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c BANK OF AMERICA 0 P Y National Trust and Savings Association Los Angeles California Honorable Marriner Koolee, Chairman, Board of Governors, Federal Reserve System, Washington, D* C. Dear Marrinert I have baan thinking over the ooxanunications t h a t we hare received f r o * the Federal Reserve System during recent months and I f i n d i t d i f f i c u l t t o reconc i l e the p o s i t i o n taken by you and your assooiates w i t h the assurances given t o us when we had occasion t o discuss the p o s s i b i l i t y of converting the Bank of America from the n a t i o n a l t o the s t a t e systssu Both you and John MoKee properly stated t h a t | o u r i n t e r e s t s could count upon receiving the i u n f a i r end impartial t r e a t ment from the Federal Reserve Board as i s accorded t o any other i n s t i t u t i o n s * [ 1 This c o n f l i c t s sharply w i t h the views expressed i n the Board * s l e t t e r of February I l U , 19^2, addreesed t o Transanorioa Corporation, i n which the Board takes the p o s i t i o n t h a t , ""regardless ofmmmmmmmi***i t s m e••j'f.mg r i t s , an a p p l i c a t i o n from any i n s t i t u t i o n i n " the Transsaerioa group, or i n any way connected w i t h i t , would reeeive an adverse ; r u l i n g from the Board, t h i s deoision as to procedure having been reached i n I oollaberation w i t h the Comptroller aad the Federal Deposit Insurance Corporation* I n a subsequent l e t t e r t o the Corporation from the Federal Reserve Bank, dated July 13, t h i s a r b i t r a r y p o s i t i o n of the Board i s confirmed by the r e j e c t i o n of the applications of the F i r s t Trust aad Savings Bank of Pasadena without any apparent reason even though the Superintendent of Banks of C a l i f o r n i a had granted uncond i t i o n a l permits f o r the branches a f t e r f i n d i n g t h a t public convenience and advantage would be promoted thereby* U a r r i n e r Eooles - k. I t mast be obvious t o you t h a t suoh a p o s i t i o n ! • not only d i s c r i m i n a t o r y , but a l t o i n j u r i o u s t o Transamerioa Corporation, and causes an adverse r e f l e c t i o n on i t , and i t i s also i n j u r i o u s t o the m i n o r i t y stockholders i n banks i n which Transamerioa Corporation holds an i n t e r e s t , as w a l l as t o the banks themselves* Wa do not know of any l e g a l j u s t i f i c a t i o n f o r suoh a c t i o n , and you f a i l ed i n your l e t t e r t o i n d i c a t e what information, i f any, you hare i n your f i l e s t h a t would warrant it* P r a c t i c a l l y a l l t h a msmbers of t h e Board know we w e l l enough, X t h i n k , t o r e a l i s e t h a t when X have anything on ny mind X do not h e s i t a t e t o speak i t out as f r a n k l y and d i r e c t l y as X can, and X f e e l i t i s only reasonable t o expect t h a Board t o adopt t h a same a t t i t u d e toward me and t a l l we f r a n k l y what i s t h e basis f o r i t s d i s c r i m i n a t o r y treatment of t h e i n t e r e s t s w i t h which X em so closel y connected* X doubt i f t h e r e i s any bank o f oowparable s i t e i n the country t h a t i s any more l i q u i d or i n a aore sound and healthy condition than Bank of America, and X t h i n k t h a t a c a r e f u l review of the l a s t examination wade of Tranaemerlea Corporation by the Federal Reserve Systsm w i l l i n d i c a t e t h a t t h i s Corporation a l s o i s i n a sound c o n d i t i o n , and t h e same a p p l i e s t o a l l of t h e banks i n which i t has an i n t e r e s t * At l e a s t , we d i d not note any serious c r i t i c i s m I n reviewing t h e examination o f Transsmeriea Corporation* Frankly, X should l i k e t o know what i s t h e cause, Imaginary or otherwise, of t h i s d i s c r i m i n a t i o n ! whether i t be t h e condition o f our i n s t i t u t i o n s , t h e i r managements, or any other eiroumstanoe* I n the past t a n years during which X hare been responsible f o r the d i r e c t i o n o f t h e a f f a i r s o f t h a Bank of Amerloa, on t h e n a t i o n a l bank examiner's b a s i s , exclusive o f t h e p r e f e r r e d stock i s s u e , i t has added more thaw 157*300,000 t o i t e n e t sound c a p i t a l s t r u c t u r e over and above dividends paid i n t h a t period uhleh aggregated $7k.ZlU,0i#.lk, and which were f u l l y justified. M a r r l a e r F.coles - J While the growth of the bank haa been r a p i d , other banks hare grown r a p i d l y t o o , so we, i n f a o t , more r a p i d l y than our bankj and y e t t h e r e i s no apparent attempt t o d i s c r i m i n a t e against those other banks* I t should be obrioua t h a t our p o s i t i o n , i f anything, i s stronger than t h a t of most of the other r e p i d l y growing banks, due t o t h e f a o t t h a t t o a large extent our business i s mede up o f a great number of small aooounta, over 2,500,000 an o v e r - a l l average of less than $765*00 par account, end deposits of more than 1900,000,000 are i n t h e time category where they a r e not subject t o withdrawal without notioe i n en emergency* I am sure you w i l l recognise t h a t t h i e condition does not e x i s t i n t h e Other l a r g e banks which have r e l a t i v e l y few accounts, but which ore subject t o having p r a c t i c a l l y a l l t h e i r deposits withdrawn over n i g h t * Most of these other l a r g e banks have few, i f any, savings or time deposits, and, t h e r e f o r e , a r e more vulnerable* The greater p o r t i o n of t h i s bank*a assets i s represented by cash, investments i n s e c u r i t i e s o f t h e United states Government, and loans guaranteed by t h e Government, such as FHA and guaranteed defenae loans* Zn a l l o f our more t h a n 12,000,000,000 of assets, we have approximately o n l y | 2 5 0 , 0 0 0 , 0 0 0 I n oonaerolal loans, a s u b s t a n t i a l p o r t i o n of which I s support* ed by government guaranties* Our r e a l e s t a t e loans are r e l a t i v e l y small loans averaging leaa t h a n #5000 each* and v i r t u a l l y a l l o f them are on aa i n s t a l l m e n t 1 basis* t h e t o t a l o f our Investments and loena which are o b l i g a t i o n s of t h e United States Gevenaseat and p o l i t i c a l s u b - d i v i s i o n s , or are guaranteed by thsm, amounts t o approximately # 1 , 0 3 6 , 0 0 0 , 0 0 0 , end we have I n a d d i t i o n , cash and cash itssis approximating 1^)0,000,000* P r a c t i c a l l y a l l o f our assets oould be eold a t a premium which l a not t r u e o f t h e other great banks o f t h e country* The banking promisee which we own and occupy are a l l w e l l s i t u a t e d I n t h e center o f t h e bueinees d i s t r i c t s o f t h e i r respective mwmmnltloa, and i n t h e moat v a l u a b l e l o c a t i o n s * The American Appraiaal Company valued our promleee toward t h e eloee of 19&9, end a r r i v e d a t a v a l u a t i o n f i g u r e g r e a t l y l a axoeaa Marriner Eoeles - ! of tho c a r r y i n g value of the properties on our books* We oust not lose sight of the f a o t s t h a t our premises are not a l l looated i n one community j t h a t they a r e I n the most d e s i r a b l e l o c a t i o n s spread over the most r a p i d l y growing and prosperous State i n the union, which State has experienced e x t r a o r d i n a r y population growth since the l a e t census i n 19ij0* Zt i s obvious t h a t w i t h such growth as i s t a k i n g plaoe i n C a l i f o r n i a , and t h a t w i l l oontinue t o take plaoe, a d d i t i o n a l banking f a c i l i t i e s are neoossary* I cannot understand why there should be t h i s disorlmination against us and our attempt t o extend our services where the need has been d e f i n i t e l y established when other i n s t i t u t i o n s havs no d i f f i c u l t y i n opening new branches when they desire t o do so* The Bank o f Amsrloa, since i t s organisation i n 190U, has weathered a l l sorts of eoonoedo storms> I have seen i t through several depressions end a b i t t e r l y contested proxy f i g h t * Our correspondent banks and large commercial c l i e n t s w i l l t e s t i f y t o t h e f a c t t h a t t h e i r experience i n doing business w i t h us has demonstrated t o them t h a t we have the best banking organisation i n the country, and I defy anyone t o point out a mere sound bank or oonpetent Management anywhere* W i t h the g r e a t e s t p o r t i o n of our assets i n cash, or guaranteed by, or c o n s i s t i n g o f , o b l i g a t i o n s o f the United States Ooveramsnt and p o l i t i c a l s u b - d i v i s i o n s , and a proven earning power I challenge any e f t h e bank super* v i s o r y agencies t o point out a comparable s i t u a t i o n * Our other r e a l e s t a t e owned amounts t o the r e l a t i v e l y figure of 800,000* insignificant The land contracts o f C a p i t a l Company have a present balance e f #16,670,530*7U# and a r e the unconditional o b l i g a t i o n s of the company, which has a a c t c a p i t a l s t r u c t u r e o f wore than #33*i«99»000* Through such con- t r a c t s , r e a l e s t a t e o f mere than $55,000,000 has been l i q u i d a t e d , and mast of t h i s was acquired through leans wade by i n s t i t u t i o n s taken over by us, i n many eaaes a t tha request e f benHwg a u t h o r i t i e s and to save t h e depositors from loss* Jjarrincr Eccles Tou are f a m i l i a r w i t h the f a o t t h a t the Bank of Amerioa waa oompelled t o take p r e f e r r e d etoek when i t d i d not need i t , as we oontended a t the t i n s , and our arguments i n t h i s respeot have been overwheImingly substant i a t e d by subsequent events* Our i n s t i t u t i o n took no advantage o f charging o f f i t s assets a t the t i n e of the moratorium and o f f s e t t i n g sueh charge o f f s w i t h p r o f f e r e d stock because wo knew t h a t such a c t i o n was not neoessary and t h a t i t imposed an unnecessary burden on the Government and an u n j u s t i f i a b l e charge against the earnings o f the bank* On the p r e f e r r e d atoek t h a t we were oompelled t o t a k e , we have paid approximately $2,000,000 i n dividends and have derived no b e n e f i t i n r e t u r n * The bank would c e r t a i n l y have been much b e t t e r o f f t o have added t h a t $2,000,000 t o the more than $140,000,000 added t o the net sound c a p i t a l s t r u c t u r e , on the examiner 9 a basis, i n the past three years* The o n l y reason t h a t I can as or i be t o the Board* s continued r e f u e a l , outside t h e law, t o permit t h e normal extension o f our services t o places where banking s e r v i c e l a obviously needed, i s because i t does not l i k e the Sianagement. attitude* I n my o p i n i o n t h e r e t a c e r t a i n l y no j u s t i f i c a t i o n f o r t h i a This management took ever the benk a f t e r the b i t t e r proxy f i g h t I have mentiomed, and a l l o f the losses which during the time o f the moratorium would have been charged o f f by other benke through the medium o f p r e f e r r e d stock were subsequently charged o f f by us out of earnings* have had the e x t r a o r d i n a r y experience of s u r v i v i n g earthquakes, f i r e , We panics, depressions, the moratorium, conspiracies, and a b i t t e r proxy b a t t l e , and have a toed up under come t e n t harassment on the p e r t of bank supervisory a u t h o r i t i e s , end ether Federal Agencies, and y e t here me are today w i t h O s p i t a l funds, exclusive o f p r e f e r r e d stock, the g r e a t e s t i n t h e h i s t o r y o f the bank, and our earning capacity unexoelled by any ether bank* Only a Marriner Eoeles - ! sound and properly managed I n s t i t u t i o n could have survived. Ho bank I n the country has cooperated more f u l l y w i t h the Government than the 3ank o f America, and i n recognition of t h i s f a c t the Treasury Department, despite the strenuous controversies of ths p a s t , has seen f i t to award i t the f i r s t c i t a t i o n t o be issued t o sny bank i n the United States f o r m e r i t I n promoting the war e f f o r t . We have sold more i n d i v i d u a l defense and war bonds than eny other bank, a t a continuing cost t o t h i s of more then $30,000 a month. d a i l y sales o f bonds. institution Enclosed i s t h e most recent r e p o r t showing We have flnanoed war industries before and a f t e r Regulation ¥ booan© operative t o en extent not exceeded by any other bsnk. I n the m program, we l e d the f i e l d and showed the way for other banks t o cooperate! and, today, we lead the Ration i n the volume of a l l types of FHA loans made end i n cooperating w i t h t h i s a d m i n i s t r a t i o n i n i t s other programs! and we a r e 100^ behind t h e Government's program to win the war. I do not t h i n k t h a t sny bank i n the h i s t o r y of t h i s country has been more p e r s i s t e n t l y persecuted than the Bank of America. Can i t be due t o the f e e t t h a t we do not represent the veeted i n t e r e s t s , and t h a t throughout i t s h i s t o r y i t has been a bank of the people, owned by many thousands of small stockholders T Or ean i t be t h a t t h e r e i s a more s i n i s t e r motive? I hope f o r the sake of the f u t u r e w e l l - b e i n g o f our country t h a t t h i s i s not t h e ease. Z must s t a t e to you f r a n k l y , M a r r i n e r , t h a t I t h i n k the p o s i t i o n of the supervisory agencies i s not sound and i n the long run oannot be sustained tnder our Aseriean system of f r e e e n t e r p r i s e * Let us not expend our time and energies i n contending over t h a t fundamental o f freedom-loving people of equal* i t y under t h e law* I t seems inappropriate t h a t governmental agencies should a t t h i s time be reaching out t o usurp ths l e g i s l a t i v e whoa t h e r e i s prerogatives, so auoh need f o r t h e exercise of a d m i n i s t r a t i v e functions t o Marriner Eoeles - ! preserve t h e very existence o f the Nation* I f you do not l i k e the e x i s t i n g laws, l e t us t r y to change thsro by c o n s t i t u t i o n a l means. We should not i n these tisms r e s o r t t o Basi~Pasoist methods o f d i c t a t o r ship. This i n s t i t u t i o n i s c e r t a i n l y no instrument of e v i l , as the action of the Board toward i t would seem t o imply. exorcised c o n s i s t e n t l y a beneficent Through the years, i t has and oonstruotive influenoe on the w e l f a r e of the s t a t e and n a t i o n and the .great number o f C a l i f o r n i a n s i that i t serves. I t h i n k t h a t i n j u s t i o e you should e x e r t your influenoe to have the Federal Reserve Board subscribe to the s p i r i t of f a i r and i m p a r t i a l treatment t o which you have so f r e q u e n t l y subscribed i n t h e past. you please l e t me know what you can do about i t * Won't I f i t i s a matter of some t e c h n i c a l i t y t h a t i s involved, can we not resolve t h a t by agreeing t o a f r i e n d l y l e g a l proceeding f o r e d e c l a r a t o r y judgment d e f i n i n g the powers and a u t h o r i t y of the Board, or f o r c l a r i f i c a t i o n of the statues i f they are mabiguousT I should l i k e to have your oooperation i n seeking freedom from prejudi and d i s c r i m i n a t i o n and t h e attainment of t h e l i b e r t i e s which we as a n a t i o n a r e s a c r i f i c i n g and f i g h t i n g t o preserve f o r ourselves, and t o seoure f o r others* With kindest personal regards t o you. Tours very s i n e e r e l y , (Signed) A . P. Giannini
@FedFRASER