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S t r i c t l y Confidential Not f o r release August 31, 1945 MEMORANDUM: Approximately t w e n t y - s i x (26) a p p l i c a t i o n s f o r branches f o r Bank o f America N a t i o n a l Trust and Savings A s s o c i a t i o n are now pending, r a s i s i n g once more t h e question o f p e r m i t t i n g f u r t h e r expansion o f t h i s branch system i n C a l i f o r n i a . Following the p o l i c y formulated by t h e l a t e President Roosevelt, i t has been t h e p r a c t i c e o f t h i s o f f i c e d u r i n g t h e past s i x years t o r e s t r a i n as much as p o s s i b l e the growth o f monopoly i n Ifcest Coast banking and c r e d i t f a c i l i t i e s i«hich seems inherent i n t h e expansionist program o f t h e Bank o f America and Transamerica, both o f inhich are dominated by the so-called Giannini interests. This p o l i c y of r e s t r a i n t has received t h e a c t i v e support and cooperation of both t h e Board o f Governors o f the Federal Reserve System and t h e Federal Deposit Insurance Corporation. I t i s deemed a p p r o p r i a t e t o set f o r t h very b r i e f l y t h e bases o f t h i s general p o l i c y , w i t h o u t s p e c i f y i n g i n d e t a i l the supervisory problems which have been encountered i n c a r r y i n g i t out. Bank o f America operates through two s o - c a l l e d main o f f i c e s and almost f i v e hundred branches throughout the State o f C a l i f o r n i a - many times more branches than any other bank i n t h e U n i t e d S t a t e s . For some years, i t s deposits have grovm more r a p i d l y than those o f any other bank i n the country. I n t o t a l resources, i t i s t h e second l a r g e s t bank i n t h e w o r l d , and i s r a p i d l y o v e r t a k i n g t h e Chase N a t i o n a l Bank o f New York, t h e o n l y l a r g e r bank i n existence. I n f a c t , i t already has several times as many depositors as Chase or any other bank; i t has more business loans outstanding than any other bank; and whereas Chase i s one of a number of huge "corporation" banks i n t h e n a t i o n ' s f i n a n c i a l center, iflhich could be replaced by the numerous other large banks located t h e r e , Bank of America i s a T i t a n whose a c t i v i t i e s oover an immense s t a t e and a f f e c t the whole West Coast, and whose collapse and replacement would involve an economically d e s t r u c t i v e upheaval. The f o l l o w i n g f i g u r e s b r i n g out the s i t u a t i o n c l e a r l y : Bank of America's deposits on June 30, 1945 were 44*500,000,000, c o n s t i t u t i n g approximately 40$ of a l l deposits i n C a l i f o r n i a banks. I t s approximately f i v e hundred branches amount t o almost h a l f of the banking o f f i c e s of t h e s t a t e , and are located i n over 300 communities. There v^ere 595 banks and branches i n t h e Transamerica bank group on June 30, 1945* located i n Arizona, C a l i f o r n i a , Nevada, Oregon and Washington, out of a t o t a l of 1,461 banks arid branches i n those f i v e s t a t e s . The Transamerica banks and branches c o n s t i t u t e d approximately 50$ of a l l banking o f f i c e s i n C a l i f o r n i a , 60$ i n Nevada, and 34$ i n Oregon. They held approximately 41$ of a l l bank deposits i n C a l i f o r n i a , 79$ of a l l deposits i n Nevada, and 41$ i n Oregon. Throughout t h e i r h i s t o r y , Bank of America and Transamerica Corporation have been dominated by a small group of men #10 have pursued an aggressive and r u t h l e s s p o l i c y of expansion, and have engaged i n a v a r i e t y of banking and non-banking a c t i v i t i e s , some being of a h i g h l y speculative character. The management of t h e bank has been of the p r o - motional t y p e , end the r e s u l t s of i t s l a c k of conservatism became apparent i n t h e e a r l y 1930 f s, when i t s c o n d i t i o n was such as t o create considerable -1*3doubt as t o whether i t should be permitted t o resume operations a f t e r t h e banking h o l i d a y . I t was only consideration of t h e serious e f f e c t on the whole West Coast which forced a r e l u c t a n t decision t o permit t h e Bank o f America t o reopen a t t h a t t i m e . Today i t s c o n d i t i o n i s very much improved - by v i r t u e of general economic and war c o n d i t i o n s , not by v i r t u e of management. A study of t h e development of t h e Giannini empire even during the l a s t twelve years w i l l disclose t h a t the promotional a t t i t u d e s t i l l predominates. I n the l i g h t of t h i s b r i e f d e s c r i p t i o n , i t w i l l not be d i f f i c u l t t o see the a p p l i c a t i o n of c e r t a i n basic p r i n c i p l e s and p o l i c i e s which render i t i n a p p r o p r i a t e , except t o meet compelling l o c a l need, f o r the Comptroller t o authorize Bank of America t o e s t a b l i s h a d d i t i o n a l branch offices. F i r s t of these p r i n c i p l e s i s t h e American government p o l i c y against monopoly, u n f a i r competition, and absentee ownership, and i n favor of small businesses, f r e e competition, and l o c a l ownership and c o n t r o l . The Ccanptroller i s not charged w i t h t h e enforcement of t h e a n t i - t r u s t laws, but he should and does exercise h i s d i s c r e t i o n a r y power i n t h e l i g h t of t h e purposes which t h e statutes i n t h i s f i e l d were designed t o achieve. The opportunity t o monopolize t h e f i e l d and prevent the development of new competition i s greater i n banking than i n most i n d u s t r i a l and commercial f i e l d s , furthermore, monopoly i n banking i s s i n g u l a r l y dangerous because of t h e i n f l u e n c e banks exercise over the e n t i r e economy through c o n t r o l o f c r e d i t and l i q u i d funds. Even apart from t h e foregoing, the p o t e n t i a l disastrous e f f e c t s of a f a i l u r e o f a branch-bank system of such magnitude render inadvisable -4t h e a u t h o r i z a t i o n o f f u r t h e r expansion of i t s branch network. Bank o f America i s i n r e l a t i v e l y sound c o n d i t i o n today and i t s f a i l u r e w i t h i n the foreseeable f u t u r e i s improbable. However, supervisory a u t h o r i t i e s must always bear I n mind t h e p o s s i b i l i t y of bank f a i l u r e s due t o r a p i d changes i n economic conditions or t o unsound and speculative management, and p o l i c i e s should be adopted which w i l l minimize the harm r e s u l t i n g from the collapse o f any one i n s t i t u t i o n . The primary o b l i g a t i o n of t h e Comptroller, i n exercising h i s d i s c r e t i o n regarding the c h a r t e r i n g of new banks, the granting of branch permits, e t c . , i s the maintenance o f a safe and sound banking system. Any f u r t h e r growth o f Bank o f America - and consequent increased dominance i n C a l i f o r n i a banking - i s undesirable from t h i s point of view. The enormous importance of banks t o modern i n d u s t r i a l l i f e gives r i s e t o another danger i m p l i c i t i n t h e existence of a banking i n s t i t u t i o n of t h e u n p a r a l l e l e d power and extent o f Bank o f America. Banking has long been recognized as a matter r e q u i r i n g governmental supervision and c o n t r o l , and t h e f e d e r a l s t a t u t e s provide general sanctions designed t o enable the supervisory a u t h o r i t i e s t o maintain safe and sound banking practices and t o prevent v i o l a t i o n s of t h e banking laws. Unfortunately, these sanctions - f o r example, t h e f o r f e i t u r e of a bank's charter - are extremely d r a s t i c . Miere a s i n g l e bank i s badly manage, or r e s i s t a n t t o proper supervisory requirements, these sanctions can be brought t o bear, and t h i s p o s s i b i l i t y alone i s s u f f i c i e n t t o make t h e vast m a j o r i t y of banks receptive t o c r i t icisms, c o r r e c t i o n s , and recommendations. But any responsible o f f i c i a l hesitates t o invoke such sanctions where t h e offending bank furnishes a major p a r t o f t h e banking f a c i l i t i e s of a great State; t h e hazards i n volved i n mere unfavorable rumors regarding a bank make bank supervisors reluctant even t o threaten the use of a serious sanction. Being f u l l y -1*5aware of t h i s s i t u a t i o n , t h e management of a mammoth, many-branched i n s t i t u t i o n can sometimes defy governmental r e g u l a t i o n , and v i o l a t e almost w i t h impunity the laws enacted by Congress f o r i t s c o n t r o l and the p r o t e c t i o n of the p u b l i c . The h i s t o r y o f Bank o f America reveals j u s t such a s i t u a t i o n and a t t i t u d e . Even i n the case o f a branch bank system o f comparable size w i t h an outstanding record of safe, sound and conservative management, the foregoing p r i n c i p l e s would d i c t a t e t h e greatest caution i n t h e handling of a p p l i c a t i o n s f o r new branches. The f a c t t h a t t h e record of Bank of America cannot be so characterized simply renders more imperative the p o l i c y which t h e Comptroller has followed i n t h i s case. I n regard t o t h e t w e n t y - s i x (26) a p p l i c a t i o n s f o r branches w i t h which we are presently confronted, no departure i s contemplated from t h e basic p o l i c y o f r e s t r a i n i n g a l l possible any f u r t h e r expansion of the Giannini banking i n t e r e s t s . and should be r e j e c t e d . Some twenty (20) of these a p p l i c a t i o n s can However, i n approximately a h a l f dozen cases the communities involved are e n t i t l e d t o more adequate banking accommodat i o n , and c a r e f u l i n v e s t i g a t i o n f a i l s t o reveal any p r a c t i c a l method of securing such a d d i t i o n a l accommodation save through g r a n t i n g t o the Bank o f America permission t o e s t a b l i s h branches at these p o i n t s . There i s considerable pressure from these communities and from t h e i r representatives i n Congress. For s i x years there has been no i n - crease i n t h e number of branches of t h e Bank o f America, although during t h a t period t h i s s t a t e , which permits branch banking, has grown enormously i n population and f i n a n c i a l resources and permits i n considerable number -1*6have been granted t o competing i n s t i t u t i o n s . I n t h e l i g h t of these f a c t s i t would seem j u d i c i o u s t o authorize branches of the Bank of America i n t h e few exceptional cases mentioned. To refuse would penalize the l o c a l communities involved and might give some weight t o t h e charge o f a r b i t r a r y and p r e j u d i c i a l conduct of t h i s o f f i c e . A b r i e f resume o f t h i r t e e n ( l 3 ) o f t h e pending a p p l i c a t i o n s i s attached hereto, ^he balance are s t i l l under i n v e s t i g a t i o n by f i e l d representatives. (Signed) Preston Delano Preston Delano
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