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FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-6487 J a n u a r y 28, 1930. SUBJECT; Branches of N a t i o n a l Banks. Dear S i r : There i s a t t a c h e d h e r e t o , for* your i n f o r m a t i o n , copy of an o p i n i o n r e c e n t l y rendered, by t h e A t t o r n e y General, w i t h r e g a r d t o the branches which may be m a i n t a i n e d by a n a t i o n a l bank formed a s a r e s u l t of a c o n v e r s i o n of a S t a t e bank or of a c o n s o l i d a t i o n between a S t a t e and a n a t i o n a l bank. Very t r u l y y o u r s , E. M. McClelland, Assistant Secretary. Enclosure. TO THE CHAIRMEN Aim GOVERNORS OF ALL F . B. BAMS. X-6487-a COPY DEPAHTMMT 03? JUSTICE, Washington. December 23, 1929 Sir: I have the honor to r e p l y to your l e t t e r of August 6, 1929, wherein you s t a t e t h a t the Comptroller of the Currency h a s b e f o r e him t h e a p p l i c a t i o n of a S t a t e bank, o p e r a t i n g i n a town of s l i g h t l y under one hundred thousand p o p u l a t i o n , to c o n v e r t i n t o a n a t i o n a l bank, and t h a t s a i d S t a t e bank i s now o p e r a t i n g t h r e e b r a n c h e s , one of which was e s t a b l i s h e d subsequent to the passage of the Act of February 25, 1927, known as the Fadden A c t " . 11 Mc~ You r e q u e s t to be a d v i s e d (a) whether the branch e s t a b l i s h e d subsequent to February 25, 1927, mast be d i s c o n t i n u e d upon c o n v e r s i o n of the S t a t e bank i n t o a n a t i o n a l bank; and (b) whether the Comptroller of the Currency i s a u t h o r i z e d , a f t e r conv e r s i o n of the S t a t e bank, to g r a n t two new b r a n c h e s to the n a t i o n a l bank e s t a b l i s h e d by such c o n v e r s i o n , such new b r a n c h e s b e i n g i n a d d i t i o n t o those r e t a i n e d upon c o n v e r s i o n . S e c t i o n 7 of the Act of February 25, 1927, c . 191, 44 S t a t . 1228, amends S e c t i o n 5155 of t h e Revised S t a t u t e s ( T i t l e 12, Sec. 36 U. S . C.) to read i n p a r t a s f o l l o w s : X-6487-a (b) I f a S t a t e "bank i s h e r e a f t e r converted. i n t o or c o n s o l i d a t e d " r i t h a n a t i o n a l banking a s s o c i a t i o n , or i f two or more n a t i o n a l banking a s s o c i a t i o n s a r e c o n s o l i d a t e d , such conv 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 m y , w i t h r e s p e c t t o any of such "banks, r e t a i n and o p e r a t e any of t h e i r "branches which may have "been i n lawf u l o p e r a t i o n by any "bank a t the d a t e of the a p p r o v a l of the A c t . (c) A n a t i o n a l "banking a s s o c i a t i o n may, a f t e r the d a t e of t h e approval of t h i s Act, e s t a b l i s h and o p e r a t e new branches w i t h i n the l i m i t s of t h e c i t y , town, or v i l l a g e i n which s a i d a s s o c i a t i o n i s s i t u a t e d i f such e s t a b l i s h m e n t and o p e r a t i o n a r e a t the time p e r m i t t e d to S t a t e banks by the law of the State in question. (d) No branch s h a l l be e s t a b l i s h e d a f t e r the d a t e of the approval of t h i s Act w i t h i n the l i m i t s of any c i t y , town or v i l l a g e of which the p o p u l a t i o n by the l a s t d e c e n n i a l census was l e s s than twentyf i v e thousand. No more than one such b r a n c h may be thus e s t a b l i s h e d where the p o p u l a t i o n , so determined, of such m u n i c i p a l u n i t does not exceed f i f t y thousand; and n o t more than two such branches where the p o p u l a t i o n does n o t exceed one hundred thousand. In any such m u n i c i p a l u n i t where the p o p u l a t i o n exceeds one hundred thousand the d e t e r m i n a t i o n of the number of b r a n c h e s s h a l l be w i t h i n the d i s c r e t i o n of the Compt r o l l e r of the Currency. ( e ) No branch of any n a t i o n a l banking a s s o c i a t i o n s h a l l be e s t a b l i s h e d or moved from one l o c a t i o n to a n o t h e r w i t h o u t f i r s t o b t a i n i n g the consent and approval of the Comptroller of the Currency. P a r a g r a p h (b) p r o v i d e s i n e f f e c t t h a t upon the c o n v e r s i o n of a S t a t e bank i n t o a n a t i o n a l banking a s s o c i a t i o n , the banking a s s o c i a t i o n r e s u l t i n g from the c o n v e r s i o n may r e t a i n any b r a n c h e s which the c o n v e r t e d bank may have had i n l a w f u l o p e r a t i o n on Febr u a r y 25, 1927. This p r o v i s i o n i s p e r m i s s i v e i n c h a r a c t e r , a n d t h e i n f e r e n c e i s p l a i n t h a t any branch or b r a n c h e s e s t a b l i s h e d or a c q u i r e d subsequent t o February 25, 1927, by the c o n v e r t i n g bank -2- cs* X-6487-a ' must be r e l i n q u i s h e d upon c o n v e r s i o n . A f t e r c o n v e r s i o n i n t o a n a t i o n a l banking a s s o c i a t i o n t h e conv e r t e d bank comes w i t h i n the p r o v i s i o n s of p a r a g r a p h s ( c ) , (d) and (e) of s e c t i o n 7 of s a i d A c t . P a r a g r a p h (c) p e r m i t s n a t i o n a l banking a s s o c i a t i o n s t o e s t a b l i s h b r a n c h e s , subsequent t o February 25, 1927, w i t h i n the l i m i t s of the c i t y or town i n which the p a r e n t bank i s l o c a t e d , i f the S t a t e l a v s p e r m i t the e s t a b l i s h m e n t of such b r a n c h e s by S t a t e banks, s u b j e c t , h o - e v e r , to the c o n d i t i o n s c o n t a i n e d i n p a r a g r a p h s (d) and ( e ) . Such c o n d i t i o n s a r e t h a t no n a t i o n a l banking a s s o c i a t i o n s h a l l e s t a b l i s h more than two such branches where the popu l a t i o n of the c i t y or town i n which the bank i s l o c a t e d exceeds f i f t y thousand and does n o t exceed one hundred thousand; and t h a t the e s t a b l i s h m e n t of the b r a n c h or branches i s with t h e consent and a p p r o v a l of the Comptroller of the Currency. I t f o l l o w s , t h e r e f o r e , t h a t when a S t a t e bank, c o n v e r t i n g i n t o a n a t i o n a l banking a s s o c i a t i o n , has r e c e i v e d i t s c h a r t e r a s a n a t i o n a l banking a s s o c i a t i o n ( i t being l o c a t e d w i t h i n a c i t y the p o p u l a t i o n of which i s more t h a n f i f t y thousand and l e s s than one hundred thousand) i t may a p n l y f o r , and w i t h the consent and approval of t h e Comptroller of t h e Currency e s t a b l i s h not more than two branches w i t h i n the l i m i t s of the c i t y where s a i d bank i s l o c a t e d , p r o v i d e d t h a t the law of the S t a t e p e r m i t s the e s t a b l i s h m e n t of such branches by S t a t e b a n k s . The b r a n c h e s i t may be a u t h o r i z e d to e s t a b l i s h under paragraphs ( c ) and (d) a r e i n a d d i t i o n to those r e t a i n e d under p a r a g r a p h ( b ) . t h e case you s u b m i t , the two b r a n c h e s e s t a b l i s h e d by t h e S t a t e bank In X-6487-a p r i o r t o February 25, 1927, and which i t has the r i g h t to r e t a i n on the conversion i n t o a n a t i o n a l banking a s s o c i a t i o n , a r e l o c a t e d i n t h e c i t y where the main bank i s s i t u a t e d . The r e s u l t of t h i s c o n s t r u c t i o n of t h e s t a t u t e i s t h a t t h i s c o n v e r t e d bank may add two new b r a n c h e s , making f o u r i n a l l i n the c i t y , a l t h o u g h a new n a t i o n a l bank could e s t a b l i s h and m a i n t a i n only two. Such an i n - e q u a l i t y i s p r o d u c e d , not by the mere c o n v e r s i o n , but by a c t i o n a f t e r c o n v e r s i o n , and t h e r e may be doubt as to whether the Congress i n t e n d e d such a r e s u l t , b u t the terms of the s t a t u t e seem to j u s t i f y this construction. However, Congress must have had i n mind the s a f e g u a r d c o n t a i n e d i n p a r a g r a p h ( e ) , which r e q u i r e s the consent and a p p r o v a l of the Comptroller of the Currency to the e s t a b l i s h m e n t of new b r a n c h e s . Congress has u s e d the word " e s t a b l i s h e d " i n p a r a g r a p h (d) and has r e f r a i n e d from u s i n g the word " m a i n t a i n " . If i t intended t h a t o l d b r a n c h e s r e t a i n e d upon conversion should be counted i n d e t e r m i n i n g the number of new b r a n c h e s to be allowed under p a r a g r a p h ( d ) , a p p r o p r i a t e words should have been added t o p a r a g r a p h (d). Furthermore, branches i n o t h e r c i t i e s p r e v i o u s l y established and r e t a i n e d upon c o n v e r s i o n , could not be counted to reduce t h e number of new b r a n c h e s i n the c i t y i n which the p a r e n t bank i s l o c a t e d , allowed u n d e r p a r a g r a p h ( d ) , w i t h o u t p l a c i n g a c o n v e r t e d bank a t a d i s a d v a n t a g e i n r e s p e c t of the number of branches allowed i n the c i t y of i t s l o c a t i o n . I t i s a p p a r e n t t h a t t o d e r i v e from the s t a t u t e an i m p l i c a t i o n t h a t the number of branches r e t a i n e d on X—6487—a c o n v e r s i o n s h a l l r e s t r i c t the number of new ones allowed under p a r a g r a p h (To) would n o t remove i n e q u a l i t i e s i n powers between con*v e r t e d "banks and new n a t i o n a l "banking a s s o c i a t i o n s . The r e s u l t i n g c o n c l u s i o n i s t h a t the s t a t u t e should "be taken l i t e r a l l y . In the case submitted i t may "be t h a t the Comptroller of the Currency would approve an a p p l i c a t i o n "by the n a t i o n a l "bank r e s u l t i n g from the conversion to e s t a b l i s h as one of the new b r a n c h e s p e r m i t t e d by p a r a g r a p h (c) the v e r y branch which the S t a t e bank would be r e q u i r e d t o r e l i n q u i s h upon c o n v e r s i o n . I f such be the c a s e , I see no o b j e c t i o n to the Comptroller of t h e Currency so i n d i c a t i n g i n advance, i n order t h a t an a p p l i c a t i o n t o t h a t end might be made by the r e s u l t i n g n a t i o n a l bank, and approved, s u b s t a n t i a l l y s i m u l t a n e o u s l y with the c o n v e r s i o n . I f t h i s were done the temporary c e s s a t i o n of b u s i n e s s a t the branch a t t e n d a n t upon i t s formal r e l i n q u i s h m e n t would not r e s u l t i n any p r a c t i c a l i n convenience. In the second case s u b m i t t e d you s t a t e t h a t t h e r e i s now pending b e f o r e the Comptroller of the Currency the a p p l i c a t i o n of a S t a t e bank, having two branches i n l a w f u l o p e r a t i o n p r i o r to February 25, 1927, to c o n s o l i d a t e with a n a t i o n a l banking a s s o c i a t i o n , having two branches a u t h o r i z e d by t h e Comptroller of the Currency unde r the p r o v i s i o n s of p a r a g r a p h (c) of s e c t i o n 7 of s a i d A c t . You s t a t e t h a t b o t h of the banks a r e l o c a t e d i n a c i t y the p o p u l a t i o n of which i s s l i g h t l y l e s s than one hundred t h o u s a n d , and t h a t t h e i r a p p l i c a t i o n f o r c o n s o l i d a t i o n p r o v i d e s -5- X-6487-a h f o r the r e t e n t i o n , of a l l f o u r branches by the c o n s o l i d a t e d bank. You r e q u e s t to be a d v i s e d "/hether the Comptroller of t h e Currency i s a u t h o r i z e d to approve the r e t e n t i o n of the f o u r branches by the c o n s o l i d a t e d b a n k . S e c t i o n 1 of t h e Act of February 25, 1927, s u p r a , amended the Act of ITovember 7, 1318, by adding t h e r e t o a new s e c t i o n ( s e c t i o n 3) which p r o v i d e s f o r the c o n s o l i d a t i o n of S t a t e banks w i t h n a t i o n a l banking a s s o c i a t i o n s as f o l l o w s : Sec. 3 . That any Bank i n c o r p o r a t e d under the laws of any S t a t e , or any bank i n c o r p o r a t e d i n the D i s t r i c t of Columbia, may be c o n s o l i d a t e d with a n a t i o n a l banking a s s o c i a t i o n l o c a t e d i n the same county, c i t y , town, or v i l l a g e under the c h a r t e r of such n a t i o n a l banking a s s o c i a t i o n on such terms and c o n d i t i o n s as may be l a w f u l l y a g r e e d upon by a m a j o r i t y of t h e board of d i r e c t o r s of each a s s o c i a t i o n or bank p r o p o s i n g to consolidate,*** Paragraph (b) of s e c t i o n 7 of the Act of February 25, 1927, s u p r a , p r o v i d e s t h a t i f a S t a t e bank, having b r a n c h e s e s t a b l i s h e d p r i o r to February 25, 1927, i s c o n s o l i d a t e d - i t h a n a t i o n a l banking a s s o c i a t i o n t h e 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 such b r a n c h e s . P a r a g r a p h (c) of s a i d Act p r o v i d e s t h a t a n a t i o n a l banking a s s o c i a t i o n may, a f t e r F e b r u a r y 25, 1927, e s t a b l i s h b r a n c h e s w i t h i n the l i m i t s of a c i t y or town i n which s a i d a s s o c i a t i o n i s l o c a t e d . This p e r m i s s i o n i s s u b j e c t to the c o n d i t i o n s p r o v i d e d i n p a r a g r a p h s (d) and ( e ) . I t a p p e a r s from the s t a t e m e n t of f a c t s t h a t t h e 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 w i t h '-hich t h e S t a t e bank proposes to cons o l i d a t e has a v a i l e d i t s e l f of the f o r e g o i n g p r o v i s i o n a n d , w i t h the a p p r o v a l of the Comptroller of the Currency, h a s e s t a b l i s h e d —6— c~ X-6487-a two t r a n c h e s as p r o v i d e d "by the s t a t u t e . - ( As the S t a t e "bank upon c o n s o l i d a t i o n r a t h the n a t i o n a l banking a s s o c i a t i o n w i l l cease t o e x i s t # i t s b r a n c h e s , e s t a b l i s h e d p r i o r to February 25, 1927, w i l l become the b r a n c h e s of the c o n s o l i d a t e d bank. The p r o v i s i o n s and i m p l i e d l i m i t a t i o n c o n t a i n e d i n p a r a g r a p h (b) of s e c t i o n 7 of the Act apply to the c o n s o l i d a t i o n of a S t a t e bank w i t h a n a t i o n a l banking a s s o c i a t i o n t o the same e x t e n t and w i t h equal f o r c e as they a p p l y to the c o n v e r s i o n of a S t a t e bank i n t o a n a t i o n a l banking a s s o c i a t i o n ; namely, t h a t 11 any of t h e i r b r a n c h e s which may have been i n l a w f u l o p e r a t i o n by any bank a t the d a t e of the a p p r o v a l of the Act" may be r e t a i n e d by the c o n s o l i d a t e d bank, and any b r a n c h e s e s t a b l i s h e d by e i t h e r of the c o n s o l i d a t i n g banks subsequent t o the d a t e of t h e approval of the Act must be r e l i n q u i s h e d , n o t w i t h s t a n d i n g the branches of the n a t i o n a l banking a s s o c i a t i o n wore e s t a b l i s h e d p u r s u a n t to the a u t h o r i t y c o n t a i n e d i n p a r a g r a p h ( c ) , and with the consent and approval of the Comptroller of the Currency# This i s the p l a i n import of the language of the s t a t u t e , and t h e r e i s nothing c o n t a i n e d i n the Act which j u s t i f i e s a d e p a r t u r e from i t s e x a c t t e r m s . When the proposed c o n s o l i d a t i o n has been consummated, t h e c o n s o l i d a t e d bank may a p p l y f o r and, with t h e consent and a p p r o v a l of the Comptroller of t h e Currency, e s t a b l i s h n o t more than two b r a n c h e s w i t h i n the l i m i t s of the c i t y where s a i d bank i s l o c a t e d , p r o v i d e d the law of the S t a t e p e r m i t s the e s t a b l i s h m e n t of b r a n c h e s by S t a t e b a n k s . X-6487-a As the n a t i o n a l "bank involved, i n the c o n s o l i d a t i o n p r e s e r v e s i t s c o r p o r a t e i d e n t i t y and e x i s t e n c e , I see no o b j e c t i o n t o i t s f i l i n g an a p p l i c a t i o n f o r l e a v e to e s t a b l i s h two new b r a n c h e s s i m u l t a n e o u s l y w i t h the f i l i n g of a p p l i c a t i o n f o r approval of the c o n s o l i d a t i o n , so t h a t i f the Comptroller a p p r o v e s , t h e r e may be avoided the u s e l e s s f o r m a l i t y of f i r s t r e l i n q u i s h i n g and then imm e d i a t e l y r e e s t a b l i s h i n g the branches which were s u b j e c t t o r e l i n q u i s h m e n t under paragraph ( b ) . Respectfully, (Signed) William D. M i t c h e l l . Attorney General. The Honorable, The S e c r e t a r y of the T r e a s u r y .
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