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X-3796
July
To:
Subject:
Federal Reserve Boa.t-d
From: Mr. Wyatt,
Genera~
Counsel
QQ!!El~~!!~lAl!
I ha:ve been requested to
rr.a~e
31' 1923·
Pa.st policy of Board in
acting upon applications of
State nember banks for additional branches.
a. study of t:O.e :Boa.rd• s records and to
report a.s to What ha.s been its policy in the pa.st in a.cting upon applications
of State member ba.nks for its pe!"mission to establish a.dditional branches.
This informa.tion I ha:ve had to seek from the minutes of the Boa.rd (which
frequently state merely the l3o<;Jrd 1 s a.ction without giving any rea.sons therefor) and in the. co1·respondence on this subject, (which is filed in several
different places, is incomplete, and is not analyzed or indexed in any way).
I ha:ve made as thorough an investigation as is possible under these circum-
stances and in the limited time allo1ved me; anci, so far as I
ba~e
been able
to ascertain, the Boa.rd L.a.s never ha.d a:..J.Y definite, co•nprehensive policy on
this subject, though from time to time it ha.s adopted or a.pproved policies
covering certa.in specific points.
It ha.s been suggested that a. coraprehellsive .t?Olicy should be developed
gradually. like the common
la.w/~bciding
each ca.se on its merits as it a.rises;
· but if such a ~thod is to result in a. de:f'ini te :;?Olicy it is necessary (as
in the development of the common la.w) to
d~cide
ea.ch ca.se in accordance
with precedents previously established, if there .s.re any precedents in point
and in the absence of preceo.ents in point to deciO.e each ca.se in a.ccordance
with the general principles that ha:v~ been annou11cea. in conn;,ctior. with
previous ca.ses.
So fa.r as I ;,.a:va been able to a.s·certain, no v;ell defined
comprehensive policy has yet been developed in this ·way.,
NUmerous different considerations of pol!qr
ha~e oee~
suggested or
acted upon, howeve.r, from time to time a.s a. ba.sis for the :Soa.rd 1 s· decisions
x--3796
-2-
in various ca.ses, and it is believed that a. statement of these various considera.tions will throw con::;iderable light upon this subject and will be of
some a.ssistance in formulating a policy for the future.
After a. careful
investiga.tion of all the 'Board's records on this subject, I have prepared
the following sta.tement vJaicJ1 I believe describes most, if not all of the
various cons idera.tions of policy which ha:va influenced the :Board a.t different times in a.cting Up':ln applications for permission to establish a.dditional branches or wbich have been suggested as possible bases for such
action.
POLICIES FAIRLY WELL
Assimilation
2£.
ESTJ~LISHED.
:Banks Taken Over: -
The :Board seems to ha:ve ndopted the principle that a. bank should not
be permitted to establish addi tiomi.l branches through the absorption of
existing banks at a. .rate out of proportion to its powe1· to assimilate the
business taken over by the banks absorbed.
Sept. 24, 1921, :Bank of.Italy File No. 22).
(Letter, Harding to Perrin,
Thus, in acting upon the appli-
cation of the Ba.:nk of Italy for permission to take over and opera.te as
bra.nches the eight banks in the so-called "Bakersfield" and
11
I.fu.rysville"
Groups, the Boa.rd parmi tted it to take over only four of such ·oa.nks at a.
time, with the understanding that the other four should not be a.dmitted
until after the :Board was satisfied that the first group had been properly
organized and vva.s properly functioning a.s branches of the Bank of Italy.
(Letter, Harding to Perrin, Janua.ry 18, 1922 .)
Branches in Same City
~
Hea.d Office:-
The Boa.rd B:Pparently has been disposed to grant any California. State
member bank in good condition authority to esta.blish a.dditiona.l branc:1es
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X-3796
or a.gencies in the same city as the head office wl1enever t:i.1e public convenience would be ser·1ed.
In the ca.se of the Pa.cific Southwest Trust &
Savings Bank of Los .Angeles, and the Mercantile Trust ComparJ.Y of San
Francisco, these a.ddi tiona.l offices ha.ve been for the n:ost po;rt so-ca1led
11
receivinga.nd peying sta.tions".
(Letter, Perrin to Boa::--d, ]'ebru'3ry 21,
1922, re establishment o£ a.dditiona.l branches in Los .Angeles by the :Bank
of Italy) ..
Receiving and Pa.ying Stc:;.tions Distin@ished from Bran::hes:The Board ha.s taken the position tlat teere is qv.ite a. distinction
between the establishment of a. branch bank and the esta.blishruent of a
mere office or receiving sta.tion a.t which no discounting of any consequence
is ca.rried on and· the funds of Nhich a.re sent to the ma.in office ea.ch da.y,
and it ha.s expressed the opin:i.on tha.t it is not a. matter of prima.ry concern
with the Federa.l Reserve Board how many such s ta.tions member ba.nks esta.blish, unless the expense threa.tans the impa.irrr.ent of their working
ca:pita.l.
The Boa.rd, however, ha.s expressly reserved the right to interfere
if such stations should develop into full fledged branches and has notified
the banks concerned tha.t i f they desire to opera.te full fledged branches
they must obtain the Board's a.pprova.l.
The Boa.rd has not issu3d a genera.l
ruling on this subject giving blanket to all member banks, "Jut bas .s.:iopted
the policy o£ making its approval of such receiving sta.tions under such
circumstances and conditions a.s those which obta.in in the City of Los
.Angeles a. more or less proforma. matter.
(Letter to Perrin, Mc:;y 15, 1922).
In this connection, it is to be noted that the Board gave
til~
Southwest
Trust & Sa:vings Bank of Los A.'"lgeles blanket :;ermission to establish twentyfive such a.dditiona.l offices in Los Angeles :md gave the Mercantile Trt:st
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X-3796
Company of San Francisco bla.nl;:et a.uthori ty to esta.blish thirty such offices
in and about San Francisco.
The :Board has a.lso taken the position that
the mere fact that such sta.tions make loans in amounts not exceeding
$500
does not bring them within the designa.tion of "branches 11 and tha.t, so
long a.s the mana.gers are not vested v-.ri th discretionary power to make
larger loans, the Board is not disposed to consider them as actual branches.
(Letter, Platt to Perrin, Janm.ry 4, 1923.)
Effect _2!! Examination Problem:In a number of cases the Board ha.s expressed concern a.oout the extension of branches in so far a.s such extention tends to make it impossible
to have simultaneous examinations of the head office and all branches.
(Letter Platt to Perrin, March 14, 1923).
After a. careful study of the
si tua.tion in California. and numerous conferences with the various pa.rties
concerned Messrs. I!Iiller a.nd I\1i tchell also reached the conclusion that the
a.bili ty to supervise and examine banks having a. large nUitber of branches
should govern the number of branches to be permitted.
April, 1922, page 12).
(Report to Board
And in this conneation the Bo~.rd has taken the
position that, for examination purposes and general adrninistra.tive purposes,
there is no difference between a. full fledged branch and a. mere a.ddi tional
(Telegram, Roxton to Perrin, March 10, 1923).
office or receiving station.
The :Boa.rd has a.lso expressed the belief tha.t the inability of the State
authorities to ma.ke proper examinations is a. vi tal matter and the difficul ty of conducting an examination of a. ba-l'lk with a. ls.rge nu1nber of
branches offers a.dequa.te justifica.tion .for limiting bra.nch expansion.
The
:Board, of course, is reluctant to ha.ve the Federal Reserve Bank assume the
res:ponsibili ty in such ca.se which should be borne prima.rily by the State
authorities.
•
(Telegram, Roxton to Perrin, Iv'Ia.rch 10, 1923).
In a. report
X-3796
~-
submitted to the Boa.rd as early as Deoem'Car 22, 1921, by a. Committee composed of Messrs. Crissinger and MitChell, the conclusion was reached that
the l3ank of Italy already had rr:ore branches than the Federal Reserve :Bank
had. machinery to properly supervise and examine and that any request for
addi tiona.l branches should be refused.
Cons idera.tions Influencing Board's Decision in Particular Cases:'Ihe following is a statement of the various considera.tions which ·nave
influenced the Board's a.ction on applications of member bariks to esta:Clish
branches in particular ca.ses a:nd 'Nhich it is believed contain suggestions
which may be of a.ssistance in formulating a. general policy:
Understanding with Giannini
~
Admission of Bank of Italy:-
In the letter a.ddressed by Dr. :,aner to Mr. Giannini, President of
the Bank of Italy, under da.te of September 26, 1917, and ratified by the
Board in a. telegram addressed by Govern.:;r Harding to Mr. Perrin, under
date of October 20, 1917, it is stated tha.t on the question of the Bank of
Italy taking on addi tiona~ branches the sole concern of the Federa.l Reserve
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Board would be to satisf;y itself tha.t a.n;y proposed extension will not
impair the general sa.fety and strength of the institution.
Since that
statement wa.s made, however, the method of the Bank of Italy in a.cquiring
a.ddi tional branches ha.s changed materially, and the entire problem has taken
on new aspects which would justify the Board in taking oth3r rr.atters into
consideration.
Furthermore, the Bank of Italy did not join the Federal
Reserve Systemupon receiving these letters but waited until 1919, over
two
ye~s
.
later, and at the time of its admission its method of developing
branch banks was under sefious criticism by the Superintendent of Banks,
and the Board admitted it only after it promised to comply with a.ll the
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X-3796
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{' ' ',J)
requirements of the Superintendent of Banks a.nd agreed specifically that
it would not establish any additional branches without first securing tre
approval of the Federal Rese~e Board.
December
15. 1919,
(Letter, Supt. of Banks to Perrin
Bank of Italy File 13).
This would seem to supersede
completely any unders.tanding ba.sed on Dr. Miller's letter of September 26,
1917.
.At the t ima of t.."le a.dmis s ion of the Bank of I ta.ly, the Super-
intendent of Banks a.nd Mr. Perrin agreed tha.t the Bank of Italy should not
go forward with the expansion of its branch system unless and until its
organization, policy, management, both pra.ctica.l a.nd theoretical, could
dam:mstra.te a. full control a.brea.st of its problems.
Perrin to Board, December 18, 1919,
Condition, Organization, a.nd
Ba.Dk
~.1ana.gement
(See a.lso letter
of Ita.ly file 14).
of Parent Bank:-
It is obvious tha.t the condition, organization and mana.gement of the
parent bank necessarily must be given important consideration in determining whether the establishment of additional branc1:.s will affect its
soundness, liquidity or solvency.
This element ha.s a.l'va¥s been considered
in act·ing upon applica.tions of the Ba.nk of Italy for permission to establ ish bra.nches, a.nd the Board clearly ha,il been inf:uenced by tr.e criticisms
of Iv.Tr. Perrin and the Sta.t.a Superintendent of Banks on the ground. tha.t it
is expanding too fa.st, is suffering from lack of proper coordina.tion between the branches a.nd the head off ice, from lack of hea.d office control
and supervis.ion, from lack of tra.ined bankers a.Ir..ong the senior officers
of the head office, a.ud from lack of indepandence on the pa.rt of the directors of the home office, and also on the ground that its
affiliation
with other corpora.tions such as the Banci taly Corpora.tion of New York,
The Stockholders' Auxiliary Corporation, the Liberty Bank of San Franciseo,
and California. Joint Stock Land Bank, the Ea.st River National Bank of New
X-3796
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York, the Comnerc ia.l Trust Company of New York, a.nd two banks in I ta.ly,
constitute a.n element of danger.
Criticism of Bouttne Qpera.tions:In approving certain a.pplica.tions of the :Bank of Italy for per ...
mission to esta:blish branches the l3oa.rd did so on condition tba. t the :Bank
submit "evidence tha.t the ma.tters criticised by the State Banking Department in connection with the la.st report of condition of the Bank of
Italy had been adjusted to the entire sa.tisfa.ction of the Superintendent
(Letter, Governor Harding, J~e 29, 1922, which is not
of Banks."
in
file but is quoted in memorandum, Hoxton to :Board, December 12, 1922).
Mr. McAdoo, Co"Unsel for the Bank of Italy, questioned the propriety of
this condition on the ground tha.t "it concerned ma.tters wholly unrelated
to the merits of its app1ica.tion for the acquisition of additional branches."
{Letter to Harding July 21, 1922) •
Governor Harding replied und~r date
of July 21, 1922, tha.t the Board had particularly in mind, however, criticism
relating to routine operations of a. bank and felt that where so large an
ins.~i tution
wa.s subject to criticism in respect to its routine operations
the ma.tters complained of should be adjusted before the :Board should become a.· party to permitting the bank to still further enla.rge the scope of
its operations.
Effect~
standard
Required~- Condition~
Membership:-
Na.tura.lly, the Boa.rd must take into consideration the effect which
the establishment of a.ddi tiona.l branches will have on the s tanda.rd required of such bank as a c.ondition of membership, and quite frequently
this question a.nd. the question of loca.l convenience ba.ve been the only
points discussed in Mr. Perrin's recommendations.
(See J:OOmora.nda. Imlay
to l3oard September 29, 1920, and Februa.ry 24, 1921, re a.pplica.tions of
X-3796
-8-
Pacific Southwest Trust & Savings Bank, and correspondence a.tta.ched): .
P.a.tio of Capital to Deposits:In approving the applica.tion of the Bank of Ita.ly for permission to
take over the eight ba.nks in the so-called Bakersfield a.nd Marysville Groups,
as explained above, the Boe>rd indicated tha.t its aJ>proval was ba.sed largely
on the fact tha.t the Bank of I ta.ly had recently increased its ca.pi tal and
surplus sa.ying, "The Board pla.ces great importance upon the proper relation
of ca.pital and surplus of the Bank to its deposit lia.bilities".
Harding to Perrin, Ja.nua.ry 18, 1922).
(Letter
This is very important in connection
with a. rapidly expanding branch system, because the
continue~
absorption
of going banks with their axisting deposit liabilities will soon reduce the
ratio of the capital of the parent bank to the aggregate deposit liab'ili ties, unless the capital is increased correspondingly.
La.xitl of Ivlana.gement:Mr. Perrin refused to recommend the establishment of a branch at Fresno
by· the Sacramento-San Joaquin Eank (now United Bank a.nd Trust Company of
California.), because of the laxity of its ro.ana.gement, saying,
11
If unable to
mana.ge acceptably the present complex si tua.tion, it wa.s not clear how
matters would be improved by increa.sing the complexity with the addition!
of a.nother branch."
Upon being advised of this fact, the Board said that
Mr. Perrin's position wa.s well taken.
(Letter Parrin to Harding J'.lly 9,
1921, and Harding's reply July 16, 1921).
~Bludgeon
Monopolistic Tendencies
Methods:-
.Another factor v.hich ha.s rr>.ade the Board hesitate to a.pp:rove applica.tions of the Bank of Ita.ly for permission to esta:olish a.dditiona.l branches
ha.s been the so-called
11
bludgeon ID3thods" of tha.t bank in a.cquiring otter
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X-3796
-9-
branchc;s for the purpose of converting them into branches, and the tendency
to CO!l!Pel such banks to sell out rather than face the competition of the
Bank of Italy.
This, of course, tends to destroy the independent system of
banking upon which the Federal Reserve System is based a.nd is in my opinion
a. perfectly valid lega.l a.nd rr..ora.l ground for declining to permit the esta.blishment of a.dditiona~ branches.
Yuba City to Crissinger, January
(See telegram First National :Bank of
16, 1923).
It is especially i:mporta.nt to consider the effect of this tendency on
the existence of independent na.tiona.l banks, mich constitute the real
11 back
bone" of the Federal Reserve Systems inca their membership in the
System is compulsory.
It ha.s been suggested tha.t a. contiruation of the
present tendencies in California would eventually result in the complete
elimination of the national banks from the State.
This would pla.ce the
Federal Reserve Bank of San Francisco largely a.t tha roorcy of the large
State banks, because they could pra.ctically take California out of the
Federal Reserve System on six months • written notice.
They have a.lrea.dy
indicated a. tendency to attempt to coerce the Federa.l Reserve Bank "'and even
the Federa.l Rese.rve :Boa.rd by threats of withdrawal from the SJ'S ten:;.
:Branches Outside Home
City~-
The :Board's disa.pproval of the a.pplica.tion of the :Bank of Italy for
permission to esta.bJrish a bra.nch de novo a.t Sa.ci'3ln6nto wa.s ba.sed upon a.
recommenda.tion of Iv!r. Perrin and upon the policy of the Sta.te :Banking Depa.rtment not to permit more tha.n one bra.nch to be established by any bank in a.
city or locality other tha.n that in which its principal place of business
is located, nor to permit any bank to establish branches de novo in any
town or city other than that in which its head office is located, unless the
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X-3796
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Superinten<ient of Banks in his discretion sna.ll find that the public convenience and advantage req'W.re it.
(Letter, Criss::nger to IIIcAdoo, June 1,
1923)·
Local Convenience:The Board's disa.pp1·ovuJ of the
a. branch a.t Yuba. City wa.s
basec~
es~a.blis:hrr£nt. ';)'y
the Bank of Ita.ly of
primarily upon a fi:::1d.i:1g of fa.ct by Mr.
Perrin, its loca.l re:presenta.t:.ve a.t San Franciscv ~ to the effect that the
banking needs of Yuba. City we1·e alrea.dy
wa.s no appa.rent public
community.
d~zm.nd
ad~qu.a.tely
serve-d &r.d thc...t '.;here
for addi tiona.l banking fa.cili ties
~n
the
T"ne .Board a.lso had before it a. suggestion from r,1r. Perrin
tha.t, a.s a. ma.tter of general policy, it is not desirable to permit the
esta.blishment of branches de novo in tovms or cities other than tha.t in
which the head office is loca.ted, if there already are commu."li ty banks
loca.ted in such toVIms or cities whose existence may be threa.tened.
Further,
more, the Boa.rd wa.s advised that the Ba.r.k of Italy a.lrea.dy ba.d substantial
representation in the banking field in tha.t loca.li ty.
to McAdoo, June 1,
(Letter, Crissinger
1923).
In this connection, I consider it rey dut;," to advise the Board that
in my opinion it took an unnecessarily weak position when it ba.ded its
disa.pproval of the a.pplica.tion of the Bank of Ita.ly to esta.blish a. branch
a.t Yuba City on the ground that the 'banking
n~ads
of Yuba. City were a.lrea.dy
adequately served and that there wa.s no appa.rent public demand for additional banking facilities in the community.
As a. practical ma.tter, it
is very difficuJ. t for the Board to determine Nhether or not a. small community in California. neeeis or desires additional banking facilities, a.nd
it cannot a.lwa.ys depend upon its local repre.senta.tive to decide such
X-3796
-11questions.
This is demonstrated by the fa.ct that Ivlt-. Perrin first advised
the Board tha.t no a.dditiona.l banking facilities were needed in Yuba City
and has since reversed tha.t finding.
Furthermore, for the Board to under-
take to determine local questions of this character contrary to the findings
of the local authorities would be likely to have a.
ve~
bad effect on public
opinion i f the matter should be ma.de the subject of a test ca.se or public
controversy, because it ia
a.ppa:..~ently
inconsistent with one of the funda.-
mental principles of our Government, namely, tha.t local questions should
be decided by the loca.l authorities rather than by the Federal Government.
If Mr. McAdoo chooses to make a. test case of the Board's a.ction in the
Yuba. City ca.se, he undoubtedly will make a. lot of ca.pi tal of this point,
which will have its effect on the public mind.
It may even have its
effect (subconsciously a.t lea.st) on the court, just a.s the idea that the
Federal Reserve Banks were oppressing the small State banks recently influenced the Supreme Court of the United States to make a decision in the
North Carolina pa.r clearance ca.se which -vva.s entirely out of line with its
decisions for the pa.st fifty yea.rs on questions involving State interference with the corporate powers of Federal corporations.
In my opinion, there are many other grounds upon v.hich the Board could
ha.ve ba.sed its refusal to permit the Bank of Italy to esta.blish a branch
a.t Yuba. City and which could ha.ve been defended much more ea.sily.
Thus,
it could ha.ve pla.ced it squarely on the ground suggested by Mr. Perrin tha.t,
as a. matter of general policy, it is not desirable to permit the estaelishment of branches de novo in to•.ms or cities other than tha.t in which
the head office is loca.ted if there a.lrea.dy are cox;mnmi ty banks located in
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X-3796
such towns or cities whose existence may be threatened; or it could ha.ve
pla.ced it on the ground tba.t the .Bank of Ita.ly a.lrea.dy ha.s too many
branches, is expanding too rapidly, ha.s not properly coordina.ted the
bra.n.ches which it ha.s a.lrea.dy a.cquired, or on many of the broa.d grounds
which ha.ve been considered in other connections.
On any of those
grounds, its a.ction could be sus ta.ined before a. court or before the
bar of public opinion with cowpa.ra.tively little trouble, a.nd it is
doubtful tha.t the .Bank of Italy would dare to ooke a. test case if the
.Boa.rd ha.s ba.sed its a.ction on such grounds.
I do not presume or intend to criticise the .Board's action
in this watter; but I do consider it my duty to point this out, in
order to suggest tha.t it would be advisable for the .Board to ba.se
its action in such ca.ses on broader grouncis in order tha.t its position
rr.a.y be a.s strong a.s possible if it is ever drawn into a. test ca.se
or into a. public controversy.
In this connection, it should be
remembered tha.t if a. test case is broue,ht it proba.-oly will be brought
by the .Ba.rik of Ita.ly, and the attorneys for tha.t Ba.r.k na.tura.lly will
select the ca.se in which they think the .Boa.rd ha.s takm the weakest
position.
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,,. '3 "796
.II.-.
I
The following are several s·u.ggestions that nave been rr.ade from time to
time but apparently have not been adopted 1Jy the Board.
It is believed that a
statement of them will be helpful in connection with the formulation of a
general policy on this subject;Liquidity
2f Parent
~
§llld
Coordinatio~
£_f_ :Branches.
At a conference held in San Francisco, April 11, 1922, attended by
Messrs. Mitchell and Miller of the Federal Reserve :Board, the Superintendent
of Banks of California, Mr. Oliver, his attorney, and by Mr. Perrin,
Governor Calkins and other officers of the Federal Reserve Lank of San
Francisco, the following was agreed to as a basis upon which the State
·nanking Department and the Federal Reserve Board should treat branch
banking problems:
1.
That a ba.">J.k should not add a branch or branches unless ex-
aminatian discloses that it has in cash, due from nonaffiliated banks,
United States Government bonds and paper eligible and acceptable for rediscount by the Federal Reserve Bank, a total of not leas than fifty per
cent of its demand deposits and fifteen per cent of its time and savings
deposits.
2.
.And in the case of a bank already operating branches that it
should not establish an· additional branch or branches unless a survey discloses in addition that its existing branches are well coordinated under
Head Office control and airection both in accounting and in
ext~nsion
of
credit.
These conclusions were approved unanimously by the directors of
the San Francisco Federal Reserve Ban.c:, but the State bankers were unwilling to accept such a basis.
(Report of Messrs. Miller and Mitchell
(~
-14to Federal Reserve Board, April 1922, pages 5 to 3).
X-3796
>The :Board apparently
took no formal action on this suggestion, but at times has followed a
policy somewhat similar to the second point stated above.
Branches within Reasonable Radius
~
Parent Bank:-
The national banks in San Francisco have generally taken the
}Osition that branch banking should be confined to districts within a
reasonable radius of the parent bank and that it is impractical to attempt to cover the entire State with a system of branch banking. (Report
of Messrs.
~tiller
and Mitchell, April, 1922, page 5).
The Board apparent-
ly tookno action on this suggestion.
State Policy
~
Branches De
~:-
It has been suggested that the Board adopt as its policy in acting
upon applications of California State member banks for perrndssion to
establish additional branches, the following policies adopted by the
State Bank Superintendent, and promulgated as rulings effective March
8, 1923, after a conference with the Legislative Committee of theCalifornia
Bankers• Association and the Executive Committee of the California League
of Independent Bankers; but the Board apparently has not adopted this
·suggestion:"From and after this date no branch office shall be
established by any bank in a city or locality-other than that
in which its principal place of business is located by the purchase of or consolidation or merger with another bank unless
both banks shall have been open for business for at least
three years prior to said sale, consolidation or merger unless
~ superintendent nf banks in his discretion shall find that
the public conveniBnca and ad val! tage require it; in the case of
a national bank that has been converted into a state bank the
time required herein shall be coDsidered as running from the
date of the original organization of said national bank.
"From and after this date no more than one branch office
shall be established by any bank in a city or locality other than
..... '.tt..Y
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X-3796
that in which its principal place of business is located, unless
the superintendent of banks in his discretion shall find that
the public convenience and adVantage require it. .In tlLe :went,
however, of sale, consolidation or merger, all branches that have
been ma.intained for a period of three years prior to such
sale, consolidation, or merger by the respective institutions or
banks concerned ma.y be thereafter continued as branches of the
consolidated banks. The three-year requirement herein provided
shall not be construed as applying to branch offices in existence
as of this date.
11From and after this date no branch shall be created
in any locality other than the city or locality in which is
located the principal place of business except by purchase of
or consolidation or merger with an existing bank in said city
or locality unless the superintendent of banks in nis discretion
~find that~ public convenience ~advantage require !b."
(It should be noted that the practical effect of these policies is
greatly dimdnished if not_entirely nullified by the exception stated in the
words,
~ess
the superintendent of banks in his discretion shall find
that the public convenience and advantage require it 1 n especially when
it is well knov.n that most California ex-Superintendents of Banks obtain
lucrative positions with the large California banks operating branch
systems.)
Distinction between Establishing Branches De
Banks:-
~
and Talcin6
~
Exiisting
At tent ion has been called to the fact that there is quite a difference
between granting
per~ssion
to establish new branches and acquiring the
business of banks already established
an~
/
converting them into new branches.
In the case of new branches there is no immediate asSUI:qfltion of additional
liabilities, and the machinery of the parent bank is gradually developed
with the' growth of the business of the new branch.
With the acquisition
of established banks, however 1 the volume of business is immediately
greatly increased, and, unless the organization is equipped vdtn the highest
quality of efficiency, a. proper ·control cannot be had over the business
acquired. (Letter, Jan. 17, 1922, proposed by Mr. Mitchell disapproving
ap 1jlication of Bank of It::!.ly to establish eight branches; but not adopted
by the Loard.)
.
"
-16~.
X-3796
{~
\
Hamlin's Pending Resolution:At the Board meeting on May
1923,
April 10,
~2,
1923,
Mr. Hamlin stated that he had on
presented certain resolutions setting forth the terms of a
general policy covering the Federal Reserve Boardts attitude towards applications for branches by State member banks. and requested that ·his resolutions
be recorded upon the minu.tes of tha.t date, but laid aside for· the present as
unfinished business.
Mr. Hamlin further stated that he
now desired to
amend the resolutions aforesaid, and to have them recorded upon the minutes
as follows, with the
re~est
that the _amended resolutions be
treat~d
at
this time as were the original, and laid aside for the present as unfinished
business:".Resolved:That, in passing upon the establishment of Branches by
~mber State llMlra and Trust Coapanies, whetner de novo or
through voluntary purchase of existing Banks, the Board wili
take into consideration the need of the corr.munity for addition•
al or improved facilities and the effect of the establishment
·of the proposed Branch on the condition of the Parent Bank.
".Resolved:-
That, the Board will accept the decision of the State Banking
Department as to the need of the comnuni ty for additional ot
improved banking facilities.
lr.Reaol ved:-
That, the Board will not undertake to lay down any general
polict as to territorial liudtations or spheres of influence,
but will accept the policy of the State with regard thereto, as
determined by the State authorities. n
(Minutes ~
22, 1923)
It appears that these resolutions are still pending and that no action
bas been. taken on them.
"",.,....
-Ji
..
-17-
X-3796
SUMMARY
The following is a brief summary of the va.rious points heretofore considered or suggested and Which might be given consideration in connection
with the
for~lation
of a general policy on this subject:-
1.
Rapidity of expansion and assimilation of going banks taken
over and operated as branches;
2~
Distinction between branches in same city as head office and
branches scattered over the entire Statej
3· Distinction between branches and mere receiving and paying
.,
stations;
4.
Effect of establishment of further branches on the problem of
proper supervision and examination;
5· Effect of establishing additional branches on general safety
and strength of parent institution;
6. Condition, organization and II'.anagement of parent bank;
1· Ratio of capital to deposits;
S.
Monopolistic tendencies and bludgeon methods in obtaining
branchesj
9. Establishment of de novo branches in conpetition •Nith
existing banks in cities other than that in which the
head office of parent bank is located;
10.
Geographic location of branch with reference to parent
bank, especially as it affects economic relation mtd
ability of parent bank to properly control and'supervise
branch;
11.
Policy of State re branches de novo;
12.
Distinction between establishing branches de novo and taking
over existing banks;
13. · Mr- Hamlin's resolutions which are now pending before the Board.
CONCLUSION
It is believed that a historical discussion of the Board's attitude
toward the development of the present branch system of five or six of the
,:-
,~, ~--~
"
-· v
X-3796
-18-
California State member banks having large numbers of branches will throw
more light on this problem, but I have been unable to prepare such a statement in the short time allowed me.
This office wUl cheerfully undertake
the task if the Eoard so desires; but it is not a legal problem and the
Board may prefer to have it prepared by some other iepartment of its
organization, especially in view of the fact that tnis office already has all
it can do while some of the other offices are not so busy.
In conclusion, I respectfully suggest the importance of having
the Board's files on this subject put in such shape that they can be more
easily consulted and that correspondence on any particular point can be
more readily located.
To this end, it is respectfully suggested that all
the files on this subject should ·oe consolidated in one pla.Ce; all missing
papers should be found and restored as far as possible, even if it
is necessary to write to the Federal Reserve Bank of San Francisco for
duplicates; and the entire file should be analyzed, subdivided and
indexed.
In their present state, it is very discouraging to attempt
to make a study of these files, and it is often difficult and sometimes impossible to locate a particular letter when it is needed.
This
is not intended as a criticism of any one, but merely as a constructive
suggestion.
Respectfully,
WALTER WYAT'T I
General Counsel
@FedFRASER