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San Francisco, California A p r i l 27, 1943 A . P . GIANNINI CHAIRMAN O F THE BOARD O F DIRECTORS Honorable Marriner S. E c c l e s , Chairman, Board of Governors, F e d e r a l Reserve System, Washington, D. C. Dear M a r r i n e r : For your information I am enclosing herewith a copy of a l e t t e r which I have r e c e n t l y w r i t t e n t o Honorable Robert F . Wagner. A s i m i l a r l e t t e r has been w r i t t e n t o Honorable Henry B . S t e a g a l l . Sincerely yours Chairman of the Board. CABLE ADDRESS— BAMERICAL A . P. GIANNINI CHAIRMAN O F THE BOARD O F DIRECTORS A p r i l 26, 1943 Honorable Robert F. Wagner, Chairman of Committee on Banking and Currency, United States Senate, Washington, D. C. My dear Senator: At a hearing of your Committee on Februaiy 17, 1943> upon S. 700, a b i l l to amend Section 12B and Section 19 of the Federal Reserve Act i n such a manner as to relieve from deposit insurance assessment and remove reserve requirements from war loan accounts of the Federal Government established i n banks throughout the countiy, there appeared as witnesses i n support of the b i l l Hon. Marriner S« Eccles and Hon. Leo T. Crowley. According to the transcript of the testimony given at the hearing, Mr. Crowley made some remarks which can be construed only as seriously reflecting upon Bank of America and Transamerica Corporation, and they were later so construed during the debate i n the Senate upon the b i l l . Mr. Crowley remarked: "This has been kind of a thorn i n our sides for a long, long time, and we f e e l quite definite about i t , since a l l of the supervisory forces ana the Securities and Exchange Commission are in accord, and i f this committee has any requests, we would be glad to prepare our t e s t i mony and our charts and show you why we have taken the stand we have taken on that matter.*-** " I think you would f i n d , Senator, i f you knew the whole p i c t u r e , and I am sure t h i s committee would agree with us, that our program has been very c o n s t r u c t i v e , and we have treated everyone f a i r l y , and I am sure we are c a r i y i n g out the i n t e n t o f Congress i n the h i s t o r y o f banking l e g i s l a t i o n over a period o f 25 y e a r s . " When he l a t e r appeared before the Banking and Currenqy Committee o f the House o f Representatives he i s reported t o have expressed himself as being opposed to branch banking and t o bank h o l d i n g companies, which he regarded as a menace. According t o the report i n the American Honorable Robert F . Wagner -2- A p r i l 26, 1943 Banker, he expressed the o p i n i o n t h a t the i n t e r e s t s of. the F e d e r a l D e p o s i t Insurance C o r p o r a t i o n would be a d v e r s e l y a f f e c t e d by e x t e n s i o n s o f h o l d i n g companies or branches o f banks i n t h a t the r i s k o f the C o r p o r a t i o n , as i n s u r e r o f d e p o s i t s , would be i n c r e a s e d . The only h o l d i n g company mentioned i n the r e p o r t i s Transamerica C o r p o r a t i o n and Bank o f America the o n l y bank. On both o c c a s i o n s M r . Crowley generously o f f e r e d t o supply the Committee w i t h i n f o r m a t i o n t o support the p o s i t i o n he has taken. Since we were n o t represented a t the h e a r i n g and s i n c e we have no means o f knowi n g when a d d i t i o n a l statements o f the same c h a r a c t e r may be made b e f o r e y o u r Committee, I should l i k e y o u and y o u r Committee t o have access t o a d d i t i o n a l f a c t s not l i k e l y t o be presented by Mr. Crowley. I know y o u r Committee w i l l want the t r u e p i c t u r e and t h a t i t w i l l n o t pronounce judgment w i t h o u t a f u l l h e a r i n g . I n any e v e n t , however, t h i s l e t t e r i s b e i n g sent f o r y o u r i n f o r m a t i o n and the i n f o r m a t i o n o f the members o f your Committee. The f a c t s s t a t e d a r e b e l i e v e d t o be as p e r t i n e n t t o any i s s u e o f concern t o y o u r Committee as a r e the c o n c l u s i o n s o f Mr. Crowley. The i n s t i t u t i o n s a f f e c t e d have been b u i l t t o serve the people o f t h i s a r e a ana they a r e s e r v i n g them w e l l . The f a c t t h a t many y e a r s o f ny l i f e have been devoted t o these i n s t i t u t i o n s imposes an o b l i g a t i o n t o v i n d i c a t e them whenever and wherever they a r e a s s a i l e d — hence t h i s l e t t e r . We are n o t p a r t i c u l a r l y concerned w i t h Mr. C r o w l e y f s p e r s o n a l views o f the matters mentioned by him, but we do n o t h e s i t a t e t o say t h a t i f h i s views a r e as r e f l e c t e d i n h i s quoted remarks and i n the r e p o r t above r e f e r r e d t o , they a r e so p a t e n t l y erroneous t h a t i t i s r a t h e r s u r p r i s i n g they would be v o i c e d by the r e s p o n s i b l e head o f an important F e d e r a l s u p e r v i s o i y agency. We a r e concerned, however, w i t h the f a c t t h a t these p e r s o n a l views as t o a p a r t i c u l a r h o l d i n g company and a p a r t i c u l a r bank would be expressed by the Chairman o f a F e d e r a l c o r p o r a t i o n i n which the bank c r i t i c i z e d by him and banks i n which the named h o l d i n g company i s i n t e r e s t e d a r e members i h good s t a n d i n g — h a v i n g become members on the same b a s i s as a l l o t h e r s , having abided 1qy a l l r e g u l a t i o n s and f u l l y subj e c t e d themselves t o a l l c o n t r o l ana s u p e r v i s i o n which the Congress o f the U n i t e d S t a t e s has a u t h o r i z e d , i n a d d i t i o n to c o n t r i b u t i n g many m i l l i o n s o f d o l l a r s t o the funds o f such C o r p o r a t i o n . We a r e f u r t h e r concerned w i t h the f a c t t h a t the Chairman o f such C o r p o r a t i o n has p e r m i t t e d h i s p e r s o n a l erroneous views t o a f f e c t the a c t i o n o f the C o r p o r a t i o n where these banks are involved, instead of determining t h e i r l a w f u l a p p l i c a t i o n s according t o the standard p r e s c r i b e d by Congress t o govern a c t i o n on such m a t t e r s . The whim or c a p r i c e o f a p u b l i c o f f i c i a l may f u r n i s h a s a f e r guide f o r the p r o t e c t i o n o f the p u b l i c than the d e l i b e r a t e judgment o f the Congress o f the U n i t e d S t a t e s , expressed as the law o f the l a n d , but I am so o l d f a s h i o n e d as t o p r e f e r the l a t t e r . ( P a r e n t h e t i c a l l y , I might add t h a t I have on a p p r o p r i a t e o c c a s i o n s i n the past p u b l i c l y commended the wisdom o f Congress i n a d o p t i n g the Banking A c t o f 1933 and o f 1935, b u t ny p r a i s e was f o r the l a w — n o t f o r i t s a u t o c r a t i c d i s t o r t i o n . ) Honorable Robert F . Wagner -3- A p r i l 26, 1943 F o r t u n a t e l y , the b u s i n e s s o r g a n i z a t i o n s a t which such a t t a c k s have been d i r e c t e d have l o n g and honorable c a r e e r s i n the a r e a where they do b u s i n e s s , and i t i s n o t contemplated t h a t any s e r i o u s adverse e f f e c t s w i l l result. However, the i m p r o p r i e t y o f such a course o f o f f i c i a l conduct i s none the l e s s e v i d e n t . As o c c a s i o n has a r i s e n i n the p a s t t o c a l l t o M r . C r o w l e y f s a t t e n t i o n the fundamental e r r o r o f h i s p o s i t i o n and the i m p r o p r i e t y o f h i s o f f i c i a l a c t i o n we have not h e s i t a t e d t o do so. One i n s t a n c e o f t h i s , which now has some h i s t o r i c a l s i g n i f i c a n c e , i s the o c c a s i o n o f h i s b e i n g i n v i t e d t o address the c o n v e n t i o n o f the C a l i f o r n i a Bankers A s s o c i a t i o n h e l d i n May o f 1938. He came t o C a l i f o r n i a f o r t h a t purpose and brought w i t h him an address which was c r i t i c a l o f branch banking as developed i n C a l i f o r n i a , but t h i s p o r t i o n o f h i s t a l k was d e l e t e d d u r i n g a c t u a l d e l i v e r y . I wrote him q u i t e f u l l y on the s u b j e c t a t the time, n o t only o f f e r i n g t o cooperate t o the l i m i t w i t h any a c t i o n he might take t o d i s c h a r g e h i s p u b l i c r e s p o n s i b i l i t y i n s a f e g u a r d i n g the soundness o f the banking s t r u c t u r e o f the c o u n t r y , but o f f e r i n g t o submit as w e l l the r e c o r d o f t h i s bank f o r s e r v i c e and soundness i n any e f f o r t t o e s t a b l i s h the t r u t h with regard to i t . No r e p l y was r e c e i v e d t o my l e t t e r . However, i n Decemb e r o f 1942 and January o f 1943 Mr. Crowley, i n e x p l a i n i n g to the Senators from Nevada the adverse a c t i o n o f the F e d e r a l D e p o s i t Insurance C o r p o r a t i o n upon an a p p l i c a t i o n o f a new S t a t e bank i n Nevada f o r i n s u r a n c e , r e i t e r a t e d s u b s t a n t i a l l y the arguments contained i n the d e l e t e d p o r t i o n o f h i s a d dress. (No e x p l a n a t i o n whatsoever was g i v e n t o the bank.) Upon l e a r n i n g o f h i s l e t t e r s t o the Senators I , as Chairman o f the Board o f t h i s bank, wrote t o him on February 1 o f t h i s y e a r , c a l l i n g h i s a t t e n t i o n t o the i m p r o p r i e t y and i l l e g a l c h a r a c t e r o f the a c t i o n o f the C o r p o r a t i o n . A copy o f t h a t l e t t e r i s a t t a c h e d h e r e t o f o r y o u r i n f o r m a t i o n and the i n f o r m a t i o n o f the members o f y o u r Committee. No r e p l y has been r e c e i v e d . Many o f the f a c t s s t a t e d i n the l e t t e r are p e r t i n e n t t o the matters i n which y o u r Committee has m a n i f e s t e d an i n t e r e s t , b u t no more so than the a d d i t i o n a l facts hereinafter stated. The Congress o f the U n i t e d S t a t e s has very p r o p e r l y made a v a i l a b l e t o the F e d e r a l D e p o s i t Insurance C o r p o r a t i o n the r e p o r t s o f examina t i o n o f n a t i o n a l banks, and we understand they are s y s t e m a t i c a l l y reviewed by the C o r p o r a t i o n . M r . Crowley i s d o u b t l e s s aware o f the formula a c c o r d i n g t o which n a t i o n a l bank examiners e s t i m a t e the net sound c a p i t a l o f banks examined by them. I f he would r e f e r t o t h e i r r e p o r t s o f examination and a p p l y the formula he y/ould f i n d t h a t from the date o f the f i r s t examination i n 1942 (January 16) t o the end o f the y e a r the n e t sound c a p i t a l o f Bank o f America i n c r e a s e d approximately $7,400,000. I n the p e r i o d from A p r i l 1938 t o the end o f 1942 i t s n e t sound c a p i t a l s t r u c t u r e , on the b a s i s o f the examiner 1 s f o r m u l a , i n c r e a s e d more than $40<000<000 and t h i g i s exclusive of preferred stock. Honorable Robert F . Wagner -4- A p r i l 26, 1943 I f comparisons a r e i n o r d e r , the Committee might be i n t e r e s t e d i n th^ f i g u r e s g i v e n by Moody f s Banks, I n s u r a n c e , R e a l E s t a t e , I n v e s t ment T r u s t Manual f o r the f i v e l a r g e s t n a t i o n a l banks i n the U n i t e d S t a t e s , i n which group Bank o f America ranks t h i r d . I t w i l l f i n d that, with p r e f e r r e d s t o c k added, Bank o f America from the e x p i r a t i o n o f the f i r s t f u l l y e a r f o l l o w i n g the banking h o l i d a y , December 31* 1934, t o December 31, 1942, i n c r e a s e d i t s c a p i t a l funds $60,465,000 o r 60.5%. The bank r a n k i n g next was the C o n t i n e n t a l I l l i n o i s N a t i o n a l Bank and T r u s t Company o f Chicago w i t h an i n c r e a s e o f $36,115,000 or 35.4%* The o t h e r i n c r e a s e s were as f o l l o w s : F i r s t N a t i o n a l Bank o f Chicago - $16,706,000 o r 25.17$; Chase N a t i o n a l - $19,720,000 or 8.37$; and N a t i o n a l C i t y Bank - $13,020,000 or 7.9$. So i f Bank o f America should do as a l l o f these o t h e r l a r g e n a t i o n a l banks have done and pay o f f i t s p r e f e r r e d stock i n f u l l , i t would s t i l l have made a n e t c a p i t a l c o n t r i b u t i o n from i t s own funds o f $37,425,200 o r 37.4$ i n c r e a s e and would s t i l l be the Number One n a t i o n a l bank i n the country w i t h r e s p e c t t o d o l l a r i n c r e a s e i n i t s c a p i t a l s t r u c t u r e s i n c e December 31, 1934, and i t would s t i l l have exceeded any o f the o t h e r f o u r l a r g e n a t i o n a l banks i n the percentage o f i t s i n c r e a s e . Y o u r Committee, t o o , might be i n t e r e s t e d to l e a r n more o f the p o l i c i e s o f Bank o f America which have made i t i n many r e s p e c t s the l e a d F o r some y e a r s i t has had the l a r g e s t i n g bank o f the U n i t e d S t a t e s . volume o f l o a n s o f any bank i n the U n i t e d S t a t e s . I t has had a l s o the g r e a t e s t number o f l o a n s o f any bank i n the U n i t e d S t a t e s . It directly serves more people than any bank i n the U n i t e d S t a t e s . The people who a r e served are the s m a l l b u s i n e s s man, the p r o f e s s i o n a l man, the manuf a c t u r e r , the f r u i t grower and the farmer, the home b u i l d e r — i n f a c t , people i n every worthy e n t e r p r i s e r e g a r d l e s s o f s i z e . I t s deposit accounts number more than 2,500,000, w i t h the average balance per account b e i n g l e s s than $1,000. T h i s i s c e r t a i n l y n o t o f c a p i t a l i s t i c s i z e . I t i s the s m a l l man f s bank t o a g r e a t e r e x t e n t than any o t h e r l a r g e bank. I t pays o u t more money as i n t e r e s t on savings than any o t h e r bank. Last y e a r i t p a i d o u t as i n t e r e s t on time d e p o s i t s $10,814,962. I t i s owned by more people than any o t h e r bank, having 150,000 s t o c k h o l d e r s . I t has n o t h i n g t o s e l l b u t banking s e r v i c e and i t operates on the p r i n c i p l e t h a t everyone w i t h i n i t s reach i s e q u a l l y e n t i t l e d t o t h a t s e r v i c e . I t takes p r i d e i n l i v i n g up t o i t s s l o g a n , "Banking That i s B u i l d i n g C a l i f o r n i a . 1 1 W h i l e Transamerica C o r p o r a t i o n i s n o t g r e a t l y i n t e r e s t e d i n maint a i n i n g the h o l d i n g company f u n c t i o n , we should l i k e i t t o be d i s t i n c t l y understood t h a t we o f f e r no a p o l o g i e s f o r the r e c o r d the c o r p o r a t i o n has made i n t h i s f i e l d . I t i s one o f o u t s t a n d i n g achievement, and no d e p o s i t o r i n any Transamerica bank has ever l o s t a d o l l a r . As a matter o f f a c t , m i l l i o n s o f d o l l a r s have been saved t o d e p o s i t o r s o f banks i n d i s t r e s s which were taken over by Transamerica o r i t s banks — many a t the request o f supervisory a u t h o r i t i e s . T h i s i s such an obvious f a c t i n the area where Transamerica has operated t h a t i t i s a l i t t l e s u r p r i s i n g i t would be ignored i n a c e n t e r even as remote as Washington. We have no doubt t h a t many o t h e r h o l d i n g companies present a s i m i l a r l y c r e d i t a b l e r e c o r d . Honorable Robert F . Wagner -5- A p r i l 26, 1943 While on t h i s s u b j e c t , why n o t take a l o o k a t the r e c o r d s o f t h e F e d e r a l D e p o s i t Insurance Corporation? I f h o l d i n g company owners h i p o f bank s t o c k i s a "menace,* or i f a branch banking system by o p e r a t i n g i n an a r e a l a r g e enough t o g i v e t o i t a h e a l t h y d i v e r s i f i c a t i o n o f a s s e t s , i n c r e a s e s the hazard o f d e p o s i t i n s u r a n c e , i t would seem t h a t t h e r e would be some such i n d i c a t i o n i n the e i g h t - y e a r i n s u r a n c e experience o f the F e d e r a l D e p o s i t Insurance C o r p o r a t i o n . Y e t the r e p o r t s o f t h a t C o r p o r a t i o n t o Congress f a i l t o show a s i n g l e i n s t a n c e o f f a i l u r e o f any s i z a b l e branch bank or o f any bank c o n t r o l l e d by a h o l d i n g company. These r e p o r t s , on the c o n t r a i y , a f f i r m a t i v e l y show t h a t the Insurance C o r p o r a t i o n has had a very f a v o r a b l e experience i n the S t a t e s where these banking p o l i c i e s p r e v a i l . (See Table 135, page 174, Annual Report o f the F e d e r a l D e p o s i t Insurance C o r p o r a t i o n f o r the Y e a r Ended Decemb e r 31, 1941, the l a s t p u b l i s h e d r e p o r t . ) T h i s i s not s u r p r i s i n g i n v i e w o f the e x c e l l e n t r e c o r d o f such banks and companies i n p r o t e c t i n g the i n t e r e s t s o f t h e i r d e p o s i t o r s d u r i n g the w o r s t d e p r e s s i o n y e a r s . I f d e p o s i t s e x i s t i n an a r e a i t i s reasonable t o assume they w i l l be i n s u r e d , whether i n one s t r o n g bank w i t h branches o r i n many i n d i v i d u a l banks — and t h i s w i t h o u t regard t o the c h a r a c t e r o f the owners h i p o f the s t o c k i n such banks. Where banks which a r e members o f the F e d e r a l Reserve System a r e c o n t r o l l e d by h o l d i n g companies, the Banking A c t o f 1933 renders such companies a f f i l i a t e s o f the banks, and the companies as w e l l as the banks a r e s u b j e c t t o examination and s u p e r v i s i o n by the Board o f Governors o f the F e d e r a l Reserve System. Any s u g g e s t i o n t h a t such ownership o f s t o c k i n a bank i n c r e a s e s the d e p o s i t i n s u r a n c e hazard i s sheer nonsense. Our i n s t i t u t i o n s have never asked f o r and have never r e c e i v e d any s p e c i a l p r i v i l e g e s . They ask o n l y f a i r and e q u a l treatment under t h e l a w , b u t i n s t e a d o f r e c e i v i n g m e r i t e d c o n s i d e r a t i o n a t the hands o f s u p e r v i s o r y a u t h o r i t i e s i n Washington they a r e c o n s t a n t l y met w i t h d i s c r i m i n a t i o n and made the v i c t i m s o f v i t u p e r a t i v e a s s a u l t s t h a t would be r u i n o u s except f o r the f a c t t h a t the p u b l i c i n t h i s a r e a — and i n f a c t throughout the U n i t e d S t a t e s — has l e a r n e d how t o d i s c o u n t misguided and i l l - a d v i s e d e x p r e s s i o n s o f a d m i n i s t r a t i v e o f f i c e r s where these i n s t i t u t i o n s a r e concerned. Many examples o f such treatment could be g i v e n i f y o u r Committee i s i n t e r e s t e d i n p u r s u i n g the s u b j e c t . We c o u l d a l s o p r e s e n t f o r the c o n s i d e r a t i o n o f y o u r Committee some r a t h e r s t r i k i n g examples o f b u r e a u c r a t i c a c t i o n on the p a r t o f F e d e r a l agencies which have a p p a r e n t l y p r e f e r r e d p o l i c i e s o f t h e i r own making t o those t h a t have been embodied i n the law o f the l a n d . I have a keen r e a l i z a t i o n , Mr. Chairman, o f the g r e a t r e s p o n s i b i l i t y which r e s t s upon you and the members o f y o u r Committee t o l e a d i n p r o v i d i n g the country w i t h a sound banking s t r u c t u r e . I f your and t h e i r Honorable R o b e r t F . Wagner -6- A p r i l 26, 1943 e f f o r t s a r e t o be c o n s t r u c t i v e and t r u l y p r o g r e s s i v e , a thorough u n d e r s t a n d i n g i s an e s s e n t i a l p r e r e q u i s i t e . I always welcome an o p p o r t u n i t y t o c o n t r i b u t e t o such an u n d e r s t a n d i n g t o the e x t e n t o f Eoy e x p e r i e n c e and a b i l i t y . I am sending a copy o f t h i s l e t t e r t o M r . Crowley, and I r e s p e c t f u l l y r e q u e s t t h a t the a d d i t i o n a l c o p i e s e n c l o s e d be made a v a i l a b l e t o t h e members o f y o u r Committee. Very t r u l y y o u r s ,
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