Readings in Money and Banking Part 81

Those receiving an average of 10 per cent. and upwards included 2 banks in Illinois, 6 in Minnesota, 2 in Missouri, 23 in Georgia, 6 in Florida, 21 in Alabama, 2 in Louisiana, 315 in Texas, 17 in Arkansas, 3 in Tennessee, 90 in North Dakota, 25 in South Dakota, 18 in Nebraska, 5 in Kansas, 38 in Montana, 14 in Wyoming, 37 in Colorado, 25 in New Mexico, 300 in Oklahoma, 12 in Was.h.i.+ngton, 10 in Oregon, 13 in California, 2 in Utah, 1 in Nevada, and 33 banks in Idaho.

Let me ill.u.s.trate the methods of some of these bankers by giving you the facts and figures as taken from the sworn statements submitted to the Comptroller's office by the national banks in two particular States in the Southwest.

In one of these States there were 131 banks which reported that they charged a maximum rate of interest ranging from 15 per cent. to 24 per cent. per annum, 67 banks whose maximum rate ranged between 25 per cent.

and 60 per cent. per annum, 22 banks which charged between 60 per cent.

per annum and 100 per cent. per annum, 18 banks whose maximum rate was from 100 per cent. to 200 per cent. per annum, and 8 banks which owned up to having charged maximum rates ranging between 200 per cent. and 2,000 per cent. Most of these disgraceful and unprecedented rates were for comparatively small loans....

These figures are not results of the rule, applied by many banks, not to pa.s.s a loan on their books for less than a dollar.... When we find loans made by national banks for $25, $50, $100, $200, $500, and $2,000 or more, at 40, 50, 100, or 1,000 per cent., it is merely a hideous gamble on how long the borrower can keep starvation from his door and live and work. Yet I am told on good authority that in one State, largely agricultural, reports from nearly 200 banks--lending chiefly or largely to farmers--show losses of only a fraction of 1 per cent. on farmers'

loans, while the average interest rate in these particular banks is 12 per cent. to 15 per cent.--and the maximum rate 30 per cent. or 40 per cent., the banks paying large dividends.

We read much of the infernos of the slums of the great cities, of degradation and misery and squalor, of the grinding callousness of tenement landlords and sweatshop operators. Here in the country we find bankers, men in business that should be the most respectable, as it is the most responsible, of all secular avocations, literally crus.h.i.+ng the faces of their neighbors, deliberately fastening their fangs in the very heart of poverty....

A well thought out, carefully constructed, conservative system of rural credits for the development of agriculture and the increase of our wealth and resources by offering encouragement and opportunity to the ambitious farmer will come presently. When it comes all of us will share the splendid results....

BANKERS' VIEW OF USURIOUS INTEREST RATES

[286]On February 25 the following statement was "given out" from the office of the Comptroller of the Currency:

The Comptroller of the Currency received to-day from the Farmers' Grain Dealers' a.s.sociation of Iowa notification of the adoption at the convention of that a.s.sociation in Des Moines, Iowa, on the 17th instant, of the following resolution:

_Be It Resolved_, By the Farmers' Grain Dealers' a.s.sociation of Iowa, representing 40,000 members, as follows:

That we are as much opposed to bank discrimination in interest rates as to railroad discrimination in freight rates.

We oppose private control of the public currency.

That we strongly commend the Comptroller of the Currency for his courageous exposure of bank usury; and we unalterably oppose the efforts of the guilty parties to abolish his office.

There has been no better statement of the Comptroller's position than is here given--credit standing and variations of it must have no influence on interest rates and anyone who wishes his office abolished is guilty of usury; or, conversely, only those guilty of usury wish the office abolished.

The statement is inadequate only in the failure to define what is meant by "private control of the public currency."

FOOTNOTES:

[249] Conway and Patterson, _The Operation of the New Bank Act_, pp. 1, 2. J. B. Lippincott Company, Philadelphia, 1914.

[250] John Skelton Williams, Comptroller of the Currency, _Democracy in Banking_, Address delivered before the annual convention of the North Carolina Bankers' a.s.sociation, Raleigh, May 13, 1914. Printed in _Congressional Record_, 63d Congress, 2d Session, Vol. 51, pp. 10150-53.

[251] A. Piatt Andrew, _The Essential and the Unessential in Currency Legislation_, in Questions of Public Policy, Addresses delivered in the Page Lecture Series, 1913, before the Senior Cla.s.s of the Sheffield Scientific School, Yale University, pp. 62-70. Yale University Press, New Haven, Connecticut, 1913.

[252] Adapted from John Perrin, _What is Wrong with Our Banking and Currency System?, The Journal of Political Economy_, Vol. 19, No. 10, December, 1911, pp. 856-865.

[253] Paul M. Warburg. _The Discount System in Europe_, Publications of the National Monetary Commission, Senate Doc.u.ment, No. 402, 61st Congress, 2nd Session, pp. 33, 34.

[254] Conway and Patterson, _The Operation of the New Bank Act_, pp.

203-207. J. B. Lippincott Company. Philadelphia. 1914.

[255] Fred Rogers Fairchild, _Bond-Secured Bank Notes and Elasticity_, _The Outlook_, Vol. 88, No. 11, March 14, 1908, pp. 590-93.

[256] [As was pointed out in an earlier chapter, the autumnal demand for currency in the agricultural sections of the country has fallen off appreciably since 1907.]

[257] Fred Rogers Fairchild. _Fundamental Defects of the Bond-Secured Bank Notes_, _Bankers Magazine_, Vol. LXXVI, No. 4, April, 1908, pp.

487-90.

[258] We are not considering the third alternative of issuing bonds at a heavy discount.

[259] Adapted from W. H. Lyon, _A Gamble in Governments_, _Moody's Magazine_, Vol. XI, No. 1, January, 1911, pp. 181-186.

[260] [In this extract the explanation of the so-called perverse elasticity of our national bank notes is given incidentally but very clearly.]

[261] Adapted from John Perrin, _What is Wrong with Our Banking and Currency System?_, _The Journal of Political Economy_, Vol. 19, No. 10 December, 1911, pp. 856-865.

[262] Eugene E. Agger. _The Commercial Paper Debate. The Journal of Political Economy_, Vol. 22, No. 7, July, 1914, pp. 663-667.

[263] _Annalist_, March 9, 1914, p. 293.

[264] _Annalist_, March 9, 1914, p. 294.

[265] J. J. Klein, _Annalist_, March 23, 1914, p. 361.

[266] _Ibid._

[267] During 1912 over $1,700,000,000 in notes were sold by reputable brokers, and they represented in these transactions from 2,500 to 3,000 concerns. In one large eastern state over two-thirds of the state banks and trust companies regularly invest a portion of their funds in this cla.s.s of paper (J. A. Broderick, _Finance_, October 4, 1913, p. 328). On August 9, 1913, according to the report of the Comptroller of the Currency, the national banks held over six billions of dollars of commercial paper, most of which was single-name.

[268] _Financier_, June 22, 1912.

[269] J. G. Cannon, _Financial Age_, October 19, 1908.

[270] P. M. Warburg, _The Discount System in Europe_, in Report of the National Monetary Commission.

[271] _Ibid._: see also William Jacobs, _Bank Acceptances_, in Report of the National Monetary Commission.

[272] Warburg, _loc. cit._

[273] E. D. Page, _Annalist_, March 16, 1914, p. 324.

[274] Lawrence Merton Jacobs, _Bank Acceptances_, Publications of the National Monetary Commission, Senate Doc.u.ment No. 569, 61st Congress, 2d Session, pp. 9-19.

[275] Paul M. Warburg, _The Discount System in Europe_, Publications of the National Monetary Commission, Senate Doc.u.ment, No. 402, 61st Congress, 2nd Session, pp. 23-25.

[276] Adapted from James H. Simpson, General Manager, Bank of Liverpool, Ltd., _Some Leading Features of the London Money and Discount Markets_, an address delivered at the annual banquet of the bankers of the city of New York, January 19, 1914.

[277] Paul M. Warburg, op. cit., pp. 28-30.

[278] O. W. M. Sprague, _Banking Reform in the United States_, pp.

72-75, Harvard University, 1911.

[279] The importance of real estate to the state banking inst.i.tutions is shown in the Special Report from the Banks of the United States on April 28, 1909, recently published by the National Monetary Commission. For state banks real estate loans and mortgages amounted to $414,000,000 or 12-1/2 per cent. of total resources and for the trust companies to $377,000,000, more than 9 per cent. of their resources.