank

Reserve

district

our

Federal

the

say

times

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

its

creation many

over.

result

holiday,
created

disturbed conditions

and

aftermath of the banking

factor entered into banking.
The
the Federal Deposit Insurance Corporation.
another

Deposit

insurance

not

was

and

banking groups

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¬

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

Board

better

the

creation

Directors,

hanks,

been

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

consequence

banks

question but

its

present plan of insuring deposit accounts up to $5,000, while

Its

direct

smaller
is

banks

Reserve

bankers.

powers

vested

which

the

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

needs

the

meet

with

past,

supervisory
be its

will

control

hazard

American

vested

business,
an

they

organization

guarantor, rather than

have

whose

the

primary

the efficient operation

banks.

Title

the

FDIC

the

power

right

not

only

bank,

but

failure

tion,

also

Banking Act

make such

to
to

make

issue

1935

vests

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

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

control.

monetary

managed economy have reckoned without certain phases

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.

that certain

that

true

should

monetary control.

and

policies, methods of valuing

which

even

enforce

their

principles

the

investment

for examination and investment policies to be made

dangerous

examination

and

they admit are not
become so dominated

(which

minds

our

to examination

tomarily rendered.

further economic stability by-

that

and

the

While there may be some merit to the criticism that examining policies
of

hamper

Yet

been

has

exist,

agricultural sections

order.

old

peculiar

Montana

circumstances,

banking

over

its

provided;

open

depressions

various

by raising and lowering
and

develop

necessary

permit

are

States continuing
&c., if we are to

condition,

reports

by the Federal agencies

of the several

purpose

for

only result in
State Banking

can

Washington?

undertakes to

only

can

could

response

expand and contract credit through

and

cannot but

are

variations

inricate system of checks

operate

banks

would

economic stability—an

care

borrower

by the Government,
in

call

substantially all banks.

production.

Reserve System, with

facile

business

loan policy for the purpose of creating spending

Washington,

individual

the

and

funds

for

from earnings

generally repaid

are

made

has unquestionably been a stabilizing influence.

money,

the

legis¬

our

popular demands

these

answer

There

individuals

production.

The Federal
ana

number

and from business men

only afford to make such loans as will be

whether

insurance

assure

take

such

absorb

policy of those already established.

can

magnificently

pulled

which motivates

large

money,

reducing spending power

control which would
and

loan

the

question the soundness of
power,

power.

of loan

effect

from

to easier

repayments,

form

the purpose

consider that loans

such

the minds of its examiners, becoming

demand

means

bankers realize

examining

the policy of at

seeking the establishment of additional credit agencies

are

liberalization

spending

politicians

and

their

for

banks

of
a

be the

will

Supervisors,
or
shelving

State

our

elimination

assets, &c., are attuned to the beat of a pendulum, the stroke of

their purpose to occupy a position

seem

understand

There

credit

freer

legis¬
banking,

supervisory.

difficult

forces.

lative
for

than

not

well

and

the

thoughts and ideas

our

to our business life.

necessary

majority, and the number of State banks has at all times exceeded that of

remote.

What

examinations,

perfect),
that

our

should
same

condition which, according to

some

examining agencies

breakdown

the part of our

competitive

designate

loans, that

when at the

equally
on

factors already

may

you

possibility of the

another

seems

disposition

factors

such

powers

Federal

seer

Certainly such a possi¬

occur

which

increasing

mechanicalized, it would
It

disseminated by

will be

foresee

should

there

possibility

make loans,

take

not

practices and uniformity of method of valuing assets, with
so

its

management has, in my opinion,
has been responsible for the rapid

which

policies, standardization of forms, &c., and which

some

that

forms devised

addition to

does

which

propaganda

the

demand for

the

one

failure

least

study by

branch

California.

seemingly inconsistent that under

subnormal

two

political affiliations,

financial welfare.

our

under

study

commandeering all banking.

create

increase

our

noted

make

and

been

never

which has been raised by some of the Federal agencies

cry

taken

Departments.

interesting to learn just how. they propose branch
economic and business ailments.

remote,

have

difficult

banking—the

Yet

cure

seems

your

and

credit

have

everything through the same hole

6ee

diversity

very

examination

thing,

one

rest

Government's

private

and

the

the Chairman

nature

will

rather

Federal

lative

the

Council.

bility

there

now

for

been

has

the very

vital to

social

This

uniform

(which I hope will be always)

management.

bankers to

latitude

that

The hue and
for

which permits of absentee

professor in one of the leading universities, is also economic adviser-

Bank

one

banking,
the dissemination of information about branch banking.

purpose

this

Even

Council

interesting to note that

being

factor

accustomed

banking contrary

founded,

was

system.

Economist

American

people,

system

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

wall.

for

uniformity

development of this country and which is

banking

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

have privately-owned banks

controlled

attributed

can

cannot

made
I

BANK DIVISION.

STATE

same,

assess

correspondence between the Corporation and such bank.

BACKERS'

38
Thus

make

may

fit;

see

visions,

insurance

see

rules

such

and

the

such

governing

with

regulations

such

enforce

power

penalties, imprisonment of officers,

fines,

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

relieve

responsibility of
where such

the

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

being

the

dual

the

could

testifying before

the Banking Act of 1935

banking, and stating he did

control

ever

record

and Currency Committee

losses

but remember

Yet I can't help

system.

Corporation

of centralized

favor
bank

believe

not

favor

Chairman

Senate Banking

the

eliminated

until

had

unified

I
is

wondering whether the dual system to which he refers as favoring

not

system of National, State, and State member banks,

sole supervisory control

personally

insurer.

much

very

opposed to increasing the Corporation's potential liability

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.

worth

heads

certainly

uncertainty
control

stand

conditions

failure

and especially
to

protest

bankers

and

State bankers

business

and

in undertaking

under¬

difficult to

not

the

have

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

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

have tried to maintain close contact with

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,

Your

Committee

year.

can

point

Federal

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

coordinated

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

of American

was

economic fabric and

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

centralization

allusion to the past.

east,

the

cannot

America did

other single city.

Middlewest,

justified

not grow up

"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

stake

in assuring the liberty of a

been

charged

those

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

with better established and
of

publicity

marginal

business

enterprises

was to

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,

While

hearings

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

theory.

new

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,

industry

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

one

would

units of the country.

scheduled

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

be made permanent.

banking set-up.

Senate, hearings

There is

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

Oklahoma recently had

some

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

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

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

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

permitting the creation of banks which are eco¬

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

which

the guise of efforts to provide credit

Vice-Presidents in each State, keeping them informed of

manner

unsound,

democratic

Your officers and Executive

Committee have sincerely endeavored to carry it out.

are

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

insurance, preferred stock, or other Government assistance
I like to believe the bankers of today are capable of operating

the ravages

our

than just the

service, and principles of the Division, adding something original of its own.

The program

future—

Divi¬

opportunity

me an

that have been

your

Each administration has built

experience and achievements of its predecessors.

administration

the

deposit

from serving on the

Presidency of

great honor upon me and gave

standing experiences of my lifetime.
the

which may

those

policies

Government

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

dent,

this country will get their
take time out to study and

policies—certainly

Government

can

the assistance

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

bankers

look

can't

you

banking since the holiday would not have varied greatly regard¬

overcrowded

vigorously.

The

Committee
Address

banking,

brings to mind this:

which

through

to the extent to which Government would

business,

their

Which
fear

disturbed

and

when

time

The independent,

those related to business.

and control.

with

numbered.

business—exercise and coordinate the influence which is theirs,

less

bank

country

the

come

the

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

influence

vast

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

even

between

was

and

unemployment.

favor?

some

economic situation

unsatisfactory
of

centrations.

the FDIC officials and

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

tell you that

centers

This concentration

between

myself is just what kind of

surrender

trust

will

Econimists

they

that

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

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

forced

plains

Western

increased

Now

course,

naturally expect more regimentation, as the cattle, which formerly
the

roamed

the past.

population increases and the country becomes more congested

our

must

number

is in

to or

In numerous instances its examiners have

with that of the FDIC.

kind

subrogated

been

has

Supervisors

State

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

selves with

One may then know that business men

themselves and in the country.

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

Bankers

Legislation has actively cooperated with the

Association's

Committee

State

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

Our Committee
toward

the

of State

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,

term

office,

and

salaries

duties

being made throughout the country
The

fourth such survey is

bution.

Committee

being made and will

State

annual

Bank

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

expenses

If you will take

and

the

and

compiled

banks in the 48 States and the

and

the

fifth

banks

supervised

study this report,

annual

have
you

been

will be

well repaid.

The

Public

Relations

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

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.

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

such

any

issue.

the banking

the

moment

should

state

see

believe

branch

our

banking

the

see

economists

state

clearly stated.

contemporaries

the

Likewise,

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

convention

porting the autonomy

Association

branch

want

privileges

problems

country.
years

and

resolution

sup¬

across

State

lines,

directly

have underlaid the

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

is a resting

now

period in which to absorb the changes that have been made.
I

every

old fashioned enough

thinking American rests

form of government and that
our

responsibilities

reluctant

sponsibilities
me

exist today to

make

attitude

are

personal

them.

our

democratic

our

individuals, to accept

While
we

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

banking system and the
the

task

and

powers

meeting these

and fortitude, and with the

courage

new

common

well for

served at all costs if

are to

task

bequeathed to

can

well

very

dedicate ourselves and,
us

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

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

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,

far

as we

discern them, from time to time, and to ask your cooperation as we

present a

common

front toward

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

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

believe

your

country.

will succeed

the

measures

To this end

the

will

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

report.

Nominations

M. H. Malott, President of the

Kansas, who is Chairman of the Nominating

If Mr. Malott is not in the audience,

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,

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

sure

men

are

enjoy to the

must accept re¬
you

should become

will

agree

active

Government by familiarizing

our¬

Kan., Chairman,

Raymond

Beyer,

President

of The

First

Bank, Guthrie, Okla.,

M. Plin Beebe, President of the Bank of Kim¬

ball,

Ipswich,

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

participate in

fullest extent the

with

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

nor

banking structure of

wrought

American people.

its

own

years

obscured with clouds of

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

I would remark that the dual system of inde¬

pendent locally owned banks

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

o^the States with respect to banking, and declared
banking

something of the

find economic conditions have produced suggestions for

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

The two speakers,

seriously threatened

Nominating Committee offers the
should

motives

clearly their relation, if any, to this campaign.
to

for the extension of branch

Elliott

authority and usefulness of State banks throughout the Nation.

of university economists whose letterhead indicates

campaign,

be made to change the dual

muddied

affiliation with the branch banking interests.
In

today,

Citizens

banking

highly publicized campaign is being carried

been

But

us.

branch

the

reopen

ahead?

front.

united

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

The future of independent banking

degree to which

time to revive intra-family quarrels.

enough.

of view.

last analysis on the

This is

must always act from the

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

liquidation of banks, is obtained from the

These five-year surveys have been compiled and codified

commissioners.

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,

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,

be builidng it up to render the greatest possible

doubt and uncertainty.

and to unite with them in achieving the chief objectives

years,

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

difficulties that confront

State Banking Departments is directing its attention

is to strengthen the State

face

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

1937 program of

possible to keep the States informed through the secretaries of the various

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:

what

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.

the problems

I will entertain

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

Address of President P. R. Williams

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

responsibilities

fault that

our

that this is

why bankers know
However, it

related.

closely

Briefly,

reasons

the

fact,

oldest

well

this

are

your

the

States

that perhaps it

May I

today, for

program

say

President.

of England,
taxed

our

connected
Since

and

perform

failed

keeping
share

rests

and

the

money,

selecting
time

must

you

efficiency in

deposits.

Many

feel

that

measure

friends.

it is Chief Frank J.

daily

before

pass

examine

experienced
on

and

perhaps

him in

years

countries.

value

Wilson's desire that all

which

is the

spawn

Washington,
and

review and it

the portrait

each

Jefferson,

quickly

long

training

teller

your

the face of

can spot

acquires

sort

sixth

familiar

with

follows

tributing
The

finished

character of

our

counterfeiter

C.,

makes

because

this

they

ignorance by

the serial

line,

the

Bureau

surpasses

because

Engraving

excellence

genuine

our

numbers and

dot,

every

notes

the

and

Treasury seal, which

dash

every

feiter cannot meet.
to

fibers

are

belief,

this

are

genuine

from

our

inclined

numerals

the

not

discern

intended

steel

appearing

average

identify

the

terms

workmanship, superb
general high-class appearance of our
I have

best

mind

everything

grocer

the

inspected his offerings
dealers

daily

before

and,

each

and

paper

distinctive
to

popular

not

take

time

appreciation.

the

large
He

and

Fully
his

which

aware

he visited

stock,

demanded

his

the

customers

the wholesale

shopping

various

strange

and

"un¬

apprehended

Peter

home-study

criminal

when

the

imitating
preparation.

fairly

This

note

began in

few

1930 in

needie

Terhorst

days

Visualizing

easy

turned

currency,

have

embezzle¬

for

swallowed

States,

Stales

United

whom

arrested

After

United

Terhorst,

photo-engraving

career

was

trial

awaiting
hospital.

to
to

own

original Raphael,

counterfeiters.

deceptive $10

note

circulated

the

after
larger

agents arrested Terhorst under the name of Henry

was

sent to Atlanta Penitentiary

Before

1935.

contacts

his

departure,

for three

however,

made

he depended for aid in returning

which

upon

his

deportation he obtained

passport

employer in Krefeld and,

States

through the port of New York.

convinced

believed they

Agents

personality,

York

they

agents

identified

and

New

Within

This

few months

from

conducted

was

partly

deportee

the

arrested

representatives

originated

was

theory

of a

City

flashed certain
the

these counterfeits the

investigation

York.

name

New York

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

same

imprint

the

theory

confirmed when

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

then

was

reentered

the

flood

Chief

States

worked

elaborate

time and

After

night

March

attention

providing
months

five

and

counterfeiting

other

persons

day

the
of

sections

officials,

with

held

hundreda

which

the

of
as

country.

much

under

Terhorst with these
picked

corps

New York in

evidential
inspired

bond

$5,000
new

counter¬

of agents to concen¬
an

effort to re-locate

background

investigation,
enthusiasm,

necessary

included

with

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

him.

recaptured

Wilson assigned a specially

their whole
in

involve

new

being defrauded

surrendered

United

the

Undaunted

him

for

were

hearing, at which he failed to

agents

clientele

can

counterfeit

our

lacking,

reproduced

are

their unworthy sires.

elsewhere.

had

generally

features

the

distinguish

States.

his former

Terhorst's

trate

values

While

jail
fled

City.

deported

denominational

printing

our

underworld

after

which

obviously

are

plates

metal

values

facial

provided

impediment

detail

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

not

notes

months

most

Krefeld,

gigantic

money.

afforded.

replenish

These

the

recent

cities

Soon

new

arts.

experienced Secret Service agents recog¬

can

himself

rapid wealth by

the

art connoisseur

few

transferred

months

and

graphic

the

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,

feature.

person

currency

comers

artistic

strength.

glance

protective

the

age

stands

plates

challenge which the counter¬

tensile

first

at
as

seriously

money

habit

surface

are

note

in
all

impregnated with tiny red and blue silk

durability and

fast-moving

consider

its

difficult

they

The paper is

increase

dis¬

Printing

output

currency

printed

are

distinctly and the composite design presents
fibers

and

skilled

shadow

which

known

one

town

was

son

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

nations,

quality and

the

his worthless

Washington,
other

the

that

counterfeiter?

home

the

that

unwittingly transfer to their work the label of their

who applied

contended

certain

the

of engraving

processes

purposes.

finds

and

counterfeit

technique

became

six

distinguishing

it is unnecessary

lack expression and vitality.

eyes

faces

York

German,

lines

portrait

Remington,

Braun

about photo-engraving to build

enough

echoing the base character of

the

New

study

second

deceptive quality with

years,

engraver

incapable

this

the

Rembrandt,

the

Just

and

hand

individuality.

his

but

displays

currency

tell-tale

Since the

ago.

in recent

photo-engraving

For

notes.

Counterfeiters

and

the

compared in

years

hand-engraved

workmanship,

usually

which

process,

coarsely and the

nize

instances,

his

scan

reveal

not

plate suitable for their

turns

particularly

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

must

the

zinc

years

who have learned just

persons

road

stranger before his cage.

Through

does

strangers,

will

that

unaware

was

100

hereafter in handling his

surprise you to know that most present-day counterfeits are made

may

feiter

grocer

out
care

bill.
cannot

circulated

impossible for

incidentally, he makes few mis¬
instinctively the strange, or "un¬

spot

can

which

proffered

this

much

vegetables.

himself

"phony"

counterfeits

"French

instantly and,

teller

the

took

note.

The grocer knew most

His indignation reached lofty

strangers

money

fruits and

hundreds

Franklin,

One

whom he did not know, failed to

people,

other

he will exercise

reassure

ment

Grant

rapid

minutely

counterfeit note

recent

unofficial Secret Service agents,

portiaits

the

sees

Jackson,

reject the notes

responsibility,

and the criminal printer.

teller

They

this

Secret

list.

his

labeling it counterfeit.

many

passed

particular

friendly,"
the

upon

which

foreign

with

guess

Current

issues

after

note

are

his

marks

squarely

problem

into

even

shall regard themselves

stop and

friendly," face

sense

hazard

up a

combating the

manner.

interest

common

coping with

cooperation, and

Hamilton,

takes.

clean

money

the country,

average

our

the

common

delicately-cut

banker

our

the qui vive for that shady commodity

times.

him

from

counterfeits

particular.

general

this

retained

and

$20 note.

man,

nearby bank for change.

counterfeiter

customer

the

determining the quality

their

attention

clerks

This additional duty

every

items

stranger patronized his store, and this

printing have been simplified

trenches

choicest

heights when the clerk returned with the announcement that the bank had

organized racket with underworld connections extend¬

criminal engraver

The

innocently
our

assistance

with

them

upon

bank employees

Lincoln,

this

receive

Bankers

rely

your

always

through

service

come

baskets with

but occasionally

and

defense

the

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

happy to say the arrangements

first line

our

elected

person

protect

honest effort to

6tranger purchased six

comparatively small field force scattered at strategic points, the

the

and

successful

were

are

splendid

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

dual

Nation's

upon

Tellers

being their Majesties,

the limit,

this

with

the

detecting
our

upon

responsibility

character of

new

called

his

who visited the United States in June.

counterfeiter,
depend

resources

anniversary.

seventy-fifth

and other fiscal obligations of the Government,

members

are

recent

most

our

in the Government struc¬

our

of his customers,

want

the responsibility of preserving the integrity

responsibility

great

and

observing

year

charged with

are

United

interests

our

in the banking field.

are

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

not better known

are

of the

one

ture.

and

to know that the Secret Service as a division of the Treasury Depart¬

you
ment

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

and

Association

Bankers

American

indicated

whom

meeting

approximately

was

$50,000

Simultaneously, agents arrested
the conspiracy.
Terhorst con-

SAVINGS DIVISION.
feBsed

been

fully,

naming other

under

surveillance,

This

list.

suspect

our

important

including

figures

acted

group

They

for

year

of the United

various sections

character

agents of approximately 250 persons as distributors and

With

the

materially

does

concern

not

issuance

curtailed

small

the

size

activities

himself

with

detail

expense

doubtless

were

theme of

The

each carrying a standard denomina¬

think

notes

issued

are

denominations,

Irrespective

portrait.

characteristics,

identifying

other

is application

drop of this acid

silver plated

spot.
the

coins

Aside

from

making

primary

our

issues.

quality
Sinai

and

Moses,

currency,

our

down

coming

are

the

spreading

are

truth

hidden

have

the glare

highways and byways,
activity
As

hazardous

forerunner

with

this

under

light

our

his

campaign

characteristics

Secret

93,909

persons,

members

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

and

customer

due

and

effects

York

different

2,285

the

Notwithstanding
New

influence

the country
Losses

investigations
nection,

received

work

New

some

the country.

their

the

banks

tellers,

loss

notes.

from

educational

This

banks,

campaigns

distance

last

year.

by the

passing
and

against

Our
for

public,

figure in

coins

and

violating

year

557

notes,

excess

reduced

was

last

agents

counterfeit

2,980

Dr.

States

represented

much

not

intensive

enlightening

throughout

drives

banks

the

other

of $1,000,000
from

arrested

for

making

laws

and

which

$69,745

448

well,

have

decreased

The public

1935.
1935

$50,873

making and
passing counterfeit coins
persons

under

come

for

the

investigative

Feed

Kent,

Director

Bankers Trust Co.,

introducing

Dr.

Kent,

President

Williams

agent as
em¬

will attract

collection of counterfeit

We participated in approxi¬

attended

year,

than

160,000

few months we shall have available

will

featured

We shall also
give

special

is detected in a

issued the tremendous number of 148,967,048

year

checks

unauthorized

into

fell

naturally

hands.

relieved

preventive

effect

part

checks bearing

additional

the

hours,

In this

will then

case

of the check, with

copy

the circumstances

concerning

The

ques¬

obtain

interview the depositor and

the bank to

negotiated.

was

con¬

If a bank

us.

office handling the

our

photostatic

possible

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

20,000

than

intended to
forgeries and expedite investigations in such manner

nearest

our

and

investigations

which
procedure

under

Secret

check

Government

the payee
which

means

it.

unable

further

above

for

instrument

unless

endorsed

assisting

commercial checks

not cash

Why should they
establish

satisfactorily.

who

satisfactorily

cannot

depositors

your

for

protect

themselves

Work Projects Ad¬
on the front near
identification procedure and instruction* on reverse of
the

be printed

following warning

admonition
the

persons

have caused

"See

This

depositors

identify themselves

checks

bottom:

check

worthless

Your

means

against forgery,

check."

and carries the last endorsement of a person known to the agency

negotiates

is also reproduced

all

ink

red

in red ink

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

the

possibility

banks.

their

the

may

commodity?

main

mistakes.

salvage value in

depositors who claimed
from

money

your

paid

out

know

of banks

able

the

witness

bank's
not

claim.

only

faces"

these
on

the

depositor

controversies

amount

Sometimes a

important.
subscribe to
avoid

the

discovery,
When

trace

theory

rarely

the bank

arise,

there

that counterfeit

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

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.

Secret

shop-keepers,

asking the banks to cooperate further with

forged

scene

forward

The World
By

the

amount

coupled

and

United

the

has

most dangerous

the

comparatively small

and

years,

the

York, which

$20,228,

aggregated

by this bank

against those who violate the counterfeiting laws.

counterfeit

loss

which

are

the

reported

your

last

placing

may

years

many

skill

counterfeit

sustained

banks

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

genuine 7,094 counterfeit notes for
alone

State

our

that

last

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

loss of $4,800 in counterfeit notes in 1934,

base for

operating

persistent

local

Government

noticeably

One

This bank last
We

notes.
the

the

been

time

deposits.

with

cases.

picture

qualified

agent

cash

traffic in counterfeit money in the

way

decrease

sections.

branches, took

same

counterfeit
is

other

the

began

area

also observed

under

was

„

represent,

the

convenience, experienced agents who will

employees.

program.

strangers

through the mail.

the

he would not have

your

meetings

their

furthering this

made in line with this educational activity.

and short

and

Now if that depositor had been

coin.

not

may

with

our

meetings attended by

small

such

and

motion

Since it is our

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

An occasional meeting arranged by your bank

money?

public auditorium, with

merchants
a

Here¬

fraudulent money.
bushel, monopolizing,

service

banks are overlooking an
genuine service in which

some

strong probability

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

genuine and counterfeit notes,

note

from our
the public

that

be better prepared to protect itself against

may

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,

There

there

relations

sympathy.

to register

banks by supplying, at

your

are

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

any

ployees,

determined effort to reduce the loss in genuine money sustained

by banks, retailers and
feit

interest

their

accomplished

detects

by the bogus note

better

lecturer,

Genuine coins, as well as die-struck counterfeit
resist the acid test.

will

silver,

history,

our

convention

program

depositors

may

bank

by the bank,
public

the

having for its object the education of
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

work

When

the

your

will produce a black

made of base metal

coin

render

regret intended

of nitric acid and nitrate of

solution

of a

cost.

forewarned

content,

with

departments

relations

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

any

relationship

public

attended

public

effective
little

convictions for the fiscal

and

Arrests

exceeded

public relations.

opportunity

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

type

and

Secret
30,

well

which

passers.

the

notes,

currency

another

the

June

convictions

arrested promptly and convicted largely upon Terhorst's

were

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,

maintained connections with other dealers in

States.

who

group

came

counterfeit

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

prestige,

is always right."

Tellers

may

unpleasant experiences by learning to recognize the "unfriendly

counterfeits, for, after all, by their faces

shall know them.

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

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

Southern

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

was

Government, and
an

during the World War.

Financial
on

many

Adviser

the

occasions he has

adviser by foreign countries and has had

honors bestowed upon
was

him for his work.

Europe addressing

the

Quite recently he

International Chamber

BANKERS'

Commerce,
authority.
In

that

he is

who

man

spite of the fact that he is a

he is also

comes

CONVENTION

with

banker by profession,

women

any

economic purpose with the resultant fall in the building

of consumption and capital goods needed by the people

scholar.

better living

for their

Dr.

Kent presented his address

follows:

statement

conditions

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

World War,

instead

calming down and enabling mankind to think and act

by the

sufficient

reason

proportion

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

the

armament

intent

has

sufficiently
in

armaments

There is

war.

might have been

full

started

the hope of

was

the competition

short of

this

started

with

such

might have progressed

that

believe

to be impossible.

our

solve

millions

many

breaking

the

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.

taking it into consideration.

turmoil

mental

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

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

were

ing to promise the people prosperity through false methods.
This

equally

was

economics
those

and

disruptive

safe

who wished

worked

procedure had
utilize

prevailed.

power

together,

whether

the

their

ignorant

way

multitude

matter

those

fact,

for

these

that

into

Even

peoples

whether

toward

the

their

two

own

groups

under¬

the

will

relieve

the first class,

The

result

the

was

despite their ignorance.

development fo

intelligence

the part of millions of

ful

attitude

people, accompanied by the wish¬

thought, with which they hypnotized themselves,

they

could have something

efforts

others

for

complete

nothing

happiness.

constituted, happiness is based

one's

live

and

own

that

off

The

the

efforts

development

the

not

such

to do

that

good,

themselves

part,

purpose

but

indirectly

was

the

officials.

Such

procedure

and

world

of the world

greed

their fellow men,

desire

better

basis

misunderstanding,

could only work to
In

the

policies

United States

tries of the world.

their

have

been

inequities

in practically all

and

under such

itself

outstripping

unwise

provisions

allowing

new

competition

asked by M.

was

the

reparations

north

the

armament

that

was

The
a

people of the world

postponed

the

and impossible

country

recommendation to

put

was

order

certain

was

into

chance
follow

most

Hungary

people

unfortunate.

were

When

made

it
a

parts of the line between

changed,

parts

willing to

have

"No, that is

not

that

That

after those treaties

was one

went

of the

the

changed

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

Czechoslovakia

for them to live.

have certain

and

Czechoslovakia

military strategy

things that happened

through.

No competition in armament between many nations has
ever

been

sons

why this should be true.

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

the

change in

only

can

make

about

come

revival of spiritual faith which will restore the

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

and

war

A great

war.

tion of trade between the nations is necessary

such

if sufficient

transfer

the

resump¬

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

sense

overweaning

power

Ways must be found to increase production and

none.

its

made in the past through

errors

pacts between

about fairness
to

distribution

basis

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

only natural

Hungary, and the condition right straight

difficult

order to

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

terrible

Hungary might obtain
what

other similar activity in its history.

any

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

con¬

bring about

integrity in their thought and

constructive

approve,

ability

replace them

production of instrumentalities for

nose

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

the

strongly

peoples, must realize that their

dependent

women

hatreds,

active

peaceful
strain

out,

The governments involved, through

their

Sufficient

toward

fought

minds

humanity may find itself unfit for civilized

accomplish

men

obtain

through

they could bring to bear upon

Government

and

whose

important

directly

of such power

legislators

minorities

through

psychologies inevitably led

of organized

general

for

exercise

otherwise is followed by discontent.

formation

favors

the

mankind

his part in the world, and any temporary satisfaction
may come

tinuation
peace.

"gimme"

being

other

humanity

and allow the consummation of a peace based upon

war

the demands

tions

the

that

ways

their

turn

bluff

either

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,

stood the futility of the means to the end that they
prom¬
more

creating to

was

the

that

ward

giving

while

those striving for power—who

force

The
to

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

economic

They

also

are

and

democracy that has been

the world since

the Armistice.

political

peace

the bottom of the

progressive in

"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

aimed to attract the people.

the ideologies

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

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

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

the

accom¬

all

conditions

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

that

ways

without

ward

the

the control

moments

when

them
pre¬

As history moves for¬

strong

men

must take con-

SAYINGS
trol in

order

Such

disaster.

save

strong men, however,

DIVISION
able

justify

can

those

who

their

all

see

temporary

the

rest

ignoring

processes of

other

world

among

being

dulls

through

life

themselves

are

striving during their daily

One

since the

ground

preaching

ministers of their fellow
the

right

criticize.

into

from

turn

condemnation

the

without proper knowledge as

men

wrong

Sermons

has been due to

war

Gospel

the

acts

condemnation

whom

those
this

basis,

destructive
whom

they

actually

sound

decry

may

bad

community life

they

be—if

would

made

are

such

vitally important to the well-being of

individuals

those

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

finest

employment

True

the

developing

through

protection

amounts

that
to

people to methods of

the

may

be.

that

the

hardship

independence

The

foregoing,

ultimate

the

basis must lead to
In

time

wars—both

interest

the

This is true

peace.

needs, should

dishonest

and

world

detrimental.

This

that

should

have
it

be solved in
a

churches

attention
than

all

denominations

being

stantial progress
the

people

and

will lead to
not in

economic

who

held

the

Gospel

there

sub¬

that

After saying this,

depend
a

are

them,

upon

the

tearing

sane

part,

help

and unnecessary

which must

tur¬

about before

come

the part of all,

powers

deep

cliques.

For

better

the

understanding

might be well here to state briefly the elements of

true

State by repeating the description of such a State made by
this

speaker at the meeting of the International Chamber

of Commerce at

want you

State

to think about this because

has been

tries.

advocated

Italy the people

Europe in

are

for the

very

dip

into

coun¬

State and not the

State for the people, and they have developed a very inter¬

series

esting
let

works

why that

upon

think of the true State from the

"The

true

State

should

but

so,

standpoint of

reason:

protector

the

people,

economically

If,

with

protection

the people

That

individual

That

the higher

grades of

ability

work for the

may

benefit of the whole;

grades of intelligence may not be submerged by the

intelligence

with

reduction

the

standard

living

That the incentive to the accumulation of private property, not

at the

of the

True

protection
be

requires

that

stimulated

sound governmental regulation
a.

and

The

mentality

major
b.

urge

for

proper

The

all

production

needed

encouraging

private

the

people

enterprise

and

the

people

Such

of bureaucracy, to reach

country's

business

management

the

enterprises of

placed
the

United

the

States

by government in

and

nation

positions

million

men

a war emergency

where

they

had

and

power

operations of business and industrial

man¬

men
cur¬

carry

that
be

the

speeding

the

Nation

would

production

where

needed

possible only after great and unnecessary waste

that

dous

the interest of

the

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.

experience

beyond

any

millions

and

country

for

expenditure,

manner

the

great

of doubt.

millions

airplanes

dollars

and

the

World

War

proved

Witness

the

millions

and

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

own

greater

efficiency

their

undertakings

The

demand of

whether

they

may

man

has the

minor importance;

good

earn

initiative

his

the

people

own

living

and

better

served

something

wants

and

desires

individuals

goods and services that

the contacts

men

with each

can

when

over

every

that

help

provide

and because

form the basis for supply and

only be measured from the currents

other and

that

are,

money

and

time

and credit of its citizens.
again
men

that

Government,

therefore, not avail-

the

developing

Government must have in the

enormous

interest

waste.

its people

steady income under which funds reach it each

they

are

needed

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

period of

sound basis

Government

obligations become
are

year

over

under

because:

men

protection, government and growing culture,

capacity for happiness and in the public interest if they are allowed

exercise

ability

agement, it is inevitable that the ability of experienced

the few, but for the general good, be furthered.

many nor

distribution

its

nature

expense

means

management

instance,

into

reach

the
consistent

all; and
c.

by the State requires:

safety and proper satisfaction in living in order:

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

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

govern¬

emergencies in

for such

power

time

war

The problems of government, regardless of their

difficulty,

ing of

Copenhagen.

is exactly

effective in serving all of the people and

the

industries.

and

organized

external.

case

the

other

any

exist and be effectively exercised without the

can

into

would

creation

and

people

intelligence and

necessity for government, by

tion

the

emergency powers that are essential in time of war.

State—a State that is not subject to dictation and domina¬

toward

made

produces practical problems that must

the

their Government

tailed,

must

promptly in

practical

be made

can

true

approach

quickly

though in time of

even

act

War

State"

should

of thinking.

way

the world,

large

"true

everywhere,

among us

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

will

men,

political

Such ministers

must

restore

and

give credit

have

men

farreaching.

and

preaching

other

direction

part

toward greater happiness on the part of

must

down of other
so

the

this

higher standard of living.

time

our

the

spirit of criticism but for purposes of better under¬

standing,
of

given

damnation

the

turn

all

represents

way,

greater freedom to meet

may

aside.

set

the

Only when there is

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

internal

who want to utilize the church for their

critics

sound

government

this character

war

essential

State,

that

political

spending
on

general

great

true

must

and

its

live

means

suffering to

and

order

economic

for

character.

State

expenditure aimed

financial

individual

Government

operate

involving

better

productive

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

which,

results

but being able to see the errors of men here and there and,

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

and because:

with

should

destroy the exercise

strives

furthering

The church, not having actual experience in business life

every

the expense of all the

taxation at

errors

break

regimes

public good,

what

it is

so.

own

competition with the people—a condition

industry in

parasites that live

people that their

spiritual leaders keep themselves free from false criticism
of other

finest

were

It is

appear.

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

private

why the churches of the world have lost

who

government

destruction of individual initiative which

protection requires that there

business

Government

much

the

bring about betterment in the world.

reason

men

because:

activities to

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

historical

can

True

dis¬

living under improper motives.

Ideologies cannot be achieved,
be,

the

not

are

tion

honest and

may

control

the

intent

who

due.

does

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

opportunity to

oarn

BANKERS'
income through the years than

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

morale

if tliey

being

are

time

those

what

know

handled

flow

constant

for

the

that

who

such

handled with¬

and

their

there

that

whom

they

home

care

ability

country
be

can

and

profits at the expense of

war

may

further

earn

something

the

unwise laws just

because of

but when

emergency

fear that

each

is suicidal.

men,

other.

pass¬

somebody

may

They have nothing to do

required

are

Capital should, therefore, be

to fight

have

needed

may

live.

its

left

order

so.

that

economic

those

the

power

pos¬

front

may

supplies of all kinds and that those at home

Such

with

natural
their

people in

the

conservation

people in

ways

earn

capital

requires

order that they
income

for

may

their

that

use

living and for

Government.

gentlemen

going to be faced with all kinds

are

tax

laws aimed to do things that can

our

Government to meet the emergency that it may be led

into, and

destroy the

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

question of protecting the

tal

men

destroy the

you

nomic

problems.

ashamed to stand for.

that you will

way

to have a

not

for

their

right;

that

you

must

be made to feel

The

condition

the Federal

that

though

eco¬

such

want

you

at the front.

men

the front;

It will

it will be

protection.
demands

sales of property

not

realized

in jeopardy

by such

carry

that

prevails in the

United

States today,

face
on

corrected

very real

says

disaster.

tain terms that

will

that is

war

all

restore industry in

be unable to hold

laws

year

have

going

now

people in

our

the United

own

uncer¬

that

States

this world

This requires the rescinding or correction
of

will

they must ge together and take such action

is necessary to

The great

Government and to

our

deficits from

immediately

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

elimination.

accomplished and industry is

unemployed

large

functioning

proportion

will

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

may

must

think.

serijous

very

in the world, and that

We must put

are

situation that

not

far from

our hours in order.

willing to do what is necessary to put

our

house

order, and it is simple to do it if we are willing to
demand that laws that prevent the
functioning of industry
sound

The

basis

corrected.

are

intelligence

the

whole

Nation

immediately to this great problem.

it alone.

alone.

Neither

Government

can

and

torial

methods
which

those out of

Government

the people

Government

this crisis

opposition

to Government

willing to

its

ceivable that it
It is
the

will

must

by the people,

uncover

success.

prevail.

The solution of

our

It will bring peace nearer,

will

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

the

uncover

it may seem.
economic

best

stability
to

means

false peace as the aftermath of the horrible

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

applied

Government

problem together and in full accord

gence

must

Those in

war

prevent
now

progress.

Government

that

result

forced

by its citizens in depreciated markets

duces the national

put

budget is running huge
be

must

year,

financial situation you want

of the

expense

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

its curtailed.

cannot

You

must

procedure and that the ability of Government

the nation's

conserved and utilized that

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,

peace.

belief that it will pro¬

greater profits will be available that

Conscription of capital in time of
conscription of

tect

that

profit, it is almost criminal.

Government

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,

the military units,

among

the

either in time of

enterprise that
wishes

person

nation to produce for

same

able to

are

protection

own

increases

and
on

rarily forgotten when

the

better morale—is much

manner

ability of

with

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

Govern¬

the greatest

without

infinitely

they require for their

over

their

waste

who

war

that dries

nation

Those

power.

protect themselves—because of

greater

prevent

great war have a much better chance of coming

governmental

Again,
to

carrying

This simple economic fact is either unknown or is tempo¬

earn

the

civilians

its

intended

through if the finances of their country
out

ployment

called

are

which restricts

other purposes,

any

which

under

decreases

may

production;

military

front in

levied for

businesses

and

its

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

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

year.

very

who carried out

our

Savings Division program

That would not be practicable, and

few minutes

bring to

sense,

it will be

The question

a report

our

stewardship in

has often been asked

will

your attention some of the

lights of the accomplishments of the Association

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

which

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

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

This represents
approximately
and

condensed form.

what

When

use

of them.

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

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

can

ahead with the savings business.

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

Wendell

sub-committee under

It has been endeavoring to find out just what is

thrift account.

In regard to methods of
computing interest this

expected, has shown

study,

might have been

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

hands

even

fair

of bank

important, that

both

the

questionnaire
the Union.

responded

far

least, startling.

the

interest

sent

report as exhaustive

hint

orate

schedules

and

obtain

the

results, the

general locality should follow a

objective

our

analyses

that

bankers is

among

this one, it is not possible to give

to what it contains.

are

found that 97 Yt of the bankers who

same

than

one.

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.

The Committee has

possible, the methods used should be

uniform method of computing interest.

popular

depositor and to the bank.

wras

Replies

therefore based

say the

executives

would

There

require

number of elab¬

are a

study

digest

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

basic

comes

the

amount of interest that would be earned

methods, four actual savings accounts

savings account activities.

highest,

the

Exactly the
2%

same

of each

of these 10

one

2% rate

another

the

least

types of

330%.

In one

15 cents by one method and

was

method

computed

was

produced

different

varying from

results,

that of $7.70.

$7.70.

at the

15 cents

....

Surely the banks of the country should find
The results of the labor of the

Committee,

Another

Committee job

being

lines and in

of great interest is that

time deposits, the

Roy It. Marquurdt, Assistant Vice-President, First Na¬

tional Bank, Chicago.

This Committee has pursued

study along original

field that apparently had been untouched

the present time.

neglected up to

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

Reserve

districts

that

are

These studies have been

complete

Reserve districts, and the study will continue until all

districts
You

been

have

few

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

ago

make

there seemed to be considerable favor for
it

compulsory

amount.

questionnaire

of our

If that

give

sentiment

notice

existed

ever

Committee indicates

with¬

upon

not

among

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

87% of replies indicated that no notice of withdrawal is required at present,
while only
13% require notice.
fact

Another

indicated
while

that

which

requires further study is that the replying banks

mittee in

Committee

has

finished its

work

that

the

satisfied that when the

results

will

eminently

prove

worthwhile.

being

Robert

Bank, New York City.

that

school savings,

Vice-President

Sparks,

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

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

the

and

$9,339,000,000 in

cash.

There

proportion of assets invested in

has

bonds.

been

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¬

expirienced investment counsel?
"No

dogmatic

these

answers

principles, so frequently stated,
of much help."
The

Committee

meetings
study

such

the

This,

are

recommends

State

problems

bank

problems can be given.
The general
of necessity, perhaps, too broad to be

that

connection

conventions,

uncovered.

prepared, along with

that

Tentative

programs, and such

bankers

with

conferences

conference

plans

group

held

been

have

plans are available for your

use.

think, is splendid and constructive work by Mr. Bimson's Com¬

mittee, and

hope that State Associations will

immediately profit

by it.
Another matter of very general interest is the work
mittee

Real

Executive

Mich.

Estate

Mortgages

Vice-President

Chairman

under

Plymouth

United

done by the Com¬

Russell

Daane,

Savings Bank, Plymouth,

The particular studies embraced uniform mortgage law and uniform

mortgage foreclosure procedure.
and

some

placed

less

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

of Interest

rate

lend

smaller

percentage

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

closure

York

State,

four months.

was

where

3,500

of foreclosure approximated

cost

average

has the shortest foreclosure

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

cooperating with such

A $5,000 mortgage can be

days

accomplish

organizations

Our

this.

the American

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

ambitious program and one

require years to accomplish just

did the uniform negotiable

instruments

law.

There

seems

good

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

Savings

Division.

Bank, Maiden,

Mass.

George

Oilman,

This Committee is

the

States

there
ficial

was
or

whole

during the

law of vital

concern

restrictive, enacted.

past

President,

This is

Maiden

Savings

watch dog of State

sort

Regarding the legislation of
either proposed

year,

to the

We have

Chairman is Vice President

State Legislation.

legislation which might affect savings banks.

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

seem to

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

watchful

by HR-6971.

This is

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

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

The bill

House

the

cooperated

present

In general, our testimony

testimony.

preceding Congress.
to

drift

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

continuous effort

expressed intent of Congress and

that this treatment is against public interest.

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

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

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.

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

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,

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

deposit.

in use, and

are

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

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

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

of the

letter of Marriner
Reserve System.

Board of Governors, Federal

addressed to

Henry

Steagall, Chairman, Banking and

BANKERS'

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

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

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

Valley

National

Bank,

Phoenix, Ariz.

Secretary,

Savings Bank, Pittsburgh, Pa.

TRUST

you are

instructed to cast the

The ballot is cast.

Williams:

The

ballot is

cast,

and

elected

are

this

notified

to be

now

have

some

I might say some of these names that were mentioned

installation for them.

Some of the other

men

and,

they were to

far

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.

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

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

Meeting for Elections Only
The Trust Division of the American Bankers Association
convened
p.

There

the

Olympic Hotel, Seattle, Wash., at

1:00

Sept. 25, Samuel C. Waugh, President, presiding.
were

addresses, the business before the meeting

Roland E. Clark, Vice-President of the National Bank of

Portland, Me.,

was

elected President

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

membership

Richard

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

Bank

Research

Program

Held at Seattle, Wash., Sept. 25, 1939

Need of Coordination of Bank Regulations, by Charles F.

Association

Plans, by Don E. Warrick
All

Year

Program

for

SECRETARIES SECTION

Page 47

State

Secretaries,

McFadden

Zimmerman

Page 48

Remarks of James E. Baum
Report of Committee on Nominations

Haynes
47

Advantages of Bank Research Program in Association Plans
By Don E. Warrick, Secretary
1937

In
in

the

decided, with all the research going

President, Mr. Enlow,

our

might be

country,

wise

for

to undertake

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

trip

they

then

secured the services

$400.

They had to

the

go to

and

Washington,

prepared

gather

information

and

with them,

committee, in cooperation

our

they

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

department in

our

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

risk

the

from
in Association work that promises to demand

factor

one

That

application.
himself alone,

spread

the

by wandering

meetings.

my
our

areas.

earth's

the

most studious

lives

They do now, in fact,
surface from a county

cover

'30's

he led

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

our

these

possess

its

days when

State,

into

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,

and

overlapping

its

with

dovetailing

every

other

segment it

touches

concerns.

Typical of these segments and tangents of the banking circle that impose
the

straight

duties,

new

part of

thinking and

extracurricular activities,
are such agencies as:

to speak,

name

in the

of Babel

true

(indicating)

This was more expensive

We had

interesting situation in this last project.

(this

quite an issue)

was

four

five of them

upon

"Labor Unions in Banks."
They took the attitude

it.

That gives you

is all.

bird's

picture of our work

eye

make

the
a

success

job requires

the

got
be

100%.

delicate

balance

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

Then

committee,

examiners,

Graduate

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

has

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

way

the

of illustration, it is impossible for a
in which it has a natural

meetings

to different meetings.

men

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

meetings.

That

calalog I have listed is an extra string to your bow.
single one of these stories in our modern

Business

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

couldn't be

Labor Relations Board

Et cetera and ad

every

book.

Social Security

Your

chapter

certain

The Securities and Exchange

The Federal

from the School of Business some of those gentlemen who
to as "rather liberal in their thinking," and they

our

these

Bank Supervisors

The Commodity Credit Corporation
The Congress of Industrial

worth while.

referred

coming,

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.

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,

repaid.

the

faculty
a

application.

its

in printing these books.

ran

think

wire

the old

own

last

the

sometimes

wrote

and

been

have

the

are

and

Indiana,

the fundamental

help, &c.,

continent.

hi?

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

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

the

prove

Act

effort

think

felt

the

that

That

job analysis,

University,

Hours

that

well

by which the employees might work in the light of the current

and
have

hard

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

banking

State Association.

non-financial

and

incentives

and

the

project on bonds.

have completed.

Indiana

the

and

under

bank

the

over

year—all of you have seen these

undertake

project

examina¬

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

the service charges

decided to make an

committee

typical

all

the service

sell

research

to every

would

department,

banking

that

turns

turn,

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

this

Then

The second part had to do with

part of the report.

the

year

report such a

tion

and

University who did the fact-finding

maybe

and

work,

first

structure

what

happened

public.

assets

then

Indiana, and

Indiana

had

what

that

the

study

some

work

Wages

Indiana

few

delegated by

was

after

and

investigation

expense,

Chicago,

trying intelligently

the

information,

merchandising bank

Chairman,

Just

program.

Meyer

it.

That

and

that

Bob

research.

of banking in

Business

entailed

committee and outlined

some

make

years

Louis

undertake

decided

us.

St.

appointed

wanted

committee

the

and
he

the

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,

some

throwing in the ring.

demands
the
new

best

thought,

the

meeting

schedule

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 not

curricular
must

Each

possess

fall.

marked
the

tions

have

the

turn

will

You

have

if your

one

ends

well-rounded

is not

annual

your

collection

annual

two

follow it,

set

members

and

dues.

periods,

who

though

fiscal

different

ness

by the character and

and

defeat

of your efforts

success

associa¬

their money's worth
gauges

useful¬

your

to enact beneficial

injurious legislation; another set puts the

the

members

The

loud pedal

laws

the

wrapped

are

result

schedule

for

fiscal

that

your

with

omitted

have

with

thing

for

the

and .many

convention, or the

for

useful

blundering

the

Set

system.

synchronize

year,

service.

blows

convention

your

definite

year,

that each will keep step with

activities

sake

the

among

meeting.

group

the

and

calendar

disciples,

opportunities

obtained

program

and

practice

from the associa¬

program

of the annual

success

bristles

never

work

the

important

Combine

year,

other.

uniform

of their respective

can

The

giant.

promotion

increasing number

literally

sky-line

desired

blind

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.

figure they get

clicks; another set of members

program

that

uniformity

and

heavens

year

There
49

The

consecu¬

the

the calendar, another

naturally follow 49 different
one

farm

extra¬

organization.

it is to lay out a

convention,

membership

latter

the

and

that begins with

year

with

60-called

the

committee

important

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

avoid

want

the

association

sequence

tive

activities

Secretary needs

average

with about twice the usual number

year

everything he has to do

time

same

but

program,

that

the

tion

definite conviction that what the

very

all-year

months

CONVENTION

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

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,

use

offering

the

some

perhaps

might

Secretaries

refer

something

the

here

under

project

regarding

suggestion

head

would

New

Business,

taken

have

Secretary Pennsylvania Bankers Association

that

Penn¬

sylvania.
We
tion

live,

very
the

the

have

President

result

Pennsylvania

country banker.

courageous

State,

of the

that

the conduct

supervisory

policies

There

visitation

been

has

sold

idea

the

render is to

can

resulting from
lot

Federal

legislation

much of

will

the

send

concerned

service

the

observation

doesn't

banks

refer

has

imposed

the

upon

the President of

State

our

the

see

been

far

start

our

and

out

their defense.

this

believe
the

Comptroller's

office

find

the

bankers

service

ball

done

and

the

through

the

bankers

decade

heard

will

permit

small

defense,

rights
and

talk

woulc( find

the

their

the

hearings,

would

men

Federal

the

Bankers

through

Legislative
A.

and

lot

could do

you

the

Association

A.,

State

Division

Bank
the

perhaps

help

wants

legislation.

Committee
B.

together and

two

Board.

coordination

also.

respect

the

Reserve

practical

Senate

you

thought

officers

the

time
to

Pennsylvania

and

first

think you

the

sun

and

that he

respect

idea

two

put

State

that

executive

can

the

Federal

which needs

...

opportunity

recognized

your

in
in

for

promised

opportunity."

rolling,

through
we

the

get

place

any

the A.

real

don't

starting
and

signal

very

resolution,
have

whole

can

the

system

to do the job.

Wagner has

banks

that

Council,

small

and

out,

Nation

Senator

privileges

Corporation

the

get in and help
Senate

Please

thing to do with the solvency

is that

wants

smaller

the result of

banks

because

that

Insurance

is against

straightening

Under

regulations.

that

hasn't

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

Bankers

He has made it his business

visiting the small banks throughout Pennsylvania.

greatest service that the other member banks
to

America

happen

to tour

Federal

are

the Research
job for the

good of the independent unit banking system of this Nation.

Committee / Officers* Reports-State Secretaries Section
Remarks

James

F Only

week before

left

Secretary

Baum,

Insurance

York

New

had

annual

our

conference

with the National Bureau of Casualty Insurance Underwriters, regarding
rate
we

reductions,
the

use

used for

five
in

bank

same

burglary

formula

that

the

and

robbery

than 20 years, the smaller

insurance.

Underwriters'

National

Bureau

has

banks of this country, at least

forward with
years

The Bureau has

make the total of 550 odd thousand dollars too small

for rate adjustment

that is, too small

purposes;

base for clipping off a

reduction here and there, but I submit our whole argument

with them

dollar
as

than 20 years, namely, 25% loss ratio, mea

going back to the banks in losses, based

base.

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

some

States

into

action, by your

State associations'

protests.
I
in

speaking about it

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

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

can,

make

them conform

with

up-to-date conditions

plastered with all kinds of indorsements,

are

nearly

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

policy, and

new

favor

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

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

lot of

forms

new

though they have indorsements.

advantages

the new forms not

the old forms.

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

this)

I don't think it is possible to exaggerate the

importance of this fire policy.
insurance is
own;

There

are

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

hour and

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

States

use

in about

so-called

Nominations—Newly Elected

Officers

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

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

can

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

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

"Massa¬

Wattam,

Association,
American
L.

ciation,

Bankers

was

Fargo,

elected

Scarboro,

town, N.
Second

was

D.,

President

Association

Secretary
of
the

the

State

Section's

the

North

Dakota

Secretaries
annual

meeting,

Denver, Colo., Secretary of the Colorado

elected

First

Vice-President,

and

Armitt

Bankers

Section

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

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

Loss Prevention

The Credit Facilities of Banks, by Herbert

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

Aid to Bank Customers,

H. White

—Page

—

V. Prochnow

Opera¬

tion, by J. J. Card

Standards, by Frederick M. Babcock

Selecting and Developing Personnel, by Ray A. Ilg
Work Simplification and Organization for Efficient

Securities for Bank Invest¬

by Bert

___

son

ment, by Edward A. Wayne
Modern Mortgage

Remarks of W. P. Albig and Raymond R. Frazier..

Account Analysis as a Guide to Charges, by

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

been asked to discuss today that is pleasant and quite refreshing.
not

ourselves with

concern

translations.

Earnings."
but is

controlled

expenses.

truth, which

could have better

could control

improve and increase

am sure

goes

that

measures success."

will

whatever

the idea

our expenses,

probably

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

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

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

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,

every one

remarks

spending of

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

thing is simply this,
our

"We need

variety of possible meanings, interpretations,

The subject is unequivocal:

It does not

earnings if

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.

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

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,

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

American banking system, the small

mention

memberships

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

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

some

of you gentle¬

with the result that after consideration and serious thought they will

prove

beneficial to

Obviously,
obtained
cause

you

and

perhaps I should say theoretically, better earnings can be

by increasing income.

increased income in this

agencies over which

have

use

the

word

theoretically mainly be¬

day and time, due to certain competitive
control and to certain oppressive powers

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

by controlled

expenses, we

Our subject, however, makes

earnings only

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

they

point of service

The larger
progress in

of doing

business

We should have at least

of them and know why
means

costs

with them.

are

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

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

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

changed, quite likely with

However, for the

purpose of expense

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

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

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

adequate

organization's profit account.

your

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

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,

by setting

expenditures.
for such

Frequently

contribution

first of each year a budget figure for such

up at the
we

unfavorable reaction.

afraid

are

straightforward statement that

CONVENTION

say

but

have

has in

provision had been made in the budget

new

that

device
in

intended

provide

talk

the subject

the

budgetary control

little

later

For

degree of control

highest

although excellent results

necessary

cash basis of accounting.

sirability of making

for doing that

tunities such action

accrual system

I purposely spoke
two-fold:

dollars of

many

reflected by a

expenses are

few moments ago of the de¬

First,

budget to

itemized and detailed list of various expenses.

was

I suggested, for the oppor¬

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

and

manner

set

figure to

use

Follow through

up,

previous experience, less the useless expenditures, the amount

basis of

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

budget,
of

month

and the

you will have

your

a most

Variations

expenses.

expended,

accumulated

provided

will

as well as with the
year

date,

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

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

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

well and at con¬

siderably less cost.

laborer is

Efficiency of Operations

departments and if its

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

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

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

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

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

clerks

other banks for clearing the

who

receive

forenoon, made

adding them

ones.

with the

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

This meant that
made

entire process these checks

our

analysis

them

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

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

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

should

refer 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

important,

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.

and

education

because the efforts and performance

business and

organization, with increased

earlier reference to the part comparisons

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

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

compared,

similarly

broken down into

daily

figures for previous

with

are

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

year

on calculations made for each

date of the preceding month,

same

compared

accumulated

figures
for

date

and

quarter,
date

connected.

daily picture is presented showing the bank's daily income from

class of earning asset, predicated

every

dividends

and

for

reserves

figure

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

The sale

question mark and

loan

the

that

under

sirable

payment

income from the
our

bank, and through it also

change in policy, in earning

Any difference between

previous comparable day or period

some one

has to explain.

Since that is

tell you the explanation has to be good.

can

purchase of

any

unbudgeted expenditures.

the current day's figures and those for

block of securities, the granting of

increases

one,

reduces, of

date such transaction is

sizeable
bank's

the

course,

consummated, but the point is

operations such change is noted that day, not

month

later, and steps can be taken immediately, if any are de¬

necessary, to correct,

improve,

change the situation

policy

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

will be

There is

notes /on

compare

committee about to

ask Mr.

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

costs.

The rest of

your suggestions.

N. Phillips

they might do in order to

of banks, all

group

about the

same

size and within

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

should

groping around
as

what

here.

salaries

We realize

ought

don't

be.

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,

suggestions on your particular

you of course

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

man

might make in

certain type of work or for performing a certain

I tried to

far

bring out the point that in

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

who

through

efficient way,

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

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

golden opportunity to

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

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

and

men

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

suggesting

you

trying to present is the taking of steps to

usually my job I

equipment.

of the

tasks

If you

tion

40%

worthy of his hire and that

become

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

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

your

natural to suggest that

Budgetary Control
I

not advocating the

possibilities to this end.

business

new

ideas.

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

are

on the man's

opinion salaries should be based
ability and

up, as

doubt prove valuable to

have

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.

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

Grauel

(Indianapolis,

providing forms to be printed.
ment

to do

Mr.
of all

Dart:

our

Mr.

that,
We

Doe6

Ind.): You had
your

bank have

a
a

question there

printing establish¬

mimeograph?

operate

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

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

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

series of clinic meetings,

for

convenient

insured

the

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

aDout wmch there has been con¬
the time here to discuss the various

question

moot

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

reserves

than

academic

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

with

ment

insured

The

be.

companies

their

and

contained

values

values,
sold

and

made

and

these

with

Most

effort

should

values quickly and easily

with

contracts

company

from the fact that it is a peculiar

arises
third

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

which cause us most of our trouble.
assignment of life insurance for collateral purposes, therefore, almost

development
The

and

subject,

the

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

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

not kept pace

The law has
the

character

would loan

company

provisions whereby if the policy lapsed the reserve

non-forfeiture

insurance policy;

life

cases

subject

this

may

of this early legal

and the effect

down to the present time.
divided roughly into two general

concept is felt in many jurisdictions

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

will

the prevailing

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

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

long as policies are written on
representations, I believe every

insurance companies and

the

important
of the most

the most

this

think

value

emergency
one

purposes

contracts.

the

important
basis

credit

the

regard

agents

collateral

for

reserves

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

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

of our stockroom and has

printing but the young fellow is also in charge
supervision

We solved our problem in this way:

locality.

our

printer and a young assistant, and they not

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

TABLE CONFERENCE

ROUND

interest

beneficiary's

absolute

so-called

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

value

may

the. next,

relatively small

one

premiums.

can

than

value

actual

the

that time uninsurable the policy is

insured is at

than the actual

reserve,

reserve

and

indeterminate
As

this

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

the

full

face

the

value

factor

the

imminence of

matter

the

beneficiary,

that where the insured has not reserved

his

depending

policy,

upon

the

death.

has

only

are

vested

there

interest

which

it is almost universally conceded

the right to change the beneficiary,

contradictions

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

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

withdrawn or

make

pledged

collateral security by the owner, a loan provision

purposes.

Only the conditions

so-called absolute assignment

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

law

the

bank,

for

merely

New

let

say,

holding

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

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¬

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

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

assignment

absolute

and

of the insured.

position of owner;

assignment evidence may be

day and many times greater

of the immediate maturity of the policy on

reason

Also, this

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,

without

to the extent

powers,

essential
to

made

bank

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

BANKERS'

these

points.

wish

consider

wrote

haven't

time

all

discussion

the

this subject

them

discuss

them

some

thesis

but

now,

you

lateral;

may

period.

that arise,

use

ance

Association
to

was

been

so-called
of

and

disadvantages

absolute

bank

purported

several

the

included

These

trustee for the insured

using

was

collateral

originally developed

drawing

assignment considered,

assignment

absolute

form

separate

with

and

National

First

Bank

White and Basil

from

the

committee

various

methods

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

Association

the

these

the

advantages

further

its

member companies
of

this

assignee

issue

form

banks.

entitled

this

committee,

Chairman

insurance

all

this

for

the

was,

the

assignment, but
of

any

Life Insurance

Association

had

sent

had

not

II.

and

uncertainty

England
First

National

generally accept

Bank

Boston,

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

compare

it.

legend

word

When

"Approved

for

has

think

by,"

with

word

Counsel

insurance

the

&c.,

will

great

Management

insurance

have

not
the

companies

receives this form

company

which

form

approved—a

that

to read

Association

advantage

the

and
Life

insurance

Now,
that

most

that

mean

people

including
itself.
the

the

country to adopt
case

result

Life

Insurance

Counsel

and

the proposed standard

use

stay

all

line with

the other

their dealings with

assignment form,

who at present may be reluc¬

with its terms will be
companies,

banks will

the

have

borrowing
in

the

force.

written,

instead

entire

understand

companies

regularly billed
fairly

said

banks

the

effect

that

show

records

the

that

not

that

companies
one

26%

the large

Eastern

the

interest

their policy loans is paid, the remainder,

loan

interest,

being

added

what

keeping existing insur¬

is,

over

policyholders'
have

may

principal.

loan

about 74%

This

probably

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

(because

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

can't

the

are

comparable

straight
always

experience

those

insurance

the

loan

in
in

about
about

95% of the
98% of

the

cases;

some

increases

loan

cases,

insurance

and

reporting

the average: both premiums and

loans

what

sure

banks

interest

also

have

the

mixed

loans

are

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

Perhaps

here,
loans,

should

outlining

policies
with

chapter of

first

forms

though again there isn't

book that deals

themselves,

policy

mention,
what

by
and

must

someone

with

provisions

discuss

procedure in making insurance

be .determined

time

from

analysis of

the

bank

who

and

their

requirements

thoroughly
for

the

familiar

good

col¬

the

lot

other

practice of

insurance

surrender

the

companies,

the

policy?

With a great insurance
A

man

came

He had it in his own possession,
Figuring what the cash surrender

case.

loan,

the

assignment.

and

We found

absolutely

they

refused

quite cocky about the whole proposition.

were

loans

policies of that

protection.

They

ought

company.

make

not

loan,

whole

all know, make just temporary, urgent loans.
We are
Some think the companies would like the banks to
of

think they

hazard

about

said

reason

want

that

loans.

because

was

them themselves.

carry

making those

said

the

That

companies

record.

our

assigned policies to banks is infinitely better

and

rapidly,

the underwriting departments

lapse

The

the

let

ratio

of these

high.

very

did

com¬

say

the

Generally,
the

wants

loan,
the

there
has

insured

over

they

pledged

his

original loan with

are

ahead of

the

loan,

our

but

policy

doesn't in

cash

the

some

require

policy

the

not.

lien.

prior

is clearly subject

insurance

value

his

which

for

company

insurance

loans

and

is the purchase of the

for

one

reason

another

doesn't want the bank to take
By their contract of first lien

the company.

but

us,

the

that

with

comes

situations

the

assignment

our

few

have the

have

will

Most

them.

fellow

paid off with

are

they

assignment

assignment running

course,

company

but

policy,
an

used

many

who

taking

that.

require

A good

remaining

whether

have

indebtedness

still

the

against

where

former

amount

their policies.

several

surrendering,

longer

companies,

most

mean

companies

difference

any

loan

loans

keep

are

policy,

You

it.

Most

insured

there

make

have
few

surrendering

require

policy.

the

and

doesn't

longer

original

business

ago,

they

impair

way

any

sufficient

right under

our

collateral

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

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

loan.

have

Tait:

though that

Mr.

Petrikin:

and

notice

"You

should

find

assignment

immediate
Mr.

Gibbs

when

check?"

man

with

arise

that

two-thirds

insurnace

can

continue

the

practice,
Mr.

sole

Unless

they

lot

there

upon

that.

cases

default in

that

say

owner

demand

when

bank

and

con¬

they

through

the

policy
that

fact

can

and

that

companies

spite of the

the

and

the

great

all

and

Motors,

beginning.
What
bring about

things

said

what

and

uniform

some

agreed

the

have

guarantee

the

upon

may

lot

pay
reason

be,

form,
your

what

date

the

time

never

any¬

non¬

them

your

for it.

covers

may

the

that

assignment

form

situation

circumstances

most

think

pretty good

assignment

defaults.

done

one-third—I

not

beneficiary's
the
he

they

about

will

They have

what

the

right

which
premium

They make
at

you

will

the

defaulted.

provision,

insured

contract.

exactly

whether

he has
of

the

you

predetermined

issued,

Will

basis?

collateral

our

has

who

without going

the

money.

General

the

company

about

companies

that

if,

cash

loans safely?

demand.

what

Tait

his

assume

doing to

one-third

least

our

their

bank,

the

company,

the

companies

efforts

the

one

upon

know

was

thing until
a

have

the

been

have

reason

check

defaults,

forfeiture

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

particular

they

get our

the

still

are

work

correct;

order

his

man

pledge

in their possession

are

stock

liquidate

getting
check

about.

probably

the

fine

Tait:

arguing

telephone

must

our

bank do business

should

they

There

deliver

everything

pursue

right way,

business

not

have

such

the

beneficiary.
will

say:

them,

brought

note—we

that sort—"We want

loan,

his

prominent

How

questionnaire to

very

Association

our

right

circumstances

like to ask

satisfactory to
the

makes

whole

the

most

has

assignments the companies want

give

and

proper

ditions

you

them.

About

still

are

signatures.

think

carry

something of

but there

about

the

there

until you know

man

give

and

course

right
a

the

that

chain

the

further

bank

money

doesn't

would

procedure to send

our

disappeared,
us

loan.
the

from

loan

the

that.

right

J.):

unfortunate

inability of

yes,

exactly

admitetd

shows

is stamped

form

been

has

say,

policy

(Montclair,

the

get

value—it

prior

makes
to

comes

shouldn't advance

the

loan

prior

and

who

man

recognized," but that

Frequently,

existence of

and

been

Then

there

that

You

out.

has

practice if

what you complained about.

was

policy.

bank

nice

relief.

Tait:

Alfred

the

it wolud be

complain about the

keeps

the

insist

having the policies surrendered
The insured would have to turn in his policy,
come
to you and make a loan.

wouldn't
I

seems

would

Mr.

company

companies

they make

are

approximately

interest

and

companies

care

some

what the

these

and sent him

any

some

lapse ratio

this

them

when

companies call conservation—that

insurance

the

been

from

insurance

ance

be simplified and become

interesting point in connection with this subject, about which little

appears

require

policy.

made

I don't.

The

lapse

knowledge,

forced to do

hope with

lot of correspondence.

loan

made

wonder

I will tell you why.

the companies,

with

possession

they would—

certainly

Tait

questions you

any

respect.

urgent

had

you

Tait:

father than

gone

thought

here.

nearly standardized.

life

already

ever,

Association

the insurance companies

some

that

the

have

subject

accept it and comply strictly

order

this

the ball from

carry

The thing that will consolidate this gain is for the banks throughout

which
tant

followed

members

many

insurance companies

have

who

to the banks

probably

and

think the investment department feels the other way, of course.

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

record of

than

Life,

wtihout objec¬

this form

to different companies'

circumstances

Aetna

Chairman

assignment heretofore used.

Bank Management

Insurance

there

Mr.

The

both expressed confidence that the

committee,
now

Counsel of

Mutual

subject,

this

ought to be glad from the standpoint of conservation.

policy.

appearing in the August

Associate

New

White

would

various

Cavanaugh,

Iloague of

ask

policies,

money

haven't

ought

know

all

article

people, as

which

have had, and

this

made him

the loans.

years

some

protected at all.

carry

insur¬

opinion, except that they have the policy surrendered, because

lot of

Counsel

submitted

reproduced

saw

you

when

provisions

its

Insurance Assignment"

many

Life

with

loans

company

There
my

these—that
copy

recognize any preference and

now

and

had all

only

insurance

it.

Colo.):

this country I had

and

course,

that

the

thanks to Hal Stonier

without

you

experience

general practice?

value

have

has

may

not

type

Association

compliance

George

forms of

The

it to the semi-annual meeting

December.

the

they make

borrowed

and

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

Perhaps

Form

who

tion.

last

mentioned

recommended

committee

own

ance

had

York

printed

advantage to banks—more important than

been

had

New

want

(Greeley,

companies

company

after the committee of the Associa¬

press,

publicly

Banking,

anything

Petrikin

have

policies
standard

proposed

last minute just

written

Dean:

insurance

from

time.

ing the possibility of a surplus to which the assignee
the naming of a

exhaustive study

very

Discussion Followinff Address of Mr.

were

School

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

I should like to express

Graduate

The

never

when

form very similar to the

the

reasons

the

any

be anything other than an

conclusions

I gave as my

typp of
►

passive

forms of collateral assignment.

form,

matter.

sort of

including that of the bank

bank forms

surplus that might exist over the indebtedness;

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

beneficiary and

In conclusion

subject

alone

insured

the

time, my bank

proposed

new

the

assignment that had

provided by the insurance companies;

to act as

any

bank

special

pointing out what I considered the

each.

approach

methods

various

assignments,

of dispute)

case

dry trust of

forms

absolute

the bank and

except

the

discuss

Counsel.

Insurance

being used by banks,

were

so-called

between

the

Life

illustrate and

and

advantages

the

must

and finally,

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

time,

surrender

technically

means

the
it

policy
can't

payments, but it isn't

itself

practice of giving the cash value

but

many

cases

exercised

unless

their practice to insist

that

isn't

demand

part

the

ROUND TABLE CONFERENCE
Mr.

loan

Gibbs:

still

refused

with

cash

interesting

say

and

writing

that

insisted

that

buck

He said
the

making

had

give

perfect

Mr.

pretty

Tait:

does in

assignment.

won't

clearly,
Mr.
I

the

policies

handled

determined

read

which

part,

what

that

case

because

that

takes

the

was

long

pretty

this

care

pretty

disappearing
note just

our

Mr.

Tait:

Mr.

Gibbs.

arrive

Mr.

White,

has

order,

whether

they

our

outs

that in

argued that

can

arrive at

can

basis of understand¬

some

of need,

case

in case of our

Loss
Prevention

whole
that

going

the

point

you

hope is

the

steadily forth

move

and

that

claim

the

force

one

comply.

compliance

court,

without

still

have

you

having

prove

this

Counsel—
conjunction

may

stand¬

The

anyway.

from

can

use

Insurance

who

companies

paid

them

the

that

Life

the

approve

releases

clearly.

very

not.

Mr.

assignment

check

and

on,

Association

this

Counsel

that

headed by

A.,

development

Insurance

provides

but the committee approval of that in

thing is to get

assignment,

Life

covers

approval

committee—will
that

and my

That

sole order,

our

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

other type of collateral.

any

sir.

satisfactory conclusion.

course

the

ought to

directly to

plus

with

ing with the insurance companies,

think

Association

assignment

liability,

from,

you,

done

This

all

with

form.
our

same

getting

becoming unhappy with the bank,

the

6ome

form,

agree

our

Tait:

but

by the local bank—should

enough that
and

Association, recognizing that the loans on

banks—and

his

now

here

want

Bankers

vital

comply.

don't

are

this

clause

his

He simply supplemented the assignment by a

companies

know

evidence

they

American

our

insurance

there

providing
Gibbs:

feel

and

attempt

assignment, but

terms.

have that

direction,

owner.

They

normal

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

and

customer

consent,

company

His policy

demanded

they

would

our

insurance

Connecticut.

they

back

everything

company

the

passed

company.

experience

the utility field

the

gave

his

value

us.

demand.

had

prominent in

man

they

upon
it

came

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

last

briefly

treat

phase of
of

afternoon's discussion

our

certain

rarely

stressed

"controls"

aspects

shall

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.

means

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,

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

are

are self-ii surers

where

cases

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

few

If not,

might try it,

you

helpful ideas for

devised and applied

ever

bank that

as a novel

loss

can¬
pre¬

questionnaire

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

applied in blanket bond underwriting.
should not expect others to bear any

the

are

well as other

principle

far generally
a very

Per¬

of insurance.

I trust that

In that field,

sizable

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,

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

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

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

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

construction of bank vaults and bank buildings. The

ones

Suffice it for

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

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

any

vault

one

few years does have real merit.

tion of vaults

been

posures

exercised.

loss

predicated

rare,

safe

our

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

form

domestic underwriters in the last

our

loss,

misunderstanding

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

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

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,

well as

policy is

the

writing company, in keeping policy losses at the minimum.

under¬
have

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

permit members of

their

bank business, occasionally

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

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

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

agreement be one inherited from some third party.

All of

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

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,

may

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

for more profitable and

the part of the banks have resulted in amazing progress in

the assault-resisting

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

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

fidelity and burglary

have just referred briefly may be com¬

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

The prevention of loss

low

discussed regularly in your bank

are

insurance coverage.

proper

There is scarcely

yourselves,

length

most stressed

Bank interest in these questionnaires is steadily growing.

questionnaires.
Are you

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

and

dealt

First—Indemnity Always."

prevention is

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.

example,

when coupled

breakdown of the premium rate struture for

with

careful inspection of the premises by

engineer or other competent person,

may

any

building,

insurance

reveal not only opportunities for

improvements which would result in lower premium rates, but the survey

CONVENTION

BANKERS'

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.

bank

insurance

policies and of public liability coverage,
ties.

Now, let

which

look at

banks we have

few types

has

insurance

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

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

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

But frequently

policy.

a customer

degree.

some

of the insured

night

which

control of loss payments, for which provision

form.

The

mortgagee

afforded the bank at
of the bank is

some one

outstanding

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

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

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

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.

are

involved,

excellent safeguard for

the

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

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."

Laird

Presiding

Dean,

Chairman

Laird

Dean, President of the Merchants National
Bank. Topeka, Kan., spoke as follows in opening the session:
In the last five

six years

the force of social

striking at the

very

worries have been

what

"ism"

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,

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

every one

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

Federal Government.

regimented system controlled

Some

men

tell

that in

men's hands, men if possible endowed with unusual wisdom, should

few

lie the

ultimate control and the policy-making part of our entire financial system.
Others of

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

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,

prevention aspects

mentioned

of that form of defense

the indemnity provisions of such
made

with

respect

bank customers.

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,

alteration,

decoration jobs

are

have

have the broad unit system,

are

difference if

any

are

t«> have a

closely controlled system

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¬

many,

most

operations

the operating

problems,

important thing to which

are

sound, then

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

Remarks

financing loans.

erties.

banks.

multiplying daily.

you may

theme

Prevention

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

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'

their expense, insurance against loss of, or damage to, automobiles in sales

comment

banks

our

for

point—although it

Here also, loss prevention and loss indemnity are provided without

premium cost to the bank.

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

your

bank.

Another example common these days of the practical combination of loss

prevention

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,

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

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.

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

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

time been accustomed to the use of

the use of the clause,

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

fire policies, to protect their interests as

mortgagee. These standard clauses are

carried, or contemplated,

in the insurance arrangements.

sincerely helping its customers safeguard

can

persistent asking!

is willing to pay at the outset the pre¬

In the trust field, banks have for some

mere

Any ensuing benefit to the bank through the avoidance or

utilized,

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

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

interests.

age*

Then there

be served by the customer's

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

knowledge of the policy terms and of the amounts of insurance, and,

cussions

protracted forgery

preventing

schemes, where facsimile checks are used, may I suggest

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'

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

to their insurance arrangements

a statement

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

survey,

adopted by

These indemnifying resolu¬

the bank.

and

insurance counsel and they

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

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.

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.

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

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

even

themselves

contractors

For the first example, let us take
such

sustained

death

real concern.

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

owners

in connection with ail of our insurance coverages.

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

very wise that the officers of this Association

in their major meetings to give some attention

problems of banks,
qualified

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

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

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

you

of these subjects the very most we can possibly get out

one

CONFERENCE
The first subject
a

of them.

55
our program,

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

selection

of the

has

In each

solvency.

proper

investments

increasingly

become

difficult as the legal safeguards or controls surrounding management have

increased,

the political, business and

become

has

ment

confused, and

background of invest-

monetary

there has been, in

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

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

far

its duty

was

the

trustee

protect,

both

the corpus of the trust estate for the benefit of both the

beneficiary and the remainderman.

income

the original

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

group

They

the corpus

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,

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

income.

of the trust if the

corpus

where the instrument specifically

permits such discretion, principal has been invaded

profits

securities

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

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

some cases as

stocks.

common

is not fulfilling its duty if it seeks to

a trustee

riskless rate of return—a rate of return equivalent only to pure

interest on

capital—does there

seem to

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

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.

Historical precedents seem to be of little value in solving this problem.

world decided or been forced to free their currency from

managed in some cases for the express purpose of reducing the burden of
increasing a country's internal price level or improving its position

may

be that

well

new

concept of the trustee's

The

that t ust fund mortgages

cry

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

corpus

a trust.

Only very
real

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,

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

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

made

purchasing
stable,

If the common stock it

hedges and whether

power

hedge for its account

depression-proff dividend-paying
purchases is not

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

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

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

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

was

purchase high grade preferred stocks which yield

compatable to the normal rate on high grade bonds than

of their dividend for

failure

year,

and in

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

stocks have sold

the

given year to fluctuate in value more

governments,

The general assumption

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.

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

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,

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

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

point of reasonableness by eliminating particular classes of items of in-,

vestment.

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

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

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.

BANKERS'

CONVENTION

The solution to this problem probably has been the acquisition of a group
of securities of diversified

inadequat income

has

maturity in order to minimize the risk of obtaining

been somewhat hard

Obviously such

long period of time.

over a

the income beneficiary,

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

third

problem of investment facing trustees at the present time, in

such items

are

aid

the

such

subject to

The courts

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,

judgment

justified

the

result, therefore, under the first

upon the trustee to prove that

original, security within

had not

that the special circumstances surrounding

retention of the security indeflnttely.

it did dispose

reasonable time,

decision

which depreciation in
in the country should

could

or still

return which appears necessary

the

or an

Nor is

people

is without

market,

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.

tion

the

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

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

the

Legislature have previously decided it should not render.
The last
want

investment problem confronting

mention

the trust department that

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

addi¬

value of railroad securities and left only approximately
the same eligible,
to
compared
$7,600,000,000 in

par

1931.

split investment
.

between

The possibility, however, of diversifying the investments

issues

and

between

of securities

types

has

definitely

been

lessened.

the passage of laws increasing the list of eligible items
New York State/some authority to a

Banking Board

by giving,

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

proper standards for

investments.

have

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

bank

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

buy, and the amount of
The
to

problem is

individual investment in
relationship to capital.

of making the

one

investments

earn

sufficient income

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

departments
hampered by statutes than it is in the preparation of

far less

same

institution because of the interest rate they bear.

investment

this

instances,

do not have the liqidity of commercial deposits, do not
require the

proportion of the general overhead, and

program

bank

recognize

may

that

while the

profit.

commercial

department

the present time be justified in placing

not at

may

than

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

companies, leads very definitely to the conclusion that

good mortgage,

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,

that

for

savings

the

Federal

lending
for

Housing

field

FHA to

date

than

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

available

they have

it has

better

ability of

mortgage

similarity of them such

The experience of the

investment

the

liquidity

measurably

was

mortgage

made assumption that if a

items

bonds.

provided

for

guaranteed

enlarged

created

enjoyed.

fact,

corporation

mortgages

institutions

need

provide

provided

for

default.

Although the last

did

war

not

produce

substantial reduction in the

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

recognize their price stability compared

obligations.

of the

The

present

war

United

States

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

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

monetary unit that

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

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

amount of securities available for the investment of trust funds

tion

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

reason

or if it is one
a

whole value it has special knowledge but which value is not
in

for the maintenance of the necessary income

if it is the stock of the trustee's

piece

quickly restored if general business

dominant

where, though

beneficiary,

improve, if the price level should rise

helpful if the security has been
cases

make

must

bond selling at a substantially depreciated
value,

value

become

psychology should

of the

who

trustee

particular security, especially if that security is

real estate or a stock or

of those

of the institution.

its deposits come from its savings department and it
may

and

practical matter neither rule

of co-mingled deposits accord¬

sum

program

specific investment program for such deposits.

actions

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

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

proportion of

the theory

convert

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

to co-mingle them and invest the entire

ing to

has not yet

it involves

not to segrgate

the trustee's decision to retain is made after it has used good faith, reason¬

reasonable judgment

the

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

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

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¬

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

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,

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

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.

number of these

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

stagger

Government account, it is

maturities

over

reasonable

now

period

particularly

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

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

Federal

long

Reserve

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

savings

department

are

concentrated

Government obligations of

mortgages

always

be sufficient

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

Basis

Investment."

that

clear

one

than

makes

approach
one

been
for

assigned

Analysis

discuss

Municipal

the

beginning that I

problem.
In

may appear

relation

correctly

unorthodox.

some

with

Securities

particularly glad that the small "A"

this

approach.

of my views

has

this

you

for

Bank

included,

for

simply presenting to you
infers the existence of more

bases

currently advanced,

some

Before
nitions

seem

sustains;

can

intelligently consider
order.

foundation;

ciple"—something
is

"an

rately,
cussion

upon

examination
or

this

"Basis"

their

together

defined

this
"that

topic,

certain

which

defi¬

supports

the

groundwork; the first or fundamental prin¬
which we may rest with confidence.
"Analysis"

anything to distinguish

relation

afternoon

the

reference

whole."
is

made

its component parts,

For
to

the

purpose

obligations

this

any

sepa¬

dis¬

State

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

fluctuations

unpredictable

must endeavor

sideration.

under

Therefore,

that they are

fundamental

bank

another
of the

second,

and,

"Will

do so?"

necessity,

Let

Philip

"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

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

One

to my

come

attention is

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

Experience,"

Millhouse,

book:

that

"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

are

whereby

may

do is to arrive at

endeavoring to

now

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

But

you

debt

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

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,

Let

apply the

of the

differs

not

value

true

the other,

from

States the basis

this Becond

perhaps

6%%, yet

property in excess

defaulted.

have

sharply

criteria and see what happens.

same

single county has a ratio of net direct

taxable

State is not enough."

one

In this second State 44 county

look at another State.

here included

nine

assessment

you

prefer

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

fared

these

better,

but

counties

you

have

have been excluded.

would

figure,

the 14

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

estimated

be adopted.

figure to

averages

studied.

were

the

Here there

debt.

capita

reliability of such a measure,

"A study of what happened

say,
so

not infallible.

per

period.

same

Admitted;

ratio

the

debt to

overlapping

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

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

relatively

property

100 cases

over

eight

the past

States

having

all, the acceptable

at
cases

below

well

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

units

sometimes

upon

figure

of suca

long period of rising prices, increasing public revenues

true,

occurred
over

other

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

high ratio of debt to

valuable

that in the

dentally

pals.'

genuinely honest and implicit faith in the Gibraltar-like character

but

that your

assume

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

units

values

and, if

have

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

any

which

being

default

rests, and

depression it was generally believed that municipal defaults

counties

100

opportunity during recent months to study

defaults

have

tury."

has

ratio

Using that figure

says:

here

reason

(which

did not exceed 8%.

the

favored

the

had

side

assessed

Cornick

Also available

1928.

Let us assume that in 1928
these counties whose ratio
as I have noted in this

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,

actual

units

Stated

Another

give at this point a little consideration

fallacy.

sorry

period, a percentage of error of 36%, which is too high.
have

...

municipal

and I am

existed

same

securities of

assessed

see

what

same

assume

covered.

those

for

acceptable

favor.

your

"What will be, at maturity, the ability and the willingness

way:

consideration—and

under

terms?"

its

its truth

prove

instance,

approximated true values.

debt

look then

and

obligations

issuing unit to pay?"

First,

with

have

counties

100

obligations

maximum

whole—affecting the obligations of minor civil divisions so as to

accordance

this

investments.

Let
tions

relation

their

and

property

real

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

approximated true values also)

purchased

examining the various fac¬

for

taxable

that

thus

and

known

are

to purchase

direct

net

case

as to

theory

principle

facts

valuations

decided

you

But

then

tors—both

assessed

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

and

bank investment will

eligible for

otherwise)

estimated

between

where

cases

record

secondary, and yield the last con¬
securities (whether municipal or

marketability definitely

consideration,

and

volume,

plan its whole investment program

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

defaulted.

And here a striking

capita debt in this second State?

noted.

the

State

mentioned

first

the

found

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

tions

and

what of per

And

maximum

same

the

included,

States

these

maximum

exclude

and

counties

26
26

the 100

figure of

median

the

18.

per

figure

capita

debt

far

below

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

point

ratio

interesting

following

the

out

the

mentioned

direct

debt

facts:

assessed

State

the

valuation

(which

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

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

the

varied

valuations

between

low of

1% to

high of 9% ; the overlapping

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

Federal

16.8%,
search

never

thumb which
the

unsound,

not

exist.

increase of

of analysis

basis

any

and

finds

the

never

pot

will always separate the

and

never

find

said:

"The

are

general

asset head

sometimes like

is said to reppse at the end of the
finds the end of the rainbow, and

gold.

seek

some

simple

rule

good from the bad, the sound from
for the simple reason that it does

Hamilton

basis for public

credit is

good

faith."

considerations?

the

"Financial and

Investment

Review"

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

true,

and

the

record

the

past

seems

to support

it,

then, "the criteria of ability to pay."

Here let us

frequently

glance for

emphasized

moment at some criteria of ability to pay most

they appear in

the light of the record of the

$15

having

high of

low

higher

the

with

different

tical,

nay

high of 15%

$80.

the

per

debt from

capita

the second State mentioned we

high of

;

$42

high

12%%;

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,

assessment

from

low

would

3% to

low

value

true

but who can foretell "good faith" a generation hence, and are there

other

county bonds.

low

from

Alexander

July,

rate

sound

seeks

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

imprac¬

impossible, to develop any acceptable ratios of "measuring rods"

nation-wide application.
I

submit

that

State

basis.

State

bankers'

members and

the

Here

only practical approach is
apparent

associations
to

government.

county-by-eounty, by some
each

individual

unit.

The

unusual

render

useful

Within each State

banker
county

State-wide, State-byfor

the respective

service,

both to their

opportunity

most

study should be made

in the county, and within each county
studies should pay special attention to

BANKERS'

58
the

economic

available

foundation

all

association.

through
such

trends.

and

then

little

it be

which

And

municipal
be

facta

what

directed

has

for

indices

thing,

one

far

approaching

investment I

that the

suggest

What is the trend in the

What is the composition of the

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

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.

and
to

answer

the

not

position

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

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.

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.

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.

the

"financial

analysis"

the

"economic analysis"

trends

are

basic.
The
to

third

and

factor

great

evaluate,

likes

too

which

consider

must

expressed

often

opinions

dislikes, and yet—no other

heavily

be found

can

Hard

management.

influenced

answer

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

equal
The

even

answer

with

lesser debt to

debt

factor

ment

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

small

must

their

be paid to

problems

plant;

its

department,

health

and

not above

are

the

one

incompe¬

the manage¬

become

and

State, about 40 miles apart.

neighborhood

paved, has good schools, has

light

sources

cities

citizens

enjoy

sanitation

the average for

Mr.

did

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

outlined,

how¬

so-called

credit

risks;

obligations of
short

very

units

the

And,

care.

must

maturity.

committee

file

credit

nevertheless

their

is unsound,

the President of the National Association

ago

evolved

study

municipal

the committee to date.

which,

while

recommended

advanced

not
the

belief

that,

basis for analysis of municipal

investment.

wandered inexcusably, but it is a big field and

have

attempt

sum

remarks

into

simple

any

one

excellent

them!

very

ment

and

times

do,

has

our

credit.

election

and

entitled

political

buy

how

with

securities

The

God

problem

had bad

manage¬

rebel,

they

competent

some¬

manage¬

election before giving

administration in

business

con¬

years

one.

that

has

gives

the next

idea

new

into

people

that

same

take

the other,

pay;

enters

county

the

for

accursed

ability to

wait until

good

under

you.

forcefully,

One had
had

very

operating

and

talk

that

management

city

pressed for time and

was

other

good

very

the

Calif.):

town

out

the

State.

have

For

only 710

the

administration, then
know

you

city

about

there

the

has

city,

every

of them

two

they

are

about

the

Suppose

something
are?

three

efficiency

been

basis

prepared

school

every

the State

county-to-county

hundred

the

miles

management

district,

of South

have

staff

However,

what

States,

available,
hold

buy.
in

however,

Carolina—we

reliable

some

that

Michigan,

capably managed, but

that

have

that

municipal

has

the

only

right

advisory council

own

the

tell

practical

must develop some medium

have

banker

the endorsement

department

submit

without

every

taxing

every

study the units in his county, and that is available in

department.
bank

State

That

very

the

administration

find

you

department.

apart,

difficulties
new

(Martinez,

could

the county

that

does

situation

city?

endeavored

the

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

you

would

credit.
Hale

Mr.

miles

character

that

economic

condition

own

the

which

few

suffered

ask such questions

ask

pay?
definitely.
I felt I

very

same

elect

shot at

may

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

two

cities

help
a

Very,

same

excellent

the

Address

facts

You

should

into

include

ditions,

these

last speaker.

enter

small

two

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

are

has

Preston:

often

not

than sufficient economic resources,

life

complex through public demand for increased municipal services.

fire

have

obviously to be sagacious management.

seems

management.

The

which

comparatively low debt, with

experienced
tent

troubles

the

has

counts."

ask

Dr.

floating

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

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

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

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,

Case

extreme

year

for

25%,

nearly

must be constructed and observed with

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,

these remarks I

other

administrations.

practically

has

citizens.

properly used and understood, it presents
securities

years,

the

The default records for the past eight years clearly

units

committee
or

investors

Supervisors

That

delinquent

accumulated delinquency is revealed.

obligations.
ideal

The tax collection record.

debt

the

of issuing obligations.

applicable.

watched and

About

valuable.

years, as

far

past

"B,"

management.

foundation

superstructure
in

City

the

incompetent

defaults,

its

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,

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

carefully handled,

if not

series

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

for

economies.

the second step in our

consider

trends

What

unit

And what trend is evident?

which,

analysis" stress has been laid

which

road

problem

growing

disrupt municipal

cases

some

"economic

have

of public assistance?

four

until

completely

How serious is the problem

these'

outstanding

top

able

supply?
7.

had

credit

industry is present?

What

two or three occasions

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

than

slightly greater

Four years

Are the crops of a nature which exhausts the land and leaves

almost

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,

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

ments

debt trouble of

any

department,

following

paving and water

for

experienced

services

has

developed:

obligations

never

trouble

only nominal outstanding special debt in the

City "A."

too

step

for bank

securities

Well,

the

hand,

assessment

careful analysis of the economic foundation of
in the development of a basis for analysis

first

then?
to

small general obligation debt, no floating debt, a sizable cash surplus

very

I have suggested, that no standard of nation-wide

been

become

State banking departments.

your

possible,

has

be detected in

may

units.

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

plan

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

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

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

the

FHA's

underwriting organization and look

the

insurance

this

policy-holders, it is

But, in

to be

is most

far

it does represent

on lenders

deplored

quality of the real

flattering to the FHA under¬

as 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

that,

bad

element

reverse

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

scale which

would not be

Congress has authorized the inclusion of real
in

the

1940

this work

possible if such

attempted solely by mortgage lending institutions.

Census.

While there

has

been

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

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.

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

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

dustrial

of credit risks
estate risks.

Perhaps, however, the traditional bad habit of relying

real estate security still

persists and that the

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

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.

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

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

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

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

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

Remarks

Albig

to be encouraged.

and

Raymond

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

It represents some¬

value to the assnual meeting,

You might call them "grass

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

insured mortgages in many instances,

were

any

that have come to your mind during

any

under 4% % seemed to disappear almost

immediately upon the opening of the conflict.

for business.

Babcock, any questions that you may have

ask of Mr.

tion.

The makiiig of mortgages at rates

pears

month ago.

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

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

confidence which

have had have been in five

business.

the secondary

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

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

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

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.

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,

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

TABLE CONFERENCE

BOUND

have had to do
a

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

can

CONVENTION
ment creditor.—That kind

doubt of the wisdom and value of legislation governing

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

directors of the bank and decapitates them.

We cannot

The fear of having one's head

course

ment laws

which,

of recognized

State, for example,

That's

given by the bankruptcy courts.
been

who has

In New

You do not want

good law.

judgment

the greatest

interest

pay

individual danger

which

accounts

not

classify

genuine

big for the community there is

savings

overwhelm¬

with

mortgage investments, we should bear in mind

our

There will

not in

generation be another

your

HOLC

bale

you out.

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¬

versity, and at present he is the Vice-President

of the American National Bank & Trust Co. of

and files a bond in form and amount sufficient to protect the judg¬

case

good

director—or

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

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

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

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

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.

with

director In

course

can a

It is possible, however, to provide better and better invest¬

legislation.

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.

effective deterrent to looseness in bank manage¬

well hope for the adoption of such a short-cut remedy

here in the Occident.

Moreover, the laws of the

better)—prohibit the lending of savings deposits of

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

American

invited

sit

which emphasized

belief

that
one

making

benefits
It

first

small,

and

who

Statistics

problem.

hundred

has

the

hand

with

good

facilities

research

endeavoring to develop

was

few

hand

goes

Manu¬

been

had

intro¬

were

remaining

management,

worthy

means

conscious

the

one

Dr. Karl T. Compton, who,

general sessions at last

year's

will recall,

you

made the

convention,

tell

research.

them

about the

We all like

winner.

products being developed

new

result of

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

Cyanamid Co.,

gentleman,

Dr.

received.

Bell,

President

the

ties In carrying through on a research project so that this movement doesn't turn
out to be a boomerang."

Dewey,

President

"is

get

its

going

to whet a

benefits?

facturer

about

And,

the

central
for

how

office

started

where

the

was

whole talk told

Marine

know

such

both

Mr.

its

nor

have

ignorance."
for

may,

research

get

where

and

written

were

Commercial
of

service

Wachovia
of

in existence.

It is

Harris

Hartford-Connecticut
These

their contribution

respective
The

strengthening
cooperating
and

inquiry.
the

their

castings
to

other

North

institutions,

Carolina,

The

among

National

The

Rhode

and
offer

it,

Syracuse

Island

Trust

Hospital

The

Co.,

National

without

charge or obligation, as
growth and development of industry in their

the

and

the

increasing

taking

technical

industry,

goodwill

and

Research

so?

capital

the

field

for

report is formulated and

generally

process

later tumble

had

heard

that

here

sand-blowing

vogue

them

some

was

the

give them

foundries

them,

manufacturer

and

were

custom

the

boiler.
to

wanted

Problems
I

This

the
best

the

change

from

coal

oil

for

fuel

under

it?" and

"Who

does

best?"

have

been

tannery
do

was

nated,

but,

need

it?"

solved

with problems

frankly,

didn't

again

visiting

work these

and

research

again—why

couldn't

192O's

the

you

said:

wrong

told

about

the

him that

medium

accomplished

with

The average
with

customers

senior

and

the

manu¬

butter, and lead him, not

that

should

been

have

but

when

has

the

played

record

his part

And
the

best

appropriation
premium

manu¬

why shouldn't
safeguards

industrial

that

it
for

capital

must

credit risk.

the

contrary,

are

you

Advisory
trying to do—get the banks
a million free services?

performing

out

the

what

will

program

the

without

customer

charge?

think

interested
I

possible

this

about

hadn't

in,

could,

results.
was

been

able

banker,

free
to

small

didn't
service

before

was

the

care
so

long

bring

cost

whether

any

other

expense.

bank

feels

that he

has

important

around and swap aimless chit-chat
when he knows from a few test calls

But

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

have

that

'30s,

are

customers

largest

prospects.

him

hand

machinery,

help its customers keep ahead

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

was

unreasonable

great

take

their

banking.

insurance

"What

brought

something

how

banker

that,

service

banker

answer,

the

which

without

way

calls

many

and

what

outset

the

research

the

they

laboratories

get

the

and abroad and witnessing the
doing, the thought would come up

itself

The

when

realize at

facturer, who in part at least is his bread

banker

the

that

pointed

some

begin

early

seems

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

answers.

will not die.

these that

here

and

laboratories both

customers

definitely who should

that

past

6how

proved

such

began to study the industrial

the

industry.

asked

One

toward

was.

after

type of

have been

possible,

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

industry which

presented

hundred.

the

can

the

our

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

for

the

are

with

business

neither does anyone

ourselves.

"We

help

people

facts

has

expand

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

Service.

purpose.

obtain

borrow

back

will

which is getting

pany

the

bright finish.

beginning

with

obtain

know

work

own.

says,

that

understand

connection

Advisory

engineers

industrial

the competitive struggle, to
develop new products, save money and improve
its methods—that bank will benefit

accord¬

advantage.
Others, like

answer.

is nothing

bank

Suppose
instance,

its

during

that industry

represented

best

full-time

case—to

customers

After all, we have been given some rather uncompli¬

the

invested

company
pay

manufac¬

number of laboratories selected

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

dip

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

sure

facturer,

every

which

harnessing the test tubes of laboratory research to the needs of the

The

the

then

the

research
of

some

bank.

one

to help

men

problems;
or

qualified

Motors

believe

nicknames

mentary

service

simply

Research

any

pretend

well

have

the

Some banks,

each

ours.

the

information

problems

surprises

originate by

purpose

Under

even

the

General

there is

What

business

advise

We know nothing about the

but

years.

markets

certain

do not have chemists

instance,

answer,

use?

many

identical with

engaging in

Kettering of

the service

for

Cleveland, employ

basic

theirs.

All

quite enough

Mr.

Frontier.

Since

exploit

The

sources

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

our

intention

the

Niagara

research.

manu¬

Let's

out

from

today

800

com¬

assistance

reorganizing and modernizing industries.

money—is

employ.

cannot

how

Dewey

already

Boston, go

operation.
more

and

over

industrial

for

nothing

enough;

grew,

behind

purpose

had

customers

diverge

good opening, and he because

service

find

can

Trust

make

the

laboratory of his own."

and

upon,

England's

tell

available.

already

manufacturer

of exactly

doesn't

facilities

surprised—I because he had given
my

is to show this fellow who has

called

person

something

for

going

help if he isn't big enough to maintain

New

one

"What good," said Mr. Dewey,

something

research

use

Almy,

appetite

good it

to begin

Dewey

man's

what

failures

I think the way for

laboratory

the next speaker.

was

the

have

like the National

industrial

Bradley

that

banks

Shawmut

methods

idea

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,

prospective

men

and

Simple

The

Liberty Bank itself does not advise

and said:

arose

field

maintain

Others,

that.

laboratories

research

universities
problems?

about

the

the enthusiastic cooperation

good

National

begins

well

was

conceivable

most

but

schools,

solution

complicated

the

suggestion:

"Let's

departments,

technical

the

and

ways

sales

panies,

informal meeting.

addressed

large

common

Present were repre¬

the fact that notwithstanding a generally accepted

committee

least

Association

industrial research.

was

joint

both

research

company

This

name.

industrial

National

the

meeting last spring.

industry,

help solve

duced

only

Committee of

important

sentatives

not

can

shoes.

tough,

Besides,

did

before

They

his

aren't

life, and their
afraid

him.

their

is, why should the laboratories extend such assistance?

dollar and

many of

cents

world.

these laboratories

Scientists'
are

babies

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

entirely

foundations.

Why

twice—aren't

they

fee?

And

going

when

bellyful

gratis, once
problems start

out,

do help

they

suppose

get

the

answer

situation.

find

He's

problems—the

group

machine

willing to

them

for

it,
he

will do

and he

something like the desired article.

story—and

be surprised,

exposing the limitations of

They

talk

don't

for

their

manufacturer

realize

not

mettle
of

claim

too

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

We found
Now

packing

them

you

thousand-fold,

eaten

was

that if

Suppose that they only get
other

nine times

technical

people about
can't

Other

product

customer

new

able

make

this

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

they

So,

are

available

with

when

work
it

our

Let

prospects;
with

ment

with

Not

one

fine

men,

calls

test

both

After we

customers

man

myself,

the

discussed

in 15 minutes,

office

began

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

into

very

had been

that

with

business

any

one

books with

our

institution

Another

in business for

bank, heard

our

Vice-Presidents,

their

carefully.

who

spent

over

about the
day

repeatedly stated

have

75 years, but had

service.

with

They
looking

that the service was

are

name

accustomed

have

this

us.

broad

ago,

years

with

single

any

cares

one

but if I

make them,

who

manufacturers

group

therefore

and

fields

technical experience of

the

use

can

especial advantage, since it enables their own technical

concentrate

development

new

instead

work

losing valuable

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

national

scale?

and error of

trial

each

repeating

Many

think not.

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

things about the manufacturer's

times
of

the

banks

smaller

the

when

inquiries

loan

Sometimes

our

carry

heard

manufacturers

Pont's

They should,

published

gesture

they

and will

who

carried

interested.

were

You

gave

the brush
may

say,

already know about these products."

brings the bank

toward the community which
publicity.

free

series

men,

experience has been that they don't, and you are a
you are actually giving the manufacturer some¬

our

continued

revolutionary synthetic bristle,

for the time he is giving you.

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

telling

business, things constantly coming to our atten¬

contacts

our

$300,000.

message

manufacturer's

information

group,

aggregating

result of

columns

business without snooping.
Some¬
In one week one
a result of research calls, received

get leads for our trust or travel departments.

good

plant,

case,

use

varies.
Sometimes it is a trip through the
a present customer, the officer in charge

bank

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

ing

From

looked

the

upon

surveys

think

best

the

public

gauge

having

Many

prospect.

various

munity.
One

are

broad

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¬

case

town,

business,

feeling
m.,

time

I made an appoint¬

for courtesy, but short-

Our conference

started.

actual

call
who predicted that the reception would

new-business

their

men

this

has been adopted.

reputation

would be out of the

where

back

but

I left this

being

that

made

schools

again revert to case histories.

new-business

our

but

cordial,

operation

rpe

manufacturer who had

one

windedness.

plan

our

technical

where the service

and in other cities

case

determined
and

universities and

service

right ahead and use
unsolicited, they opened a
and they must be satisfied,

entirely

other companies to

and

opportunity to widen their circle of friend¬

giving

industry,

the

two

was

still

would

I told him to go

week,

following
That

that

intimate

books.

our

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

that

are

assistance

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.

cooperating

are

rather careful, technical

cooperation

reciprocal

which

most needed.

which

their

for

reasons

laboratories
their

that

supplementary assistance
are

hard

products.

new

ground

particular

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

would

that knew better.

pump

see

can

that had to
lot of trouble
by the acids, and leakings resulted.
job.

very

its manufacturing operations

solutions

the

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

products,

service.

account.

salesmen, but none of
general survey of the

the

Their technical men give us the

I think,

They

salesmen.

directing would-be buyers to new
their

sources

community

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

for knowledge,

make

the particular

something better or cheaper.

plenty

sees

wants.

exact

you'd

and

there's a considerable

their

For another,
fact—in which

largest, in

what

depending

parts,

men,

by nature.

material that

pay

offered

have

dozen

scientific

thing,

one

genuinely cooperative

are

For

half

comes

installed

company's account

accumulating in volume?
The

TABLE CONFERENCE

HOUND

ways

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.

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

If it had

not

Forces

Paralleling the decline in interest rates, there was a

of those major forces

bank credit.

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

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

the probability of

profit greatly decreased since then, with only a

out of every

even

An examination

and 46% a loss.

corporation income tax returns now reveals that

recent years.

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.

background for this discussion, let us, therefore, sketch briefly some

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,

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

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%

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

the direction of our thought.

small

With this background, let

con¬

dictate

measure

then examine

of bank credit—as expressed in four questions.

four major aspects

diversified

into

ventures

take

his

and

car

Can

Individual

the

Banker

Facilitate

the

Sound

Extension

of Credit ?
the first place,

the

he will make
twice

what can the Individual banker do to facilitate the

sound extension of credit?
There

need

for

principles of granting bank credit,
business and industry operate,

still

better understanding

of the

in view of the hazards under which

and in order to reduce the losses

drive into

the country to

loans.

the rate

25% yearly.

was

holders have received

profits

securities, total losses and depreciation of the member banks

1937

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

was

1909

about

until

backed

financial

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

add

sets in to

inventory

in¬

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

price.

and

may

simple but often-repeated experience of

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,

$50,600

jobber,

and $259,600,
of

two-thirds
is

the

excess

net

extreme

has

working

$250,000,

the

should

care

is satisfactory,

the inventory turnover

worth

wholesaler

inventory

ordinarily should

with

tangible net worth

should

than

greater

excess

the

net

of $50,000,

working

the

even

the

tangible

net

retail business

inventory generally

capital.

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,

insufficient
A

capital,

probably 20 to 22%

heavy

slight decline

improvement

helps

liabilities,

level

thorn

goes

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,

No other

some recover.

than

the

commodity price

selling prices rise and

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.

the

other

hand,

when

prices decline,

goods

must

sold

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

borrower

balance sheet, there need be
late trial balance.

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

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

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

need for

a great many

pioneering in the development of such files.

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

now

has

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

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.

operations

development—bank

new

investment
or

collateral

But with the

investments.

If every

bond in the port¬

credit files

no less complete than the

investigation and the

same

regular

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

earnest

Bankers have faced

banking situations with

new

mind and

open

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

intermediate

so-called

the

term

larger

cities

Under

years.

whose

turity,

briefly comment

personal loans: insurance loans;

loans,

included

with

rather

substantial

in
on

and

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

from one-and a-half to five

loans

com¬

developments

assigned accounts receivable.

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.

different purposes, such

many

These loans

the refunding of debt

charges, the expansion of plants, and

are

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,

There is naturally

warehouse receipts

and chattels

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

extremely

low

lengthening of maturities, the fixing of interest

levels,

and

laxness

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

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.

making such

financing the

Personal loan departments of banks
Unlawful lenders.
Pawnbrokers
Credit unions

—

Remedialioan societies

Total loans

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

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.

The

average

capital.

folio represents a loan of the bank's funds, the information on that type

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

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

We may digress

Trial balances.

16%

pays

bank, its development of comprehensive farm credit files, and its

loans to farmers constitute

that

account.

of about 6% annually on the capital stock of the bank.
of that

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

Prior to that date for 10 years or more

departments to provide credit information

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

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

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

great as it was five years ago.

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

city of 65,000 population

1928.

1937 this bank made 57,460 loans.

From
In

August,

1928

1938 they made

8,435

At present they have 10,000 notes in their portfolio with loans
out¬

standing of
Without

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

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

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:

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.

It holds these loans in the banks.

It opens a new and desirable field of income.

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¬

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."

bank would rid itself of poor paper.
The local bank would still conduct its business so
of events

course

could

depend

that in the ordinary

collecting its loans and selling real

demands.

its

The writer who made the

the endeavor to increase bank income from all types of desirable loans, and

estate

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

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.

wish

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

the first

require

technique

complicated

of secured loans.

specialized finance company

advances against accounts receivable.
ized finance companies.

customary type

Today there

began making

In making loans against receivables, the finance

companies cite such advantages to business as the following:
1.

selling

capital stock.

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

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.

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.

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.

great

Our commercial banking facilities

What

the

answer

lending
gold

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

even

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

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

banker

a new

think through

loaning

our

cannot

chase

credit

fairly,

and to understand specifically what

Let

simply outline four of these problems.

First, it is said there is
and

methods

down

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,

marked
credit

for other purposes, should lead to a heavy demand for goods, a
rise

might

requires

in commodity

follow.

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

prices

that the country banker "has been losing ground"

today fighting for survival."

1.2

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

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

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,

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:

$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

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

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

Loans

rediscounting institution of slow assets which

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 ?

Businesses obtain additional working capital without taking

ners

does it

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

would

meet

he concludes that

And

In considering

also to

market

possibly for years.

rates.

When banks make loans of this character, it is necessary to

the

sacrifice.

With declining interest rates, many borrowers naturally

I repaid their loans at the insurance companies by borrowing from banks at
lower

the

of some insurance companies showed

statements

28% of their investments in policy loans.

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

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

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'

CONVENTION

Meeting the Public Need for Personal Credit
By W. B. Harrison, President Union National Bank, Wichita, Kan.
Banking
effort

meet

service I

Most

banker, had

with

peting

pergonal

part

that

grown

the need,
majority

loans

than

banking

than

bank

while

the

finance

had

they

made

for

old

for

borrowers

note made for

better

months,

piece

than

note

The

first

when
We

awakening

the

were

these

loans.

never

had

been

good because

days

wasn't

good

before.

they

instead

was

true

always
all

call

Uncle

ments

met

were

days after

The

prior

days'

the

good.
The

Title

our

own

mercial

and

ours,

note

learned

the

Title

fact,

insistent

were

notes

they

just

fell

and

require

ever

from

and
six

there

lend

him

small,

instal¬

the

and

the

had

expand

about

were

that
to

cash

not

banker

the

aim
years

with

bank

the

give

loans

want

highly

service

our

for something

which

instalment

account

regular

them

to pay

plan,

expect

other

customers

for

pay

have,

may

other
be

but

cases,

made

collateral,
it is

this

also

that

true

without. collateral

advisable

the

personal

credit

loans

and

credit extensions

files

carefully

are

many

can

safely

built

and

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

each

that

individual

law

himself

unto

and

not

of the

competitor

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

not

notes.

interview

their

Sr.

accustomed

Pujo

asked

was

information

handling

meet

direct bearing

obtained

member

only

banks
of

will

Washington,

the

how

unsecured, said the great J. P., "I might lend him

knew

bankers

which

help

have

ability.
his

form

worth

banker
of

he—not
He

who

the loan,

without

personal

backed

good

judge

credit

must

credit

with

files

judgment.

Considering all
toward
his

personal

community,

judgment

department
not

need

have

it.

carrying

its

main,
extra

plaints
the

because

work
as

notes
of

rate.

need

the

case

with

today

note

the

best

exercising
can

volume

courage

personal

Kansas

around

six

$400,000

but

meet changing

credit

are

here

million
6mall

but

personal

sane

loan
may

conditions.

big

deposits

way.

that

instalment

extra

work

monthly
is

authorize

instalments

made

And

to
us

entailed.

clear

avoid
to

Our

with

bank's

discount.

and

that

each

evolution

first

in
the

him

for

growth

banks

United

the

It is

integral part of

when

and

that

generally
man

But

become

with
in

industrial civilization.

our

the

proportion
of

the

existed

his

those

development.
the

enterprises
the

Our

degree.

We call it

This

management.

new

had

that

"mass

intelligent

decreases
the

political

wealth

purposes,

all

production," but
has

very

system

the

new

existed

management

skilled

engaged

account

for

not

people

our

and

increase

avenues,

Nation,

people

and

before

the

scale

That

own

social

intelligence

that

products

will

than

high

stenographers

increases.

does

encumbrance;

America,

their

payrolls

indebtedness

and

proportion

for cash,

I still believe

More and

clerks,

hands,
develops

uses

that

Experi¬

to buy

lien

consideration

democracy.

and

new

less

without

liabilities,

large

came

believe that

accumulates

one

sense

by giving employment in
and

only in

intelligent

into

private

intelligence

6till

rainy day.

much

true

assets,

factory

American

country

projects,

new

successful,

industrial

farming and other

and

buy for cash.

mind.

keep out of debt,

credit

instalment

be much better to encourage

the

civilization

our

has

increasing

are

This movement

family with small assets and

take

its

how

and

Probably

and

earners,

large

must

new

wage

artisans.
in

happier,

family

entirely

what

citizen

much

striking

loans

banks.

today

rapid

the

most

paper.

demand for

the

his earnings for

of
so

that

man

living.
is

individual

matter

with

the

instalment

States

care

private enterprise

their volume of instalment

can

the

know

made

also

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

when

becomes

clogged and

producing

have depression,

and

distributing

and make

increase

distribution and consumption.

production,

must

fail to do that, the machine

despair, and decay.

more,

further

have peace,

keep

prosperity and

patriotism.
Our Industrial Civilization

Our

civilization

essentials for

the

out

what

with

call

the

that

utterly different

until

ages,

confined

last

10%

century

15%

the

"upper"

nothing.

They

existed

hands.

own

of progress and

America,

the

constituted

their

form

its

prosperity from anything in history.

Today

the

what
the

market

population

wealthy

for

classes.

The

States

goods

civilized

every

they could
United

its

Through¬

masses

for

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

account

also

true

regularly.

When

the

not

They will
on

not

the

sustain their

into

way.

lay

taken

pay-

We produce

masses.

step,

every

increase

would

the

our

take

must

companies and later in

finance

other bankers,

for

that

month

this

patrons

One

against

this something

varying

and

doesn't

good

borrower, we have no com¬
delinquencies in payments, we require
account

banking

changing

are

instrument
protest

the

live.

civilization.

put away a part

the

charge his

which

observation, and study have changed
best

program,

steadily moving

it, and

better service

of
in

and

useless

done to offset

patrons,

our

needs

people to withhold their purchases until they could
ence,

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,

enterprise.

industrial

many

was

selves,

the

likely to continue.

patrons,

courageous

paramount

are

preponderant amount of the

private

own

they

attitude

have

business

our

his

warrants

as a

Change

Must

communities

one-third of

banker's
serve

money and

the

equal

does

country

can

applications.
and

one

small

note

involved

borrower

and

making

Instalment
notes

such

bank

How

stockholders?

wants

What

bank

That

credit
one

extension ?

and his

passing
if

Instalment

credit

the

have

business in which
in which the social duties of

reflected in

something is

These

out.
in

rapidly

was

Courage and Judgment
of these factors, what should

The

new.

private business, and

interest and

private

making

Few

security.

only

was

extends

character

was

that

explained

purpose

while.

1906,
lend

million dollars."

calmly

the

dollars

successful

The

Morgan

approved
million

things

judgment

his

Mr.

and
one

been

accomplishing

and

largely

enough
advance

history
in

character

rely

flabbergasted.

well

man

hesitate

but

money

his

not

would

for

opportunity

entirely

surrounding

and

richest

who

committee,

much

better

something

banking

department

the

personal credit,

develops

frank,

found in

characteristics

debt

cut,

banking,

banking needs of

clear

technique and methods

gave

seen

imposed

obligations

today

unless

fade

evolution

nature

the character

and

the

are

and

our

I do not say that this should be so, but I do say that

than

can

that

withhold credit.

committee

would

very

program

not

finances,

best

The
he

promptly, and

family

social

the

apparent that

movement

wife

idea

predominant

banking

remarks

obligations

man

was

payment

and

lack

the

investigation

large

little

husband

earnestness

and purpose,

the

to the

the note is

Many

with

whole-heartedly

if the

cooperate,

the borrower.

Always have her sign with him
It helps.

sacrifice

to merit

Morgan

not

these little things have a

witness

character

are

character,

and,

than

resources

alone.

banker's

cooperate

All of

When

willingness
to

the note

their

husband

of payment.

notes

course

ability

problem.

and

husband

credit

in the

payment,

wife

the

financial

her husband's note also adds much

the plan

agree

Personal
made

risk with

poor

auto

old

situation

this

Character and Credit

taking

the

and

society rather

and

have

recently

Banking
It

toward

banks.

has

the

same

and

few

practices and regulations now governing our business.

than

that

improvements

the system

1932

paper.

our

find

and

two

bank

not

have

the

whatever
We

us.

profits.

months

individual

carry

with

public

the

credit

personal

our

far

private interests.

garb of

banks

the plug hat and
well-dressed fathers.

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

the

changes that took place in the banking structure

practices

short-time

they

habit of

picture

the

confined to

since

But

not

delinquent

department separate from

banks

many

payments

when

loan

personal

desire

needed

encouraged to

were

know

from

same

notes.

have

who

full.

it in

customers

drifted

were

the

backbone

out

characterized

strengthened
and

days,

because

into

that

regulations

did the bank examin¬

imposed,

were

generation

Gradually through the years many excellent restrictions
more
and more with each recurring cycle of financial

operation.

know

out¬

reconstruct this system

added security and service

has given

this

the

was

the

were

same

is the

affairs,

world

necessary

and investment portfolio in the last 10 years
and purpose of the national debt.
Com¬

case

that

time

our

couldn't

surprise,

regulations

But within

loans

much

coat

service.

had the

unique

the amount

which

Albert

stress,

made

dollar loss and did not
our

lesson—and

era,

citicizing

payment

satisfactory
that is

not

case.

been

paper,

ago,

Prior

and

that

ceased

maturity.

instalment

bank's note

has

the

portion

much

and

small

very

never

that

was

case,

insurance.

with
but

surprise

experiences of other banks with instalment notes

it.

any

banks.

these

average

there

was

1934.

because

were

loans

That proved

made

said,

objections

did not have

dollar

date,

examiners

friends

our

was

that

time

That

full.

pay

who,

been

banks,
one

that experience

From

banking,

losses.

agreed

payment

failing to
ers

for

multitude

being renewed.

Sam

loans.

making these loans, and they all

in many other

followed precedent.

had

never

were

territory

our

just

experience—practically
paid

Title

some

done
who

banks

our

bank

only

bankers

astute

made

forward which

step

Prince

bank had to the merit of instalment credit

our

reluctantly

very

Surprise to Bankers

surprising

Reconstruction

has been

with

the bank.

and

system,

years

banking

click off

the payments

20 years since our Nation was founded.

every

patrons

days and renewed

paper

done,

borrower

experience.

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

American

The

per¬

such

them

business;

the

both

Banking

the

then, did they not

for

two

was

all

prefer

Why,

fogey idea that
years

satisfaction

much

makes

bank,

the

coming

past

This

understood.

clearly

And the interesting

waited

soliciting the

was

instead

keeps down

and

com¬

bankers had

the

Not

are.

would

the banker

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

demand for

banks

their banks

them

would

the

enjoy

now

finance company.

Because

company

bulk

the

from

first?

days

the

but

payment,

communities

give

finance companies.

away

paper,

ment

branch

Is there such a

them

This

date.

intelligent

the past two decades.

fewer of

credit,

instalment

nine-tenths

rather

enough existing loans originating in

are

slip

bank

the

banker

particular

are

have

meeting

today.

every

the

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

including

credit,

mitting them

the

need

yes!

been

there

normal

nearer

are

these

him

United States

institutions

scores

need.

the

service.

be,

speak about, that need is personal credit.

Emphatically,

through

been

should

human

need?

and

is,

The
If
of

they
their

cash

not

buy

plan.

only adding to his

This

new

feature of

civilization

our

sound financial analysis.
wage

them

will

earner

not

something
They

save

useful,

cannot

buy

his

spend
and

never

they
for

will

cash,

money

will

save

squander

desirable

a
as

majority of them do not have the cash and will
the hard

purchase articles

instalment

the

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

use

them

his

persistent savings.
and

own

pay

for
this,

them
he

institution,

but

BOUND TABLE CONFERENCE
he

for

contributing

actually

soundness
our

other

services

lines

which

each

and

prosperity

the

would

impossible

simply

wash¬
travel bureaus, household appliances establishments

factories,

ing machine
and

civilization.

refrigerator plants, radio factories,

automobile plants,

great

and

substantial

industrial

our

turn

hundreds

out

millions

dollars

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

decline.

dentists,

comfort,

not

operate

year

anything

these

doctors,

scale

institutions

industrial

and

the

professional

other

can

the

unless

In instalments.

them

using

one

could

which

lines

•

be said that this is

may

encouraged,

and

taken

way

that

but

democracy

can

business

our

and

move,

distribution

obtain

employment
not

the

and other
better

and

tunities—a
the
an

steady

people.

not

with

means

educational

means

the development

would

the

living

radios

would

century?

Not

the natural

our

future

the

this

conditions

and

bringing

which

prophesied

homes

today?

But

this

Such

prophet

next quarter

do know, that

democratic form of

our

Who

millions

that

predict the

can

have

will

products

new

ascending
the

among

live.

fulfills

mission—the

past—even
the

government

constant

uplifting of

the

of all
the

our

If it

external.

that

Now

fact,

degree

some

that

with

destiny

were

weeks

for

than

saner

activities.

deeply in

very

No,

business today.

banking

do not,

the

through

paying

are

stupid when

consumption
threaten.

must

willing

wake

nose.

which gives

may

the wonderful

sad day and

some

must
all we

had abundant opportunity in our

funds,

States adjourned after

United

those

unemployment

spend

Somebody

more.

the

instalments,

replenish

bounds

know that

credit

purchase

depleted

sound

are

useful

wardrobes,

services,
That

condition

does

not

constitute

supervised

lest

limits

purchase

the

living

credit

will

known

and

ability

months,

banker

take

unwise

credit.

should
Unwise

credit

Must

Members

reaching

this

Shake

into

Association,

city and

every

influence

can

most

come

in six to
the

repay

should

Neither

propaganda

extend

one.

Off Lethargy

scattered

all

holding

town,

disastrous reverse

full well

influenced

helps

the

six to

in large volume beyond

borrow.

loans

kept within

ability to

his known

permitted

risk

undue

any

Beyond
be

not

uplift

carefully

must

period

recurrence

bankers in this day know

unexpectedly and ruinously.
18

and

labor

to pay

inviting

extension is
as

other goods

Instalment

credit

that

such

vacation,

needed

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

the

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

applauded.

If Uncle Sam quits

cause.

decline,

worthy

children,

win

all

government.

must

bankers

repayable

educate

business

Without

let

can

the

Congress of

necessary

will

fruitfully.
we

the

economy

private

the

over

the

purse

United

strings

States,

credit,

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,

Government

eral

fall back

Which road shall

Let

worth

will

into the bottomless slough
debt, political

control, perilous public

decay.
as

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

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

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

instalment credit for

,"i.

follow?

Banker's Duty as

enjoy.

why

few

stand

the

way

internal

survive any crisis,

and

part

his

had been, we could have saved

the

and

hands.

added

this

the constant

and

masses

it,

interests

our

rejecting

can

only

did

fpportunities

commodi¬

is doomed.

carried

ignoring

weren't

ago.

ideas

lowering costs

path,

burdens

bankers

work

much

too

much

bankers for the society and government

wonder

known

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

accelerated

farm,

measured

measure,

fails

constant

and

goods

scales

earners

If it

factory

desired

wage

can

the

be manifested

The

would

autos

depends

decade

because

effort,"

and

banker

the

his bit.

just wanted to be let alone, and let George take care of the public interest.

use

of conveni¬

90%

of these subjects

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

instruments

the

American

that
even

ago

insane.

multiplication

products,

means

cultural

system of free education for all—we will continue to progress

commodities,

wealth

1890
Not

years

enjoyed
or

progress

expressed

standard of

tremendous streams of enlightenment, uplifting our people

our

through

even

you,

1939?

declared

fruits

society,

been

have

and

the nature and composition

predicted

roads

dared

have

dreamed.

have

our

prices

but it

family conveniences,

housing,

upward

even

could

Who

article

automobiles, refrigerators, radios, washing

food,

happiness,

they

consumption

for

costs

wider

and

used;

which

program,

many

credit

time

society.

our

because of his intelligence—
If the banker 6ays, "I

worse

one

costs,

produces

which

About

success.

with

employment

continuously rising

only
and

production

generally

production

American

common

line

out

reduce

not

march

yet

crowding

And

other

some

available

clothing,

comfort, and

have

and

throwm

are

utterly incalculable number and variety of

ence',

men

This

not only

means

machines,

decline

with production.

pace

heretofore
must

consumer

living.
more

wealth.

labor-saving devices which

service

must

keep

that

industry

one

and services,

goods

its

fails

instalment

much

too

who

citizen

maintenance

part, he is no better—even

industrial

our

own

upward,

continuously

be recognized

There

structure.

that

continuously increasing wealth measured

requires

can

that should

building and

interested

not

has his duty to perform, his niche

citizen,

American

the

humblest

broaden

people which should not

our

weakness

the

add

weakness of

seems

account

into

than

ourselves

Living Standards Must Advance
be

us,

in
his

any

these services

for

pay

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

impossible in

can

the Personnel

placement,

job

personnel

delve

that

subjects
and

and

into

the

under my subject.

I
of

here

"expert"
little

most

personnel

Indiana
may

1939

banks.

School

the

one

definite

who

not

just

dogmatic

beginning to

state¬

understand

information

new

opened

was

to two works

you

distribution,

wide

The

banks

first

and

these

but

which

but

Banking of the American

that

produced

contribution

subjects general
60

report

The second
is

Research

This

thesis

personnel
work

Banking

Institute of

Leslie

that I

our

Currie,

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

wrote

various

the

with

idea

"feel"

the

subject

asked

the

and

discussing

naturally, with

country
officer

what

addressed

answer

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

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

real

the

have

Relations,

tendency

the

money

Public

that

and

forget

if.

there is a
There is one step
is Employee Rela¬

think that

can

give all

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

complicated they fall

weight at the first lapse of enthusiasm.

permanent

and

is that banks bite off more than they can chew.

plans, both direct-to-the-public and through-the-employee,

Relations
too

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

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

selves

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

xipon the

may

submitted

Personnel Program for Banking Institutions."

job,

specific enough

the

survey

reading.

I do not know;

thorough

report

Association.

contains

worthwhile

most

the

Bankers

which I received

response

shall

resume

world of
had

The
I

three of the senior officers.

that definition

use

you

check

Mercantile-Commerce Bank & Trust

subject

banks and

con¬

and training, employee records,

course

Indiana

"The Value of
very

seems

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

have

not be available,

the subject,
This

about

management

Graduate

the

expert

probably

for

Committee

procedure

cover

enlightening and filled with information which cannot possibly

covered

standardization,

May I take the liberty of referring

which

subjects,
found

"An

knows

to me.

detailed

salary

personnel, unless

serves

preparation for this talk

discussion,

Do you have a definite "build from within" policy ?

(7)

activities.

open

v.' -a,;,'1

expert

which always

ments—namely,
how

our

promotion and employee relations, all of which might be said

not

allotted

Department, the

methods

multitude

them

minutes

ditions, health, charting employment
come

many

classification,

(

covers

by their

The few banks which have

effective Public Relations plans

have started gradually—

BANKERS'

L66
mastered

and

assimilated

modestly

program

and

one

it is

banks generally

routine

job,

original

questionnaire it struck

follow the

medium

the

borne
of

hiring of
that

into

value

It is

spirit

All

all,

different

The

two

It is

The

the

sensitive

is the actual pumping of fresh
body,"

banking

business,

finger

the

execu¬

pulse—has

from

problem.

which
me

bound

perhaps

being such

time

bring

important

institution

trying to learn.

are

Planned

"The

are

Help

upon

but

known,

which

Man-Power."

factor and

had

which,

one

banking institution

overlooked,

serious personnel

problem.
It

only natural that throughout the years, with

placed
last

the

upon

few

little

years

bound

executives

that

mechanical

these

service,
type

and

work.

That

the

longer

educated,

place

plan

employment

your

either

one

ambitious

things,

are

and

turnover

banking

the

executive

routine

are

mechanical.

for

such

For

spent

company

worker

feels

into

has

it,
no

you

better

for

your

labors.
It

cal

6eems

that

someone

and

the executive type.

routine worker

employment but low

for

stifling ambition.

are

whom

salary

does

not

The best example of this

that

West Point where they produce Second
executives.

salaries,

schooled

would

the

they

favored

not

have

ranks is

given

are

not

perhaps,
essential

him,

better

this

not

You

has

fair,

army,

executive

training

paid

are

continually

exceptional,

man

top

is,

Whether

start.

only true but

absolutely

mechanical
the

He will

the

work,

free country and

who

the

and

that,

He takes a vital
in this way

the vernacular,

out

exactly

paper

research

much

too

"He

the

this

type

man

and

hires

him.

job,

jobs

mentioned

before

sometimes

the

will

touch

that

job

man

for

prepare

this

talk,

chance

fair

banks

most

talk

method

the bench,

use

train

filled

training.

what I have just said.

about

which must

provide

department
we

who

person

side of this employ¬

have

institution

be considered

when

later

qualifications

necessary

will

one

struggle to

them.

banking

bookkeeping

unless

uphill

the part of the

who

for

order

and put him

type

which is not suited

the human

people

the

fault

have

not to

are

have

that

material

course,

and

type

that

not

time

individual gets
a

the

long,

it is

you

executive

all

work,

hiring

which

executive

jobs, of

remain

that this

agree

it is

does

say

comes

certain

are

what

him

expect

hire

versa,

executive

Therefore,

and

remembering

with

job

should

side does not enter

that the human

determining of

qualities

in the world,

the

future

relations

human

disappointing to the bank and extremely harmful

which

for

way

the

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

will

individual, and vice

reach

with

comment

but I wish to

earmarked

the

need for

the

has

into

hiring the help,

man

much

too

preparatory

you

executive
to

does

hiring people is a part of human relations.

true,

that

business is

our

They say that a

have to hire and the kind you have to reject, has a tendency to

the

woman

routine

This

for

executive

If these

figures

either

mechanical

year

the

from

number

ranks.

young

When

young

college

business

mechanical

are

officers

jobs,

this

find

that

what you might

This

figure

figure, the

does

not

percentage of

81%.

jobs is

the transit,

but

training

for

employees,

the

proper

continually filled by executive
training and testing ground.

the

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

the officer entrusted

employees must clearly chart

the

market

ratio

such

must

for

man-power

that

avoid

the

his requirements.

he must

needs

know

what

mechanical

he is

help

with

When

the

job
goes

looking for.

and

three

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.

sit

tinually

increased

Therefore,

properly take
execptives,

provide

time

must

costly, because these

either

remuneration

better

care

most

of.

which

these executives

hire

This
most
with

provide
or

they

will

chance

leave

executive

insure

valuable

reasonable

will

only the

are

you

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

in his

better

with

the

bench

and

ago

things

that

work.

After

clerk

will

also

This feeds

where

they
a

one

In the

men.

work

case

machine job,

the

duty

mind

(and by
and

They

the

procedure
about six

serve

transit

department

work at

messenger

Some

first.

Btep

they

strictly

under

normal

messenger

the transit

placed

are

another

circumstances,

and take their normal advancements.

years

usually trained for

are

even

broad

this is still
if

secretary's

first

there

expected,

are

take

department.

bank.

into

the

stenographers,

there

of this type are around

job in this department

stenographic department,

and from

one,

to follow this

men

Now, the proof machine has changed

from

period of

girls, they

case,

routine

seem

education.

put

that

and

and they do not get

the

mechanical

for

those training in the transit department

given

are

job for

specific job, such

training

as a

young

because they

true,

the

the bank

is large enough to have

job

secretary-clerk

All in all, this does not present a particular problem

It is simply

replacements,

case

which,

having enough people coming along

this

particular

work,

type

can

gauged pretty accurately through past experience.
The type of
that
we

can

employment which provides

executive

training.

take

care

the

other

hand,

can

build

our

Here

because

must have

is always

the

young

four

man

apparently

chances,
hired

executive

your

mind,

hired

for

him.

most

the

own

people,

expected

possibility.

placed in

our

about

cannot

men

not to hire

sure

investment

than

through turnover.

sufficient force coming along

and

that

avoid

can

going

You

bank

are

much

better

banks, after

that

expect

perhaps

job.

those

the

At
any

his

the

one

this

will

least,

would

you

the bench,

outside

day

some

Otherwise,

He starts

long

President.

than

session

transit department

there

college

of age.

years

stay

He has been picked because he

the

mechanical

five years his junior.

Vice-President

young

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

must be

will

personnel through

education, in most

have

not

young

messenger.

man

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

all

mental

that

knowledge of

may

preparing him.
think

ment
He

him,

not

the

job of

selected

and

been

him

meet

is all

have

group,

far

the

bookkeeping,, credit,
procedure

job

his

him,

about

progress,

manager

for

talk

know

yet

goes,

which

you

have

see

to have

with

that
as

the

department

many

young

first

man.

time

they

might

officers

heads

get

men

call

and

whether

opinion,

young

acquainted

decided ahead
in

The depart¬

this

become

these

so
are

part which

one

the

funda¬

They should have had

Therefore,

use.

lieutenants"

and
the

not

position to fill.

"second

five years,

being

scheduled

I know that you do.

bank

the

man

have

bank, and I expect that

our

they want to

trying to give him

are

handle

fact,

four

something

meet

departments.

for

followed

these

they have

personnel

simple enough, but there is

officers

someone

the

You

business
to

matter of

training
know

to
to

the

banking
equipped

know

when

opportunity

various

yours.

heads

has

better
This

miss.

do in

you

the

few banks

departments, tellers,

auditing, analysis, trust, foreign, &c.

man

individual

school

then

necessary

clerk,

department

with

can

stick to

opportunity

jobs.

this, they

settlement

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

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?

ages

6% at least

jobs,

basis,

those

The banks which have had the mo6t

particular institu¬

our

consider

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

First,
work.

any

staple

hiring policy makes
"forgotten man."
That group, too,

group

bank

include

Every institution varies

his

into

that the

business

and

all

some

and

then be at the age level of

review of past experience will

"duty"

human

pudding is in the eating."
strictly banking business

not
If

mechanical

material.

this is

fair break."

outside, which

taking

routine

help,

After all,

mechanical

requiring executive ability.

his

heard

that you

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

develop

may

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

bank force.

that each

are

men

and

are

they

the

way

not

developed

five

work

They

favored at

were

efficient,

These

executives.

If he

fight

get the idea that such

"The proof of the

tion,

can

regulations

fight his

commercial

that

mean

This has to be done; otherwise,

does

true and

carefully
the

can

formation

not

executive material.

school

mechanical

had

when

hired for

enter

man

men

picks originally as
great deal higher than the

to the top should be a

year,

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

think of

Generals.

group.

army

odds

the

gives

Therefore, the Government

selected

efficient

work

live

day be Colonels

some

whom the money is spent to produce

higher

An army cannot be all officers.

they will

group

those

the Federal and city authorities, and your neighbors.

300

them

earmark

you

life

has

work

The fact that

his

rest

Army.

earmarked

The mechani¬

expect to be satisfied with steady

you

the

is the
a

who

work.

assume

interest

must definitely plan your hiring of employees

you

select fall into two definite classes:

you

routine worker

you

before,

out

employees.

that the people

year

These

for

pointed

percentage

except your wife, the police, your boss, the life insurance company,

anyone

the State,

from

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

and

mechanical

expect

benefits

will all

you

efficient

are

percentage of those who are picked primarily for a certain type of routine

turnover

you

the

that

agree

executives

consideration,

he is

the

reap

they do

employee

training

money

one

training.

continual

who

good

this

have,

will

this

for

the better

type

either

bank

picked

preliminary

You

your

employees

she will stay there.

taking

job,

woman

the job,

without

dissatisfied

must

one

other business organiza¬

any

executive

happens:

have

person,

thinking

routine

man

except

schedule

handle

will

you

the

they

work

things

promotion,

other

some

two

person

rapid

continual

ambitious

this

the

been

have

certain jobs which

are

will

that

means

the

cases,

highly

bank

be picked with the idea that he

permanent

always

perhaps,

may

in order to produce efficient, smooth and accurate

necessary,

jobs should

normal

There

concern.

which

subconscious

different from

that you do not have

these
Ill

bank is

there

think

conception of the public and

the

into

the banking business

stone—although,

who works

everyone
a

and

jobs it is

inclined

the general

permeate

manufacturing

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

By this I do not
certain

are

responsibility.

great

before

never

there

that

happy with routine employment.

Hiring

general statement about the personnel of

potent

two

"The Studied Development of
a

generally

selected

"selfishly" because

say

other, and

any

which

subjects

to concentrate

workers.

routine

Let

selfishly logical

seems

Long-Range Basis," and

struck
is

mission.

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

keeping

of this personnel

the most part

department of hanking in which the new

one

cal

really touched.

banks,

small

which, after all,

help,

spirit—that

and

size

often-termed

tive

not yet

their

that, large and

procedure, and for

same

necessity rather than

the

sadly neglected.

built

admit

hiring help is usually considered
appreciation

parts

have

procedure which has developed by evolution rather than revolution.

Consequently, in

blood

They

time.

soundly.

studying the replies to

small,

step

CONVENTION

it is

heads

know

the

this

them,

have

the

young

training, they will be able to select for minor positions in their
departments a candidate in whom they have confidence and feel that

some

day will become

truly mechani¬

responsibility

the

executive
years

for
on.

them, that he
It is only

can

take

human trait that

and
an

BOUND TABLE CONFERENCE
executive

take

will

interest

young

duty

if he has something to

man

investment

the

invested

afford
of

young

make

good

all

as a

banks and companies from bringing in their

many

to be trained

men

ing to make them

bit

little

regarded

usual

which

heads

department

whom

for

Before

this

there

take

can

and

home

point I want to make which

one

to your bank,

not apply

take

heating

type of
decide

cage

feel

good

deal of their

you are

going to put in air conditioning, install

minimum

bank

the

devote

bank will devote plenty of time to it, because they
an
investment, because they feel it is their

your

making

and

attention

which I

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

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

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¬

the

group

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,

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

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

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

sure

that

ambitious to advance, and loyal to

are

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

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

make

become

generals.

Operation

National Bank, Portland, Ore.
A

bank.

the

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

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

do not get

review

in other words, if the

put in a new service such as personal loans, or
checking accounts, you will find that the

counter,

handle

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

the

ventilating equipment in your bank building, build a new

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

the

I think all of

of the proposition and in deciding whether or not

accept or reject it.

new

interest

active

him in their category of

of the future.

is your stop-gap

to interview applicants

senior officers

in the bank on this particular type

have placed

and

secretaries.

please do not put in on.

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

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

nourishing food for thought.

find it very

does

statement

does not fit,

cap

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

including interest, in

these investments in man-power, on
on these investments

expenses,

the

interest

first

man

this

time,

item of

was

these

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

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

effective.

responsibility

in saying

correct

wages.

the

these

the highest

his

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

man

directors, to

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

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

the

salaries

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

only

not
of

lose them

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

course

of thumb which

rule

also

believe

progress.

There is

perhaps

and

officers

action.

following his

about his training, and has taken a personal interest in

say

operations.
the

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

who

is qualified

development.

There

functions and duties

if the bank
In

business

enterprise.

this

employee

interest

is to be

termed "well managed."

Full text of Commercial and Financial Chronicle : October 14, 1939 : American Bankers Convention Section, Vol. 149, No. 3877

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