APPENDIX 
62% 
In the hearings on the La Follette Resolution, this same question 
frequently arose. The text of the resolution blithely assumed that 
agriculture was being deprived of credit by the call loan market. 
But Professor O. W. M. Sprague in his testimony (p. 32) stated that 
most banks are local banks, and their local business is most profitable. 
“The rates on their local business are in general higher than upon 
brokers’ loans. Banks are not tempted to invest in brokers’ loans 
primarily by the rate of return, since this rate is regularly lower than 
the rate on local loans. They invest in brokers’ loans primarily 
because they do not find in the local situation a volume of satisfactory 
loans sufficient to absorb all of their funds consistent with safety.” 
And again (p. 33): “A well-conducted bank holds in part customers’ 
'oans. These loans ordinarily cannot be liquidated in any large meas- 
ure without loss of standing of the bank as a going concern . . . 
if the bank is to utilize its resources at all times, it must ordinarily 
invest a part of its resources outside, in an impersonal way . . . 
holding a quasi-reserve, and that is one of the reasons for the shifting 
of funds to the large money centers from the small money centers 
. . Now the query presents itself whether they are draining 
money which might be properly and desirably utilized in their own 
locality or whether they are sending money there because they do not 
ind a reasonably safe and reasonably liquid use for those funds in 
their own locality. Now, I will say that, by and large, beyond the 
point of a quasi-reserve, there would be a moderate amount of money 
transferred to New York, either to be carried as a balance or to be 
lent on call, the balance, the increasing amount, represents funds 
which the banks, in their best judgment, do not find it feasible and 
safe under existing conditions to employ in their own localities.” 
Again (p. 37), Professor Sprague reiterates: “It is not at all certain 
that you can employ all the funds of a bank locally; that it may not 
be to the advantage of the community, and may be unsafe for the 
bank; and that on the whole, the inducement is very strong on the 
part of the bank to employ all of its funds locally that it considers to 
ve safe . . . A great many of our 26,000 banks clearly have em- 
ployed more funds locally than was in fact safe. They misjudged 
the situation. Whether there are some bankers who are unduly 
pessimistic about their localities, lacking in enterprise, and who fail 
to put an adequate amount or a reasonable amount into the local 
situation, is probably true, but I think such cases are exceptional.” 
Governor Roy Young of the Federal Reserve Board, testifying 
in the same hearings (p. 69) stated: “The second inquiry that I made 
nf myself was this: is this volume of credit that is going into the