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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 jumu t hno r '"iitfyf o f one agency does n o t
a «ii'*"ft nf'i i t i
,

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
•'

.. i
1

,,,,,„

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 - 5
SV
•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 u > 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
n

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 [

1 j.
1

• • 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.