Banks Are Morgues

"Shall we have a revival of honest competition in private finance or will we persist in our present ways until the Government takes over all the banking business in America?" Unorthodox, white-haired Cyrus S. Eaton of Cleveland's Otis & Co. asked U.S. financiers this question this week in Financial World. He promptly answered it with harsh words for Manhattan's investment bankers, with whom he has long feuded over competitive bidding for rail road and utility issues. Said he:

"The Government is already obligated to loaning $27,000,000,000 to American business and agriculture. ... So obviously there is something wrong with private finance. Government domination of the banking field is not just an idle threat.

"Creative force is at a low ebb in the money markets and willingness to take risks has practically disappeared. This is especially the case in New York where the big commercial banks have become hardly more than morgues for Government bonds and cash. The half-dozen or so investment banking houses that euphemistically call themselves the 'majors' have developed a positive phobia about taking normal business risks.

"The 'majors' have banded together to preserve their inherited business, and it is from this phenomenon that investment banking . . . gets its markedly noncompetitive character. . . . Venture money is needed and industry is determined to get it, from the Government if necessary."

Fire-eater Eaton conceded that investment bankers have insufficient money to do the job. To get such funds, and to keep the Federal Government from increasing its direct financing, he suggested that preferred stock in regional investment banking houses be sold to the RFC. As the capital markets opened up, "the Government could gradually withdraw from much of the banking it is now doing, and security underwriters could retire stock held by the RFC. . . . The time will come again when the emphasis is shifted from riskless refundings to creative finance."

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