American Banker
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    This year marks American Banker's 175th anniversary. To commemorate the milestone, we've dug into our archives to bring readers highlights from our coverage of pivotal moments in U.S. banking history. In addition to this series, look for our special 175th anniversary edition this fall.

    Family Trees of the Megabanks


    Dealers Using Loose Credit Terms as a Lure

    Harrisburg, Pa., April 5 — Bankers should discourage dealers who advertise the loosest credit terms as a come-on and then surround the prospective buyer with all kinds of restrictions.

    This was the advise given by Walter B. French, deputy manager in charge of the Consumer Credit Committee of the American Bankers Association, to bankers attending the Pennsylvania Bankers Association's one-day Consumer Credit Conference at the Penn-Harris hotel here.

    Referring particularly to the no-down-payment and X-months-to-pay type of advertising, Mr. French said: "No lender, be it a department store, sales finance company, or bank, could long stay in business if it had on its books only the type of credit advertised in the papers every day."

    Stating that there were over 13,000 banks engaged in various forms of installment lending, he expressed the opinion that "these banks in particular have an added responsibility to the installment credit field. If in their commercial loan portfolios they have paper from others also engaged in installment lending, it is their responsibility to investigate the terms on which merchandise is sold or the terms on which credit is extended. It is their duty to see that advertising is honest and that they do not become a party to a dishonest operation by supplying money and credit wholesale or indirectly. Where consumer paper is bought wholesale from dealers, this is of particular importance, because the bank takes the onus of every unfair or tricky operation when the consumer makes his payment every month at the bank despite the fact that the bank participated in no way in extra charges or benefits in any way because of irregular terms."

    Reminding his audience that "the public is becoming better informed in this matter of installment lending," he suggested, "the banks of the country be the leaders in seeing to it that the consumer is advised in just how much a credit transaction is costing him; teach him to ask for full disclosure in cost of financing, and in your own transactions, give him full disclosure of all costs of financing voluntarily. If we educate the people to insist on clean deals, we automatically help our own operations.

    "It does little good, however, to operate a department that bends over backwards to be fair to the public in its direct operations and, at the same time, have that same department buy paper from dealers that are known the be guilty of shady practices. It is not going to take the public long to know what its rights are in these matters of finance. You are now its closest advisor. Keep that position of trust by helping it wherever you can.

    "Loose credit terms never bothered me very much for the reason that the average consumer who is a good risk won't accept them. He is a pretty sound individual and knows, in advance, how best he can handle a loan. He realizes sometimes better than the seller the advantages of having a fair equity in the merchandise at the time he buys it.

    "As for those who actually live up to the loose terms that they advertise and sell goods on that basis, all we can say is that it has been tried many times before. Then comes the day when losses take their toll and the sharp competition folds its tents and steals into the night. The best check on terms is losses. They are far more effective than Regulation W, and in a buyer's market the only one we should tolerate."

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    Tough Foreign Accounts Measure Wanted by U.S.

    WASHINGTON, March 3 — The Administration Monday proposed major changes in a bill to control the use of secret foreign bank accounts by American citizens, and although the proposals were considered tough, they gained support from members of the House Banking and Currency Committee.

    The New York Clearing House Association Monday also proposed a number of changes in the original bill which closely parallel those of the Treasury.

    For weeks, Treasury officials have argued that the approach of the Patman bill, which gives the Secretary broad discretionary powers to determine what bank records must be kept to curb illicit secret foreign account transactions, "goes too far" in its requirements. Their main complaint is that banks might be required to spend large sums microfilming checks that would have no bearing on foreign account activity.

    A less publicized fear, raised by bankers during recent sessions with Treasury officials, is that random searches by Federal officials through bank records might constitute an invasion of privacy, particularly if the transactions do not bear on the investigation.

    Monday, in an effort to refine the record-keeping but not block the bill's intent of obtaining full disclosure of foreign account transactions, Assistant Treasury Secretary Eugene T. Rossides proposed five major changes, three of them dealing with bank records and two with individual reporting.

    In place of the broad general authority the Patman bill would give the Treasury, the Administration proposals would zero in on two major types of transactions.

    Primarily these would be the exporting of currency or its equivalent, such as travelers checks, when amounts exceed $5,000 and the use of domestic or foreign branch checking accounts to transfer funds to secret accounts.

    The second provision, where the major record keeping burden would be imposed, would require banks to microfilm and hold for at least six years copies of all foreign remittances for incoming or outgoing funds as well as records of check and foreign credit card transactions exceeding $1,000 and records of foreign checks transmitted abroad for collection.

    Also included would be records of foreign drafts and records of letters of credit and documentary collections.

    A third section, specifically aimed at banks, would require them to improve periodic currency reports filed with the Treasury. Presently, the main criteria for compiling such reports is to make the Treasury aware of "unusual" currency transactions.

    Under the new proposals, this subjective language would be more strictly defined and the scope of such reporting would be extended to include the positive identification of persons involved, particularly when they are couriers.

    Other sections, bearing largely on individuals, would establish the right of "rebuttable presumption" for Federal investigators where they suspect an individual is evading taxes through a secret foreign account, and would require U.S. citizens or corporations to disclose their interest in such accounts when filing tax returns.

    The rebuttable presumption clause, based on the theory that an individual is cheating on taxes with a secret account if he will not present records of his own transactions, is aimed primarily at stopping persons from depositing money in secret accounts and then borrowing back the funds to obtain an interest deduction on their income taxes.

    Mr. Rossides said the Treasury, the State Department and other interested parties also plan to go ahead with negotiations with the Swiss government next week for a treaty on secret foreign bank accounts.

    Last week, for instance, the Swiss Supreme Court handed down a precedent-shattering ruling that U.S. investigators could look at secret account records to obtain information for a criminal indictment.

    In answer to questions, however, Mr. Rossides said the treaty negotiations or voluntary relaxations by the Swiss government should in no way diminish the importance of the pending bill.

    "It in no way changes our positions," he told Mr. Patman.

    Since last December, when the Justice Department endorsed the Patman bill only to have the Treasury turn it down 10 days later, the Administration has been under the mounting pressure from both parties to settle the Swiss bank dilemma.

    Democrats have pointed out in recent weeks that one of the biggest criminal loopholes in the country, the secret foreign account route, was being ignored in the war on crime. Privately, Justice Department crime fighters were acutely embarrassed by the Administration's dual position.

    But Monday, following a week-end of deliberations over the bill, the Administration succeeded in taking nearly all the heat off itself.

    Remarking he was "much impressed," Mr. Patman said the Treasury statement was the "most encouraging thing I've heard during this whole campaign." Other members said it was "a highly constructive statement" that would "greatly aid" in sessions on the bill later this month. Indications to date are that it will have little opposition in the House.

    The two banking witnesses on the bill, representing the American Banking Association and the New York Clearing House, generally backed the Treasury position, but warned that too much record keeping or invasion of privacy would make the bill counterproductive.

    Clifford C. Sommer, president of Security Bank & Trust Co., of Owatonna, Minn., and ABA vice president, warned that "prohibitive" costs could result to customers if banks were forced to copy records without regard to their importance. He also asked that a specific exemption for foreign nationals with accounts at domestic banks be included in the bill to prevent withdrawals.

    A second banker, Carl W. Desch, senior vice president of First National City Bank of New York, representing the New York Clearing House, asked for a somewhat higher check level, $2,500 [higher] than the $1,000 the Treasury proposed, but said banks would not "oppose carefully drawn legislation requiring additional records." The main criterion would be its "usefulness," he said.

    Although the banking industry had not appeared before the committee until Monday, House Banking staff members said most of their views were transmitted during negotiations the committee has had with the Treasury in recent months.

    About a dozen banks, meeting with a special Treasury task force, had been preparing legislation with the Patman committee before Mr. Rossides sought to slow down the bill in December.

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    Ike Warns JFK: Maintain Fiscal 'Responsibility'

    WASHINGTON, Jan. 13 — Citation of a legacy of stable currency achieved by the Eisenhower Administration, and an admonition to the new national leadership to continue policies of fiscal responsibility highlighted the State of the Union message delivered to Congress Thursday.

    Recalling that from 1939 to 1953 the U.S. dollar dropped in buying value to 52 cents, and that the cost of living rose in an inflationary spiral by 36% in the period 1946 to 1952, Mr. Eisenhower said in his message that the spiral "has all but ceased and the value of the dollar virtually stabilized."

    "This Administration has directed constant efforts toward fiscal responsibility," the President said. "Balanced budgets have been sought when the economy was advancing, and a rigorous examination of spending programs has been maintained at all times."

    "Resort to deficit financing in prosperous times could easily erode international confidence in the dollar and contribute to inflation at home. In this belief, I shall submit a balanced budget for fiscal 1962 to the Congress next week."

    The nation has built a new economic vitality without inflation while adjusting from the artificial impetus of a hot war to constructive growth in a precarious peace, President Eisenhower told Congress.

    The message reviewed the actions of his Administration with the clearly indicated purpose of urging the new Kennedy Administration to heed past experience in meeting current problems, "for progress implies new and continuous problems, and unlike Presidential Administrations, problems rarely have terminal dates."

    The President said that despite the changeover from war to peace and the successful effort to hold the dollar stable, "we have also increased public expenditures to keep abreast of the needs of a growing population and its attendant new problems, as well as our added international responsibilities.

    "We have worked toward these ends in a context of shared responsibility — conscious of the need for maximum scope to private effort and for State and local as well as Federal Governmental action."

    He noted that this country "stimulated" a doubling of the capital of the World Bank and a 50% capital increase in the International Monetary Fund, as well as the formation of the Development Loan Fund, International Development Association and the Inter-American Development Bank.

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