[Volume XXV
THE CHICAGO BANKER
14
Comment
Editorial
an awkward position and as a scapegoat he has furnished the argument for a reform in the law controlling state bank examinations in Illinois.
To Regulate Stock and Bond Issues
The distinguished Senator Dolliver of Iowa had the good fortune to introduce the first measure before the present Congress for the regulation of issues of stocks 'and bonds by the public service companies. There will be many more, but Senator Dolliver was earliest in the field.
“The measure is designed,” said Mr. Dolliver. “to subject the future issues of stocks and bonds by transportation companies, telephone, and telegraph companies engaged in interstate commerce, to the scrutiny of the government of the United States. It is drawn on the theory that these corporations should be so organized that there should be some just and reasonable relation betw'een their assets and their liabilities. It is intended to prevent for the future over-capitalization, stock watering, bond manipulating and all similar abuses, which in times past have brought more or less disrepute upon the management of railway properties. The effect of it will be to give stability to the existing volume of railway securities, and at the same time to guard future issues, so as to give normal values to stocks and bonds.
“The bill is applicable to all corporations which are subject to existing laws for the regulation of interstate commerce, and, in addition, to telephone and telegraph companies engaged in interstate commerce.
“It is undertaken in the bill to make a standard of legality by which the validity of stock and bond issues may be adjusted. These features of the bill have been drawn without any intention to hinder or embarrass legitimate enterprises, either of railroad building, or railroad consolidation.”
After defining the standard of legality, the bill requires corporations subject to it, when a new issue of securities is proposed, to make a full report of their proceedings in respect to them to the Interstate Commerce Commission, showing the amount and character of the securities it is proposed to issue and the purpose to which the proceeds are to be applied. The bill then provides that the Interstate Commerce Commission, after a full hearing, shall determine whether the proposed issues are in conformity to the act. In case properties are sought to be united, full authority is given to the commission to make a valuation of the property, in order that the combination may not operate unreasonably to increase the obligations outstanding. It is provided finally that securities issued without compliance with the provisions of the bill shall be considered fraudulent and void, and that they shall subject those responsible for the unlawful issue to the penalties of the law.
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legislature will have evidence at first hand showing the inadequacy of the system. Two years ago there was a large explosion in the Stensland bank failure, and the legislature, then in session, amended the banking law, and it has been ratified by the people. The new law did not abolish private banking as has been done in so many states, and it did not provide an adequate supervisory system for the great state banks and trust companies of the Western metropolis. Chicago has a right to demand such amendments to the state banking law at the coming session, as will put state banks on a par with national banks in the matter of examinations. The state banks of this city have grown rapidly in size and importance. They have been helping to maintain the state examiner’s office in Chicago by giving it private employment, and by cheerfully submitting to assessments to help carry it on. This is not right, but it was an honest attempt of the banks to make a defective law as fully protective as possible.
The Chicago Clearing House also bears the expense of an additional examining force, and altogether banking in Chicago will compare favorably with that of any city in any country. If the state legislature were as earnest in keeping banking standards high as Chicago bankers are, it long ago would have made state bank examiners salaried state officials. As long as state examiners are paid a small per diem and only when actually at w־ork, they will accept other employment in their private capacity. This dual relation to the same set of bankers should be avoided. It does not obtain in national bank examinations, where the examiners are government salaried officers. The state bankers are entitled to as full protection in rigid banking laws as national bank officials have. The state bankers are often subject to misrepresentation when they employ a state examiner to make extra examinations in their own private interests. Yet they constantly need the services of such experts. The state bankers of Chicago have made insistent demands for an official examiner on regular duty, with Chicago headquarters. This should be provided at once by the state. When it has been done a bank examiner will not risk his place by begging favors from bankers who can command Pullman passes. The legislature put Air. Jones, the Chicago examiner, in
Postal Banks Not a Remedy
Under the above caption Banker Schuette of Wisconsin has contributed a strong article to this issue of The Chicago Banker. Of course Mr. Schuette views the situation from the position of a man who believes the real remedy to lie in some form of guaranteed deposits. Nevertheless he is an able and experienced banker and writer upon financial topics, and always is willing to present his ideas over his own signature. His earnest presentation of the evils which could conic from “40,000 postal banks” add material to the present stock arguments against the government engaging directly in the banking business.
The Missouri Bankers Association is the first of the state associations to go upon record since Congress decided definitely when the postal bank bill will come up for consideration. W. C. Harris of Fulton, is chairman of the Missouri legislative committee, and he is an active, forceful man. Under date of December nth he sends out an important circular letter to all members of the association. In it he states the association’s position to be: “A bill providing for the establishing of postal savings banks will come up for consideration by the United States senate on the 14th of this month, and the passage of such a measure by the present Congress seems to be imminent unless immediate and effective steps are taken to prevent it.
“In our opinion, such a law would be immeasurably harmful to the general business interests of our country, and especially hurtful to the banking interests of the South and West, by drawing from these localities large amounts of money now being satisfactorily handled through the local banks of these sections. The object of this letter is to ask that you immediately wire Senators Stone and Warner, and your representative in Congress, urging them to oppose the bill, and to follow your telegrams by letters setting out some of the many reasons which I am sure will occur to you why such a measure should be defeated. Your appeals would be greatly strengthened by similar letters from the stockholders and customers of your bank, and I trust 3011־ will make an effort to enlist their co-operation. This is a matter of great importance, especially to the banks, and requires immediate action. Please do not lay this letter aside without complying with the above request.”
Other state associations no doubt promptly will follow׳■ the example set by the Missouri association, and members and senators in Congress are quite likely to learn the position which bankers take on the subject of postal
A Timely Explosion
The mild explosion in the state bank examiner’s office at Chicago was timely. The