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255 X-4463 WEY SEC'l'IOlJ 9 SHOULil 1~. L. T. McFadden, Chairman of the of the House of Representatives~ ~E STRICKl'N 00::£... Com~ittee on Banking and Currency in his contribution to the November issue of the American Bankers .Association Journal, entitled 11 Why Section 9 is Necessary to the National :Bank :Bill" declares that the only opposition to this section comes from "a small but influential group of state member banks 11 in one state, California, and from "one or two Cleveland state member banks, which desire to continue to establish branchcl!l in the suburbs of Cleveland. 11 It may be that the only organized opposition to this section comes from the groups mentioned, but it is nevertheless true that the section affects banks in no less than twenty-four states. It sets up a now standard of eligibility for membership in the Federal Reserve System, a standard not related to safety of management or sound banking policy, but solely to the question whether banks have branches or offices (the bill d$fines all additional offices as branches) outside of "the corporate limits of the municipall ty in which tr.e parent bank is located. 11 '!ihore were in June 1924 (Federal Reserve Bulletin December, 1924, page 933) 245 such non-member banks located in twenty-three different states as follows: A.r izona . . . . . . . . . . . . . • . 4 .A.la."ba.r:13. ............... , 4 . .Arlr..ansas • . . . • • • . . • . . . • 2 California •......••••• 5a Delaware ••. -. • • • • • . • . • • 4 Florida. , . .• . • • • . . . . . . . . 1 Georgia •.............• 10 Indiana • . . • • • . . • • • • . . • 1 Louisiana. •..•••••..••• 21 Maryland ••.••••.•••.•• 15 -2- 1vfni~1C X-4·463 25() ...... ~ ~ ~ ••••••• 20 Mich:i..cc.1~.1 • ~ ~ ~. ~ ••. ~. 3 M.n.ssacln::::etts •....• 6 Missit:.tiiiJpi ..•.•••• 8 rTor~'IJ. CJ.rolina ••.• < 34 Now Jersey ••...••.• 4 0:1i 0 • • . • • • • • • . • . . . • 8 Pcmns;yl vnnia • ~ ••.• , 9 South Carolina ••... 4 Rhode Isla~d ····~·· 2 Tennessee •••..•••.• 14 Virginia •.••.••..• ~ 18 Washington~·······~ Total •...• Z45 This :..ist of states should have included New Hampshire from which state a bank with two branches outside "the corporate limits of the municipality in which the :;_Jarent ba."lk is located" ( Ccnwc.y) htJ.s since been admitted to the Federal Reserve System! Of state banks maintaining such outside branches 245 are non-members and only 55 are r.1embers of the Federal Reserve System. This cont:east of figures nlone sh.)uld convince any unprejudiced student of the subject that Section 9 of it. ca~not possibly accomplish what its proponents expect Instead of strengthening the Federal Reserve System it will weaken it, in my opinion, by excluding from membership many well managed ins ti tuti ons, and by preventing any further additions of branches under any circumstances by member banks. As to the unwisdom of such an iron-clad prohibition of all further extension of branches by membe.r state banks I have only to cite the ~ecent establishment of a branch of the Citizens and Southern Bank of Savannah, Georgia, in Athens, Georgia,. This branch was established with permission of the Federal Reserve Board in August at the earnest request of the directors of the Federal Reserve Bank of .Atlanta and at the request of the citizens of Athens. One of the leading citizens of Athens has recently written me that the establishment of this branch 11 has been of incalculable valu.e in creating 257 X-4463 -3- confidence nnd stabilizing co::.:ditions gmcrally in the city and commu."lity ..:" Now what good reason is thoro for prohibiting by law the rendering of such a service to a stricken co~~ity? If National banks can't be permitted to render service of this kind because of prejudice against branches w~ should we say to a state that its State banks cannot render such service and remain in the Federal Reserve System? The Athens case does not stand alone. There have been several others during the past year, and more during the two or three preceding years. Sect Lm 9 will do nothing of consequence to strengthen the Na. tional Banking system, and if branch banking is as alluring as its opponents appear to think it is it will do nothing of consequence to prevent its spread. Section 8 purports to give city National :Ba.."lks the right to establish branches within municipal limits, where state banks have that privilege, a right which the National Banks are already exorcising with the concurrence of the troller of the Currency. Co~ Section 9 denies to country banks the right to es- tablish even neighborhood bronchos. It should be remembered that of the 310 banks ope:tating br·anches outside mw.1icipal limits 239 are located in towns or cities with a population les·s tmn 25.ooo,· and 129 of them in municipalities of less than 2,500.- Some of these bariks ha.ve operated branches successfully for upwards of thirty years.- Is it likely that Section 9 will cause them to give up their branches or will ci:ilerce the States in which they are located into a change in their law~ relating to the subject? If Section 9 does n0thing of consequence to strengthen the National Banking system another section of the McFadden bill will do much to weaken it. I ·.refer to Section 7 which repeals an Act which bas been a part of the National Banking Law since 1866. This repeal will prevent ba.nks with branches 258 X-4463 -4- beyond rm.uiicipal limits from becoming national banks and retaining their branches. Section 7 is doubtless resarcJed as an essential accompaniment of Section 9 and stands or falls v;ith it. b:..•tea.d of prohibiting these banks from becoming National "banl:s the National Bankjng system would be greatly strengthened i f such banks as the Grenada Ba::.1k of Grenada, Mississippi, the Tennessee Valley B~~k of Deca~r, Alabama~ of Savannah, Georgia, the Wachovia Bank and the Citizens and Southern Bank ~rust Ccrnpany of Winston-Salem, North Carolina, the Industrial Trust Company of Providence, Rhode Island, tho Merrill Trust Company of Bangor, Maine, and many others that I could mention could be induced to t:ili:o out n3.tional charters. the bra~ch barking institutions of C~liforr.ia I have not mentioned because they are so well known, and because my purpose is to show that California and Cleveland are really only a sl.I'.a.ll part of tho picture. (SIGNED) EDMUND PIATT
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