?
THE CHICAGO BANKER
August 22, 1908]
cause it strikes at the foundations of business safety. No one sets a higher value than I upon the friendship and good will of the note broker, no one has greater respect for the business, nor a keener appreciation of its potential usefulness. It is the abuses of the business which should be criticised and if possible corrected or at least minimized, and not the whole class nor even the individual broker that should be condemned. It is for us as bankers to determine what the abuses are, and after discovering proper remedies have the courage to apply them.
Some time ago the Executive Council of the American Bankers Association, prompted by a desire to serve the interests of its members, and to extend the usefulness of the Association, appointed a committee to consider the practicability of the establishment of a Credit Bureau to be operated by the Association, for the purpose of collecting, and disseminating information to the members concerning the credit standing and financial responsibility of all concerns whose paper is sold through note brokers. The committee gave careful consideration to the subject and came to the unanimous conclusion that the establishment of such a bureau would be a costly experiment and might be a serious mistake. After reviewing the subject at length the committee in its report among other things said :
“The correction of abuses, and the proper safeguarding of credit as far as it can be done at all in the purchase of paper, appears to lie in co-operation between the banks and the best (Continued on page 21)
		Capital paid in $200.000
Depositary of the	The Central National Bank	
United	of Peoria	Surplus
States Govern■	Under distinctively sound and conservative management	$1 25.000 Deposits
ment	Especial attention given to accounts of	$2.000,OOC
	banks and bankers	
be admitted that without extraneous influences such would be the case with interest rates as well as with commodities, but to overlook the fact that unrestrained and irresponsible competition is a seriously disturbing and depressing factor is to beg the question. Economically considered the situation in the commercial paper market to-day and the causes contributing to that condition are not unlike those which brought about the ruinous railway rate wars witnessed twenty years or more ago, ending in a system of pooling, which finally resulted in corrective and harmful, not to say destructive legislation. No one will say that those desperate conflicts resulted from natural application of the laws of supply and demand.
I venture the statement that there is not in the United States a reputable firm of note brokers who during the present year have not come into competition with other firms of brokers for new business, or in the protection of their own established business, upon terms which they knew to be unwarranted and detrimental to the business community; but which for self-protection they felt obliged to meet and sometimes to underbid. I have no solution to offer for these abuses, although they cut the banks to the quick; but they have caused me to collect a large stock of unsettled and unassimilated views. If I should formulate these views in a single statement I should say that the ultimate solution must be found in that “abiding sense of justice which is the rock upon which all human relations must subsist.” Any business practice which violates this principle has no reason to exist and cannot long survive, be-
ceamjes ^at^away cocommercial Paper
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Correspondence Invited
AT THE	THE NATIONAL STOCK YARDS NATIONAL BANK			AT THE
ST. LOUIS		Our especial equipment and close touch with every interest represented at the St.		ST. LOUIS
STOCK		Louis National Stock Yards enables usto eliminate expense and to assure the maximum of security and profit on all live stock business at this market entrusted to us.		STOCK
YARDS		NATIONAL STOCK YARDS - ■ ILLINOIS		YARDS
Peoples Savings Bank & Trust Co.
Capital and Surplus, $200,000 Deposits, $1,854,834.59
Solicits Accounts and Collections from Banks, Firms and Individuals on Favorable Terms.
WM. BUTTERWORTH, PRES.	NELSON H. GREENE, VICE PRES.	C. W. LUNDAHL, CASH. AND SEC.
First National Bank of Joliet
Capital and Surplus, $250,000 Solicits Collections from Banks
GEORGE WOODRUFF. President	ANDREW H. WAGNER, Cashier
offset by the commissions paid to the broker. The usual commission is one-quarter of one per cent, or $2.50 per thousand, without respect to the length of time the note has to run. The shorter time a note runs the higher is the price paid for the use of the funds, because the commission must be included and reckoned as interest paid. One-quarter of one per cent flat commission on a 60 day note is equal to a rate of one and one-half per cent interest on the note for the same time. If paper runs six months the commission would be equivalent to one-half of one per cent interest. Thus the longer time a note is made to run the wider the possible “spread” between brokers’ rates and current rates at bank. This fact, as simple as it is, is one of the “secrets” of the business and has opened the gate to many abuses. In the first place it has been a powerful factor in lengthening the average time of loans, which certainly is bad from the point of view of the commercial banker, whose usefulness to the community and the strength of whose position depends upon having short time liquid credits. It is not uncommon to see alleged commercial paper offered by brokers running eight months or longer, while six months is the rule with all except seasonal borrowers, who usually make four or five month notes. Again, it has given every broker a free lance with which he may, if he chooses, rip and tear the vitals of his competitors and also inflict serious wounds on the banks. To illustrate:	When the current rate
at banks is 5 per cent brokers can and often do bid good borrowers 43/i per cent, (which means of course plus the usual commission). They sell the paper if possible at 4^ per cent, but failing in this they can sell at 4% and still make one-half of the usual commission; or even in extremity they may sell at 5 per cent and come out without loss except of time and labor.
This expedient of underbidding often is employed by brokers to take accounts from one another, or to obtain and be able to offer especially choice names, which are used to assist in the sale of less attractive ones. The broker who is thus threatened with losing an account to a competitor naturally meets the bid, and if not too late probably “goes one better.” The inevitable result is demoralization. It is about on a parity with the class of competition often experienced by conservative bankers whose neighbors, over-anxious for a big showing of business, bid high rates of interest on balances, offer free collections and larger lines of discount accommodations. We are all familiar with the breed, and we know that bankers who do these things inevitably come to grief, or after cutting their wisdom teeth stop such methods. Unfortunately among brokers, the offenders are to a certain extent protected against the consequences of their folly. If rates go down their low bids are safe, if they go up the margin of protection afforded by the commission is considerable and generally the broker can get out without much, if any, actual loss. The whole tendency of such a system is unduly to depress interest rates during periods of easy money. The brokers’ contention is, however, that the depression only follows the natural laws of supply and demand. It must
Joyce ¿4 Company
(Incorporated)
General Agents
The Rookery Bldg.	Chicago, Illinois
ILLINOIS ADVISORY BOARD Charles G. Dawes, Resident Vice-President A. J. Earlin¿	David R. Forman	John A. Spoor
Walter H. Wilson	M. J. Kirkman
COUNSEL
Calhoun, Lyford ¿1 Sheean	Winston, Payne, Strawn fit Shaw
National Surety Co.
Of New York	V Vfe
Fidelity and Surety Bonds Jj (| Dl JJ M
Burglary Insurance