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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 of i t s m e 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
"
mmmmmmmi***- ••j'f.mg
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
 a t tha
eaaes


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