Waxing & Waning

In the dark days of the 1933 bank holiday, President Roosevelt installed in the office of Comptroller of the Currency an inconspicuous lawyer named James Francis Thaddeus ("Jefty") O'Connor. Jefty did not know much about banking, as he readily admitted, but he had dabbled in enough other professions to give him a deft versatility. As a politician he was defeated for the North Dakota Governorship In 1920, but got into the Legislature. As a lawyer he was sharp enough to become the partner of William Gibbs McAdoo in California, where Jefty moved in 1925. As a Democrat he was one of the first to climb on the Roosevelt bandwagon in California in 1932. Last month Jefty O'Connor handed Franklin Roosevelt his resignation as titular head of the national bank system, possibly because he plans to run for Governor of California. Last week Jefty dispatched to Congress the 75th annual report of the Comptroller of the Currency -- a 208-page booklet summarizing not only the status of U. S. national banks as of last June 30 but also Jefty O'Connor's accomplishments in almost five years of work.

Bankers at first mistrusted Jefty because of his inexperience and his use of sound trucks to advertise real estate frozen in the banks he had to liquidate. By last week, however, the American Banker felt justified in remarking: "Without pyrotechnics or disruptions of established methods in the oldest banking agency of the Government, he stimulated loyalty, recognized career men and from coast to coast glorified his office to bankers and public."

But for the evidence of banking recovery embodied in the statistics of his report, Jefty O'Connor had to share honors with those two other Federal agencies which also watch over the national banking system, the Federal Reserve Board and the Federal Deposit Insurance Corp. That only twelve national bank's have failed since Mr. O'Connor took office--compared to 1,750 in the previous decade--was largely the result of the fact that banking was the only U. S. industry which was allowed to pass through the depression wringer. And the fact that deposits reached a record high was traceable in big measure to the Treasury's filling the country's banks full of Government paper.

For the year ending June 30 the 5,299 national banks achieved the second largest profit in history--$286,561,000, against $301,804,000 in 1929. In 1934 there was a net loss of $303,546,000. This whopping recovery was not, however, entirely gladsome to bankers, for in fiscal 1937 their banks made that showing, not through any blossoming in banking operations but because of reductions in expenses. Gross national bank income in 1929 was $1,389,400,000, expenses $986,882,000. Last year gross bank income was only $847,197,000, expenses $577,851,000. In short, profits may be waxing, but banking is waning. Moreover the banking that remains is done on slimmer margins. The Federal Reserve Board released figures last week showing what easy money meant in terms of practical banking. For every $100 of loans and investments, national banks received $5.76 in interest in 1929, only $3.29 in 1937.

As one solution of this slow reduction of banking income, Chairman Winthrop Aldrich of Chase National Bank proposed to the Senate Committee on Unemployment last month that the law forbidding banks to underwrite securities be eased. Last week Jefty O'Connor unofficially recommended that banks be allowed to underwrite 20% or $100,000 worth of any new issue, whichever was larger. Washington thereupon began to buzz with so much talk about possible revision of the Banking Act that President Roosevelt had to squelch it in press conference. He remarked that he had heard many requests to allow banks to re-enter underwriting, but he had yet to hear any suggested ways for safeguarding against the old evils.

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