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J a n u a r y / p-.— . 1943 •

Hon. Leo T. Crowley, Chairman,
Federal Deposit Insurance Corporation,
Washington, D.C.
Dear Mr. Crowley:
l$r attention has been called to letters which you have recently
written to Senators McCarran and Scrugham of Nevada, dated respectively
December 29, 1942 and January 5, 1943•
If these letters accurately express your thoughts with respect
to the subject matter covered, you are evidently laboring under a gross
misapprehension which can very readily b e corrected.

In addition to this,

however, both of the letters contain implications with respect to the Bank
of America which are wholly unwarranted and which would seem to constitute
gratuitous reflections upon its management.
They were written to explain the disapproval of the application
of the new little Bank of Nevada at Las Vegas, Nevada, with deposits of some
two and a half million dollars, to become an insured bank.
Senator McCarran you say:

In your letter to

"Frankly, the question presented in this instance

could not be determined solely on the basis of the eligibility of this partic­
ular institution.

The question inevitably involves the broader question of

the advisability of the further expansion of the Bank of America."
In your letter to Senator Scrugham you speak of the ati^ti/de of
the three Federal banking agencies, saying:

"They recognize, too, from past

experience the great losses suffered by depositors from over expansion of
credit, and for that reason, they are unalterably opposed to further expan­
sion of the already extensive branch banking conducted by the Bank of America."

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I am advised that the officers of the Bank of Nevada at Las Vegas
gave complete information as to the ownership of the stock in that bank; that
the bank was examined try examiners appointed by your Corporation; and that you
were supplied with all necessary information concerning it.

You should know,

therefore, that this bank does not represent any expansion whatsoever of the
Bank of America.

You should also know that so far as extension of credit is

concerned the Government of the United States is the chief recipient since the
bank's assets consist overwhelmingly of cash and Government bonds.

You seem

to admit that the bank is eligible, but claim the right to reject it because
you dislike another insured bank.

I am advised that yo u have no such authority,

but that is beside the point for the present.
In both letters you speak of a tremendous risk concentration in the
Bank of America and of the great concern that your agency and the other two
Federal agencies feel over the problem presented by the application of this
small bank in Nevada on this account,

^ou even go to the extent of associating

undue expansion of credit with branch banking as exemplified in the Bank of
America, and in this connection you refer to "loose bank management and bank

Of course I do not know whether in referring to loose super­

vision as bearing upon the denial of t his application y o u intend any reflection
upon the authorities in the State of Nevada who had previously approved the
charter as well as endorsed the application for insurance, or whether the state­
ment is a mere inadvertent reflection of attitude fcy a Federal officer accustomed
to rendering final judgment in extending the benefits of Federal statutes which
are required to be extended on a basis of equality and without discrimination.
I assume that the State authorities are entirely competent if they choose to
deal with this phase.

However, in so far as your expression of an adverse


judgment concerns the Bank of America ty associating with its branch banking
system the specter of a dangerous expansion of credit, I feel that my long
experience in banking entitles me to enter a vigorous protest and rejoinder.
Not only this, but I feel that it also entitles me to say to y ou
very frankly that branch banking occupies just as legitimate a place in the
banking system of this country as unit banking.

It is expressly authorized

by law and in my opinion it is the duty of Federal officers charged with ad­
ministering Federal banking statutes to administer them on a basis of equality
as between branch banks and unit banks.
As the head of one of the Federal bank supervisory agencies in
the United States, I assume that you are aware of the fact that the branch
banking system is very extensively developed in all of the English speaking
world as well as elsewhere.

It is firmly established in many states of this

country and in many foreign countries

such as England, Scotland, Ireland,

Canada, Australia, New Zealand, South Africa, India, Turkey and Sweden.


established it is serving the public so well that there is no thought of depart­
ing from it.

One of the greatest merits of this system is that it gives to

such banks the strength ani stability which come with wide diversification of
assets, while giving to the communities in which branches are located greater
facilities than they could otherwise enjoy.
Another merit of this system lies in its effectiveness as a de­
terrent to the monopolization of credit in financial centers situated remote
from areas in need of capital and credit for the development of their resources.
The decentralization of credit control was a fundamental consideration by
President Wilson and Senator Glass when they secured the creation of the Federal
Reserve System.

This is reflected not only in their unalterable opposition to

a central bank but also in the provisions of the Federal Reserve Act locating

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autonomous Federal Reserve banks in s eparate districts throughout the country,
thus giving to each district a measure of independence.

This independence

would be largely destroyed ty the imposition of restraints upon the development
of financial institutions within such districts ishieh would be capable of sup­
plying the credit needs of the localities with which they are identified.


perience shows that branch banking furnishes practically the only alternative
to dependence upon remote sources for adequate credit supply.
Furthermore, well developed branch banks are not susceptible to the
influence of large correspondent banks in Eastern money centers, a nd the ex­
perience of the past ten or fifteen years irj^anking, as well as that of the
present war emergency, should impress practical men with the value of this
feature of independence.

I have no way of knowing whether yotir appreciation

of the value of independence continues to be as marked as it was several years
ago, w hen directing the affairs of your Corporation was a full-time job.


references then to the relations between the metropolitan banks and their
"country cousins* and your comments upon the "well-defined path of failures
from rural areas to Wall Street* struck a responsive chord.

We do not propose

to tread that path.
You know as well as I that those who lost the fight they made for
the central bank idea have never become reconciled to regional independence,
and I have no doubt that they applaud every move to obstruct it.

I trust

that the connections y o u have made in financial circles since going to Washington
do not cause you to overlook these facts.

At any rate, the law under which your

Corporation operates furnishes a clear guide by which to determine the applica­
tion of a bank in Nevada for insurance.
exposed in the past?

Why resurrect the ghosts that have been

Why not follow the law?

The ability of banks in this area to finance the unprecedented
expansion within it of war industries such as airplane construction, ship­
building, magnesium, steel, power, lumber, food, etc., is an ample demonstra­
tion of the merits of branch banking.

No similar area in the United States

has so great an economic diversification as has California and branch banking,
if not strangled lay Washington bureaucracy, will not only greatly aid in the
development of its great resources but will help to maintain that degree of
regional independence which is so essential to social and economic solidarity.
A branch banking system such as the Bank of America, large enough
to enjoy the healthy diversification of assets which characterizes an economy
as diverse as that of California, does not rise and fall with the alternating
tides that may seriously affect one locality or a number of localities in
which a single industry may be predominant.

Nevertheless, you would seem to

regard the insuring of such a bank as involving a "concentration of risk.*
As a matter of fact, it would be more accurate to say that in insuring it
your Corporation automatically acquires an advantage (which is essential to
the soundness of any insurance) —

that of spreading the risk over a wide

lour Corporation itself is a device for spreading the risk of deposit

loss over the banks as a whole.

Therefore, the greater diversity of assets

in a particular bank the more nearly does it conform to the principle upon
which your Corporation is founded.

From the viewpoint of deposit insurance

risk your Corporation in insuring a bank covering a broad and diversified
area:is much better protected than in insuring a large number of small banks,
the loans and investments of which are less diversified.

Furthermore, in

view of the policy of your Corporation to avert loss in large banks by pro­
tecting depositors to the full extent of their deposits, I cannot understand
why you would speak of concentration of risk in a bank as though it paralleled

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a large volume of deposits or loans or as though one bank was peculiar in
this respect.

Other banks also have large deposits and loans and I have heard

of no efforts on the part of the Federal Deposit Insurance Corporation to cur­
tail their business.

Altogether, your references to credit expansion and con­

centration of risk seem to me to be entirely inappropriate and so utterly in­
adequate as an explanation of the action of your Corporation in this instance
that instead of justifying it they would seem to reveal its character as arbi­
trary official action.
So far as the Bank of America and its management are concerned the
bank has had an extraordinary experience which in itself is a testimonial
both to branch banking and to the competency of its management.

It has sur­

vived earthquakes, fire, panics, depressions, the moratorium, conspiraciea
and a bitter proxy battle; it has stood up under coistant harassment on
the part of bank supervisory authorities and other Federal agencies; it
has saved mazy thousands of bank depositors in the area where it does busi­
ness the misfortune that overtook depositors in other parts of the country.
Aside from a few localities where needed facilities have been arbitrarily
denied, there is no general area in the United States that is better served
bankingwise than the area served by the Bank of America.
capital funds are the greatest in its history.

Today the bank's

It has been able to utilize

its earnings to offset losses originating primarily in banks which were taken
over, many at the urgent request of supervisory authorities, and which were
incidental to the greatest banking catastrophe in the history of our country.
It continues to maintain an earning capacity second to no bank in the United

A bank and a management with such a record should, in my opinion, be

entirely dissociated in the minds of responsible Federal supervisory authorities
when dwelling on loose bank management.
with which they have had closer contact?

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Why would they not think of experiences
Oui* correspondent banks and large

commercial clients, as well as our millions of customers who appreciate the
quality of our service, will testify that their experience in doing business
with vis has demonstrated to their satisfaction that there is not a more sound
bank or one that is more competently managed than Bank of America.

In many

respects it has furnished a pattern to be followed by others.
It has always been the policy of this bank to welcome competition.
We believe in competition.

I note that Congress has authorized your Corporation

to loan its funds, which are derived from the assessments on all banks, to
facilitate mergers and consolidation of banks.
to maintain competitive conditions.
rather liberally exercised.

This, of course, does not help

I note, too, that this authority has been

Altogether it appears that there has been an in­

crease in the number of branches operated ty other banks and a decrease in the
number of unit banks during the past several years.

It would seem from this

that your Corporation does not shrink from carrying out the policies established
by law where other banks are concerned, nor does it hesitate apparently to lend
its weight in support of discriminatory action of other supervisory authorities
where the Bank of America is concerned.
Referring again to your statement concerning “expansion of credit”
I wonder if you realize the utter baselessness of any express or implied charge
against the Bank of America.

I do not know whether you have seen the last

annual report of President L. M. Giannini to the stockholders of the bank, but
let me call your attention to a few of the items.

The increase in deposits

during 19-42 amounted tp $677,756,778; investments increased $572,635 >534; loans
decreased |74,099,592.

The investment in the obligations of the Federal Govern­

ment and its agencies increased $549,353,856.

Its liquidity is even greater

than would be evidenced by this figure alone for out of the total investment
in Government securities of $1,043,061,518.77 at December 31, 1942 $510,563,000

or approximately half of the investment was in maturities of five years or
less and more than one-third of the account represents maturities of one year
or less, and added to this is total cash of $605,041,384.74-

The loans and

commitments for war production purposes for the twelve months ended September
30, 1942 totaled #409,631,000 and many of the loans making up the total of
the bank's loans are nVB loans.

Besides, the bank during the last calendar

year sold to the public $160,218,000 was savings bonds.

I know you do not

mean to criticize the bank on account of its participation in the financial
program of the Government in connection with‘
the war, but why do you talk of
credit expansion at all in connection with the Bank of America?
tion reviews the reports of its examination.

lour Corpora­

Tou have the facts and you know

that there is not a bank in the United States of comparable size which has a
more favorable loan experience or a finer loan portfolio than the Bank of
You also have the facts with reference to banks other than Bank of
Nevada that are under the same majority ownership as that bank.

(This bank

is not in that category, for less than 10$ of the common stock of Bank of
America is owned by any one stockholder.)

I know that that ownership would

invite any comparison you may be inclined to make between the management of
such banks and the former management of them, or between the present management
and the management of other insured banks.
parison will result most favorably.

I am confident that any such com­

If you claim for your Corporation the

right to discriminate between applying barks on the basis of the absolute or
relative quantity of bank stock owned by a particular stockholder, would you
be good enough to advise me of the legal provision authorizing such discrimina­
tion? Where does the law draw the line as to quantity?


Do you claim the right

to deny applications of qualified banks which are substantially under the same
type or quality of ownership as other insured banks?

Upon what legal or other

basis do you discriminate against either majority or minority stockholders or

I should appreciate any information you might be able to give me along

this line.
lour letters suggest another question that is perhaps more direct
and pertinent than any of the above.

Under what provision of law does your

Corporation or the other Federal banking agencies determine the advisability
of any banking corporation increasing its legitimate business along sound
lines and under what law can it or they determine whether it is advisable
for one bank to extend its legitimate business and for another bank, equally
equipped, not to do so?
I like to be frank in stating my position or in discussing the af­
fairs of institutions in ishich I am interested with those vested with super­
visory authority.

You may recall that I wrote yo u quite fully on June 2,

1938, concerning your address to the California Bankers Association.

In that

address you had incorporated what seemed to me to be an unwarranted assault
upon the branch banking system of the State, which you deleted during actual

Subsequent events showed that this address corresponded somewhat

in point of time with the work of the conspirators who were then endeavoring
either to wreck or gain control of the Bark of America.
I have always earnestly and consistently endeavored to promote a
better understanding of the institutions with which I have been associated for
the major part of my life and I have particularly endeavored to enlighten those
in high public places who have the responsibility of bank supervision in the
public interest.

I know that the measure of public service any financial

organization can render is dependent largely upon confidence —

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born of honesty and understanding.

It is at times disheartening to find

highly placed persons who have access to accurate sources of information
substituting grossly erroneous assumptions for facts and using them in an
attempt to justify unwarranted official action, but I shall continue to
consider it my duty nevertheless to set them right.

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