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THE DUAL BANKING SYSTEM IN THE UNITED STATES
Material prepared for the information of the
Federal Reserve System by the
Federal Eeserve Committee on
Branch, Group, and Chain Banking
Members of the Consnittee
E. A. Goldenweiser, Director, Division of Research and Statistics,
Federal Eeserve Board, Chairman
Ira Clerk, Deputy Governor, Federal Eeserve Bank of San Francisco
M. <7. Fleming, Deputy Governor, Federal Eeserve Bank of Cleveland
L. E. Sounds, Deputy Governor, Federal Eeserve Bank of Uew York
E. L. Smead, Chief, Division of Bank Operations, Federal Eeserve
Board
J. H. Eiddle, Executive Secretary and Director of Eesearch
The Committee was appointed February 2o, 1930»
1Q
7 the
Federal Reserve Board
" . . . to assemble and digest inforraation on
branch banking as practiced in the United States,
group and chain banking systems as developed in
the United States and elsewhere, the unit banking
system of the country, and the effect of ownership
of bank stocks by investment trusts and holding
corporations."
LETTER 0? TRANSMITTAL
To the Federal Reserve Board:
The Committee on Branch, Group, and Chain Banking transmits herewith a review of legislative and supervisory developments under the dual hanking system in the United States.
Respectfully,
E. A. Goldenweiser
Chairman
CONTESTS
Page
Introduction
Chapter I
Chapter II
The Competitive Status of National and State Banks Prior
to. 1913
The Competitive Advantages of State Banks
Meeting State Bank Competition by National Legislation
Indirect Methods of Meeting State 3ank Competition
The Dual Banking System in 1913
The Dual System since the Passage of the Federal Reserve Act
Adoption of the Federal Reserve Act
State Bank Membership in the Federal Reserve System
Extension of National 3ank Powers, 1916-I922
The McFadden Act of 1927
Par Clearance of Checks
Relative Strength of Member and Nonmember Banking Systems, 1913-1931
1
3
7
11
13
15
17
17
22
26
2S
32
3k
Chapter III State Legislation and the Dual 3anking System
The Opening of New Banks
Capital Requirements
Other Restrictions
Powers and Privileges of Banks
Loans on Real Estate
Ownership of Corporate Stocks
Loans to Single Borrowers
Loans to Officers and Directors
Branch Banking
Fiduciary Powers
Investment Banking
Reserves Against Deposits
hj
US
k&
51
52
52
53
55
55
56
5S
59
60
Chapter IV
The Influence of Bankers on Legislation
Activities of the American Bankers Association
Activities of the State Supervisors
62
66
71
Chapter V
Effects of Dual Control upon Bank Supervision
National Bank Supervision
National Bank Supervision Prior to the Federal Reserve Act
National Bank Supervision since 1913
State Bank Supervision
State Supervisory Agencies
Weakness of State Supervision
Excessive Granting of Charters
76
7S
7S
gl
S6
gg
91
96
CONTENTS (Continued)
Page
Chapter 71
Motives for Choice of Charters
The Effect of Consolidations and Conversions
Seasons for Charter Preferences
Choice of National Charters
Choice of State Charters
Fiduciary Powers
The iiforcester Case
Loan and Investment Powers
Supervision
Branch and Group Banking Powers
Underwriting and Merchandising of Securities
Insurance Business
Broader Powers in General
Economy
102
102
108
111
111
111
115
118
119
119
120
121
121
121
Chapter VII
Summary
Excessive Chartering of Banks
Relaxation of Restrictions on National Banks
Dual Control and Supervision
State Banks and the Federal Reserve System
122
122
125
129
131
Appendix
13^
Bibliography
1g1
IFTHOXIUCTIOI
Hans'- of the problems of commercial "banking in the United States
today have arisen from the historical division of responsibility "between the
Federal and State Governments in chartering and supervising "banks.
Competition
"between the two systems has not only "been an important factor in the incorporation of thousands of small "banks, "but has also led to the relaxation of legal
regulations and has tended to diminish the effectiveness of supervision.
At the time of the Civil ?«*ar an attempt 7?as made to "bring about
unified control through the establishment of the national "banking system.
A
large measure of unified control was temporarily achieved, primarily "because
national "banks were accorded the privilege of issuing currency while the notes
of State "banks were subjected to a -orohibitive tax. For about twenty years
the amount of banking business controlled by State incorporated institutions
was negligible.
If such a condition had obtained through the subsequent
decades, it is likely that supervision, unaffected by the kind of competition
that was later to develop, would have been able to maintain a Mghor standard
of banking practice.
The practice of deposit banking began to develop on so
large a scale, however, that State banks found it increasingly profitable to
operate without the privilege of issuing notes; and from the early eighties
State banks have groma steadily in relative importance.
It soon became evident that State banks had many competitive advantages over national banks, notably in the matter of lower minimum capital
and other requirements for receiving charters, and in more extensive powers
- 2-
and privileges, which provided greater opportunities for making profits. The
Federal Government was under pressure to grant similar powers and privileges
to national banks.
The granting of such powers and privileges tended to re-
move some of the restrictions previously imposed by the National Bank Act.
Thus it was that about the beginning of the present century, or somewhat
earlier, there began between the national and the several State systems a
form of rivalry which has been described as a competition in laxity.
When the Federal reserve system was established in 1913, a second
opportunity to consolidate a unified control over commercial banking was
presented, but this legislation did not reach the thousands of small State
banks.
Today only about 800 of the 12,000 State commercial banks belong to
the Federal reserve system. Most of the larger State banks have become
members of the Federal reserve system and all national banks are members
as a matter of law. National banks, however, are free to leave the system
by conversion to State charter, and State banks may relinquish their membership upon six months' notice. It is clear, therefore, that all Federal
reserve membership is in effect voluntary.
This condition weakens the
power of the Federal reserve system to exercise effective supervision over
the banking system. Nonmember commercial banks, meanwhile, continue to
operate under the laws of forty-eight States,
CHAPTER I
THE COMPETITIVE STATUS OF NATIONAL AND STATE BANKS
PRIOR TO 191?
Throughout the period extending from the expiration of the charter
of the Second Bank of the United States in IS36 to the passage of the National
Bank Act in I863, the only incorporated banks in existence operated under State
charter.
In addition, there were many private hanks in existence which con-
tinued to operate even after the passage of the National Bank Act.
Information
as to the volume of hanking strength represented hy these private concerns is
not available, but there were some individual firms of importance.
Prior to the Civil War note issue was the principal activity of incorporated banks, although many banks operated without the note issue privilege.
When provision was made for national banks of issue, it was hoped that State
banks of issue would apply for national charters. The bulk of the State banks,
however, did not enter the national system of their own free will, and in 1865
a tax of 10 per cent was levied upon all State bank notes paid out by any bank.
In introducing the tax measure Senator Sherman said: (1)
"The national banks were intended to supersede the State banks.
Both cannot exist together; . . .
"If the State banks have power enough in Congress to prolong their existence beyond the present year, we had better suspend the organization of national banks."
Congressional Globe, 38th Congress, 2nd Session, February 2],
P. 1139. '
- 3-
I865,
- k~
The tax put an immediate end to State "bank issues, and all but
a few State incorporated banks soon disappeared.
The great majority of
them converted into national banks, liquidated voluntarily, or failed during
the Civil War, and most of the newly organized banks obtained national charters. By 1S6S there were 1,6^0 national banks and only 2^7 incorporated
State banks
reported in existence.C1)
Changes in the number of banks in
operation are shown in Chart 1, and the resources of State and national
banks from IS63 through 1931 in Chart 2. Table I in the appendix gives the
figures on which these charts are based.
The privilege of note issue continued to be a major influence
upon the choice of bank charters until about 1SS0. With the increased
use of checks in business transactions, however, the relative importance
of bank notes was steadily declining.
This decline may be illustrated by
the liabilities of national banks. In IS70 about 30 per cent of the currency and deposit liabilities of these banks consisted of bank notes4 but
by IS95 this proportion had declined to about 7 per cent, and in 1931 it
was less than 3 VCT cent. State banks gradually developed the business
of discount and deposit and found that they could operate profitably without the note issue privilege. From about 1SS0, therefore, State banks began to develop again and increased in number almost continuously until
1921.
t 1 ' The term "State bank" is used here to include State banks, trust companies, and stock savings banks: that is, all banks incorporated under
State laws. It does not include mutual savings banks or private banks.
-
5 -
CHART 1
NUMBER
« t?
NUMBER OF COMMERCIAL BANKS AND TRUST COMPANIES
IN THE UNITED STATES, 183fc-W31
OF BANKS
NUMBER OF BANKS
A A A
State banks include trust companies and stock savings banks.
Mutual savings banks are not included. Figures are as of
June 30 of each year or nearest reporting date.
6. -
CHART 2
RESOURCES OF STATE AND NATIONAL BANKS
1665-1931
BILLIONS OF DOLLARS
BILLIONS OF DOLLARS
40
State banks include trust companies and stock savings banks
but exolude private banks and mutual savings banks. Figures
are as of June 30 of each year or nearest reporting date.
-* 7 **
The Competitive Advantages of State Banks
For many years national "banks had two competitive advantages over
State 'banks, but these gradually diminished in importance while a number of
advantages developed in favor of State banks.
One of the advantages in
favor of national banks was the note issue privilege, which, while only
moderately profitable after 1880, continued to be valued. The other advantage was the fact that in the newly developed sections of the country, especially in the South and West, outside capital had to be depended upon; and
since non-resident investors were more familiar with the provisions of the
national law than with those of the various States, it was easier to procure
capital for a new bank incorporated by the Federal Government.
This advan-
tage also became of less importance as the years passed and the development
of communities made it possible for bank capital to be supplied from local
sources.(1)
In contrast to these dwindling advantages of national banks, State
banks had a number of apparent advantages which grew in importance as time
went by.
One of the most important of these was the lower capital required
of State banks. The minimum capital permitted by the National Bank Act
prior to 1900 was $50,000. Many Western and Southern States, on the contrary, permitted the incorporation of banks with a minimum capital as ldw as
$10,000, while in at least one State the minimum was placed at $5,000, and
in several there were no capital requirements.
(2)
.»•••..—*
M
••••,
. I,,I,„I .,, 1,
,,
•
m ^
«.••-•—,.
(1) Cf. George E. Barnett, State Banks and Trust Companies Since the Passage
of the national Bank Act, Publications of the National Monetary Conmission, Vol. 711, pp. 232-233. A considerable part of the discussion
in this chapter is based on Mr. Barnett1s analysis.
(2) Table 10, Ch, Ill, shows the capital requirements in 1909 f° r banks incorporated in the various States.
-» o r"
The provisions of the State "banking laws relative to the amount of
credit which might "be extended "by a particular "bank to a single individual,
firm, or corporation were also more literal in most cases than those of the
National Bank Act. The national system originally restricted such loans to
10 per cent of paid-in capital and continued to do so up to 1906. State
banking laws, however, authorized individual loans when unsecured to an
amount ranging as high as 30 P e r
cent of
capital and surplus and in some
States when secured there were apparently no limitations at all. In about
a third of the States there was apparently no mention of restrictions either
as to secured or unsecured loans.(1)
Furthermore, the National Bank Act prior to 1913
- n^t
did
permit the
granting of loans on real estate, while most State "banks could make such
loans.
In some States the real estate loans of State "banking institutions
averaged one-third or more of their total loans and discounts.(2)
In I9O9 reserve requirements against deposits were, as a rule, smaller
in the State "banking laws than in the National Bank Act.
In some States no
legal reserves were stipulated, the matter "being left entirely to the discretion of the directors of the "banks. Moreover, several of the State laws
permitted lower reserves against savings and time deposits than against demand deposits; while in the national law no distinction was made between
demand and time deposits and the comptroller had to require the sane
reserves against both types.'3/
Several States, however, required the
(1) Samuel A. Welldon, Digest of State Banking Statutes, Publications of
the National Monetary Commission, Vol. III.
(2) Abstracts of condition reports of State banks published by the Comptroller of the Currency. It is apparent that few State banks fully
classify their loans in reports to the Comptroller of the Currency.
There are States, however, which in some years have reported more than
a third of their total loans and discounts as made on real estate, e.g.,
New Hampshire, Ohio, and Michigan.
(3) Annual Report of the Comptroller of the Currency, 1912, p. 11.
-9segregation of savings deposits and their investment in high-grade securities.
There were also a number of States which prior to 193-3 permitted
the establishment of branches, a privilege held to be illegal under the
National Bank Act. (1) In 1909 about a fourth of the States expressly
authorized State banks or' trust companies to open branches, while in only
about a sixth of the States were branches specifically forbidden. This competitive advantage of the State systems in regard to branches was, however,
more potential than actual, for relatively few banks established branches
prior to 1913. The number of State banks with branches was only S2 in 1900,
and 2#3 in 1910, with 1-lU branches in the former year and 53&
in
the latter.(2j
Moreover, under the amendment to the National Bank Act passed in 1365, State
banks having branches, with capital assigned to the head office and branches
in definite proportions, could convert into national banks and retain their
branches, regardless of the location of those branches.
Although it was not lawful for a national bank to invest in the
stock of banks and other corporations, the banks and trust companies of a
number of States were authorized to do so, and to a considerable extent seem
to have taken advantage of the privilege. This made it possible for State
banks and trust companies legally to engage in activities from which national
institutions were debarred.
These legal rights exercisable by certain State
(1) The National Bank Act did not specifically prohibit the establishment of
branches, but the Comptroller of the Currency had held that it did so by
implication. Sse report of Committee on Branch, Group,and Chain Banking,
Branch Banking in the United States. Not until I92U was there a court
decision to the effect that national banks could not establish branches.
This was in the case of First National Bank in St. Louis v„ State of
Missouri (263 U. S. 6U0).
(2) Branch Banking in the United States.
- 10 -
institutions, were no doubt in many instances of influence in determining
•whether a new institution should obtain a State or a national charter.
Trust companies, which developed rapidly after 1300, especially
in He?/ England and the Middle Atlantic States, also presented a serious
competitive problem to the national "banks, for national "banks could not
exercise fiduciary powers prior to 1913*
I11 a number of States reserves
required of trust companies were as high or higher than those of national
institutions, but this was not generally true.
In about a fourth of them
there were no reserve requirements stipulated in the law for trust companies.
Moreover, trust comapnies in many States could make real estate loans and
purchase stocks of banks and other corporations. The advantages of the trust
companies over national banks were summarized by a leading authority as
followsr^1)
"A third cause (of the growth of trust companies), and in
the writer's opinion by far the most important one in most communities, lies in the wide range of powers which the, trust company may exercise. In most States it may do all of the things
that an ordinary "bank may do, except issue notes; and it performs numerous duties that other banks may not undertake. These
wide powers attract customers. It is a distinct convenience to
most people to have all of their financial business attended
tc under one roof. The trust company xrill not only care for
their banking business, but will also receive their valuables
for safe-keeping, care for their property, manage their estates temporarily or permanently, make investments for them,
give financial and legal advice, aid in the preparation of
wills and execute the sane after the decease of the customer."
Still another factor favorable to the growth of State banks at the
expense of national banks was the higher standards of examination and supervision of the comptroller's office as compared with the standard of many
State supervisory authorities. Many States had no supervision of banks and
trust companies until several years after 1910, while in other cases State
Clay Herrick, Trust Companies, p. 32.
- 11 -
examiners found i t e a s i e r to take a s o - c a l l e d "sympathetic a t t i t u d e " as a
r e s u l t of an a l l e g e d intimate knowledge of local conditions, and there was
also a g r e a t e r p o s s i b i l i t y of d i r e c t p o l i t i c a l influence under State than
under n a t i o n a l c h a r t e r s .
Thus a number of factors gave the State hanks, during the period
from 1SS0 to 1913» apparent competitive advantages over the national hanks,
the most important being smaller capital requirements, more liberal lending
and investing powers, smaller legal reserves, less restriction on branches,
and less strict supervision.
Meeting State Bank Competition by National Legislation
The effect of State bank competition began to be marked in the
late eighties and early nineties. Especially was this true in the newly
exploited regions of the West and South, where banking facilities were lacking, new capital was scarce, and the small capital required of State banks
was of considerable importance.
In order to meet these conditions by an expansion of the national
banking system the Comptroller of the Currency in 1896 urged upon Congress
several amendments to the National Bank Act.
One of these was the reduction
of the minimum capitalization of national banks from $50,000 to $25,000 in
places with less than 2,000 inhabitants. Such a change, it was declared,
would not only permit the expansion of the national system into the South
and West, where the majority of the banks had State charters and where there
were few large towns, but would also be of advantage to the communities in
those sections of the nation on account of the greater strength of the
national system.
- 12 -
Another recommendation of the Comptroller of the Currency was that
national banks, with the approval of the comptroller, should be permitted to
establish branches in communities of less than 1,000 inhabitants. This, he
stated, would bring outside capital to agricultural and other communities
which required it, and would create an outlet for national bank notes in
localities where they were most needed.
He maintained that small coonunities
where independent banks could not operate profitably could be served by
branch offices.
A third recommendation of the comptroller designed to foster the
expansion of the national banking system was that national banks be permitted to issue notes to the full par value of the bonds by which they were
secured, instead of the 90 per cent permitted in the original act. This
would increase the profitableness of the note issue.
These recommendations were repeated with varying emphasis in subsequent reports of the comptroller and sanctioned by the President and the
Secretary of the Treasury. (1) It was not until 1900, however, that any of
then were acted upon by Congress.
In the Currency Act of March 1^-, 1900,
it was provided that bank notes might be issued to the full par value of the
bonds by which they \vere secured, and that national banks might be organized
in places not exceeding 3»000 population with a capital of not less than
$25,000. Permission to establish branches was not granted, however.
The reduced capital requirement resulted in the organization of
a considerable number of new national banks with capital stock of less than
$50,000.
During the first decade after the passage of the Currency Act,
(1) Annual Report of the Comptroller of the Currency, IS96, Vol. 1, pp. 100105; 1897, Vol. 1, p. xvi; 1898, Vol. 1, p. xi; and IS99, Vol. 1, pp.
xiv and xx. The Comptroller of the Currency in I896 and in IS97 was
James E. Eckels and in IS98 and 1899 Charlesfi.Dawes.
- 13 -
the number of national "banks increased from 3,731 to 7,138, or by 91 P e r cent,
and nearly a third of the total number in 1910 had capital stock of less than
$50,000. This expansion in the number of national banks was less, however,
than the expansion in the number of State banks, for during the sane decade
the State banks increased from approximately 5,000 to more than 14,000, or
by more than 180 per cent. The aggregate resources of State banks also increased during the decade more rapidly than those of the national banks.
(See Charts 1 and 2
and Table I of the appendix.)
In 1905 the Comptroller of the Currency also recommended raising
the limit on individual loans from 10 per cent of the paid-in capital to
10 per cent of the capital and surplus. An amendment to the National Bank
Act was approved on June 22, 1906, changing the limitation on individual
loans as suggested to 10 per cent of capital and surplus, provided the total
should not exceed JO per cent of the capital. (1)
State banks continued to grow more rapidly, however, both in number
and in resources, than the national banks. From 1906 to 1913 the State banks
increased 65 per cent in number and 46 per cent in resources; while the
national banks increased 24 per cent in number and 42 per cent in resources.
Indirect Methods of Meeting State Bank Competition
The most important natters in which State banking laws were more
liberal than the National Bank Act were not the subject of significant
Federal legislation prior to the passage of the Federal Reserve Act; and
in most instances the State banks, even after the amendment to the National
Bank Act in 1900, still had much lower capital requirements than national
banks.
(1) Annual Report of the Comptroller of the Currency. 1905, pp. 62-63;
1906, pT^T"
- i^-
Some of the important powers possessed "by State "banks but not bynational banks during this period were the ability to make loans on real
estate, the more liberal provisions regarding loans to single borrowers, the
right to engage in fiduciary business, and to purchase or deal in corporate
stocks. The State banks were also subject to less stringent examinations
and supervision than the national banks. To sone extent these apparent
advantages of the State banks were overcome through the affiliation of many
national banks with State banks and trust companies. This enabled then to
compete successfully with rival State institutions without technically
violating the provisions of the national Bank Act.
One of the most common means employed was for a national bank and
a State bank or trust company to have identical stockholders, or at least
for the control of both institutions to be in the hands of the sane stockholders.
Directorates of nany national and State institutions were inter-
locked. Prior to the Clayton Act, passed in 191*+ and effective in 1916,
interlocking was not limited by law in the case of national banks.
It was
also possible for the stockholders of a national bank to organize a State
bank or trust company, which could then purchase and own a controlling interest in the national bank. Affiliated commercial banks, trust companies,
and savings banks were thus placed adjacent or close to national banks, and
frequently it was a matter of common knowledge that they were operating in
cooperation.
In the larger cities, such as Hew York, a common device was to
enter into trustee arrangements whereby the stock of an affiliated company
was made inseparable from the stock of the national bank. A leading example
of the use of this device occurred in 19OS when the First National Bank of
New York organized an affiliate, the First Security Company.
Three years
- 15 -
later, the National City Bank followed by the establishment of the National
City Company.
By these and other methods, national banks, State banks, trust
companies, and security and real estate corporations chartered under State
laws were bound together either directly or indirectly in one community of
interest. TUfhile the establishment of such relations did not make it possible
to bring all operations of the various institutions under one charter, it
did release the national banks from turning over business to a competitor,
for it enabled them to refer the things they could not do to an affiliate
chartered under State laws.
Inequalities in powers between national and
State institutions were thus rendered of less consequence, particularly to
banks in large cities, and the various advantages of each type of institutior.
inured to the benefit of the same group of stockholders.
The Dual Banking System in 1913
It is evident from the foregoing discussion that the developments
after 1880 nullified the intention of the framers of the National Bank Act
that this legislation should develop a uniform, united, nation-wide system
of commercial banking.
Early experience in the development of the national
bank system seemed to indicate that this would be the result, but the rapid
growth of State banks after 1880 and the extraordinary development of trust
companies after 1900 turned the tide in the opposite direction.
During the period from 1880 to 1913 the number of State banks and
trust companies increased from about 65O to l6,S^l, while national banks
increased from 2,076 to 7*^7 • Thus the number of State institutions was
multiplied by twenty-six and that of national banks by three and a half.
In 1880 there were only about one-third as many State as national banks,
-16-
\?ith only about a fourth of the resources. By 1913» when the Federal
Reserve Act was under consideration, the number of State hanks was more
than twice as great as the number of national "banks, and the aggregate
resources of the State hanks were nearly as great as the aggregate resources of national hanks. Instead of a single system of hanking, there
was a dual system, with the State chartered part of the system gaining
in scope and power.
CHAPTER II
THE DUAL SYSTEM SINCE THE PASSAGE OF TEE
FEDERAL RESERVE ACT
There had teen agitation for banking reform in the United States
for many years prior to 1913* This agitation was concerned principally with
the need for an elastic currency, central "banking facilities, the development of a discount market, the abolition of the independent treasury system,
and the introduction of improved methods of clearing and collecting checks.
It was recognized that the dual system of independent unit hanks, chartered
and supervised in part by the Federal Government and in part by the various
State governments, complicated the problem of providing the much-needed banking reforms; but apparently it was not fully realized t>y the proponents of
new legislation to what extent the competition between national and State
banks would influence the formulation of measures for banking reform or the
operation of those finally adopted.
Adoption of the Federal Reserve Act
Some of the early proposals, such as the Baltimore plan presented
before the American Bankers Association in 12>9^» the plan for an asset-secured
currency fostered by the Indianapolis Monetary Commission of 1897 and 1898,
and the Fowler bill of 1908, included only national banks in their scope. In
the Muhleman plan for a central bank, however, and in the Warburg plan for a
united reserve bank, no distinctions were made between State and national
- 17 -
- IS -
banks.'-1-'
As these and other plans for banking reform were discussed, it came
to be realized that it would be necessary to secure the cooperation of the
State banks if an adequate and unified banking system was to be developed.
However, neither in the Aldrich-Vreeland Act of 1908 which reflected tne influence of the reform movement nor in the original form of the Aldrich plan
submitted in January, 1911, by its cnairman to the National Monetary Commission
was provision made for the participation of State banks. The reason for this
omission in the former case was the emergency character of toe legislation,
and in the latter case, the uncertainty as to what recommendations to make.
But in the revised form of the Aldrich plan and in the final report of the
National Monetary Commission, it was contemplated that State banks and trust
companies be permitted to become members of the proposed National Reserve Association, provided they conformed to requirements in respect to capitalization, reserves, examinations, and reports similar to tiiose imposed on national
banks.
The details of these various plans may be found in the following publications:
Maurice L. Muhleman, "A Plan for a Central Bank," Banking Law
Journal, Vol. 26, pp. 805-810, 88>390, and Vol. 27, pp. 13-20,
119-126, 211-219; and Monetary and Banking Systems.
Charles S. Tippetts, State Banks and t;ie federal Reserve System,
ch. 2.
Paul M. Warburg, "A Plan for a Modified Central Bank," and "A
United Reserve Bank of the United States," Essays on Banking
Reform in $he United States. Proceedings of the Academy of
Political Science. July, 191^, Vol. IV, No. U, p. 75; and The
Federal Reserve System, Vol. I, ch. Ill; Vol. II, pp. 117-l6l.
Report of the Monetary Commission of the Indianapolis Convention, Chicago, 189S.
- 19 -
The National Monetary Commission also recommended that national
banks be permitted to make loans secured by real estate up to 50 per cent of
the value of the real estate and to a maximum of JO per cent of time deposits.W
Supporters of the proposals of the National Monetary Commission believed that the advantages of membership in the National Reserve Association
would be so great that State banks would be induced to join the association.
Professor J. Laurence Laugnlin, chairman of the National Citizens' League for
the Promotion of a Sound Banking System, stated this point of view as followsr2'
"In fact, it is one of the best features of the National
Reserve plan that it would tend to unify the state and national
banking systems. With a definite pattern afforded by federal
legislation, with which trie state banks were willing to comply
in order that they might be placed upon terms of equality in
competing with national banks, it may be expected that progress
toward uniformity in banking legislation throughout the country
would be much more rapid than ever before. This uniformity
would be exceedingly desirable, since it would take away the
possibility of evading legal provisions. At the same time it
would prevent the transaction of undesirable forms of business
that are sometimes undertaken by banks as a result of their
being 'played off against one another by designing borrowers.
"This tendency would be to segregate and harmonize into
one general group all the commercial banks of the country whether
organized under state or national laws. Those that did not cnoose
to conform to the requirements laid down in the legislation, with
respect to reserves, kinds of business done, etc., would remain
out of the National Reserve Association and would at once be recognized as belonging to quite a different class of banking institutions. They would exercise in their way as good and as effective a function as that performed by the banks, whether state or
national, that load brought themselves into conformity with the
provisions of the proposed reform, but their position in the community and the rules of their action would "be quite different.
They would be set apart, not as being state institutions, the line
of distinction drawn at present, but as being institutions properly classed as not strictly banks in the proper sense of the term."
(1/ Report of the National Monetary Commission, Publications of National
Monetary Commission.
\2) J. Laurence Laughlin, Banking Reform, (Chicago, 1912), pp. 276-277.
- 20 -
As finally passed, the Federal Reserve Act permitted State banks
to become members of the federal reserve system on certain conditions, the
more important of which may be s-ummarized as follows:
1; A State bank applicant must have a paid-up, unimpaired
capital sufficient to entitle it to become a national bank in
the place where situated.
2 , Should conform to laws governing national banks in respect to the limitation of credit to be granted to any single
person, firm, or corporation.^'
3. Must conform to the reserve requirements of national
banks.
U. Must not purchase or loan on its own stock, reduce or
impair its capital, or pay unearned dividends.
5. Must submit to examinations and reports required by
the comptroller or by the reserve bank, but the Federal Reserve
Board might authorize substitution of State examinations or
reports. U-)
6. Must conform to such regulations as the Federal Heserve Board might require for admission to membership,
1> State member bank officers and employees to be subject td the same penalties and punishments for crime as those
of national banks.
The competition between State and national banks was reflected not
only in these provisions regarding State bank participation in the central
banking facilities, but also in numerous proposals for liberalizing the powers
of national banks.
It was desired to make membership attractive to the State
banks, but it was realized that this would not be possible if they were as
strictly limited in their powers as national banks had been. On the other
hand, it was also realized that national banks might consider the compulsory
feature of membership onerous, especially in view of the broader powers of
State banks, and that there might be a tendency to convert from national to
(1) Subsequently modified.
- 21 -
State tanks. This was all the more to be feared, because to the competitive
advantages which State banks had enjoyed for many years was now added the
privilege of optional membership in the Federal reserve system.
It is probable
also that the prospect of extensive revision of the national banking laws was
made the occasion for the exertion of pressure on the part of national banks
desiring broader powers. Under these conditions, important changes were made
in the national Bank Act, enlarging the powers.of national banks. These new
powers were briefly as follows:
1. To receive time deposits subject to a reserve of only
5 per cent, as compared with 12, 15, or IS per cent on demand
deposits. (1)
2. With the exception of banks in central reserve cities,
to make loans, for a maximum period of five years, on improved
and unencumbered farm land situated within its Federal reserve
district, up to 50 per cent of its actual value and to an aggregate amount of 25 per cent of capital and surplus or to onethird of time deposits.
3. To exercise, with the permission and under the regulations of the Federal Reserve Board, fiduciary powers as executors, trustees, administrators, and registrars of stocks and
bonds.
U. With the special permission of the Federal Reserve
Board to establish, in the case of banks with a minimum capital
and surplus of $1,000,000, branches in foreign countries or in
the dependencies of the United States.
These provisions by no means gave to the national banks all of the
powers possessed by State banks. Unless the Federal Reserve Board set more
strict standards than those specified in the act, State banks which chose to
become members of the system still had broader lending and investing powers,
more extensive fiduciary powers, and in many States the privilege of operating
branches.
State banks not choosing to join the Federal reserve system still
(1) Subsequently modified.
- 22 -
possessed in most States lower capital requirements, were subject to less stringent
supervision, and had power to extend a larger volume of loans to particular
interests.
Nevertheless, as a result of the play of competitive forces in the dual
banking system, national "banks were released to a considerable degree from the
strict standards of commercial banking which had previously prevailed; and the
movement toward "omnibus banking,"^' already well under way in the State systems,
spread into the national system.
The most significant aspect of these changes is
that "omnibus banking" was not advocated as sound or as a desirable innovation, but
on the ground of the expediency of expanding the national banking system and of
strengthening the competitive position of national banks.
State Bank Membership in the Federal Reserve System
The Federal Reserve Board began to give consideration to the conditions
of State bank membership soon after its organization.
In its first report, at
the end of the year I91H, it stated:^2'
"Prom the opening of the new banks, the Federal Reserve Board
has been keenly anxious to settle the conditions upon which State
banks may be admitted into the system. The Federal reserve act
especially provides for such admission, and it has been supposed
in many quarters that the process of admission would involve few
difficulties. Investigation has shown that owing to the differences in State laws, the comprehensive character of the charters
enjoyed by some State banks, and the complex conditions of competition between such institutions and their national competitors,
the determination of these conditions was far from being easy if
an equitable adjustment was to be found."
(1) The term "omnibus banking" is used here to mean the carrying on of varied
types of financial activities, such as the receipt of demand deposits and
of time deposits, the making of commercial loans, the investment of funds
in bonds and "capital loans," the exercise of fiduciary services, and the
dealing in securities by the same institution without the segregation of
assets. It is thus to be contrasted not only with pure commercial banking, but alsp with the "departmental" banking in California and with affiliation of separate corporations carrying on, separately, these various
activities,
(2) First Annual Report of the Federal Reserve Board. I91U, p. 20.
- 23 -
Six months later the Federal Reserve Board expressed its hope that a
unified system of "banking would develop tnrough the Federal reserve system, and
announced the conditions under which State institutions would he admitted to
membe r ship. *• ^ *
"A unified hanking system, embracing in its membership the
well-managed hanks of the country, small and large, State and
National, is the aim of the Federal reserve act. There can he
hut one American credit system of nation-wide extent, and it
will fall short of satisfying the "business judgment and expectation of the country and fail of attaining its full potentialities if it rests upon an incomplete foundation and leaves out of
its membership any considerable part of the banking strength of
the country. . . . "
In accordance with the attitude taken in this announcement, the regulations issued by the board provided for the admission of State banks to membership with few if any significant requirements other than those expressly stated
in the Federal Eeserve Act.
The board declared that in passing on an application
for membership it would consider the financial condition of the applying bank
or ttfust company,
the general character of its management, and whether the na-
ture of the powers exercised by the bank or trust company and its charter provisions were consistent with the proper conduct of the business of banking and
with membership in the Federal reserve system.
It stated, however, that subject
to such requirements as might be embodied in the certificate of approval, or in
regulations of the Federal Reserve Board, and those contained in the Federal
Reserve Act, every State bank or trust company while a member of the Federal
reserve system would retain its full charter and statutory rights and could
continue to exercise the same functions as before admission.
While the board thus retained the right to issue further regulations
binding upon the conduct of State member as well as national banks, the only
(!) Federal Reserve Bulletin. July 1, 1915, p. l*+5.
- 2U-
regulations actually laid down as a condition of membership were of a general
character. They referred to such matters as sufficient limitations on real
estate loans or mortgages to avoid the impairment of the hank's liquid condition, the adjustment within a reasonable time of loans in excess of the limitations imposed by the act, and the maintenance of the standard of banking embodied in the certificate of approval. The board further announced that State
member banks would be permitted to withdraw upon twelve months' notice; (1) that
its examiners would cooperate wherever possible with State examiners; and that
the State examinations would, when satisfactory, be accepted in lieu of its own
examinations.
The Federal Reserve Board thus extended to State banks very liberal
terms of admission. Nevertheless, the State banks still hesitated about applying for membership.
They were apprehensive regarding the possibility of changes
in the attitude of the Federal Reserve Board and the issuance later of more
stringent regulations. The necessity of limiting loans to individuals to 10
per cent of capital and surplus, or 30 per cent of paid-up capital, was also
considered unduly restrictive. Moreover, the Clayton Act, which was approved
on October 15, 191*+» sharply limited interlocking directorates among banks
organized or operating under the laws of the United States, and it was feared
that banks joining the Federal reserve system would be considered by the courts
to be "operating under the laws of the United States," which might seriously
interfere with existing affiliations.
As a result of these conditions State banks and trust companies continued generally to hold aloof from tne Federal reserve system. By June, 19171
(1) By Act of June 21, 1917» this was changed to six months' notice,
«hieh by Act of April 17» 193°» the Federal Reserve Board was em*>
powered to waive.
- 25 -
only 53 State institutions had joined,(*' although a few additional ones had
come into the system by converting to national hanks. The number which were
eligible for membership, on the basis of capital stock, was approximately 8,500
so that only about 0.6 per cent had taken advantage of the privileges accorded
to State member banks.
W. P. G. Harding, Governor of the Federal Reserve Board, and Frederic
A. Delano, one of its members, met with the executive committee of the State
bank section of the.American Bankers Association, and reached an agreement regarding amendments to the Federal Reserve Act, including several relating to
State bank membership.
(2)
The amendments were submitted to Congress and,
because of the war emergency, were expedited and became law on June 21, 1917»
Most of the provisions in the 1917 amendment dealing with State bank
membership followed the spirit of the regulations issued by the board in 1915«
which they extended.
State bank members were permitted to withdraw from nomber-
ship on six months' written notice to the Federal Reserve Board. They retained
their full charter and statutory rights subject to the restrictions of the
Federal Reserve Act and regulations of the board relative thereto. Their
examination and supervision were delegated to the Federal reserve banks and
board, which, in turn, were authorized to accept reports and examinations from
State supervising authorities in lieu of those of their own examiners. Furthermore, State member banks were relieved of the restrictions upon national banks
as to the amount which could be loaned to one person, firm, or corporation,
subject to the restriction that no paper of a borrower indebted to the State
(l) Fifth Annual Report of the Federal Reserve Board, 1918, p. 25.
(2' American Bankers Association, Proceedings of the Forty-third Annual Convention. 1917, p. 672.
- 26 -
bank in excess of these l i m i t s could be rediscounted at the Federal reserve
hanks.
P r i o r to 1917. the reserves required of member banks were lower than
those formerly required of national banks, and lower than those required in
many States of State banks,
iflien f i n a n c i a l resources were being marsnalled
for war purposes in 1917# the reserve requirements of a l l member banks were
reduced:
on time deposits, from 5 to 3 P e r cent; on demand deposits of banks
not in reserve or c e n t r a l reserve c i t i e s , from 12 to 7 per cent; on demand dep o s i t s in reserve c i t i e s , from 15 to 10 per cent; and on demand deposits in
c e n t r a l reserve c i t i e s , from 18 to 13 per cent.
The v?hole of these r e s e r v e s ,
however, was to consist of non-interest bearing balances with the Federal r e serve banks, vault cash resuirements being discontinued.
The 1S17 amendments also c l a r i f i e d the position of member banks with
respect to the provisions of the Clayton Act, since i t was expressly declared
t h a t they should r e t a i n t h e i r f u l l charter and statutory powers, subject only
to the provisions of the amended Federal Reserve Act and the regulations of
the board pursuant t h e r e t o .
After the United States had entered the World Jar, a special appeal
was made to the State barks to join the system on the grounds of patriotism
and the d e s i r a b i l i t y of mobilizing the banking resources of the e n t i r e country
for purposes of war f i n a n c e . ^ /
The number of State members increased from ^3
on June 2 1 , 1917. to 936 on December 3 1 , 191S.( 2 )
Extension of National Bank Powers, 1916-1922
The Federal Reserve Act as passed in 1313> the regulation of tne
Federal Reserve Board issued i n 19151
an
& the amendments to the Federal Reserve
( ! ) Fourth Annual Report of the Federal Reserve Board, 1917. P. 9«
(2) Fifth Annual Report of the Federal Reserve Board, 19IS, pp. 25, 26.
- 27 -
Act made in 191?» placed the State member hanks in an apparently preferred position in the banking structure of the nation. They had all the privileges and
advantages of membership in the Federal reserve system, and they also had, in
most States, powers much more extensive than those of national banks.
A series of amendments to the Federal Reserve and National Bank Acts
during the years from 1916 to 19o2 broadened the powers of national banks. ^ )
The first of these amendments was passed on September 7> 1916. This amendment
empowered national banks to cross Federal reserve district lines in making loans
on farm land, provided such land is within 100 miles of the location of the
bank.
It also provided for loans, for one year only, on other improved and un-
encumbered real estate within 100 miles of the location of the bank.
It pro-
vided further that national banks in places not exceeding 5>000 population
might be authorized by the Comptroller of the Currency to act as insurance
agents and as brokers or agents in making loans on real estate located within
100 miles of the bank.
The Senate Committee on Banking and Currency, in reporting these
amendments, also recommended that national banks, with certain restrictions,
be permitted to open not more than. 10 brancu.es within the city or county or
within twenty-five miles of the parent bank. This recommendation, like the
previous recommendations of the Comptrollers of the Currency and others as
to branch banking, was not adopted ~oy Congress.
Anotiier amendment to the Federal Reserve Act for the purpose of enabling national banks core effectively to compete with State member banks was
passed on September 26, 19IS. This amendment provided specifically that
(1) Thjrc was a large number of amendments to both of these acts during the
years 1916 to 1922. Only such amendments as directly affected tne competitive position of national and State banks are mentioned here.
- 28 -
national "banks,under special permission from the Federal Eeserve Board, might
engage in any kind of fiduciary activity which State "banks, trust companies,
or other corporations coming into competition with national "banks were permitted to undertake under State lav/.
There were also amendments liberalizing the limitation on loans by
national banks to a single interest. One was enacted September 24, 1918, and
anotner October 22, 1919«
An amendment designed to enlarge the powers of
national banks in order that they might compete more effectively with State
banks was passed on July 1, 1922. This legislation provided for the extension
of the charters of all existing national banks for a period of 99 years from
that date and for the organization of nev/ banks with charters running 99 years
from date of organization. The purpose of this act was not only to obviate
the formalities required in extending charters for another period of 20 years,
but also to enable national banks to undertake trusts and other fiduciary activities which might extend beyond the date of the limitation of national bank
charters.
The McFadden Act of 1927
During the years from 1923
to
19^6, inclusive, there were no impor-
tant changes either in the Federal Reserve Act or the national Bank Act bearing on the pioblem of competition between the national and State bank
systems.
This lull in legislation was not, however, because powers xiad been so equalized
that there was satisfaction on the part of bankers and the public regarding
the situation.
State institutions had felt adversely the results of the con-
cessions made to national banks by Congress.
- 29 -
But tiae principal subject of controversial discussion during this
period was branch banking.
on SFovember 7, 1923>
The Federal Reserve Board, in a regulation issued
^ and in a ruling; of April 7» 192*4/ ' declared that
State member banks must have the approval of the board in opening additional
branches, and stipulated as a general principle that new branches should be
restricted to the city or adjacent territory of the parent institution. The
State banks contended, however, that this contravened the guarantee in the
amendments to the Federal Reserve Act of 1917 that State banks joining the system would retain all of their charter and statutory powers. They argued that
the guarantees of the board and of Congress had not been kept, and that State
banks could not continue their membership in the Federal reserve system in
the face of regulations which violated the conditions under which they had
entered.
Among national banks there was still dissatisfaction, despite the
broadening of their powers in the Federal He serve Act and the subsequent amendments to that act and to the National Bank Act. Even these new powers did not
give national banks all the advantages of the State member banks, the most
serious difficulty being their inability to open branches. The Comptroller
of the Currency had attested in 1922 to mitigate this prohibition by permitting
national banks to open additional offices in the home office city referred to
as "teller's windows" at which only routine business, such as the receipt of
deposits and the cashing of checks, was transacted. These were permitted only
in States where State banks were permitted branches. This policy was continued in subsequent years, in the face of considerable opposition, but failed
to meet the demand for the privilege of branch banking.
(!) Federal Reserve Bulletin, December, 1923, p. 1256.
(2) Ibid., September, 1924, p. 71o,
- 30 -
As a r e s u l t of t h i s demand from national t a n k s , and of the other
d i s a b i l i t i e s which they s t i l l suffered in comparison with State banks, the
McFadden h i l l was introduced into Congress in 1924,
I t was intended to equal-
ize competitive conditions between national and State tanks.
This was recog-
nized by both i t s supporters and i t s opponents, and explains the fact that
debate over i t s various measures was b i t t e r and i t s passage delayed u n t i l
February 25, 1927, 'The chief conflict developed over branch banking.
While
i t was evident that the national banks would have to be given at l e a s t limited
branch banking powers, there was a violent conflict over the precise character
of these powers.^ 2 '
As passed, the chief provisions of the act were as f o l -
lows:
1. National banks were authorized to e s t a b l i s h new branches
within the c i t y or town in which the bank was located, in those
States in which State banks had the power to e s t a b l i s h branches.
However, no branch could be opened in c i t i e s of l e s s than 25,000
population, only one i f the c i t y had between 25,000 and 50,000
population, and only two if the c i t y had between 50,000 and
100,000 population, while in c i t i e s of more than 100,000 population the comptroller could limit the number of branches.
2. A national bank was authorized to r e t a i n a l l i t s branches
in lawful operation p r i o r to the passage of the a c t , and if subsequently a national bank consolidated with another bank, e i t h e r
n a t i o n a l or S t a t e , a l l the branches of both i n s t i t u t i o n s which had
been in lawful operation at the date of approval of the act could
be r e t a i n e d , but t h e i r location could be changed only with the
consent of the Comptroller of the Currency.
3. State member banks were governed by the same r e s t r i c t i o n s
as national banks in respect to new branches and those in operat i o n a t the date of the passage of tne a c t , and State banks j o i n ing the system could not r e t a i n out-of-town branches established
a f t e r the date of the approval of the a c t .
k. National banks were given indeterminate instead of 99year c h a r t e r s .
(1) Public No. 639.
(2)
This conflict has been described in another section of the report of the
Committee on Branch, Group, and Chain Banking, See Branch Banking in
the United States, pp. 121-15U.
- 31-
5. The power of national banks to moke loans on the security of real estate was "broadened materially.
6. The limitation on loans to one interest was again relaxed. The most important change allows a national hank to
advance larger amounts to one borrower wnen his obligation is
secured by certain documents of title.
7. The capital required for the organization of national
banks in outlying districts of large cities was reduced.
8. National banks were given legal sanction to the practice of merchandising bonds by regulating and limiting their
purchase and sale of evidences of indebtedness.
9. National banks were authorized to invest up to 15 per
cent of their capital and surplus in the stock of State corporations engaged in the safe deposit business.
10. National banks were empowered to issue their stock in
less than $100 denominations and to issue stock dividends.
11. State banks were authorized to consolidate directly
with national banks without, as formerly, being required first
to convert into national banks,
A later amendment, June 251 193^» authorizes national banks in ^7hich
public funds of any State or any political subdivision thereof
are deposited
to give security for such deposits in the form required by State law. (1) This
merely gave legal sanction to a practice of long standing.
Even these extensions of power, however, did not give the national
banks all the powers enjoyed by many of the State banking institutions. State
member banks and trust companies in many States still had advantages in respect
to the making of real estate loans, the ownership of corporate stocks, the
amount which could be loaned to one borrower, exemption from the Clayton; Act
prohibition upon interlocking directorates, the ability to withdraw from the
Federal reserve system on six months> notice,i2) and in many States, to less
(1) Public No. U3I.
(2) in practice national banks can withdraw from the Federal reserve system
without any notice whatever, merely by conversion to State charter. But
this means, of course, that by so doing tney also lose their membership
in the national system.
- 32 -
rigorous examinations and control. State banks and trust companies which were
not members of the system still retained certain advantages which they possessed
over both the State member banks and the national, banks, andin.particular were
now the only class of banks which could open branches (in those States permitting them)
in places outside of the town or city in which the main office was
located.
Furthermore the decision of the Supreme Court in the case of the
Worcester County National Bank on May 13, 1929 was somewhat disturbing to
national banks.
In that decision, it was held that a national bank absorbing
a trust company could not succeed to the trust business under the Massachusetts
State law without obtaining, in so far as such trusts were subject to the approval of the court, a reappointment by the court for each trust. This decision, a reaffirmation by the United States Supreme Court of judgments handed
down by the probate court of Worcester County, and the Supreme Judicial Court
of Massachusetts, thus added uncertainty to the powers of succession of national banks to trusts held by a State bank or trust company, in case a merger
should be consummated.^ '
Par Clearance of Checks
After the passage of the Federal Reserve Act measures were initiated
for the development of a system of universal par clearance, so that any check
drawn upon a commercial bank in the United States would be paid without discount
upon presentation.
The Federal Beserve Board first made the par collection of checks
optional, but subsequently the .Federal reserve banks in some instances resorted
' ' See ch. VI
of this report.
- 33 -
to the device of presenting over the counter checks drawn on "banks which failed
to remit in full. Many of the smaller banks of the South and West had derived
a considerable portion of their income from the remittance and collection
charges which they deducted from payments of checks drawn by their own depositors and presented for payment through the mail.
The practice of presenting
checks over the counter, therefore, aroused the resentment of these hanks. In
eight States the opposition of the State "banks to par remittance resulted in
legislation during 1920 and 1921 expressly legalizing the practice of making
exchange charges. The attitude of the State banks was also expressed in litigation directed against the Federal reserve banks. (1)
Partly as a consequence of such legislation and litigation, the
pressure of the Federal Reserve Board and the Federal reserve banks to bring
all the banks of the country into the par clearance system has been withdrawn.
In 1920 par clearance had been extended to all but 1,755 banks, or less than
6 per cent of the banks in the country. (2) In July, 1932, there were 3,108
banks which were not on the par list, as compared with 6,9^7 member banks and
S,UUS nonmember banks clearing through the Federal reserve banks at par.w)
At present checks on only about 8*+ per cent of the banks are collected through
the Federal reserve par clearance system. The banking system is therefore still
far from unified in this phase of banking operations.
(!) Annual Reports of the Federal Reserve Board, 1920, pp. 64-65, 327-33U;
1921, pp. 68-72, 357-35S.
(2) Ibid., 192U, p. 10D.
(3) Federal Reserve B u l l e t i n , Vol. XVIII, September, 1932, p . 60S.
-3^~
Relative Strength of Member and Honmember Banking Systems.
The period since 1913 ^ a s been characterized by constant conflict
of interest between the three classes of banks operating in each State:
national banks, member State banks, and nonmember banks. National banks
have sought powers similar to those of State institutions, which, in many
States, operate under more liberal laws.
They have especially felt the
need of obtaining powers similar to those enjoyed by member State banks.
State banks at the same time have opposed the extension of the powers of
national banks in some directions.
This rivalry between the State systems and the national system
has resulted in the exact opposite of the unification intended by the advocates of banking reform in the early years of the century. Under the
prevailing conditions the Federal Government has found it impossible to
formulate and maintain any consistent banking policy of its own. Since
1913, in fact, the majority of important changes in the Federal law have
been made in an effort to place national banks in a position to meet the
competition of institutions operating under the less exacting requirements
of some of the States, or to induce State banks to become members of the
Federal reserve system.
The standards of commercial banking practice
formerly required in the national system have been relaxed, and the whole
banking structure has suffered the consequences.
Yet in spite of all the so-called "liberalization" of the powers
and privileges of national banks which has occurred since 1913, national
banks have continued to grow less rapidly in number and resources than
- 35 -
the State chartered banking institutions. The resources of national tanks
in 1931 were two and one-half times as great as those in 1913f while the
resources of State banks in 193* were three times as great as those in
1913.
Although many more State "banks than national banks had suspended
during this interval, State banks at the beginning of 1932 were still
more than twice as numerous as national banks; and the aggregate resources
of State banks, which in 1913 kacL been slightly less than those of national
banks, on June 30, 1931 > surpassed the resources of national banks by 12
per cent.
(See Charts 1 and 2*)
Unification has been somewhat more nearly approximated by mem-
bership in the Federal reserve system, for some State banks have become
members of the reserve system.
On June 30, 193^1 the loans and invest-
ments of all member banks amounted
to $33»9^3»000»000
as
compared with
$10,53^»000,000 for all nonmember commercial institutions. Bat the
unification of the banking structure achieved in this manner is more
apparent than real.
On the above date Federal reserve membership was
made up of 6,800 national banks and only 982 State banks, while 13,3^1
State banks remained outside the system. Furthermore, all membership
in the Federal reserve system is in effect voluntary, since national
banks can leave the system by conversion to State charter and member
State banks can withdraw by giving notice.
Chart 3 and Table 1 show the
number of member and nonmember banks from 191U through 1931, and Chart h
and Table 2 show the'loans and investments of these banks fro,n 191^
through 193I.
36 -
CHART 3
NUMBER OF MEMBER AND NONMEMBER BANKS
NUMBER OF BANKS
25,000
19lH~19o1
NUMBER OF BANKS
Nonmember banks do not include private banks or mutual savings banks. .Figures are as of June 30 each year and December 3 1 , 1931.
25,000
- 37 -
Table 1 - Number of Banks in the United States, Exclusive of
Mutual Savings Banks and Private Banks (1)
1914-1931
Nonmember
( State banks (exAll State
clusive of mutual All State and national
State National Total
savings and
banks
banks
private banks)
Member banks
Date
(June)
191^
1915
1916
1917
191S
1919
1920
1921
1922
1923
1924
1925
1926
1927
.
192S
1929
1930
1931
1931 (Dec.)
17
3^
53
513
1,042
1,37^
1,595
1,648
1,620
1,570
1,472
1,403
1,309
1,244
1,177
1,06s
982
878
7,51S
7.614
7,605
7,652
8,212 1
8,821
9,398 |
8,150 9,745 j8,244 9,892
8,236 9,856
8,080 9,650
8,066 9,538
7,972 9,375
7,790 ; 9,099
7,685 , 8,929
7,530 j 8,707
7,247 j 8,315
6,800 j 7,782
6,368 i 7,246
7,51S
7,597
7,571
7,599
7,699
7,779
8,024
17,498
17,731
18,219
18,657
18,891
18,604
19,261
19,672
19,14-1
19,034
18,458
18,101
17,591
16,810
16,196
17,498
17,748
18,253
18,710
19,404
19,646
20,635
21,267
20,789
20,654
20,028
19,573
18,994
18,119
17,440
16,728
!
'•
|
'•
.'
15,551
14,730
13,341
15,79s
1^,323 -:
11,921
12,799
25,016
25,3^5
25,824
26,309
27,103
27,425
28,659
29,417
29,033
28,890
28,108
27,639
26,966
25,909
25,125
24,258
23,045
21,123
19,167
Banks in continental United States only. "All State banks," "national
banks," and "all State and national banks" were taken from the Comptrollers' abstracts and annual reports, except that for December, 1931,
the State bank figures were compiled by the Division of Bank Operations
of the Federal Reserve Board from State bank abstracts. State bank members were compiled from Federal Reserve Board abstracts andcaLl reports,
and nonmember banks were derived by deducting member banks from the total
of national and State banks.
-
38 -
CHART4
LOANS AND INVESTMENTS OF BANKS IN THE UNITED STATES
1W-1931
MILLIONS Or DOLLARS
MILLIONS OT DOLLARS
^tQOOO
Loans and investments of nonmember banks do not include
those of private banks or mutual savings banks. Figures
are as of June 30 each year and December 31, 1931.
-39-
Table 2 - Loans and Investments of Banks i n the U n i t e d S t a t e s
E x c l u s i v e of Mutual Savings Banks and P r i v a t e Banks
19llj-193lU)
(in millions of dollars)
yiember bani:s
Date
(June)
State
19 l 4
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
192S
1929
1930
1931
1931 (Dec.)
"76
229
556
4,594
6,530
8,012
8,226
3,477
9,702
10,109
11,225
12,025
12,519
12,999
Ik,25k
13.907
13>09S
n.usi
National
Total
8,313
8,688
10,086
11,897
13.913
15,712
17,547
15,895
15,705
16,805
17,058
18,293
19,159
20,237
22,062
21,457
21,7149
20,825
19,09^
8,313
8,764
10,315
12,453
18,507
22,242
25,559
24,121
24,182
26,507
27,167
29,518
3L184
32,756
35,061
35,711
35,656
33.923
30,575
Nonmember
S t a t e "banks (exc l u s i v e of mutual
s a v i n g s and
p r i v a t e "banks)
8,410
8,582
9,972
11,248
8,727
9,4o4
10,712
10,090
9,677
10,590
10,93s
11,694
12,263
12,331
12,374
13.132
12,638
10,53*+
8, oOO
All State
"banks
S,4l0
8,658
10,201
11,804
13,321
15,93^
18,724
18,316
18,154
20,292
2i,o47
22,919
24,288
24,850
25,873
27,386
26,545
23.632
20,081
All State
and n a t i o n a l
"banks
16,723
17.346
20,287
23,701
27,234
31,646
36,271
34,211
33.859
37,097
38,105
41,212
43,447
45,087
47,935
48,843
48,294
44,457
39,175
(1) See note, Table 1.
Table 3 gives by size groups the number of commercial banks,
both national and State, within and without the Federal reserve system
in 1920 and in 193O.
- ko -
Table 3 - Membership in the Federal Reserve System,
June 30, 1920 and 1930, by Size Groups
Number of banks (1)
!
P e r c e n t a g e of
t o t a l number t h a t
1920
1930
Mem~ j SonMem- j Honwere members
b e r s ( 2 ) j members b e r s ( 2 ) members
1920
1930
Size group
l o a n s and i n v e s t m e n t s
Under $500,000
500,000 - 2,000,000
2,000,000 - 10,000,000
1 0 , 0 0 0 , 0 0 0 - 50,000,000
69
50,000,000 and over
i
•
•
1 , ,
.
,
,
1
1
10,U02
3,096
915
128 •
10
3
9,39S
Total
.
15,048 2,913
3,630 3,4lg
7U2 1,567
6k
326
3,591
^,094
1,339
305
8,315
13 Ml
-i
,
,
i
1^,551
•
1
21.9
19*3
53.0
52.5
63.1
64*3
82.7 ! 71.8
95.8 i 904
! 36* U
32.5 '
11
1
(1) The 1920 figures include 386 banks in Illinois which were classed as
private banks on June 30 of that year, but which had nearly all been
converted to State banks by the end of the year in compliance with a
law prohibiting the operation of private banks after January 1, 1921.
In classifying active State banks by size groups, whenever individual reports for June 30 were not obtainable, figures for the nearest
available date were used. For this reason the totals given here differ
somewhat from similar figures elsewhere in this report and in the reports of the Comptroller of the Currency. The State bank figures used
were either supplied by the State banking departments or compiled from
their published reports.
(2) national and State.
Only a third of all the commercial banks in the nation were members of the Federal reserve system in 1920, and the percentage was not very
much larger in 1930. The proportion of members among the large banks was
very high in 1930 though not so high as 10 years earlier. There were 138
nonmembers out of a total of 555 with over $10,000,000 of loans and investments in 1930f as compared with only 67 out of kkl
in 1920.
Table U gives by size groups the aggregate loans and investments
of member and nonmember banks in 1920 and in I93O.
- Ul-
Table k - Loans and Investments of Member and ITonmember Banks (of the
Federal Be serve System), June 30, 1920 and 1°30, "by Size Groups
Size group
l o a n s and i n v e s t m e n t s
Under $500,000
500,000 - 2,000,000
2 , 0 0 0 , 0 0 0 - 10,000,000
1 0 , 0 0 0 , 0 0 0 - 50,000,000
5 0 , 0 0 0 , 0 0 0 and over
Total
Aggregate loans and i n v e s t m e n t s ( l )
(000.000 o m i t t e d )
1920
1910
UonNonMember'2)
Member'^)
member
member
banks
banlcs
"banks
banks
$ 1,079
M27
5.U02
6,183
8,868
$ 3.027
3.253
$25,559
$10,591
2,8^1
1,182
28S
P e r c e n t a g e of tine
t o t a l in the reserve system
1920
1930
6,Uo2
6,372
IS,497
$ 2,078
2,921
3.555
2,^59
1,39*+
26.3
55.3
65.5
83.5
96,9
28.9
5^.8
6U.3
72.2
93.0
$35,656
$12,UO7
70,7
7^.2
$
8H6
— * »
,
C3-) See note (1), Table 3.
(2) national and State.
Owing to the fact that most of the larger State banks and trust
companies are members of the Ifederal reserve system while most of the small
banks are not, the percentage of the total banking resources embraced within
the system is far greater toan the percentage of banlcs within the system.
This percentage, wnicn was 70.7 in 1920, increased to 7'+.2 during tne decade
from 1920 to 1930.
As in t.ie case of the numbe::- of banks, however, a larger
proportion of the business of the large banlcs wa~ outside the system in 1930
than ten years earlier.
Table 5 shows the number of State member and nonmember banks and
trust companies in 1920 and 1930 by size groups, and the percentage of the
total that were members in each of taese years.
- te-
Table 5 - State Bank and Trust Company Membership in the Federal
Reserve System, June 30, 1920 and 1930* "by 3 i z e Groups
Size group
loans and investments
BFuraber of banks(l)
1920
1930
HonState
NonState
members members members members
k$S
Under $500,000
500,000 - 2,000,000
2,000,000 - 10,000,000
10,000,000 - 50,000,000
50,000,000 and over
Total
W
^5
26S
121
15.0US
3,630
7^2
Sk
3
2S6
363
246
1,37^
19,^7
1,06S
12k
Percentage of
State "banks that
were members
1920
1930
a.,7
10,1+02
3,096
915
12S
10
3.0
12.D
26.5
65.4
91.4
10.5
21.2
U9.2
83.1
14,551
6.6
6.8
See note (1), Table 3,
In all size groups the percentage of the State banks and trust
companies which were members of the Federal reserve system declined between 1920 and 193°«
DuQ» however, to changes in the number of banks in
the various size groups, the percentage of the total number of State banks
and trust companies that are members of the system was almost the same
in 1930 &s in 1920, that is, 6.8 per cent as compared with 6.6 per cent.
Only one State chartered banking institution out of fifteen is a member of
the Federal reserve system.
In 1920, 1+3 per cent of the loans and investments of all State
banks and trust companies was within the system, and in 1930, 53 per cent.
This is shovm in Table 6.
-43-
Table 6 - Loans and Investments of Member and Nonmember State Banks
(of the Federal Reserve System), June 30, 1920 and 193°.
by Size Groups
Size group
loans and investments
Aggregate loans
loans and investments
investments U ) 1 Percentage
Aggregate
omitted) . . .
000.000 omitted)
....
of the t o t a l
((000.000
1920
!
1930
i n State
State
NonNonState
member banks
member member member member
1920
1930
banks
banks
banks banks
Under $500,000
500,000 - 2,000,000
2,000,000 - 10,000,000
10,000,000 - 50,000,000
50,000,000 and over
Total
77 $ 2,078
2,921
394
3.555
1,154
2,459
2,556
9,726
137
501
1,186
2,549
3,639
$ 3,027
3,253
2,84l
1,182
288
$
$8,012
$10,591
$13,907 $12,1+07
$
4.4
13.3
29.5
68.3
92.7
U3.I
3.6
11.9
24.5
51.0
?7- 5
52.9
t 1 ) See note (l), Table 3.
Table 7 shows for 1920 and for 1930 the aggregate loans and investments of national banks, member State banks, and nonmember banls
grouped by size.
Table 7 - Distribution of Aggregate Loans and Investments of Commercial Banks
and Trust Companies, June 30, 1920 and 1930, by Size Groups
Size group
loans and investments
Aggregate loans and investments
(000,000 omitted)
1
Member State IToninember State
National
All State and
banks
and t r u s t banks and t r u s t
banks
national banks
companies
companies
J
1920 ! 1930
1920 | 1930
1920
1930
1920
1930
•
Under $500,000
$U,io6 $ 2,924; $ 942
500,000 - 2,000,000
6,460' 3,526
7,280
2,000,000 - 10,000,000
9,957 4,216
8,243
10,000,000 - 50,000,000
8,831 ; 3,634
7,365
9,156 19,891 5,229
50,000,000 and over
Total
$
769
3,145
5,248
3,816
8,771
$36,15C #18,063 $L7,547 $2L,749
137 *
77 $ 3,027 $ 2,078
2,921
394
501
3,253
3,555
1,186 , 1.154 2,S4l
2,459
2,556
1,182
2,549
1,394
9,726
288
3,639
$
$8,012 $13,907 $10,591 $12,407
.. 44 -
Table S shows the changes during the decade in the loans and investments of the "banks in these size groups, "both in millions of dollars
and in percentages.
Table 8 - Changes in the Aggregate Loans and Investments of Commercial Banks
and Trust Companies from 1920 to 193°, hy Size Groups
Size group
loans and investments
Under $500,000
500,000 - 2,000,000
2,000,000 - 10,000*000
10,000,000 - 50,000,000
50,000,000 and over
Total
of d o l l a r s
Percentage changes
Nonmember
Member
lonmember
State banks Ifetional State banks State banks
and t r u s t
banks and t r u s t and t r u s t
companies
companies companies
Changes in m i l l i o n s
Member
MatictBl State banks
banks and t r u s t
companies
-174
-381
+1,032
+1S2
+3,542
-60
-107
-32
+7
+6,087
+4,202
+ 5,895
:
-9U9
-332
+ 71+
+1,277
+1,106
-18.4
-10.8
+ 24.5
+ 5.0
+67.7
-+3.8
-21.4
-2.7
+ 0.3
+I67.3
-31.4
-10.2
+ 25.1
+108.0
+ 384.0
+1,816
+23.9
+73-6
+ 17.1
These tables indicate that among banks with less than two million
dollars of loans and investments, national, State member, and nonmember
State banks all lost banking strength during the decade. Those with national
charters have lost less aggregate banking strength than those with State
charters.
This has resulted principally from the higher suspension rate
among State banks. A somewhat different situation exists with respect to
banks with from two to ten million dollars of loans and investments. Those
with national charters and those with State charters but without Federal
reserve membership grew at a moderate rate. Member State banks, on the
contrary, lost loans and investments.
The changes among banks with more than fifty million dollars of
loans and investments are the most striking.
Loans and investments of all
-45-
three classes of 'banks grew rapidly during the decade, with those of member State hanks and trust companies increasing at a more rapid rate than
those of national "banks. The nonmember banks and trust companies, however,
showed the greatest percentage growth.
Further light on the changes in State hank and trust company membership in the Federal reserve system may he obtained from an examination
of the number and resources of State banks and trust companies admitted to
and withdrawing from membership. These figures are given in Table 9»
Table 9 - Number and Aggregate Resources of State Banks and Trust Companies
Admitted to and Withdrawing from Membership in the
Federal Reserve System, 1921-193l(l}
Withdrawn
Absorbed by
from membership
nonmember banks
Resources
Resources
Resources
Number
Number
Humber
(000 omitted)
(000 omitted)
(000 omitted)
Admitted
to membership
Year
!
1
•
204
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
32
29
23
27
is
-21
Total
59S
95
66
4i
4o
$
224,958
280,190
137.S30
60,771
139,265
SS,379
62,876
48,445
1)48,130
41,109
119.126
$1,351,679
61
34
^5
48
47
20
$ 10,872
24,842
139,222
67,081
32,340
54,215
59,i4i
73,429
l4i,385
189,564
23.461
384
$815,552
19
13
30
27
4o
2
1
-
3,823
3,603
-
16
13
8
2,4o6
13,768
1,163
7,o42
32,996
^33,733
24r-930
66,822
7S
$590,286
5
|
I
$
14
4
6
9
(1) Based on revised data furnished by the Division of Bank Operations,
Federal Reserve Board, supplemented by Rand McNally Bankers Directory.
Since the Directory figures appear only every six months, resources
at time of admission or withdrawal may have differed from those included above in some cases.
The above figures do not give all of the changes in State bank
membership since 1920. They do not include changes resulting from bank
- 1(6-
suspensions, voluntary liquidations, absorptions of member State "banks by
national banks, conversions of member State banks to national banks, nor
changes in member resources due to absorption of nonmember banks by member banks. They embrace only changes where State banks were admitted to
or withdrew from the Federal reserve system.
It will be noted that for several years after 1920, the admissions were more numerous than the withdrawals and the absorptions by nonmember banks. Since 1924, however, admissions to membership have been
less than the losses on account of withdrawals and absorptions by nonmember banks. The same situation is generally true in respect to resources
since 1926.
CHAPTER l\l
STATE LEG-ISLATIOH A|D THE DUAL EAHKIITG SYSTEM
Two main opposing trends are apparent in the development of State
banking legislation in recent years.^' On the one hand, the recognition of
weaknesses in many State systems, as revealed especially "by the numerous failures of "banks since 1920, has been followed "by attempts to improve hanking
standards.
On the other hand, the States have endeavored to improve the com-
petitive position of their banks and prevent the conversion of their institutions to national banks. Thus the States have attempted to strike a balance
between the desirability of strengthening their systems from the viewpoint of
safety to depositors, and of increasing the numbers and resources of their
banks by making State charters attractive. With forty-eight different States
involved, there have been wide variations in the banking standards actually
adopted and maintained from time to time.
In a few instances the State laws appear to have become fully as
effective as the national laws in the matter of requiring sound banking practices. Moreover, certain extensions of powers and privileges to State banks
have resulted in no apparent diminution of safety to depositors. But in the
great majority of the States banks nave been and still are chartered without
adequate capital and other requirements, and various practices are permitted
' 1 ) This brief summary of State banking legislation is based principally
upon the following: (1) Digests of particular aspects of State laws
made from time to time by counsel of the Federal Reserve Board; (2)
Digest made in 1909 by the National Monetary Commission; (3) Replies
to questionnaires procured from State banking departments by the
twelve Federal reserve banks; and (k) Text of the banking laws of the
various States.
- 47-
- Us -
which have r e s u l t e d in lower standards of safety than those prevailing i n the
n a t i o n a l system.
The Opening; of Hew Banks
One of the chief e v i l s of the dual hanking system and the accompanying competition for numbers and resources has been manifested in the organizat i o n of new hanks.
Numerous i n s t i t u t i o n s have been chartered which should
never have been allowed to commence business.
In t h e i r subsequent f a i l u r e l i e s
a large part of the explanation of the deplorable safety record of our banking
structure.
Charter requirements d i f f e r considerably in the several States*
and some improvements have been made in recent years; but the s t a t u s in t h i s
respect i s s t i l l far from s a t i s f a c t o r y , especially in view of the competitive
s i t u a t i o n which prevents the enforcement of more adequate requirements in
e i t h e r the national or the State systems.
Capital Requirements. - I t was noted i n an e a r l i e r chapter that in
1900, when Congress reduced the minimum c a p i t a l i z a t i o n of national banks from
$50,000 i n places under 6,000 to $25,000 in places of under 3,000 population,
many States permitted banks to organize with only $10,000 of p a i d - i n c a p i t a l .
Since then the majority of the States have recognized the e v i l s
r e s u l t i n g from the excessive granting of charters during the e a r l y years of
the century and have taken some measures e i t h e r l e g i s l a t i v e or administrative
to l i m i t the number of primary organizations.
In part t h i s has been accom-
p l i s h e d by the adoption of higher c a p i t a l requirements.
A comparison of the
laws in force in 1909 indicates that in only about 13 States were the minimum
c a p i t a l requirements as hign as the minimum requirements for national banks,
and in over half of the States i t appears that banks could be organized in
- *Q-
small r u r a l coiamunities with $10,000 of c a p i t a l or l e s s . ' * )
At present 36
States require a minimum c a p i t a l of $25,000 or more for i n s t i t u t i o n s doing a
commercial banking "business, and 8 of these require a minimum of $50,000.
In
11 of the other 12 S t a t e s , however, the requirement s t i l l i s less than $25,000,
varying from $10,000 to $20,000, while in one State no minimum i s specified in
the law.
Table 10 shows the minimum c a p i t a l requirement for i n s t i t u t i o n s en-
gaged in commercial banking by States around 1909 and i n 1932.
Table 10 - Minimum Capital Requirements for Establishment of I n s t i t u t i o n s
Engaged in Commercial Banking, 1909 and 1932( 2 )
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine (7)
Maryland
Massachusett s(7)
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
Minimum capital requirements
1909(3)
19T2W
$ 15,000
_
25,000
10,000
-
15,000
25,000
10,000
25,000
25,000
io,000(0)
10,000
15,000
10,000
25,000
50,000
100,000
20,000
10,000
10,000
10,000
20,000
10,000
10,000
-
$25,000
25,000
25,000
50,000(5)
25,000
50,000
25,ooo(5)
25,000
25,000
25,000(5)
50 ,ooo( 5)
25,000
25,000
20,000
15,000
25,000
50,000
25,000
50,000
20,000(5)
io,ooo(5)(s)
25,000
15,000
25,000(5)
25,000,
50,000(5)
25,000
(1) Samuel A, Welldon, Digest of State Banking S t a t u t e s , Publications of the
National Monetary Commission, Vol. I I I .
- 50 -
Table 10 - Minimum Capital Requirements for Establishment of Institutions
Engaged in Commercial Banking, 1909 and 1932(2) (Continued)
State
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Ehode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont (7)
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Minimum capita]. reauirements
1909(3)
i9 ^ft;
$50,000
30,000
25,000
5,000
10,000
25,000
10,000
10,000
25,000
_
_
10,000
-
10,000
10,000
-
10,000
10,000
25,000
10,000
10,000
$50,000
25»ooo(5)
25,000
25,000
i5,ooo(5)
25,000(5)
10,000
25,000
25,000
—
10,000(5)(9)
i5,ooo(5)
20,000
17,500
25,ooo(5)
25,000
50,000
i5,ooo(5)
25,000
25,000
£5,ooo(5)
(2) These minimum requirements do not apply necessarily to all cities and towns, hut in many
cases only to the smallest communities.
(3) Source: Samuel A.tfelldon,Digest of State
Banking Statutes.
Text of various State laws and data supplied
by State hanking departments. In a very few
cases where data for 1932 were not available,
data for the latest available year preceding
were used.
(5) In addition, banks in these States must have
a paid-in surplus of from 10 to 100 per cent
of capital before they may open for business.
(6) Savings banks doing commercial business. Minimum requirement for commercial banks, $25,000,
(7) Trust companies doing a commercial banking business. No commercial banks chartered.
(2) In communities with less than 500 population
where no bank is located. Otherwise, $20,000.
(9) "Depo sitaries" may be organized with capital
of $2,500.
- 51 -
The changes shown in Table 10 do not indicate the full measure of improvement in the matter of minimum capital requirements since 1909•
In the
former year a great many of the States did not require the whole of the minimum
capital to he paid up before the hank commenced business, while at present this
appears to be required in practically all the States. On the other hand, the
minimum capital requirement in all but S States remains far below the minimum
for national banks prior to 1900 when the competition of State systems forced
it down. This fact undoubtedly has constituted a serious obstacle to any improvement of national banking standards in the matter of requiring capital adequate
for safety.
Other Restrictions. - Eestrictions upon the opening of new banks,
other than minimum capital requirements, are mainly a matter of banking supervision.
This subject will be dealt with in a later chapter. Here it will be
sufficient to observe that in the early part of the present century supervisory
officials in many States were allowed but little discretion in the granting of
charters to new banks. In most cases no power of refusal was lodged in the
hands of banking boards or commissioners.
In only a few States were such boards
or officials specifically empowered or required to consider the public convenience and necessity in granting charters, or even to investigate the integrity
and reliability of the proposed incorporators.
Since 1929, however, the banking
board, commissioner, superintendent, or other charter-granting authority has had
almost complete discretionary power in most of the States to grant or refuse
applications for bank charters, subject in a number of States to appeal or review by courts or special boards. In over three-fourths of the States the bank
commissioner, superintendent, or banking board is expressly instructed by law
to consider the public convenience or public necessity for the proposed bank.(I)
(1) See Table 13, ch. V.
- 52 -
Powers and Privileges of Banks
This discussion will "be limited to some of tlie more important powers
and privileges accorded to the banks of the various States: namely, loans on
real estate, the ownership of corporate stocks, loans to individual borrowers,
loans to officers and directors, "branch banking, fiduciary business, and investment banking, whether directly or througu affiliated companies. The laws, administrative rulings, and banking customs vary in so many points in the different States and are so numerous and complicated in the aggregate that a survey
of this nature can make only general comparisons. It would be exceedingly difficult to present an accurate picture of detailed differences. Moreover the information is of a type that does not lend itself readily to statistical summary,
and has been used only for the purpose of making general comparisons of the
powers and privileges of banks.
Loans on Heal Estate. - Until 1913 national banks were forbidden to
make loans upon the security of real estate.
In 1909 the State laws did not
have this prohibition, although in a few instances real estate loans were limited
in aggregate amount, and in a considerable number of others they were restricted
to first liens or to given percentages of tne value of the land.^ '
Much the same situation with respect to State banks exists today, although several additional States have laid down restrictions as to the kind and
amount of mortgages which may be taken and the aggregate amount of real estate
loans which may be made. All the States still permit their banks to make real
estate loans, but since national banks are now also permitted to make such loans,
there is less difference in this respect than formerly between t:ie national and
(1) George E. Barnett, State Banks and Trust Companies Since the Passage of
the National-Bank Act, Publications of the National Monetary Commission,
Vol. VII, pp. 100-103.
-53-
the State systems. National tanks, however, were granted the privilege of
making loans on real estate primarily in order to enable them to meet tne competition of State chartered institutions, and tneir powers in this respect have
"been extended from time to time for the same reason.
Apart from limits on loans to single borrowers or to officers and
directors, about one-half of tae States appear to have no restrictions whatever
on the making of real estate loans, either as to the kind of mortgages taken as
security or the aggregate amount of such loans. There appears to be nothing in
the laws of such States to prevent banks from investing the whole of their
available funds, whetner represented by time or demand deposits, in long-term
real estate mortgages, which may even be second or third liens. Moreover, in
several of the States which limit the aggregate amount of real estate loans, the
limitation applies to percentages of both time and demand deposits, and such percentages, taken together, usually make up a considerably larger proportion of
total deposits than is permitted in the case of national banks. The sum total
of all the privileges still existing in the majority of the States with respect
to the making of real estate loans therefore appears to be much more liberal than
even the extended powers of the national banks.
An immediate cause of banking difficulties in recent years, particularly in agricultural areas, was
loans based either immediately or ultimately on
real estate values. This class of business is the commonest example of the extension of the activities of banks beyond the traditional field of commercial
banking and into the field of capital financing.
Ownership of Corporate Stocks. - In addition to the power to purchase
and hold bonds and other interest bearing obligations, which national banks also
have, the institutions chartered ~oy many States have long had the power to pur-
- 54-
chase and hold corporate stocks. This is especially true with respect to trust
companies.
It is difficult to tell exactly what the status is in some States,
hut roughly speaking it appears that in about 17 States trust companies are
specifically or implicitly permitted to purchase corporate stocks, in about 11
they are permitted to do so under specific limitations either as to amount or
kind, in about 10 they are specifically forbidden to purchase them, and in about
10 there is either no mention of the matter or information is unavailable. The
actual practice of course frequently depends not only upon the law but also upon
administrative regulation. (1)
State chartered commercial banks, as it happens, are not so frequently
authorized to purchase corporate stocks, less than one-fourth of the States
specifically or by implication granting the privilege, over one-third specifically forbidding it, a few placing restrictions upon the amount or type of purchase,
and the remaining States have no legislation on the subject.'2) Inasmuch, however, as in the great majority of the States trust companies can by law and
usually do engage in commercial banking, the differences in the privileges of
the two classes of institutions are not important.
The power of State chartered banks and trust companies to purchase
corporate stocks is a competitive advantage primarily because it gives a greater
flexibility to investment policies and provides greater opportunities for speculative profits than those available to banks without the privilege. National
(1) For 1909» Samuel A. Welldon, Digest of State Banking: Statutes, Publications
of the National Monetary Commission, Vol, III; for 1932» Digest of State
Laws Relating to the Purchase of Corporate Stocks by Banks and Trust Companies. prepared by the office of the counsel of the Federal Reserve
Board.
(2) Ibid.
- 55 -
tanks have to some extent met the situation by having their stockholders organize State chartered affiliates under identical control, and have thus, indirectlybeen enabled to take advantage of the more extensive privileges permitted to
State institutions.
Loans to Single Borrowers. ( D - It is not possible in a brief space
to compare the limitations placed on loans to single borrowers by the various
States with the limitations placed on such loans by the National Bank Act, or
to summarize the changes which have been made in State laws over a period of
time.
The chief reason for this is the complexity of the limitations and of
the exceptions. However, there is not so much difference at present between
the powers of national and State banks to lend to single borrowers as there was
two decades ago, partly on account of stricter requirements in many of the
States and partly on account of the extension of lending powers granted to
national banks.
Loans to Officers and Directors/^ - The National Bank Act has never
contained any limitations on loans to officers and directors of the bank, except
those which apply to all borrowers. Comptrollers of the Currency have frequently recommended restrictions on such loans, but they have never been enacted by
Congress. On the other hand, about two-thirds of the States had some kind of
special regulations regarding loans to officers and directors as early as 1909«
These were of three types: (a) the requirement that a majority, or more, of
the board of directors should approve the loan; (b.) a limitation on the amount
(1) Sources of information on this subject: for 1909• Samuel A. Welldon, Digest
of State Banking; Statutes, Publications of the National Monetary Commission,
Vol» III; for 1932, text of the various State laws and data supplied by
State banking departments.
(2) Sources of information on this subject: for 1909. Barnett, op., cit., p* 98;
for 1932, text.of the various State laws and data supplied by State banking
departments.
- 56-
of sucli loans more stringent than that to other persons; and (c) the requirement
that loans to officers and directors should be secured.
At present nearly all States have limitations of some kind on loans to
officers and directors and, in some cases, on loans to employees of hanks and
trust companies, in addition to those upon loans to single borrowers, although
in many cases it is doubtful whether the restrictions are of much practical effect.
In about half a dozen States loans to certain active officers are actually
prohibited.
At present more States appear to have specific restriction
on loans
to officers and directors than in 1909. About two-thirds of the States require
that such loans, at least in excess of certain amounts, be approved by a majority or more of the board of directors or of the discount committee, ia many cases
the applicant not voting*
Most of the others either have special limitations
upon the amount loaned or stipulate the kind or amount of security required.
In a few instances the restrictions are extended to loans to partnerships or
corporations of which officers or directors of the banking institution are members or which they control.
Branch Banking. - As previously noted, some States have for many years
permitted banks and trust companies to establish branches, although two decades
ago this advantage over national banks was more theoretical than practical,
since relatively few branches were established.
In 1909 branch banking was of
so little practical importance in most sections of the country that more than
half of the States had no legislation regarding it.
During the past twenty years, however, there has been a definite movement toward the establishment of branches of banks within the corporate limits
of the larger cities, and in California, on a state-wide scale. This development has been followed by the passage of laws either permitting or prohibiting
- 57 branches in most of the States previously without legislation on the subject,Nevertheless, there has been no general movement toward the extension of statewide branch banking. The new legislation, for the most part, has either prohibited branch banking, or authorized it only within limited areas, such as the
city, town, or county in which the parent bank is located, or at least to cities,
towns, or counties contiguous thereto; The extent of these changes in State
legislation regarding branch banking may be seen from Table 11, which summarizes
branch banking legislation in 1909> 192*+, and 1932.
Table 11 - State Branch Banking legislation in 1909, 1924, and 1932(1)
Numbe r of States
1909 1924 1912
States permitting state-wide branch banking^)
States; permitting branch banking within
limited a r e a s O )
States p r o h i b i t i n g branch banking(^)
States with no l e g i s l a t i o n regarding
branch bankingv.5)
9
12
9
4
8
7
17
14
lg
27
12
7
(1) Based on sfelldon; op_. cit.; and Federal Reserve Bulletin,
March, 1925, PP. 122-157, and July, 1932, p< ^55.
(2/ including 3 States in 1924 in whicn there was no express
provision for branches, but in which they were implied
in certain provisions of the law; and 1 State in 1924 in
which the law autnorized brancn banking but the commissioner of banks and banking did not sanction their operation.
(3) Limited areas include same city, tovra, county, or other
local area as the loce^tion of the parent bank, and in a
few cases, contiguous cities, towns, or counties. Includes 1 State in 1909 which allowed limited branches to
trust companies but made no provision for general commercial banks to have branches. Includes 1 State in 1932
which permitted "stations" in towns deprived of other
banking facilities.
(4) Includes 1 State in 1932 which allowed mercantile companies doing a banking business to operate branches.
(5) Includes 1 State in 1924 and in 1932 in which agencies
for the receipt of deposits and the cashing of checks
were permitted by court decisions.
-58-
Of the 8 States which prohibited all branch banking in 1909» none
has since authorized state-wide operation, 2 have authorized branch banking
within limited areas, and 1 has authorized the establishment of agencies in
towns in the same county without banking facilities.
Of the 9 States which per-
mitted state-wide branch operation in 1909. 2 have since limited branches to restricted areas, and 3 have prohibited the establishment of new branches. Of the
27 with no legislation in 1909 regarding branch banking, 30- now prohibit branches,
5 authorize the establishment of state-wide branches, 5 permit branches within
limited areas, and 7 still have no legislation regarding brandies.
The whole subject of branch banking in the United States ia dealt with
in other volumes of the Committee's report, where branch operation in relation
to the competitive position of national and State banks is examined in considerable detail.
Fiduciary Powers. - The greatest variety exists among the various
States in respect to trust and other fiduciary powers. The relations between
commercial banks and trust companies also differ markedly from State to State.
There has been a pronounced tendency since 1909» however, to authorize
State chartered institutions to perform the functions of both banks and trust
companies. At the same time the number of States requiring either complete or
partial segregation of the two classes of business has been reduced.
Since
national banks also may now be authorized by the Federal Reserve Board to exercise fiduciary powers, the trend towards a complete intermixture of banking
and fiduciary functions in the same institutions is general and nation-wide.
This aspect of dual control of the banking structure, in fact, is no longer so
- 59 -
important a matter of competition between the national and the State systems
as in the past, although, as will "be made clear in a later chapter, (1) questions
regarding the succession of national banks to the trust business of State institutions have sometimes been an obstacle to the conversion of State banks to
national charter. Moreover, national banks have been accorded the privilege of
exercising in each State only the fiduciary powers permitted to State institu—tions operating there.
Consequently the national banking legislation on the
subject of fiduciary powers is not uniform, but varies from State to State,
Investment Banking. - With respect to the underwriting and merchandising of securities, neither the national banking laws nor those of most of the
States are very clear or specific. In general there appears to be nothing in
the law to prevent banks, whether national or State, from underwriting and merchandising such securities as they are permitted on their own account to purchase and hold. Except for a few very large institutions, however, they do not
generally engage in underwriting in their own name or under their own charter*
Merchandising, on the other hand, has become an increasingly important activity
of commercial banks in recent years. Numerous banks, both national and State,
often buy for resale such securities as they themselves are permitted to own.
This class of business, of course, is to be distinguished from the older practice of acting in behalf of customers as agents for the purchase or sale of
securities. The only essential difference between the privileges of State and
national banking institutions in the matter of merchandising securities appears
to be the wider powers of ownership of the former.
The most important extension of the activities of commercial banking
institutions into the field of investment banking in recent years has occurred
(1) See ch. ¥1.
« 6o -
through the use of affiliated companies, organized and controlled by the same
interests as the hanking institutions for the express purpose of underwriting
and merchandising securities.
In recent years the operation of securities af-
filiates has become common among large State hanking institutions as well as
among national hanks.
Beserves Against Deposits
Prior to the passage of the Federal Reserve Act, national banks were
required to carry a certain proportion of their deposits in cash in their own
vaults and in most cases as balances with other banks. This proportion varied
with the locality of the bank.
State statutes had analogous provisions, but
it was usually true that reserves against deposits required of national banks
were higher than those required of State banks of the same size and in the same
situation.
It is not desirable here to go into all the manifold variations in
these requirements from one State to another or from one locality to another.
The reserve requirements of national banks were reduced by the original Federal He serve Act and subsequent amendments*
In general, however, the
States have tended to reduce commensurably their requirements for State institutions i and the process has operated in the direction of lower banking standards without any stable competitive gain to national banks. Among many small
banks today, membership in the Federal reserve system is considered unattractive,
largely because of the regerve requirements. The State law may require that the!
small State bank in question carry as much reserve in its own vaults or as balances with correspondent banks as it would have to carry with the Federal reserve
bank if it were a national bank, The fact, however, that the Federal reserve
bank pays no interest on bank balances while the correspondent banks do, as a
- 6l-
rule, is an important consideration in causing a bank's management to prefer a
State to a national charter.
With the passage of the federal Reserve Act it was hoped that State
hanks,and trust companies engaged in commercial hanking, would "become members
of the system.
State banks joining the Federal reserve system, however, faced
the possibility of being required to conform to two separate bodies of legislation governing reserves.
Since the amendment of June 21, 1917» to the Federal
Reserve Act, the required reserves of member banks have been kept entirely in
the form of balances with the Federal reserve banks. At the time of the amendment, however, a large number of the States required the maintenance of vault
cash reserves. In a number of States, therefore, membership in the system
meant the maintenance of primary reserves greater than those required of State
nonmember banks or of national banks. Since that time the majority of the
States have enacted legislation permitting State banks which become members of
the system to substitute the Federal reserve member bank requirements for the
State requirements.
In most of the remaining States the actual vault cash re-
serve required is so small that it is not in excess of the needs for daily operation, and the required vault cash plus balances held with the reserve bank, which
constitute balances with approved depositories under State law, is not larger
than the member bank reserves plus the minimum vault cash necessary for daily
operations.
In these States the actual required reserves may be higher for
State member banks than for nonmember banks, but they are not higher than those
for national banks.
CHAPTER IV
TEE INFLUENCE OE 3AMERS Oft LEGISLATION
One of the principal activities of the State banks through
their various agencies has been directed against legislative proposals
designed to place national "banks on a competitive parity with State
"banks.
Especially has this "been true with respect to the extension of
fiduciary powers and "branch banking privileges to national banks.
The original central banking plan submitted by the
National Monetary Commission in 1911 provided for ''national
trust companies,"'1' but there was
(l) Suggested Plan for Monetary Legislation, Publications of National
Monetary Commission, p. 17.
- 62 -
- 63vigorous opposition on the part of State chartered trust companies, and the
proposal did not appear in the commission's final recommendations. The Federal
Reserve Act, however, despite the opposition of the State bankers, authorized
the Federal Reserve Board to grant "by special permit to national "banks, when
not in contravention of State law, the right to act as trustee, executor, administrator, or registrar of stocks and "bonds, under such rules and regulations
as the board might prescribe.
Opposition by trust companies to the granting of these powers to
national banks by the Federal Reserve Board, (1) was manifested not only in
States in which banking and fiduciary functions were separated, but also in
States in which trust companies engaged in commercial banking in direct competition with national banks. In 19lH the Mew York State Legislature enacted
a statute restricting the exercise of fiduciary powers to trust companies or-*
ganized under State laws.
(2)
Similar laws existed in Colorado, Florida, Missouri, and North Carolina in 1915 and attorneys general in at least twelve
other States interpreted the laws to deny fiduciary rights to national banks. (3)
That same year representatives of the Trust Company Section of the American
Bankers Association went to Washington to protest to the Federal Reserve Board
that the authorization in the Federal Reserve Act was unconstitutional. About
the same time litigation was initiated in attempts to prevent the national banks
from exercising the fiduciary powers granted them, the expense of the litigation being borne by individual trust companies.
On the other hand, there
1
C ) A comprehensive review of the litigation over the fiduciary powers of
national banks is pontained in an article by Charles S. Tippetts, "Fiduciary Powers of national Banks," American Economic Review, September,
1925, Vol. XV, pp. U17-U3U.
(2) Federal Reserve Bulletin. January, 1918, p. 12.
(3) Commercial and Financial Chronicle, American Bankers Association Supplement, September 18, 1915. PP. 1^0-1^1.
(*0 Ibid.. pp. lU2, lUg.
- 6H-
were some States wnich adopted enabling acts designed to remove various disabilities under which the national banks labored in their exercise of fiduciary
powers. (1)
On June 11, 1917 the Supreme Court rendered a decision in First
National Bank of Bay City vs. Fellows which settled in principle the constitutionality of trust powers exercised by national banks under the provisions of
the Federal He serve Act, (2) but left some question as to the adequacy of the
law in certain particulars. Thus it appeared still to be of doubtful effectiveness in face of statutes such as existed in Hew York State. In connection with
the latter the Attorney General of the United States said that "The power of
Congress to determine how far national banks may be subject to State control
is settled. . .
. But in this case Congress has not exerted its powers.M'3)
The inadequacy of the existing statute was removed by an amendment
of September 26, 1918 to the Federal Reserve Act, providing specifically that
the exercise of fiduciary powers by national banks should "not be deemed to be
in contravention of State or local law" when such powers were authorized for
State banks.
Even this did not end the agitation and litigation. Diffi-
culties continued particularly in States which required trust companies to
deposit securities with the State authorities. Attorneys general in at least
two of these States are reported to have held that the authorities had no right
to accept such securities from national banks. On the strength of an opinion
of the attorney general of Wisconsin still maintaining that national banks had
no right to exercise trust powers, the legislature enacted in 1919 a law forbidding them to do so, but the Supreme Court of the State declared it unconsti-
(1) I b i d . , p . 140.
(2) 2kk u . S. Ul6. See Federal Reserve B u l l e t i n , A p r i l , 1917, P. 25^; J u l y ,
1917, PP. 5 3 ^ 5 3 8 .
(3) Opinions of the Attorneys General, 1916-1919> Edited by George Eearn«y,
Vol. 31, pp.TSF-188. See Federal Reserve B u l l e t i n , January, 1918, pp. 12-13*
(^) Public No. 218, 65th Congress. See Federal Reserve Bulletin, October, 191B, p . 9^8.
- 65tutional. (1)
It is obvious that though the national banks had their constitutional
rights confirmed by unquestionable authority they were in practice being discouraged from exercising them, for besides the suits and the adverse State laws
that had to be fought, they also found probate courts unwilling to grant their
appointments. (2) In several States litigation on this account continued, therefore. A number of these cases established the rights of national banks under
various conditions. In one of them in which a Missouri probate court had refused the appointment of a national bank as executor, the State Supreme Court
sustained the refusal and the case came before the United States Supreme Court,
where, April 28, 1924, a decision was rendered reversing the Missouri court's
judgment. The United States Supreme Court declared that "the State can not
lay hold of it's general control of administration to deprive national banks of
their power to compete that Congress is authorized to sustain. ..(3)
In I896, as previously noted, the Comptroller of the Currency recommended that national banks be permitted to open branches in small towns. Congress, however, did not adopt this recommendation. The proposal was vigorously
opposed by the banks generally, but more especially by the smaller institutions.
In the more recent movement toward branch banking by national banks
the pressure of State bankers has been directly evident. The prolonged consideration of the McFadden bill, lasting from 1924 to early 1927, was due principally
(1) Journal of the American Bankers Association, May, 1919» PP» 60I-602. Also
July, 1919, P. 19.
2
( ) 179 H. Y. Supp. pp. 179-190; 110 Atl. 54; 178 N. W. Rep. 310. Also Federal
Reserve Bulletin, November, 1919, pp. 1059-lOoO; June, 1920, pp. 6lO-6ll;
July, 1920, pp. 700-701. For general discussion see Charles S. Tippetts,
"Fiduciary Powers of National Banks," American Economic Review, September,
1925, Vol. XV, p. 428 ff.
(3) State of Missouri ex rel. Burnes National Bank of St, Joseph v. Duncan,
265, U. S. 17, 44 Sup. Ct. 427, decided April 28, 1924. See Federal Reserve
Bulletin. May, 1924, pp. 4l8-4l9.
- 66 -
to the controversy over the so-called Hull amendments. These were sponsored by
the State banking interests, and were designed to prohibit forever any member
of the Federal reserve system, either national or State, from establishing
branches in States which, at the time of the passage of the McFadden bill, did
not provide for b»anch banking.
This would have given nonmember State banks
and trust companies a permanent advantage over national and State bank members
of the Federal reserve system in regard to the future development of branch
banking, in States then prohibiting it but thereafter adopting branch banking.
Activities of the American Bankers Association
The American Bankers Association, including in its membership most
of the country's banks, is composed of semi-autonomous divisions representing
State banks, national banks, trust companies, and savings banks. Consequently
it is sometimes difficult for the varied elements to agree on matters of policy,
because of conflicting interests. Nevertheless, the association has generally
been able to agree on important issues, although the final decisions have undoubtedly been compromises. The association itself and its various divisions
have legislative committees to which are entrusted the duties of informing the
membership of legislation in which they would be interested, in sponsoring
bills considered favorable and opposing those considered prejudicial to the
interests of the members.
In 1905 the Committee on Federal Legislation of the American Bankers
Association was appointed. (1) It has since been actively engaged in presenting
the views of the association to influential government officials and legislators
(l) American Bankers Association, Proceedings of the Thirty-second Annual Convention, 1906, p. lU2.
- 67in Washington. Also, the general counsel of tne association nas been active
in keeping in close touch witii all Federal hanking legislation.
Associated with the Committee on Federal Legislation is the Federal
Legislative Council, which has a State chairman in each State, and subcommittees
in each Congressional district.
The latter are immediately advised by the
committee in case it decides that the need has arisen to take action.
In the
words of a chairman of the council, "Then, if an emergency arises, distress
calls are made upon the great subcommittee and all the solicitude of the banking public is aroused. ..(1)
The State bankers in the American Bankers Association have consistently advocated the perpetuation of the dual banking system. As far back as 1913
the then president of the Irust Company Section stated :(2)
". . . our State governments are far better able to govern our
affairs than if we are regulated under any National act, something which I think many of us fear is surely on the way,"
At the 1930 convention
the
State
Bank Division passed a resolution
which read in part: (3)
"Whereas, the prevailing dual system of banking has contributed substantially to the remarkable economic development
of our country, therefore be it
"Besolved, That we believe our present State and
National banking systems should continue working in cooperation, thus assuring the endurance and permanency
of individual initiative and the free play of personalized enterprise which history has proven so desirable."
President M. Plin Beebe made extensive remarks of like tenor at the
(1) Commercial and Financial Chronicle, American Bankers Convention Section,
Vol. CXXI, October 17, 1925, P. 96.
(2) Aias rican Bankers Association, Proceedings of the Thirty-ninth Annual Convention, 1913, PP. 35S-359.
(3) Commercial and Financial Chronicle, American Bankers Convention Section,
Vol. CXXXI, October IS, 1930, p. $k.
- 6S -
1931 convention. (1)
At the 1932 convention the State Bank Division passed a resolution
in still stronger terms, reading in part as follows:'2'
"Further, be it resolved, That we are unalterably opposed
to the so-called unification of all "banking under Federal control in place of the present dual system of State and National
banks which is being promulgated for the purpose of destroying
the State supervised banking systems. It is almost unbelievable that such a movement could attain success, but it is being
supported by such powerful interests that desire to being the
entire banking business of this country under the control of a
single Washington bureau as to constitute a serious menace to
our State banks."
The report to the 1932 convention of the Economic Policy Commission,
representing the American Bankers Association as a whole, took a somewhat less
uncompromising view of the question of unified control, although reiterating
previous endorsements of the dual system.
Pertinent passages of this report
are as follows: (3)
"Another line of thought argues that tne great reform in
banking by means of law that is needed is in the direction of a
single, unified system for the country as a whole under Federal
Government supervision. It is the theory in this proposal that
this plan would make for better supervision, a more compact and
better co-ordinated banking structure, a nationally higher standard of management for all banks and a credit mechanism that would
be subject to greater control in the national interest.
"Fnile we are wholly in sympathy with the basic purposes envisioned in this argument, we believe, as we have brought out in
previous reports and will not repeat in detail here, that they
can be attained under the present dual system of State and National charters, that this dual system has additional virtues in itself, particularly along the lines of maintaining local financial
independence and credit sympathies free from the domination of
over-centralized Federal Government, and that the dual system
should be strengthened rather than destroyed.
(1) Ibid.. Vol. CXXXIII, October 24, 1931, pp. 60-62.
(2) Ibid., Vol. CXXXV, October 22, 1932, p. 60.
(3) Ibid., p. 33.
- 69 -
"Specifically, we have in mind the material enlargement of the
sphere of influence of the Federal Eeserve System in the present
dual hanking structure, which is particularly favored "by the reduction of the "banking picture to its present dimensions and character.
The changes this has involved have promoted unity in the operating
aspects of our commercial hanking systems embracing "both State and
National banks, witnout abrogating their respective charter rights
or nullifying the advantages of our dual system."
The National Bank Division lias been concerned to no little extent
with attempting to stem the tide of losses to the national system through conversions to State cnarters, by advocating "liberalization" of the Federal laws.
A resolution passed by this division at the 1929 convention read in part:'*)
"Members of the National Bank Division have observed with
increasing concern the withdrawals of banks from the National System for the purpose of operating under State laws. This movement,
which has gained considerable momentum in some sections of the
United States, and which shows no evidence of subsiding, indicates
unmistakably the necessity for some change which will inject more
attractiveness into National charters and stay the decline in
National bank resources*
"...Th0 National Bank Division . . • • is . • . guided by
ization that to be acceptable to those engaged in banking
al charters must be free fr^.m restrictions which handicap
competition with banks operating under the broader powers
State laws."
the realNationthem in
of sound
The division pledged itself to exert its efforts to bring about such
needed change.
In 1929, when the need of new Federal legislation became more apparent,
the Committee on National Bank Research was formed. This committee recommended
among other things that small national banks be permitted to withdraw from the
Federal reserve system if they so desired, and that each national bank be allowed to own 66 2/3 per cent or more of the stock of one trust company and one
securities company.(2) These recommendations to meet the competition of State
U ) Ibid., Vol. GXXIX, October 19, 1929, p. 100.
(2) Ibid., Vol. CXXXI, October IS, 1930, p. 82.
- 70 -
institutions would, if enacted, have added further to the list of measures of
relaxation of the National Bank Act which have been passed for the same purpose.
In the fight over the granting of trust powers to national hanks the
American Bankers Association clearly showed its dual composition.
While the
State hank and trust company members actively opposed this extension of the
rights of their national bank competitors, the latter naturally took a contrary
view, and sponsored the development of such powers.
The Trust Division was
the most antagonistic and took the lead in the legal fight which sought to restrict or prevent the exercise of these powers.^/
Perhaps in no other phase of the competitive struggle did the American
Bankers Association play a more important role than in that concerning the extension of branch banking powers to national banks. Here again the national
and State bank divisions found their interests opposed to some extent, although
the small national banks probably feared branch banking about as much as their
State competitors.
Compromise was necessary, and when the climax of the contest
was readied during the deliberations over the McFadden Act, the association
finally approved provisions giving national banks the right to increase branch
operations to a limited extent. This approval, which had been withheld while
still more rigid restrictions were advocated, apparently assured the passage of
the measure.
In the par clearance controversy, all divisions of the American Bankers Association found a policy of opposition upon which they could unite. Special
(1) American Bankers Association, Proceedings of the Forty-third Annual Convention, 1917, pp.385-386.
- 71 -
committees were appointed which attempted to prevail upon the Federal .Reserve
Board to alter its regulations, and failing in that, to persuade the hanking
committees of Congress to initiate changes in the law.^' The Committee on
Federal Legislation supplemented the work of these committees.'2'
Activities of the State Supervisors
State hank supervisors have reflected the point of view of State banking institutions.
In constant touch with State hank officials, and also interest-
ed in a professional way in Federal hanking legislation and supervision, they
have been quick to detect proposals to improve the competitive position of the
national banking system, and to assist in mobilizing the State banking and political forces for the purpose of defeating such proposals. They have considered it
their duty on such occasions to take the initiative in opposition to proposed
Federal legislation, and to form special organizations to exert their influence
in behalf of the State banking interests.
At the annual convention of the supervisors of State banks in 1919>
a
resolution protesting against the exercise of fiduciary powers by national banks
was adopted. As introduced the resolution memorialized Congress "to repeal the
existing law conferring fiduciary powers upon national Banks," but as passed it
was confined to a protest against the action that Congress had taken, on the
ground, among other things, that it was ". . .an invasion, in spirit, of the
constitutional rights of the States. ..(3) The interest of the supervisors
of State banks in Federal legislation was also shown in the hearings in Congress
(1) See Committee of Five of the American Bankers Association, Report on Exchange and Collection Charges, 1918.
(2) American Bankers Association, Proceedings of the Annual Convention,
1917, P. 160; 1918, p. 339.
(3) National Association of Supervisors of State Banks, Proceedings of the
Eighteenth Annual Convention, 1919» PP« 96-97. 112.
- 72 -
on branch banking in the spring of 1930»
They insisted that the unit system of hanking should he protected from
brancn hanking, even though in several States branch banking is permitted to
State institutions.
In recent conventions they have protested both to the Fed-
eral Heserve Board and to Congress, and have invoked the aid of the American
Bankers Association, in an effort to combat the possibility of national banks
being permitted to maintain branches over wider limits than State lines, or in
States where branch banking is not permitted to State chartered institutions*
In this controversy the merits or demerits of branch banking have not been the
main consideration.
The question has been reduced essentially to that of the
maintenance of certain banking systems.
Hot only have the State supervisors expressed their own protests
against Federal legislation, but they have also assisted in organizing the State
banking interests for the purpose of lobbying at Washington. The National Association of Supervisors of State Banks as early as 1916 passed resolutions commending the Kansas State Bankers' Association for creating an organization to
be known as the National Association of State Banks.
It was clearly implied
that such an agency was needed to look out for the interest of State banking institutions before Congress and the State legislatures.(!)
During their conven-
tion in the following year the need for political action was further discussed
and a committee appointed to formulate definite plans.
(2)
A member from New
York expressed the a t t i t u d e of the a s s o c i a t i o n quite frankly by saying:\3J
" . . . I t i s c e r t a i n , however, that the only way t h a t State i n s t i t u t i o n s can procure p r o t e c t i o n from unjust n a t i o n a l l e g i s l a t i o n
i s through a n a t i o n a l body and co-operation t h e r e . "
(1) I b i d . , 1916, pp. 66-67, 163.
( 2 ) I*>id., 1917, PP. 109-112.
(3) I b i d . , p . 112.
- 73-
At the 191S convention, this committee reported that the National
Association of State Banks had been organized, and recommended that each superbvisor organize his own State.
It was thereupon resolved that each supervisor
should call a conference of the State banking institutions for the purpose of
organizing State associations, and that the president of the association of
supervisors appoint a committee to cooperate with the State banking associations
in the formation of a "National Council of State Institutions.
Tnese reso-
lutions were carried out, and the "United States Council of State Banking Associations" was organized.
In November, 191S, it opened a Washington office, and
sent to all State chartered banks and trust companies an announcement promising:^'
"'When legislation is introduced in Congress which affects
or may affect State chartered institutions an endeavor will be
made to furnish the appropriate committee of Congress with the
information it should have in order to reach a proper conclusion, and this office will also endeavor to keep the State institutions informed of any proposed legislation which may affect their interests; so that through the medium of the Council
the views of those affected may be presented for consideration.1"
Since that time a legislative committee of the National Association of
Supervisors of State Banks has been appointed.
In I92U the secretary of the
association declared that this legislative committee was more powerful than the
State Bank Section of the American Bankers Association, and that the possibility
of marshalling the interested forces in regard to legislation on financial affairs was lodged in it to a greater extent than in any other place. (3)
This mobilization of the State bankers by the State supervisors was
no doubt from their own point of view thoroughly wise.
Its significance lies
in tiie fact that because the country has a dual banking system, administrative
(1) Ibid., 1918, p. 78.
< 2 ) Ibid. • 1919, PP. *A-U5.
(3) Ibid.. 192U, p. 119.
- 7H-
officials of the various States devote their energies to defeating legislation in the Congress of the United States, and are constantly engaged in efforts to bring about competitive advantages for their institutions.
From the foregoing survey of the influences which have been
brought to bear upon the development of banking legislation, some of the
worst evils of the dual system should be apparent. Except the general public
with the safety of its deposits at stake, all parties concerned—whether
bankers, supervisory agencies, or legislative authorities of the States
and of the nation—are involved willy-nilly in a sort of rivalry which frequently can only take the form of competition in laxity.
Sincere efforts
have been made by most of the States to improve the standards of banking
safety, and some improvement in legal safeguards has certainly been achieved;
but the possibility of losing banks to the national system constantly intervenes to prevent the measures of reform which have been shown by the record of bank failures to be urgently necessary.
The dilemma of State author-
ities is well illustrated by the following remarks of the commissioner of
banks of Massachusetts in 1 9 2 9 : ^
" . . . What steps are to be taken to protect the state banking system? I am a firm believer in harmony and I dislike
to see the question always arising as to how the national
banks can win friends from the state banking system, and on
the other hand, how the state banks can get ahead of the
national banks, I wish the question could be settled, so
the banks could attend solely to the business in which
they are engaged. . .
(1) Ibid., 1929, P. 85.
- 75 -
"We are also careful in passing state legislation that
nothing will he done to drive out the state hanks that are
now doing a good and legitimate "business, If they find that
the State Legislature is inclined to be a little harsh on
them, it will he very simple for them to convert into a
national bank and be received with open arms, . ."
CHAPTER V
EFFECTS OT DUAL CONTROL UPON BANK SUPERVISION
The effects of dual control of commercial banking have not been
confined to legislation.
The supervisory machinery and the standards and
practices of both State and national supervisory authorities have also been
greatly influenced by competition between the two systems. In order to mats
this clear, it will be necessary in the present chapter to examine in some
detail the origin and development of the various types of bank supervision
now in operation, as well as their practical results in the matter of maintaining adequate standards of banking practice.
Daring the first half century after national independence was
achieved there was little governmental supervision of banks in any part of
the United States. The filing of reports with Government officials was
often a requirement inserted in the bank charters granted by legislatures;
but only in isolated instances is there any record of penalties attached
to failure to make reports, and very rarely were any Government officials
specifically designated for making bank examinations.
Experiences during this period led to two types of State supervision.
One type was inaugurated in several of the New England and Middle
Atlantic States, where "free banking" was developing. Banking departments
or boards of bank commissioners were created, some of which have had a
continuous existence down to the present time. These supervisory authorities had varying degrees of power.
The banking committee established in
- 76-
- 77 -
Connecticut in I836, for example, consisted of the State treasurer, comptroller, and commissioner of the school fund.
It had power to inspect all
books and papers of hanks and to examine hank officials under oath. Two
commissioners were appointed in the place of this committee the next year.
In Massachusetts, on the contrary, the hoard of commissioners established
in 1838 was to make annual examinations of all hanks in the Commonwealth and
to render special reports if requested by the governor.
It was also author-
ized to procure an injunction from the Supreme Judicial Court if the condition of any bank was hazardous to the public or its depositors, or if it
had exceeded its powers or violated the banking laws.(l)
Another type of bank supervision developed in the agricultural
States of the Mississippi Valley, notably in Indiana, Missouri, Ohio, and
Iowa.
Indiana, for example, established in 183^ a State Bank, of which the
central board of directors and the officials were not operating executives
and did not directly conduct any banking business. Rather, they constituted
a supervisory authority over the "branches," which were semi-independent
banking offices carrying on the actual functions of banking, in which the
public held stock, and of which local boards of directors were the operating heads. But since the board of directors of the State Bank had almost
unlimited control over the branches, its supervision was far more direct and
effective than that of bank superintendents or boards of bank commissioners
in the "free banking" systems of the Northeast.
These State bank systems
were successful in furnishing adequate and safe banking facilities, but they
were all liquidated soon after the passage of the national Bank Act in IS63,
many of the branches becoming independent national banks.
v 1 ) Davis R. Dewey, State Banking Before the Civil War, Publications of
National Monetary Commission, Vol. IV, pp. 126-135.
- 7S -
A large number of the States, ho-'eVer, had neither of these types
of "bank supervision in force when the national Bank Act was passed.
With
the introduction of the national banking system it was expected that the
State banks would be driven out of existence, and this expectation was al~
most realized.
For many years, therefore, no significant attempts were made
either to improve the State bank systems or to extend the scope of State
bank supervision.
It was not until State banks generally became able to
operate profitably without the note issue privilege that the States again
attempted to raise banking standards and practices by means of supervisory
agencies. For the most part, therefore, present types of State supervision
over banking institutions have been a development of the period since I8S5,
and especially since the beginning of the present century.
National Bank Supervision
The estalishment of the national banking system carried with it
the beginnings of a system of supervision.
This supervision had become a
significant element in the strength of the national banking system before
the movement toward the creation of State supervisory agencies had made
much headway.
It is therefore appropriate to discuss the type and character
of national bank supervision since IS63 before treating the development of
State supervision.
National Bank Supervision Prior to, the Federal Reserve Act. - The
original provisions of the National Bank Act were largely influenced by the
assumption that the act was a currency measure.
The office of the Comptroller
of the Currency was created and detailed regulations were laid down with respect to the issues of notes by the national banks. Subject to the approval
of the Secretary of the Treasury, the comptroller was authorized to appoint
- 79 -
examiners.
Provision was made for examination "into all the affairs of the
association," although the most important duty of the examiners was to ascertain whether the condition of the "banks was such that their notes would he
honored when presented.
As time went on, however, the experience of the comptroller's
office made it increasingly clear that the scope of supervision must he
constantly enlarged and the duties of the examiners made more exacting.
Public opinion from the outset tended to blame the comptroller's office
for failures or defalcations. As the deposit phase of "banking came to "be
of greater importance than the note issues, it "became increasingly important to investigate all of a "bank's assets in the interest of depositors
as well as noteholders.
national "bank supervision, however, was far from adequate when in
190S and 1909 "the National Monetary Commission made its study of the banking
structure. Examiners were subjected to no tests before appointment, and
members of Congress made recommendations to the comptroller regarding applicants.
While the comptroller and the Secretary of the Treasury made appoint-
ments as far as possible on the basis of experience and fitness, political
pressure was considerable.
Examinations were paid for by the banks according to a fee system,
varying in amount according to the capital of the bank. Assessments were
levied and the proceeds were turned over to the examiners, who received no
other official compensation.
Out of these gross receipts, assistants' wages,
travel, and other expenses were paid.
Thus the net compensation of the ex-
aminers was subject to considerable variation, though it was estimated to
be about one-third less than their gross receipts. The fee system unduly
- so hastened the work of examination and reduced its effectiveness.
In order
to minimize travel expense, the examiners usually followed the same route,
and the "banks were often able to learn in advance the approximate date of
their arrival and could make preparations accordingly.
The geographical assignments of the examining force were such that
the examiners rarely had any contact with each other. As a consequence,
there was little or no uniformity in the method of examinations, in the
judgment of examiners as to the value of various types of assets, or the
propriety of "banking practices.
Still another handicap to effective super-
vision was the fact that the assistants were appointed and paid by the examiner alone, and did not come under the comptroller's direction.
Other difficulties were caused by the slight amount of power possessed by the comptroller. Then as now, he had no authority to require bar,.'-'
directors and officials to correct unsatisfactory conditions, unless the
capital of the "bank was actually impaired.
He could institute measures to
revoke a "bank's charter, "but this was so severe a penalty that as a practical
matter it could "be used only after the most flagrant violation of law.
Banks were also able to transfer bad and illegal assets to other
banks or corporations during the period of an examination, especially when
State chartered affiliates were operating in the same buildings.
Securities
could be borrowed so as to prevent examiners from obtaining a correct knowledge of the condition of the bank. Moreover, the condition of the affiliate
itself might impair the solvency of the bank, while the examiner would be
unable to discover the true situation because the affiliated corporations
were beyond the jurisdiction of the national supervisory agencies.
But despite all these limitations, the examinations conducted by
the cornptroller were an important force in the maintenance of relatively
- SI -
high banking standards in the national system, and of the greater prestige
enjoyed "by national hanks as compared with state chartered institutions.
National supervision in other respects also was of a fairly high
order, notably in the natter of chartering new hanks.
This was particularly
true -prior to 1900, when mininua capital requirements were lowered, and even
in later years "before the competition of the various State systems oaused
the successive comptrollers to exercise their discretionary power to charter
more new institutions in an effort to maintain the relative importance of
the national system in terms of numbers and resources.
Hational Bank Supervision since 191,5» - While there was no general
revision of the national "banking laws at the time of the establishment of
the Federal reserve system, one of the most urgently needed reforms in the
character of supervision was accomplished.
The payment of examiners was
changed from a fee to a salary system, with salaries fixed "by the federal
Reserve Board upon the recommendation of the Comptroller of the Currency.
It was provided further that the costs of examinations were to he assessed
against the "banks "by the comptroller according to the assets or resources
of the banks examined.
The power of appointment of examiners was vested in
the comptroller subject to the approval of the Secretary of the Treasury.
Under these new provisions as to compensation, the former tendencies toward hasty and superficial examinations were partially eliminated.
The method of paying examiners no longer prevented them from taking the time
necessary to examine each bank thoroughly and as frequently and in as great
detail as might be deemed necessary.
The comptroller's authority was at
first extended to all banks in the Federal reserve system, but in 1917 the
authority to examine State bank and trust company members was transferred to
the Federal Reserve Board.
- S2 -
Selections of bank examiners are made on the basis of ability
and experience, although no competitive examinations are held. Additions
to the examining forces are, as a rule, recruited from the staffs of banks
examined, and selected through the regional or local bank examiners who
have acquired a knowledge of their training and experience and are in a
position to obtain accurate knowledge of an applicant's character and
personality. All original appointments are made to the position of
assistant examiner, and these receive their preliminary training when
working with experienced examiners.
While the salaries of examiners are more adequate than in
former years, the complaint is still constantly made by the comptroller
and his assistants that it is impossible to retain the best trained and
most valuable examiners. Bankers with whom they are brought into contact
recognize their qualifications and offer them salaries which the comptroller's office cannot meet.
The Comptroller of the Currency is given unrestricted authority
in regard to the examination of national banks and to the banking standards
which he may suggest as adequate, but he has little power to compel bank
officials to adhere to these standards or to adopt the recommendations made
by the examining forces. He has the power to enter suit for the forfeiture
- S3 -
of charters on account of unlawful practices, or he may appoint a receiver for failure to make good impaired capital or failure to redeem
notes.
Otherwise, however, the comptroller has no direct powers for
changing the methods and practices of hank management, so long as they
are technically in conformity with the law. Neither can he remove recalcitrant or incompetent bank officials who may persistently engage in
unsound practices. He may remonstrate and call their acts to the
attention of their superiors or to the directors, hut beyond this point
he cannot go, except to sue for forfeiture of the bank's charter.
Moreover, the comptroller does not have the power to order impaired assets to be written off, or frozen and slow loans to be taken
care of by elimination or the setting up of reserves. A bank may hold
in its portfolio large amounts of "frozen" paper, the ultimate repayment
of which is doubtful, without an appropriate write-down being reflected
in the bank's statements to the public and to its stockholders. Likewise, drastic depreciation of security holdings may occur, such as lias
taken place since the autumn of 1929. and the comptroller must rely upon
"moral suasion" only to force any writing down of such assets.
The absence of powers intermediate between calling the atten-
- su tion of directors and officials to unsatisfactory conditions, and the closing of a bank in the case of actual insolvency, sometimes creates a serious
situation.
It both prevents adequate supervisory protection being given to
depositors and places an unfair responsibility on the comptroller, who can
neither prevent a bank from pursuing policies that are likely to result in
insolvency, nor inform stockholders or depositors that their funds are likely to be endangered.
If all banks were under one supervisory authority, it would be
possible for the supervisor, even without further powers, to be much more
stringent in his admonitions to bank directors, more prompt in closing
banks on account of insolvency, and more exacting in the conservative
valuation cf assets in condition statements. Bank officials and directors
are apt to resent "interference" and "moral suasion," and the ease with
which they may escape national supervision by becoming State banks or
trust companies greatly reduces the actual effectiveness of suggestions
made by examiners and the comptroller's staff.
Prom the establishment of the national banking system in I863
to the present time, the Comptrollers of the Currency have placed before
Congress recommendations for reform of the system of supervision by specifying certain banking standards and by providing adequate powers and penalties
for their enforcement. Thus it was recommended in I863 that the failure of a
national bank be declared prima facie fraudulent and that the officers and
directors be made personally responsible as well as punishable criminally
unless upon investigation it was found that the bank's affairs had been
honestly administered; in 1887 that penalties be imposed for making loans
- 85 -
contrary to law; in 1895 "blia'fc tlle comptroller be authorized, with the
approval of the Secretary of the Treasury and after a hearing, to remove
officers and directors for mismanagement or violations of law; in 19l4 that
the comptroller "be authorized to penalize "both "banks and their officers "by
appropriate fines for failure to comply with his regulations; and in 1931
that a "board composed of the Secretary of the Treasury, the governor of the
Federal Reserve Board, and the comptroller, should have power to remove officers or directors of "banks who persistently violated the law or who continued
unsafe and unsound practices. None of these recommendations have "been
adopted "by Congress, "but it appears probable that had there "been no fear of
driving banks out of the national and into the State system, most of them
would have been long since enacted into law.
However, some of the most harmful effects of the dual banking
system upon national supervision have occurred, not so much from the lack
of legal powers on the part of the Comptroller of the Currency, as from the
chartering of new banks, over v/hich he is vested with almost complete discretionary authority.
Apart from minimum capital and a few other requirements of the
law, the comptroller has full power to grant or refuse a charter
on the
basis of his judgment as to the probable soundness and stability of the new
institution. But he has also been forced to choose in many cases between
refusing a national charter,, on the one hand, with certain knowledge that
the applicants will then obtain a State charter, and on the other hand,
granting the national charter perhaps against his best judgment. Many charters have, as a matter of fact, been granted to national banks which could
not hope to survive except in periods of unbroken prosperity.
This has been
pointed out by the Comptroller of the Currency in his annual report for 1927.
- go -
State Bank Supervision
The manner in which State ban-cs "began in the late eighties to
recover from the effects of the Federal tax upon their note issues and to
increase rapidly in number and resources has "been discussed earlier in these
pages.
Here it will "be sufficient to note that this new development was soon
followed "by evidence of the need of supervision.
The actual putting into
effect of supervisory measures, however, was not so rapid as might have "been
expected, in view of the example of the national "banking system.
In Table 12
the initiation of hank supervision in the various States is indicated "by the
year in which regular examinations of "banks were authorized
and the year
in which permanent authorities were established for the particular purpose
of supervising "banking institutions. Complete accuracy in determining when
a given status of supervision originated is not always possible, but it is
believed that the table is substantially correct.
The status of supervision shown by this table may be summarized
briefly as follows: By 1870, k States authorized regular examinations of
banks
and 3 States had established supervisors'- authorities.
In all these
States examinations and supervisory authorities had been established -prior
to the Civil War, for the most part between IS30 and 18^0. Six of these
States were in Hew England, and the other 2 were New York and Ohio.
During the fifteen years from IS70 to 1835, 6 more States had
authorized regular examinations of banks, but only one more had established
a definite supervisory authority.
During the following fifteen year period,
from I8S5 to 1900, however, 21 additional States provided for regular examinations
and 3 established separate supervisory authorities, while 2 others
established what were essentially banking departments within the offices of
other supervisory agencies.
- 87 Table 12- The Initiation of Bank Supervision in the Various States(l)
Year regular examinations
were authorized
Prior to IS70 ~ Connecticut, Maine,
Massachusetts, Now Hampshire
1873 - Indiana, Iowa
lgjU - Vemont
I878 - California, Minnesota
1S84 - New York
1887 - Illinois, Michigan
1888 - Utah, Wyoming
1889 - Florida, Georgia, Nebraska,
New Jersey, North Carolina
1890 - North Dakota
1891 - Kansas, Pennsylvania,
South Dakota, West Virginia
1895 - Missouri, Montana, Wisconsin
1897 - Arizona, Oklahoma
1898 - Louisiana, Maryland
1903 - Alabama, Delaware, New Mexico
1§05 - Idaho, Texas
1906 - South Carolina
1§07 - Colorado, Nevada, Oregon,
Washington
1908 - Ohio, Rhode Island
1910 - Virginia
1912 - Kentucky
1913 _ Arkansas, Tennessee
191^+ - Mississippi
Year separate or virtually separate
supervisory authority was established(2)
Prior to 1S70 - Connecticut, Maine, Massachusetts, Ne\7 Hampshire, New York,
Ohio, Rhode Island, Vemont
I87S - California
1888 - Michigan
IS9I - Florida,(3) Kansas, New Jersey,
Wyoming
I892 - Pennsylvania
I89J+ - Wisconsin
1895 - Nebraska
1897 ~ Illinois^)
IS98 - Louisiana
1901 - West Virginia
1905 ~ South Carolina, North Dakota
1906 - Idaho, Oregon,
19C7 - Colorado, Oklahoma, Washington
1909 - Minnesota, Missouri, Nevada
1910 - Maryland, Virginia
1911 - Alabama, Utah
1912 - Kentucky
1913 - Arkansas, Tennessee
191^ - Mississippi
1915 ™ Montana, New Mexico, South Dakota
1917 - Iowa
1919 - Delaware, Georgia, Indiana
1922 - Arizona
1§23 - Texas
1931 - North Carolina(5)
Sources: George E. Barnett, State Banks and Trust Companies Since the Passage
of the National-Bank Act, Vol. VII, pp. 1^8^156 and 17S-1S1, Publications of
National Monetary Commission. H. Parker Willis, Report of an Inquiry into
Contem-iorary Banking in the United States, Appendix B (unpublished), and
various State banking statutes.
(2) Date of establishment of a banking department, board of commissioners, bank
commissioner, bank examiner, or other board or official with substantially
no other duties excopt the examination and supervision of banks. In some
States, where banks, prior to the date given, were under the supervision of
State auditors or other officials having other duties, there may have been
assistants devoting full time to bank supervision at earlier dates than
those stated.
(3) In Florida bank supervision is under the State comptroller, who published
the first report on banking in 1891.
In Illinois bank supervision is under the State auditor, with the earliest
report available published in 1897.
(5) In North Carolina supervision was under the Corporation Commission until
1931» when a separate banking department was established.
_ S8 By 19lH, all the States had provided for .regular examinations, hut it was not until 1931 that
a11
States had also established either
separate supervisory agencies or agencies within the offices of other State
departments.
State Supervisory, Agencies. - The scope and powers of the supervisory agencies of the forty-eight States have varied greatly.
In many
cases numerous changes have "been made from time to time. No attempt has "been
made hy the Committee to outline the history of these State supervisory
agencies, or to trace in detail the growth of their powers and the changes in
their character.
It has "been felt desirable, however, to summarize briefly
the status of State supervision at the time of the National Monetary Commission's investigation of banking conditions, and then to examine briefly
the changes which have taken place since that date.
More than half of the States had set up separate or virtually
separate banking departments prior to 1910, but several of these were comparatively new and were not well established. Moreover, many of them did not
have adequate powers, especially in the handling of insolvent institutions,
and in regard to the maintenance of sound assets as a means of preventing
insolvency.
The chief supervisors in almost all cases were political ap-
pointees, holding office in fact at the pleasure of the governors or of
boards composed of their associates. The control of the supervisors over
new charter applications was especially weak, as they either did not have
discretionary power in granting them or else wore subject to direct, or indirect but nevertheless potent, political influence.
Their terms of office
were also often too short to permit either the development of efficient
organizations or a thorough acquaintance with the real problems and details
of their duties and responsibilities.
The salaries available for examiners,
as well as the uncertain terms of office, were not sufficient to attract men
of the proper qualifications to these positions. Because of inadequate funds
- S9 and forces, bank examinations could not "be made as frequently in some States
as necessary.
Finally, standards of "banking practice and of supervision in
general were more lax in most of the States than in the national system.
Nevertheless the tendency toward creating single departments, or supervisors
clothed with full authority to act without deferring to a "board or other official, and entirely divorced from other administrative activities, was "becoming quite narked.
The principal changes in the character of State supervisory authorities since 1909 are summarized in Table 13.
(See also appendix Table II.)
Table 13- The Status and Powers of State Supervisory Agencies
1909 and I929-I932U)
Number of States
1909(2) 1929-1932
1. Supervisory agency
(a) Separate or virtually separate
(b) Under other department
28
18
^6
37
1
32
10
3
6
2
2. Type of supervisory authority
(a) Single official in charge of banking
(b) Single official, supplemented ~bj banking board
(c) Single official,, appointed by or under the control of an executive banking board or other
board
(d) Board, or two or three commissioners in charge
of department
(e) No specific arrangement for supervision
5
2
-
19
1
in
3. Method of selecting commissioner or supervisor
(a)
(b)
(c)
(d)
k.
Appointment by governor
Election by popular vote
Selection by banks, or from panel named ~by banks
In other vt&ys
Term of office of supervisor
(a) Three years or less
(b) Four years
(c) Jive or six years
(d) Indefinite term
-
2
2
2
3
12
IS
2
1
10
30
23
7
ik
28
1
6
k
h
5. Salary of supervisor
(a) Under $5,000 per year
(b) $5,000 to $10,000 per year
(c) $10,000 or over per year
6. Method of selection of examiners
(a) Civil service
(b) By supervisory agency solely
(c) By supervisory agency with approval of the
governor or board
—
6
15
31
1
11
- 90 -
Table 13 - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932(1) (Continued)
i ITumber of States
1909(2)
7.
Po?/ers relative to the organization of new "banks
(a) Principal discretionary power in passing on
applications for new charters
(l) Exercised by commissioner
(2) Exercised by banking board
(b) Must be assured of legitimate purpose and/or
integrity of applicants
(c) Must take into consideration the public need and
convenience for banking facilities
8. Powers relevant to banking operations
(a) Examinations
(1) Required to conduct annual examination
(2) Required to conduct examinations more than
once a year
(3) Authorized to conduct examinations at
any time
(b) May require stockholders to make good impairment
of capital
(c) May limit borrowing by banks
(d) May require removal of undesirable and/or
illegal assets
(e) May order removal of offioers or employees
(f) May order removal of directors
(g) May recommend removal of officers or employees
(h) May recommend removal of directors
9.
Powers relevant to insolvent banks
(a) May liquidate the bank
(b) May appoint a receiver
(c) May apply for appointment of a receiver
1929-1932
k
31
17
Ik
3^
6
38
21
15
17
29
39
l&(3)
31
kk
5
12
2
k
15
12
-
6
l
g
-
3
9
3
37
35
13
k
21
Sources: 1909. George E. Barnett, State Banks and Trust Companies Since
the Passage of the National-Bank Act, Vol. VII; and Samuel A. Welldon,
Digest of State Banking Statute s. Vol. Ill, Publications of national-.Monetary Commission. 1929-1932, State bank division, American Bankers Association, Results of Questionnaire on Bank Supervision. 1929, prepared by
the various State banking departments; and banking statutes of the various
States.
(2)
In many instances data for 1909 only partially available.
(3) In kO of these States, at present, regular examinations are also required,
while in the other k the frequency of examinations is discretionary.
(*>
In several States the supervisory authority has the option of liquidating
the bank or of applying for the appointment of a receiver, while in one
State the option is between appointing and applying for the appointment
of a receiver.
- 91 -
It is apparent from this tabulation that there have been substantial changes in the degree and character of State bank supervision during the
past twenty years.
It will be clear, also, that in most States the supervisory
agencies now have about as much power over the organization of new banks, over
the operation of active banks, and over insolvent banks as the Comptroller of
the Currency has over national banks.
In actual operation it is not to be ex-
pected that all State banking' departments would be, at the present time, as effective as the Office of the Comptroller of the Currency.
Some of these depart-
ments are relatively new, and have not yet had time to build up so well trained
a staff or so carefully worked out a procedure in regard to examinations and
other aspects of supervision as has been done in the comptroller's office.
Weakness of State Supervision. - Political pressure has been an important influence in State banking departments.
In many States the pay is meager,
and the terms of office of supervisors and length of appointment of examiners
too short and uncertain to attract capable, qualified men.
Some States have too
few examiners to examine the banks adequately.
In most States, as in the case of national bank supervision, there is
no statutory power in the hands of the supervising authority to require the removal of bad assets. Also, few supervisory authorities have any power to
enforce the banking laws of the States except by the arbitrary closing of
insolvent banks.
In some States the liquidation of failed banks is still
handled by the courts rather than through the departments of banking, and this
has prevented prompt disposal of insolvencies and the development of a good
technique for liquidation.
- 92 -
While the foregoing tabulation indicates in a general way the chief
elements of strength and weakness of bank supervision in the various States, a
clearer conception of some of these elements may be gleaned from statements of
the supervisors themselves.
In 1929 the American Bankers Association sent a
questionnaire to the supervisory authorities of the forty-eight States which
elicited a considerable amount of factual material as to the status of these
agencies and their powers, with particular reference to those features which
had contributed most to efficiency and those which had weakened effective
supervision.
The matter of adequate funds with, which to meet the expenses of the
banking departments received especial attention. 7/hereas some Statesreported
both ample salaries and provision for an adequate staff, about a third stated
that they were inadequately financed.
One supervisor complained of the rigidity of salaries fixed by
statute. Another stated:
"Salaries have not been increased to keep step with increases
in other walks of life, and it is very difficult to get qualified
examiners."
Several suggested salary scale revisions for their offices, with increases ranging as high as 100 per cent.
In support of these recommendations,
it was held that compensation was markedly out of proportion with the degree of
responsibility assumed, and that it was impossible to keep capable men in office, for they were continually being attracted to other employment by higher
pay. One comment was:
- 93 -
"Salaries of senior examiners, chief examiner and deputy
commissioner should be on a graduating scale equal to the salaries of vice-presidents and treasurers cf large "banking institutions. This will have a greater tendency to hold permanently the men filling these positions, for the reason that experience in this work is an important qualification."
A number of supervisors reported thr.t political influence on
their departments was strong.
One result of this influence was the in-
stability of the tenure of office of supervisors, as illustrated by the
following re-ply to the questionnaire:
"With the exception of 192S no governor has ever been
elected for two successive terms which has resulted necessarily in new appointments (of banking department officials)
being made every t',70 years."
In a number of States stdps were taken to lessen political influence by
making the term of office of the supervisor longer than that of the governor,
so that the former does not automatically go out of office with the latter.
In two States the supervisors were nominated or selected by the bankers, and
the examiners in a few States were selected solelj>- on the basis of their
experience and fitness.
In a number of States the supervisor has duties other than the
administration of the banking lav;. In many States he is charged with the
supervision of building and loan associations, credit unions, etc., and
in some cases with the auditing of public accounts. The effect of such a
situation was expressed by one of the supervisors as follows;
"The principal element of weakness lies in the fact that
the commissioner's duties extend to the administration of the
Fraud Act and the supervision of institutions other than banks.
It would make for greater efficiencj'- if this department confined its activities to the supervision of banks only,"
- 91+-
In about a third of the States applications for new charters are
passed upon by a board, instead of a single official. But no matter what
the type of authority, political influence has too often been brought to
bear.
This state of affairs is described in the following extract from an
address delivered in 1923 by Mr. E. H. Wolcott, bank commissioner of
Indiana: (1)
"In Indiana all applications for a charter for a new bank
must be presented to the charter board. When an application is
made for a charter the duty of the commission is to have an investigation made to see whether the situation is desirable and
whether the men are responsible and capable. That is presented
to the charter board when application is made and action is
taken. I have been absolutely opposed to certain conditions in
banking. One of the conditions that causes us concern in Indiana is the establishment of two small banks in a small town.
The competition is too heavy and eventually one bank or the
other goes under. We have two banks in towns with only kOO
people in it. (sic.) Think of that J Most of the board are
candidates for office. An application for a charter is scarely
ever made in Indiana unless it is presented by some distinguished lawyer who has influence with some one connected with
the charter board. Usually the charter is granted. We are
striving to correct that condition and I feel that as the banking department is responsible for the conditions of these banks
that the charter should be granted ~by the Commissioner of Banking. »
The general impression conveyed by the answers to the questionnaire of 1929» a s well as by other comments of State supervisors, is much
the same as that conveyed by the tabulation given Above. That is to say,
most of the State supervisory authorities appear to be about as well
equipped with legal powers as the national authorities. With a few exceptions, however, there seems to be considerable difference in the exercise
of such powers.
The quality of supervision may be illustrated for one State by the
report of the attorney general after conducting an investigation of the
National Association of Supervisors of State Banks, Proceedings of the
Twenty-second Annual Convention, 1923, p. 106.
_ 95 -
department of "banking and finance ordered by the Legislature of South
Dakota.
In the introduction £° ^
s
report the attorney general made the
following significant statement:t1'
"This" report will show that for the past ten years the true
spiriu and intent of .our laws relating to banking have been ignored by the persons' in charge of their administration. The
purpose of the Ian iia& been completely subverted. Instead of
administering the law for protection of the public it has been
administered sole?<y for the benefit of the individual bank corporation. Banks which were hopelessly insolvent have been kept
open by deposits of the pttW.ic money, fictitious valuation of
assets, and in utter disregard of the plain provisions of the
law requiring tanks in unsafe condition to be closed. Liquidation ddt-iylpsed banks has been slow and expensive. Funds of
closei banjsshare been used for bolstering up other insolvent
bank phere they, were later lost a second time. Dividends were
witHssLd from depositors accordingly. The whole system lias been
badly infected with politics. The superintendent of banks now
in office has, in utter disregard of the spirit of his trust,
kopt large sams of closed bank .noney upon deposit in banks at
Flatte, South Dakota, on account of his interest in one of said
banks; and has deliberately tried to conceal the true facts of
Siich deposits from the legislative investigating committee.
The Bankers1 Association of the state, aided by the superintendent of banks, lias conducted a vicious legislative lobby during
every segsion of the state legislature and as a result every
important tanking lav.' enacted since 1915 vrhen the Association
was given official recognition has been a law in the interests
of the individual bank corporation and against the interests of
the public.
"We realize.that the foregoing statement is strong and
pointed. The following report shows that every statement made
is supported by reliable evidence."
" ' South Dakota, a/ttorney general, Report and Supplemental Heport to the
Legislature of $he Investigation of the Department of Banking and
Finance, February 27. 1S3°-
_96-
It would be impracticable to make anything like a general appraisal of the merits or demerits of State bank supervision. As in the
case of banking legislation, wide variations exist among the different
States.
In a few instances there is some reason to believe that both the
State banking laws and the State supervision are of a quality equal to
those of the national banking system, but in many States this is not the
case.
Excessive Granting of Charters
One of the most obvious defects in State banking supervision has
been manifested in connection with the chartering of new banks;
It is true
that minimum capital and other legal requirements are beyond the control of
supervisory authorities, but in most instances they have considerable discretionary power to grant or refuse charters.
State supervisors in general
have been in a position to discourage or to further the multiplication of
small banks according to their own judgment of sound public policy. But
their judgment has been subject to the pressure of the constantly existing
competition for numbers and resources of banks between the national and the
State systems. The simplest method of increasing the relative importance of
their own systems lias been to grant charters for the opening of new State
institutions. This phase of competition was described by P. H. Smith,
Superintendent of Banks of South Dakota, as follows: (1)
(l' National Association of Supervisors of State 3anks, Proceedings of the
Twenty-eighth Annual Convention, 1SH9, p; 90*
- 97 -
"I think perchance one of the greatest dangers that confronted the hanking industry in South Dakota was a contest and
conflict "between the national and state systems some five years
ago. Each system was fighting the other and, in an effort to
win, each was granting charters beyond the interests of the
communities. That fight was responsible for much of the failure
of banks in the State of South Dakota,"
Numerous examples can be cited of the overbanked condition which
resulted from the excessive granting of charters prior to 1920. A toira. of
1,300 population in Iowa had four banks in 1921. By 1931 only one bank
remained in business. A town in South Dakota with a population of 300 had
one bank with a State charter when the Comptroller of the Currency granted
a national charter for another.
The result was two crippled banks. Another
South Dakota town of 600 inhabitants had three banks. All failed.
One
county in North Dakota with a population of 10,000 had IS banks. By the end
of 1931 it had. only three. In one Montana county of 1^,000 inhabitants where
all towns but the county-seat were under 500 population there were 21 banks,
of which only two remained in 1931 > a-1^ both of them were in the county-seat
town.
The instances cited above are not isolated cases; they are typical
of conditions in many agricultural States around 1920, particularly in the
Northwest and in the South.
In the Western Grain States,(1) for example,
the number of incorporated banks (State and national) increased from 2,760
in 1900 to 8,992 in 1920. By the end of 1931 the number had been reduced to
^,878, partly by consolidations but mainly by bank failures.
In the South-
eastern States (2) the increase was from 519 in 1900 to 2,793 ia 1920, and
the number had been reduced by the end of 1931 to 1,389 institutions. The
t 1 ' Minnesota, North Dakota, South Dakota, Iowa, Nebraska, Missouri, Kansas.
t 2 ' North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi.
- 92 -
record is of the same character in the Southwestern States, (1) where the
number of incorporated hanks rose from 4US in 1900 to 3»2ol in 1920 and then
declined to 2,102 by the end of 1931.
In 1920, IS States had less than 3»000 persons per bank, and half
of these less than 2,000. The latter 9 States constitute a solid block in
the Middle West and Northwest, including Minnesota, Iowa, Kansas, Nebraska,.
South Dakota, North Dakota, Montana, Wyoming, and Idaho. In 2 of these
States, the Dakotas, the population per bank was less than a thousand. This
would roughly indicate an average of only two or three hundred individual
customers per bank.
The great increase in the number of banks took place during a
period of rising prices and land values. Under such conditions banks were
apparently able to operate regardless of size or the quality of management.
This growth in numbers occurred chiefly among State banks which were four
times as numerous in 1920 as in 1900, as is shown in Chart 1.
The great majority of banks in existence in 1920 were small institutions.
Over 6,500 of them had loans and investments of less than $150,000
each, and nearly 19,000 had loans and investments of less than $500,000 each.
About S3 P e r cent of these 19,000 small banks were operating under State
charter.
In addition there were 1, 353 private banks in operation at that
time, most of which were also small institutions.
Small communities boasted of the number of banks in their midst.
In North Dakota the attempt to check the opening of new banks by raising the
$10,000 minimum capital requirement was defeated in every legislative session
for eight years prior to 1915 on. the ground that existing banks were trying
(1) Lovdsiana, Texas, Arkansas, Oklahoma.
- 99 -
to monopolize the "banking "business.
In 1915* however, a compromise "bill was
enacted requiring a minimum of $15,000 instead of the $20,000 recommended by
the governor in his message.(1)
In Iowa somewhat later a committee of
hankers ("both State and national) undertook to persuade the State legislatv,re
to restrict the chartering of new "banks, "but the legislature in effect
laughed at the committee and took the position that more competition was
desirable. It did, however, enact a war emergency measure temporarily
authorizing the superintendent to restrict the grant of new charters. (2)
Supervisory authorities in this situation might have "been expected to use at least the discretionary power at their command to restrict
the excessive organization of new "banks. In some cases they did foresee the
dangers of too many small institutions. Occasional notes of warning of an
overbanked condition "began to appear in the annual reports of the supervisors in certain States as early as 1910. Similar expressions of apprehension, coupled with recommendations that more power "be given the supervisors to refuse charters, were more frequent in later reports.(3) CJuite
apart from the sometimes inadequate powers of the supervisory authorities,
ho\7evcr, they were subjected not only to the pressure of public opinion,
"but often also to strong political influence in behalf of would-be bankers.
Moreover, in the absence of authority to permit large banks to establish
branches in small communities, it was frequently the case that such communities could be provided with the banking service they wanted only through the
opening of new local banks. Thus the supervisory authorities were often
(1) The North Dakota Banker, July, 1915, p. 7.
^2) n , n . Preston, History of Banking in Iowa, p. 199 ff•
O ) See, for example, reports of State banking departments: Oklano-na, 1910
and 19lU; Souta Dakota, I9I3-I91U; Minnesota, 1912, 1913-I91H, and 1915;
Missouri, 1912; North Dakota, 19lU.
- 100 -
faced with difficult problems, even without the competitive situation inherent in the dual control of banking.
With that competitive situation
added, the proper performance of their duties was rendered well-nigh impossible. Promoters of ne-w "banks were sometimes able to play one supervisory agency against the other. One authority was made to understand that
if he refused a charter the proposed institution would he opened in any case
with a charter from the other supervisory authority.
All too often, consequently, a charter was issued for a community
which could not support a bank or in which banking facilities were already
ample. Many charters were granted with little or no regard to the qualifications of the applicants. Frequently the men running the new institutions
knew very little about the principles or practices of banking. Many banks
of this sort were not only foredoomed to failure but they were also likely
to imperil the existence of other banking institutions.
Some of the results of indiscriminate chartering of banks and the
resulting competition were stated as follows "by the Study Commission for
Indiana Financial Institutions: (1)
"Authorities are unanimously agreed that the indiscriminate
chartering of banks has been one of the major causes for the difficulties through which we have recently passed. Receivers, liquidating agents, and other persons familiar with the affairs of
failed banks suggested, in 41 instances, that bank failures in
Indiana have been due to improper chartering. . . . Intimate
knowledge of individual failures, however, leads to the inescapable conclusion that many of the practices leading to bank failures, were directly caused "by 'cut-throat' competition which
sprang up in various communities as a result of too many banks
or of the chartering, often for direct or indirect political
reasons, of 'spite' banks.
"Instances are known in Indiana of new bank charters being
sought and obtained by church groups, lodge groups, or political
groups antagonistic to the church group, lodge group or political
^
Report of Study Commission for Indiana Financial Institutions. 1932,
p. S7.
- 101 -
group in control of the existing institutions. In numerous instances from 1920 to 1932, villages of less than 500 people had
two or more hanks operating. Competition in such communities
necessarily was hitter "because it was nothing less than a death
struggle between the contending business groups, and consequently
desperate chances were taken nearly always making for "bad hanking practice. In some instances, hankers with long records of
successful management were driven "by the emergency in which they
found themselves to take 'long' chances and to indulge in practices not sanctioned by sound banking management.
"Many of the new banks that were chartered between 1910
and 192U were chartered by groups not in sympathy with the conservative or anti-inflationary policies of existing institutions.
Daring this period in which the most rapid increase in "banking
units took place in Indiana, much •inflation-madness' was apparent throughout the state. If certain groups were unable to
satisfy their demands for banking facilities at one bank, they
would threaten to take their business to competing banks where
perhaps more agreeable treatment in the matter of borrowing
awaited them. Many customers borrowed from several banks, but
allowed each banker to think that he alone was advancing them
credit. If all the bankers in a community were 'old-fashioned'
and 'unreasonable', the usual procedure was to start a new bank
by way of protest, a bank that would be unfettered by 'old fogey
ideas' as to the caution with which banks should be operated.
"As time went on and inflation increased, deposits in all
institutions mounted steadily, iunds accumulated faster than
loan applications were made, and consequently competition for
loans was keen. Equities seemed always to increase. As a result the new and oftentimes untried and unsound bank executive
appeared to succeed as well or even better than the more experienced and conservative executive. It was not surprising,
therefore, that many seasoned bankers were swept into this mad
maelstrom of reckless and 'cut-throat' competition."
CHAPTER VI
MOTIVES FOR CHOICE OF CHARTERS
It was indicated in Chapter II, Table 8 particularly, that the
growth of loans and investments of State "banks was considerably greater in
the decade from 1920 to 193^ than the growth of the loans and investments of
national hanks. The greatest growth was among State member banks and trust
companies, the loans and investments of which increased $5»395»000,000 against
$4,202,000,000 for national banks, and $1,216,000,000 for nonmember State
banks and trust companies. On a percentage basis the greater growth of the
State member banks was even more striking. Their loans and investments increased nearly 7^ per cent, while those of national banks increased only about
2k per cent and those of nonmembers increased only 17 per cent.
In all these
cases the greatest growth was among the largest banks.
The Effect of Consolidations and Conversions
As a means of obtaining a partial measure of the extent to which
the shifting of banks from one system to the other has been responsible for
differing rates of growth of various classes of banks, a list has been made
of the more important instances of conversions since 1920 from national to
State charter, and vice versa*
This list, which is given in the appendix
(Table III) includes not only direct conversions from national to State or
from State to national charter, but also mergers of national and State banking
insitutions.
In view of the difficulty of obtaining data regarding the mergers
of small banks, or the absorption of small banks by large banks, the list has
- 102 -
- 103 "been limited to the larger institutions. All consolidations and conversions
are included in which the disappearing hanks had $5,000,000 or more of loans
and investments.
from this list a tabulation has "been made et aggregate loans and
investments lost to the national system and gained hy the State system through
conversions from national to State charters and through the absorption of
national hanks by State chartered institutions.; and likewise, of the aggregate
loans and investments lost by the State systems and gained by the national
system as a result of conversions from State to national charter and of the
absorption of State banks and trust companies by national banks.^-W
results of these tabulations are given in Table
ih e
lh.
Table l4 - Aggregate Loans and Investments of Large Banks Lost to the National
and State Banking Systems by Consolidation and
Conversion, by States, 1921-193l(2)
State
geographic division
New England
Maine
Massachusetts
Rhode Island
Connecticut
Middle Atlantic
New York
New Jersey
Pennsylvania
Maryland
District of Columbia
North Central
Michigan
Wisconsin
Illinois
Indiana
Ohio
(in thousands of dollars)
National charters given up
State charters given up
By
By
By
By
conversion
consolidation
confersion
consolidation
75,784
7,327
20,775
19,ISO
28,442
2.305,1+03
2,027,114
93,15^
125,747
59,328
8.109
8,109
•>•
1
20,476
13,786
6,690
•••
*••
*••
4M*
54,646
1,031,693
671,938
305,109
178.955
20.56S
166,596
20,568
12,359
1.158,783
1,009,524
57,133
82,54l
15,835
15,835
*•*
9,585
826.269
472,696
34,126
234,418
15,930
69,099
31,064
10,713
20,351
vl' The shrinkage of loans and investments often experienced upon the consolidation of banks has not been taken into consideration. Because of
this shrinkage the gains to each system are probably less than the respective losses to the other.
- io4 -
Table l4 - Aggregate Loans and Investments of Large Banks Lost to the National
and State Banking Systems by Consolidation and
Conversion, "by States, 1921-193l(2) (Continued)
State
*y
geographic division
(in thousands of dollars)
State charters given up
National charters given up
By
By
By
By
conversion
consolidation
consolidation
conversion
57,356
Southern Mountain
Virginia
Kentucky
Tennessee
44,424
12,932
:
1+7,062
Southeastern
North Carolina
South Carolina
Georgia
Florida
Alabama
Mississippi
...19.585
13,484
26,309
6,101
26,309
61,237
74,645 .
27,973
20,952
12,312
50,754
24,219
9,132
13,711
|
•Ml
Southwestern
Louisiana
Texas
29,282
10,514
19,368
Western Grain
Minnesota
Iowa
Missouri
Kansas
10,878
13,013
20,192
•Ml
mm
mm
20,192
186,766
186,766
95,395
13,89^
6,863
74,638
mm
31,447
26,233
mm
5,214
Rocky Mountain
Colorado
mm
Pacific Coast
Oregon
California
UNITED STATES
258,824
**
258,824
t
Total 1921-1930
Occurring in 1931
Total 1921-1931
(iy Table
8,970
mm
3.992,770
28,585
•3,291,526
129.829
4,021,355
I
891,944
18,195
273,7^9
541,517
3,232,168
770,547
541.517
3,504,172
4,002,715
based on data concerning banking changes collected by the Committee
on Branch, Group, and Chain Banking, supplemented by records of the Federal
Reserve Board, Division of Bank Operations, and Hand McNally Bankers Directory. Since the Directory figures appear only every six months, loans and
investments at time of consolidation or conversion may have differed from
those included above in some cases. Table includes only those banks with
loans and investments of $5,000,000 or more at the time of conversion oaf
consolidation.
- 105 -
While neither the period nor the data covered by Ta"ble lk are
identical with those covered "by Table 8 (Chapter II), they are nearly enough
alike to give a rough indication of the degree to which charter changes account
for the changes in the aggregate loans and investments of State and of national
tanks, respectively.
The total growth during the decade from June 30» 1920,
to June 30, 1930, in the loans and investments of large State banks (those
shown in Table 8 with more than $10,000,000 of loans and investments)
amounted to approximately eight and a half billion dollars, and that of large
national banks to nearly four billion dollars. In comparison with this, the
net gains to the State banks, and conversely, the net losses to national banks,
from charter changes during the decade from January 1, 1921 to December 31,
1930, as indicated by Table lh,
amounted to less than half a billion dollars.
It is evident therefore that the greater growth of State banks xias not accounted
for by the shift of banks from national to State charter.
In the list of charter conversions and consolidations referred to
above there were 119 national banks absorbed by State banks or trust companies
and k converted directly from national to State charters, with loans and investments of $3,992,770,000 and $28,585,000, respectively. All four of the
converted banks became nonmembers, and 29 of the absorbed banks were consolidated
with nonmembers. The loans and investments of the banks lost to the Federal
reserve system by these conversions and consolidations amounted to $hl6,770,000.
Accordingly, of the $^,021,355,000 of loans and investments which Table lk shows
wa3 lost by the national banking system, only $Ul6,770,000, or about 10 per cent,
was also lost by the Federal reserve system. About sixty per cent of the State
- 106 -
"banks turning to national charters *©re already members -of the system.
The regional character of the shift from national to State, and
from State to national charters is also shown by the figures in Table
lh.
The net loss to the national system was greatest in New York, Illinois, and
Ohio in the eleven year period because of conversions and consolidations. The
State systems lost most heavily in California and Michigan*
Ho special investigation has been made to determine the type of
State charters taken out in the case of conversions from national charters,
nor the type of State charter held "by the institutions absorbing national banks.
In all but a very few cases, however, the succeeding institution had the word
"trust" in its title, indicating that in nearly all cases the charters issued
were of the trust company rather than the commercial bank type, or at least
that the new institution possessed fiduciary powers.
The McPadden Act, passed in 1927, was designed to stop the movement
of banking business from national to State banks by giving national banks a
number of additional powers, and making their charters of indeterminate length,
instead of ninety-nine years. This latter provision was expected to be of
considerable advantage in the exercise of fiduciary powers, for the fact that
national banks had not been chartered in perpetuity had militated against their
appointment as trustees. To indicate what the effect of the McFadden Act has
been, the basic data shown in Table lk are presented in Table 15 by years,
instead of by States.
- 107 -
Table 15 - Aggregate Loans and Investments of Large Banks Lost to the National
and State Banking Systems by Consolidation- and
Conversion: "by Years, 1921-1931(1)
Year
1921
1922
1923
1924
1925
1926
National cll a r t e r s given up S t a t e c h a r t e r s given up
Loans and
Loans and
Number
Number
investments
investments
(000 omitted)
(000 omitted)
11
3
12
Total 1Q21-1926
1927
1928
1929
1930
1931
Total 1927-1931
$
$
57.6U2
84,035
104,073
108,850
91,001
169,228
6
4
565,^23
70J24
23SJ52
123,500
93,272
2k
359,533
50
$i,45i,204
32
$614,829
9
16
27
15
$
15
18
17
8
7
4
I
J.
117,177
309,773
1,844,416
153,951
129,829
JL
$ ,982,070
356,248
637,359
913,666
498,543
73
$2,560,151
65
$3,387,886
TTJ Banks
with loans and investments of $5,000,000 or more at time of
conversion or consolidation. Source of data same as for Table l4.
It will be seen that, measured in loans and investments, the losses
suffered by the national system through surrender of large bank charters in
the six years prior to the passage of the LIcFadden Act were counterbalanced
by an almost equal gain in the succeeding five years.
In the six years pre-
ceding passage of the act, the national system suffered a net loss of $846,375,000 through conversion of large banks (i.e., the difference between $1,461,204000 belonging to large banks which gave up national charters, and $614,329,000
belonging to larger banks which gave up St: ;e charters); whereas in the six
succeeding years, the State systems suffered a net loss of $327,735,000 (i.e.,
the difference between $3,387,886,000 belonging to large banks vhich gave
up State charters and $2,560,151,000 belonging to large banks which gave up
~ lOg -
national charters).
This "bears out what has already "been said to the effect that
charter conversions of large banks do not account for the relatively larger
growth of State "banks and trust companies compared to national "banks in the
eleven year period.
The greater growth of State "banks as a whole, therefore,
must have "been due to new organizations and to the more rapid growth of
individual institutions with State charters.
Eeasons for Charter Preferences
Although the factors which have "been responsible for the more
rapid growth of State "banks have not led to wholesale conversions of national
hanks into State institutions, it is possible to determine in a general way
some of the more important of these factors by listing the motives for the
charter changes which have occurred.
To secure aa accurate information as possible in regard to the
reasons for charter preferences, the Committee has made special inquiries in
the case of a considerable number of charter conversions and consolidations
of national banks with State banks or trust companies. These inquiries were
addressed to the various Federal reserve agents, and forwarded in many cases
to officials of the banks concerned.
In other cases the Federal reserve
agents were sufficiently familiar with the circumstances to reply directly
to the Committee's inquiry. The cases of charter conversions and consolidations were chosen from the list referred to in the preceding paragraphs and
reproduced in full in the appendix.(1) They included all cases in that list
of direct conversion from State to national, or national to State charter,
and all consolidations in which the consolidating banks were approximately
the same size or in which the charter of the smaller bank was retained.
- 109 -
After omitting the instances in which the motive for consolidation had no
apparent connection with the competition "between the various classes of hanking institutions, 6l cases remained.
Of these 6l cases, State charters were chosen or retained in the
case of 45, and national charters in the other l6.
Inquiry was not made as
to whether the State charters chosen or retained were trust company charters
or "bank charters. The titles of the banks, however, and the character of
the correspondence indicate that most of them were trust company charters.
In only 2 cases did the succeeding insitution fail to have the word "trust"
in its title.
The motives given for the choice or retention of national or
State charters, respectively, are indicated in Table 160
In most of the
cases several motives were involved, and in only a few cases has it "been
possible to he sure which was the primary one. The table shows, therefore,
only the number of times each motive was reported to have been a significant
influence. Because of the extensive changes in the powers of national banks
made early in 1927 by the passage of the Mcfadden Act, the conversions and
consolidations during the period 1921-1926 have been separated from those
during the period 1927-1931*
- 110 ~
Table l6 - Motives for the Choice of National or State Charters in 6l Conversions
and Consolidations, I92I-I93I
1921-1926
1927-1931
Total
Direct
Direct
Consoli- conver- Consoli1921-1931 converdations
sions dations
sions
National charters; chosen
Humber of cases
Number of times the following motives
appeared:
Prestige of national banks
Prospective branch banking
Economy (taxation)
To escape State supervision
Good-will value of name
16
1
1
7
7
10
—
7
3
3
2
1
-
1
-
1
1
-
k
1
-
_.
"5
u
1
State charters chosen
Number of cases
Number of times each motive was mentioned:
Branch .and group banking:
Branches
Ownership of bank stocks
Loan and investment powers?
Real estate mortgage loans
Limits on individual loans
Ownership of corporate stock or
other investment privileges
Non-banking powers:
fiduciary powers
Securities underwriting and merchandising
Title insurance
Broader powers in general:
Under special charters
Under trust company charters
Economy:
Nonmembership in Federal reserve
system
Taxation
Changes in forms
To escape federal supervision
Good-will value of name
*5
2
23
10
2
-
11
-
g
2
,,
3
3
19
-
2
IS
6
1
3
-
-
2
1
-
2
1
2
1
)i t
10
-
9
2
2
,,
-
2
1
_
—
3
-
3
8
~
—
12
Lt
1
—
k
1
l
1
13
„
«•
1
tt
-
1
»•*
-
—
2
k
2
7
—
5
5
2
—
1
- Ill -
Choice of National Charters
According to this analysis, the most important motive for choosing
a national instead of State charter is the greater prestige of the national
banks.
Out of the 16 banks which chose to convert from State to national
banks, or upon consolidation, to retain national rather than State charters,
10 mentioned the superior standing of the national banks in the eyes of the
communities and customers to be served.
In k cases the name of the specific
national bank was believed to have more good-mil value.
In 7 cases where
banks chose to operate under State charter the good-will of the name was
mentioned.
Choice of State Charters
Fiduciary Powers. - The motive most frequently mentioned for
choosing a State charter was the greater or more secure fiduciary powers held
by State banks, this having been mentioned in 19 out of the U5 cases. Of
these, 10 were conversions or consolidations occurring prior to 1927 » and 9
occurring since the beginning of 1927«> Preference for exercising fiduciary
powers under State charter appeared as a motive more often in Hew York and
Ohio than elsewhere. The predominance of this motive may appear surprising,
in view of the amendment to the Federal Reserve Act of September 26, 19IS,
and especially in view of the clause relating to trust powers in the McFadden
Act.
It is desirable, therefore, to consider somewhat more fully than hither-
to the fiduciary powers of national banks.
The amendment to the Federal Reserve Act approved on September 26,
1913, provided for additional trust powers to national banks. ^ '
Fifth Annual Report of the Federal Reserve Board, 1918, p.262.
It gives the
- 112 -
Federal Reserve Beard power:
"(k) To grant by special permit to national "banks applying therefor, when not in contravention of State or local law,
the right to act as trustee, executor, administrator, registrar
of stocks and bonds, guardian of estates, assignee, receiver,
coiranittee of estates of lunatics, or in any other fiduciary
capacity in which State banks, trust companies, or other corporations which come into competition vith national banks are permitted to act under the laws of the State in which the national
bank is located.
"Whenever the laws of such State authorize or permit the
exercise of any or all of the foregoing powers by State banks,
trust companies, or other corporations v/hich compete with
national banks, the granting to and the exercise of such powers
by national banks shall not be deemed to be in contravention of
State or local law within the meaning of this act."
There appear to have been several important questions which arose
in regard to the exercise of fiduciary powers by national banks under the
provisions of this act.
In the first place, the phrase, "when not in con-
travention of State or local law," led to difficulties because of the applicability to national banks of various State laws regarding duties imposed
upon trustees or other fiduciaries.
A second problem arose because of the limited charter of national
banks, which at that time was for twenty years only. National banks could
not accept trusts for a period of time beyond the expiration date of their
charters, since they had no power to enter into contracts to perform any
kind of service after those dates. After the passage on July 1, 1922, of
the amendment extending the charters of national banks to 99 years, this
difficulty became less serious, since most trusts would be completely terminated within that time. But it was not even then possible to accept trusts
of indeterminate length, particularly those which might extend beyond the
charter period.
This difficulty was not, therefore, entirely removed until
- 113 -
the passage of the McFadden Act, which made national hank charters perpetual.
Moreover, the question as to whether or not the corporate identity
of a State chartered trust company ceased when it was absorbed by a national
bank was an important one. If it did cease, all trusts naming the trust
company as trustee automatically became vacated, and the court would have
to make new appointments of trustees. Upon this question there appears to
have been disagreement. The Comptroller of the Currency, in 1927, in reply
to an inquiry from a bank which wished to take out a national charter,
stated that he had no doubt but that "all the trust business automatically
goes over under the national jurisdiction. . . .
The courts have held that
the corporate entity of the State bank continues, there being only an exchange of jurisdictions."") The contrary opinion is expressed in the following quotation from a letter written in January, 1927, by the legal advisor to
a trust company that was contemplating a merger with a national bank.
"If the
Trust Company, a (State) Corporation, went
into voluntary liquidation as would necessarily be the case if
it were absorbed by or merged with the National Bank, we are
clearly of the opininion (as was Mr.
i when this matter came
up for discussion at various times during the past eight or
nine years) that all Wills and Trust agreements now executed
naming the (
Trust Company, would, if not voluntarily
changed so as to specifically name the national Bank, be of no
value so far as the , . ^ Trust Company is concerned. This is
true because the National Bank could in no sense be considered
as the same Corporation as the
Trust Company ********
nor could the National Bank be considered as a successor of
the Trust Company so as to be entitled, or claim to be the
company designated in such Wills and Trust agreements as the
Trust Company. In addition, if the Trust Company went
'•*•) In support of this opinion the comptroller cited the following three
cases: Metropolitan National Bank v. Claggett 1^1 U. S. 520; City National
Bank of Poughkeepsie v. Phelos 97 N. Y. kk; and In re: (Turner^ Estate,
120 Atl. 701.
-
Ilk-
into liquidation "by reason of an absorption or merger as above
outlined, automatically all of the Trusts which it now administers as the
Trust Company would he without a Trustee,
and it would then he up to the Probate Court to appoint a successor Trustee, and as you very well see, the Probate Court
might or might not appoint the National Bank in our arrangement,
in view of the fact that the
Trust Company had voluntarily
disqualified itself from administering such Trusts, a very considerable portion of such business would be lost to the National
Bank. "
Other comments in this connection are the following:
"On account of a peculiarity of the
law, as relating to private trusts, it, in the event the trust company should
be succeeded by another institution, would give to the beneficiaries of a trust, the right to change the trustee, and for
this reason, it would probably be necessary, when the consolidation was effected, to liquidate the national Bank."
"The Trust Company of
i had a large volume of trust bu.sincsa and a number of Wills in their vaults which could not then or
now be transferred to a national bank without the consent of the
parties interested."
When the McFadden Act was drafted, it was hoped that provisions
could be included which would solvo some of these questions. The act included the following language: (1)
"• • . any bank incorporated under the laws of any State, or any
bank incorporated in the District of Columbia, may be consolidated with a national banking association located in the same
county, city, town, or village under the charter of such national
banking association. . . all the rights, franchises, and interests
of such State or District Bank so consolidated with a national banking association in and to every species of property, real, personal,
and mixed, and choses in action thereto belonging, shall be deemed
to be transferred to and vested in such national banking association
into which it is consolidated without any deed or other transfer,
and the said consolidated national banking association shall hold
and enjoy the same and all rights of property, franchises, and
interests including the right of succession as trustee, executor,
or in any other fiduciary capacity in the same manner and to the
same extent as was held and enjoyed by such State or District
bank so consolidated with such national banking association . . .
No such consolidation shall be in contravention of the law of
the State under which such bank is incorporated.
fourteenth Annual Report of the federal Reserve Board, 1927, pp. 258,
- 115-
"The words 'State "bank,* 'State banks,' 'bank,' or 'banks,'
as used in this section, shall be held to include trust companies,
savings "banks, or other such corporations or institutions carrying en the hanking "business under the authority of State laws."
The Worcester Case. ~ The question dealt with in this statute was
promptly tested "by the Worcester County national Bank case in Massachusetts
in 1923-1S29. The Pitchburg Bank & Trust Company, a State institution of
Massachusetts, and the Merchants National Bank of Worcester had consolidated
on June 27, 1927, under the name of the '.forcester County National Bank. In
the spring of 192S the Worcester County National Bank filed in the probate
court of the county an account of its executorship of one of the wills of
which the predecessor trust company had "been executor.
The question was
then raised as to whether the national "bank had automatically succeeded to
the executorship, when it had absorbed the trust company, or whether the
executorship had been vacated by the disappearance of the predecessor trust
company, which had been named as executor.
It is clear that the McFadden Act intended that national banks
should succeed automatically to trusteeship in cases of consolidation. The
case filed in the Massachusetts courts involved the question whether or not,
under the State law, this succession was true in practice. There were two
parts to this question.
In the first place, the McPadden Act provided that no
consolidation between a national bank and a State bank or trust company should
be in contravention of the State law under which such bank was incorporated.
The State law regarding bank consolidations had therefore to be examined,
to see whether it forbade the succession of these powers.
In the second place,
the property of deceased persons is a matter subject to the jurisdiction of
State lav/, and the laws regarding trusteeship of such property had to be
- n6 examined, to see whether the succession of the national bank to the trusteeship conformed to Massachusetts law.
In regard to the consolidation of banks, the Massachusetts law
read as follows!
"The charter of a trust company, the business of which shall,
on or after July 1, 1922, be consolidated or merged with, or absorbed by, another bank or trust company, shall be void except for
the purpose of discharging existing obligations and liabilities."
In the light of this law, the Supreme Judicial Court of Massachusetts held
that the trust company had gone out of existence and all of its property had
become the property of the consolidated bank, which was an enlargement of a
continuously existing national bank.
That is, the corporate identity of the
trust company had not been continued, but had been extinguished.
The ques-
tion still remained, however, whether the trusteeship was property which
had become the property of the national bank, or whether its exercise was
a continuance of an obligation or liability existing at the time of consolidation.
With respect to these questions the court held that the appointment of
an executor is a strictly confidential relationship, is not contractual, is
not a property right of the fiduciary, and involves no pecuniary interest on
the part of the fiduciary.
The succeeding national bank had, therefore, no
obligations or liabilities in respect to the executorship, flowing from its
succession to the property of the trust company, no longer in existence.
In regard to the law governing the trusteeship of the property
of a deceased person, the Supreme Judicial Court of Massachusetts held that
the appointment of an executor is a function of the probate court. This
authority before appointing an executor, administrator, trustee, or other
fiduciary must inquire carefully as to his character, integrity, soundness
- 117 -
of judgment, and general capacity. An appointment should follow only after
a favorable finding, regardless of whether the fiduciary is an individual
or a trust company or a national "bank. The probate court had never made
such an examination of the Worcester County National Bank, and had not
appointed that hank as executor. The decision held, moreover, that the
appointment of fiduciaries to administer trusts and the settlement of estates is a subject within the exclusive jurisdiction of the States. No
clause of the Constitution of the United States confers upon Congress any
such power, which is among those reserved to the States "by Article 10 of the
amendments.
The automatic recognition of the Worcester County National Bank
as executor of the estate would amount to the appointment of an executor by
Congressional legislation. This would be in contravention of Massachusetts
law, under which the State judiciary is the only authority with ptwer to
appoint.
The Supreme Judicial Court of Massachusetts thus held that the
executorship was vacated at the time of the absorption of the Fitchburg Bank
and Trust Company, and that the Worcester County National Bank was not the
executor of the estate in question. The national bank could apply for appointment as executor, and the probate court could, if it so desired, make
the appointment. The case was appealed to the Supreme Court of the United
States, (1) which confirmed the decision of the Massachusetts court.
In several consolidations occurring since 1927, this decision has
influenced bank officials to choose a State charter for the amalgamated
institution.
The following statements indicate this*
"We were influenced largely by the 'Massachusetts Case,1
fearing we could not, by a national charter for the new instiC 1 ) Ex parte Worcester County National Bank of Worcester, 279 U- -S. 3^+7, on
appeal from 2S3 Mass. wkt 1S2 N. E. 217, and. the Federal Reserve Bulletin.
Vol. XV, June, 1929, p-o. 407-409.
- 118 -
tution, protect and conserve successor executorship and successor trusteeship."
"It was hoped that the merger might be effected under the
national hank charter • . ., hut this has "been found impracticable on account of the decision of the Supreme Court of the
United States in the Worcester County national Bank case."
In other cases the situation created by this decision has been
important, even though the decision was not specifically mentioned by bank
officials in giving their motives for choosing State charters. The following are examples:
"Our reason for withdrawing from the System is the fact
that there is some considerable doubt in the minds of our Counsel
as to whether or not we can legally transfer the trust estates of
the
Trust Company into a national Bank, Both on account of
the amount involved, which is considerable, and of the duty we
owe to the beneficiaries of the trusts, we cannot take any changes."
"The impelling reason was that the latter bank (a State trust
company) had a great many trust funds, a number of which were quite
large, and some of its leading officers and directors were of the
opinion that it would be better to continue to have such trusts
administered by an institution organized and operating under the
laws of this State."
The actual effect of the decision in the Worcester County national
Bank case differs from State to State. Some State laws provide that upon
the consolidation of State banks and trust companies with each other and
with national banks, the successor bank shall inherit the banking and
fiduciary powers of the absorbed institution and that the corporate identity
of the absorbed bank is not extinguished by such consolidation.
In these
States the problem of successor executorship or successor trusteeship in the
case of a national bank is not as important as in those jurisdictions where
the legal situation is analogous to that in Massachusetts.
Loan and Investment Powers. - In 11 out of the U5 cases where State
- 119 -
charters were chosen or retained, the less severe reetrSctions on real estate
or mortgage loans were mentioned as a reason for preferring the State charter.
Of these, 8 were prior to and 3 subsequent to the passage of the McFadden Act
enlarging the powers of national hanks in making real estate loans.
In 3
of the 45 cases, 2 in the same State, the larger limit permitted on loans to
single borrowers was mentioned.
Three mentioned the privilege of o\7ning
corporate stock or the wider latitude allowed in bank investments.
Supervision. - Escape from Federal supervision is given as a cause
for the choosing of State charters in 13 cases, and escape from State supervision in 1. The latter case was one where State supervision was objected to
not because it was in general to strict, but because according to allegation
it was grossly unfair to the bank in question.
Only part of the 1J cases in which escape from Federal supervision
is listed were so reported by the banks concerned; in others it was simply
remarked that the requirements of the State examiner were less severe than
those of the national examiner.
This category also includes cases where the
examination records of the national banks showed that the banks had been
unwilling to accept the recommendations of the national examiners, and cooperate
with the office of the comptroller in the maintenance of banking standards.
In many of these cases the national banks *>7ere in bad condition at the time
of the merger as a result of policies persisted in despite the recommendations
of the national examiner and the office of the comptroller.
Branch and Group Banking Powers. - Of the ^5 conversions and consolidations which obtained or retained State charters, branch banking was an
important element in 10 cases. Of these, 6 occurred prior to the passage of
- 120 -
the MclFadden Act, and were, apparently, mostly cases where it was desired to
open additional hanking offices within the city of the parent hank.
The other
k have occurred since the beginning of 1S27, and have heen cases where the
consolidating hanks were located in different towns and wished to retain all
offices, or where the amalgamated hank wished to establish out-of-town
branches.
In 2 of these cases the bank officials added that they much pre-
ferred to operate under national charter^ and regretted that consolidations
could be made only by means of State charters.
In 2 cases the power to hold bank stocks, so as to head a group
of banks, was an important element. Among those choosing national charters,
there were 3 cases where the prospect of broader branch banking powers
being given to national banks appeared as a motive.
In one of these cases
a group banking system operated in a State which prohibited s^sta-wide branch
banking, and the bank managers were of the opinion that they would be able
to convert their subsidiary banks into branches through a modification of the
Federal law sooner than through a modification of the State law.
Branch banking power was a motive for choosing a State charter in
New York in several cases. One case involving this motive appeared in each
of 6 other States.
Underwriting and Merchandising of Securities. - In 2 cases the
broader po-aers of State banks in respect to the underwriting and merchandising
of securities were mentioned, one of them emphasizing the underwriting of
securities and the other the business of
dealing in securities.
In view of
the wide extent of the practice of dealing in securities by banks and the
limitations upon these powers in the McFadden Act, it is noteworthy that this
reason was mentioned only twice.
- 121 -
Insurance Business. - Two banks mentioned title insurance departments which had "been maintained "by the merging State institution.
Broader Forcers in General. - In 15 cases the "broader powers which
could "be exercised under State charters wore mentioned in general terms. These
include: ,(*) cases in which no specific powers were mentioned; ("b) cases in
which one or more specific powers were mentioned, and the phrase "broader
powers" or its equivalent added; and (c) cases where more liberal lending and
investing powers were mentioned, without specifying the point of liberality.
These broader powers undoubtedly refer in most cases to powers mentioned elsewhere in the table.
In 3 of the 15 cases the broader powers were those exercised under
charters granted by special acts of State legislatures early in the century.
It is possible that this is true also in other cases.
In all the other cases,
the State institution was operating under a trust company charter or at least
used the word "trust" in its title.
It is clear that in nearly all, if not
all, of these cases the broader powers were those granted to State trust
companies, rather than to State commercial banks.
Economy. - One bank stated that as a national bank it would escape
certain taxes imposed on State banks, and that this entered into the decision
to operate under a national charter. Three banks, on the contrary, reported
economies in continuing to operate under State charter*
one on account of
smaller taxes, one because of the relinquishment of Federal reserve membership and the cost of maintaining idle reserves, and the other because of
the cost of making the necessary changes on all of the forms used in the
trust division of the bank's operations.
CHAPTER VII
SUMMABT
The division of authority "between, the national and State governments in chartering and supervising hanks has "been an important factor in:
(l) the granting of an excessive number of charters and the consequent establishment of too many small "banks; (2) the relaxing of the standards set up
in the National Bank Act for commercial banks and the gradual extension of
the powers of national banks; (3} the retarding of the development of effective
standards of supervision in both State and national systems; and (h) the
hampering of the work of the Federal reserve banks in maintaining proper
standards for membership and in promoting sound banking policy.
Excessive Chartering of Banks
The rapid growth in the number of banks in the country between the
middle eighties and 1920 resulted in part from a number of favorable economic
factors and in part from the competition between the State and national banking systems in the granting of charters. Prices and land values were rising
during the greater part of the period and the agricultural communities were
increasingly prosperous. Bank profits were relatively high during the early
years of this century.
The growth in the number of small banks had legislative
encouragement in the lax provisions of State laws, permitting in some States
the organization of incorporated banks with capital as low as $10,000, and
in one State with a capital of only $5,000.
In fact several States had no
capital requirements at all for many years. There was little restraint upon
- 122 -
121 -
the number of new tank organizations. .Authorities in several States were
without legal power to deny an application for a charter, even where they
felt it was desirable to do so.
In some States there was no hanking depart-
ment until well into the present century, and charters might be issued by
judges or other officials whose main responsibilities lay in other fields.
An important factor in the increase in the number of small banks,
however, was the competition between the State and national systems in the
granting of charters. One of the first efforts of the national system to
meet the competition of State banks was the reduction in 1Q00 of the minimum
capital requirement from $50,000 to $25,000. After that there was a rapid
growth in the number of both national and State banks but the number of State
banks continued to increase more rapidly, as shown in the chart on page 5»
By 1920 there were two and one-half times as many State banks In operation as
national banks.
The national supervisory authorities, as well as those of some
of the States, have long been empowered to refuse charters at their discretion, if for any reason the proposed banks were not deemed reasonably
certain of becoming sound and stable institutions. Bat both classes of
supervisory agencies have been solicitous for the relative importance in
numbers and resources of the banks under their respective jurisdictions,
and this fact has had an important bearing upon the exercise of their dis-*
cretionary powers.
Too many banks were chartered in communities which could not
support a bank or in communities in which banking facilities were already
ample. Many towns ranging in population from 200 to 1,000 had two or three
banks or even more.
In fact this was not an uncommon condition in many
- 124 -
agricultural States around 1920.
In the entire TTestern Grain States, for
example, the population per "bank was only 1,3^3 ^cL i n ^e
two Dakotas the
population per bank was less than 1,000 as contrasted with a population of
nearly 10,000 per "bank in Hew England.
The great majority of "banks in existence in 1920 were small institutions.
Over 6,500 of them had loans and investments of less than $150,000
each, and nearly 19,000 had loans and investments of less than $500,000 each.
About S3 -per cent of these 19,000 small banks were operating under State
charter.
In addition there were about 1,350 private banks in operation at
that time, most of which were also small institutions.
Charters were granted frequently with little or no regard to the
qualifications of the applicants.
In many cases the men running these banks
knew little about the principles or practices of banking. Many of the new
banks wore not only foredoomed to failure but yore also li^ly to imperil
the existence of other banking institutions. The establishment of such
largo numbers of small banks has in itself presented many problems, the
principal of which are the difficulties of mailing adequate earnings, of
providing reasonably competent management, and the inherent difficulties of
exercising proper supervision over a large number of small institutions.
Some indication of the consequences of the small capital requirements for banks may be had from the fact that, of the 1,33^ national banks
which suspended in the eleven year period 1921-1931» no less than 5ty}, or
over ko per cent of the total, were institutions with capital of under
$50,000, Of the combined total of S,9l6 national and State banks which
suspended during the same period, 5§927» or over 6~[ per cent, had capital
- 125 -
of less than $50,000. The assumption would not "be justified that all these
smaller "banks would have avoided suspension had their size "been larger;
there have "been other elements of weakness in the "banking structure, attributable also in large part to dual control, which have affected large and
small "banks alike. Many fairly large institutions, with capital up to
$500,000 and more, have suspended? but the fact remains that the very
small "banks have "been particularly vulnerable.
In chartering large numbers of small institutions the banking
departments have created vested interests which now make up the strongest
element in opposition to the measures proposed for strengthening the banking structure. Numerically the small banks are the dominant part of the
various banking associations and their political influence is great. Banks
with loans and investments of less than $500,000 each still constituted well
over half of the banks in the country in I93O when the latest classification
of all banks by size was made.
Relaxation of Restrictionsi on National Banks
Lowering the minimum capital requirement in 1900 was the first
important measure of the national banking system to meet the competition
of State banks. Another occurred in 1913 when the Federal Reserve Act
authorized national banks not situated in reserve or central reserve cities
to make loans on improved and unencumbered farm land within their Federal
reserve districts.
Prior to 1913 national banks had ^eon forbidden to make loans,
against the security of real estate. State banks everywhere could do so»
~ 126 -
however, and in most instances without any stipulated restrictions as to the
amount of the loans, their duration, or the quality of the mortgages securing
them. The prohibition against real estate loans "by national hanks was removed
in 1913 with respect to farm land, and in the course of the ensuing fourteen
years, culminating with the passage of the Mcfadden Act in 1927, restrictions
were further relaxed, until finally all national hanks were permitted to make
loans against any kind of improved real estate for periods up to five years
and in aggregate amounts up to $0 per cent of their time deposits.
While the tendency to invest funds in long-term loans of a capital nature was accelerated "by the growth of time deposits in hanks doing "both
a commercial and savings "business, these deposits have almost invariahly "been
payable and actually paid on demand. This is true not only in the United
States "but also in England and Canada, In the latter countries, however, the
fact that time deposits in commercial banks are in effect payable on demand
is recognized as of basic importance in determining the manner in which such
deposits are invested.
In England bank loans of a capital nature are frowned
upon as a matter of traditional principle; in Canada the banking laws contain
prohibitions against loans secured by real estate and other capital assets,
similar to the prohibition of real estate loans by national banks in the
United States prior to 1913* ^-e significance of the removal of this restriction upon national banks lies in the fact that definite legal sanction has
been given to a departure from the principles originally laid down as necessary
for sound commercial banking practice.
Other measures of relaxation have occurred in connection
with
loans to single borrowers. Prior to I90S the amount of such a loan by a
national bank was limited to 10 per cent of the paid-up and unimpaired capital
- 127 -
of the "bank. In many States there were no limitations of this character upon
State chartered institutions; in others the limitation applied to "both capital and surplus. To improve the competitive position of national "banks the
Federal law was amended in 1906 so as to make the 10 per cent limitation
apply to both capital and surplus, provided the amount did not exceed JO per
cent of the capital stock alone. Most of the State laws, however, provided
numerous exceptions to such limitations for State "banks. To meet this
situation the restriction on national "banks was further relaxed "by a series
of amendments in 1918, 1919, and 1927.
These relaxations from the original National Bank Act have grown
out of State "bank competition.
The less stringent laws of many of the Sta.tes
have "been inducements for "banks to operate tinder State charter, to such an
extent that the resulting development has threatened to destroy or weaken the
power of the national system. The Federal Government has elected, not to
preserve the spirit of its own institutions through restraining the action
of the States, "but to attempt to solve the problem by removing restrictions
on national banks.
In two other important matters Federal legislation has followed
the lead of the States; namely, in the granting of fiduciary powers and
branch banking privileges.
In both cases, however, the powers granted to
national banks are not uniform throughout the country but are adjusted to
the standards set by the various States.
In 1913» with the passage of the
Federal Reserve Act, the Federal Reserve Board was authorized to grant
limited trust powers to national banks "when not in contravention of State
or local law." As a result of this act and a series of amendments in 191S,
1922, and 1927, all the varied fiduciary functions of trust companies are
now commonly performed by national banks.
- 128 -
Fiduciary "business as an additional activity of commercial banks
is today an important element in the competition between the national and
the various State banking systems. The laws governing executorships and
trusteeships are not Federal but State; they are made and administered by
State legislatures, State judges, and other State officials.
In view of
this fact many bankers transacting a large amount of fiduciary business believe that they are in a sounder position in the administration of such business if their banks are State rather than Federal instrumentalities, Consequently the State charter has been retained after many consolidations between
national and State banks, which accounts in part for the relatively more
rapid growth in recent years of the State systems. The Worcester County
National Bank case in Massachusetts, litigated in 1928 and 1929, is of importance in this connection.
In that case it was decided by the State courts
and confirmed by the Supreme Court of the United States that the national
bank could not automatically succeed to an executorship held by the State bank
which had been merged with it, but that a new appointment as executor would
have to be made. Since this decision especially, doubts have arisen in
other States as to the right of a national bank to inherit the fiduciary
business of a State chartered institution, and the question involves difficult problems whenever State institutions are converted into national banks.
The McFadden Act of 1927 provided that national banks in those
States which permit branch banking may establish branches in the head office
cities. This change in Federal legislation, like the grant of fiduciary
powers, was made for the express purpose of improving the competitive position
of national banks. Bx-anch banking in this limited form does not appear to
have led to any lowering of safety standards.
- 129 -
Various other changes in Federal legislation have removed restrictions on national banks or extended their powers. Among these are; the
authorization for national banks in towns of under 5,000 inhabitants to act
as insurance agents and as brokers for real estate loans; the lowering of
reserve requirements against both time and demand deposits; and the authorization for Federal reserve members, including national banks, to issue
bankers' acceptances. All these measures have been passed at least in part
for the purpose of enabling national banks to compete with State chartered
institutions. This purpose, in fact, has dominated the development of Federal
banking legislation to such an extent that most of the important amendments
to the national banking lav; since 1913 have been enacted in response to the
competitive situation inherent in the dual banking system.
Dual Control and Supervision
Bank officials and directors are likely to resent criticism and
the ease with which they may escape existing supervision by changing from
one system to the other greatly reduces the effectiveness of examining
authorities.
While there can be no doubt that bank supervision in general
is on a higher plane than it was twenty years ago, it is nevertheless a
fact that dual control of banking has tended to keep down the standards of
supervision, as well as of banking law.
Effective supervision has been handicapped largely by two factors.
In the first place, the supervisory authorities, whether national or State,
have not been endowed with adequate powers; and in the second place, they
have been unable to make full and effective use of such powers as have been
granted them. To what extent the failure of legislative bodies to grant
- 130 -
adequate powers is due to the dual system is difficult to determine, "but
the inability of supervisors to make full and effective use of such powers
as they have arises out of the fact that hanks are able to avoid the supervision of one system by leaving it and entering the other.
From the establishment of the national "banking system in I863 to
the ipresent time, successive Comptrollers of the Currency have placed before
Congress recommendations for the improvement of banking supervision, by
specifying certain standards and providing adequate powers and penalties
for their enforcement.
Thus it was recommended by the first comptroller
that the failure of a national bank be declared prima facie fraudulent and
that the officers and directors be made personally responsible as well as
punishable criminally unless upon investigation it was found that the bank's
affairs had been honestly administered.
In 188~f it was recommended that
penalties be imposed for the making of loans contrary to law; in 1895 thsrt
the comptroller be authorized, with the approval of the Secretary of the
Treasury and after a hearing, to remove officers and directors for mismanagement or violations of law; in 191*+ that the comptroller be authorized
to penalize both banks and their officers ''oy appropriate fines for violation
of the law and failure to comply with his regulations; and in 193^ that a
board composed of the Secretary of the Treasury, the governor of the Federal
Reserve Board, and the comptroller should have power to remove officers or
directors of banks who persistently violated the law or who continued unsafe and unsound practices. Congress has adopted none of these recommendations.
An important duty of both national and State supervisory authorities is to recommend legislation designed to improve the safety standards
of banking.
They are hampered, however, by the competitive situation into
- 131 -
which they are forced by the existence of dual control. The dilemma of
State supervisors in recommending banking legislation was described by
the connissioner of banks of Massachusetts when he stated in 1929 that
in passing State legislation care is exercised that nothing is done to
drive State banks into the national system.
That similar considerations
have frequently influenced the Congress of the United States is evident
from the record of legislation actually passed and the proposed measures
defeated.
State Banks and the Federal Eoserve .System
Soon after its organization the Federal Reserve Board expressed its
hope that a unified system of banking would develop through the Federal reserve
system, and stated that, "There can be but one .American credit system of nation-wide extent, and it will fall short of satisfying the business judgment
and expectation of the country and fail of attaining its full potentialities
if it rests upon an incomplete foundation and leaves out of its membership any
- 132-
considerable part of the banking strength of the country."^ '
The "board extended liberal terns of admission to State "bantes,
including the right to rrithdravr from membership on twelve months* notice.
The State hanks, however, uore apprehensive of changes in the attitude of
the board and hesitated about applying for membership. By June, 1917> only
53 State institutions had joined.
Consequently certain amendments were
passed hj Congress in 1917 to encourage applications for membership by State
banks.
Most of the provisions in the 1917 amendments dealing with State
bank membership followed the spirit of the regulations issued by the board
in 1915» which they extended.
State bank members were permitted to with-
draw from the system on six months' written'notice to the Federal Reserve
Board.
They retained their full charter and statutory rights subject to
the restrictions of the Federal Reserve Act, and regulations of the board
relative thereto. Their examination and supervision were delegated to the
Federal reserve banks and board, which, in turn, were authorized to accept
reports and examinations from State supervisory authorities in lieu of
those of their own examiners. Furthermore, State member banks were relieved
of the restrictions upon national banks as to the amount which could be
loaned to one person, firm, or corporation, subject, however, to the restriction that if the State bank had loaned to any one borrower more than the
limitations governing a national bank, none of the paper of the borrower so
accommodated could be rediscounted at the Federal reserve banks.
In spite of these concessions, only about S00 of the 12,000 State
commercial banks belonged to the Federal reserve system in 1932. These 800
^
Federal Reserve Bulletin, July 1, 1915, p. 1^5.
- 133 -
members included most of the very large State banks, however, and had about
58 per cent of the loans and investments of all State banks and trust com*panies.
It is noteworthy, on the other hand, that in the large size groups
the number of nonmember banks has grown faster since 1920 than the number
of member State banks. From 1920 to 1930
tlie
number of nonmember banks with
loans and investments of $10,000,000 to $50,000,000 increased from Sk to 12S,
while member State banks in the same size group increased from 121 to 12!+.
The number of nonmember banks with loans and investments of $50,000,000 and
over increased from 3 to 10 during the same period, while member State banks
of that size increased from 32 to k$»
Competition between the two banking systems, resulting in an overbanked condition and relaxed standards, has materially hampered the effective functioning of Federal instrumentalities, i.e., the national banking
system and the Federal reserve system.
This has been in some measure re-
sponsible for the development of unsound banking practices, the ineffectiveness of supervision, and the serious banking difficulties during the past
twelve years.
/ dt
APPENDIX
- 135Table I - Commercial Banks and Trust Companies in the United States
IS3L1-I93I
(resources in millions of dollars')
Year
Stat< s banks
Number
Resources
Natior i a l banks
Number
Resources
S t a t e and
n a t i o n a l banks
Number E e s o u r c e s
All
banks
Number
Private
banks
Number
i
18 34
1235
1836
1837
I838
I839
is4o
lS4l
1842
18^3
1844
1845
is46
1847
1848
1849
1850
1851
1852
1853
1854
1855
1856
1857
1858
1859
I860
1861
1862
1863
1864
I865
1866
I867
1868
I869
1870
1871
1872
1S73
1374
1875
IS76
1S77
506
704
713
7SS
829
340
901
784
692
691
696
707
707
715
751
782
824
S79
815
750
1,208
1,307
1,398
l,4l6
1,422
1,476
1,562
1,601
1,492
1,466
1,089
349
297
272
247
259
325
452
566
277
36s
53b
671
631
1,185.4
725.9
165.8
154.8
151.9
154.6
156.0
201.5
259.6
264.5
173.9
237.4
395.2
405.9
506.9
66
467
1,294
1,634
1,636
i,64o
1,619
1,612
1,723
1,853
1,963
1,933
2,076
2,091
2,078
lb.8
252.2
1,126.5
1,476.3
1,494.5
1,572.1
1,564.1
1,565.7
1,703.4
1,770.3
1,351.2
1,351.8
1,913.2
1,325.7
1,774.3
506
704
713
783
829
840
901
734
692
691
696
707
707
715
751
782
824
879
315
750
1,208
1,307
1,398
l,4l6
1,422
1,476
1,562
1,601
1,492
1,532
1,556
1,643
1,931
1,908
1,337
1,873
1,937
2,175
2,419
2,245
2,351
2,662
2,762
2,709
1,202.2
972.1
1,292.3
1,631.1
1,646.4
1,726.7
1,720.1
IJ67.2
1,963.0
2,035.3
2,030.1
2,039.2
2,303.4
2,231.6)
2,231.2
1
2,432
1
| 5,i4i
- 136 Table I - Commercial Banks and Trust Companies in the United States
183*1-1931 (Continued)
Year
1878
1879
1880
1881
1832
1883
1884
1885
188b
1887
1888
1889
1890
1891
1892
1893
1894
1895
1896
1897
189 S
1899
1900
1901
1902
1903
1904
1905
1906
1907
19 08
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
(resources in millions of dollars)
, ,
'
StC-te and
S t a t e banks
ITatior l&ln banks
..
n a t i o i it-1 "banks
ifuafoer Be s o u r c e s Iftimber Besources Nuuiber Eesources
510
648
650
083
704
788
852
1,015
891
1,471
1,523
1,791
2,250
2J43
3,773
4,188
4,188
4,369
4,279
4,420
4,486
4,73S
5,007
5,651
6,171
6,890
7,970
9,018
10,220
11,469
12,803
13,421
14,348
15,322
16,037
16,841
17,493
17,748
is,253
18,710
19,404
19,646
20,635
21,267
388.8
2,056
427.6
2,043
481.8
2,076
575.5 j 2,115
633.S
2,239
2,417
724.5
2,625
76o.9
802.0
2,689
807.0
2,809
3.014
1,003.9
3,120
1,055.4
1.237.3
3.239
1,374.6
3,484
1,442.6
3,652
1,999.5
3,753
2,168.7
3.S07
3.770
2,071.7
2,251.6
3.715
3,689
2,255.9
3,610
2,273.9
2,534.0
3.5S1
3,582
2,957.7
3,375.3 3,731
4,034.6
4,163
4,557.4
4,532
5,084.3
4,935
5,55S.5
5,327
6,417.0
5,664
7,048.6
6,046
6,422
7,657.1
7,330.6
6,817
6,886
8,031.3
8,684.4
7,13S
9,237.0
7,270
9,923.2
7,366
7,467
10,321.9
10,967.2
7,518
11,433.8
7,597
13.510.4
7,571
15,694.3
7,599
17,119.4
7,699
20,664.7
7,779
8,024
23,490.3
8,150
22,627.7
1,770.4
2,013.8
2,035.4
2,325.8
2,3^.3
2,364.8
2,282.5
2,421.8
2,474.5
2,637.2
2,731.4
2,937.9
3,061.7
3,H3.4
3,493.8
3,213.3
3,422.1
3.470.6
3,353.3
3,563.4
3.977.6
4,708.6
4,944.0
5,674.2
6,007.0
6,284.7
6,653.3
7,325.2
7,780.5
8,472.0
8J10.0
9,364.0
9,891.9
10,378.5
10,856.9
11,031.5
11,476.8
11,789.8
13.319.7
16,283.3
18,346.3
21,226.1
23,401.6
20,509.5
2,566
2,696
2,726
2,798
2,943
3,205
3.477
3.704
3.700
4,485
4,643
5,030
5,734
6,335
7,532
7,995
7.95S
8,034
7,968
8,030
8,067
8,320
8,738
9,814
10,703
11,825
13,297
14,682
16,266
17.S91
19,620
20,307
21,48b
22,592
23,403
24,308
25,016
25,345
25,824
26,309
27,103
27,425
23,659
29,417
2,159.2
2,447.4
2,517.2
2,901.3
2,978.1
3,089.3
3.043.U
3.223.8
3.281.5
3,641.1
3,786.8
4,175.2
4,436.3
4,556.0
5,493.3
5,382.0
5,%3.8
5,722.2
5,609.7
5.S37.3
6,511.6
7,666.3
8,313.3
9,708.8
10,564.4
11,369.0
12,211.8
13,742.2
14,829.1
16,129.1
16,040.6
17,395.3
18,576.3
19,615.5
20,730.1
21.353.4
22,444.0
23,223.6
27,430.1
3L977.6
35,465.7
41,890.8
46,891.9
43,137.2
Private
banks
Number
All
banks
lifamber
2,586
2,545
2,573
2,799
3,107
3,306
3,458
3,456
3.6S9
3,966
4,o64
4,215
4,305
4,230
4,004
4,031
3,844
3,324
3,810
3,806
3.853
4,l6s
5,187
5,060
4,976
5 Ml
5,484
5,291
4,823
4,947
4,57b
4,407
3,669
3,683
3,406
3,213
3,062
2,737
1,968
1,852
1,846
1,817
1.736(1)
1,242
5,152
5,2Ui
5,293
5,537
6,050
6,511
6,335
7,i6o
7,3^9
8,451
8,707
9,245
10,039
10,625
11,536
12,026
11,302
12,003
11,77*
ll,S3b
11,920
12,433
13,925
14,874
15,679
17,242
18,781
19,973
21,089
22,838
24,19b
24,714
25,155
26,275
26,809
27,521
23,078
28,032
27,792
23,l6l
23,949
29,242
30,395
30,659
- 137 Table I - Commercial Banks and Trust Companies in the United States
183*4-1931 (Continued)
Year
1922
1923
1924
1925
1926
1927
192S
1929
1930
1931
(resources in millions of dollars)
State and
National "banks
State banks
n a t i o n a l banks
Number Ee sources • Number Eesources Number Ee sources
20,789
20,654
20,028
19,573
13,994
18,119
11 Mo
16,728
15,79S
1^,323
8,244
S.236
8,080
8,066
7,972
7,790
7,685
7,530
7,247
6,800
22,912.5
25,191.6
26J83.3
29,352.7
30,682.4
32,082.5
32.899.3
34,217.6
3^,219.0
30,981.0
20,697.9
21,502.2
22,555.3
24,338.8
25,302.6
26,566.5
28,492.9
27,425.2
29,072.4
27,59S.6
29,033
28,890
28,108
27,639
26,966
25,909
25,125
24,25S
23,045
21,123
43,610.4
46,693.8
49,338.6
53.69L5
55,991.0
58,649.0
61,392.2
61,642.8
63,291.4
58,579.6
Private
banks
Number
All
banks
Number
1,157
1,080
1,008
915
30,190
29 ,970
29,116
23,554
27,826
26,701
25,862
24,943
23,643
21,627
s6o
792
737
685
598
504
1
(1) Includes 386 private banks in Illinois, most of which converted to State
banks before the end of the year because of a law prohibiting private
banks after January 1, 1921.
Sources of Figures in Table £
National Banks. - Figures for national banks are taken from the
annual reports of the Comptroller of the Currency, 1931, PP. 3 ai*d 5 (for
years I863 to 1891, inclusive); 1920, pp. 279 et s§£. (for years 1892 to
1920, inclusive); and 1921 to 1931 (for years 1921 to 1931, inclusive).
Banks in Alaska and insular possessions are excluded.
State Banks. - Figures for State banks are taken from the annual
reports of the Comptroller of the Currency, 1909, p. 912 (for years from
I834 to 1862, inclusive, the figure for 1852 being interpolated); 1931, pp.
3 and 5 (for years from I863 to 1891, inclusive); and IS92 to 1931 (for
years from 1892 to 193l» inclusive). Banks in Alaska and the insular possessions are excluded. Mutual savings banks are excluded. Loan and trust
companies and stock savings banks are included, save that stock savings
banks do not appear to be uniformly included prior to 1892.
For most of the earlier years the figures both of number and resources are lower than the true figures, on account of the incompleteness
of reports by State authorities to the Comptroller of the Currency. There
are, moreover, differences among the States in the types of institutions
under State supervision, and therefore in tiie bases of the reports; and
many States had no department or official responsible for banking statistics until recent years.
For the years from 1877 to 1909, inclusive, more complete figures
than those given in this table are available for the number, but not for
the resources, of State banks, in the Publications of the National Monetary
Commission. Vol. 7, p. 248. The figures of the Monetary Commission have not
been used here because of the desirability of using figures for the number
of banks which correspond with those fox" resources.
- 133 -
Private Banks. - The figures for private "banks are for most years
only approximations. Those for 1877 to 1909> inclusive, are taken from the
Publications of the National Monetary Commission, Vol. 1, p. 250, and are
based on lists in Komans' Bankers Almanac, otherwise entitled, The Bankers
Directory: Eomans' and Sharp & Alleman's Edition. The figures given in
this directory are stated to include "hankers and brokers at New York City,
Chicago, Boston, Philadelphia and Baltimore"; but in most years tae figures
given by the National Monetary Commission are smaller than those given in
the directory, indicating that an effort was made to omit those doing only
a brokerage business. Figures for the years from 1910 to 1919» inclusive,
are taken from the Rand McNally Bankers' Directory. The sharp decrease between 1909 and 1910 is apparent father than real, being due to the fact that
after 1910 the Band McNally directory listed a smaller number of private
banks than Eomans1. Figures for the years from 1920 to 1931. inclusive,
were collected by the Committee on Branch, Group, and Chain Banking with the
cooperation of the Federal reserve banks and the State banking departments.
The marked decrease from 1920 to 1921 is due primarily to the outlawing of
private banks in Illinois on January 1, 1921.
For all banks, figures are as of June 30, or the nearest reporting
date. In the early years, however, no uniform date can be assumed; and
those relating to private banks for some of the recent years have been obtained by averaging year-end figures.
- 139 -
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932(1)
1. Supervisory agencies
(a) Separate or virtually separate
1909
1929-1912
California
Colorado
Connecticut
Idaho
Kansas
Louisiana
Maine
Massachusetts
Michigan
Minnesota
Missouri
Nebraska
Nevada
New Hampshire
New Jeisey
New York
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Vermont
Washington
West Virginia
Wisconsin
Wyoming
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Georgia
Idaho
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklaaoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
(b) Under other department
1929-1912
1909
Alabama
Arizona
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
KentuckyMaryland
Mississippi
Montana
New Mexico
North Carolina
South Dakota
Texas
Utah
Virginia
Florida
Illinois
!
- 140 -
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932(1) (Continued)
2. Type of supervisory authority
(a) Single official in charge of bankings 2)
1929-1912
1909
Mississippi
Alabama
Arizona
Missouri
California
Iviontana
Hew Jersey
Colorado
Delaware
New Mexico
Hew York
Florida
Georgia
Ohio
Idaho
Oklahoma
Illinois
Pennsylvania
Indiana
South Carolina
South Dakota
Iowa
Texas
Kansas
Utah
Kentucky
Louisiana
Vermont
Elaine
Washington
West Virginia
Maryland
Massachusetts Wisconsin
Wyoming
Michigan
Minnesota
(c) Single official, appointed by or under control
of an executive banking
board or other board
1929-1912 j
1909
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Nevada
Nebraska
North -Dakota Nevada
Oregon
New Mexico
North Dakota
Oregon
Virginia
Connecticut
Nebraska
New Hampshire
North Carolina
Virginia
(b) Single official supplemented by banking board
1929-1912"
1909
Khode Island Alabama
Michigan
Minne so ta
Iowa
Mississippi
Kansas
Missouri
New York
North Carolina
Montana
Hew Hampshire
Oklahoma
Hew Jersey
Ehode Island
Ohio
South Dakota
Pennsylvania
Texas
South Carolina
Wisconsin
Tennessee
Utah
Vermont
Washington
West Virginia
Wyoming
s
.
(I) Board, 01 two or
three commissioners
in charge of department
1909
1929-1912
(e; Ho specific arrangement for supervision
1909
Arkansas
Tennessee
1929-1912
SW
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932(1) (Continued)
3. Method. of selecting commissioner or supervisor
(b) Election by popular
vote
1929-1932
1909
(a) Appointment by governor
1909
Arizona
Washington
California
Wyoming
Ian s as
Louisiana
.assachusetts
Minnesota
iontana
levada
lew Hampshire
lew Jersey
lew Mexico
Uew York
Pennsylvania
rftiode Island
3outh Dakota
Jtah
Virginia
1929-1932
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Georgia
Idaho
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Missouri
llontana
Nebraska
Nevada
New Hampshire
New Jersey
Hew Mexico
New York
North Carolina
¥orth Dakota
Ohio
Oklahoma
Pennsylvania
Rhode Island
South Carolina
South Dakota
Texas
Utah
Vermont
West Virginia
Wisconsin
Wyoming
North Carolina Florida
Illinois
(c) Selection by banks or
from panel named by banks
1909
1929-1932
1909
1929-1932
Mississippi
Tennessee
Nebraska
Oregon
2 r e g o n . («>
(d) In other ways
C3>
Virginia ,
Washington^
/¥£-
Table II - The Status and Powers of State Supervisory Agencies
1909 and I929-1932U) (Continued)
k. Term of office of supervisor
(h) Four years
(a) Three years or less
1929-1932
1909
1929-1932
1909
California
Arizona
Idaho
Maine
Massachusetts Colorado
Connecticut
Massachusetts Michigan
Idaho
New Jersey
Minnesota
Kansas
Nevada
New Mexico
Louisiana
New Hampshire New York
Michigan
Hew Jersey
Ohio
Missouri
New Mexico
Rhode Island
Montana
New York
Texas
Ohio
North Dakota
Vermont
Oklahoma
Rhode Island
Oregon
Vermont
Pennsylvania
South Carolina
South Dakota
Washington
West Virginia
Wyoming
(c) Five or six years
1929-1932
1909
North Carolina Minnesota
Nebraska
?fisconsin
New Hampshire
Wisconsin
1
,
Alabama
Arizona
Arkansas
Colorado
Connecticut
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisana
Maine
Maryland
Mississippi
Montana
North Carolina
North Dakota
Oklahoma
Oregon
Pennsylvania
South Carolina
South Dakota
Tennessee
Utah
Washington
West Virginia
Wyoming
(d) Indefinite term
1929-1932
1909
Utah
California
Missouri
Nevada
Virginia
/fj
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-I932U) (Continued)
5. Salaries of supervisors
(a) Under $5,000 per year
(b) $5,000 to $10,000 per year
1929-1932
1929-1932
1909
1909
Alabama
Arizona
Colorado
Connecticut
Idaho
Kansas
Louisiana
Maine
Michigan
Missouri
Nebraska
New Hampshire
New Mexico
Oklahoma
Oregon
Ehode Island
South Carolina
South Dakota
Utah
Vermont
Washington
West Virginia
Wisconsin
Delaware
Idaho
Kentucky
Maryland
Minnesota
Missouri
Nevada
New Mexico
South Carolina
South Dakota
Utah
Vermont
Virginia
Wyoming
Massachusetts
Minnesota
Nevada
New Jersey
New York
Ohio
Pennsylvania
Alabama
Arizona
Arkansas
Colorado
Connecticut
Florida
Georgia
Indiana
Iowa
Kansas
Louisiana
Maine
Kassachusetts
Montana
Nebraska
New Hampshire
New Jersey
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Ehode Island
1
(c) $10,000 or over per year
1929-1932
1909
California
California
Illinois
Michigan
Mississippi
New York
Pennsylvania
Tennessee
Texas
Yfashington
West Virginia
Wisconsin
/-^
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932C1) (Continued)
6. Method of selection of examiners
(a) Civil
service
1909 1929-1932
•
»
California
Colorado
Maryland
Mew Jersey
New York
Ohio
(b) By supervisory agency solely
1909
Arizona
California
Florida
Illinois
Indiana
Iowa
Minnesota
Missouri
Hew Mexico
New York
North Carolina
Ohio
Oregon
Texas
Tirginia
1929-1932
Alabama
Arkansas
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Iowa
Kansas
Kentucky
Maine
&
Massachusetts^)
Michigan
Minnesota
Mississippi
(c) By supervisory
agency with approval
of governor or board
1929-1932
1909
Missouri
Maryland Arizona
Indiana
Montana
Nevada
Louisiana
New Hampshire
Nebraska
New Mexico
North Dakota
North Carolina
Oklahoma
Oregon
Pennsylvania
Ehode Island
South Dakota
South Carolina
Utah
Tennessee
Vermont
Texas
.7
Wyoming
Virginia^ *'
Washington
West Virginia
Wisconsin
/f-5
Table II - The Status and Powers of State Supervisory Agencies
1§09 and 1929-1932(1) (Continued)
7. Powers-relative to the organization of new panics
(a) Principal discretionary powers in passing
on applications for new charters
(1) Exercised by commissioner
(2) Exercised by hanking board
1929-1932
1929-1932
1909
l$VHp)*.
Alabama
Arkansas
California
Illinois
Colorado
Maine
Delaware
Michigan
Florida
Minnesota
Georgia
New Jersey
Idaho
New York
Ohio
Illinois
Iowa
Oklahoma
South Dakota
Kentucky
West Virginia Louisiana
Maine
Wisconsin
Maryland
Michigan
Missouri
Montana
California
Florida
Nevada
New Jersey
New Mexico
North Carolina
Ohio
^
Oregon
J
Pennsylvania^)
South Carolina
Tennessee
Utah
Vermont
Washington
West Virginia
Wyoming,
(b) Must be assured of legitimate
purpose and/o r integrity of applicant
1909
1929-1932
California
Florida
Illinois
Michigan
Minnesota
Nebraska
New York
North Carolina
North Dakota
Ohio
Oklahoma
South Dakota
West Virginia
Wisconsin
Alabama
New Mexico
New York
Arizona
North
Carolina
Arkansas
California North Dakota
Florida
Ohio
Georgia
Oklahoma
Oregon
Idaho
South Carolina
Illinois
Indiana
South Dakota
Tennessee
Kansas
Kentucky
Texas
Louisiana Utah
Virginia
Maryland
Washington
Michigan
Minnesota Wisconsin
Missouri
Montana
Nebraska
Nevada
Massachusetts Arizona
Nebraska
! Connecticut
North Carolina Indiana
Rhode Island i Kansas
Massachusetts
!Minnesota
Mississippi
1
Nebraska
New Hampshire
New York
!North Dakota
Oklahoma
Rhode Island
South Dakota
Texas
i
t Virginia
Wisconsin
!
(c) Must take into consideration the public
need and convenience for banking facilities
1909
1929-1932
Maine
Massachusetts
New Jersey
New York
Rhode Island
South Dakota
Alabama
Arizona
Arkansas
California
Connecticut
Florida
Georgia
Idaho
Indiana
Kansas
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oregon
Rhode Island
South Dakota
Tennes see
Texas
Utah
Vermont
Virginia
Washington
Wisconsin
Table II - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932(1) (Continued)
8. Powers relevant to banking operations
(a) Examinations
(2) Required to conduct examinat ions
(l) Required to conduct
more than once a<. year
annual examinations
1929-1932
1929-1932
1909
1909
Alabama
Arizona
Florida
Idaho
Illinois
Maine
Maryland
Massachusetts
Missouri
Montana
New Hampshire
New Mexico
North Carolina
North Dakota
Oregon
South Carolina
Utah
Washington
West Virginia
Wisconsin
Wyoming
Arkansas
California
Connecticut
Delaware
Illinois
Kentucky
Maine
Massachusetts
Missouri
Montana
New Hampshire
North Carolina
Pennsylvania
Washington
Wisconsin
California
Colorado
Connecticut
Georgia
Kansas
Louisiana
Michigan
Minnesota
Nebraska
Nevada
New York
Ohio
Oklahoma
Rhode Island
South Dakota
Texas
Vermont
Alabama
Arizona
Colorado
Florida
Georgia
Idaho
Kansas
Louisiana
Maryland
Michigan
Minnesota
Mississippi
Nevada
New Mexico
New York
North Dakota
Ohio
Oklahoma
Oregon
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Veimont
Virginia
West Virginia
Wyoming
(3) Authorized to conduct examinations at any time
1909
1929-1932WAlabama
Arizona
California
Colorado
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Maine
Maryland
Massachusetts
Michigan
Minnesota
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
Alabama
New York
Arkansas
North Carolina California
North Dakota
Colorado
Ohio
Connecticut
Oklahoma
Delaware
Oregon
Florida
Pennsylvania
Georgia
Idaho
Rhode Island
South Dakota
Illinois
Texas
Indiana
Utah
Iowa
Vermont
Kansas
Ttirgiaia
Kentucky
Washington
Louisiana
West Virginia Maine
Wisconsin
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Dakota
Tennessee
Texas
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
/¥7
-Till
Table I I - The Status and Powers of State Supervisory Agencies
1909 and 1929-1932^ 1 ' (Continued)
8. Powers relevant to "banking operations (continued)
(c) May limit borrowing
(b) May require stockholders to make good
by banks
impairment of capital
1929-1932
1929-1932
1909
1909
California
Colorado
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Massachusetts
Michigan
Minnesota
Missouri
Nebraska
Nevada
New Mexico
New York
North Dakota
Ohio
Oklahoma
Alabama
Oregon
Pennsylvania Arizona
South "Dakota Arkansas
California
Texas /o
Utah(#)
Colorado
Connecticut
Virginia
Washington
\ Delaware
West Virginia' Florida
Georgia
Wisconsin
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
(d) May require removal of undesirable
and/or illegal assets
1909
1929-1932
"forth Dakota Alabama
Ohio
Arkansas
Delaware
Florida
Idaho
Montana
Nebraska
North Dakota
Ohio
Oregon
South Dakota
Utah
West Virginia
Wisconsin
Wyoming
Missouri
Montana
Nebraska
Nevada
New. Hampshire
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
South Dakota
Tennessee
Texas
Utah
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Kansas
Michigan
Oklahoma
South Dakota
Wisconsin
Arizona
California
Idaho
Kansas
Michigan
Montana
North Dakota
Oregon
South Dakota
Virginia
Washington
Wyoming
(e) May order removal of officers or
employees
1909
iq2q-iq^?2
Kansas
Nevada
Oklahoma
South Dakota
Florida
Georgia
Idaho
Kansas
Montana
Nebraska
New Hampshire
North Carolina
Oklahoma
Oregon
South Dakota
Wyoming
-»iv Table II - The Status and Powers of State Supervisory Agencies,
1909 and 1929-1932(1) (Continued)
S. Powers relevant to "banking operations (continued)
(f) May order removal (g) May recommend removal (h) May recommend
of directors
of officers or employees removal of directors
1929-1932
1929-1932
1929-1932
1909
1909
1909
Florida
Idaho
Montana
North Carolina
Oregon
South Dakota
1909
Missouri Arkansas
Colorado
Massachusetts
Missouri
New York
Utah
Washington
Wisconsin
Massachusetts
Missouri
New York
9. Powers relevant to insolvent banks^' "
(a) May licruidate the bank
(b) May appo m t a receiver
1929-1932
1929-1932
1909
California
Alabama
Michigan
Arizona
Minnesota
Arkansas
California
Jew York
Oklahoma
Colorado
ihode Island Georgia
South Dakota Idaho
Iowa
rexas
Kentucky
ifisconsin
Louisiana
Maryland.
Massachusetts
Minnesota
Oregon
Kansas
Mississippi
Pennsylvania Maryland
Rhode Island Yifest Virginia
Missouri
Montana
South Dakota
Nebraska
Tennessee
Nevada
Texas
Utah
New Jersey
Vermont
New Mexico
New York
Washington
North Carolina Wisconsin
Wyoming
Ohio
Oklahoma
Florida
Illinois
Kansas
West Virginia
(c) May apply for the appointment of a receiver
1929-1932
1909
Alabama
iriaona
Colorado
Connecticut
Delaware
Florida
Seorgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Massachusett*3
Michigan
Missouri
Montana
Nebraska
Oregon
Pennsylvania
Nevada
New Hampshire
Rhode Island
New Jersey
Texas
Vermont
New Mexico
Virginia
New York
North Carolina Washington
North Dakota
West Virginia
Wisconsin
Ohio
Alabama
Missouri
Connecticut Nebraska
Delaware
New Hampshire
Illinois
New Mexico
Indiana
North Dakota
Rhode Island
Iowa
Kentucky
South Carolina
Maine
Tennessee
Michigan
Texas
Vermont
Minnesota
Virginia
^ ' Sources: 19091 Barnett, State Banks and Trust Companies Since the Passage of
the National-Bank Act, and Welldon, Digest of State Banking Statutes, Publica-
~ 1U9 tions of the National Monetary Commission, Vols. VII and III, respectively;
1929-1932, State lank Division, American Bankers Association, Results of
Questionnaire on Bank Supervision, 1929, prepared by the various State banking departments; and banking statutes of the various States.
In many instances data for 1909 were only partially available.
(2) Several of these States have charter "boards, whose sole function is to consider
applications for new charters.
(3) Appointed by State banking board.
(*+) Appointed by State corporation commission.
(5) Appointed by director of taxation and examination.
(6) in 1932, appointment is by supervisory agency with approval of the director
of personnel.
(7) Deputies and other employees appointed by corporation commission.
'^) In North Dakota discretionary power was exercised by the Secretary of State.
(9) In 1932> new charters must also be approved by the governor.
(10) Secretary of State could apply for receiver if capital was impaired.
(11) In several States the supervisory authority has the option of liquidating the
bank or of applying for the appointment of a receiver, while in one State the
option is between appointing and applying for the appointment of a receiver.
•itvii-»-
Table IV - Baiiks with Loans and Investments of $5»000,000 and over Lost to the
National and State Banking Systems "by Consolidation and Conversion,
"by States, 1921-1931
( i n thousandss of do].lars)
L o c a t i o n and name of bank
National charters State charters
given up
Year
given up
of
By
By
By
By
change consolida- conver- consolida- convertion
sion
sion
tion
75,784
IBff ENGLAND STATES - TOTAL
MAINE
Bangor
F i r s t N a t ' l Bk,
Portland
Chapman Nat' 1 Bk.
192S
8,109
MASSACHUSETTS
Boston
Am. T r . Co.
Beacon T r . Co.
Commonwealth T r . Co.
F e d e r a l T r . Co.
I n t e r n a t ' l Tr. Co.
Jamaica P l a i n Tr. Co.
Mass. Tr. Co.
Nat' 1 Union Bk.
F a l l Hiver
Massasoit Pocasset N a t ' l Bk.
Worcester
Park Tr. Co.
8.109
8,109
7,387
1930
1930
1923
1923
1923
1931
1925
1925
15,156
192S
5,619
24,999
3^58
29,607
20,568
44,769
5,884
20,3^7
1
1922
Total
EHODE ISLAND
Providence
N a t ' l Exch. Bk.
6.5^52
20,775
1926
Total
166,596
19,180
19,180
CONNECTICUT
Bridgeport
City N a t ' l Bk. & Tr. Co.
Hartford
Phoenix N a t ' l Bk.
U. S. Security Tr. Co.
Total
20,568
7,387
1929
Total
178,955
1929
13,976
1926
1927
14,466
12,^59
28,442
12,359
20,568
f 5/
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
national and State Banking Systems *by Consolidation and Conversion,
by S t a t e s , 1921-193I (Continued)
( i n thousandss of dollars)
National charters State charters
given UP
Year
given UP
Location and name of "bank
By
of
By
By
By
change consolida- conver- consolida-< convertion
sion
sion
tion
MIDDLE ATLANTIC STATES - TOTAL
NEW TOEK
Albany
F i r s t N a t ' l Bk.
Buffalo
Community N a t ' l Bk.
Lafayette N a t ' l Bk.
Mfgs. & Traders N a t ' l Bk.
Jamestown
Am. N a t ' l Bk.
Lockport
N a t ' l Exch. Bk.
Mt. Vernon
Am. N a t ' l Bk. & Tr. Co.
New York City
Am. Exch.-Pacific N a t ' l Bk.
Am. Express Bk. & Tr. Co.
Atlantic N a t ' l Bk.
Bank of America
Bank of N. Y.— N. B. A.
Battery Park N a t ' l Bk.
Bowery Bank of N. Y.
Broadway N a t ' l Bk. & Tr. Co.
Brooklyn N a t ' l Bk. of N. Y.
Bronx N a t ' 1 Bk.
Capital N a t ' l Bk. & Tr. Co.
Central N a t ' l Bk.
Chemical N a t ' l Bk.
Coal & Iron N a t ' l Bk.
Com'l Exch. Bk.
Com'l Exch. Bk. of N. Y.
Com'l Tr. Co.
Equitable Tr. Co.
Fifth Nat'1 Bk.
F i r s t N a t ' l Bk. (Brooklyn)
F i r s t N a t ' l Bk. (Jamaica)
Fordham N a t ' l Bk. in N. Y. (Bronx)
Franklin N a t ' l Bk. in N. Y.
Gotham N a t ' l Bk.
2,305,^03 20,1+76
1926
10,899
1929
192U
1925
20,980
8,075
46,6i4
1931
5.330
1926
1,137,202
6,067
1930
7,380
1926
1931
1922
192S
1922
1923
1925
1930
1931
192S
192S
1930
1929
1926
1921
1928
192U
1930
1925
1928
1926
1929
1927
1925
167,089
32,381
i6,4os
94,883
42,648
12,3^7
5,069
5,920
8,162
7,671
23,795
12,61+3
205,865
21,0^0
8,1+96
19,899
10,700
496,351
19,1+20
20,669
8,014
5,365
5,375
17,082
15,831
— g i g •»
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems by Consolidation and Conversion,
by S t a t e s , 1921-193I (Continued)
^in thousands of do]Liars)
National charters State charters
siven up
Year
given up
Location and name of bank
of
By
By
By
By
change consolida- conver- consolida- convertion
sion
tion
sion
New York City (Continued)
Greenwich Bk.
Hamilton N a t ' l Bk»
Hanover N a t ' l Bk.
Importers & Traders N a t ' l Bk.
I n d u s t r i a l N a t ' l Bk.
I n t e r s t a t e Tr. Co.
Irving N a t ' l Bk.
I t a l i a n Discount & Tr. Co.
Liberty N a t ' l Bk.
Lincoln Tr. Co.
Longacre Bk.
Longacre N a t ' l Bk.
Mercantile Tr. Co.
Metropolitan 3k.
Metropolitan Tr. Co.
Murray H i l l Tr. Co.
Mutual Bk.
N a t ' l km. Bk.
N a t ' l Bk. of Commerce
N a t ' l Butchers & Drovers Bk.
Pacific Bk.
Peoples Tr. Co. (Brooklyn)
Ridgewood N a t ' l Bk. (Qq.eens)
Seaboard N a t ' l Bk.
Seventh N a t ' l Bk.
Seward N a t ' l Bk. & Tr. Co. of N. Y.
Straus N a t ' l Bk. and Tr. Co. of N.Y.
United N a t ' l Bk.
W. H. Grace & Co.'s Bk.
1927
1928
1929
1923
1931
1930
1923
1927
1921
1922
192S
1928
1922
1921
19 24
1930
1927
1926
1929
1926
1925
1926
1921
1929
1928
1931
1931
1928
192U
lev; York City - Total
Niagara P a l l s
Bank of Niagara
N a t ' l Bk. of Niagara & Tr. Co.
North Tonawanda
State N a t ' l Bk.
Rochester
N a t ' l Bk. of Rochester
24,655
17*362
1U3.I82
35,016
7,662
45,36o
194,782
5,673
103,203
22,5^6
7,256
8,181
18,977
^3,031
39,909
11,345
15,248
9,661
532,191
14,213
35,760
62,383
7,615
162,533
12,152
6,287
9,006
14,033
8.579
992,666
1,876,592
1927
1929
6,677
11,1^5
1926
1928
7,719
17,881
l
15,835
(33
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems "by Consolidation and Conversion,
by S t a t e s , 1921-193I (Continued)
(in thousands of dollars)
Location and name of bank
Utica
F i r s t N a t ' l Bk. & Tr. Co.
Utica N a t ' l Bk. & Tr. Co.
Yonkers
Yonkers Tr. Co.
National charters State charters
given UP
given UP
Year
By
of
By
By
By
change consolida- conver- consolida- convertion
sion
sion
tion
1926
1930
10.181
1929
Total
HEW J2RS3Y
Bloomfield
Bloomfield N a t ' l Bk.
Elizabeth
Peoples N a t ' l Bk.
Hoboken
Second N a t ' l Bk.
Jersey City
Lincoln Tr. Co. of N. J .
Union Tr. Co. of N. J .
Newark
Am. N a t ' l Bk.
Guardian Tr. Co. of IT. J .
Merchants & Mfgs. N a t ' l Bk.
North Ward N a t ' l Bk.
Union N a t ' l Bk.
Passaic
Passaic Tr. & Safe Deposit Co.
Paterson
Paterson Safe Deposit & Tr. Co.
16,433
5,785
13,786 1,009,524
2,027,ll4
1929
6,420
1930
7,582
1926
6,690
7,494
9,129
1929
1923
1927
1923
1927
1930
1921
16.10*3
23,183
21,193
12,7%
23,527
1922
11,207
1921
6,115
Total
6,690
93,154
57,133
PENNSYLVANIA
Philadelphia
Am. Bk. & Tr. Co.
Bank of North Am. ( N a t ' l Bk.)
Broad Street N a t ' l Bk..
N a t ' l Bk. of Commerce
N a t ' l Bk. of North Philadelphia
N a t ' l Security Bk. & Tr. Co.
Ninth N a t ' l Bk.
1929
1923
192S
1927
192S
1930
1923
5,655
23,4oo
9,^79
9,05S
5,270
io,Ui7
n,55l
i
.
15,835
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems "by Consolidation and Conversion,
by S t a t e s , 1921-1931 (Continued)
( i n thousands of d o l l a r s )
National charters State charters
Year
g i v e n up
^ i v e n up
Location and name of bank
By
By
of
By
By
change consolida- conver- consolida- conversion
sion
tion
tion
P h i l a d e I p h i a (Cont inued)
Northern N a t ' l Biz.
Oxford Bk. & T r . Co.
Tenth N a t ' l Bk.
T e x t i l e N a t ' l Bk.
Union Bk. & T r . Co.
Union l a t ' l Bk.
Pittsburgh
Farmers Deposit Svgs. 3 k .
Scranton
County Svgs. Bk.
Wilkes-Barre
Luzerne County N a t ' l Bk.
Williamsport
West Branch N a t ' l Bk.
1929
1928
1929
1930
1929
1927
9,262
7,964
9,012
5.-S7^
27,786
12,903
192S
12,^35
1927
7,120
1923
5,217
1927
s.-soU
Total
60,960
125,7^7
MARYLAND
Baltimore
Drovers & Mechanics N a t ' l Bk.
Farmers and Merchants N a t ' l 3 k .
N a t ' l Bk. of B a l t i m o r e
N a t ' l Exch. 3 k .
N a t ' l Union Bk. of Md.
1930
1930
1930
1923
1929
Total
DISTRICT d r COLUMBIA
Washington
Merchants Bk. and T r . Co.
13.179
6,9^3
15,953
13,930
9.W
59.3SS
1930
9,585
Total
SIOIKEH CENTRAL STATES - TOTAL
MICHIGAN
Detroit
C e n t r a l Svgs. Bk.
G-riswold-Eirst S t a t e Bk.
G-riswold N a t ' l Bk.
9.5S5
1,031,693
1928
1929
1927
826,269
33,700
39,318
15,096
31.06U
/C5"J5T
Table IV - Banks with Loans and Investments of $5,000 t 000 and over Lost to the
National and State Banking Systems "by Consolidation and Conversion,
by S t a t e s , 1921-1931 (Continued)
( i n thousands of do!.lars)
National charters State charters
given up
Year
given up
Location and name of hank
of
By
3y
By
By
change consolida- conver- consolida- conversion
tion
sion
tion
Detroit (Continued)
Guardian Detroit Bk.
Merchants N a t ' l Bk.
Peoples Wayne County Bk.
Grand Rapids
Old N a t ' l Bk.
Port Huron
Federal Com'l & Svgs. Bk.
25,878
1929
13.672
301,125
6,852
1930
Total
WISCONSIN
Milwaukee
Am. Exch. Bk.
Second Ward Svgs. Bk.
91.701
1931
1929
1931
54,646
1924
192S
10,713
34,126
Total
ILLINOIS
Chicago
Cont'l and Com'l Tr. and Svgs. Bk.
Cont'l N a t ' l Bk. & Tr. Cc. of Chicago
Corn Exch. H a t ' l Bk.
Haagan State Bk. (State He. of Chicago)
N a t ' l Bk. of Commerce i n Chicago
N a t ' l Bk. of the Republic of Chicago
Peoples Stock Yards State Bk.
Rawson State Bk. (Union Tr. Co.)
Standard Tr. & Svgs. Bk.
Straus Tr. Co.
34.126
1927
1929
192U
1929
1927
1931
1929
1929
192S
1928
Total
INDIANA
Fort Wayne
Lincoln Tr. Co.
Tri-State Loan & Tr. Co.
10,713
96,332
490,823
si,960
53.417
5,773
93.382
14,892
68,558
16,111
5,459
671.93S
192S
1929
Total
U72,696
234,418
6,001
9,929
15,930
20,351
/£ L
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems by Consolidation and Conversion,
by S t a t e s , 1921-1931 (Continued)
(in thousands1 of dollars)
National charters State c h a r t e r s
given up
given up
Year
Location and name of bank
of
By
By
By
By
change consolida- conver- consolida- conversion
tion
sion
tion
OHIO
Akron
F i r s t - S e c o n d N a t ' l Bk.
N a t ' l City Bk.
Cincinnati
Citizens N a t ; l Bk. & Tr. Co.
Fiftn-Third N a t ' l Bk.
Fourth K a t ' l Bk.
Cleveland
Engineers Nat'1 Bk.
F i r s t N a t ' l Bk.
Union Commerce Nat' 1 Bk.
United Bkg. & Tr. Co.
Columbus
F i r s t Citizens Tr. Co.
F i r s t N a t ' l Bk.
Dayton
City N a t ' l Bk. & Tr. Co.
City Tr. & Svgs. Bk.
Toledo
N a t ' 1 Bk. of Commerce
Northern N a t ' l Bk.
Second N a t ' l Bk.
1923
1929
13,220
1927
1926
1923
16,792
41J43
SJ86
1930
1921
1921
1929
17,761
6OJ6S
63.729
33,157
29,79^
1931
192S
11,322
1930
192S
15,365
1921
1924
1924
i4,703
10,47s
Total
•0UTHERN MOUNTAIN STATES - TOTAL
VIRGINIA
Norfolk
Citizens Bk.
Trust Co. of Norfolk
Richmond
Am. N a t ' l Bk.
N a t ' l State and City Bk.
Planters N a t ' l Bk.
iss125
6,l4s
12 ..317
305,109
57,356
1928
1927
1928
1922
1926
Total
16,437
11,668
16,319
44,424
Total
1929
19,585 26,309
7,o6l
6,423
KENTUCKY
Louisville
Louisville N a t ' l Bk. & Tr. Co.
69,099
12.932
12,932
13,484
/*7
••». a a i v —•
Table IV - Banks with Loans and Investments of $5>000,000 and over Lost to the
National and State Banking Systems by Consolidation and Conversion,
by S t a t e s , 1921-1931 (Continued)
( i n thousands of do!.lars)
National charters State charters
Year
given up
givon up
Location and name of "bank
of
By
By
By
By
change consolida- conver- consolida- conversion
tion
sion
tion
TENNESSEE
Chattanooga
Chattanooga Svgs. Bk. & Tr. Co.
Memphis
Union & Planters Bk. and Tr. Co.
6,101
1929
26,309
1929
Total
SOUTHEASTERN STATES - TOTAL
TOSTH CAROLINA
Greensboro
Am. N a t ' l Bk. & Tr. Co.
Raleigh
Citizens N a t ' l Bk.
Wilmington
Murchison N a t ' l Bk.
U7.062
1929
7,610
1929
7,1^9
1929
9,460
Total
SOUTH CAROLINA
Charleston
Peoples-First N a t ' l Bk.
Total
Total
61,237
74,645
9,132
9,132
1929
1924
1923
5,344
22,629
13,711
50,754
1927
Total
FLORIDA
Miami
Com'l Bk. & Tr. Co. of Miami
Miami Bk. & Tr. Co.
26,309
24,219
1930
GEORGIA
Atlanta
Atlanta Tr. Co.
Lowry Bk. & Tr. Co. of Ga.
Lowry N a t ' l Bk.
Savannan
Citizens & Southern Bk.
6,101
13.711
1926
1926
27,973
6,ogg
14,864
20,952
50,754
/53
j«fc—aSiriT'"
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems by Consolidation and Conversion,
"by S t a t e s , 1921-1931 (Continued)
( i n thousands of dollars)
National charters State c h a r t e r s
given UP
Year
given up
Location and name of "bank
of
By
By
By
By
change consolida- conver- consolida- conversion
tion
tion
sion
ALABAMA
Birmingham
Am. Tr, & Svgs. Bk.
Mobile
Merchants Bank
12,312
1927
10,878
1927
Total
MISSISSIPPI
Clarksdale
Planters Bk.
12,312
1922
13,013
Total
13.013
29,882
SOUTHWESTERN STATES - TOTAL
LOUISIANA
New Orleans
Canal-Com'1 N a t ' l Bk.
1921
Total
TEXAS
Dallas
Guaranty Bk. & Tr. Co.
Mercantile Bk. & Tr. Co.
Mercantile N a t ' l Bk.
Galveston
Texas Bk. & Tr. Co.
San Antonio
City N a t ' l Bk.
10,51^
6,1+26
6,Ui6
10,867
7,350
192U
1929
Total
20,192
10,51^
1922
1925
1929
i/ESTEBN GEAIN STATES - TOTAL
MINNESOTA
Minneapolis
St. Anthony F a l l s Bk.
S t . Paul
State Svgs, Bk.
Total
10,878
8,%1
19.368
20,192
186J66
95,395 3 1 , ^ 7
1922
5,33^
1931
8,560
13>S9^
Hf
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems by Consolidation and Conversion,
by S t a t e s , 1921-1931 (Continued)
( i n thousands5 of dollars)
National charters State charters
given up
given up
Year
Location and name of bank
of
By
iy
By
By
change consolida- conver- consolida- convertion
sion
sion
tion
IOWA.
Des Moines
Des Moines S v g s . Bk. & T r .
Co.
1929
6,86l
6,863
Total
MISSOURI
Kansas City
N a t ' l Bk. of Commerce
S t . Louis
Boatmans Bk.
Central N a t ' l Bk.
Farmers & Merchants Tr. Co.
Franklin-Am. Tr. Co.
I n t e r n a t ' l Bk.
Liberty Central Tr. Co.
Merchants-Laclede ITat'l Bk.
N a t ' l Bit. of Commerce
N a t ' l City Bk.
State N a t ' l Bk.
1921
1926
1921
1928
1931
1928
1929
1929
1929
1930
1929
Total
KANSAS
Topeka
Bank of Topeka
51,852
20,473
20,808
5,760
29,098
7,74o
37,800
17,7^5
66,673
12,268
17,420
186,766
74,638 26,233
1925
5,214
Total
5.214
iOCKY MOUNTAIN STATES - TOTAL
8,970
COLORADO
Denver
Am. Bk. & Tr. Co.
1924
8,970
Total
2,970
PACIFIC COAST STATES - TOTAL
25s,824
8 9 1 , 9 ^ 5^1,517
OREGON
Portland
Ladd & Tilton Bk.
1925
Total
18,195
18,195
f£,o
Table IV - Banks with Loans and Investments of $5,000,000 and over Lost to the
National and State Banking Systems "by Consolidation and Conversion,
by States, 1921-1931 (Continued)
( i n thousands of dollars)
National c h a r t e r s State charters
given up
Year
given up
Location and name of bank
By
of
3y
By
By
change consolida- conver- consolida- convertion
sion
tion
sion
CALIFORNIA
Fresno
F i r s t N a t ' l Bk.
Long Beach
F i r s t N a t ' l Bk.
Long Beach N a t ' l Bk.
Los Angeles
Citizens Tr. & Svgs. Bk.
Hellman Com'l Tr. & Svgs. Bk.
Merchants N a t ' l Tr, & Svgs. Bk.
N a t ' l City Bk. of Los Angeles
Pacific-Soutiiwest Tr. & Svgs. Bk,
Security Tr. & Svgs. Bk.
Oakland
F i r s t N a t ' l Bk.
Oakland Bk,
Sacraaoento
Farmers and Mechanics Bk.
Peoples Bk.
San Diego
F i r s t Tr. & Svgs. Bk.
San Francisco
Am. N a t ' l Bk.
Bk. of Am. of Calif.
Bk. of I t a l y
Merchants N a t ' l Bk.
Wells Fargo-Nevada N a t ' l Bk.
1921
S.922
1929
19 24
5,0^3
6,225
1928
1926
192S
192S
1927
1929
123,896
8,624
192U
1929
9,445
39,793
65,420
179.033
230,788
53,767
1
192S
1927
i
1927
7,143
7,46o
5,629
t
18,4341
i
1923
1930
1927
1923
1923
541,517
8,024
70,211
Total
258,824
'TNITED STATES - TOTAL
284,716
873,749 541,517
3,992,770 |28,585 3,210,5S7 770,547
•
1 —
„
i, ,
Sources: Data on bank changes collected by Committee on Branch, Group and Chain
Banking, supplemented by records of Federal Reserve Board, Division of Bank
Operations, and Rand McNally Bankers Directory. Since the Directory figures
appear only at six-month intervals, loans and investments at time of consolidation or conversion may have differed from those given above in some cases.
- 161 ^
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{lS8k)
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@FedFRASER