The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
STATFMEFT FOR THE PRESS For Immediate Release. Following is th8 mino\.~ity X-3882. November 7, 192.3. report of the Board 1 s committee with reference to the resolutions adopted by the Fecl.era.l Reserve Board with relation to branch banking. .X-3882 November 7, 1923. The resolutions submitted in tne report of the majority of the Committee on Examinations are based upon the assumption that it is the duty of the Federal Reserve Board to right to exercise a~y de~ to any state bank member the of the powers granted in its state charter that appear to gi..ve it a marked ad'rantage over national banks in competition, even though the exercise of these powers r.ray be to the advantage of the comrr:u.•1ities in which.the barJ.ks are located and even though the powers, themselves, ~ay be in acco=dance with the soundest banking principles. If the Federal Reserve Board Qhould adopt this attitude and pass the resolutions proposed with relation to branch ·Lanl:h.g, it would be tantarr.ount to an att~mpt to force the· state banks to confcrm to the national banking laws. and would be a complete reversal of the position the Board has taken, not only in the matter of bl'anch banking but in all matters touching competition between state and national banks where the practices of the state banks have been deemed to be sound banking. The Board 1 s annual reports from the o:;.·ganization of the Federal Reserve System bear witness to the fact that the Board has always taken a progressive position. It has not so11ght to r8press ani hold back state banks from the exercise of sound baru:ing pl·ivileges, but has always recommended amendments to the National Banking Act, or the Federal Reserve Act broadening the powers of the National Bariks: Excepting the Act of 1900, which was chiefly an effort to increase the attractiveness of the note-issuing privilege, though it also provided for r;. ~ t . ''] .. x... 3ss2 -2- national banks with a minimum capital of $25,900, very few cr~nges were made in the laws ~ffecting national banks prior to the passage of the Federal Reserve Act. State banks by the abolition of their note issuing privilege through the 10 per cent tax, rrade effective in 1866, were reduced from 1562 in 1860 to 247 in 1863, and almost all of the surviving 247 were in the eastern fi11ancial centers where deposit banking bad begun to assume considerable proportions. Federal Reserve ~ct Long before the passage of the they had overtal:en and passed the National Banks in numbers, and the chief increase had taken place not in the financial centers but in the agricultural west. srrall banks. Nor was the increase confined to During the ten years 1899 to 1909 state banks with a capital above $50,000 increased in practically the same numbers and at a much greater percentage than national banks. Companies", 222-223). (Barnett "State Banks and Trust The fact is that national banks had been held very .narrowly to certain~;pes of comrr.ercial banking, and nearly all pro~ess in banking had been made by state banks, which steadily gained as the note iss~ing monopoly of the national bar~s be~ame of less and less importance. The Federal Reserve Act provided not only for the banding together of national banks in a cooperative system but it also liberalized the '. National Banking Act by adopting some of the best features of some of the best State banking legislation - notably in the recognition of a difference between time deposits and derr.and deposits in reserve r equirernent s,. It contained an attempt to allow the exercise of certain trust powers t·.O national ba:riks, and provided tba t the larger national banks might establish f orei·gn branches. ojl 1 • .._# ,,. " X-3BB2 -3- ~~ '·.~'J ltot long after the Federal Reserve System was organized the attention of the Boe.rd was directed to the fact that the competition of the state banks had not lessened and to the losses arrDng national banks which were co!lstantly. being converted into trust companies, but instead of endeavoring to prevent state bank members from exercising trust powers the Board recornreended and in fact prepared a bill for amendment to the Federal Reserve Act broadening Section 11 (k) so that national bar..ks might exerc).se trust powers. This was passed in 1916. The effort of the Board has been to rmke the national banking system as inclusive as possj.ble, but it has at the same time sought constantly to add to the state bank memben:hip and has not attempted to restrain state bank members from the exercise of proper te.nking powers enumerated in their charters. It has been actuated by desire to benefit the business interests of the country rather than the interests of any particular group of banks. The Board favored the amendments of 1917, which provided that state banks might be admitted to the system retaining their charter rights, and an examination of the correspondence that preceded the admission of the California state banks maintaining branches will show that they were clearly admitted with the understanding that their charter right to such branch extension as should be f~U1d consistent with sound banking would not be denied. recQUll"~/ld.ed Several times the Board as well as the Comptroller have that national banks should be given branch banking privileges within the states where branch banking is permitted by state law, and the Board at one time recorr~ended that national banks should be given branch banking privileges within city limits without regard for state law. This was at one time recol!'..mended also by the Federal Advisory Council. The Board in 1916 and 1918 recorr~ended the enactment cf a bill providing for branch banking within county limits, or within a radius of 25 miles from the rarent bank. -4- X-3832 If, now, the lios:rd :reverses i tsdf ano a.ttempt:;; to :rast:rict sta.te banks condition~ th:rough the :right to in.pose be in effect a.ttemiJting to r,;ak·~ w'b.8n they-a.pply fo:r r.JerLbership it will state b:mks conform to the National banking act, and become practically national banks, so fa.r a.t least as branch banking is conce:J:"ned. Limited branch banking within municipal limits has :recently been extencied the national banks through new :regula.tions from the Comptroller. following a. rr.o:re libe:ral interpretation of the law by the Attorney General. If the Boa.rd had any :reason fo:r believing tha.t branch banking bayond city limits must necessa.rily be unsound there would be e,round fo:r the complete :reversal of its position but the majority r-eport does not claim that it is unsound and a.pparently has abandoned the assumption that it is contra.ry to the Fede:ral Rese:rve Act. Such cla.ims, in fact, could not be sustained by the F..zde:r.al Rese:rve Boa.rd a.t this time. B:ranch banking beyon:; city limit:;; ha.s existed in the Federal Rese:rve System since its o:r.ganiza.tion, in nationa.l Danks a.s vvell as in state banks, ana the National banking act, itself, has since 1865 provided fo~ b:r.anch banking through the autho:r.iza.tion fo:r. the conversion of sta.te banks with b~a.nches is a.utho:r.ized in a. numbe:r. of into na.tional banlr..s. southe~n State--..vide b:r.anch banking sta.tes and in the state of Rhode Island, and limited b:r.anCh banking, either by counties or- in dist:r.icts contiguous to cities, is authorized in a number of other states. :Bafore the Civil Wax· and the pa.Ssage of the Na.tional banking a.ct branch banking wa.s common throughout the West and South. Nearly eve:r.y western sta.te before 1360 had developed systems of state ..wide branch banking and sor.-1e of these systems, as in Indiana and Ohio, wer-e nota.oly successful. a.s many as 40 branches we~e In some states ma.inta.ined and these sta.te-wide systems migb.t a.ll ha.ve been b:r.ought into the na.tional banking system under the Act of 1365. ... ' ' X-3332 -5- It cannot be maintainaa , if one nay judge from the history of state banking in the United St&tes, that o:ranch banking necessarily implies the des tructicn of unit ba.nking. The two existed side by side in Ohio and in othe:r middle weste:rn states, as well as in the South, befo:re the Civil Wa:r, and in the southern states b:ranch banking has made comparatively slow p:rog.ress even where fully au tho .ri zed by law. It is undoubtedly true, as the rna.jo:ri ty :repo:rt says, tha.t in branch banking beyond city limits certain rr.e:nbex- banks are engaging in a p:ra.ctice which is definitely fo:r:-bidde n to other- membe:r banks. T1~is a.t once :ra.ises the question whether the:re is good rea;,on to continue to forbid the p:ractice to the othe:r rr.eml)er banks. Unless the :3oc:;rd is willing to take a :ret:rogressive, repressive position in a m-;;tte:r primarily of co;petition ·oetween two classe;;; of banks, and without reg3rd to the public convenie~ce and the interests of the corrmJ.nitie~ ser-ved, it should in my opinion instruct the Committee to work out regula.tions which will guide and d i:rect tile 3xtansion of b:ranch banking 1n California without attemptmg to deny all fur-thex- extensions, and to that end full consideration should be given the :iette:t" of October 3, 1923, add:t"essed to the Board by the responsmble executive officers of three of the largest Sta.te banks engaged in b:ranch banking in that State. Tha.t lette:r ap}Jea:rs to me to present frankly a sound basis fo:r such :r.::gulations. Economic developrr.ents, such as the recent growth of ·branch banking in California, uo not tSJke place without a reason, and should not be a.rbi t:rarily repressed by any t:;,ove:rnmental body. They should :rather be studied and guided with the pu:t"pose of determining whethe:r they may not represent a :real advance in Jurerican banking· • .(?' . :.\_) - 0 - X-3832 3:ranch bankin::., has bdn recogr.ized i.,y t;D:O foremost authorities on banking in the United St:Jtes as a natural methoJ oi' extend i:1g 0a.nl::ing facilities to s!T'.all comr:uni ties, as pr~senting o:t-portuni ties fo:r diffusing business :risks over large:r a:r-eas than at .L:c:rt:;sent with a g3in a.nalagous to that which such diffusion brings to insu:rance, and as having the advantage of ability to make loans fx-om a common fm,d of ca 1;i tal and deposits in acco1·dance with the u.naqual ond varying der:r;ands of T'ne.,..e is :reason to beli;;:ve that the d iffe:rent industries and sections served. ag.,..icultu:ral sections of the United States would be far better served, and with the derosits of the farmers rruch more a.dequately safeguarded, unde:r systems of b:ranch banking, whethe:r limited to counties Cl" state v.ride, than at J!Y'esent. Cali- fo:rnia iS trying the exrjeriment, and no evidence ha.s so fa.:r been I-l"esented to show that it is not se:rving the peol-'le of the State well. (Signed) EDMUN'D PLATT·
@FedFRASER