Speech

Speech delivered before Illinois Bankers Association Decatur, Illinois May 20, 1935 RECENT RELATIONS OF THE FEDERAL RESERVE SYSTEM WITH BUSINESS MID INDUSTRY The name is difficult. Once I almost lost a place on a college football team because the coach thought that I was playing a practical joke on him when I handed in my name with others who were applicants for places on the team. He called me later and said "You are through.11 I asked him why. He said "Because you can't play jokes on me. What was it you handed in when I asked for names? It looked like the alphabet thrown together without any vowels." I had to explain to him very seri- ously -that that was really my name. He finally believed me and I stayed on the team. Illinois is the State of my birth, in which I lived and worked for many years. So you can understand that I was more than pleased to accept the invitation of Mr. H. A. Brinkman, your President, to appear on this program. I was especially glad to have the opportunity to meet you and listen to what you have to say, so that I might return to my office in Washington better informed and better able to aid, even if in a smell way, in the solution of the problems presented daily to the Federal Re- serve Board. Let me begin by discussing something known to all of us - and .lead slowly to something that may be news to some of us. As you know, the Federal Reserve Act emphasizes the principle that the System shall be administered for "T he accomodation of commerce, in- N dustry and agriculture." 3Ms is the basic thought of the Act. Hie Federal Reserve banks - bankers1 banks - are 'public institutions serving the entire country. In addition to the banks which are members of the System and stockholders of the Federal Reserve Banks, the System consists, first, of 12 Federal Reserve banks, 25 Branches, and two Agen- cies. There are 9 Directors of each Federal Reserve bankj 6 are elected by the member banks and 3 appointed by the Federal Reserve Board* Each Branch has 5 ot 7 Directors, the, majority of whom are appointe&by the Directors of the Federal Reserve bank of the district in vfticb the Branch is located. Second, tho System includes the Federal Advisory Council of 12 active bankers - one from each of the 12 districts - elected by the Directors the respective Federal Reserve fe&nkS. Third, the System includes the Federal Reserve Board. Manr/ powers are vested in the Board, among them being the duty to exercise general supervision over the Federal Reserve Banks* At the present time the Federal Reserve banks hold larger member bask reserve deposits thai* at any oth^r- time in the history of the System* and the member banks are less Indebted to them than at any other time> this history of the System. In 1920, fifteen years ago, the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 Reserve banks held the^discounted paper of member banks in. the amount of nearly three billion dollars; in contrast to this, on February 20th of this year the amount of discounted paper was less than six million dol- lars. Fifteen years ago, in April 1920, member bank reserve deposits were less than two billion dollars; in April of this year they amounted to nearly five billion dollars. At the present time the excess reserves of member/banks amount to more than two billion dollars. This neans that the banks of the country have an enormous amount of funds which are not in use. At the same time in the countryas a whole there is an enormous number of men-unemployed. Ve have, therefore, this situation: .on the one hand men are out of work, and on the other hand money is out of work-* To the average layman, this is difficult to under- stand. The Government is finding work for these idle men by- embarking on various public activities and projects. A large part of the money re- quired for these work-relief projects is and will be provided by the local banks1 purchases of Government obligations. In other words, the Government is using its credit to bridge the gap. Would you prefer to have the Government continue doing this, or would you prefer to lend mohey directly to local enterprises yourself? I think I. know'your an- swer, and that brings me to the one thing I wont to emphasize bore-this afternoon. The Federal Reserve System has been authorized, and stands ready, to assist you in making loans to local enterprises under Section 13b of the Federal Reserve Act for the purpose of furnishing working capital to established industrial an d commercial businesses. When lending ac- tivities "are resumed through the usual and accepted channels,* the Govern- ment will, as I understand it, withdraw gradually from its Public Vorks Program and from the use or its credit for.such purposes. Sincerely, therefore, I should like very much to know just what is the attitude of the individual banker toward the loans to industry and business author- ized by Section 13b of^the Federal Reserve Act. I should like to know any and all reasons why these loans can or can not be made. This infor- mation will be helpful, not "otily to me and to the Board, but to the . executive ar*d legislative departments of your Government in Washington. It will also be helpful to you. Accordingly, I wish to sketch briefly the background of the indus- trial loans program of the Federal Reserve System, and place before you as clearly as I can the advantages to you and to your communities of loans made under the provisions of Section 13b. These provisions had their origin in the feeling that as a result of long continued adverse economic conditions a large number of small business and industrial en- terprises were suffering from depleted working capital. On March 19, 1934, the President of the United States, the Honora- ble Franklin D. Roosevelt,* sent a letter to Senator Fletcher,•Chairman of the Senate Banking and Currency Committee, and to Representative Steagall, Chairman of the House Committee on Banking and Currency. In this letter he suggested the creation of twelve Credit Banks for Indus- try, to help -provide working capital for small industries, and td follow Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 up the aid given to agriculture, the banks and large business corpora- tions, by doing something for the medium size man in industry and commerce. On the same day the President wrote the letter, Senator Fletcher introduced in.the Senate, and Congressman Steagall introduced in the House a M il Mto provide for'the creation of credit banks for industry". But Congress decided,,instead of.creating a new agency, to give the Federal Reserve Banks and the Reconstruction Finance Corporation author- ity to extend the credit which was required. That is the way the law now stands and the Federal Reserve System is firmly committed to carry- ing out the added responsibilities which Congress has given it. The new legislation was adopted June 19$ 193A* It amends the Federal Reserve Act by the addition of Section 13b, which provides that the Federal Reserve Banks may cooperate with member banks, non- member banks, and other financing institutions"in making loans to furnish working capital to established industrial and commercial businesses, and in exceptional circumstances, may make such loens direct vhen credit is not available on a reasonable basis from the usual sources. An Industrial Advisory Committee composed of active business men in the district is created under the la*?. The law limits funds availa- ble for advances and commitments by the Federal Reserve Banks to the total surplus of the banks as of July 1, 1934, or about $140,QQ0,000, plus certain payments to be made by the United States Treasury, which would bring the total available up to about 1280,000,000. The Federal Reserve System went to work promptly. A conference of Chairmen and Governors of the Federal Reserve Banks was held in Washing- ton, June 25 and 26, at which the new industrial loans provisions of the Federal Reserve Apt were t&e principal subject of discussion. Regula- tions had been drafted for the administration of Section 13b, and after they had been considered by the Conference and approved by the Federal Reserve Board, they were issued on June 26. In order to make as easy as possible the performance of the new functions granted to the Federal Re- serve Banksi these simple regulations left.the broad powers granted by Congress to the Federal Reserve banks wholly unimpaired and prescribed no restrictions beyond those prescribed in the law itself. Any attempt *to supply technical definitions was avoided, lest it have the effect of restricting and hampering the operations of the Federal Reserve Banks. The late Governor E. R. Black, who was very much interested in this amendment to the Federal Reserve Act, wrote a letter on June 30 to the Federal Reserve banks, in vhich he said in part: "I am certain that you have carried home to your directors our earnest feeling, first, that these new loans will mate- rially aid the Recovery Program, second, thvt it gives your bank an opportunity to render a real service in your district, and third, that this opportunity entails a responsibility that for tfae good of the Federal Reserve %stem must be fully met.11 Since then several conferences of Governors have been held in Wash- ington, at which the administration of Section 13b was discussed in detail* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 4. I have visited every Federal Reserve bank, end about 90 per cent of the Branches since Jul y 1, 1934* In fact, I visited some of.the districts several times during the course of the last year for the purpose of dis-r cussing this subject with all concerned. On September 27 a conference of the Chairmen of the Industrial Advi- sory Committees was held in Washington for consideration of the provisions of Section 13b* By this time the administration of Section 13b had been under way for some weeks and it was possible to consider the program in the light of actua l experience* Among other things consideration was given at this conference to the report that many member and non-member banks were reluctant to make industrial loans because they were uncertain of the attitude that might be taken by bank examiners toward such loans when found in the bank portfolios* It was recommended that a definite announce- ment be aiade as to the policy to be followed by examiners. In compliance with this suggestion the Federal Reserve Board on Oc- tober 6 issued instructions as to the manner in vhich industrial loans should be included in condition reports and examination reports. About the seme time the Comptroller of the Currency issued corresponding in- structions. The purpose of these statements by the Board and by the Comptroller vae to clear up such doubt as might exist as to the classi- fication of'such loans end the net effect was to assure member banks that industrial loans with long maturities which were covered by commitments from the Federal i<eserve Banks or the Reconstruction Finance Corporation would not be classified as 11 slow11. Pursuing the administration of Section 13b, Albert A* Creighton, who is Chaiiman of the Industrial Advisory Committee of the Boston Federal Reserve District, and who is likewise Chairman of the Committee consist- ing of the Chairmen of the 12 Industrial advisory Committees of the System, is now in Europe studying industrial loans in the various countries, at his own expense. He is expected back some time in June with a report of. what is being done in this respect by other Banks of Issue by other Gov- ernments, ancj by other banks and financing institutions. On December 11 and 12 a Conference of representatives of the Federal Reserve banks, the Industrial Advisory Committees and the Federal Reserve Board was held at Cleveland to consider the procedure being followed by the banks and the committees in passing on applications. It was realized that much of the success of the program depended upon a smooth and expe- ditious handling of applications. The fact was emphasized that both the Industrial Advisory Committees and the Federal Keserve Banks have given and will continue to give careful jggyd sympathetic consideration to each application, regardless pf the amount of money being applied for* On December 19 another Conference of the Chairmen of the Industrial Advisory Committees was held in Washington to review the work done by the Committees and to consider aeoas of furthering the program* i Also the Federal Advisory Council, which was created in 1913, as you know, met in Washington on September 17-18, 1934 &nd discussed the subject of industrial loans under Section 13b in detail • At several of the meet- Digitized for FRAinSEgRs since that dat e the Advisory Council tots, upon the request of the http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 Board, discussed toe cooperation in this matter of member banks with the Federal Reserve Banks. In addition to all these conferences and to continuous study of the situation the Federal Reserve banks have actively convassed their dis- tricts in order to inform financing institutions and prospective borrowers of the new provisions of the law. Every effort has been *nade through pamphlets, letters, addresses, personal calls and even by radio to make the new functions of the Federal Reserve Banks widely known. I have gone into all this rather minute detail, even at tJe risk of boring you, to give you some idea of the earnestness with which the Federal Reserve System has prosecuted the industrial loans propan. The question naturally arises , what are the results? As of May 8, 1935$ the Industrial Advisory Committees had approved 1,676 applica- tions, amounting to $88,066,000 and the Federal Reserve banks had ap- . proved 1,509 applications, amounting to £84,003,000. Adding the advances actually made ($29,626,000) and the commitments outstanding (£18,040,000) for a co^itment i3 equal to an advance, since the money must be kept available for the purpose of taking up the paper - we have a total of $47,666,000 of credit actually in use. There have also been some repay- ments, some applications have been withdrawn, and some are awaiting completion by the applicant before disbursement of funds can be made. The fact that the Federol Reserve banks have about £280,000,000 available for industrial loans, under the provisions of the Act, and after nearly a year nave a little more than $88,000,000 of advances approved by the committees might suggest either indifference on the part of the System to the program or thet there was little demand for the kind of credit made available by the Act. I believe that neither of these conclusions is warranted by the facts. The Board and the Federal Reserve Banks have stressed the program repeatedly and at the same time evidence still exists of a need for such credit for small industry and business. As you know, there &as been a certain amount of skepticism as to the existence of this demand for credit. The skeptics may possibly be right. But I do not know how we can prove what the need is, except by earnestly pursuing the possibilities of extending credit to small industry under Section 13b with all frankness and sincerity. Ve must at least exhaust every means of informing bankers and borrowers what the opportunities are. Banks were very sick. They called the doctor. They recuperated. Now they are, as it were, learning to walk again, but they are very cautious. That is human. Laws, too, are human. They are made by man in accordance with wh^t is considered the need of man. 1Te know of man's needs by the law of averages. Bet me tell you of a husian incident by which a clerk in a haber- dashery tried to apply tlie law of averages: A wife called at the haberdashery and said - ftI wish a collar for Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis k my husband." The clerk asked her for the size collar desired* .She saicl - "I don't know, I will go back and ask ay husband* The clerk, wh6 thought he knew something of human nature, said, "I think t know the sise of the collar your husband wears." She. said "Really*. The clerk said "Yes I think he wears a size 11 1/2 collar." She said "That is right - I remem- ber now - but how did you know?" The clerk said - "A man who sends his wife out for a collar wears about that size." I repeat that it is perfectly natural that after their experiences of recent years bankers should feel extremely conservative. It is per- fectly natural that applicants should have difficulty in proving.their present prospects are good. And it is to be expected that a nev provi- sion of law bringing the Federal Reserve System into, the field of long term loans should be hard to make generally known and understood. We ;,ar* vorking- as effectively as we can to overcome these obstacles. Now, after tli\is explaining the plans and intentions of the Reserve System, I wish to point out how this law directly concerns you as bankers. Although it' is provided in the law that credit for industry may be furnished to the borrower either by the Federal Reserve bank directly or by the commercial banks with the cooperation of the Federal Reserve banks, the law itself favors the latter procedure. To make this point Clear, let me read the first two paragraphs of Section 13b* The provision of the law authorizing the Federal Reserve Ranks to discount or purchase loan s made by member banks and other financing In- stitutions is as follows: "(b) Each Federal Reserve bank shall also have powers to discount for, or purchase from, any ban^t, trust company, mortgage company, credit corporation for industry, or other financing .institution operating in its district, obligations having maturities not exceed- ing five years, entered into for the purpose of obtain- ing working capital for any such established industrial or commercial business; to make loans or advances.direct to any such financing institution on the security of such obligations; and to'make..commitments with.regard to such discount or purchase, of obligations or with respect to such loans or advances on the security thereof, in- cluding commitments made in advance of the actual under- taking of such obligations. Each such financing institu- tion shall obligate itself-to the satisfaction.of the Federal Reserve bank for at least 20 per-centum of any loss which may be sustained by such bank upon any of the obligations acquired from such financing institution, the existence and amount of amy such loss to be determined in accordance with regulations of the Federal Reserve "Board." In non-technical language, that provision enable the bankers to make loans to furnish working capital to industrial and cotmercial borrowers on |dag maturities and at the mm time get the promise of the Federal Re- baiak to take over the loan at any time without recourse for 80 per ee&t of the loan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis ? Ill order that the credit ©ay be made available even though the bankers fail to take advantage of this opportunity to put their funds to work with a minimum of risk* the law also authorizes direct loans by the Federal Reserve banks to industry by the following language: "(a) In exceptional circumstances, when it appears to the satisfaction of a Federal Reserve bank that an established industrial or commercial business located in its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, the Federal Reserve bank, pursuant to authority granted by the Federal Reserve Board, may make loans to, or pur- chase obligations of, such business, or may make commit- ments with respect thereto, on a reasonable and sound basis, for the purpose of providing it with working capital, but no obligatio n shall be acquired or commit- ment made hereunder with a maturity exceeding five years.11 As the law was originally drafted these two paragraphs appeared in the order in which I have read them, but for some reason that order was reversed in the legislative mill and to a casual reader of the law it might appear that the emphasis was on direct loans by the Federal Reserve banks rather than on advances or commitments to banks. This is not the fact. On the contrary, the law says definitely that direct loans are to be made only in exceptional circumstances and when credit .is not availa- ble from the usual sources; there is no such limitation on rediscounts or on commitments covering loans made- in the first instance by local banks or other financing institutions. As a matter of fact, strange as it may seem, up to the present most of the money has had to be placed on direct loans by the Federal Reserve banks. And that needs to be explained. The Federal Reserve banks are not organized to take business away from the local bankers, and they most certainly do not wish to do so. It is stipulated i n the law that direct loans shall be made by the Federal Reserve banks only in exceptional cases and when the required credit is not available from the usual soirees. The Federal Reserve Board and the Federal Reserve banks have felt that this stipulation wm wltremely wise. The objection that the (banker makes to these loans is, of course, that they have too long maturities and sometimes may be con- sidered poor risks j but these objections were largely removed so far as local banks are concerned by the commitment which the Federal Reserve Bank will ^oake to take over the loan from the lending bank without re- course except that th e lending bank must obligate itself for at les.st 20 per cent of any loss. This means, of course, that the member bank or other financing institution which makes a loan is able to insure liquidity for the loan, and also to have as much as 80 per cent of it underwritten by the Federal Reserve bank. A long term loan that may be discounted at the Federal Reserve bank at any time without recourse as to 80 per cent of acy loss* is , from the point of view of the cammericml bank, as liquid as any earning asset it may hrnlMm ¥ou, of course, are trustees of your depositor^ funds, and it cer- tainly is not, and cannot be our aim to urge you to risk those funds by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis s. loaning on a basis that is not reasonable and not sound. That is plain. But in times like these when the banks have more funds than they can put to profitable Use, and on that account have difficulty in making ade- quate earnings, it seems to me important that you should understand the ' possibilities open to you under Section l?b and should make the most of then. In concrete terms, vhat the provisions of the law mean to you bankers may be stated as follows: First: You may make a loan on a reasonable and sound basis with a maturity not exceeding five years to ian established industrial or commer- cial business in your community for the purpose of supplying it with working capital. Second: If the loan is acceptable to the Federal Reserve bank (which may be determined before the loan is made) you may obtain from the Federal Reserve Bank a coirraitment to take over the loan on stated terms at any time within the period of the commitment. Third: You pay the Federal P;eserve Bank a small charge for this comnitaent, the amount paid depending principally upon the length of time, covered by the'boardtaent. For the Federal Reserve Districts itl which this State i s located, the Federal Reserve Bank rates on commitments are from 1 to 2 per cent per annum, which may be. called either an insur- ance charge or a charge for standing by. Having paid it and received its couiraitaient, the bank is assured that the loan.which the commitment covers is perfectly liquid. Fourth: If you subsequently need to dispose of the loan on which you hold the comnitnent, you inform the Federal Reserve Bank of your desire, and the loan is taken off your hands. The Federal Reserve Bank discount rates on industrial loans in the Districts in which this State is located are from 4-1/2 to 6.per cent. Fifth: Under the term s of the confcrdtment, the Federal Reserve Bank will relieve you o f obligation for as much as 30 per cent of any loss sustained on the loan. ' In other words, you can sell or rediscount the loan without recourse up to 80 per.cent of its amount, but you continue under obligation for the remainder, which may be only 20 per cent,. Qhe banker who has been very active in making industrial loans described in the following words his plan for setting up a special re- serve to cover possible losses in such loans. "The usual participation is, of course, on an 80-20 basis. Gener- ally the entire loan bears the maximua rate of 6 per cent. Ve look upon the 80 per cent guaranteed part of the loan as a prime investment - to the point that if such an investment were available in the open market we would be willing to buy same on a 1 per cent per annum. income. .basis, Tie take mil the income above 1 per cent obtainable from that part of the loan guaranteed by the Federal Reserve bank and set it up in a special reserve amount to provide against any loss sustained in our participations •w Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 I have bejen talking' so far, necessarily, in general terns. Now let me describe a typical actual loan under Section 13b. A. varnish manufacturer with a plant in a medium-sized industrial city needed f25,000 working capital. He needed it for a longer time than his local bank cared to lend without provision for liquidity. Ac- cordingly, an application was made by the local bank* which was a non- member, to the Federal Reserve bank for a commitment. After investiga- tion of the business and the security offered the application for the commitment was approved. A loan of $25,000 was made by the local bank repayable in equal semi-annua l instalments, the last instalment becoming due in four years. The security comprised a lien on plant and equipment, assignment of stock in another corporation and assignment of two life insurance policies. The loa n bears interest at 6 per cent. Covering this loan the Federal Reserve bank gave the local bank a commitment to take over the loa n at the local bank's request any time within twelve months. The local bank pays 1 per cent per annum for this commitment. Before the end of the twelve months, it can either procure a commitment for a further period, or ask the Federal Reserve Bank to take the loan off its hands. The local bank is thus enabled to hold a loan of %?hich the liquidity is assured, on which its part of any loss may not exceed 20 per cent, and on which it receives 5 per cent net. You will also b e interested in types of loans which have been re- jected. We have had relatively few. complaints from disappointed appli- cants. Those who have complained, however, have had their applications reviewed by the Federal Reserve Banks and every effort has been made to '*in^e^mNfteeAft^ ^tlife"- -ctnel- purpose of the law. There was recently received by one of the Federal Reserve Banks an ap- plication from a manufacturing company which had been organized in the last year or so to reopen a plant that had been closed for some time. The plant at one time had apparently been successful, but its former owners had subseiquehtly become bankrupt. The new company was organized by people who had no previous experience in the business and who had in- sufficient funds. Their business records gave no assurance of ability to succeed and their bankers were unwilling to make the loan nor par ticipate in it. The Federal Reserve Bank was asked to lend them prac- tically all of their capital. There was doubt whether the applicant was eligible as.an established business, but even leaving that question aside, the application had to be rejected because there was little pros- pect that the loan could be repaid from the profits of the business, and the underlying security was inadequate. I notice that in the case of the Chicago and St. Louis banks, the chief reasons for rejections have been insufficient security, unsatisfactory financial condition, for the law requires the loan to be made on a "reasonable and sound" basis, and in- eligibility, in that funds were not really required for working capital. Question has arisen as to whether the law permits loans to be made in cases where the proceeds are to be used for the refunding of existing indebtedness held by member, non-member banks or other financing institu- tions.. The purpose of the loans, in the language of the Act, is to furnish working capital to industrial or commercial business;' that is one of the few specific conditions which the law imposes. Obviously, a loan transferred from one creditor to another does' not provide the industrial or commercial borrower with additional working capital; nor, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 considering the fact that the banks are already supplied with more funds than they are finding use for, can it be said that the transfer of such indebtedness from local banks to Federal Reserve banks gives the local banks funds reauired by other borrowers* Consequently, applications have had to be rejected where it appeared that the principal effect of the loan would be to transfer certain slow'assets from the portfolio of a member bank to the portfolio of a Federal Reserve bank. When,however, the trans- fer of existing indebtedness is clearly an essential part of a,plan of rehabilitation involving new working capital, xt seems in accord with the spirit of the law to allow a portion of the proceeds of a given loan to be used for refunding.. Question has also arisen as to the meaning of the tertif "established11, in view of the fact that the. law authorizes loans to be made to estab- lished industrial and commercial businesses. A new corporation may per- haps be organized to take overman old business, and while the question whether in any particular case the applicant can be regarded as an es- tablished -business may have to be determined by counsel, it is felt that in general the term should be interpreted as liberally as possible. I wish, to remind you that the Federal Reserve banks are not required to submit each application to Washington for the approval or disapproval of the Federal Reserve Board. The action taken by the Federal Reserve bank in each case is final, although the Board does keep constantly in touch with the Federal Reserve banks on the administration of Section 13b. In this connection, if I had time, I should like to read you re- cent letters which th e Board has sent to the Reserve banks. They have suggested the expediting of work on applications so as to get funds actually into use mor e quickly. They have emphasized the need of calling the attention of all banks to the advantages of Section 13b. They have stated the Board1s judgment that loans should be made by local banks under, commitment, from the Federal 'Reserve banks rather than by the Fed- eral Reserve banks directly. f' In fixing ; their rates on industrial loans direct tb the borrower, the Federal Reserve banks.have tried to *avoid'making rates so low as to attract .this,business, away from member and non-member banks and other financing institutions. In general, here in the middle west,•commercial banks and other- financing institutions appear to be getting from 5 to 6 per cent on such loans.' The rates charged by Federal Reserve banks on commitments vary with different conditions, but in general run from 1 to 2 per cent, per annum. So, .for example, as" in' thfe case already .de- scribed, on a loan which, bear§. 6 per cent interests a member or .non- member bank may pay 1 per cent to the Federal' Reserve bank for a com- mitment, which will leave 5 per cent net to the member or non-member bank. The loans made either the federal Reserve Banks direct or by financing .institutions under commitments frdm ;the Federal Reserve Banks vary in size from .$250 up to. amounts of several million'dollars. The taaturities range from a few weeks to five yedts k rA wide variety of en- terprises is covered. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 I might add that the automobile, industry is at the head of the list in total amount advanced under Section 13b « nearly £12,000,000. It may also be worth noticing in the copv1 of my speech which will be, 'or has been, handed you, how many of these concerns which have been borrowing under Section 13b are directly or indirectly connected" with the building• industry. Most of theui ere makers of or dealers in essential products and necessities of lif e - 175 loans were made to manufacturers of and dealers in food products, and 162 to dealers in and. manufacturers of lumber and builders' supplies. I trust I have given you a definite idea of what industrial loans should mean to you. I hopethat if you find enterprises in your communi- ties which could use additional working capital to an advantage, you will not hesitate t o communicate with the Federal Reserve Bank about such prospects. In this connection, I should like to. read you at least one letter, copy of which was received by a Federal Reserve Bank, which shows that real assistance has been rendered under Section 13b: "We wish to thank you foifr having permitted the Federal Reserve Bank to make loans to individuals, as the banks that we do business with have refused to help us; had it not been for the Federal Reserve we probably would have been at a great handicap, that is, our farmers would have had to go on the relief. The folks here in the Reserve Bank are the way real bankers should be: prompt, courteous, business all the way through, and very competent. "Thanking you and trusting that you will leave this avenue of finance open to us, I am Faithfully yours......" This loan has already been paid back in full. I could illustrate cases one afteranother, but even these would not show all the assistance that has been rendered, for in many cases the Federal Reserve banks and member and nonmember banks have helped the small industry and business without even the necessity of granting a loan, by giving advice - business and financial, by assisting in reorgani- zations, and in innumerable other ways that cannot be, and are not, rec- orded in a statement of figures. Through Section 13b the Federal Reserve System has come closer to the public in a tangible and concrete way, though the figures, at first glance, might make the service actually ren- dered appear rather small. If certain banks lending under Section 13b find that some of these loans are better risks than they had supposed, and thus decide to lend, a little more freely to comparable enterprises, it.will be a distinct advance toward putting bank funds profitably to work. While, of course, there is much more to say about industrial loans, I realise that the occasion does not permit an exhaustive discussion. Digitized for FRASER I am afraid I have already taken too much of your time, and I don't http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 wish to have you tell me so; You have'teeen kind and courteous - quite unlike the. fellow who w&s listening to a:lbag speech by a-professor on the origin of man . Let me say to the press that this is off the record. The professor, after three hours of continuous speaking, asked - *If man originates from the monkey -where is Our tail?" Someone in the audience 9 replied quickly - "We have worn it off by this time sitting here listen- ing to you.,f I hope, however, that I have stated enough to arouse your interest in the amendment, at least to the extent of reading Section 13b, which is very short, and th e regulations of the Federal Reserve Board and the Fed- eral Reserve Banks of Chicago or St. Louis, in whose districts the State of Illinois lies. These have been supplied to thfe Secretary of the Asso- ciation, and he promised to distribute them among the delegates to this Convention. Senior officers of the Chicago and the St.. Louis Federal Reserve Banks are.present. They will be glad to meet you to discuss any matters respecting the Federal Reserve System, and particularly participations or commitments under Section 13b of the Federal Reserve Act. The Chairman or Secretary of the. Convention can direct you. Let me. conclude by saying that of course we iearn by experience. As the years roll by, , we look back arid find that the big things that we have done - the really big things, in the final account - which helped our communities and our country most - were things that appeared very small at the moment. Human beings are apt to spend their efforts pushing large boulders when the removal of several small-pebbles from under the large boulders would enable the boulders to move of themselves - so with our economic problems. Of course we all look for a day when the sun will shine once again s on our highway. But the dawn doesnft usually come up like thunder. It often steals upon us almost unawares. Just when our most strenuous endeavors seem to be ending in flat failure,, and our most elaborate and best laid plans seem to be going wrong, we are in no mood to notice the more certain, • if less conspicuous results of all ou r efforts. But why search for words of my own? There's a brief poem that says it all so much better, and it comes irresistibly • to my mind these days - perhaps it is familiar to-you: "Say not, the: struggle nought availeth, The labor and the wounds are Vain, The enemy faints not, nor faileth, And as things have been, things remain. If hopes were dupes, fears may be liars} It may be, in yon smoks Concealed Your comrades chase efen now the flyers, And, but for you, possess the field.* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Z-58 "For vhile the tired waves, vainly breaking, Seem here no painful inch to gain* Far back, through creeks aiid inlets making, Comes; silent, flooding in, the main. And not by Eastern windows only When daylight comes, comes in the light, In front, the sun climbs slow, how slowly, But Westward, look, the land is bright!" Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

M.S. Szymczak (1935, May 19). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19350520_szymczak

@misc{wtfs_speech_19350520_szymczak,
  author = {M.S. Szymczak},
  title = {Speech},
  year = {1935},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19350520_szymczak},
  note = {Retrieved via When the Fed Speaks corpus}
}