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Z-1005

FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON
February 6, 1943

Dear Mr. Eccles:
Mr. Crowley has requested me to send you the
enclosed copy of the l e t t e r dated February 1, 1943 received by
him from Mr. A. P. Giannini, Chairman of the Board of Directors
of the Bank of America N.T. & S.A., r e l a t i v e to the action of
t h i s Corporation on the application of the Bank of Nevada,
Las Vegas, Nevada, to become an insured bank and correspondence
relating thereto.
This i s furnished for your information and as,
soon as a reply has been drafted, a copy of that w i l l likewise
be sent to you.
Yours very t r u l y ,
(Signed) Francis C. Brown
Francis C. Brown
Solicitor

The lionorabls Marriner S. Eccles, Chairman
Board of Governors of the
Federal Reserve Qystem
Washington, D. C.

BANK OF AMERICA
N a t i o n a l T r u s t & Savings A s s o c i a t i o n

A. P. G i a n n i n i
Chairman o f t h e Board o f D i r e c t o r s

Palm Beach, F l o r i d a
February 1 , 1943

Hon. Leo T. Crowley, Chairman,
Federal Deposit Insurance C o r p o r a t i o n ,
Washington, D. C.
Dear Mr, Crowley:
My a t t e n t i o n has been c a l l e d t o l e t t e r s which you have r e c e n t l y
w r i t t e n t o Senators McCarran and Scrugham o f Nevada, dated r e s p e c t i v e l y
December 29, 1942 and January 5> 1943I f these l e t t e r s a c c u r a t e l y express your tnoughts w i t h respect
t o t h e s u b j e c t m a t t e r covered, you are e v i d e n t l y l a b o r i n g under a gross
misapprehension which can v e r y x e a d i l y be c o r r e c t e d . I n a d d i t i o n t o
t h i s , however, b o t h o f t h e l e t t e r s c o n t a i n i m p l i c a t i o n s w i t h respect t o
the Bank o f America which are w h o l l y unwarranted and which would seem t o
c o n s t i t u t e g r a t u i t o u s r e f l e c t i o n s upon i t s management.
They were w r i t t e n tx> e x p l a i n t h e d i s a p p r o v a l o f t h e a p p l i c a t i o n
o f t h e new l i t t l e Bank o f Nevada a t Las Vegas, Nevada, w i t h deposits o f
some two and a h a l f m i l l i o n d o l l a r s > t o become an i n s u r e d bank. I n your
l e t t e r t o Senator McCarran you say: " F r a n k l y , t h e q u e s t i o n presented i n
t h i s i n s t a n c e could not be determined s o l e l y on t h e b a s i s o f t h e e l i g i b i l i t y o f t h i s p a r t i c u l a r i n s t i t u t i o n . The q u e s t i o n i n e v i t a b l y i n v o l v e s
t h e broader q u e s t i o n o f t h e a d v i s a b i l i t y o f t h e f u r t h e r expansion o f t h e
Bank o f America."
I n your l e t t e r t o Senator Scrugham you speak o f t h e a t t i t u d e o f
t h e t h r e e Federal banking agencies, saying: "They r e c o g n i z e , t o o , f r o m
past experience t h e g r e a t losses s u f f e r e d by d e p o s i t o r s froin over expans i o n o f c r e d i t , and f o r t h a t reason, t h e y are u n a l t e r a b l y opposed t o f u r t h e r expansion o f t h e a l r e a d y extensive branch banking conducted by t h e
Bank o f America."
I am advised t h a t t h e o f f i c e r s o f t h e Bank o f Nevada a t Las
Vegas gave- complete i n f o r m a t i o n as t o t h e ownership o f t h e stock i n t h a t
bank; t h a t t h e bank was examined by examiners appointed by your Corporat i o n ; and t h a t you were s u p p l i e d w i t h a l l necessary i n f o r m a t i o n concerni n g i t . You should know, t h e r e f o r e , t h a t t h i s bank does not represent
any expansion whatsoever o f t h e Bank o f America. You should a l s o know
t h a t so f a r as e x t e n s i o n o f c r e d i t i s concerned t h e Government o f t h e
United States i s t h e c h i e f r e c i p i e n t since t h e bank's assets c o n s i s t o v e r whelmingly o f cash and Government bonds. You seem t o admit tjhat t h e bard?'




Hon* Leo T. Crowley

- 2 -

February 1, 1943

i s e l i g i b l e , b u t claim t h e r i g h t t o r e j e c t i t because you d i s l i k e another
i n s u r e d bank. I am advised t h a t you have no such a u t h o r i t y , but t h a t i s
beside t h e p o i n t f o r t h e present.
I n b o t h l e t t e r s you speak o f a tremendous r i s k c o n c e n t r a t i o n
i n t h e Bank o f America and of t h e great concern t h a t your agency and the
o t h e r two Federal agencies f e e l over t h e problem presented by the a p p l i c a t i o n o f t h i s small bank i n Nevada on t h i s account. You even go t o the
extent o f a s s o c i a t i n g undue expansion o f c r e d i t w i t h branch banking as
e x e m p l i f i e d i n t h e Bank o f America, and i n t h i s connection you r e f e r t o
"loose bank management and bank supervisions." Of course I do not know
whether i n r e f e r r i n g t o loose s u p e r v i s i o n as b e a r i n g upon the d e n i a l o f
t h i s a p p l i c a t i o n you i n t e n d any r e f l e c t i o n upon t h e a u t h o r i t i e s i n t h e
State o f Nevada who had p r e v i o u s l y approved t h e c h a r t e r as w e l l as endorsed t h e a p p l i c a t i o n f o r insurance, o r whether the statement i s a mere
i n a d v e r t e n t r e f l e c t i o n o f a t t i t u d e by a Federal o f f i c e r accustomed t o r e n d e r i n g f i n a l judgment i n extending the b e n e f i t s o f Federal s t a t u t e s which
are r e q u i r e d t o be extended on a b a s i s o f e q u a l i t y and w i t h o u t d i s c r i m i n a t i o n . I assume t h a t t h e State a u t h o r i t i e s are e n t i r e l y competent i f
t h e y choose t o deal w i t h t h i s phase. However, i n so f a r a,s your express i o n o f an adverse judgment concerns the Bank o f America by a s s o c i a t i n g
w i t h i t s branch banking system t h e specter o f a dangerous expansion o f
c r e d i t , I f e e l t h a t my l o n g experience i n banking e n t i t l e s me t o enter a
vigorous p r o t e s t and r e j o i n d e r .
Not o n l y t h i s , but I f e e l t h a t i t also e n t i t l e s me t o say t o
you v e r y f r a n k l y t h a t branch banking occupies j u s t as l e g i t i m a t e a place
i n the banking system o f t h i s country as u n i t banking. I t i s expressly
authorized by law and i n my o p i n i o n i t i s t h e duty o f Federal o f f i c e r s
charged w i t h a d m i n i s t e r i n g Federal banking s t a t u t e s t o administer them
on a b a s i s o f e q u a l i t y as between branch banks and u n i t banks.
As t h e head o f one o f the Federal bank supervisory agencies i n
the United S t a t e s , I assume t h a t you are aware o f t h e f a c t t h a t t h e branch
banking system i s v e r y e x t e n s i v e l y developed i n a l l o f t h e E n g l i s h speaki n g w o r l d as w e l l as elsewhere. I t i s f i r m l y e s t a b l i s h e d i n many s t a t e s
o f t h i s country and i n many f o r e i g n c o u n t r i e s such as England, Scotland,
I r e l a n d , Canada, A u s t r a l i a , New Zealand, South A f r i c a , I n d i a , Turkey and
Sweden. Wherever e s t a b l i s h e d i t i s s e r v i n g the p u b l i c so w e l l t h a t t h e r e
i s no thought of d e p a r t i n g from i t . One of the g r e a t e s t m e r i t s o f t h i s
system i s t h a t i t gives t o such banks the s t r e n g t h and s t a b i l i t y which
come w i t h wide d i v e r s i f i c a t i o n o f assets, w h i l e g i v i n g t o the communities
i n which branches are l o c a t e d g r e a t e r f a c i l i t i e s than they could o t h e r w i s ^
enjoy.
Another m e r i t o f t h i s system l i e s i n i t s e f f e c t i v e n e s s as a det e r r e n t t o t h e monopolization of c r e d i t i n f i n a n c i a l centers s i t u a t e d r e mote from 1 areas i n need o f c a p i t a l and c r e d i t f o r t h e development o f t h e i r
resources. The d e c e n t r a l i z a t i o n o f c r e d i t c o n t r o l was a fundamental cons i d e r a t i o n by President Wilson and Senator Glass when they secured t h e




Hon* Leo T. Crowley

- 2 -

February 1, 1943

c r e a t i o n o f the f e d e r a l Reserve System. This i s r e f l e c t e d not o n l y i n
t h e i r u n a l t e r a b l e o p p o s i t i o n t o a Qentral bank but also i n the p r o v i s i o n s
o f the Federal Reserve Act l o c a t i n g autonomous Federal Reserve banks i n
separate d i s t r i c t s throughout the country, thus g i v i n g t o each d i s t r i c t
a measure of independence. This independence would be l a r g e l y destroyed
by the i m p o s i t i o n o f r e s t r a i n t s upon the development of f i n a n c i a l i n s t i t u t i o n s w i t h i n such d i s t r i c t s which would be capable of supplying t h e
c r e d i t needs o f t h e l o c a l i t i e s w i t h which t h e y are i d e n t i f i e d .
Experience shows t h a t branch banking f u r n i s h e s p r a c t i c a l l y t h e o n l y a l t e r n a t i v e t o dependence upon remote sources f o r adequate c r e d i t supply.
Furthermore, w e l l developed branch banks are not susceptible
t o t h e i n f l u e n c e of l a r g e correspondent banks i n Eastern money centers,
and the experience of the past t e n or f i f t e e n years i n banking, as w e l l
as t h a t o f the present war emergency, should impress p r a c t i c a l men w i t h
t h e value o f t h i s f e a t u r e of independence. I have no way o f knowing
whether your a p p r e c i a t i o n of the value o f independence continues t o be as
marked as i t was several years ago, when d i r e c t i n g t h e a f f a i r s of your
Corporation was a f u l l - t i m e j o b . l o u r references t h e n t o t h e r e l a t i o n s
between t h e m e t r o p o l i t a n banks and t h e i r 11 count l y cousins" and your comments upon the " w e l l - d e f i n e d path of f a i l u r e s from r u r a l areas t o W a l l
S t r e e t " s t r u c k a responsive chord. We do not propose t o t r e a d t h a t p a t h .
You know as w e l l as I t h a t those who l o s t the f i g h t t h e y made
f o r the c e n t r a l bank i d e a have never become r e c o n c i l e d t o r e g i o n a l i n d e pendence, and I have no doubt t h a t t h e y applaud e v e y move t o o b s t r u c t
i t . I t r u s t t h a t the connections you have made i n f i n a n c i a l c i r c l e s
since going t o Washington do not cause you t o overlook these f a c t s . At
any r a t e , the l a w under which your Corporation operates f u r n i s h e s a c l e a r
guide by which t o determine the a p p l i c a t i o n o f a bank i n Nevada f o r i n surance. Why r e s u r r e c t the ghosts t h a t have been exposed i n the past?
Why not f o l l o w the law?
The a b i l i t y o f banks i n t h i s area t o finance t h e unprecedented
expansion w i t h i n i t o f war i n d u s t r i e s such as a i r p l a n e c o n s t r u c t i o n ,
s h i p b u i l d i n g , magnesium, s t e e l , power, lumber, food, e t c . , i s an ample
demonstration o f the m e r i t s o f branch banking. No s i m i l a r area i n t h e
United States has so great an economic d i v e r s i f i c a t i o n as has C a l i f o r n i a
and branch banking, i f not s t r a n g l e d by Washington bureaucracy, w i l l not
o n l y g r e a t l y a i d i n the development o f i t s great resources but w i l l help
t o m a i n t a i n t h a t degree o f r e g i o n a l independence which i s so e s s e n t i a l t o
s o c i a l and economic s o l i d a r i t y .
A branch banking system such as the Bank o f America, l a r g e
enough t o enjoy the h e a l t h y d i v e r s i f i c a t i o n o f assets which c h a r a c t e r i z e s an economy as diverse as t h a t of C a l i f o r n i a , does not r i s e and f a l l
w i t h the a l t e r n a t i n g t i d e s t h a t may s e r i o u s l y a f f e c t one l o c a l i t y o r a
number o f l o c a l i t i e s i n which a s i n g l e i n d u s t r y may be predominant.
Nevertheless, you Would seem t o regard the i n s u r i n g of such a bank as i n v o l v i n g a " c o n c e n t r a t i o n of r i s k . " As a matter o f f a c t , i t would be more




Hon* Leo T. Crowley

- 2 -

February 1, 1943

accurate t o say t h a t i n i n s u r i n g i t your Corporation a u t o m a t i c a l l y acquires an advantage (which i s e s s e n t i a l t o t h e soundness of any insurance)—
t h a t of spreading the r i s k over a id.de base. Your Corporation i t s e l f i s
a device f o r spreading t h e r i s k o f deposit l o s s over the banks as a whole.
Therefore, the g r e a t e r d i v e r s i t y o f assets i n a p a r t i c u l a r bank the more
n e a r l y does i t conform t o t h e p r i n c i p l e upon which your Corporation i s
founded. From the viewpoint of deposit insurance r i s k your Corporation
i n i n s u r i n g a bank covering a broad and d i v e r s i f i e d area i s much b e t t e r
p r o t e c t e d than i n i n s u r i n g a l a r g e number o f small banks, the loans and
investments of which are l e s s d i v e r s i f i e d . Furthermore, i n view o f t h e
p o l i c y o f your Corporation t o a v e r t l o s s i n l a r g e banks by p r o t e c t i n g dep o s i t o r s t o the f u l l extent of t h e i r d e p o s i t s , I cannot understand why
you would speak o f c o n c e n t r a t i o n of r i s k i n a bank as though i t p a r a l l e l e d a l a r g e volume o f deposits or loans or as though one bank was p e c u l i a r i n t h i s respect. Other banks also have l a r g e deposits and loans and
I have heard of no e f f o r t s on the p a r t of the Federal Deposit Insurance
Corporation t o c u r t a i l t h e i r business. A l t o g e t h e r , your references t o
c r e d i t expansion and c o n c e n t r a t i o n o f r i s k seem t o me t o be e n t i r e l y i n appropriate and so u t t e r l y inadequate as an explanation of the a c t i o n of
your Corporation i n t h i s instance t h a t i n s t e a d o f j u s t i f y i n g i t they
would seem t o r e v e a l i t s character as a r b i t r a r y o f f i c i a l a c t i o n .
So f a r as the Bank o f America and i t s ma,nagement are concerned,
the bank has had an e x t r a o r d i n a r y experience which i n i t s e l f i s a t e s t i monial b o t h t o branch banking and t o t h e competency o f i t s management.
I t has survived earthquakes, f i r e , panics, depressions, t h e moratorium,
c o n s p i r a c i e s , and a b i t t e r proxy b a t t l e ; i t has stood up under constant
harassment on the p a r t o f bank supervisory a u t h o r i t i e s and other Federal
agencies; i t has saved many thousands o f bank depositors i n t h e area
where i t does business t h e misfortune t h a t overtook depositors i n other
p a r t s o f t h e country. Aside from a few l o c a l i t i e s where needed f a c i l i t i e s have been a r b i t r a r i l y denied, t h e r e i s no general area i n the United
States t h a t i s b e t t e r served bankingwise than the area served by t h e Bank
o f America. Today the bank's c a p i t a l funds are t h e g r e a t e s t i n i t s h i s t o r y . I t has been able t o u t i l i z e i t s earnings t o o f f s e t losses o r i g i n a t i n g p r i m a r i l y i n banks which were taken over, many a t t h e urgent request
of supervisory a u t h o r i t i e s , and which were i n c i d e n t a l t o the greatest
banking catastrophe i n the h i s t o r y o f our country. I t continues t o maint a i n an earning c a p a c i t y second t o no bank i n the United States. A bank
and a management with such a record should, i n my o p i n i o n , be e n t i r e l y
d i s a s s o c i a t e d i n the minds o f responsible Federal supervisory a u t h o r i t i e s
when d w e l l i n g on loose bank management. Why would they not t h i n k o f experiences w i t h which they have had closer contact? Our correspondent
banks and l a r g e commercial c l i e n t s , as w e l l as our m i l l i o n s of customers
who appreciate the q u a l i t y o f our s e r v i c e , w i l l t e s t i f y t h a t t h e i r experience i n doing business w i t h us has demonstrated t o t h e i r s a t i s f a c t i o n
t h a t t h e r e i s not a more sound bank o r one t h a t i s more competently managed t h a n Bank o f America. I n many respects i t has f u r n i s h e d a p a t t e r n
t o be f o l l o w e d b y o t h e r s .




Hon. Leo T. Crowley

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February 1 , 1943

I t has always been the p o l i c y o f t h i s bank t o welcome competit i o n . We b e l i e v e i n c o m p e t i t i o n . I note t h a t Congress has authorized
your Corporation t o l o a n i t s fundg, which are d e r i v e d from t h e assessments on a l l banks, t o f a c i l i t a t e mergers and c o n s o l i d a t i o n o f banks.
T h i s , o f course, does not help t o m a i n t a i n competitive c o n d i t i o n s .
I
note, t o o , t h a t t h i s a u t h o r i t y haa been r a t h e r l i b e r a l l y exercised.
Alt o g e t h e r i t appears t h a t t h e r e has been an increase i n the number of
branches operated by other banks and a decrease i n t h e number of u n i t
banks d u r i n g the past several years. I t wouM seem from t h i s t h a t your
Corporation does not shrink from c a r r y i n g out t j i e p o l i c i e s e s t a b l i s h e d
by law where other banks are concerned, nor does i t h e s i t a t e apparently
t o l e n d i t s weight i n support o f d i s c r i m i n a t o r y a c t i o n o f other superv i s o r y a u t h o r i t i e s where the Bank o f America i s concerned.
R e f e r r i n g again t o your statement concerning "expansion o f
c r e d i t " I wonder i f you r e a l i z e the u t t e r baselessness o f any express
or i m p l i e d charge against the Bank o f America. I do not know whether
you have seen the l a s t annual r e p o r t o f President L . M. G i a n n i n i t o t h e
stockholders of t h e bank, but l e t me c a l l your a t t e n t i o n t o a few o f
t h e i t e m s . The increase i n deposits d u r i n g 1942 amounted t o $677*756,778;
investments increased $572,635,534; loans decreased $74,099,592. The i n vestment i n the o b l i g a t i o n s of t h e Federal Government and i t s agencies
increased $549,353,356. I t s l i q u i d i t y i s even g r e a t e r than would be e v i denced by t h i s f i g u r e alone f o r out o f t h e t o t a l investment i n Government
s e c u r i t i e s of $1,043,061,518.77 at December 31, 1942, $510,563,000 o r approximately h a l f o f the investment was i n m a t u r i t i e s o f f i v e years or
l e s s and more than o n e - t h i r d o f the account represents m a t u r i t i e s of one
year or l e s s , aftd added t o t h i s i s t o t a l cash o f $605,041,384.74* The
loans and commitments f o r war production purposes f o r the twelve months
ended September 30, 1942, t o t a l e d $409,631,000 and many o f the loans maki n g up the t o t a l o f the bank's loans are "V" loans. Besides, the bank
d u r i n g the l a s t calendar year sold t o the p u b l i c $160,218,000 war saving
bonds. I know you do not mean t o c r i t i c i z e the bank on account o f i t s
p a r t i c i p a t i o n i n t h e f i n a n c i a l program o f the Government i n connection
w i t h the war, but v&y do you t a l k o f c r e d i t expansion at a l l i n connect i o n w i t h the Bank o f America? Your Corporation reviews the r e p o r t s of
i t s examination. You have the f a c t s and you know t h a t t h e r e i s not a
bank i n the United States o f comparable size which "has a more f a v o r a b l e
loan experience or a f i n e r l o a n p o r t f o l i o than t h e Bank o f America.
You also have the f a c t s w i t h reference t o banks other t h a n
Bank of Nevada t h a t are under the same m a j o r i t y ownership as t h a t bank.
(This bank i s not i n t h a t category, f o r l e s s than IQpf o f t h e common stock
o f Bank o f America i s owned by any one s t o c k h o l d e r . ) I know t h a t t h a t
ownership would i n v i t e any comparison you may be i n c l i n e d t o make between
t h e management of such banks and t h e former management of them, or between the present management and the management o f other insured banks.
I am confident t h a t any such comparison w i l l r e s u l t most f a v o r a b l y .
If
you c l a i m f o r your Corporation t h e r i g h t t o d i s c r i m i n a t e between a p p l y i n g




Hon. Leo T. Crowley

- 6 -

February 1, 1943

banks on the basis of t h e absolute o r r e l a t i v e q u a n t i t y of bank stock
owned by a p a r t i c u l a r stockholder, would you be good enough t o advise me
o f the l e g a l p r o v i s i o n a u t h o r i z i n g such d i s c r i m i n a t i o n ? Where does t h e
law draw t h e l i n e - a s t o quantity? Po you c l a i m the r i g h t t o deny a p p l i cations o f q u a l i f i e d banks which are s u b s t a n t i a l l y under the same type
or q u a l i t y o f ownership as other i n s u r e d banks? Upon what l e g a l or other
b a s i s do you d i s c r i m i n a t e against e i t h e r m a j o r i t y o r m i n o r i t y s t o c k holders or both? I should appreciate any i n f o r m a t i o n you might be able
t o - g i v e me along t h i s l i n e .
Your l e t t e r s suggest another question t h a t i s perhaps more
d i r e c t and p e r t i n e n t t h a n any o f t h e above. Under what p r o v i s i o n does
your Corporation or the other Federal banking agencies determine the adv i s a b i l i t y of any banking c o r p o r a t i o n i n c r e a s i n g i t s l e g i t i m a t e business
along sound l i ^ e s and under what law can i t o r t h e y determine whether i t
i s advisable f o r one bank t o extend i t s l e g i t i m a t e business and f o r
another bank, e q u a l l y equipped, not t o do so?
I l i k e t o be f r a n k i n s t a t i n g my p o s i t i o n or i n discussing the
a f f a i r s o f i n s t i t u t i o n s i n ? M c h I a i n t e r e s t e d w i t h those vested w i t h
m
supervisory a u t h o r i t y . You may r e c a l l t h a t X wrote you q u i t e f u l l y on
June 2, 1938, concerning your address t o the C a l i f o r n i a Bankers Associat i o n . I n t h a t address you had i n c o r p o r a t e d what seemed t o me t o be an
unwarranted assault upon the branch banking systep. o f the State, which
you deleted d u r i n g a c t u a l d e l i v e r y - Subsequent events showed t h a t t h i s
address corresponded somewhat i n p o i n t o f time w i t h t h e work of the cons p i r a t o r s who were then endeavoring e i t h e r t o wreck or gain c o n t r o l of
the Bank of America.
I have always e a r n e s t l y and c o n s i s t e n t l y endeavored t o promote
a b e t t e r understanding o f the i n s t i t u t i o n s w i t h which I have been assoc i a t e d f o r the major p a r t o f my l i f e , and I have p a r t i c u l a r l y endeavored
t o e n l i g h t e n those i n h i g h places who have the r e s p o n s i b i l i t y of bank
s u p e r v i s i o n i n t h e p u b l i c i n t e r e s t . I know t h a t the measure of p u b l i c
s e r v i c e any f i n a n c i a l o r g a n i z a t i o n can render i s dependent l a r g e l y upon
confidence—confidence born of honesty and understanding. I t i s a t
times d i s h e a r t e n i n g t o f i n d h i g h l y placed persons who have access t o accurate sources of i n f o r m a t i o n s u b s t i t u t i n g g r o s s l y erroneous assumptions
f o r f a c t s and u s i n g them i n an attempt t o j u s t i f y unwarranted o f f i c i a l
a c t i o n , but I s h a l l continue t o consider i t my duty nevertheless t o set
them r i g h t .




Sincerely yours,
(Signed) A. P, G i a n n i n i
Chairman o f t h e Board