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The problem is that in order to obtain funds necessary to meet today's unprecedented loan de. 15 mand, Tennessee banks are being forced to purchase money on the open market at rates of 11 12 per cent and higher – and then reloan the same money in Tennessee at no more than 10 per cent.

Its effect is vividly painted, matter-of-factly. by W. W. Mitchell, chairman of First National Bank of Memphis and president of the Tennessee Bankers Association:

"Tennessee banks want very much to continue to meet the credit needs of their customers, even if it means suffering short term losses. But such losses cannot be sustained over a long period of time."

Two roads are open. The first is relief from Tennessee's constitutional 10 per cent interest limitation.

The second is for banks to sharply reduce their lending, a step that would dry up the supply of capital necessary to keep the state financially healthy and to finance its continued growth.

Tennessee lenders saw the "credit crunch" coming. And they saw with disappointment the failure of the General Assembly to permit corporations to obtain loans at national money market levels.

The measure applied only to corporations and not to consumer loans — automobile, credit card, home mortgage and others.

The lenders say if this bill had passed and had been upheld by the courts, they could have breathed easier about Tennessee's economy crisis.

And the economy crisis is the avenue to no money to build new factories, business and apartments and no money to finance new equipment and inventories.

The net result would be the loss of jobs, purchasing power and tax revenues - at all levels of governmont.

D. Roscoe Buttrey, president of Nashville's Third National Bank, set the tone: "If Tennessee is made an island in the large financial market sea and the states around us are able to drain funds out of our economy, it will affect everyone in the state and is a set of circumstances we just cannot afford."

The waters of the credit crunch" sea have already nearly isolated Tennessee. Only Arkansas and Montana are stranded, like Tennessee, with the 10 per cent limitation.

Banks in the other no-limit states can siphon money out of Tennessee because they can pay lenders higher rates on their deposits.

The cold, hard fact is that, whether done now or later, it simply does not make sense for Tennessee borrowers to be unable to get the money available in 47 other states.

The illness is paralysis of progress.
The cure is relief from the interest limit.

Tennessee's banks are asking legislative action. Such action, which would have to come in the form of a special session of the legislature, appears doubtful before the August primaries.

Many legislators say they aren't convinced the interest squeeze has reached the critical stage.

But the danger is there. And it is real.

And it has to be dealt with, sooner or later, if Tennessee's forward economic progress is to be sustained.

TENNESSEE'S“money pinch” – the limitation of 10 per cent on corporate loans - is making the record rate of inflation a dangerously acute problem for corporations seeking dollars for modernization, expansion and other capital improvements.

Financial houses – bankers, mortgage bankers, savings and loan associations — see the 10 per cent ceiling as a vehicle traveling well down the road to a full-scale "credit crunch" and maybe a recession in this state.

They say their hands will be tied in lending sufficient money to Tennessee corporations, however unappealing the high cost of interest, at a time when customers may need it most.

This state – particularly the larger urban areas has experienced a breathtaking era of construction and progress.

Gleaming shafts of steel and concrete and glass jut into the skies from Memphis to Bristol.

Nashvillians are most familiar with skyline changes. Their city has become the showcase of the South in construction development.

It appears now that the showcase lights may dim or even go out.

16

Memphis Daily News

June 12, 1974

BANKS' FUTURE DIM UNLESS CHANGED

(This is the third in a series been a direct effect on home
of articles pertaining to corpo-
rate credit and loans.)

building and real estate. Con

sumer purchasers are mount-
"Recently, I had contact by ing up from 18 to 33 per cent.
phone with three of the leading

In a letter to Governor Wip-
insurance companies of Amerfield Dunn, Johnson expressed
ica which refused to approve the over all views of many cor
loans or even take applications porations: “The State of Ter-
in Tennessee," says Wallace E.
Johnson, Vice

nessee, in my opinion, is suffer-
Chairman of

ing because of the ceiling placed
Holiday Ims.

on interest charges that our
Because of the ten per cent Tennessee banks can charge
ceiling Umitation set on large their customers. In the interest
corporate loans by the Legisla-
ture in the 1870's, Tennessee has
become one of three states to
have such restrictions. Because
of the refusal of loans in the
Johnson case, which would be
best exemplified by a state-
ment made by Johnson in which
he said that these "insurance
companies did not want to take
the risk of being sued because
of a violation" and they said to
him, "If you need any money
down in Mississippi, Wallace,
we would be glad to oblige."

The banks in Tennessee, ac-
cording to Johnson, are in an

Wallace E. Johnson
extensively sell-damaging post-
tion. The law says that a ten of continuing growth and de
per cent celling is the limita-velopment of our State, and
tion, however, when interest is that we can remain in competi
Involved in the total concept, tion with our sister states, I
which ends up as 114 per cent, would strongly recommend that
there is no way that the banks a special session of the legisla-
can make money, thus binder ture be called for the purpose
tag the borrowing and loaning of passing the necessary legisla
public and corporadona

tion to permit Tennessee banda
Money 1 grossly flying from to increase their interest rates
Tennessee and going to other in Une with what the current
states, Johnson further said. market demands. ... I really
Because of this flight, there has that it could cost Kemmons WILL

son and me additional money
much legislation is enacted, but
in the long run it is in the best
interest of the future of war
State to allow our banks to be
competitive in the money mar
ket of our country."

In conclusion, Johnson said to
Governor Dunn that if some
thing was not done along thone
lines that "we" would find that
industry would not be attracted
to Tennessee nor will expansion
take place from within because
the banks would not be able to
afford the luxury of putting
loans on the books where they
would loose money each time
they did so.

[graphic]

17

Memphis Press-Scimitar

A Scripps-Howard Newspaper
CHARLES H. SCHNEIDER W. FRANK AYCOCK JR.
ditor

Business Manager
Tolophone 626-2141; Want Ada 526-8892; Circulation, 526-780i

Address: 195 Union Aronue, Momphis, Tenn. 38101
Page 6

Monday, June 3, 1974
Give Light and the People Will Find Their Own Way

CHOWARD

Tennessee's Money Problem

Money, as is the case with all commodi- president of the Tennessee Bankers Asties, has a way of seeking the best sociation adds another warning. Banks in market.

states where there are no interest limits, It is this simple fact of economic life he says, are able to siphon off money that has the Tennessee banking industry from Tennessee and re-lend it at higher in a serious bind,

rates. If something isn't done, Mitchell At the bottom of the problem is the says, Tennessee's money supply will be Tennessee Constitution, ratified in 1870, cut off. which forbids the lending of money at Not a very bright prospect for a state more than 10 per cent interest. Only two that is striving to forge ahead in industry other states have similar limitations on and commerce. interest rates-Arkansas and Montana. The Bankers Association has launched a

But money has become scarce and now statewide campaign in support of a speInterest rates of 11 per cent and higher cial session of the Legislature to on a are being charged across the country. bill designed to remove the 10 per cent This means that money for loans is by

limit on loans to corporations. The bill passing Tennessee in favor of areas where it can earn a higher rate of return.

would not apply to individuals and would

have no effect on consumer credit. Al. Tennessee bankers fear that if they are unable to supply the funds needed for

though a similar bill was held up in the plant expansion, new construction and

1974 session of the Legislature because of inventory, the state is in for serious éco

an opinion from the Attorney General's nomic setbacks.

office that it was unconstitutional, the

bankers believe their new bill will pass the The situation was summed up by J. test and are willing to back it up in apRobert Cannon, of Nashville, president of peals to the U.S. Supreme Court if necesthe Tennessee Mortgage Bankers Associa- sary. tion, who reported that construction projects totaling $50,000,000 are being Governor Dunn is reported to be relucdelayed in the state because of a lack of tant to call a special session of the Legisfinancing.

lature to act on a measure that

be Cannon warned: "If we see a continued unconstitutional. We hope the Governor drying up of short-term bank credit in explores the matter further because this is Tennessee, there will be a lot of unem- a problem that cries out for early solution. ployment in the construction industry. It Of course, the Constitution could be is one of the first and hardest to be hit by changed, but the very earliest a conven. conditions such as we have now."

tion could be called for that purpose would William W. Mitchell, chairman of the be 1977. That, the bankers say, would be First National Bank of Memphis and too late.

18 June 12, 1974

COMMERCIAL APPEAL, MEMPHIS, TENNESSEE

Limit On Business Loans Is Fought

CORPORATE CORNER

By BRUCE SANKEY

borrowed stock with the Economists at Memphis

expectation that the price State University and the

will decline, allowing the

seller to repurchase the University of Tennessee in Knoxville have joined state

stock at a lower price.

Financial Investments was bankers and some business

suspended from the securimen in asking for an end to

ties business for six months. Tennessee's 10 per cent limit

Edward Stewart, Finanon business loans.

cial Investments manager, “We must accept the fact

was barred permanently that our money market is

from the securities busincss. national and the flow of

although he will be allowed funds is affected by econom. ic factors, not state bound.

to apply for permission to

re-enter the business after a aries," says a new report issued by the Bureau of Busi

on loan rates and the result- period of time. ness and Economic Re

ing low rates paid by Tensearch in the College of

nessee banks for funds will Index Shows Increase Business Administration at certainly cause a "large out

The Memphis "Help-Want. flow of time deposits from MSU.

ed Advertising Index" regis"If we do not, the Tennesthe state and a drying up of

tered another increase in see economy will suffer from outside funds flowing into

April, The Conference Board unsatisfied credit needs of the state.

reports. its industrial and commer

At 175 (1967-100), the cial firms which may well SEC Fines Firm

seasonally-adjusted index is lead to economic

The Securities and Ex- 9 points above March's readstagnation, the report adds.

change Commission has ing and 11 points abowe UT's Center for Business

penalized a Memphis invest- February's 164 mark. The and Economic Research said

ment company and its man. April index also is 7 points that with almost all other

ager after finding that the above its level of a year ago. states having no limit for

concern manipulated the The Help-Wanted Index corporate loans, "it seems

price of shares being offered measures the volume of clearly to be in the interest to the public.

classified of the Tennessee economy as

advertising in The firm, Financial In- Memphis' two major news. a whole to eliminate the

vestments Corp., made short papers. It is considered a statutory limit."

sales a week or so before the "coincident" indicator of Tennessee one of but

effective dates of registra- general business. A gain in three states (the others are Arkansas and Montana) tions covering public offer. the index, claims the Confer.

ence Board, often precedes a having a 10 per cent ceiling ings of the same stocks, the SEC said.

decline in the unemployment on interest rates that can be

This, the charged for business loans.

government State bankers, who must

agency continued, "caused

the market prices of those purchase funds in the nationstocks to fall and hence de

TREND OF STAPLE PRICES al money market at rates ex

NEW YORK, Jure 11-AP)-The As pressed the prices at which sociated Press welanted wholesale price ceeding the state lending

the shares covered by the 12.8. limit, are leading a vigorous registation statements were her the mono 90.5 or 6902

Previous Dov 349.37, Week Ago 345.71, effort aimed at getting legis- sold to the public.".

w71 1973 1972 197

Hich. lative relief from the ceiling.

274.75 351.71 22. A short sale is the sale of Love

21.53

h MS

mns average equals 100. Paul R. Lowry, director of Memphis State's business bureau, said was his opinion that the conditions of today with prime above 11 per cent are a much greater threat to the state's economy that the money crunch of 1968-69.

"National economic indicators suggest that the prime interest rate will remain above 10 per cent for a long period of time," says Lowry. "If this happens, Tennessee commercial banks will not be able to provide financial services required by Tenenessee business firms without some relief from the 10 per cent limitation on loans."

Lowry said the restriction

rate.

of

19

Editorial)

CHATTANOOGA NEWS-FREE PRESS

OY VCDONALD
FRANK MCDONALD

LEE ANDERSO
Pablisher
President

Editor
Pablished Weekday Afternoons and Sunday Mornings

THURSDAY, MAY 30, 1974

It's Your Welfare That's Involved

These are some things nobody of Tennessee's senators and reprewants: Jobs lost, industrial activity sentatives in the dire need, to justify and aspansion stagnating, the pro a call by the governor of a special vision of goods and services cur. session of the Tennessee General Aslaised, consumer loans unavailable, sembly for the purpose of passing a a gederal chaos in our economy as we law removing the 10 per cent limit. slip backward.

While we favor the intended reBut all of these things, and more, sult, we do not think legislative accould come if there is not relief from tion of this kind can change the Conthe Tennessee Constitution's limit stitution. The next step of propo of 10 per cent on interest rates, while nents, therefore, would be a move to much higher rates are being offered take the new law in a test case to the elsewhere throughout the country. Tennessee Supreme Court. There it

Most of us do not like high interest would be contended that the intent rates but they are better than a of the framers of the 1870 Constitulack of available money.

tion did not include corporate . fiInterest, after all, is simply the pance (as is probable) and that willwages that money can earn for the ing corporations may voluntarily di'work it does. Just as workers seek vest themselves of the protection of the best pay they can get, so money the 10 per cent limit and accept loans goes where the interest is highest. at higher rates at their own discre. If Tennessee has lower interest tion. rates than other states, then money Again, we favor that result but not leaves Tennessee and goes else- the method. It would be up to the where, creating economic degenera- court to decide. lion here that would be harmful to That the need is great, however, all of us.

should not be in doubt. Tennessee is The obvious solution, therefore, is one of only three states with such a to remove the Tennessee constitu- low limit as 10 per cent. The others tional limit on interest rates com- are Arkansas and Montana, neither pietely, and let them set themselves so highly industrialized as Tennesin the free market, by dealing be- see and thus without Tennessee's tween willing lenders and willing needs. Four states have 12 per cent borrowers.

limits. two 15 per cent, three 18 per Unfortunately, that isn't easy to cent. one 21 per cent, 37 no limit. do.

No one should get the idea that ac. Tennessee's Constitution written tion to raise the interest rate ceiling in 1870 provided the top limit of 10 per is "for the bankers." We are not pricent an interest rates. The idea was

marily concerned about the bankto protect the people from usurers. ers' welfare but we are deeply conIt seems probable that the Constitu- cerned about the welfare of Tennestion's authors were not thinking seans who need business to be able to about corporate business needs be- borrow the money to buy the supcause there simply were few corpo plies and maintain and expand the rations then and conditions in 1870 plants that provide jobs and meet did not indicate the problems of payrolls and provide us with goods today.

and services. li enough sentiment to amend the Interest rate limits should be eliConstitution could be generated. the minated as quickly as possible in the process would take until 1976 to com- proper way and left to compete, up plete. That's too long to wait.

and down on the free inarket in the So it has been proposed in at an ci- private enterprise iradition that Tert be made to interest a majority has built America.

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