U.S. Business: THE BIGGEST BANK'S UNCOMMON ASSET

Rudolph Peterson Lends Some Advice

The head of the world's biggest bank saw inflation coming more than a year ago and tried to head it off. From public podiums and in private sessions with Government policymakers, Rudolph Arvid Peterson, 62, president of the Bank of America, urged a new federal policy to cool the overly expansive economy. As early as the autumn of 1965, he called upon the Government to do essentially what he still advocates today: declare a national emergency because of the Viet Nam war, defer some Great Society programs, impose a temporary 5% surtax on individuals and corporations.

Peterson believes that President Johnson should have selectively trimmed nondefense spending late in 1965 or early in 1966—and still should. "I'm not talking about cutting out food for the hungry and diminishing in any way the training programs for upgrading skills and putting people to work," he says. "We certainly should not shut down the slum-clearance program, but we could slow it down for the time being. Some of our urban-development and highway programs could be moderated a bit."

Even if federal taxes are increased, he believes that the economy will continue to be robust next year and corporate profits will advance on the order of 5%. And he argues that the U.S. would willingly accept tax hikes if Johnson would declare that Viet Nam is a very serious national emergency. Says Peterson: "There are not many mothers or families who do not consider this an emergency."

Pinching the Giants. The Bank of America was as well as or better prepared than any other for this year's tight money and inflationary situation. Late in 1965, Peterson told his officers to be much more selective in granting loans. Doing that, they took two unusual steps. "First," says Peterson, "we made routine loans more easily than before so that we could spend more time scrutinizing riskier 'grey area' loans. Second, we curtailed the loans of the big fellows before the little ones. Why? Because the big fellows—General Motors. U.S. Steel—have options, but the little merchant does not. His inventory has to be financed, or perhaps he has to shut up shop. G.M. or U.S. Steel do not have to alter their pattern drastically because we lend them $100 million instead of $125 million."

In the spring, the bank began paring its new mortgage loans, reducing them from 80% to perhaps 75% of the appraised value of the property, and shortening the terms from 30 years to 25 years. As money grew tighter in the summer, Peterson's bank reluctantly became less liberal in its small loans to installment buyers, farmers and merchants—setting standards that still apply today. "We finance the man who needs an auto to go to work," explains Peterson, "but if his teen-aged son wants an auto just for the fun of it or his family wants a swimming pool, that will have to wait. If someone wants a modernization loan to dress up his house, we'll probably say 'so sorry'—but if the roof is leaking, or the family needs an extra room for the twins, then there's no question about it."