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h /II r i j n THE TIIAL NATURE OF THE AMERICAN B A H K I K SYSTEM On© o f t h e moat i n t e r e s t i n g institutions s t u d i e s i n t h e development o f American i s t h a t w h i c h i s concerned w i t h t h e development o f bankir^j. O r i g i n a t i n g as a p r i v a t e b u s i n e s s m i n i s t e r i n g t o l o c a l n e e d s , b a n k i n g has developed i n t o a q u a s i - p u b l i c business capable o f meeting the f i n a n c i a l re- q u i r e m e n t s o f a n a t i o n o f 135 m i l l i o n p e o p l e whose i n d u s t r i a l o u t p u t by f a r exceeds any e s t i m a t e t h a t w o u l d have bt en made as l a t e as a q u a r t e r o f a c e n t u r y ago. It i s a s t u d y o f t h e development o f a d u a l system p a r a l l e l l i n g d u a l system o f American g o v e r n m e n t . the I t has been c h a r a c t e r i z e d by t h e same elements o f weakness and s t r e n g t h w h i c h have e n a b l e d u s , t h r o u g h p r o f i t i n g by e x p e r i m e n t and l e a r n i n g by e x p e r i e n c e , t o d e v e l o p t h e ?.ost s t a b l e political i n s t i t u t i o n s o f any n a t i o n on e a r t h w h i l e a t t h e same t i m e and i n t h e same mann e r d e v e l o p i n g f i n a n c i a l i n s t i t u t i o n s conrans u r a t e w i t h i n d u s t r i a l which i n t u r n helps to assure governmental stability. The s t o r y as t o b a n l i i n g has i t s b e g i n n i n g i n t h e l o c a l that financed l o c a l enterprises. development, institutions They were adapted t o t h e v a r y i n g requirements o f t h e c o m m u n i t i e s i n w h i c h t h e y e x i s t e d , w h e t h e r t h e i r p r i m e i n t e r e s t s were commercial, i n d u s t r i a l o r a g r i c u l t u r a l . N a t i o n a l c o n c e r n would be m a n i f e s t e d o n l y when a government o f d e l e g a t e d powers w o u l d be s u b j e c t e d t o some w h i c h a f f e c t e d some p r e d o m i n a n t n a t i o n a l i n t e r e s t . strain U s u a l l y i t has r e q u i r e d a r a t i o n a l p a n i c o r d e p r e s s i o n o r s one e x t r a o r d i n a r y f i n a n c i a l s t r a i n i n c i d e n t w a r t o spur t h e n a t i o n a l i n t e r e s t t o t h e p o i n t o f u n i f y i n g t h e f i n a n c i a l zations for public service. If organi- t h e r e were a d e m o n s t r a t e d need f o r a n a t i o n a l -1- to c u r r e n c y n t a x m i g h t be imposed t o d r i v e o t h e r c u r r e n c y o u t o f If circulation. i t were necessary t o marshal t h e f i n a n c i a l r e s o u r c e s o f t h e n a t i o n i n sup- p o r t o f a w a r , a n a t i o n a l b a n k i r % system would be b r o u g h t i n t o b e i n g . If a r e l a t i o n s h i p between banking i n s t i t u t i o n s e x i s t i n g t h r o i ^ h o u t the n a t i o n facili- t a t e d o r o b s t r u c t e d the f l o w o f bank c r e d i t a t t h e w i l l o f those i n f l u e n t i a l i n d u s t r i a l and f i n a n c i a l c i r c l e s , necessity f o r c o n t r o l i n the public i s d e m o n s t r a t e d and a f e d e r a l r e s e r v e system r e s u l t s . If interest l o n g anc b i t t e r ex- p e r i e n c e d i s c l o s e s t h a t t h e b u s i n e s s o f b a n k i n g i s conducted not o n l y a t r i s k o f s t o c k h o l d e r s b u t a t even g r e a t e r r i s k t o d e p o s i t o r s , of deposits results. national insurance Every s t e p up t o the p r e s e n t t i m e has been t a k e n , t h r o u g h the enactment o f laws designed t o add s t r e n g t h anc s t a b i l i t y t o f u n c t i o n i n the p u b l i c to the system foundations. Sovereign s t a t e s , w i t h regard t o banking, s t i l l perform the f u n c t i o n s o f They s t i l l however, interest. The p r e s e n t s t r u c t u r e , however, i s e r e c t e d upon t h e o l d eign states. the These a r e m i l e s t o n e s i n t h e development o f t h e American d u a l system o f b a n k i n g . and cause i t in sover- c u a r t e r s t a t e banks and surround t h e i r o p e r a t i o n s a l l t h e safeguards needed t o p r o t e c t the p u b l i c i n t e r e s t . with They g i v e t o t h e banks t h e f a c i l i t i e s irhica t h e y t h i n k w i l l enable them t o serve b e s t the p u b l i c i n t e r e s t s and they f u r t h e r enable them t o p a r t i c i p a t e i n t h e added designed t o subserve the n a t i o n r J . i n t e r e s t . limit facilities One s o v e r e i g n s t a t e would t h u s a bank t o o p e r a t i o n s i n a g i v e n l o c a l i t y . Another s o v e r e i g n s t a t e will f i n d t h a t the i n t e r e s t s o f i t s people ar>? b e t t e r served by a branch banking system. T h i s i s p u r e l y a m a t t e r o f l o c a l s e l f - g o v e r n m e n t and a l l t h e federal law t h e r e i s on t h e s u b j e c t o f branch banking r e c o g n i z e s , b o t h ercpressly and impliedly, the r i g h t as w e l l as t h e competency o f t h e s t a t e t o choose a branch banl'ing p o l i c y . Under t i i e f e d e r a l l a w a n a t i o n a l bank ma/ be r ^ u i r e d i t s operations t o the place of l o c a t i o n of i t s office, Dr i t t o o p e r a t e as a b r a n c h b a n k i n g s y s t e m e i t h e r w i t a i n a c i t y , to confine may bs permitted a county or w i d e , depending upon the v a r y i n g p r o v i s i o n s o f s t a t e laws w i t h r e s p e c t o p e r a t i o n of s t a t e banks. w h i c h w o u l d s u p p o r t a c t i o n b y any a d m i n i s t r a t i v e would d i s c r i m i n a t e against a n a t i o n a l c h a r t e r powers a c c o r d i i ^ bank o r a member bank i n t h e to i t s i n t h e h i s t o r y of American banking. st-tes A g r o u p composed o f men, each o f whom e x - capacity or other a l i m i t e d s u p e r v i s o r y power, the r e s p o n s i b i l i t y i n t h e d e v e l o p m e n t a;id c a r r y i n g o u t o f t h e i r ment by l a w g o v e r n m e n t by c u a s i - o f f i c i a l fiat. banking group or f o r f o r a u l a t i r ^ L e g i s l a t i v e p o l i c i e s are f o r m u l a t e d w i t h i n the h a l l s on American h a b i t t o p r o t e s t when i t camot j u s t i f y i t s and when i t cratic. is TThen, how- authority, which are i n c o n s i s t e n t with t h e u n w a r r a n t e d a c t i o n i s worso t h a n b u r e a u - the o n l y a d j e c t i v e more n o r l e s s t h a n t h u a r b i t r a r y has become sanction f o r the a f f i l i a t i o n of a group, e x p r e s s e s o r seeks t o f o r m u l a t e p o l i c i e s Dictatorial it c o n c e r t e d a c t i o n by any s h r e d o f l e g i s l a t i v e t h o s e exprossed i n l e g i s l a t i o n , the When a d - the e x c e s s e s o f power as b u r e a u c r a t i c . e v e r , t h e r e i s n o t oven a l e g i s l a t i v e fiat* effective. o f Congress. m i n i s t r a t i v e b u r e a u s c r e a t e d by Congress t r a n s c e n d t h o s e p o l i c i e s policios govern- for constituting p o l i c i e s w h i c h a r e t h u s s o u g h t t o be made with law. We say " q u a s i - o f f i c i a l t h e r e i s no s a n c t i o n o f l a w e i t h e r cir- of interfering Thus i n t h e f i e l d o f b a n k i n g t h e r e lias been s u b s t i t u t e d f o r the reason t h a t Recently, unprecedented i n t h e manner » i i i c h i s p r o v i d e d f o r b o t h by s t a t e l a w ana by f e d e r a l for that performance status w i t h respect t o branches. c u m s c r i b e d by l a w , has t a ^ e n upon i t s e l f the v i r i o u s bari!u.r^ or supervisory a u t h o r i t y h o w e v e r , a s t e p h a r been t t i l : e n i n f a s h i n g t o n wlJLca i s a l t o g e t h e r e r c i s e s i n some o f f i c i a l to the T h e r e i s no p r o v i s i o n a n y w h e r e i n t h e F e d e r a l Re- s e r v e A c t , t h e N a t i o n a l Bank A c t o r any o t h e r f e d e r a l a c t a f f e c t i n g of i t s state- that describes exercise of undelegated it. power. it is nothing Ir tcvtrt t~e Cv'-jttc o f c " i c u i t o r s l . i p - r b< In V e interest orcerl} o f t h e hanking p o l i c i e s priate. o* t h i s This w i l l those p o l i c i e s art d i ir£ e v . t ty r c ' . r l l huvc o c c a r i c r . renc*. t o seme s p e c i f i c d i s c u s s i o n , !::>v.cvcr, r I r i e f o r ro^e o- Tcrttrr. r t t o note situ? tiono. erplarttcry ctru.~erit t e s i r o u l d seer, t o h e be f o l ? e i k c d l y r e f e r * . : cer t o t h e s t r wt* l a r . s u n d e r t o be c a r r . t d o u t , aa< the f e d e r a l s t a t u t e s pursuant and c o r r e l a t e d i n r. . e l l - r o u n c e c curl BAT:S rev, F o r many y e t r j simi-ar references r i l l t o v u i c h ti.es.- p o l i c i e s r r t o he the appro- »aich be r a c e to effectuated s.i>tem. RAYR:: POLICY t h e c o u n t r y has K . . r accustomed t s c o n d i t i o n s have r e s u l t e d i n t h e development o f f i n a n c i a l c e n t e r s i n t h V E a s t . c e n t r a t i o n c f i n d u s t r i a l po*er i n l a r j c which The c o n - c o r p e r r t i c n s whose o p e r a t i o n s are n a t i o n w i d e h e r been accompanied by a l i k e c o n c e n t r a t i o n o f t a n k i n g p o w e r . In some o f o u r T e s t e r n s t ' t e s , it has been t h o u g h t r i s e c f w h i c h C a l i f o r n i a i s an o u t s t a n d i n g e x a m p l e , t o e q u i p e t c h community i n t.hie'., ar. i n d u s t r y m i ^ h t be developed to s u b s t a n t i a l s i z e v i t h an i n s t r u m e n t which would enable the t o grow end d e v e l o p r i t l . o u t b e i n g h a r p e r e c by c r e d i t imposed i f ties. it mere r e q u i r e d t o depend upon r e m o t e s o u r c e s f o r credit t h e need i n t h e community f o r If a baa}: e q u i p p e d c r n he e c v a n t a g e o u s l y e s t a b l i s h e d , t h e S u p e r i n t e n d e n t o f Tanks b e l i e v e s t h a t t h e community w i l l state policy is definitely the c r e d i t f a c i l i t i e s and be s e r v e d , f a v o r a b l e t o the e s t a b l i s h m e n t o f t h i s l o c a l o f which w i l l vested to consider the f a c t o r s waich p o i n t such a f i n a n c i a l a g e n c y . t o render the service believes t h a t i t facili- statewide I m p l i c i t i n t h a . system i t , t h e d i s c r e t i o n w h i c h i s i n t h e S u p e r i n t e n d e n t o f Bani.s o f t h e s t a t e if its t h a t ~ i g h t he This instrument could i e provided t y a branch banking system, i n i t s operations. to restrictions industry n o t be l i m i t e d by t h e amount w h i c h the unit, usually a t t e n d * the o r g a n i s a t i o n o f a a m a i l c o r p o r a t e b a n k . Under t h i s system, how-. a v e r , b o t h s i n g l e u n i t batiks and b r a n c n baiiks a r e founded and p r o s p e r side by side. One i s n o t t o be f a v o r e d o v e r t n e o t h e r . The b a n k i n g p u b l i c i s s e r v e d and i s n o t dependent upon more remote s o u r c e s f o r i t s c r e d i t better supply. T h i s p l a n i a a c c e p t a b l e t o the m i l l i o n s o f people who occupy t h i s r e g i o n and who are f a s t d e v e l o p i n g i t t o a p o s i t i o n o f supremacy — s o c i a l , industrial and e c o n o m i c . Under t h e g u i d i n g s p i r i t o f a man who hud t h e g e n i u s t o a p p r e c i a t e and u n d e r s t a n d t h e advantages o f b a n k i n g conducted a c c o r d i n g t o such a p l a n t h e r e h<*s been developed i n C a l i f o r n i a t h e l a r g e s t and most s e r v i c e a b l e wide b r a n c n banking system i n the U n i t e d S t a t e s . East; i t i s not understood i n the East. d i s c r i m i n a t i o n against i t if it state- I t has no c o u n t e r p a r t i n But taese f a c t s f u r n i s h no r e a s o n f o r i s b e i n g conducted a c c o r d i n g t o t n e p o l i c y f e r r e d by a s o v e r e i g n American s t a t e . the Under t h e express p r o v i s i o n s o f N a t i o n a l Bank A c t ( U . S . R . 5 . l>mc. 515$) a n ^ t i o n ^ i o a n k i n g a s s o c i a t i o n , pre- the with t h e a p p r o v a l o f tr.e C o m p t r o l l e r o f t h e C u r r e n c y , may e s t t b i i s u and o p e r a t e new branches a t any p o i n t » i t n i n "Lie s t a t e p r o v i u e u t h a t s t a t e bankc ioay, by v i r t u e o f t h e s t a t u t e l a w o f tne s t a t e s p e c i f i c a l l y g r a n t i n g such a u t n o r i t y , l i k e w i s e operate branches. BAiiKImG POLICY F1XLD bX iAX^vL LAT. The banking p o l i c y o f t n e s t a t e s o f C a l i f o r n i a , uregon and Nevada w i t h r e s p e c t t o branch b a n k i n g i s d e f i n i t e l y e s t a b l i s n e d by s t a t u t e . Such s t a t u t e s a u t h o r i z e tr.e opening o r e s t a b l i s h i n g o f b r a r x u e s f o r t h e p u b l i c convenience i n s u b s t a n t i a l l y t h e sar.e language t h a t i s employed t o a u t h o r i z e t h e e s t a b l i s h m e n t o f t h e bank i t s e l f . I n Appendix "A" h e r e t o a t t a c h e d will be f o u n d c o p i e s e f the a p p l i c a o l e s t a t u t e s i n C a l i f o r n i a , Oregon and Nevada which are expressive of the p u b l i c p o l i c y o f those s t a t e s . For t h e sake o f b r e v i t y we w i l l s t a t e h e r e o n l y the s u b s t a n c e o f t h e r e q u i r e m e n t s i n each state. CALIFORNIA By S e c t i o n 127 o f t h e Bank A c t o f C a l i f o r n i a persons who d e s i r e to o r g a n i z e a c o r p o r a t i o n t o c o n d u c t e i t h e r a b a n k i n g o r a t r u s t b u s i n e s s must o b t a i n t h e p r e v i o u s w r i t t e n c o n s e n t o f the S u p e r i n t e n d e n t o f Banks t o the p r o p o s e d o r g a n i z a t i o n a n . t o t h a t end t h e y a r e r e q u i r e d t o f i l e w i t h him a n a p p l i c a t i o n and pay a f e e o f $ 1 0 0 . 0 0 . When t h e c o r p o r a t i o n i s o r g a n i z e d i s p r o h i b i t e d f r o m t r a n s a c t i n g any b u s i n e s s w i t h o u t of the w r i t t e n it certificate the S u p e r i n t e n d e n t s t a t i n g t h a t t h e c o r p o r a t i o n has c o m p l i e d w i t h t h e v i s i o n s o f t h e A c t and t h a t i t i s a u t h o r i z e d to t r a n s a c t the business The S u p e r i n t e n d e n t may w i t h h o l d such c e r t i f i c a t e specified. "whenever he has r e a s o n t o l i e v e t h a t t h e bank i s b e i n g formed f o r a n y o t h e r t h a n t h e l e g i t i m a t e I n S e c t i o n 123 i t is be- objects c o n t e m p l a t e d by t h i s a c t , o r whenever he has r e a s o n t o b e l i e v e t h a t the convenience and advantage w i l l pro- public not be promoted t y t h e o p e n i n g o f such b a n k . " f u r t h e r provided that i f the Superintendent has n o t w i t h h e l d the c e r t i f i c a t e f o r any o f t h e reasons s e t f o r t h i n S e c t i o n 1 2 7 , he " s h a l l a s c e r t a i n , f r o m t h e b e s t sources o f i n f o r m a t i o n a t h i s command, w h e t h e r t h e c h a r a c t e r a r u g e n e r a l f i t n e s s o f t h e persons named as s t o c k h o l d e r s a r e uch as t o command t h e c o n f i d e n c e o f t h e community i n which such bank i s proposed be l o c a t e d , a n d , i f to so s a t i s f i e d , he s h a l l , w i t h i n s i x t y days a f t e r such a p o l i - c a t i o n has been made t o h i - ' , i s s u e , under h i s hand and o f f i c i a l s e a l , t h e f i c a t e o f a u t h o r i z a t i o n r e q u i r e d by t h i s certi- act." S e c t i o n 9 o f t h e Bank Act p r o v i d e s t h a t a bank s h a l l n o t open o r keep an o f f i c e o t h e r t h a n i t s p r i n c i p a l p l a c e o f b u s i n e s s " w i t h o u t f i r s t having o b t a i n e d t l i e w r i t t e n a p p r o v a l o f t h e S u p e r i n t e n d e n t o f Banks t o t h e o p e n i n g of such branch o f f i c e , which w r i t t e n a p p r o v a l may be g i v e n o r w i t h h e l d i n h i s d i s c r e t i o n , and s h a l l n o t b . g i v e n by him u n t i l he has a s c e r t a i n e d t o his s a t i s f a c t i o n t h a t t h e p u b l i c convenience and advantage w i l l be promoted by t h e o p e n i n g o f such branch o f f i c e . " P r o v i s i o n i s f u r t h e r made f o r additional c a p i t a l r e q u i r e m e n t s w h i c h must l i k e w i s e be s a t i s f i e d , and " E v e r y b a n k , it opens a b r a n c h o f f i c e , shall obtain the c e r t i f i c a t e before of a u t h o r i t y of t h e S u p e r i n t e n d e n t o f Banks f o r t h e o p e n i n g o f each o f s a i d b r a n c h o f f i c e s . " certificate f e e o f $50.00 i s A required. 03EG0N The s i m i l a r p r o v i s i o n s o f t h e Oregon Code a r e f o u n d i n t h e 1935 Supplement, V o l . 5> where an e n t i r e c h a p t e r ( C h a p t e r XXX) i s d e v o t e d "Branch Banking." to Under t h i s c h a p t e r any bank o r t r u s t company may e s t a b l i s h o r o p e r a t e branches under the c o n d i t i o n s t h e r e i n s p e c i f i e d . P r o v i s i o n i s made f o r e s t a b l i s h i n g branches " a t any p l a c e w i t h i n t h e s t a t e " ; a l s o a t any p l a c e w i t h i n a c o u n t y Grhere t h e p o p u l a t i o n i s l e s s t h a n 2 0 0 , 0 0 0 ) o r o u t s i d e c o u n t y w i t h i n t h e t r i b u t a r y t r a d e a r e a by s a t i s f y i n g t h e p r e s c r i b e d r e q u i r e m e n t s a p p l i c a b l e t o each t y p e o f the capital branch. Aside from d e f i n i t e r e s t r i c t i o n s imposed, t h e a p p l i c a t i o n i s subject t o a p p r o v a l o r d i s a p p r o v a l by t h e S u p e r i n t e n d e n t o f Banka and an a p p e a l is g r a n t e d t o t h e S t a t e Banking Board " a l l i n t h e same manner an i s p r o v i d e d t h e case o f the o r g a n i z a t i o n o f a bank o r t r u s t company." fourteen separate regulatory The c h a p t e r in contains sections. mm S e c t i o n 747, Compiled Laws o f Nevada, Supplement 1 9 3 1 - 1 9 4 1 , provides f o r the i n s e r t i o n i n the a r t i c l e s of i n c o r p o r a t i o n of a banking c o r p o r a t i o n of an a r t i c l e " T e n t h , " under w h i c h t h o bank "may m a i n t a i n branch o f f i c e s " t o be -7- e s t a b l i s h e d by t h e Board o f D i r e c t o r s " w i t h the w r i t t e n c o n s e n t o f ; he S u p e r i n t e n d e n t o f Banks" and upon s a t i s f y i n g t h e p r e s c r i b e d c a p i t a l r e q u i r e m e n t s . Secretary of State i s r e q u i r e d t o issue a c e r t i f i c a t e bank b u t i t it of i n c o r p o r a t i o n of may t r a n s a c t no b u s i n e s s n o t i n c i d e n t a l t o i t s o r g a n i z a t i o n The the "until s h a l l have been a u t h o r i z e d by the s u p e r i n t e n d e n t o f banks t o commence t h e b u s i n e s s o f b a n k i n g as h e r e i n a f t e r p r o v i d e d . " I n S e c t i o n 7^7.02 i t (Sec. i s provided: " * * * i f 7^7.01) the superintendent of banks i s s a t i s f i e d t h a t such bank has heen o r g a n i z e d as p r e s c r i b e d \iy l a w , t h a t its c a p i t a l and s u r p l u s i s f u l l y p a i d i n c a s h , anc t h a t i t has i n a l l r e s p e c t s comp l i e d w i t h the l a w , aiv> t h a t the p e r s o n n e l o ° i t s o r g a n i z e r s and o f f i c e r s and d i r e c t o r s i s such as t o i n s p i r e c o n f i d e n c e , and t h a t t h e proposed o p e r a t i o n s w i l l n o t b r i n g such bank i n t o such c o m p e t i t i o n w i t h any s i m i l a r institution t h e n o p e r a t i n g under t h e p r o v i s i o n s o f t h i s a c t , o r o f any f e d e r a l c h a r t e r , as t o endanger such i n s t i t u t i o n t h e n o p e r a t i n g , and t h a t t h e p r o b a b l e sphere t o be s e r v e d by such bank i s n o t a t t h a t t i m e a d e q u a t e l y s e r v e d , he s h a l l i s s u e * * * a certificate If of authorization. t h e S u p e r i n t e n d e n t 3hould r e f u s e t o i s s u e a c e r t i f i c a t e to author- i z e t h e bank t o commence i t s b u s i n e s s , t h e bank i s g i v y n an a p p e a l t o t h e State Board o f F i n a n c e , which B o a r d , a f t e r h e a r i n g t h e S u p e r i n t e n d e n t , may o r d e r certificate to It the issue. i s f u r t h e r p r o v i d e d t h a t t h e s e c t i o n s h a l l n o t d e p r i v e an a g g r i e v e d bank f r o m " p r e s e n t i n g t h e e n t i r e n a t t e r t o t h e supreme c o u r t o f t h e S t a t e of Nevada f o r r e v i e w and t h e i s s u a n c e o f such o r d e r r e l a t i v e of t o t h e issuance such c e r t i f i c a t e as may appear t o such c o u r t t o be p r o p e r i n t h e It circumstances." i s t h u s c l e a r t h a t t h e Nevada s t a t u t e s p l a c e t h e r i g h t o f a bank t o o p e r a t e branches upon an e x a c t p a r i t y w i t h t h e r i g h t t o engage i n t h e ness o f b a n k i n g . busi- A bank t h a t has e x p r e s s e d i n i t s a r t i c l e s o f incorporation the -8- • l o c a t i o n o f branch o f f i c e s i n which i t i s d e s i r e d t o - c o n i u c t i t s business c a n no •tore be d e p r i v e d o f t h e r i g h t t o conduct i t s business a t such branches by a r b i t r a r y a c t i o n than i t office. can ba d e p r i v e d o f t h e r i g h t t o conduct b u s i n e s s a t i t s principal The same w o u l d seen t o be t r u e w i t h r e f e r e n c e t o a d d i t i o n a l branches which a r e a u t h o r i z e d t o be e s t a b l i s h e d from t i r e t o t i r e by t h e Board o f D i r e c t o r s with t h e w r i t t e n consent o f the S u p e r i n t e n d e n t o f Banks. ^ICitGAP It i s doubtful i f any s t a t e i n t h e Union had a mxe disastrous d u r i n g t h e d e p r e s s i o n i n the e a r l y 3 0 ' 3 t h a n the S t a t e o f M i c h i g a n . centage o f i t s b a n k i n g r e s o u r c e s were i n banks t h a t r.ere p l a c e d i n v experience A high perreceivership. r e s h f r o r . t h i s e x p e r i e n c e t h e L e g i s l a t u r e o f M i c h i g a n i n 1937 passed a new f i - n a n c i a l i n s t i t u t i o n s a c t whicu a u t h o r i z e d the e s t a b l i s h m e n t o f s t a t e w i d e branch b a n k i n g systems. A copy o f t h e o p i n i o n ?f the A t t o r n e . General o f "Jicuigan and a copy o f the o p i n i o n o f t h e A t t o r n e y General of the U n i t e d S t a t e s so c o n s t r u i n g t h e a c t are found i n Appendix " B " . It i s worthy o f r.ote t h a t a n a t i o n a l branch t b a n k i n g system i s no - : i n o p e r a t i o n i n M i c h i g a n as a r e s u l t o f t h i s s t a t u t e and I t h a t t h e C o m p t r o l l e r 01 the Currency has f j i v e n h i s a p p r o v a l t h e r e t o . I a b l e t h a t t h e C o m p t r o l l e r o f t h e Currency has from ti-ne t o time i s s u e d c e r t l ^ i c * Lrs It % o f a u t h o r i t y f o r o t h e r branches o f o t h e r n a t i o n a l V.n':s i n t h e ~ t a k e o f is not- "ichijsn. Some t h i r t e e n a d d i t i o n a l s t a t e s , t o o , have acopted r. s t a t e w i d e branch b a n t i n g p o l i c y , ?rith v a r y i n g r a s t r i c t i o n s . pare 353.) (See 22 F e d e r a l Reserve Eullcwin, The l a r s o f those s t a t e s , however, ne^.a n o t be s p e c i f i c a l l y noted h e r e . /. competent c r i t i c who has r a r e a t h o r o u g h s t u d y o f r o u n t r y i n Wisconsin d u r i n . the d e p r e s s i o n says: baiwing "The u n s a t i s f a c t o r y f u n c t i o n i n g of t h e b a s i l i n g system d u r i n g t h e d e p r e s s i o n r.as cue i r . no s m a l l - e r i - j r o t o in- hernt system c h a r a c t e r i s t i c s o i t h e system o f independent u n i t b a n k i n g . This o f b a n k i n g , which i a dominant I n ®oat , j a r t a o f t h e c o u n t r y , has many v i r t u e a , b u t i t a l s o has c e r t a i n d e f e c t s t h a t hare caused i t tines of d i f f i c u l t y * * n o t t o be dependable in Independent u n i t b a n k i n g o f f e r s the advantage l o c a l c o n t r o l , b u t i t a l s o p l a c e s upon each community, the r e a p o n a i b i l i t y of of a b a o r b i n g i t a own l o s s e s and o f p r o v i d i n g the r e s o u r c e s f r o m w h i c h c r e d i t -nay be extended and d e p o s i t s may be l i q u i d a t e d . " J u l y 1941, U . S . D e p t . o f A g r i c u l t u r e , ( T e c h n i c a l B u l l e t i n No. 777, by Fred L . G a r l o c k , S e n i o r Agricultural Economiat, page 8 6 . ) A s o v e r e i g n s t a t e has t h e r i ^ h t r e s p e c t t p t h e s e n a t t e r s anc where i t t o p r e s c r i b e i t s own p o l i c y with has done so such p o l i c y i s not t o be c i r c u m v e n t e d o r d e f e a t e d by a c t i o n o f f e d e r a l a u t h o r i t i e s except i n strict c a n f o r a l t y with f a d f l r n l law* L e t us now t u r n t o t h e f e d e r a l s t a t u t e s and n o t e t h e i r b e a r i n g upon the banking p o l i c y i n s t a t e s which s p e c i f i c a l l y a u t h o r i z e branch b a n k i n g s y s t e m s . FEDERAL BA?IK SUPERVISORY There a r e t h r e e s e p a r a t e f e d e r a l agencies p o s s e s s i n g a u t h o r i t y r e s p e c t t o bank s u p e r v i s i o n . They a r e t h e C o m p t r o l l e r o f t h e C u r r e n c y , with the Board o f Governors o f t h e F e d e r a l Reserve System and t h e Board o f D i r e c t o r s the Federal Deposit Insurance Corporation. banks t h a t are under i t s j u r i s d i c t i o n . v o v e r l a p t h a t o f any o t h e r . Each agency a c t s w i t h r e s p e c t of to The jum a u«ii'*"ft t hnonf'ri '"iitf i t yi f o f one agency does n o t , w w The C o n p t r o l l e r o f the C u r r e n c y a c t s w i t h r e s p e c t t o n a t i o n a l barJcing a s s o c i a t i o n s ; t h e Boc~d o f Governors o f the F e d e r a l Reserve System a c t s w i t h r e s p e c t t j s t a t e banks t h a t a r t members o f t h e F e d e r a l Reserve System; anc the Boaro o f D i r e c t o r s o f t h e F e d e r a l D e p o s i t Insursaice Corporation a c t s w i t h r e s p e c t t o s t & t e banks which are n o t members o f the F e d e r a l Reserve System, t h e d e p o s i t s o f which are i n s u r e d by t h a t Corporation. coaPTHQLL^r. o? T:L Un^er S e c t i o n 5155 U . S . R . S . the c o n d i t i o n s under * h i c h a n a t i o n a l b a n k i n g a s s o c i a t i o n mry r e t a i n and e s t a b l i s h o r o p e r a t e brrnches are definitely stated, 1. I t has a r i g h t t o o p e r a t e such branches ar may have beo;» i n lawful o p e r a t i o n on F e b r u a r y 2 5 , 1927. 2. I f a s t a t e bank i s c o n v e r t e d t o a n a t i o n a l bank o r becomes con- s o l i d a t e d t h e r e w i t h , or i f two o r more n a t i o n a l banks c o n s o l i d a t e , t h e con- v e r t e d or c o n s o l i d a t e d a s s o c i a t i o n may r e t a i n and o p e r a t e any brsnchos which were i n o p e r a t i o n on February 2 5 , 3. 1927. K i t h the a p p r o v a l o f t h e C o m p t r o l l e r o f t h e C u r r e n c y , any n a t i o n a l banking a s s o c i a t i o n may e s t a b l i s h anc o p e r a t e new branches any p l a c e either w i t h i n the c o r p o r a t e l i m i t s o f t h e p l a c e where the bank i s s i t u a t e d , o r w i t h i n t h e s t a t e i f by t h e " s t a t u t e law o f the s t a t e " sta~e banks a r e a f f i r m a t i v e l y a u t h o r i z e d t o e s t a b l i s h branches. The e s t a b l i s h m e n t o f branches by n a t i o n a l banks i s f u r t h e r r e n d e r e d " s u b j e c t t o t h e r e s t r i c t i o n s as t o l o c a t i o n imposed by t h e law o f t h e s t a t e on s t a t e banks." N a t i o n a l banks t o o p e r a t e branches o u t s i d e the c o r p o r a t e limits o f t h e p l a c e o f l o c a t i o n must have a minimum c a p i t a l o f $500,000 u n l e s s p o p u l a t i o n o f t h e s t a t e be l e s s t h a n one m i l l i o n and i t has no c i t i e s p o p u l a t i o n exceeding 100,000, i n w h i c h case the minimum c a p i t a l i s and i f the with $250,000; t h e p o p u l a t i o n of t h e s t a t e bo l e s s t h a n h a l f a m i l l i o n and i t has no c i t i e 3 r i t h p o p u l a t i o n more t h a n 5 0 , 0 0 0 , t h e minimum c a p i t a l s h a l l be $100,000, but i t must have an aggregate ca - d t a l i n any event which would be n o t l e s s t h a n t h e aggregate minimum c a p i t a l r e q u i r e d t o e s t a b l i s h a n i n b e r o f n a t i o n a l ban i n g a s s o c i a t i o n s e q u a l t o t h e number o f banks and branches e s t a b l i s h e d i n t h e -11- various p l a c e s wh r e t h e y are s i t u a t e d , A b r a n c h once e s t a b l i s h e d c a n n o t be removed w i t h o u t the c o n s e n t r.nd a p p r o v a l o f the C o n t r o l l e r 5. of the Currency. A f t e r an a s s o c i a t i o n ha:- been formed f o r t h e c a r r y i n g on c f business of banking e v e r the N a t i o n a l Bank A c t , i t may n o t t r a n s a c t a b a n k i n g b u s i n e s s " u n t i l i t has been a u t h o r i z e d by t h e C o m p t r o l l e r o f t h e C u r r e n c y commence the b u s i n e s s o f b a n k i n g . " Act i t s e l f t h e r e art the ( U . S . R . S . Sec. 5 l 3 o . ) to I n t h e N a t i o n a l Bank no s t a n d a r d s s p e c i f i c a l l y r e t up w h i c h p u r p o r t t o g o v e r n t h e d i s c r e t i o n o f the C o m p t r o l l e r o f the Currency i n t h e i s s u a n c e o f such a u t h o r i t y t o a new p r i m a r y a s s o c i a t i o n . However, t h e Banking Act o f 1935 ( S c c t i o n 12b o f t h e F e d e r a l Reserve A c t , as amended) c o n t a i n s a p r o v i s i o n which i s on t h e C o m p t r o l l e r i n t h i s r e s p e c t . binding I n subsection (e) (2) i t i s p r o v i d e d that i n o r d e r f o r s .ch new n a t i o n a l bank t o be i n s u r e d , the C o m p t r o l l e r s h a l l t o the Federal Deposit Insurance Corporation a c e r t i f i c a t e give s t a t i n g t h a t t h e bank i s a u t h o r i z e d t o t r a n s a c t t h e b u s i n e s s o f b a n k i n g "and t h a t c o n s i d e r a t i o n has be^n g i v e n t o t h e f a c t o r s enumerated i n s u b s e c t i o n ( g ) o f t h i s s e c t i o n . " f a c t o r s enumerated i n s u b s e c t i o n ( g ) are the f o l l o w i n g : The "The f i n a n c i a l h i s t o r y and c o n d i t i o n o f t h e b a n k , t h e adequacy o f i t s c a p i t a l s t r u c t u r e , i t s future e a r n i n g s p r o s p e c t s , t h e g e n e r a l c h a r a c t e r o f i t s management, t h e c o n v e n i e n c e and needs o f t h e community t o be s e r v e d by t h e b a n k , and w h e t h e r o r n o t i t s powers a r e c o n s i s t e n t w i t h t h e purposes o f t h i s section." F r o r t h e p r o v i s i o n s o f law r e f e r r e d t o rbovc g o v e r n i n g t h e o f a u t h o r i t y o f t h e C o m p t r o l l e r o f t h e Currency and ( b ) p r i m a r y b a n k s , i t is * i t h r e s p e c t to (a) branches w i t h i n a s t a t e s u b j e c t t o t h e same terms and c o n d i t i o n s c a p i t a l requirements which a r c d e f i n i t e l y exercise branches suhnitted: W i t h r e s p c t t o n a t i o n a l banks they a r e t o be P ^ ^ t t e d t h e s t a t e may o p e r a t e corporate branches. -12- fixed) to operate ( e x c e p t as t o under w h i c h s t a t e barika w i t h i n The F e d e r a l s t a t u t e does n o t g i w ana power t o o v e r r i d e t h e p o l i c y t o t h e C o m p t r o l l e r o f t h e Currency o f the s t a t e w i t h r e s p e c t t o b r a n c h banking. Or t h e c o n t r a r y , h i s p o l i c y i s e x p r e s s l y b r o u g h t i n t o c o n f o r m i t y w i t h such local policy. Any a c t i o n by t h e C o m p t r o l l e r o f the C u r r e n c y n h i c h i n a branch •' . .1 i ,,,,,„ b n n l . i n g s t a t e would d i s c r i m i n a t e a g a i n s t a n a t i o n a l bank t y d e n y i n g i t the —• r i g h t t o operr.te a b r a n c h a t a g i v e n p l a c e w h i l e a u t h o r i z i n g t h e c r e a t i o n i n 1 , .. • — ' —»wi-itwi — i i i i i » n w H t t w i j t o * - , * -.S^- ••••.•v^"• • t h e same p l a c e o f a u n i t bank i s a c t i o n w i t h o u t w a r r a n t e f lar. and t h e r e f o r e .M, wmi11nr. . m - r r - ^ — v ^ r - , - i t w > n m w w -mmmtmi involves a r b i t r a r y discrimination. Moreover, i t i s designed t o d e f e a t the li « •' " Hill 1 • 1 1 * - -.yv.f -S5V •t*..-..".-!-. t a n k i n g p o l i c y o f a s o v e r e i g n s t a t e c o n t r a r y t o t h e f e d e r a l s t a t u t e s which s p e c i f i c a l l y r e c o g n i z e t h e competency o f t h e s t a t e s t o a c t w i t h i n t h i s realm. A n a t i o n a l banking a s s o c i a t i o n i s g i v e n by f e d e r a l lar. every right w i t h r e s p e c t t o engaging i n business" p r i m a r i l y , ar.d w i t h r e s p e c t t o t h e o p e r a t i o n of branches, t h a t g i v e n t o a s t a ^ e bank p r o v i d e d the d e f i n i t e conditions and r e q u i r e m e n t s o f the l a r a r e met. BO ART ?y GOVERNORS CF T " FEDLfL>L RTSFT.VI SYSTIH I n c r e a t i n g the F e d e r a l Reserve System t h e Congress o f t h e United S t a t e s c l e a r l y d i s c l o s e d a purpose t o c o n t i n u e t h e d u a l t a n k i n g system. o t h e r f e - t ' ^ r e s i n d i c a t i v e o f such a purpose i s d i v i s i o n o f the n a t i o n separate r e s e r v e d i s t r i c t s i n each o f w h i c h an autonomous l a r k Among into i s s ^ t up t o be a d m i n i s t e r e d w i t h a view t c t h e p e c u l i a r i n d u s t r i a l and a g r i c u l t u r a l needs o f the d i s t r i c t . T h i s c o n t r a s t s w i t h the c e n t r a l t a n k ic.ea w h i c h was r e j e c t e d a t the time t h e A c t r:cs passed i n '913. Another such f e a t u r e i s the p r o v i s i o n by which s t a t e banks are t o be a d m i t t e d t o t h e system on e q u a l i t y w i t h n a t i o n a l banks. S e c t i o n 9 cf the t F e d e r a l Reserve A c t p r o v i d e r ana i t f o r t h e a d m i s s i o n o f s t a t e b a r k s upon a p p l i c a t i o n f u r t h e r p r o v i d e s t h a t such s t a t e barfcs may e s t a b l i s h and o p e r a t e • o n the same t e r n s and c o n d i t i o n s and s u b j e c t s t r i c t i o n s as a r e a p p l i c a b l e It t o t h e same l i m i t a t i o n s and to the establishment i s expressly provided (Sec. ? ( 2 ) ) branches re- o f b r a n c h e s b., n a t i o n a l tanks." t h a t any s t a t e bank w h i c h was o p e r a t i n g b r a n c h e s on F e b r u a r y 2 5 , 1927 i n c o n f o r m i t y w i t h s t a t e law was e n t i t l e d to is re- t a i n them upon becoming a member o f t h e F e d e r r l Reserve System. It provided f u r t h e r t h a t t h e A c t s h o u l d n o t p r e v e n t e s t a t e mec-ber benk f r o m establishing branches beyona t h e c o r p o r a t e l i m i t s o f t h e p l a c e where t h e p a r e n t bank i s situated on e q u a l i t y w i t h n a t i o n a l Governors bonks. It p r o v i d e s f o r a p p r o v a l by t h e Foard o f o f t h e FederrJ. Reserve System i n s t e a d o f a p p r o v a l by t h e C o m p t r o l l e r o f t h e rency. Cur- I n p a s s i n g upon an a p p l i c a t i o n under t h i s s e c t i o n the Foard i s r e q u i r e d • c o n s i d e r the f i n a n c i a l c o n d i t i o n o f the a p p l y i n g bank, t h e g e n e r a l c h a r a c t e r i t s management, and w h e t h e r o r n o t the c o r p o r a t e powers e x e r c i s e d a r e w i t h the purposes o f t h i s a c t . " (Section 9 By v i r t u e o f S e c t i o n 12b ( e ) of consistent (3).) ( 2 ) o f t h e F e d e r a l Reserve A c t t h e Foard o f G o v e r n o r s , i n t h e case o f t h e a d m i s s i o n o f a p r e v i o u s l y u n i n s u r e d s t a t e benk t o membership i n t h e F e d e r a l Reserve System, i s r e q u i r e d Fed- e r a l Teposit Insurance Corporation t h a t i t i n s u b s e c t i o n ( g ) o f S e c t i o n 12b. to c e r t i f y to t h e has c o n s i d e r e d t h e f a c t o r s These f a c t o r s a r e : "The f i n a n c i a l and c o n d i t i o n o f t h e bank, t h e adequacy o f i u s c a p i t a l s t r u c t u r e , e a r n i n g s p r o s p e c t s , the g e n e r a l c h a r a c t e r o f i t s management, the its enumerated history future convenience ami n e e d j o f t h e community t o be s e r v e d t y the b a n k , end whether o r n o t c o r p o r a t e powers a r e c o n s i s t e n t w i t h t h e purposes o f t h i s iis section." There i s n o t h i n g i n t h e F e d e r a l Reserve A c t r h i c h would w a r r a n t i n f e r e n c e t h a t Congress hac d e l e g a t e d t o the Board o f Governors o f t h e - H - cry Federal to Reserve System a u t h o r i t y t o undermine or c i r c u m v e n t t h e p o l i c y o f a s t f t e «,nia».* • , , , i n . i — — ~ ^ m m t m a m * * m M \ t urn > i i i i j j l j . : m i i h j a m w r w u i m n a u m a , i j t f i im, r i t h regard t o the o p e r a t i o n r . x t h i n i t o f a breac.. b a n k i n g system. On t h e c o n t r a r y , t h e p r o v i s i o n s r i t h r e f e r e n c e t o t h e a d m i s s i o n o f s t a t e banks to membership i n t h e Reserve System c l e a r l y r e f l e c t t h e r e c o g n i t i o n by Congress o f t h e r i g h t o f the s t r . t e s t o d e t e r m i n e t h e i r own p o l i c i e s w i t h r e s p e c t to b r a n c h b a n k i n g anc t h a t s t a t e banks o p e r a t i n g branches i n b r a n c h 1 a n k i n g states s h a l l have e q u a l r i g h t s r i t h n a t i o n a l banks and o t h e r s t a t e banks t o the benefits o f membership i n t h e F e d e r a l Reserve System. FEDERAL DEPOSIT INSURANCE CORPORATION F o l l o w i n g c l o s e l y upon t h e bank c r i s i s o f 1933 anc i n an e f f o r t to guard a g a i n s t r e p e t i t i o n o f t h e c a t a s t r o p h e w h i c h accompanied t h e numerous bank f a i l u r e s o f t h e p r e v i o u s y e a r s , t h e Congress o f t h e U n i t e d S t a t e r created t h e F e d e r a l E e p o s i t I n s u r a n c e C o r p o r a t i o n and a ^ a i n u n m i s t a k a b l y e v i d e n c e d d e s i r e t h a t t h e c u a l b e n k i n g system s h o u l d be p e r p e t u a t e d . its The a c t under r r . i c h t h i s C o r p o r a t i o n war s e t up was the Banking A c t o f 1933 and t h e s p e c i f i c pro- v i s i o n s f o r i n s u r a n c e were i n c o r p o r a t e d i n t h e F e d e r a l Reserve A c t , as amended, as. S e c t i o n 12b t h e r e o f . I t provided f o r compulsory insurance f o r every and s t a t e member bank and i t national l i k e w i s e admitted to the b e n e f i t s of insurance all o f t h e s t a t e banks, n o t members o f the F e d e r a l Reserve System, which upon a p p l i c a t i o n and e x a m i n a t i o n w o u l d be found t o be s o l v e n t . S u b s e c t i o n ( y ) o f S e c t i o n 12b o f t h e F e d e r a l Reserve A c t w h i c h p r o v i d e d f o r the i n s u r a n c e , e x p r e s s l y d e c l a r e d as f o l l o w s : of this section to discriminate, in " I t i s n o t t h e purpose manner, a g a i n s t s t a t e nonmember, and i n f a v o r o f , n a t i o n a l o r member banks; b u t t h e purpose i s t o p r o v i d e a l l banks w i t h t h e same o p p o r t u n i t y t o o b t a i n and e n j o y t h e b e n e f i t s o f t h i a s e c t i o n . " language, s t i l l i n s u b s e c t i o n ( y ) , was c a r r i e d o v e r v e r b a t i m i n t o t h e This Banking A c t o f 1935 when t h e p l a n f o r t h e permanent i n s u r a n c e o f d e p o s i t s was r e v i s e d . -15- I n t h e r e v i s e d p l a n t h e Foarc c f D i r e c t o r s o f t h e F e d e r a l D e p o s i t I n s u r e nee C o r p o r a t i o n i s g i v e n a u t h o r i t y b o t h w i t h r e s p e c t t o t h e a d m i s s i o n o f nonmember banks t o membership i n t h e C c p o r a t - i o n anc" w i t h r e s p e c t t o t h e p r o - a l o f branches. ap- S u b s e c t i o n (g) o f S e c t i o n 12b o f t h e F e d e r a l Reserve as amended, p r o v i d e s f o r the f a c t o r s t o be c o n s i d e r e d by t h e D i r e c t o r s i n t i n g such s t a t e nonmember b a n k s . The s u b s e c t i o n r e a d s : Act, ad-fit- "The f a c t o r s t o be enumerated i n t h e c e r t i f i c a t e r e q u i r e d under s u b s e c t i o n (e) and t o be c o n s i d e r e d by t h e board o f d i r e c t o r s under s u b s e c t i o n ( f ) s h a l l be the f o l l o w i n g : f i n a n c i a l h i s t o r y r n c c o n d i t i o n o f the b a n k , the adequacy o f i t s its capital The structure, f u t u r e e a r n i n g s p r o s p e c t s , t h e g e n e r a l c h a r a c t e r o f i t s management, t h e c o n - v e n i e n c e and needs o f t h e community t o be served by t h e b a n k , and w h e t h e r o r n o t i t s c o r p o r a t e powers are c o n s i s t e n t T.ith t h e p u r p o s e s o f t h i s section.* The Board i s l i k e w i s e g i v e n power o f a p p r o v a l w i t h r e s p e c t t o b r a n c h e s . It i s expressed i n s u b s e c t i o n ( v ) ( 5 ) as f o l l o w s : "No S t a t e nonmember i n s u r e d bank ( e x c e p t a D i s t r i c t bank) s h a l l e s t a b l i s h and o p e r a t e any new b r a n c h a f t e r t h i r t y days a f t e r t h e e f f e c t i v e d&te u n l e s s i t • s h a l l have t h e p r i o r w r i t t e n con- s e n t o f the C o r p o r a t i o n , and no, b r a n c h o f any S t a t e nonmember i n s u r e d bank s h a l l be moved f r o m one l o c a t i o n t o a n o t h e r a f t e r t h i r t y days a f t e r w i t h o u t such c o n s e n t . the e f f e c t i v e The f a c t o r s t o be c o n s i d e r e d i n g r a n t i n g o r t h e consent o f t h e C o r p o r a t i o n under t h i s p a r a g r a p h s h a l l be t h o s e i n s u b s e c t i o n (g) o f t h i s date withholding enumerated section." As i f t o make i t c l e a r beyond peradventure t h a t such s t a t e nonmember i n s u r e d banks were not t o be d i s c r i m i n a t e d a g a i n s t , t h e f c £ l o w i i ^ a f f i r m a t i v e ' expression as t o the d u t i e s of the Board i s i n s e r t e d i n subsection ( k ) (1): "The board of d i r e c t o r s s h a l l administer the a f f a i r s of the C o r p o r a t i o n f a i r l y and i m p a r t i a l l y and w i t h o u t discrimination." There i s not a shred of l e g a l a u t h o r i t y which could p o s s i b l y w a r r a n t i n t e r f e r e n c e fcy t h e Board o f D i r e c t o r s of t h e F e d e r a l Deposit Insurance C o r p o r a t i o n -16- w i t h t h e o r d e r l y o p e r a t i o n o f a b r a n c h b a n k i n g system i n any S t a t e American V n i o n . w i t h respect The d u t i e s o f t h u t C o r p o r a t i o n and i t s Board o f in the Directors t o t h e i n s u r a n c e o f d e p o s i t s i n banks a r e c l a a r and s t a n d a r d s by w h i c h t o d e t e r m i n e a c t i o n a r e e x p r e s s l y p r e s c r i b e d . T h e r e i.s n o t a s i n g l e q u e s t i o n t o be d e t e r m i n e d by t h e F o a r d w h i c h c a n be d e c i d e d one way o r the o t h e r , d e p e n d i n g upon w h e t h e r o r n o t t h e a p p l i c a n t o r a bank w i t h b r a n c h e s . This is likewise is a unit true with respect t o the bank ques- t i o n s t o be d e c i d e d t y t h e C o m p t r o l l e r 01 t h e C u r r e n c y a a . t h e Boarc Governors o f the F e d e r a l Peserve I n the l i g h t System. o f t h e development o f our banking system, o f d i a l n a t u r e as e x p r e s s e d i n v a r i o u s a c t s h e r e t o f o r e particularly referred to, its noting t h e r e l a t i o n o r s t a t e ba.'ks t o t h e F e d e r a l a g e n c i c s and s t r u m e n t a l i t i e s d e s i g n e d t o s e c u r e t h e mere p e r f e c t w h i l e s e c u r i n g t o such f e d e r a l instrumentalities in- f u n c t i o n i n g o f the as n a t i o n a l banks a o f u n t r a m m e l l e d o p e r a t i o n on an e q u a l i t y w i t h s t a t : to specific of banks, l e t r u l i n g s of the C o m p t r o l l e r of t h e Currency, us n o r the Foard o f wnoie right turn Gover- n o r s o f t h r F e d e r a l Reserve System and t h e Poard o f Dir» c t o r s o f t h e Federal T e p o s i t I n s u r a n c e C o r p o r a t i o n upon a p p l i c a t i o n s mace p u r s u a n t t o l n r through w h i c h , and o n l y t h r o u g h w h i c h , t h e b e n e f i t s p r e s c r i b e d car. be e n j o y e d by o u V l i c ami by t h e a c l i c a n t s . the S P E C I F I C I K J T K N C ^ UP iiBJot. O f p u e u v D u r i n g t n e p a s t few y e a r s t i . e bank o f America Nation:.± T r u s t tna Savin>;s A s s o c i a t i o n has t i n e und a g a i n r e q u e s t e d p e r m i s s i o n f o r t:.e o f b r a n c h e s i n l o c a l i t i e s a f f e c t e d by a phenomenal c x p a n j ^ o n o f industrial activity, it is tne p o l i c y of t h i l bunk t o be on the a l e r t una a i w r y c ready improve i t s s e r v i c e t o i t s customers the service i t becoming s o . it prep<..reu t o r e n d e r , extend i t it it is experitneta i n f u r n i s .in q u i r e d ; i t operates successfully ana f u l l y n o t s t a g n a n t und shows no si»ms t:.e p a r t i c u l a r tne ty- e of s e r v i c e meets e v e r y r e a s o n i I t tae I n sor»t i n s t a n c e s i t l i s h n e . i t c f ban-.ini* f a c i l i t i e s s.icrt pro- such a p p l i c a t i o n h«-S met * i t r : d e n i a l w i t h o u t c.ny « ^ci - t : a t a r a t h e r r a . i u cnanpe ^ect ><rc t : e , rer^rkabij re- re^-ire^ent s t a t e m e n t o f a c r o u r u f o r sue:, a c n i a l otxier ti«a.: t i . a t " c o n u j . t i o r . s uc n o t approval." of requirements o r c o n d i t i o n t h a t S:.ouia a f f e c t s p p r o v ^ l o f i t s u c t i o n i n e s t a L i i s a i r . . posed b r a n c h e s ; y e t e v e r ; to t o t..e c o m m u n i t i e s w:.ich need The bank i s s o e q u a t c i y c a p i t a l i ^ e u — f a r a . o v t o f the law; i t operation warrant " c o n d i t i o n s " -sere s u s j e c t « t r t f.-und t o w a r r a n t a..i r o v u ' u t i . t r b ....•w to o f t..e e s t a b - u . t cor\runii,.,. V wit..in a perked. The r i : ^ t b a t ^ o n u i bun/, o l P o r t i a u , u r t / o n , : . i s ac-u u ?•i ~ i . r experience. Tue bOi.ru o f I - o v c : m i r s o f t..t? ]• truer;, i i e s c r v c w/ste:. r.as u e c l i n e o t o a p prove t n e e _ t a L x i s u n e n t , ^.f branches « f t . e F i r s t T n a t ar.u C;.vin. s sank o f pasacen;., wnic:: of u been ap^rov-.u u:ic recor^.enutu J u p e - r i n t t n a e n t c f _ unks California. T.:e Fow.ru o f Governors c f t..e F e d e r a l i . e s e r v t ijyste~. bus a d m i t t e d t h e system Peoples 3 u n k , Lukt»ood V i i l s - ; c , C a l i f o r n i a anu aas imposed into restrictions upon t h e s t o c ^ . o l ^ e r s o: tr.e bank as a c o n d i t i o n o f tne b a n k ' s c o n t i n u e d mer.bers r . i p , wnica i t i s b e i i c v e a are wholly a r r i t r s r y , witucut a u t a ^ r i t j o f i a t . una unprecedented n"<i r h i c h c l e a r l y d l s c r i - . i n a t . a g a i n s t the r i g h t s o f Transr.-.-;rice C o r p o r a t i o n anc Bank o f America. The r c a r ^ o f r i r e e t o r r ^f the " e d e r a i D e p o s i t I n s u r a n c e Cor pore Lion has r r f u s e d t o approve t h e esta.blishm-nt c i a brai.ch of t h e C e n t r a l Fr.nk o f Oakland, a n">nmember i n s u r e d t a n k , a l t h o u g h t h e same war approved ana r t c o m mended by t h e 2'uperintery.er.t o f Banks o f C l i f o r n i c . . The Board o f d i r e c t o r s o f the F e r ' e r a l T e p o a i t I n s u r a n c e Corporation has a l s o w i t h h e l d i t s a p p r o v a l o n an a p p l i c a t i o n f o r i n s u r a n c e made by t h e Pari: o f Nevada, Las Ve~ar, Nevada, which a p p l i c a t i o n l i k e r i s had and has t h e a p p r o v a l o f the S u p e r i n t e n d e n t o f Banks o f t h e S t a t e o f Nevada. I n so f a r as each o: t h e banks i n q u e s t i o n o r one o f i i s principal s t o c k h o l d e r s has been a d v i s e d o. t h e reasons f o r t h e a c t i o n i n each o f t h e f o r e g o i n g c a s e s , the SEme r . i l l appear i n C-rrespondence h e r e t o a t t a c h e d PS Appendix " C " . Corresponc ence r e l a t i n g t o e ch i s arrange-c i n t h e o r d e r i n ' which t h e banks are named above. I n t h i s d i s c u s s i o n we s h a l l r e f e r t c t h o s e p o r t i o n s o f the correspondence which r e f l e c t the c h a r a c t e r o f t h e a c t i o n t a k e n by t h e v a r i o u s s u p e r v i s o r y a u t h o r i t i e s r e f e r r e d t o and t h e absence o f any l e g a l w a r r a n t f->r such a c t i o n , which would seem t o d e m o n s t r a t e i t s p u r e l y arbitrary c h a r a c t e r as w e l l as an assumption o f power t o o v e r r i d e t h e b o n k i n g p o l i c i e s of sovereign states. BANK'OF AM/hlCA l O I I / l TRUwT AM SAVINGS ASSOCIATION N o t w i t h s t a n d i n g the phenomenal g r o w t h and development o f i n r e c e n t y e a r s , anu n o t w i t h s t a n d i n g th< California t r a n s f o r m a t i o n which has t a k e n p l a c e , p a r t i c u l a r l y i n the i n d u s t r i a l p a t t e r n o f t h e s t a t e , anc. t h e u r g e n t need f o r extension of t l x s e r v i c e s o f the bank i n areas o f new development, t h e C o m p t r o l l e r o f t h e Currency h a s . n o t g r a n t e d a p e r m i t f o r any a d d i t i o n a l permanent branches -19- i r . the l a s t f i v e ; e r r . ."plications f o r b r a ' - c - e . v ^ l l be a l l o w e d t o l i e in t h e O f f i c e o f t u e C o m p t r o l l e r o f the C u r r e n c y f o r s i x months o r even l o i t e r and t h e n the b a r k v . i l l be f o r m a l l y a d v i s e d t h a t " a f t e r c a r e f u l consideration it The has buen d e c i d e d t h a t c j r d ' . t i o n r do n o t v a r i a n t r . p . v r i . " a r c n o t s t a t e d a»v. t i u ment t h a t h a r ~ny record i : clotcf - fa 1 a u t h o r i t y r i t ' - .o far r : V- conditions only o f f i c e ef rcse-. c t t o the a p p l i c a t i o n 1. t u e Governcor.c~rr.od. y i : . T •.^UCX.L FA:;.; ::•' f - . . . i . A : ; r " * i t h r e g a r d t o a p p l i c a t i o n s made by t h e F i r s t N a t i o n a l Oregon, i t v i l l ti-nc a n t h a t v . h i l c they were pending f a v o r a b l e a c t i o n had b - „ n t a k e n on r p p l i !!o c r i t i c i s m i s sug^cr ted o f such a c t i o n as would sci m. t o be i r . a c c o r d v i t h a l l l e j r l b o t h t h e n a t i o n a l and s t a t e every reason which j u s t i f i e s bank l i k e w i s e e x i s t s lavs. r e q u i r e m e n t s a*\ w i t h the p o l i c y So f a r ar has been mare a p p a r e n t , competing i n t h e case o f the F i r s t N a t i o n a l r a n k o f " ^ o r t l a n d ; y e t the d e n i e d v i t h the s t a t e m e n t t h a t " c o n d i t i o n s do n o t approval." I t would seem t h a t i f th< f a c t s set f o r t h i n the l e t t e r of V r . T*. C o l l i n s t o the C o m p t r o l l e r o f the C u r r e n c y , d a t e d September 1 7 , 1 ° H 0 Appendix " C " ) , w h i c h was \ \ r i t t « n i n s u p p o r t o f t h e a p p l i c a t i o n s n o t deemed s u f f i c i e n t It cf hov.ever, f a v o r a l l e a c t i o n upor. r e p l i c a t i o n s o f tN<- a p p l i c t i o n s of the l a t t e r art warrant Portia:d, be nci.ee t h a t t h e } had l e . n p e n d i n g f o r a c o n s i d e r a b l e p e r i o d o f c a t i o n s o f a l a r g e r competing b r n k . it !>*k of the bank i s e n t i t l e d t h e n on f i l e , -20- were tier. the C o m p t r o l l e r to t h e F i r s t N a t i o n a l Bank o f P o r t l a n d , Oregon i s b o t h a r b i t r a r y and ' d i s c r i m i n a t o r y as a g a i n s t such b a n k . (see t o know w h e r e i n t h e d e f i c i e n c y i s s u b m i t t - c t h a t on t h e f a c e o f the r e c o r d the a c t i o n o i the Currency w i t h r e s p e c t Charles of r i R g l TRUST AMP SAVDKS RAHK OF PASADENA With r e s p e c t to the F i r s t T r u s t and Savings Bank of Pasadena i t is necessary t o read the correspondence i n Appendix "C" which p u r p o r t s t o s e t forth t h e basis f o r t h e a c t i o n o f the Board of Governors of t h e F e d e r a l Reserve System i n denying the a p p l i c a t i o n . It i s submitted t h a t r e a d i n g of t h e correspondence w i l l show t h a t , a l l e l s e a s i d e , t h e only reason t h a t the a p p l i c a t i o n i s not granted f o r the two branches requested i s t h a t Transamerica C o r p o r a t i o n owns approximately 60j£ of the stock of the bank. T h i s , of course, i s not a l a w f u l reason. Trans- america has a r i g h t t o own 60Jt or any other p e r c e n t thought d e s i r a b l e i n t h i s p a r t i c u l a r bank. I t s r i g h t s a r e no g r e a t e r and no l e s s i n t h a t r e s p e c t than those of any c o r p o r a t i o n possessing s i m i l a r powers. I n response t o t h e e a r n e s t a p p e a l o f t h e Chairman o f t h e Board o f T r a n s a m e r i c a f o r a f r a n k s t a t e m e n t o f t h e reasons f o r s uch d i s c r i m i n a t i o n , a r e p l y is r e c e i v e d w h i c h s t a t e s no r e a s o n w h a t s o e v e r a n d w h i c h m e r e l y n o t i f i e s t h e Chairman t h a t t h e Board i s a c t u a t e d by i t s v i e w s o f p u b l i c p o l i c y w i t h o u t s t a t i n g what policy i s . Obviously, i f a d m i n i s t r a t i v e o f f i c e r s could l e g a l l y j u s t i f y a c t i o n t?y r e s t i n g i t that their upon t h e v i e w s w h i c h a t t h e moment t h e y e n t e r t a i n on p u b l i c p o l i c y , we a r e no l o n g e r l i v i n g under a government o f l a w . Such a board so a b l e t o impress i t s d e c i s i o n s w i t h f i n a l i t y would have g r e a t e r power t h a n t h e P r e s i d e n t himself. What i s t h e p o l i c y t o d a y dF t h e Board o f Governors o f t h e F e d e r a l Reserve System may n o t be t h e p o l i c y tomorrow o f t h e same b o a r d . t h e p e r s o n n e l o f t h e Board and i t s action is t o r e f i t c t If t h e r e a r e changes in a c o m p o s i t e view as t o p u b l i c p o l i c y , t h e p o l i c y w i l l o f course change as t h e p e r s o n n e l o f the Board changes. When t h e Supreme C o u r t o f t h e U n i t e d S t a t e s i n t h e S c h e c h t e r case (295 i U . S . 495) d e n i e d t o t h e P r e s i d e n t o f the U n i t e d S t a t e s t h e power t o p r e s c r i b e a code g o v e r n i n g t h e p r a c t i c e s i n an i n d u s t r y i t h e l d t h a t l e g i s l a t i v e power c o u l d n o t be c o n s t i t u t i o n a l l y d e l e g a t e d t o t h e P r e s i d e n t w i t h o u t s e t t i n g up " s t a n d a r d s a s i d e from t h e g e n e r a l aim o f r e h a b i l i t a t i o n , t r a d e s arxl i n d u s t r i e s . " c o r r e c t i o n a nd development I t was a l s o h e l d t h a t i f a p o l i c y i s l a i d down i n a s t a t u t e f o r the g u i d a n c e o f s e l e c t e d i n s t r u m e n t a l i t i e s rules within prescribed l i m i t s , It i n the making o f subordinate the delegation t o t h e i n s t r u m e n t a l i t i e s of f u n c t i o n o f d e t e r m i n i n g f a c t s t o which the p o l i c y o f w o u l d be l a w f u l . of the s t a t u t e i s t o a p p l y i s elementary i n a d m i n i s t r a t i v e law t h a t p e r s o n s , includ- i n g c o r p o r a t i o n s , a f f e c t e d by a d m i n i s t r a t i v e d e t e r m i n a t i o n s o f f a c t s a r e t o know t h e f a c t s w h i c h prompt a d m i n i s t r a t i v e the entitled action. PEOPLLS BANK. UU1EW00E VILLAGE I t w i l l be noted t h a t on F e b r u a r y 6 , 1941 (Appendix " C " ) the Comptroller o f the C u r r e n c y d e n i e d t h e a p p l i c a t i o n o f Bank o f America N a t i o n a l T r u a t and S a v i n g s A s s o c i a t i o n f o r t h e e s t a b l i s h m e n t o f a b r a n c h a t Lakewood V i l l a g e , as t h e g r o u n d f o r such d e n i a l t h a t " c o n d i t i o n s do n o t w a r r a n t a p p r o v a l . " stating In November, 1941, a f t e r t h e S u p e r i n t e n d e n t o f Banks o f C a l i f o r n i a had a p p r o v e d r e q u e s t f o r a new bank a t Lakewood V i l l a g e , a p p l i c a t i o n was made by t h e bank membership i n t h e F e d e r a l Reserve System. a for T h i s a p p l i c a t i o n was d i s a p p r o v e d and s u b s e q u e n t l y , on March 1 1 , 1942 t h e Board o f Governors o f t h e F e d e r a l Reserve System i n d i c a t e d t h c o n d i t i o n s upon which t h e a p p l i c a t i o n w o u l d be r e c o n s i d e r e d . (See Appendix " C " ; ) These c o n d i t i o n s were met i n t h e manner i n d i c a t e d i n a com- m u n i c a t i o n f r o m Peoples Bank t o t h e F e d e r a l Reserve Bank o f San F r r n c i s c o on March 2 3 , 1942 (see Appendix " C " ) . On May 6 and 7 , 1942 t h e bank was notified o f t h e a c t i o n o f t h e F e d e r a l Reserve Board (see Appendix " C " ) a d m i t t i n g bank t o membership and imposing c o n d i t i o n s Among t h e c o n d i t i o n s imposed a r e t h e such f o r c o n t i n u a n c e o f such membership. following: "4« I f > w i t h o u t p r i o r w r i t t e n a p p r o v a l . o f the Board o f Governors o f the F e d e r a l Reserve System Transamerica C o r p o r a t i o n o r any u n i t o f t h e T r a n s a m e r i c a g r o u p , i n c l u d i n g Bank o f America N a t i o n a l T r u s t and Savings A s s o c i a t i o n , o r any h o l d i n g company a f f i l i a t e o r any s u b s . d i a r y -22- t h e r e o f , a c q u i r e s , d i r e c t l y o r i n d i r e c t l y , t h r o u g h t h e mechanism o f e x t e n s i o n o f l o a n s f o r t h o purpose o f a c q u i r i n g bank s t o c k , o r i n ar(y o t h e r manner, any i n t e r e s t i n such bank, o t h e r t h a n such as may a r i s e o u t o f u s u a l c o r r e s p o n d e n t bank r e l a t i o n s h i p s , such b a n k , w i t h i n 60 days a f t e r w r i t t e n n o t i c e f r o m t h e Board o f Governors o f the F e d e r a l Reserve System, s h a l l w i t h d r a w f r o m * n b e r s h i p i n t h e F e d e r a l Reserve System." I f t h e r e i s any w a r r a n t i n law f o r such c o n d i t i o n b e i n g imposed upon membership i n t h e F e d e r a l Reserve System i t w o u l d seem t h a t T r nsamerica C o r p o r a t i o n and Bank o f America N a t i o n a l T r u s t and S a v i r ^ s A s s o c i a t i o n would be a d v i s e d as t o t h e b a s i s t h e r e o f by t h e Board o f Governors o f t h e F e d e r a l Reserve System b e f o r e any such c o n d i t i o n would be imposed, b o t h c o r p o r a t i o n s b e i n g s u b j e c t t o t h e s u p e r v i s o r y J u r i s d i c t i o n o f such Board. Another statement i n t h e f o r m a l l e t t e r t o the bank membership i s w o r t h y o f a t t e n t i o n . notifying i t of i t s I t i s said: •The a p p l i c a t i o n f o r membership has been approved upon r e p r e s e n t a t i o n s t h a t t h e bank i s a bona f i d e l o c a l independent i n s t i t u t i o n and t h a t no holding company group has any i n t e r e s t i n t h e bank a t the time of i t s admission to membership, and t h a t the d i r e c t o r s and stockholders o f the bank have no p l a n s , commitments or understandings looking toward a change i n the status o f the bank as a l o c a l independent i n s t i t u t i o n . Condition o f membership numbered ^ i s designed t o m a i n t a i n t h a t s t a t u s . " I This shows t h a t the Board o f Governors o f the F e d e r a l Reserve System has .... •« nu'm. Mill HIM || III I, liiil i n - 1 T - II " 1' - T - r r j i l l l m u m g i ^ ^ m m m undertaken t o d i s c r i m i n a t e as between branch banks and u n i t banks, as v e i l as -tt ••• 1 —t , m „ . ...iii.iniiii,-rr-ni-- i .— * ' a g a i n s t a p a r t i c u l a r branch bank and a c o r p o r a t i o n which i s a m i n o r i t y stockholder t h e r e i n . tion. There i s no s t a t u t o r y a u t h o r i t y t o support any such d i s c r i m i n a - Branch banks and u n i t banks a l i k e a r e e n t i t l e d t o a l l t h e b e n e f i t s o f membership i n the Federal Reserve Systen. *m - - -r -4 n -[ 11 j. • • i 11 - n— ' • »'•'•'•— I f i t became necessary f o r the Lakewood r» iimmmiirm bank t o make r e p r e s e n t a t i o n s w i t h respect t o i t s b e i r g a u n i t bank and with respect t o the i n t e n t i o n t o continue as a u n i t bank i n order t o o b t a i n favorable a c t i o n by the Board o f Governors o f the Federal Reserve Systen, i t was necessary only because the Board o f Governors, i n exacting such a c o n d i t i o n , exceeded any a u t h o r i t y g i v e n t o i t by Congress. What r i g h t does the Board of Governors have t o determine -23- the p o l i c y o f a sovereign s t a t e w i t h reference t o branch banking? ffhat right does t h e Board o f Governors have t o d i s c r i m i n a t e a g a i n s t i t s o¥m -embers r s t o t h e e f f e c t upon membership i n t ho System o f changes i n o v m e r r h i p o f s t o c k , of a small minority i n t e r e s t ? rh.t r i g h t doe:; t h e Board o f Governors o f :ven *he F e d e r a l Reserve System h a v ; t o use membership o f banks i n t h e C y s t e n ar a c l u b t o embarrass t h e development o f b r a n c h banking i n s t a t e s where i t A l l o f t h e a f f i r m a t i v e l e g i s l a t i o n n e g a t i v e s any such 1 { is permitted? right, I n p a s s i n g i t may be remarked t h a t s i n c e t h e r e i s n o t the s l i g h t e s t sug- g e s t i o n I n the a c t i o n by t h e Board o f Governors o f t h e F e d e r a l Reserve System t h a t t h e e s t a b l i s h m e n t o f t h e Temples Bank i n Lakewood V i l l a g e was n o t reasonably r e q u i r e d f o r p u b l i c c o n v e n i e n c e , t h e a c t i o n o f t h e Board would seem t o be some evidence t h a t the Comptroller of the Currency, i n f i n d i n g t h a t c o n d i t i o n s d i d not w a r r a n t t h e e s t a b l i s h m e n t o f a b r a n c h o f Bank o f A r e r i c - . a t t h a t p o i n t , was n o t r ? f e r r i n g t o t h e convenience and needs oT the community, CENTRAL BAJ-\ OF OAKLAND I t appears t h a t n o t w i t h s t a n d i n g t h e a p p r o v a l by t h e S u p e r i n t e n d e n t of Banks o f C a l i f o r n i a o f the e s t a b l i s h m e n t by t h e C e n t r a l Bank o f Oakland o f a b r a n c h o f f i c e a t L a f a y e t t e , t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n has w i t h h e l d i t s consent. I n i t s f o r m a l l e t t e r o f a d v i c e , d-. t e d F e b r u a r y 2 1 , 1942, i s s t a t e d t h a t a p p r o v a l i s n o t w a r r a n t e d "Upon t h « b a s i s o f t h e i n f o r m a t i o n able." it avail- I t appears t h a t t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n m a i n t a i n s a n o f - f i c e i n San F r a n c i s c o , w i t h a s u p e r v i s i n g examiner i n c h a r g e . The C o r p o r a t i o n is t h e r e f o r e i n a p o s i t i o n t o o b t a i n ai^- i n f o r m a t i o n w l i i c h i n i t s judgment would have any b e a r i n g i n d e t e r m i n i n g t h e B o a r d ' s a c t i o n upon an a p p l i c a t i o n f o r a b r a n c h . The bank wa3 never c a l l e d Tjpon t o g i v e any i n f o r m a t i o n a d d i t i o n a l t o t h a t accompanyi n g i t s a p p l i c a t i o n , but i f t h e r e i s any d e f i c i e n c y o f p e r t i n e n t i n f o r m a t i o n the bank w i l l g l a d l y supply i t . I n view of tne ease with which any a d d i t i o n a l t i o n thoqght necessary could be acquired and s u p p l i e d , informa- i t seems strange t h a t an a p p l i c a t i o n would be denied on the basis of available? i n f o r m a t i o n wh«n f u l l infora- t i o n i s a t hand. F u r t h e r m o r e , s i n c e t h e i n f o r m a t i o n would r e l a t e t o one o r more o f f a c t o r s s e t f o r t h i n s u b s e c t i o n (g) o f S e c t i o n 12b o f (page 16 h e r e o f ) , which c o i i s t i t u t e the the F e d e r a l Reserve A c t the s t a n d a r d f o r a c t i o n by t h * EoarH o f o f t h e F e d e r a l D e p o s i t I n s u r n n c e C o r p o r a t i o n upon such a m a t t e r , i t an a p p l i c a n t i s e n t i t l e d t o be i n f o r m e d w h e r e i n i t Directors mould seem t h a t has f a i l e d t o meet t h e prescribed standard. I t a p p e - r s , however, t i i a t t h e D i r e c t o r s o f t he F e d e r a l i « p o ? i t I n s urance C o r p o r a t i o n have a l l o w e d c o n s ^ c e r t t x o n s o t h e r t.;an the s t a n d a r d p r e s c r ^ l ^ j d by Congress t o d e t e r m i n e t h e i r a c t i o n . They have n o t so a d v i s e d t h e bank ana t h e bank has n o t bocr. s u p p l i e d w i t h c o p i e s o f correspondence p a r s i n g from t h e F e d e r a l r e p o r i t I n s u r a n c e C o r p o r a t i o n t o t h e S u p e r i n t e n d e n t o f Banks o f C a l i f o r n i a , b u t I n a r w r i t t e n by the S u p e r i n t e n d e n t o f Banks o f C a l i f o r n i a t o tae F e d e r r l C o r p o r a t i o n on September 3 , it eposit letter Insurance i s s t a t e d t h a t t h e C o r p o r a t i o n had i n f o r m e d him t h a t i t had d e n i e d the a p p l i c a t i o n f o r t h i s branch "because o f p o l i c y which t ~ r e unanimously agreed upon by t h e F e d e r a l D e p o s i t I n s u r a n c e t h e C o m p t r o l l e r and the Board o f Governors o f t h s F e d e r a l l e a e r v c natters Corporation, System." F u r t h e r r e r e r a n e e s t o " p o l i c y " w i l l l i k e w i s e be f o i n c i r . t h e corres- e pondence w i t h t h e Eo.\ra o f Governors o f t h e F e d e r a l Feserve Syst m r e l a t i n g t h e F i r s t T r u ^ t and S a v i r ^ s Fank o f Pasadena (Appendix " C " ) . It is truly to artound- * i n g t h a t a governmental c o r p o r a t i o n set up t o p e r f o r m ? p a r t i c u l a r f u n c t i o n w h i c h i s f u l l y o u t l i n e d i n the l a w , an. t h e d u t i e s o f the d i r e c t o r s o f w h i c h a r c f i c a l l y d e l i neat d , should j u s t i f y a d e p a r t u r e f r o t h - law and.th- standard of a c t i o n t h e r i r . s p e c i f i e d ana openly d e c l a r e t h a t they were d o i n f so because speci- they, I n c o m b i n a t i o n w i t h o t h e r o f f i c e r s o f t h e Government, had d e t e r m i n e d upon a p o l i c y w h i c h i n t h e i r j u d g m e n t was more s u i t a b l e t h a n t h e p o l i c y ty prescribed Congress. A d d i t i o n a l evidence t h a t the Federal D e p o s i t Insurance Corporation p r e f e r s t o s e t a s i d e s t a n d a r d s f o r a c t i o n which have been p r o v i d e d ty Con- g r e s s i s f o u n d i n t h e c o n c l u d i n g s e n t e n c e o f i t s r e p o r t t o i n s u r e d banks o f December 3 1 , 19-41. There i t says: " I n t h e case o f e s t a b l i s h e d towns and c i t i e s t h a t need b a n k i n g f a c i l i t i e s , t h e C o r p o r a t i o n b e l i e v e s t h a t the needs s h o u l d be met wherever p o s s i b l e by a new u n i t b a n k , r a t h e r t h a n by a branch office." If t n e l a w o f a s t a t e p l a c e s u n i t banks And branch banks on a p a r i t y , where i s t h e l e g a l a u t h o r i t y f o r any d i s c r i m i n a t i o n t o be made by the F e d e r a l Deposit Insurance Corporation? I s such a s t a t e m e n t i n t e n d e d t o s e r v e t h a t t h e Board w h i c h has o b l i g a t e d i t s e l f notice t o a d m i n i s t e r the law " f a i r l y i m p a r t i a l l y " has become p r e j u d i c e d a g a i n s t a c l a s s o f f u l l y q u a l i f i e d and applicants? I n i t s a n n u a l r e p o r t t o Congress f o r t h e y e a r e n d i n g December 3 1 > 1 9 4 1 , * e do n o t f i n d any change recommended i n t h e l e g i s l a t i o n g o v e r n i n g t h e F e d e r a l Deposit Insurance C o r p o r a t i o n i n these m a t t e r s . I t appears, hoaever, f r o m page 135 o f such a n n u a l r e p o r t t o C o r ^ r e s s , t h a t d u r i n g t h e y e a r 1941 t h e C o r p o r a t i o n approved a p p l i c a t i o n s t o e s t a b l i s h 46 a d d i t i o n a l b a n k i n g and t h a t f r o m t h e y e a r 1935 t o l ? 4 l , tions. inclusive, i t offices a p p r o v e d 3 3 1 such a p p l i c a - These are e x c l u s i v e o f a p p l i c a t i o n s f o r t h e e s t a b l i s h m e n t o f branches by n a t i o n a l banks which are approved by the C o m p t r o l l e r o f t h e C u r r e n c y , and o f s t a t ? b a n k s , members o f t h e F e d e r a l Reserve System, w h i c h a r e a p p r o v e d by t h e Board o f Governors o f t h e F e d e r a l Reserve System. -26- BANK OF NJVATA. LAS VaGnS. N,V.^'A P r i o r t o " a y , 1941, persons who r e g a r d e d as f a v o r a b l e t h e prospect o f i m p r o v i n g the b . i k i n g s e r v i c e a t La.s Vegas and B o u l d e r C i t y , Nevada, cussed the r a t t e r : i t h the S t " ce S u p e r i n t e n d e n t o f Ban s . dis- As a r e s u l t a p r o - posed bank was i n c o r p o r ; . ted as t h e Fan: o f Nevada, Uas Vegas, Nevada, and t h e certificate o f i n c o r p o r a t i o n war i s s u e d on '4ay 1 2 , 1 9 ^ 1 . The c e r t i f i c a t e a u t h o r i s a t i o n f o r t h i a bank was i s s u e d by t h e S u p e r i n t e n d e n t o f Banks on 1 9 , 19^1 and a copy w i l l be f o u n d i n Appendix " C » . of % Iay Under t h i s c e r t i f i c a t e of a u t h o r i t y a b r a n c h was opened a t B o u l d e r C i t y on December 5 , 1 9 * 1 and t h e he- d o f f i c e was opened on A p r i l 3 0 , 19**2. A l 1 o f these s t e p s were t a k e n f o r the c r e a t i o n o f t h i s bank i n reliance upon t h e p r o v i s i o n s o f law un.:er w h i c h i t would be e n t i t l e d t o become an i n s u r e d bank. The bank was a c t u a l l y engaged i n b u s i n e s s a t B o u l d e r C i t y more t h a n two months b e f o r e t h e r e had been any k i n d o f e x p r e s s i o n o f " p o l i c y " by t h e Board o f Governors o f t h e F e d e r a l Reserve System, s - . i d t o have been c o n c u r r e d i n by o t h e r a g e n c i e s , under which the bank, a l t h o u g h e n t i t l e d benefits of insurance. t h e r e t o , m i g h t be denied the (See l e t t e r o f C h e s t e r M o r r i l l , 1942, Appendix " C " , F i r s t T r u s t and Savings Dank, t r a n s m i t t e d February 2 1 , Pasadena.) I n the l a t t e r p a r t of May, 1 9 * 2 / t h i s bank m a i l e d i t s a p p l i c a t i o n f o r insurance to the F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n i n W a s h i n g t o n . No acknowl- edgment o f t h e s .me was r e c e i v e d , b u t i n J u l y t h e bank was examined by an examiner f o r the C o r p o r a t i o n , t h e e x a m i n a t i o n beirv: c o m p l e t e d on J u l y 1 4 , No a c t i o n on t h e a p p l i c a t i o n havin^; been communicated t o t h e bank o r t o t h e Superintendent o f Banks o f Nevada, the l a t t e r w r o t e t o t h e Chairman o f t h e C o r p o r a t i o n on November 1 3 , 1942, n copy o f which l e t t o r w i l l be found i n Appendix " C « . The l e t t e r con- t a i n s a s t a t e m e n t o f reasons w h i c h the S u p e r i n t e n d e n t of Banks b e l i e v e d should -27- r e s u l t i r . f a v o r a b l e a a t i e r by t h e C o r p o r a t i o n or. t h e bark ' a a p p l i c a t i o n insurance. However, as t h i s memorandum i s b e i n g p r e p a r e d r.e a r e for advised t h r o u g h t h e S u p e r i n t e n d e n t o f Eanks o f Nevada o f t h e r e c e i p t o f a l e t t e r t h e Chairman o f t h e C o r p o r a t i o n , d a t e d November 3C, 1942. l e t t e r w i l l a l s o be found i n Appendix " C " . The l e t t e r A copy o f from this contains t h i s state ent: " T h i s a c t i o n has beer, t a k e n i n accordance w i t h the p o l i c y upon w h i c h t h e r e vr.animcus agreement by o u r Board o f D i r e c t o r s , is t h e C o m p t r o l l e r o f the C u r r e n c y and t h e Board c f Governors o f t h e F e d e r a l Reserve System, t h a t p e r m i s s i o n for t h e a c q u i s i t i o n o f any a d d i t i o n a l b a n k i n g o f i i c e s by Transamerica Corporation o r any u n i t t h e r e o f s h o u l d be d e c l i n e d . " authcrity? Fhy? By v i r t u e o f *.hat I f Transajnerice i s t,he o b j e c t o f a " p o l i c y " o r t h e v i c t i m o f one, why n o t a t l e a s t d i s c l o s e whet t h e t p o l i c y is? The l e t t e r o f the Chairman o f t h e C o r p o r a t i o n t o t h e o f Eanks c o n t a i n s t h i s a d d i t i o n a l Superintendent paragrrph: • I n t h i s c o n n e c t i o n I m i g h t acd t h a t T r a n s a m e r i c a C o r p o r a t i o n was a p p r i z e d o i t h i s p o l i c y some c o n s i d e r a b l e p e r i o d o f t i m e p r i o r t o the s u b m i s s i o n o f t h i s p a r t i c u l a r a p p l i c a t i o n . " T r a n s a m e r i c a C o r p o r a t i o n has a t a l l t i m e s been a d v i s e d o f t h e p r o v i s i o n s of law under w h i c h a bank i n w h i c h i t may be i n t e r e s t e d may a p p l y t o become a n i n s u r e d bank, and i t has never been a d v i s e d by t h e Board o f D i r e c t o r s o f FederaJ. D e p o s i t I n s u r a n c e C o r p o r a t i o n o f any p o l i c y a c c o r d i n g t o w h i c h r i g h t s may be o t h e r w i s e d e t e r m i n e d . the its N e i t h e r T r a n s a m e r i c a C o r p o r a t i o n nor t h e bank has been a p a r t y t o any p r o c e e d i n g s b e f o r e t h e C o m p t r o l l e r o f t h e C u r r e n c y , t h e Board o f Governors o f the F e d e r a l Reserve System o r t h e Board c f Directors o f t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n , s i t t i n g as a j o i n t body o r separ a t e l y , which c o u l d be a p p r o p r i a t e l y d i s p o s e d o f by t h e p r o m u l g a t i o n o f a p o l i c y which i s a p p l i c a b l e t o i t alone, -2S- \7hat i s t h a t "policy"? The o n l y o f f i c i a l i n f o r m a t i o n t h e bank has ever r e c e i v e d with r e s p e c t t o t h i s a p p l i c a t i o n i s c o n t a i n e d i n a l e t t e r d a t e d December 4 , (see Appendix " C " ) s i g n e d by a s p e c i a l a s s i s t a n t t o t h e Board o f o f t h e F e d e r a l l e p o s i t I n s u r a n c e C o r p o r a t i o n , and i t a p p l i c a t i o n o f t h e bank "has been d i s a p p r o v e d , * 1942, Directors Tier^ly s t a t e s t h a t the no r e a s o n s w*iatsoever being stated. Thus we see t h a t a bank w h i c h has p r o c e e d e d i n r e l i a n c e l a w , w h i c h e n t e r e d upon i t s b u s i n e s s b e f o r e t h e r e was even any d e c l a r a t i o n of a p o l i c y of d i s c r i m i n a t i o n a f f e c t i n g i t , upon the unofficial and whose operations a r e a d e m o n s t r a t i o n o f the v a l u e o f i t s s e r v i c e t o t h e community, i s denied the b e n e f i t s of a Federal arbitrarily law. APPROVALS OF BRANCHhJ FOR IN Vru, HSTERS ST..ILS There i s appended h e r e t o as Appendix " D " a t a b l e showing t h e t i o n s by F e d e r a l a u t h o r i t i e s f o r authoriza- t h e maintenance o f branches o r a d d i t i o n a l by banks i n t h e U n i t e d S t a t e s and i n a g r o u p o f F e s t e r n s t a t e s f o r f i v e p r e c e d i n g December 3 1 , 1941. It w i l l be seen f r o m t h i s t a b l e t h a t offices years notwithstand- i n g t h e v e r y l a r g e i n c r e a s e i n p o p u l a t i o n i n C a l i f o r n i a and t h e e x t e n s i v e in- d u s t r i a l development o f t h i s p e r i o d , t h e r e i s an a c t u a l d e c r e a s e i n t ' : e number o f branches o p e r u t i n g i n C a l i f o r n i a , Nevada and U t a h . x n i l e t h e number has been unchanged I n I d a h o , Oregon and T a s a i n g t o n , h o w e v e r , a d d i t i o n a l have beon c u t h o r i z e d i n c o n s i d e r a b l e number, b u t none o f t h o s e w h i c h T r a n s a m o r i c i C o r p o r a t i o n o*r.s a minority interest) such a p p l i c a t i o n s h a v i n g besn d e n i e d . -29- in . r e p r e s e n t s any a d d i - t i o n a l b r a n c h e s f o r any bank i n w h i c h Trr.nsamerica C o r p o r a t i o n i s all branches authorizations ( e x c e p t as t o f o u r f o r t h e Ni t i ^ n a l Bank o f W a s h i n g t o n i n June o f 1 9 3 6 , « in interested, More r e c e n t l y , h o w e v e r , a p p r o v a l has been g r a n t e d f o r absorption o f o t h e r benks i n t o branches o f an e x i s t i n g b r a n c h bank i n one o r more o f t h e s e s t a t e s o u t s i d e o f C a l i f o r n i a i n c i r c u m s t a n c e s q u i t e p a r a l l e l t o those f o r w h i c h a u t h o r i t y vas sought u n s u c c e s s f u l l y i n t h e case o f t h e F i r s t Bank o f P o r t l a n d and the F i r s t T r u s t and S a v i r ^ s Bank o f Pasadena. National (For illustra t i o n see c l i p p i n g f r o m American Banker o f December 3 , 1942, Appendix " E * . ) It i s not i n t e n d e d t o suggest t h a t such a c t i o n w i t h r e s p e c t t o any o t h e r bank was i m p r o p e r i n any r e s p e c t ; on t h e c o n t r a r y such a c t i o n i s presumed t o be e n t i r e l y proper. I t n e v e r t h e l e s s shows t h a t d i s c r i m i n a t i o n , such as i s t a c i t l y i n the cases o f Bank o f A m e r i c a , F i r s t N a t i o n a l Bank o f P o r t l a n d , F i r s t admitted Trust and Savings Bank o f Pasadena, C e n t r a l Bank o f Oakland and Bank o f Nevada, is being p r a c t i c e d . CONCLUSIVE Transamerica C o r p o r a t i o n i s owned by m<re t h a n 150,000 Those s t o c k h o l d e r s know t h r t t h e i r c o r p o r a t i o n has s u b s t a n t i a l stockholders. investments i n a number o f t h e o u t s t a n d i n g banks i n the VTestem p a r t o f t h e U n i t e d S t a t e s , and i n o t h e r p a r t s o f t h e c o u n t r y . They have a r i g h t t o expect t h a t the p u b l i c a u t h o r i t i e s , i n t h e exercise of t h e i r l e g a l supervisory j u r i s d i c t i o n , w i l l d i s c r i m i n a t e a g a i n s t t h e i r c o r p o r a t i o n i n t h e conduct o f one o f i t s business not major interests. The f o r e g o i n g memorandum shows t h a t such d i s c r i m i n a t i o n i s b e i n g practiced. It f u r t h e r shows t h a t i n o r d e r f o r t h i s a r b i t r a r y a c t i o n t o be f u l l y e f f e c t i v e i t has become necessary f o r o f f i c e r s i n Washington, i n whoa bank s u p e r v i s o r y j u r i s d i c t i o n i s v e s t e d , t o combine i n i n i t i a t i n g policies a t v a r i a n c e w i t h those e s t a b l i s h e d by the Congress o f t h e U n i t e d S t a t e s . -30- Also, t h a t though t h e p o l i c i e s e s t a b l i s h e d by Congress a r e i n harmony r i t h those o f t h e v a r i o u s s t a t e s , p a r t i c u l a r l y t h e s t a t e s i n which T r a n s a m e r i c a C o r p o r a t i o n is principally interested, t h e p o l i c i e s o f such s t a t e s a r e b e i n g c i r c u m - v e n t e d and s e t a t naught by t h e a r b i t r a r y a c t i o n o f t h e C o m p t r o l l e r o f the C u r r e n c y , t h e Board o f Governors o f t h e F e d e r a l Reserve System and t h e Board o f D i r e c t o r s of the Federal Deposit Insurance -31- Corporation.