Word: loan
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Dates: during 1970-1979
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...Overlines" A Wisconsin bank is asked by a customer for a loan $1.5 million larger than it can handle. If the bank has a larger correspondent bank, for instance Harris Trust & Savings Bank in Chicago, it can ask Harris to participate in the loan. The arrangement benefits not only the Wisconsin bank, which keeps its local customer happy, but also Harris, which has no branch offices of its own in Wisconsin and would otherwise probably never have learned about the loan opportunity...
...return for such services, the smaller bank compensates its big brother by putting an interest-free deposit in the larger bank. These deposits benefit the larger bank because it can lend out the money to its own loan customers without having to pay interest to get the funds. It is an extremely profitable business for larger banks, and competition for correspondent deposits is fierce...
...ethical problems-but how about the case in which a banker, like Lance, asks a bigger bank of which his own bank is a correspondent for a personal loan? Lance would be quite correct in saying that it is nonetheless common practice. A startling 93% of bankers replying to a 1976 survey by the American Bankers Association said that they routinely offer personal loans to the officers of correspondent banks...
...Such loans can become illegal if it can be demonstrated that the amount of the deposit was too large for the correspondent services rendered, or if its size enabled the borrower to get more favorable terms for his personal loan than are normally offered to routine customers. At issue is the question of intent, but proving what goes on in the minds of borrowers and loan officers is difficult. Since 1971, the Comptroller has referred 400 cases to the Department of Justice; only a handful have been prosecuted...
...ethical question remains: Can a bank loan officer really judge a personal loan to an officer of a correspondent bank entirely on its own merits? Even if no one ever mentions the fact, the loan officer cannot avoid knowing that the correspondent bank's interest-free deposit can be withdrawn and switched to an other bank at any time...