Banking: A Bit of Embarrassment

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Saxon defended his controversial record of chartering 369 new national banks during 1963 and 1964, insisting that such expansion was essential to keep up with the expanding economy and to generate competition among lenders. Like many bankers, he blamed bank takeovers by unsavory characters on a loophole in federal law (since closed) that left federal officials in the dark about changes in bank ownership. Mindful of congressional cries that gangsters may still be buying up banks to sanitize their hot money, Joseph W. Barr, chairman of the Federal Deposit Insurance Corp., announced that he has set up a unit to help the Justice Department weed out criminals in banking.

Riskier Items. The McClellan hearings are the more embarrassing to bankers because they come just when a debate is heating up over whether U.S. banks have overextended credit. Squeezed between rising interest costs paid to depositors and stable rates on loans to business, banks are shunting more and more money into such high-yielding but riskier items as mortgages and consumer loans; they are also, some critics charge, lowering standards for borrowers. Installment credit extended by commercial banks has more than doubled since 1956, rose another 11% last year to $24 billion.

Most bankers still do not think that that is too much, but the number of critics is growing. Arthur L. Nash, senior loan executive of Manhattan's Brown Brothers Harriman, fears that "the stage may be set for trouble" because of careless lending, and H. Frederick Hagemann Jr., president of Boston's State Street Bank, worries because "banks are more highly loaned than at any time since the '20s." Says Ransom Cook, president of San Francisco's Wells Fargo Bank: "The proper criticism now is that banks aren't conservative enough." If Senator McClellan's current probe does nudge bankers in that direction, some bankers feel, it may even be worth the embarrassment.