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413.la - Source Material
(Pockets Only)
6tudy #12
Branch Group & Chain Banking
Evolution
--n '04'


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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis

CLIPPINGS

(OTHER)

EMPIRE FOLDER
Better folders for better files

306S
Send your Order to the nearest "Y and E"
Representatives or to our Home Office

YAWMAN

AND

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Branches and Agenr,in all Principal Cities


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Federal Reserve Bank of St. Louis

Address of W. F. Gephart, V. Pres.,
First National Bank in St. Louis,
40th Annual Convention, Indiana
Bankers Association, May 1956
(Hoosier Banker, June 1936)

But the situattnliver a longer term
period is not hopeless for the commercial
banking business in time will recover
and we hope the Government will in
time retire from its numerous financing
activities and modify some of the detailed
control of bank operation on the basis
of experience. Business in full swing
will need larger working capital as well
as a large amount for replacement of
obsolete and depleted machinery,and the
credit for these needs should be supplied
I_Dy commercial banks./Another thing
,-that would help the commercial banking
situation in the United States is a properly delimited system of branch banking
which would, on the one hand, supply
ad-equate banking facilities for each com-m unity and, on the other hand, reduce
tli-e present rather high expense of coml- bank operation.
ihercia
_
We probably still have too many individual banks in the United States, but in
reducing them we should not adopt a
ation-wide system of branch banking,

1

t

ut limit it to the industrial areas. Agai\6
the general situation will be improved by
still greater co-operation among banks in
the city and county or group clearing
house associations, as well as more cooperation by the individual banks in the
towns and cities. The outlook is not hopeless by any means, but it is a serious
situation, calling for greater enterprise
and more co-operation from commercial
,—....,,
s. /
banker
—

if 1

PROCEEDINGS NEW JERSEY BANKNiS ASSOCIATION—MAY 1954

BANKING--Yesterday, Today and Tomorrow--by Dr. W. Randolph Burgess,
Deputy Gov. FRBk., N.Y.


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Federal Reserve Bank of St. Louis

Before the automobile the
depositor was more closely limited to the local bank. With
the coming of the automobile a much greater number of banks
became accessible to each customer. Under these circumstances
the larger bank which can render a wider diversity of banking
services and inspire greater confidence gains an added advantage.
These causes operating toward a smaller number of stronger
banks have been further supplemented by changes in busine.,s
organization. Business has tended toward consolidation and
concentration, and has, therefore, favored the stronger banks
in principal centers. As business units have become larger the
need for diversification of banking risks has been accentuated,
again to the advantage of the larger banks.
Under all these circumstances many smaller banks have
melted away. This is shown convincingly in the figures for
bank suspensions. The highest ratio of suspensions has been in
the smallest sized groups. More than fifty per cent, for example, of the banks which in 1920 had under $150,00o. of loans
and investments, have suspended since that time. Figures for
earnings show similarly that the smaller banks have had difficulty in earning their expenses. There are still many good
small banks in this country and I believe they will always have
a place, but clearly the current tendency is toward fewer and
larger banks. It may be added that this tendency distinctly
favors the further extension of branch banking.

REPORT OF SPECIAL COMMISSION FOR INVESTIGATION AND STUDY OF BANKING STRUCTURE-MASS.—Created by Chap. 35, Resolves of 1933
(Jan. 1934)


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Federal Reserve Bank of St. Louis

The Commission has no desire to do away with the
competitive system of banking, but it does recognize '
the necessity for permitting an extension of branch banking within county limits, and for imposing certain regulations which will prevent that type of competition which
tends to destroy the stability of our banking institutions.
The Commission has not limited its efforts to the protection of any one group, be they depositors, borrowers,
stockholders or officers, nor to any one angle of the banking situation. It has tried to cover the whole field, giving
protection to all, so that, as in the past, others may continue to look to the banks of this Commonwealth as
leaders.
Another important change suggested is the strengthening of the capital of existing banks in order that depositors may have more protection from losses due either
to bad loans or shrinkage in the value of investments.
This could not be fully accomplished without permitting
branches in communities which, while they may require
banking services, have not sufficient need for a local bank
to warrant the capital investment. In many cases this
has resulted in the formation of banks with the minimum capital permitted by statute, but which is, nevertheless, a capital too large to earn a satisfactory rate of
dividend and at the same time too small to accommodate
the larger business enterprises of the community. Countywide banking will perhaps result in fewer banks, but it
qtron trPr banks, and more communities
would obt&in direct banking service.


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Federal Reserve Bank of St. Louis

-2-

1934.]

SENATE — No. 100.

45

BRANCH OFFICES.
At present, branch offices are limited to the same town
or city, or to other conununities after enactment of
special legislation. The Commission feels that banking
service should be given to communities which cannot
profitably support an independent bank, and that these
communities are entitled to some banking accommodation. In other communities where there is only one
bank, it is frequently too small to be able to accommodate adequately the commercial requirements of its
larger depositors. In such cases, the consolidation of
banks in different communities might well result in a
banking institution of sufficient size to accommodate
all depositors in the several communities which could be
li.
served by its branches. Therefore the Commission
ecommends that• legislation be enacted to provide for
the establislunent of branches within the same county.
(See Appendix A, sections 45, 46.)

-

BRANCH OFFICES.
of
SECTION 45. A bank may with the approval
oper2 the board of bank incorporation establish and
where
3 ate one or more branch offices in the county
com4 its main office is located; provided, that the
less than
5 mon stock of such bank shall at no time be
red by
6 the aggregate minimurn common stock requi
number of
7 law for the establishment of an equal
where
8 banks situated in the various cities and towns
9 the bank and its branches are situated.

AM.

PROCEEDINGS NEW JERSEY BANKERS ASSOCIATION--MAY 1934

The Pres.'s Address—Carl K. Withers, Tr. Officer, First—Mechanics Nat. Bk.,
Trenton


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Federal Reserve Bank of St. Louis

ei0/

Prominently in the foreground of discussion at the
moment, is the perennial question of branch bankin present
g, which
takes on a new significance under the provisions of
the Banking
Act; allowing the establishment of branches of
national banks
in States where branch banking is permitted. Again,
a sharp
line may be drawn, and a formidable array of
argument presented both for and against this extension of individual
banking
power, with all of its sinister implications of domina
tion and
control, toward the ultimate extinction of local
independent
banking.
There is a unanimity of opinion that one of the
principal
faults of our dual banking system in the past has been
the competition for charters existing between the State
and National
sNstems. The entire system was unquestionably weaken
ed by
the competitive conditions created through the over-establi
shment of banks without adequate regard to community needs.

This same objection—and danger—will apply with equal,
if
not greater significance to the over-establishment of branche
s.
At least, this has been the common experience wherever branch
banking has been permitted under comparable circumstances.
In New Jersey, should State-wide branch banking come
to
pass, the possible and only logical solution, may be found in
the enactment of legislation which shall provide for the mutual
approval of both State and National authorities before
the
establishment of branches oi either State or NationaT banks
in
'any community—and then, only_after careful analysis of
the
normarbiriking_ needs di tE-at community, made by the
ICaTik
Advisory Board, or someraer coMp-etent and imp=r7u-tTiOrity. To accomplish this end—changes must be made
in the
Banking Act itself, for in its present form, no restriction
as to
the n
of ,hranches which. may- be established is implied,
ot er than to those States in which branch banking is not
permitted.


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Federal Reserve Bank of St. Louis

•

BASKLESS TOWNS
"Banking Service For
Communities
Without Banks"
R. W. Putnam.
First Bank Stocic Corporatio n,
Minneapolis, Minn.

WITH 79 North Dakota
towns of
from 200 to 1,400 population
with no
banks, the problem exists of
supplying
banking services. Four possible
avenues
, are open: first, banking by mail; second, local messenger service; thir
d, by
E. visits of bank officers; four
th, by

branch banking throughout the
state.
The last plan is forbidden by
law,
but banking-by-mail has made
real
progress. In some towns, the local
merchants have arranged daily trips on
an
alternating basis whereby one man
each
day handles the banking funclisga_of
the group. In another, a former bank
er
pays andisiues checks drawn on- an
2utside bank, and renders all services
except taki
. ng d9osits. Another bank
kept a man in a rented office in a neighboring town, but discontinued this plan
after losing $600 in six months. Wit
h
opportunities so meager for banking
profit in small communities, plans such
as these offer at least a temporary solu-f
tion to a real problem.

1

•

/za;:livfr, Jo, /

vs

THE COMMERCIAL & FINANCIAL CHRONICLE—ABA Convention
--Nov. 1935


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Federal Reserve Bank of St. Louis

)
port of Resolutions Committee Re-affirms Stand for
)
R
State Unit Banks—Preservation of Rights of State
Banks in Administration of FDIC

The report of the Resolutions Committee was presented
as follows by 1,,,,A,, Andrew, Chairman:
The State Bank Division in annual convention wishes to first re-affirm
its time-honored principles as standing primarily for the interests of the
State Unit Bank as opposed to trade area or nation-wide branch banking.
We realize our responsibility to the thousands of small banks which have
again
no other representation in the affairs of the Association. We wish to
maintain our position in favor of the American dual system of banking as
managebank
better
of
opposed to any unification idea. We are in favor
ment and improved banking laws and supervision.
We realize the importance to all banks of the Federal Deposit Insurance
Corporation. We are now all co-insurers, to a certain degree,of the deposits
of the people. We wish to commend the regulations in so far as they have
been put into effect that have helped in the operation of better and safer
banking institutions. We urge that the rights of State banks be fully
preserved in the administration of this most important Government
department of banking.
he National Government has within recent years broadened the partici ation of the Government in the loaning activities which rightfully belong
as
t the banks. In several cases these loaning activities were proposed
temporary expediencies to aid the people until public confidence had been
restored. We believe that this time has now arrived and we urge, first,
that all banks broaden and extend their loaning activities so that in the near
future they can take over the better grade of loans now handled by the
Government agencies of all kinds. We further urge that the loaning
activities of the different Government agencies be gradually reduced until
they can safely be taken over by banking institutions and be terminated
within a reasonable time.
We again urge that the rate of interest on Postal Savings deposits be
now
reduced so as to do away with the unfair competition that this agency
practices in opposition to banking institutions.
We ask for reduction in the rate paid on RFC preferred stock and capital
stock notes.
We wish to commend in the highest terms the good work done by our
the efficient
officers and committees during the past year and particularly
this Division
help that our Deputy Manager, Frank Simmonds, has been to
and its thousands of members.
L. A. Andrew, Chairman
F. B. Brady
R. M. Hanes
1The report was duly adopted.)
-,''
..

,T)cv,ti

•

a.

THE COMMERCIAL AND FINANCIAL CHRONICLE--ABA Convention--Oct. 1952

Remarks of Pres. Haas of ABA Before State Bank Div.--Comments on
Unified Banking--Comparison of U.S. and Foreign Banking Systems.


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Federal Reserve Bank of St. Louis

)

Pou run Banks.
We frequently have non-banke
rs refer to the banking
sytstenta of other
untries and compare them
with our country. espec
of bank failures in the
ially in the number
United States as compared
to those countries.
Let us briefly take a look
at their situation as comp
ared to our ovrn.
Canada has 10 banks with
4.000 branches and total
000,000. They have a popul
deposits of $2,450,ation of 10.400.0(10 and
an area of 3,690.000
square miles.
England has 17 Joint Stoc
k Banks with 9,000 bran
ches and total dePos
of $9.200,000,000. They
its
have a population of
46.200.000 and an area of
94.000 square miles.
In France they have no
real system of repor
ting or public statistics
regarding their banks, but
we do know that the
six largest banks operate
4,000 branches and have
total deposits of $450
t here are perhaps about
.000.000. In addition
1.000 other small banks.
of 41.000.000 and an
They have a population
area of 213.000 squa
re miles.
The United States has
19,500 banks with total
aollars and 796 banks
deposits of 50 billion
operate 3.600 branches.
We have a population of
123 million and an area
of 3,7:38.393 square
miles.
In other words, we
have probably 5,000
more banks than Canada,
England and France comb
ined while our total
least :37 billion dollans
deposits are probably at
in excess of the total
of these three countries.
As a matter of fact it
may be interesting to
you to know that banks in
New York State alone
have about four billi
of these combined
on dollars deposits in exces
s
countries.
Does not this indicate
the difficulty of tryin
g to pattern our banking
,ystem along the lines of
any of the principal
foreign countries.
I might continue this discu
ssion at great length
ment of our country unde
and point out the developr our dual banking
system as compared to Canada.
each with nearly the same
numb
er
of
squa
re miles of territory or the
of our businesses as
diversitY
compared to Canada,
also the development of the bran
banking system in other
ch
countries and the years
t hose who operate their
of training required from
system, but I think enou
gh has been said on this
subject.
I want to say a few
words to you about
time deposits. Mr. Andr
referred to notice on
ews
withdrawal of time
deposits. I thoroughly
with him, but you
couldn't possibly have
agree
passed such a bill during
period without doin
this
g harm. If we had
recommended that they
ime limit in effec
t all over and at the
Put the
same time, deposits woul
. eeped out while the
d have
matter was being discu
ssed. You know they
a bill and discuss it
a lot. and during that
bring
period we would have
,t of money which woul
lost a
d have gone into hoar
ding

1

THE COMMEECIAL & FINANCIAL CHEONICLE--ABA Convention-Oct. 1932
CommitteP and Officers' heports--address of Pres. of State Bank Div.,
Felix M. McWhirter, Pres., Peoples State Bank, Indianapolis


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Federal Reserve Bank of St. Louis

Unless responsible officers, directors and
stockholders of the btate chartered bank and
trust compirny, together with those active in
banking circles. take a hand and declare themselves that it
National

is best for
American banking that we have a dual system of banking
thereby recognizing both the sovereignty of States and the inherent American
policy
of giving freedom for individual initiative and enterpris
e. there maY be
only one system of banking in that system, gentleme
n, in the opinion of
many of us. and in the end may not be
a National banking system—
chartered by bureaucratic Washington.
The stockholde,rs, directors and officer's of
the 10,000 State chartered
institutions we,re first nause,ated bY the attack
on State chartered banks
on behalf of bureaucrats, and, later, amused and
now they propose to
vigilantly control the situation in their respective
States. bY their own hands.
Certainly, none of us here but who firmly believe
that progress in better
banking management and operation must come entirely
from within rather
than through some superimposed dictatorship holding company
privileges,
or any other Federal permissive or coercive means.
In fact. the majority
/ of main street bankers, and, my friends.
they are the ones closest to most
of the people most of the time, know that generally
speaking, the debacl
-of banking and finance followed an orgy of
flagrant speculation. Anythint...
which feeds upon itself finally disintegrates.
America will not tolerate
bolding company banking concentration.

From all the loose conversation in our Nation's capital,
and propaganda
emanating from holding company bank operators, one
might feel justified
in wondering if State chartered financial institutio
ns and their owners
have ceased to constitute a part of the structure
making up the common
public of this country. Is it true that the representatives
in Congress from
our respective States do not represent us as well
as any other group of
citizens or institutions? Have we ceased to be entitled
to thought as to
what would be best for our welfare as well as any other
element or class
of this nation? Nevertheless, you have no doubt been
astonished. as have I.
to observe the thought seriously presented, that
CongTess has the constitutional power to prohibit State chartered financial institutio
ns from operating
at all.
It has been seriously stated that because the States
and the people of
the States gave to the Federal Govermnent the
right to coin money and
control inter-state commerce and because the Federal
Government requires
the assistance of banks in conducting the fiscal
affairs of the National
Government it has the implied power to close the
entire field of all banking
activities to other than Federal institutions.
The thought, of course, is so grotesque as to be little
short of amusing.
but the serious element is that at the time
when we are called upon to
co-operate and as usual are doing so, to our patriotic
utmost, there is such
evidence of utter lack of sober thought and considera
tion in the responsible
elements of bank holding company operators to advocate
or propose such
ill-advised and discriminatory legislation, the only
possible effect of which
is to promote skepticism of banks generally
if not to cause inquiry into
holding company banking concentration itself.
Section 19 of the last draft of the Glass bill would
provide if enacted
and found constitutional that a National bank
could be permitted brancli
in any State of the Union, irrespective of the.will
of the people of a State
as expressed by their State Legislattn•e.
It is time, my friends, to stop and consider: Are we in
America to permit
bank stock holding companies to cause a Federal
Government to foist
branch banking whether or no upon sovereign States
that the bank stock
holding companies may sell their National bank shares
to natural perso
What a monopolistic concentration of banking would
be possible with
"parent" National bank operating in each State
scores of branches—yo
choice is your right and the. people's choice is the people',
ritrht hot
are entitled to the truth.

THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Oct. 22, 1932

State Banks and Their Important Field of Service--by L. A. Andrew, VP.,
First Bank & Trust Co., Ottumwa, Iowa


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Federal Reserve Bank of St. Louis

Congress, giving
Section 19 of the Glass Bill now before
the right to
more,
capital,
or
$500,000
National banks of
even
business
do
they
establish branches in any State where
attack on
direct
banking,
a
is
branch
prohibits
if the State

e sovereignty of our States and an
attempt to override
e expressed will of the people of the
individual states by
ational legislation. Many students of
our constitution
believe the proposed section to be unlawful,
but, nevertheless, it is receiving substantial support
from selfish interests
who wish to make it an entering
wedge of a nation-wide
system of branch banking and to
concentrate all of the banking interests of the country in a few
hands. It is a deliberate
attempt to destroy the integrity of all
of the smaller banks
in1his country under $500,000
capital whether National or
St te.

l

The Commercial & Financial Chronicle--ABA Convention--Oct. 22, 1932

"State Banks and Their Important Field of ServicOL-by L.A. Andrew, VP.
First Bank & Trust Co., Ottumwa, Iowa


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Federal Reserve Bank of St. Louis

-The independent unit bank
, however, was by no
means the only sufferer .
In fact every type of bank
ing organization was repre
sented in the situation. i
f small banks in the country
failed, so did sizable unit
branch bank organizations
banks and large '
in the cities fail. And
if unit and branch bank ,
organizations failed so did
members of chain and
group banking organizations and likewise so did entir
e chains or groups
go under. Without making
any statistical comparisons, for
we do not believe the
sufficient to indicate the respe
data of this type is
ctive merits of these vario
us types of banking
organizations, we would ment
ion that during the
first half of 1930 there
were 12 instances of branc
h systems suspending
, 24 instances of members
of group or chains, and also
a number of instances
of these latter types of
multiple organizations failing
as a whole. The only
generalization we would
draw from this is that no type of
banking institution or organ
was entirely immune from
ization as such
the plague of failtme.
The deter
as universally the type of
management, not type of organ mining factor
,tno.gement kept unit, chain
ization. Good
group
i
ks sound as well as large banks or branch banking sound; it kept small
. country as well as
city banks, National,
.i.t e, Federal Reserve member
or non-member bank
s—in brief, good management kept all class of
banks sound."

I

1

•

THE COMMERCIAL & FINANCIAL CHRONICLF---ABA Convention
Oct. 1932
Resolutions presented by R.S.Hecht, Pres., Hibernia Bk & Tr
Co., New Orlean:
as Chmn of Resolutions Comoittee


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Federal Reserve Bank of St. Louis

It is recognized that the subject
of branch banking has become a questi
on
of such a highly controversial
nature as between banks operating
under
arious conditions that the Associ
ation as a whole feels it should not
attempt
this time to formulate a definit
e attitude aimed to commit all types
of
nkers on this many-sided questi
on.
We believe, therefore, that any
expression and action on branch bank
ing should be left to the specialized
consideration of the various divisio
ns.

1

•
•

,Py

•

•

fHE COMMERCIAL & FINANCIAL CHRONICLE—ABA Convention
Oct. 1932
Report of Economic Policy Commission--by R.S.Hechtt Pres., Hibernia Bk & Tr Co
New Orleans---"Bankers Favor Unification of Banking
Through Fed. Res. 6ystem"


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Federal Reserve Bank of St. Louis

.
atirn7"
expected that the porcesses of (xmsolid
„,___,..... Within banking it is to be
required
continue to eliminate where a'nd as
and voluntary liquidation will
i
,
of
means
and that they will be the chief
such u. economic units as still remain,
.r) P
from the destructive forces of the bank
shed
distingui
as
n,
correctio
this
run a more normal course.
suspensions, which, it is to be hoped, will hereafter
'
deprived of needed banking facilities
Also in those places which have been
..,40....re
.in___Inent q bt
_estab
j_____gs,
re_52peniii__
by
restored
be
they should
ied from.
or organizestif
State lawa_zr
and desirable
These procesSes present the most effective
.'oints Ot vie_,..w
taii"
number, capital
the banking structure, both as to the
i
antIMTS. irffli.'grig
needs of
economic
contact with the
and distribution of its units, into closer
t he Nation.

i

•

•
•

•

THE COMMERCIAL & FINANCIAL CHRONCILE--ABA Convention--Sept. 23, 1933

The Need for Revision of the Glass-Steagall Act and a Sane
Legislative Program for Banking--Geo. V. McLaughlin, Pres.
Bklyn. Tr. Co., Bklyn, N.Y.


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Federal Reserve Bank of St. Louis

On the controversial subject of branch banking, I think 1
t the answer lies in a gradual extension of branch privils. In my opinion, it would be at.mistake to legajizo wi.th
n, nation-wide or even state-wide brancD
0
TO e of the
(--might create
now exist, since..that ______
banking where it does not .
.
)1'
chaotic conditions. Yet, the urgent need for new bankIng /
facilities in many communities, coupled with the fact that
i/
resent banking conditions are not attractive to new capital,
cerin
banking
for
extension
of
branch
necessity
fuggests the
ain localities.
t
e

•

THE COMMERCIAL & FINANCIAL CHRONICLE---ABA Convention--Sept. 23, 1933

Annual address of Pres. Francis H. Sisson, VP., Guaranty Trust Co., NYC


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Federal Reserve Bank of St. Louis

Whatever we may say a,s to the factor of too many small banks in the
banking structure, we likewise realize that there are at the same time
ny
small but thoroughly sound banks that are rendering good service to
eir
communities and that they should be allowed to live. If over a p iod
of years a bank has earned reasonable returns on the invested capital, if
it has given its community sound and adequate services, if it is in good
hands and if the prospects are that these various satisfactory conditions
will continue on into the future, there is no reason why it should be arbitrarily destroyed simply beca,use it does not measure up to certain dimensions
and specifications that are based on banking experience in other larger
places. I thoroughLy_believe in a reasonable extension of branch banking,
4144L1 I believe that many places with sub-standard-hanks would be befieFed
bY-givWxg those places the benefit of larger city-banking-through—branch
Et-alit-1es,nut I do not believe the situation cans ror a ruthless and wlieTeela
-Te
slaughter or country Banking, good- and -bad alike, such as would be brought
a ut ux-------tnIrlIgrance plan of the Glass-Steagall
Furthermore, granting the replacement of weak unit banks with branches
of stronger banks in some places is to be desired, the fact remains tha
going about it by the method of enforced membership in a guaranty of
deposits scheme would only be to set up a situation that is worse in some
respects than that it is aimed to cure.

it',
In the opinion of some authorities. it is in the general adoption of
principle of branch banking that the remedy is to be found. This is on,
controversial
of the most important and, at the same time, one of the most
been
of all our banking problems. Despite the bitter opposition that has
branch
toward
been
certainly
years
has
presented to it, the trend in recent
banking. The Banking Act of 1933 goes further in this direction than any
other Federal statute has ever gone by placing national banks on a parity
with State banks as far as branch banking privileges are concerned. The
advocates of the system point to foreign countries, particularly Great
Britain and Canada, where branch banking is widely practiced and bank
failures are almost unknown. To offset this argument, our experience in
this country in the last few years has shown tbat branch banking has
'
provided no automatic immunity to financial difficulties, while many unit(1
banks have emerged from the crisis with records of which they may well
and
be proud. Certainly branch banking, in and of itself, is no panacea;
all
we should not rush into it blindly in the belief that it will sweep away
most
our troubles. On the other hand, if it is found to be a feature of the
. constructive solution of our banking problexns, we must adapt ourselves

/

[

t o it.

V

•

sp

•

THE COMMhRCIAL & FINANCIAL CHRONICLE--ABA Convention--Sept. 23, 1957

Addiess


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Federal Reserve Bank of St. Louis

of the Pres., L.A. Andrew, VP., First Bank & Trust Co., Ottumwa, Ia.

P.ditor De Puy of the "Northwestern 13ankers,
" in a recent editorial
stated:
"Let us not forget that under otir present unit
system of banking the
urces in the United States increased 600% in the
last 30 years. Let
continue to protect the sovereignty of our individua
l States. Let us
!ontinue our dual system of American Banking
and prevent a foreign
system of banking from being superimposed
upon local American farming
and rural communities and upon the people of
the United States. Let us
have rules and
. . • .
. 6
hich w 1 . 07;-.1 . d iu every
tIe
. money of
dela Vs.
.11 us
tuopuuse a c
and
credit resourGeis
jae,....LuiteLLY.Lat.e..s_ihwugla-skaty...ayktel
um 1
or centralized lit
in this country upon the fa.lse iuea thatn
l
Let us not easily forget the large business gness can ever mean 'Sattitri•C
banking crashes that have
come from 'Bigness' and these crashes have and
been heard from one end of the
land to the other since 1929.
"Let us continue to have State banks.
"Let us continue to have national banks, but let us
see to it that neither
one of the groups nor any part of them be sacrificed
or crucified for the
betnefit of the other.•'
—-

•

on--Nov. 17, 1934
IAL CHRONICLE—ABA Conventi
THE COMMERCIAL & FINANC

OAI ER RELATIONS CLINIC
CONSTRUCTIVE CUST

ve Customer Relations
The Importance of Constructi k & Trust Co., Minneapolis, Minn.
By L. E.

WAKEFIELD, President

First National Ban

lived in Minlement: I wish Mr. Stonier
Mr. Stonier, Ladies and Gent
e just at the present
l campaign going on out ther
tica
a
poli
e
hav
We
ta.
neso
and the institutions
ds which he has said about me
gs
moment. The kind wor
in the fog of all of those thin
lost
be
ld
wou
ed
ciat
t over the radio
with which I azn asso
rary on each day and nigh
cont
the
to
said
g
is
bein
vv-hich
are
which
t octopus
e and how we are that grea
about us and our influenc
ral.
gene
in
ty
seeking to destroy humani

eld's address,
sion of Mr. Wakefi
Following the conclu
t:
following to say iu par
Dr. Stonier had. the
the keynote of the
said, has given

I
set the tenor, as
with respect to the
Mr. Wakefield has
said, the danger
to get at. As he
only of this country.
true
t
isn'
thing we are trying
ness
d, for instance,
the banking busi
world. In Englan
Government owning
r sections of the
ay facing a proIt is also true in othe failure since 1865, they are to-d
'
bank
the Government, not
which has had no
over the banks by
yI
campaign. to take
en't—not because the
hav
they
se
gram, a political
ecau
have failed—b
because the banks
ions or fraud, but
because the banks
ic with them.
number of defalcat
carrying their publ
have had any great
in
ul
essf
banks
suzc
not been
rity, the English
secu
and
of England have
ty
record for safe
the people. and
In spite of their fineconsideration to the rank and file of
t deal of money,
ugh
have not given eno
the banks made a grea the money as
e got the idea that
lending
the people over ther
rates, and are not
nt
bita
exor
k, ladies and
thin
ging
I
that they are char
is much closer,
in spite of the
England to-day
ks than we are
ban
they should. And
of
p
•
rshi
owne
rntnent
do not use against
gentlemen, to Gove
nst us here, they
nt they use agai
ks have failed.
ban
that
• ) fact that the argume
t
inen
all—namely, the argu matter of fact, the English banks(
English banks at
a
dwide question. As
know what we are
So this is a worl
prograzn, wanting to
of talking to our
about this very
m
us
gra
to
pro
ten
writ
this
e
hav
we are carrying out
trying to do a.nd how
.
ness
banking busi
customers about the

:'tI


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THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 17, 1934

What the Country Wants--by Clinton B. Axford, Editor "American Banker"


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Federal Reserve Bank of St. Louis

Branch Banking

I-;

I somethnes falter in my antipathy to branch banking. and
wonder if perhaps we would be better off if the commercial
and demand deposit business of our communities were in
the hands of branch banks and they were limited exclusively
to such business so that the local banker could settle back in
comfort as the local trustee of the local investment fund
servicing local loan needs, untroubled by the fear that some
(lay sooner or later his depositors would liquidate him down
to bare rock. dissipate their capital, wreck their communi-

ties' borrowers, and destroy the banker himself because h
assumed to guarantee as liquid deposits which he had to in
vest in illiquid assets in order to earn interest.
I say falter in my distaste for branch banking, but I do
not find it necessary to surrender, for New England is full
of such sanely operated local savings banks as I have described, and in many, many cases the same banker is both
the commercial banker in his local National bank office and
the savings trustee.
How much better for the country as a whole if the reform
in banking could be thus along the pattern of New England's
success rather than along some pattern of branch banking or
Government banking which would pile upon the basic error
of holding forth savings as demand funds, the immense dangers of centralization, of concentration of investment trusteeship in the hands of a comparatively few big city men,
and, finally, of politician control.
The picture I paint of New England's parallel State savings and trust and commercial banking systems may not be
ilea. But in vivid contrast are statistics of Canada'
rogress under branch banking, relating to her Eastern provces, which correspond in time of settlement and natural
resources to our own Down East New England.
We are all familiar with the success with which New England has maintained its wealth accumulated from days when
it was the shipping center of the world and cotton weaving
center of the United States, and how it has added to that
wealth and increased its population. But we do not know
that Canada's Eastern provinces, once he'r most prosperous,
'have been drained both of people and of money through the
great Canadian banking systems which were more interested
in financing evelopineDt__Of_territory supporting their railin the West of Canada than in conserving
rnsifd-T
nvestments.
the prosperity of the Eastern provinces. And for the country-tura whole the record of file last two decades to 1931 is
interesting.: 3,500,000 immigrants were brought in at heavy
ubsidies by the Canadian Government, while population in
he same 20 years showed an increase of only 3,100,000, a net
loss of 400,000 people under the benevolence of branch

len

banking.

Clinton B. Axford (Contd.)
Page 50


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Federal Reserve Bank of St. Louis

The fight of the "American Banker" against branch
banking has been a fight against the illusion that to
exchange our present system for branch banking would be
reform.
We have known and we believe that time has now
demonstrated that branch banking is only a system of
having bigger bank failures. Let us cite the fact that
when the artificial support of big names was removed
from the banking system in the United States in 1933 the
banking holiday found 17 of the first 200 banks in the
United States unable to reopen, and, of the branch banking
/'
/
systems in the United States, 19 were unable to reopen, L/
and they carried down with them 494 branches.
We know now that the reason why the United btates was
within two weeks of going off the gold standard under
President Hoover in 1932 was because we were within days of
the collapse of the largest branch banking system in the
United States, a system into which the United States
Government and correspondent banks threw at least $150,000,000 during February 1932 in order to save it from a collapse
which in 1933 came when the branch banking structures in
Detroit collapsed and finally brought the national crash.
Moreover, we know that the only thing which saved the
big British branch banks in 1931 from the same sort of a
collapse as a result of the heavy internal and international
runs upon them was the fact that England suspended gold
payments, before they were forced to close their doors. We
relieved our banks in 1933 by the same method when they
were reopened. And Canadian banks have been off gold since
1930.
We have seen Germant's branch banks mortgaged to the
German Treasury and finally taken over. We have seen
French branch banks with hundreds of branches collapse.
Italian branch banks were rescued when Mussolini bought
their frozen assets. Yet despite the evidence which damns
branch banking as no better than unit banking when it is
under pressure of the United States are going to take branch
banking in the name of reform if State and unit bankers do
not give them something better.

THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 1935
40

BANKERS' CONVENTION.

Railroads
We approve the action of the econstruction Finance Corporation in
making loans to the railroa -for he purpose of carrying on their essential
services and urge the co nuati
of the policy of thus extending financial
aid when necess y.
e appr e reasonable regulation of those agencies
of transportatio
ich compete with the railroads in order that such competition shall e )11 a fair basis. We approve the efforts of the Federal
Co-ordinato of tailroads to bring a ut true co-ordination of
railroad
services, to eliminate so far as possible
plication of facilities and to reduce
the costs of operation. We believe that his great industry should be
assured
by wise laws that burdens or expense
all not be put upon it while its income is restricted by rigid regulatio of rates. It is fundamental
that,
while any utility should be regulated i the public Intel est, it must
be given
the opportunity to collect the cost of he service rendered, including a
fair
return on the capital invested. W urge a liberal attitude towards
the
railroads for the good of the employ , the investor and the maintenan
ce of
conditions insuring the safety of p lic travel.
TFIE RE OLUTIONS COMMITTEE:
Francis Marion Law, President. Fi t Orval W. Adams, Chairman
Bank
National Bank, Houston, Te
Management Commission, ExecuChairman.
tive Vice-President Utah State NaC. W. Allendoerfer, Vice-Presid t
tional Bank, Salt La,ke City, Utah.
National Bank Division, Vi °- Fred I. Kent, Chairman
Commerce
President First National Ba , and Marine Commission,
Director
Kansas City, Mo.
Bankers Trust Co., N. Y. City.
Philip A. Benson, President Savings Frank M. Tott,on,
Chairman Public
Division, President Dime Savitigs
Education Commission, Second
Bank of Brooklyn, N. Y.
Vice-President Chase National
Fred B. Brady, President State
nk
13ank, New York City.
Division, Vice-President
m- Robertson Griswold, Chairman Commerce Trust Co., Kansas ity, o.
mittee on Taxation, Vice-President
Merrel P. Callaway, Vice- esi ent
Maryland Trust Co., Baltimore,
Trust Division, Vice- es ent
Md.
Guaranty Trust Co., N.Y CI .
Ronald Ransom, Executive ViceHenry
Verdelin,
Vice-les ent
President, Fulton National Bank,
American Institute of
ing,
Atlanta, Ga.
ca,re First Service Corp..
nne- Max 13. Nahm, Vice-President, Citispoils, Minn.
zens National Bank, Bowling
David M.Auch, Vice-Preside
tate
Green. Ky.
Secretaries Section. Secretar Ohio Andrew Price, President National
Bankers Association, Colum s, O.
Bank of Commerce,Seattle, Wash.
Leonard P. Ayres, Chairman Eco- Thomas F. Wallace, President
Farmnomic Polley Conunission, Vicoers & Mechanics Savings Bank,
President Cleveland Trust Co.,
Minneapolis, Minn.
Cleveland, Ohio.
John G. Lonsdale, Chairman of the
H. Lane Young, Chairman
culBoard Mercantile-Commerce Bank;
tural Commission, Executive. an& Trust Co., St. Louis, Mo.
ager Citizens & Southern Nati nal Gurden Edwards, New York,
N. Y.,"
Bank, Atlanta, Ga.
Secretary.
[The report was unanimously adopted.]

Resolutions of Appreciation

The following special resolutions were presented, and
unanimously adopted:
The American Bankers Associatitin takes this opportunity of expressink
its appreciation of the high 4ervicAs‘to all banking rendered by its retiring
President, Rudolf S. Hechti with tlte able counsel and assistance of First
Vice-President Robert V. Inereing, a.nd Second Vice-President Tom It.
Smith. We feel that their leadership. has been a stimulating influence
n t
only among bankers, but also the pultic during this period when a gene
I
return of confidence in tho characteriof banks, bankers and
banking has
been essential to the national welfare..
We express our thanks to the leadertiln public life who have
given us t e
benefit of their time aud coUnsel during this convention as
speakers befolre
our various meetings.
We particularly wish to express and extend our good wishes
to Sena r
Carter Glass of Virginia whose health would not permit him
to be with us o
enable us to expres to him in person pur appreciation of
his splen d
services in behalf of sound banking.
We also thank the New Orleans bankers, the local committee
s,the hote
the press and the citizens of New Orleans for the cordial treatment
we ha e
received at this meeting. This is the fount' convention our Associatio
nh
held in this city and we trust it is by no means the last.

know, that the Banking Act of 1935 was largely
due to the heroic and
intelligent efforts put forth by this man and his loyal associates.
A mandate
has been given them by this convention, that mandate
being that the
independence of American banking must be preserved, that
its foundations
should be m intained and that any changes in its sitperstruc
ture mu.st be
a.shioned
th an eye single to meeting soundly and adequately the demands of griculture, commerce and industry.
"As a ark of respect, confidence and affectlen of the
bankers of this
Associ ion, I present to you, Mr. Hecht, some ieces of silver.
You and
your vely wife will use them as long as you
th may live and then they
are
be handed down to your children and our children's children
with
the egend that the American Bankers A °elation highly
valued and
ac owledged the services of a faithful s vent. The
measure of your
seivice cannot yet be appraised, but I am re I voice the sentiment
s of the
great company of bankers who have wat ed you at your job When
I hand
in the verdict that you have made a
eat President. We say to you
'Vale! Farewell!' but in our hearts we e saying, Ave! Ave Hail!
"
Mr. Hecht replied: "President Flem g, words could not ossibly express
what my heart so warmly feels, and al I can do on beha of
Mrs. lIecht
and myself to thank you from the bottom of my heart for Your
generosity.'

Report of Committee on Nominations
In accordance with the recommendations of the Nominating
Committee.
Robert V. Fleming, President Riggs National Bank, Washingto
n, D. C..
was elected President, and Tom K. Smith, President Boatmen's
National
Bank, St. Louis, Mo., was elected First Vice-President
for the coming
year. E. G. Bennett, President First Security Bank of Idaho,
Ogden,
Utah, was recommended for the Second Vice-Presidenc
y by the Nominating Committee. Orval W. Adams, Executive Vice-President Utah
State
National Bank, Salt Lake City, Utah, was nominated for this
office from
the floor by Charles F. Zimmerman, President First National
Bank,
Huntingdon, Pa.. and, following several seconds of both
nominations. it
was decided to have secret balloting to determine the choice
of the convention. Later Mr. Bennett withdrew and a unanimous vote
was cast for
Mr. Adams at the final session.
At a meeting of the Executive Council of the Association
Nov. 14,
Arthur B. Taylor, President Lorain County Savings & Trust Co.,
Elyria,
Ohio, was elected Association Treasurer for the coming year.
He succeeds
Hal Y. Lemon, Vice-President National Bank of Detroit, who
has served
in that capacity for the past two years. The Council also re-elected
F. N.
Shepherd as Executive Manager of the Association.
Debate Incident to the Presentation of the Report of the
Nominating Committee
[Second Day's Session Nov. 13]
The next order on the program is the report of the
Nominating Com
mittee. Is the Chairman of the Nominating Committe
e ready to report?
Colonel Edens: Mr. President, Members of the Convention
: The members
of the Nominating Committee met yesterday aft,ernoon
at 5 o'clock at the
Roosevelt Hotel and remained in session until 7 o'clock.
The 48 States
and the District of Columbia were represented. After
frank, free and full
discussion, the Committee authorizes me to make the
following recommendations to this convention for your officers:
For President—Robert Vedder Fleming, President of
the Riggs National
Bank of Washington, D. C.
For Vice-President--Tom K. Smith, President of the
Boatmen's National Bank of St. Louis, Mo.
For Second Vice-President--E. G. Bennett, President
of the First
Security Bank of Ogden. Utah.
Mr. President, I shall at this time refrain from making the
usual motion
as to the adoption of this report, in order that you may ascertain
if there
are other nominations to be presented, as is provided
for in the constitution.

Charles F. Zimmerman (Pennsylvania): Mr. President,
I move you that
the election be held viva voce for the offices of President
and First VicePresident, and that the election for Second Vice-President
be deferred until
after that action has been taken.
Lewis A. Howell (Honesdale National Bank, Honesdale
, Pa.): I second
the motion.
President Hecht: Gentlemen, it has been moved and
seconded that we
separate the election of the President and First Vice-Pr
esident from the
Presentation of Silver Service to Retiring Presiden
report that has been submitted and first submit their
names
to you for
Rudolph S. Hecht
your consideration. What is your pleasure? All those
in favor of that
In recognition of his services as President of the American Bankers A
motion will please say "Aye"; opposed, "No." The
"Ayes" have it.
ciation during the past year, Rudolf S. Hecht, Chairman of the Board
Mr. Zimmerman: Mr. President, with the indulgence of
the convention
Hibernia National Bank, New Orleans, Louisiana, was presented
I wish t,o place in nomination another candidate for
with
the office of Second
silver service at the final session of the convention. Francis Marion
Vice-Presi
dent.
Law,
President of the First National Bank, Houston, Texas, who was
Richard S. Hawes (First National I3ank, St. Louis):
Mr.
Mr. Chairman,
Hecht's immediate predecessor aa President of the Association,
I would suggest that the President and Vice-President have
made the
not been elected
presentation. Mr. Law said:
yet. I am sure Mr. Zimmerman's original motion was
to that effect.
"You have commissioned me to say a word to your retiring President
I move that the Secretary of this meeting be requested
to cast the ballot
expressing your approval of and appreciation for the work
of this convention for Mr. Fleming for President and Mr.
he has acSmith for First
complished in your behalf. It is a most pleasing as.signment.
Vice-President.
"The man who is now relinquishing the gavel to a worthy successor
[The motion was duly seconded.]
has
been a faithful servant of the American Bankers Association for
President Hecht: It has been moved and seconded that
many years.
the Secretary be
At all times and in every capacity he has given his best without
instructed to cast the ballot for Mr. Fleming as President and
stint or SaVMr. Smith as
ing. lle came into the high office of President unusually
I
First
Vice-President. All those in favor of that motion
well-equipped by
will please say
long experience in associational work. Moreover he was well steeped
"Aye"; opposed, "No." Mr. Fleming and Mr. Smith
in
are
unanimously
the traditions, ideals and principles which have ever been the back-log
lected as President and First Vice-Prosident, respective
of
ly, if the Secretary
the American Bankers Association and which have made it great. It was
ill so report.
in the City of Washington, 13 months ago, that he was elected President
Mr. Dunkerley: The vote has been cast, Mr. President.
and I doubt if there has been an hour during Ms waking moments
Mr. Zimmerman: Mr. President, I wish to place in nominatio
since
n another
that time until now when he has not been giving his best thought
ndidate for the office of Second Vice-Prtsident, and ask for the
and
indulgence
energy in promoting the welfare of this Association.
qf the convention to preface the nomination with a few remarks. . . .
"It would be difficult to say which was the more fortunate, the
4,
In the meeting of the Nominating Committee yesterday, I
Associamade a few
tion or Mr. Hecht himself. The Association was indeed fortunate
r marks on behalf of the rights of the rank and file of our member
in
banks
having a leader of his caliber and mental stature during this
der the constitution of the American Bankers Association,
itnportant
from which
past year. Likewise he was fortunate in that he came upon the
I hould like to be permitted to quote sevevral excerpts. I now
stage at
quote
from
a time when his unusual talents were to be challenged to
nly remarks yesterday:
the utmost in
meeting a situation full of possibilities for good or evil. He
1"We are all cognizant of the fact that recent developments
would not
have changed
have had it otherwise.
the outlook from what it has been heretofore regarding the American
bank"You have been told, but it bears retelling, that he has spent
ing system. We can readily understand that the greatest
practically
issue
we face
the
preservation of the independence of the bankers of America.
is
his entire time during his Presidential term in active service
in your behalf.
"We have a call to-day to discharge the responsibility that
By air commuting back and forth between Washingto
n and New Orleans
us, so as to preserve the best interests of the American Bankers rests upon
he was able to spend some, but not all, of his week-ends
Unprecedented conditions surround us in this meeting. We Association.
with his family
have to deal
and v.-ith him bank. Satisfaction is his as it is given to
with them on their merits.
few men to realize
"So far am I from believing that anything we are doing
hat kis labors have not been in vain. I only tell you
here
involves
what you already
questions of personality that I atnnot accommodate myself
to the thought


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t

i'
.3',

,!,-°8.,
,

GENERAL SESSION.
A period of inflation, characterized by abnormally rapid advances in the
general level of the prices for commodities, is a phenomenon that develops
when the demand for goods is so active that would-be buyers bid up the
prices of the goods in order to get them, while sellers are reluctant to part
with them. It is almost impossible for an inflationary boom based on the
confidence of a period of credit expansion to get under way in a country
where the facilities of production are efficient, but are operating far below
full capacity, as they are here. me reason is that under such conditions
demands for goods at higher prices are promptly met by increased outputs
which tend to retard further price advances. When our productive plant
is operating once more at normal capacity the prospects will be quite
different from what they are in 1935, or promise to be in 1936.
Summary and Conclusion
In summary and conclusion your Commission points out that we have
already had a major measure of recovery in many of those parts of our
national economy that are dependent on individual consumer purchasing
power. The parts of our economy in which we have had the least recovery,
and which are mainly responsible for most of our continuing large volume
of unemployment, are those of construction and the heavy industries which
in the main make goods for corporations. These goods are mostly bought
from the proceeds of long-term bond issues or mortgages, and the industries are operating at low capacity because the flow of new long-term
corporate financing is greatly restricted.
Your Commission is confident that no economic barrier now exists which
should prevent a resumption of this flow of long-term corporate financing.
It believes that when it is restored the activity and output of these industries
will be greatly increased, unemployment will be sharply diminished, a
balanced recovery will be under way, and the people of this Nation will
resume their traditional task of building and rebuilding America.
Your Conunission believes that these constructive developments will be
facilitated, assured and hastened in proportion as progress is made toward
securing a balancing of our Federal budget and expenditures.
Economic Policy Commission:
Leonard P. Ayres, Vice-President Cleveland Trust Co., Cleveland, Ohio
Chairman.
Walter H. Bennett, President Emigrant Industrial Savings 13ank,
New York City.
A. P. Giannini, Chairman of Board Bank of America N.T. & S.A.,
San Francisco.
James It. Leave11, President Continental Illinois National Bank & Trust
Co., Chicago.
Theodore Wold, President Northwestern National 13ank & Trust Co.,
Minneapolis, Minn.
Nathan Adams, President First National Bank, Dallas, Texa.s.
Thomas B. McAdams, Pres. Union Trust Co. of Uaryland, Baltimore.
Max B. Nahm, Vice-President Citizens National lhink, Bowling Green,
Kentucky.
4Huntingdon, Pa.
Cha'rlts F.Zimnaerman, President First National BaniF
J. Stewart I3aker, Chairman of Board Bank of the Ma attan Company,
New York City.
is, Mo.
R. S. Hawes, Vice-President First National Bank, St.
Walter S. McLucas, President National Bank of Detroit, etroit, Mich.
ry.
City,
Secr
York
New
St.,
Gurden Edwards, 22 East 40th

Report of Official Acts and Proceedings of Executive
Council, Presented by Raymond Dunkerley
Since the adjournment of the Convention at Washington, D. ., the
C..
Executive Council has held meetings, Oct. 25 1934, at Washington,
April 16 and 17 at Augusta, Ga., and Nov. 11 at New Orleans.
on,
At the meeting in Washington, the Council elected Hal Y. Le
Treasurer, and F. N. Shepherd, Executive Manager; and, in accorda ce
with the nominations of the Nominating Committee, elected members f
various coinmittees and Vice-Presidents for foreign countries; and approv
the appropriations recommended by the Financ,e Committee.
The sessions at Augusta, Ga., were devoted to the approval of Committee
and Council appointments, the creation of and granting of authority to the
Special Committee on the Banking Act of 1935; the detailed reports from
and consideration of the work of the Divisions, Sections, Commissions, and
Committees of the Association; the review and approval of various acts
affecting legislation, all of which are covered in various Committee reports,
and a variety of routine business of the Association.
Resolutions to the meinory of past presidents, John H. Puelicher and
Rome C. Stephenson were drawn, and engrossed copies were sent to the
bereaved families.
The Executive Council recommends that Article X, Section 1, last
paragraph, of the Constitution be amended by substituting the following:
"Members of the Association may enroll as regular members of but one
Division in which they shall have full powers and privileges of membership;
but may also enroll as associate members of any other Division or Divisions.
An associate member of a Division shall have no power to vote but an
officer, director, trustee, -manager or partner of an associate member of
any Division shall have such power to hold office or committee membership
including the right to vote as officer or committee member as shall be
granted by the by-laws of the Division."
[A motion by President Hecht to approve the report was carried.]

Report of Committee on Resolutions- -Government
Urged to Retire from Control and Operation of
Industrial, Commercial and Financial Enterprise
Tile report of the Committee on Resolutions was presented
as follows by Francis Marion Law, Chairman:
The Business Situation
of conPrevailing business sentiment in the United States to-day is one
There have been large
viction that recovery is making vigorous progress.
populathe
of
portions
groat
of
increases in the consumer purchasing power
those lines which supply goods
tion and broad recovery in production in
have clearly stimulated
developments
These
retail.
widely purchased at
create widening business
many lines of industrial activity and helped
confidence.
in widespread unOn the other hand, there has been but little decrease
has not ademployment and the total volume of industrial production
vanced during the year. These adverse conditions characterize particularly
by new
financed
normally
are
the heavy industries and construction that
investment funds, the flow of which still suffers an almost complete cessation


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39

\

in this country, although there is an abundance of private capital awaiting
opportunity for employment.
It is our opinion that a concentration of effort on the part of both Government and private business initiative in stimulating the flow of new capital
issues for private undertakings in these still depressed portions of our national economy is essential to bring about a balanced recovery in all lines
and resultant important decreases in unemployment.
On behalf of banking we are able to report a complete restoration of
public confidence. This has put it in the position where it can function
fully and vigorously in playing its full economic part in the progress of
recovery. The passage of a generally constructive banking law in the
Banking Act of 1935 has stabilized the banking situation and enabled
bankers to devote undivided attention to the normal administration of
their institutions in promoting the business and public welfare of their
communities. We feel that it is a particularly important feature of this
law that it aims to create through the revision of the Federal Reserve Board
a Supreme Court of Finance which, with the non-politica,1 appointment of
exceptionally competent men, should ctmstitute one of the greatest forward
steps in building a sound banking and credit system for this country.
Retirement of Government from Business
With the passing of emergency conditions from a large portion of our
rrational economy, and with increasing evidence that the full restoration
of industrial enterprise under private finance and initiative is essential to
complete the return of recovery, we'believe the time is at hand for recognition as a matter of national polq of the need for the retireinent of the
possible from the field of control and
Federal Government as rapidly
operation of the nation's industrial, commercial and financial enterprise
into which it has entered so widely.
It is our conviction that preponderant public opinion in this nation is
against any form of socializatiori of our national industry, commerce or
finance. We believe that the ottly fundamental cure of unemploytnent is
through the stimulation of re-rnployinent by the removal of unjustified
barriers to the free play of pr ate enterprise and individual initiative.
The G'verntnent in Banking
We particularly emphasize he desirability of the retirement of Governnding credits of various types which can be
ment from those fields of e
adequately served by priva y owned institutions. We recognize that the
exigencies of the now passi g depression made necessary a large participation by Government for a t e in the task of meeting the public's emergency
financial needs. We beli e those conditions have been largely remedied
and that the obligation ow rests upon the banks and other financial
agencies to demonstrate o the people of this country that they are fully
able and willing to mee all demands upon them for sound credit co-operation. It is our duty a bankers to facilitate in every effective way the retirement of Governme agencies from credit activiti by promoting public
understanding of the roper function of privately owned banking.
Government Expenditures
e of the most serious dangers confronting the nation
We believe that
to-day is the illusio which appears to be widespread among portions of our
people that Gover ment expenditure is of itself a cure for economic ills.
There are well de nod though limited fields within which Government expenditures are j tilled. While the deficits of the past six years which
have carried our irect national debt to a total of 29 billion dollars in part
have been justi ed by efforts to relieve human suffering and deprivation,
allowed to obscure the fact that definite efforts to return
this should not
to a balanced ational budget should be the prime consideration of sound
policy. We believe that this procedure is now the surest
national fis
way of relie ng human suffering and deprivation, chiefly because of the
stimulus an confidence it would give to private industry and trade whose
normal act ities should be the fundamental source of employment and
security.
Taxation
The 1 rease of taxes, both Federal, State and municipal, throughout
the nat n, is an outstanding public problem from which no class of our
people ltimately can remain exempt. While a large portion of the inthe burden of taxes since the depression has been caused by efforts
crease
o rel ve misfortune resulting therefrom, it is also a fact that, apart from
t is, the costs of our multiform government have in many cases long been
u tily increasing. Factors in this have been the increase in functions and
act 'Ries assumed by government, the relatively high costs of such operation* when performed ucder government auspices, the inevitable wastefujneilp of bureaucratic oragnizations and the increasing demands of the
public', upon government. Unless the upward trend of taxes is curbed,
I constitute such a heavy btzden as to repress individual initiative
they
and ent prise and thereby increase the very types of human misfortunes
in so large part are aimed to relieve. In the long run the burwhich th
must fall not upon any one class but upon all classes and they
den of ta
therefore c nstitute a problem and a menace for all our people.
Postal Savings
We enders the statement of' President Hecht in his address to this convention, that e competition of the Postal Savings System with privatelYrough the relatively high interest rate and liberal withowned banks
allowed its depositors is inequitable. Every depositor
drawal privileg
can now get ins ance for his deposits up to $5,000 and we feel the need for
System has really passed, except perhaps in such comthe Postal Sa
munities as do not enjoy other banking facilities. A serious effort should
therefore be made at the COMing session of Congress to at least modify, if
not abolish, the law governing the Postal Savings System.
Restriction on Bank Charters
We are also wholly in accord with President Hecht's statement, in his
address before this convention Tuesday [Nov. 12], relative to the necessity
of limiting the chartering of new banks rigidly in accordance with the
economic needs of the country. Every effort should be made by bankers,
and they should enlist the support of public opinion, to prevent a new overproduction of banks through the indiscriminate chartering of new banks in
places which are either not large enough to support a bank or in which
there already are available sufficient banking facilities to take care of their
reasonable requirements. We commend those provisions of the Banking
Act of 1935 which give the Federal Deposit Instvance Corporation new
authority to determine whether there exists an economic necessity for the
creation of a new bank before a newly-chartered institution shall be admitted
to the benefits of the Insurance Fund. We believe the banking profession
should give the Corporation the fullest co-operation in this connection at
all times.

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GENERAL SESSION.
that the discharge of our duty attaches itself in the first instance directly
to one or other of these three splendid men (meaning those who had been
proposed for the office of Second Vice-President).
"I have been most ardent in my hope that such principles as are represented in the candidacies of these men shall be understood by those who
compose the intelligent electorate of the American I3ankers Association,
and that we should discharge our duty in the light of such principles as those
of which these men are the exponents.
"In looking for a guide as to the fairness of the situation I needed no
outside answer. As for the basis of the fitness of the suggestion to be
offered before this Committee, I refer to the constitution of the American
Bankers Association. We are under obligation to the fathers of the American Bankers Association for having anticipated the very type of question
we face here to-day so that responsibility need not rest upon us of taking a
position at variance with the best interests of the American I3ankers Association.
"I turn, therefore, to article III of the constitution which says, 'Election
of officers shall be by ballot, but when a single nominee is presented for
any office the ballot may be dispensed with and the vote taken viva voce.'
"In article V of the constitution which has to do with the discretion of
the Nominating Committee is this sentence: 'The Committee shall recommend a candidate or candidates for President and First and Second VicePresidents, who shall report its recommendations at the time fixed in the
program for the nomination of officers.'"
That is the end of the quotation from my remarks made yesterday. At
that time, those of us who have been considering tbe principles of which
the man whose name I am going to place before you has been the outstanding exponent in recent months, presented a resolution to the effect
that all three of the men be presented to this convention for your decision,
based upon the principles which they represent. The motion offered before
the Committee was thereupon tabled viva voce, and those of us who were
of the persuasion to which I have referred ceased thereupon to have part
in the fmther deliverations of the Committee. Gentlemen, I just wish
to take a moment to refer to the fact that we must never forget in this
country that the constitutional rights that have been disclosed to our
several States, and under which our great State chartered banks and
State banking systems have grown up, have been a foundation stone in
the remarkable growth of this country. Despite all other policies, or
theories that may be advanced for the future of American banking, we
should give our allegiance to the preservation of that principle so far as
it is within our power. The system has not beea without its imperfections.
But in view of the fact that wo are talking about principles, I do not wish
to take your time in discussing any further the consideratioias that enter
into this question.
I now want to present just ono paragraph from the latest letter that I
received before leaving my home for the convention, from the man whose
name I wish to present at this time. It is an index of his spirit. It is an
index of all that he exemplifies in behalf of the future structure of banking
in America. This was just a little peisonal message:
"There isn't any reason in the world why you should have supported
me, other than for the pure matter of principle. In a letter you wrote the
other day, you said that you were nothing more than a country banker.
So am I. The country bankers, however, comprise the majority membership of the American Bankers Association, and if it were not for this class,
the American system of banking would soon vanish. It has always been
a mystery to me why the big city bankers have not as yet seen the handwriting on the wall, that unification of the system means the vanishing of
our great independent system, and the banishing of this system means the
socialization not only of the big and little banks. but of the Government
as well. So we are united, because we love America, and its divinely inspired constitution."
Mr. President, I wish to place in nomination the name of the writer of
this letter, the friend of all of us without exception, for the office of Second
Vice-President, Orval W. Adams, Vice-President of the Utah State National Bank of Salt Lake City, Utah.
[The nomination was seconded by various delegates.]
President liecht: Gentlemen, before we proceed to the question, we have
to do two things: First of all, I don't believe any formal report is now
before this meeting from the Nominating Committee.
Richard S. Ilawes (First National Bank, St. Louis):
Mr. President and Fellow Delegates. I arise as one of the old-timers of the
American Bankers Association. For 30 years I have been interested in it
and have had something to do with its affairs. The parade of States which
has just gone before is an interesting exhibit of the independence of the
American bankers, but just remember when you consider the problem
before you that this is not a fight between independent bankers and city
bankers, or any other kind of bankers. ...
Now, men,remember when you cast your ballots for these two gentlemen
—and I shall not measure the capacity of either one of them, both of them
being excellent, high-standing bankers of America—that, in each State in
the Union, there was held a caucus called at the State Conventions, and in
that caucus sat the country banker, the city banker, the independent banker
—and I wouldn't know what an independent banker Is if you were to ask
me. I think we are all independent. I have tried to be independent in all
my views all my life.
But in these caucuses sat these men, and they elected one of their chosen
men as their representative, and I challenge again any man within tho
hearing of my voice to read the names on the Nominating Committee and
say they are a crowd of men who could be led by the nose by anybody.
. If you repudiate your Nominating Committee to-day, the time
.
.come when you will rue the act, and the American Bankers Association
will
will feel its effects for many years to come. I admit the right of suffrage for
presentation of names, but I still cherish the traditions of the Association,
the history of the Association, to such an extent that I want to second the
nomination of Mr. Bennett and ask your loyal support of him for Second
Vice-President.
President Hecht: Gentlemen, we aro confronted here with a really
serious and complicated technical question, and I ask your help and consideration in trying to solve it. The Chair is interested in only one thing
and that is to have a fair election between two competent men, whose
names have been presented. As you know, we have a registration of somewhere between 3,500 and 4,000 people at this meeting. Out of that number,
there are only about 1,100 that have a right to vote. There are in this
audience certainly a large number of people who are guests, but not delegates, because only one man can vote from each bank.
The hour is late. The Constitution provides that the voting must now
be by secret ballot. The ballots are prepared. It seems to me that the only
way in which we can properly check (and I am only making this suggestion;
I have no desire to do anything, but to ask your opinion on it) and the
fairest way to give every delegate who has a right to vote a chance to cast
his ballot, would be to recess this meeting because we have to get out of
here within the hour, or before two o'clock, and go to the registration room
and set aside a corner there, where some one will have the official list of
those who have a right to vote, and fix either one definite hour, or I think
it would be better to say from two to five, or whatever you want. We would
of course appoint tellers, representing each of the two candidates. In that
way we can give everyone here an opportunity to vote, without our now
having to ask those who cannot vote to leave the theatre, and then check all
of the names, because we do want to be absolutely fair.


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41

It seems to me since, in the generation I have been in the American
•Bankers Association, this is the first time this question has come before it
in this way,that we ought to do it right, and I want you to decide what you
think is right. But I do believe that in all fairness, and for simplicity's
sake, we ought to be sure that everyone that has a right to vote will have an
opportunity to vote. The Chair is ready to hear any suggestions from the
floor.
William S. Elliott (Bank of Canton, Canton, Ga.): Mr. Pre,sident, as one
who is deeply interested in this proposition, as I am sure all other delegates
are interested, and as one who has been impressed with the fairness and the
courtesy manife,sted by our splendid President on this occasion, I want to
say that I thoroughly endorse the suggestion made by the President, and
I make a motion to that effect.
[The motion was seconded by B. F. Clark, State Bank, Denver, Colo.]
The question was called for.
President Hecht: There are two other questions, gentlemen. First of
all, my attention is called to the fact that the nominations are not closed,
but I take it that if there were any other names to be offered they would
have been presented.
Mr. Elliott: I move the nominations be closed.
President Hecht: Mr. Smith of Salt Lake asked for the floor.
Charles L. Smith (First National Bank, Salt Lake City, Utah):
I occupy the position of representing the State which is presenting the
two candidates to this convention. This matter has been thoroughly discussed in the State of Utah. It was frankly discussed and voted upon at
the State convention. I was elected as the member of the Nominating
Committee, the alternate member, and our instructions were to support
E. G. Bennett. At that meeting we had before us the name of Orval W.
Adams also. A very full, free, frank discussion was held and this entire
matter of State banking versus branch banking was had. Mr. Bennett
received a clear-cut majority and in so doing he received a majority of the
votes of the non-member State banks of that State. Ile has their hearty
support. He has been the friend of the unit banker. He has done more
to preserve the interests of the unit bankers in that State and in surrounding
States than any other banker we have. He has been responsible for the
enactment of branch banking laws along lines which protect to the full the
unit bankers. The law that Mr. Bennett was instrumental in endorsing
and having passed provided that no conununity already served with banking facilities could be entered by a branch banking institution, and that no
bank could be established in a competing point for the purpose of being
taken over by a branch banking organization.
This vote was not only settled in the State of Utah, but it was taken to
surrounding States, for instance, the State of Idaho, in which Mr. 13ennett
operates. The sa,me campaign was carried on there as between Mr. Bennett and Mr. Adams, and Mr. Bennett secured the unanimous support of
all those in attendance at the convention. The only ones who even considered any opposition to Mr. Bennett were two competing branch bank
organizations. The support of the unit bankers in the State of Idaho was
absolutely unanimous in favor of Mr. Bennett. The unit banker has no
better friend than Mr. Bennett and I am distressed that the question should
be raised here of denying the right of representation to a man simply because he believes in one school of thought which in our part of the country
is absolutely essential, to provide proper banking facilities.
I urge upon you, gentlemen, to carry out the recommendations of the
Nominating Committee, who have considered tlais matter for months.
They were elected months ago. They have corresponded between themselves on the matter. They have studied the situation, and after careful
deliberation they decided that Mr. Bennett was the candidate who should
be presented to you. On behalf of the State of Utah, I urge this election.
He is their choice, by mandate and vote of their convention. I further
urge it upon you as the mandate from the Nominating Committee yesterday.
T. R. Preston (Hamilton National Bank, Chattanooga):
I want to say just one word at this point, Mr. President. I hope there
will be some simpler method of arriving at the wishes of the people of this
convention suggested than voting by secret ballot. I think that we are
attempting to break a precedent here, and it is a very serious matter.
The Nominating Committee is made up of members who come, as others
have said, from every State of the Union. All of them could have been
instructed, and some of them were instructed. In that way I think they
have a better picture of the situation than we could have. You represent
everybody by having the States do this. They can instruct their delegates.
1 want to say to you now, as Dick Hawes has said, that if we break a
precedent that this Association has followed for many years so successfully,
we may regret it. I don't know of any time in its history when this Association has been of greater benefit to the banks and to the public than in the
past few years. They have rendered a service to the public that we will be
a long time in repaying. . . . Before I take my seat, I want to say
again, I hope that we may find some simpler method of expressing our
wishes, rather than the long and tedious method of balloting by secret
ballot. I desire to heartily second and commend the report of your Nominating Committee, which recommends E. G. Bennett. I second bis nomination.
[Calls for question on the motion.]
President Hecht: I want to answer Mr. Preston by saying that much as
I would like to see a simpler means of deciding this question, the constitution absolutely prohibits me from doing anything except telling you that
two names being before you, only by a secret ballot, separately cast by
those specifically authorized to cast their ballot by being registered as delegates from their banks, and not as guests, can this question be decided.
I also want to again say I have no desire to cut short the discussion. I
have no desire to tell you how to handle this election, but I don't see how we
can go on much longer here. We must be out of here by 2 o'clock. I arn
going to take the liberty of saying that if this question must be decided now,
I think it ought to be decided so that every one who has a right to vote may
have a chance to cast his ballot. I would like to ask, to simplify things, for
some one to please make a motion to close the nomination, so we may be
rid of that technicality.
Ira A. Moore (Peoples National Bank, Grand Rapids, Mich.): Mr. President, I move that the nominations be closed.
[The motion was seconded by L. A. Howell (the Honesdale National
Bank, Honesdale, Pa.)].
President Hecht: It is moved and seconded that the nominations be
closed and the names of Mr. Bennett and Mr. Adams be put before you.
All those in favor of that motion will please say, "Aye," opposed, "No."
It is so ordered. There is already before you a motion, which followed
the suggestion that I made, that instead of staying here and separating
those who have no right to vote, asking them to leave, that we take the
tedious process of balloting by secret ballot at some later designated time,
and I am going to insist that every name be checked, because this election
is going to be conducted fairly. And I don't see how we could do that
now, even if we stayed here another hour. I therefore strongly recommend to you that we do it the other way. Then there cannot be any
complaint that someone got an advantage over the other. I hope that
that motion will prevail, but it is now open for discussion. As I understand the motion it is that from 2 o'clock to 5 o'clock this afternoon in
the registration room a section be set aside where the staff will be prepareci
to check everY narne that is on that list, and where everyone who is entitled

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J104,1e.

42

BANKERS' CONVENTION.

to vote can come in and cast his secret ballot. Is that motion correctly
stated?
Mr. Elliott: That is the correct motion, Mr. President.
President Hecht: That motion is now open for discussion.
Col. W. G. Edens (Terminal National Bank, Chitago, Ill.): Will the
members of the Nominating Committee have a right to be beard where
you are going to cast this ballot ?
Members: No.
President Hecht: No.
Mr. Edens: It was stated from the platform by Mr. Zinamerman, who
is also my friend, that after his resolution was by a vote of about 47 to 2
laid on the table, the gentlemen representing the candidacy of Mr. Adams
took no further part in the deliberations of the Coramittee. I think it
is only fair to say tbat as Chairman of the Committee I noted that they
voted on each subsequent motion or proposition that came before the
Committee, and I wanted the delegates who are going to vote on this
proposition to know the nianner in which that meeting was conducted.
I challenge any one here to refute tbat, and I would like to have a roll
call of the members of the Nominating Committee, if we are not going
to have a chance to be heard on this after the action on that motion.
Mr. Elliott: I rise to a question of personal privilege. In the interests
of accuracy, I want to say this: I was one of the members who took no
further part in tbe proceedings except we did protest when the majority
of that committee attempted to vote a resolution through which stated
that it was the unanimous opinion of that committee that Mr. Bennett
was the choice of that committee. That is tbe only part we took in that.
[Calls for the question.]
Col. Edens: That motion to have a unanimous ballot in the report
was made by a gentlemen from Virginia. I do not know for whom he voted
but he thought as a matter of the best interests of this Association that
as heretofore, if possible, we should come in to this convention with a
unanimous report. I think each of the men on that Committee was actuated, not by a thought as to what individual or what geographical location
was involved . . . but only in tbe interests of all the members of tbe
Association.
Fred J. Paro (Mercantile Commerce 13ank & Trust Co., St. Louis, Mo.):
I am heartily in sympathy with the suggestions made by the Chairman
and the motion that has been put before the house. I believe, however,
that motion ought to incorporate the selection of three tellers, one for
Mr. Bennett and one for Mr. Adams.
President Hecht: I think that is a very proper suggestion. That was
the Chair's intention. I mentioned awhile ago that that would be done.
If the maker of that motion will permit that amendment I think it might
be better to have five and have two from Mr. Bennett's side and two from
Mr. Adams's side, and then one to be appointed by the Chair, if that is
agreeable.
Mr. Elliott: Mr. President, with the permission of the Chair and tbe
Permission of the seconder of tbis motion, I will accept the amendment.
President Hecht: Before we vote on this motion I want to just clear up
one other point so that when you vote on this and it is carried we can
adjourn. ... We will designate a corner in the Registration room, and if it is
agreeable to you then, the meeting will not adjourn but will recess and we
will not meet again to-night but will meet again to-morrow at the regular
hour. Is that agreeable?
Members: High t I
President Hecht: All right. I am now going to put that motion. All
those in favor of the motion which specifies that between tbe bours of
2 and 6, in tbe Gold Room, tbe Registration Room at the Roosevelt Hotel,
every delegate who is registered and who represents his bank as a delegate
will cast his secret ballot. The tellers will be appointed,two of Mr. Adams's
choice,two of Mr. Bennett's and one individual designated by the Chairman.
All those in favor of that motion will please say "aye:" opposed, "no."
There seems to be one dissenting vote. The "ayes" have it.
The meeting adjourned at 1.45 o'clock.
[Final Day's Session Nov. 14]
President Hecht: The unfinished business of this session this morning is
the election of officers. After our adjournment yesterday, when I returned
to the hotel, I received a communication from Mr. Bennett to the effect
that he did not wish any election to be held, but wanted to withdraw his
name. I will now read you the letter which I received from Mr. Bennett:
Mr. Bennett's letter of withdrawal:
New Orleans, La.
Nov. 13 1935.
Mr. R. S. Hecht. President,
American Bankers Association,
New Orleans, La.
Dear Mr. Hecht:
Naturally I felt highly honored when the Nominating Committee, consisting of one duly elected representative from every State in the Union,
presented my name as a candidate for the Second Vice-Presidency of the
Association. These nominating delegates were elected at the State conventions where practically full representation was had of the banks of their
respective States, and the delegates thus elected have had some intervening
months to give mature consideration to this question. My feeling of
appreciation was the more accentuated because the movement to have me
nominated originated with some of my friends before I was consulted about
it, and I have not conducted any sort of c,ampaign.
I should of course have been very happy to have served the Association
had it been the unanimous desire of the members that I do so, but since
another name was presented from the floor, and since it was vetry evident
that there would have been a sharp division in the Association over this
election, I feel that in the interest of peace and harmony, and for the good
of the Association, it is better that no such contest take place. and I therefore desire to formally withdraw my name from any further consideration
for this office.
Please convey to the members of the Nominating Committee my deep
appreciation of the honor which they did me in recommending my name to
the convention, and I trust that they will feel what I have done Is, under
the circumstances, the proper thing and for the best interests of the
Asaociation.
Accept for yourself my sincere appreciation of the impartial manner in
which you handled the difficult situation. Please also convey to incoming
President Fleming my assurance that in the future, as in the past, the
Association can command my services and whole-hearted support whenever
I can be of service to the banking fraternity. To Vice-President Adams I
have already extended my personal congratulations.
Cordially yours,
E. G. BENNETT.
Gentlemen
of the Convention: I desire to
Mr. Hawes: Mr. President and
arise and make a motion that the Secretary of this cony ntion be instructed
to cast its ballot for that distinguished Western banker, Orval Adams, for


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Second Vice-President, and I pledge my hearty support to him, through t
Chair, in his endeavors.
President Hecht: Is there a second to the motion?
iThe motion was seconded by Mark Homes.]
President Flecht: It is moved and seconded that the Secretary be
instructed to cast a ballot for Mr. Adams for Second Vice-President. All
those in favor say "Aye;" contrary,"No." The "Ayes" have it.
Mr. Dunkerley: Mr. President, the vote has been cast.
President Hecht: Mr. Adams is duly elected Second Vice-President of
this Association.

Remarks of President-Elect Robert V. Fleming, President and Chairman of the Board of the Riggs
National Bank, Washingto, D. C.—Proposed Regional Conferences
Fellow Members of the American Bankers Association:
You have paid me the highest honor that can be conferred by this great
Association and I, therefore, desire to express my deep appreciation of
your confidence. I accept this high office with a full realization of ita
obligations and responsibilities. I sincerely trust that through this opportunity for useful service and leadership, which will be shared by rne with
the members of my administration, the affairs of our Association will be
conducted in a manner which will justify the trust you have placed in us.
Our Association has co-operated wherever it could properly do so in
every measure for National recovery. It has offered constructive recommendations for such changes in banking laws as we recognized were necessary, and we now have a better law under which to operate. The Banking
Act of 1935 affords us opportunities for broader service and, at the same
time, retains the fundamentals which we believe are so vital to our national
welfare and which have played a large part in bringing our country, in
a comparatively short space of time, to the position of the greatest industrial
nation on the earth.
In order that our Association may be of the greatest possibile usefulness.
It will be one of the objectives of my administration to take to our membership the broad services made available through our highly organized
committees and well-trained staff. I believe this can best be accomplished by the establishinent of regional conferences, to be held in strategic
sections of the country and embracing the managerial, legislative and
operating problems confronted by all types and classes of banks represented
in our membership, which will be in addition to the established trust and
savings conferences.
These will be strictly business sessions designed to acquaint bankers
with the broad principles under which we can now operate. There will
also be forums or clinics on specific questions of management and operation
which should promote a better understanding of the best methods of
operating our banks and at the same time enable us to render more efficient
service to the public.
This is one side of otu. program which I consider important; but there
is another side equally vital—the question of public relations—which ?I
consider essential in order that the banks of the country may function to
the fullest extent. I feel it is necessary that the public have a thorough
understanding of the functions of banks, what they can do and what they
cannot do, for it must bo recognized that to many people the business
of banking is still somewhat of a mystery.
I believe we should frankly explain these functions to the public, acquaint
them with the laws under which we operate and emphasize the vital part
which banks play in the economic life of the nation. Therefore, in order
that there may be the fullest co-operation and understanding between
the banks and the people of the country, it will also be one of our. objectives
to take the mystery out of banking wherever it exists in the public mind.
A plan of action has been formulated and within the next few weeks
you will be acquainted with the details of this program.
On proposals affecting banking and the public interest, I believe it is
our duty to take a comtructive position, supporting all measures which
we believe are ecoonmically sound and which will assist in re.covery and
in the stability of the country. On the other hand, I believe it is also
constructive to oppose all measures which we believe are unsound and
not based upon the fundamental traditions of America.
In these undertakings I pledge you every effort at my command and I
am sure that my administration will have the same fine co-operation which
you have given my predecessors in office.
In united effort I know we can confidently face the problenas of the future

San Francisco Chosen as 1936 Convention City
At the concluding session of the General Convention

(Nov. 14), President Hecht made the following remarks:
President Hecht: We have an invitation from San Francisco which the
Secretary will present.
Mr. Dunkerley: This is from C. K. McIntosh, President ot the San
Francisco Clearing House Association:
"I have the pleasure of extending to you the cordial invitation' of the
San Francisco Clearing House Association to hold the 1936 convention of
the American Bankers Association in San Francisco."
Mr. Dunkerley: I have another invitation from Angelo J. Rossi, Mayor
cot San Francisco. In fact, we have several invitations from many of the
civic organizations in San Francisco to hold our convention there next year.
President Hecht: Gentlemen, you have heard the invitation from San
Francisco.
A. P. Giannini (San Francisco): I move you, Mr. Chairman, that the
invitation of the Clearing House of San Francisco, and of the civic authorities of San Francisco, to hold the A. B. A. convention of 1936 in San
Francisco be accepted, and that the President and Executive Manager be
instructed to set the dates and to make such other detailed arrangements as
may be necessary.
President Hecth: Gentlemen, you have heard the motion. Is there any
second?
A.L.Lathrop (Union Bank & Trust Co., Los Angeles): I have the honor
of seconding that motion.
President Hecht: It has been moved and seconded that the invitation of
San Francisco be accepted under the conditions named by Mr. Giannini.
Is there any discussion? If not, all those in favor please say "Aye;"
opposed, "No." The invitation of San Francisco is accepted under the
conditions named.

REPORT OF COMMITTEE ON THE STUDY OF
ADEQUACY OF BANKING SERVICE
IN MISSOURI

FORTY-SEVENTH ANNUAL CONVENTION
MISSOURI BANKERS ASSOCIATION


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Federal Reserve Bank of St. Louis


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Federal Reserve Bank of St. Louis

REPORT OF COMMITTEE ON THE STUDY OF
ADEQUACY OF BANKING SERVICE
IN MISSOURI
FORTY-SEVENTH ANNUAL CONVENTION
MISSOURI BANKERS ASSOCIATION

In the spring of 1936 President Allendoerfer appointed a Committee on the
Study of Adequacy of Banking Service in Missouri composed of R. R. Calkins,
Clarence Evans, G. R. Fredrick, F. W. Pendleton, W. S. Pettit, R. B. Price and
J. C. Welman, Chairman. These members were reappointed by President Major
after his election in May, 1936. In July, 1936, G. R. Fredrick resigned from the
Committee and Clem T. Kelly was appointed to succeed him.
The Committee decided to approach its work with the view of studying two
major questions, namely:
I. Question of whether banking service in Missouri is adequate, and if not, in
what respect is'it inadequate?
II. If not adequate, what are the available remedies?

It was decided that for the purpose of studying the "adequacy of banking
service" we would consider the following items as the most essential in banking
service:
1. Checking account facilities.
2. Facilities for cashing checks.
3. Facilities for making change.
4. Facilities for deposit of money.
5. Loan facilities.
6. Facilities for transfer of money.
In determining the scope of our study we reached the conclusion that we could
and should assume that banking service was adequate in towns or cities in which
chartered banks were operating at the time of the beginning of this study. We
realized that there might have been isolated cases of towns or cities in which a
bank was operating where banking service might be inadequate in some respects.
However, we believed that this was true only in a few cases and would have no
importance in connection with our study.


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Accordingly, we decided to limit the study to towns or cities in which there
are no chartered banks. We obtained a list of towns and cities which in 1926 had
one or more state banks, and which in 1936 had no banks. We found that in Missouri there were 340 of such towns and that in the year 1926 they were being served
by 400 state banks located therein. You will note that the study was confined to
towns and cities now without banks in which one or more state banks were located
in 1926. This was done because investigation disclosed that there were only four
national banks operating in these 340 towns and cities in 1926 and for the further
reason that there are only four towns and cities now without banks but which had
one or more national banks in 1926 and no state banks.
We therefore concluded that the study could not be materially affected by the
omission of national banks and for the purpose of more easily obtaining uniform
information they were disregarded.
We next obtained the following information relative to the towns and cities in
the above described category:
• Number of towns and cities without banking facilities at the present time
in which one or more state banks were operating in 1926
340
Number of counties affected
105
(None of the 340 towns studied being located in the other 9
counties.)
Average population of such towns or cities
365
Number of state banks operating in such 340 towns and cities in 1926
400
Average resources of such 400 banks in 1926
$107,670
Average distance in miles from such towns and cities to the nearest bank
present
time
at the
11
Number of such towns over 11 miles from bank at present time
120
Number of such towns less than 11 miles from bank at present time
220
Greatest number of miles of any of such towns and cities to nearest bank
at present time
25
Smallest number of miles of any of such towns and cities to nearest bank
at present time
1
Number of such towns and cities having hard-surfaced roads the complete distance to nearest bank at present time
293
Number of such towns and cities not having hard-surfaced roads the
complete distance to nearest bank at present time
47
(Note: Some of these towns and cities have a partial mileage of
hard-surfaced roads to the nearest bank at present time.)
Number of such towns and cities that have postal savings offices operating
therein at present time
32
Average amount of postal savings deposits per town or city in the 32 such
towns and cities
$ 17,062
Average number per county of P. C. A. loans made during 1935 in the 105
counties affected
41
Average amount of such loans
$ 552
Average amount per county
$ 22,600
(Note: The above figures include all P. C. A. loans made in the
entire county. Naturally a part of these loans were made in the vicinity of towns and cities where banks are operating. We have been
unable to allocate the number and amount of loans made during 1935
to the 340 towns being studied. If we should assume that the loans
were all made in the vicinity of the 340 towns and cities without bank-


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4

ing facilities being studied, it would mean an average number made
during 1935 per town or city of 13 P. C. A. loans, and an average
amount per city of $6,647. Obviously, the average number and
amount is considerably less.)
Studying further with the assistance of various other bankers the 340 towns
and cities, we reached the following conclusions:
No. Cities
or Towns
Yes

No. Cities
or Towns
No

No. Cities
or Towns
Uncertain

62
83

273
256

4
1

149

183

8

10

319

11

13

1

Lacking adequate loan facilities
Lacking adequate facilities for deposit of money
Lacking adequate facilities for cashing checks or
making change
Would a regularly chartered bank be profitable in
the 340 cities or towns included in this survey?
In the 161 towns and cities believed to lack adequate
facilities for either the deposit of money or the
cashing of checks and making change, and in
which it is believed that a regularly chartered
bank would not be profitable, would an agency for
cashing checks and making change, and possibly
accepting deposits either for itself or for some
bank, adequately care for the needs of the community at the present time?
No. Cities
or Tounss
Profitable

In the 147 towns and cities in
which it is believed that
such an agency would adequately care for the needs
of the community, would
such an agency be profitable to the operators? If
not, self-supporting?

46

147

No. Cities or
Towns Not
Profitable but
Self-Supporting

25

No. Cities or No. Cities
Towns Not or Towns
Profitable
Uncertain
or SelfSupPorting

52

24

Obviously, any town or city without a bank, in which a chartered bank formerly operated, lacks adequate facilities of the type above mentioned, but the
Committee concerned itself with listing those towns or cities lacking the various
facilities where it was determined that they were lacking to such an extent as to
present a serious need. We desire to point out that it was thought that 62 towns
and cities lacked adequate loan facilities to a serious extent, 83 towns and cities
lacked adequate facilities for deposit of money to a serious extent and 149 lacked
adequate facilities for cashing thecks or making change to a serious extent. Summarizing, with deductions for duplications, 161 towns were believed to lack adequate facilities in connection with one or more of the three above mentioned
services.
The Committee therefore felt that the most essential of banking services were
inadequate in a sufficiently large number of towns and cities in Missouri to be of
concern to the bankcrs of Missouri, with the most prevalent type of service lacking being that of cashing checks and making change. The Committee feels that
the lack of loan facilities and the lack of facilities for the deposit of money pre-


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vails in a considerably smaller number of towns and cities and is of considerably
less importance than that of cashing checks and making change.

Feeling that there existed some inadequacy of banking service in Missouri as
expressed above, the Committee turned its efforts toward existing and possible
remedies.
The question of limited branch banking was presented to the Committee and
summarily dismissed because it was the unanimous opinion of the Committee members that the great majority of the members of the Missouri Bankers Association
were whole-heartedly opposed to branch banking. The Committee wishes also to
go on record as stating its opposition to branch banking as a possible solution to
the remedying of whatever inadequacy exists.
It was found that there exists five states which do not permit branch banking
but which by statute permit the supplying of banking service to bankless towns
and cities by chartered banks located at nearby towns. These five states are: Iowa,
Wisconsin, Arkansas, New Mexico and Kentucky. Briefly we outline below their
methods:
Iowa—
Statute forbids branch banking, but permits establishment of offices under
jurisdiction of banking department for purpose of receiving deposits, paying
checks and other clerical and routine duties. Offices limited to county in which
parent institution is located and counties contiguous thereto. Must not be established in city or town in which there is already an established banking institution.
Must be discontinued when a legally chartered banking institution commences business in town or city. Provides that nothing in the act shall prohibit national
banks the privileges offered state banks when authorized by federal law.
Wisconsin-Statute sets forth that it shall not be construed as committing the state in any
manner to a policy of permitting branch banking. Permits establishment of stations upon approval of banking review board to be operated under rules and
regulations of banking commission. Limits operation to receiving and paying
out deposits, issuing drafts and travelers' checks, handling and making collections, and cashing checks and drafts. Provides for closing of such stations by
banking review board or by the bank operating station upon approval of the commission. Prohibits establishment within four miles of a bank or another station, and limits to county in which home office is located or to adjoining county
if population of such adjoining county is less than 16,000, or to any other county
if within trade area of parent bank and not more than 25 miles away. Limits
number of such stations permitted to any one bank to four.
Arkansas—
Statute permits establishment of windows or offices by any state or national
bank operating in state for purpose of receiving deposits and paying checks and
performing such other duties under terms and conditions as prescribed by super-


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6

vising banking authority. Limits establishment to county in which parent bank
is located and counties contiguous thereto. Forbids establishment in any town
or city in which either state or national bank is operating. Provides for discontinuance of office or window upon a legally chartered bank commencing business
in such town or city.
New Mexico—
Statute prohibits branches, except permits mercantile corporations which
maintain banking departments in accordance with provisions of Act to receive
deposits and buy and sell exchange at any of its branch stores. Allows banks
to open agencies upon obtaining permit from State Bank Examiner, such agencies to be operated in same county, adjoining county, or within radius of 100
miles from said bank, if there be no bank in operation within county in which
such agencies are opened.
Kentucky—
No statute either prohibiting or allowing the operation of agencies. However, agencies have been established, with approval of Banking Department,
under a Court decision.
Upon investigation we learned that the following number of banks were operating agencies in the states above mentioned at the time of our inquiry:
105
68
10
9
4

Iowa
Wisconsin
Arkansas
Kentucky
New Mexico

196

1

Several of the 196 banks operating agencies operated more than one. We are
informed that since the compilation of our figures there has been some increase in
the number of banks operating such agencies.
We next mailed a questionnaire to all of the banks operating agencies in the
five states above mentioned. 196.questionnaires were mailed and 145 replies received. The 145 answering banks reported on 197 agencies. Returns were tabulated by states but on account of lack of space no attempt is made here to set out
such tabulation. We give you below tabulation of totals of answers to the various
questions:
SUMMARY FOR THE FIVE STATES

Number of questionnaires sent out
Number filled out and returned
Number of offices reported on

196
145
197

1. Populations of towns where offices are located:
Under 500
500-999
1000-1999
2000-4999
102
63
25
4
7


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Federal Reserve Bank of St. Louis
I

5000 and over
3

2. Distances between parent banks and their offices:
20 to 29 mi.
5 to 9 mi.
10 to 19 mi.
Less than 5 mi.
20
83
65
15
3. How long have offices been in operation ?
5-10 yrs.
3-5 yrs.
1-2 yrs.
2-3 yrs.
Less than 1 yr.
22
80
13
25
49
4. Number of employees at each office:
Three employees
Two employees
One employee
6
146
44
5. Were there formerly banks where offices now located?
No: 8
Yes: 189

30 mi. or over
14
10 yrs. or over
4
Five employees
1

6. Are offices open every day?
No: 5
Yes: 192
offices
profitable?
7. Are
No answer: 1
No: 55
Yes: 141
they
are
self-supporting?
8. If not profitable,
No: 5
Yes: 50
9. Are charges for services at office higher than at parent bank?
No answer: 3
No: 167
Yes: 27
10. Do offices make loans direct?
Yes: 26
No: 171
11. Do offices accept loan applications for parent bank?
No answer: 1
Yes: 175
No: 21
12. Do offices cash checks?
Yes: 197
No : 0
13. Do offices accept deposits?
Yes: 197
No : 0
(a) For immediate credit-159
(b) For transmission to parent bank-38
14. Do offices issue drafts?
No answer: 1
Yes: 170
No: 26
15. Do offices issue cashiers' checks?
No answer: 1
Yes: 154
No: 42
16. Do offices sell travelers' cheques?
Yes: 102
No: 95
17. Do offices rent safe deposit boxes?
No answer : 1
Yes: 165
No: 31
18. Are notes kept on premises of offices?
Yes: 21
No: 176
19. Are books kept on premises of offices?
No: 55
Yes: 142
20. Are daily reports made by offices to parent banks?
No answer : 2
No: 2
Yes: 193
TABULATION OF ANSWERS TO GENF.RAL QUESTIONS
I.

Is there much rivalry between banks in establishing agencies?
No answer: 5
No: 133
Yes: 7


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2. Do national banks seriously object to state banks operating agencies?
No: 138
Yes: 2
No answer: 5
3. As a result of your state law establishing state banks to operate these agencies
have there been any national bank branches established ?
Yes: 5
No: 135
No answer: 5
In addition to the above figures we received many interesting criticisms, comments, explanations and suggestions. We regret that we are unable to set them
out in detail in this report.
Continuing our study we found that there were 57 national banks operating in
the same towns where state banks operating out-of-town agencies were located.
We mailed a questionnaire to each of these 57 national banks and give you below
a tabulation of the replies:
TABULATION OF ANSWERS TO QUESTIONNAIRE SENT MARCH

24, 1937,

TO NATIONAL

BANKS IN TOWNS WHERE STATE BANKS OPERATING OUT-OF-TOWN OFFICES
OR AGENCIES ARE LOCATED

Totals
57
45

Number of questionnaires sent out
Number of questionnaires returned

Question 1: Do you. believe that .the laws in your state permitting state
banks to operate windows, agencies, offices, etc. (not branches), place you
under a handicap from a competitive standpoint ?
Answering yes
Answering no
Non-committal
Question 2: Do you favor the plan in operation in your state?
Answering yes
Answering no
Non-committal
Question 3: If not, do you think some such banking service as permitted by
your state law is needed by bankless towns in your state ?
Answering yes
Answering no
Non-committal
Question 4: Would you favor an amendment.to National Banking Laws
permitting national banks to operate agencies in the same manner as
state banks?
Answering yes
Answering no
Non-committal
Question 5: Do you think that your state law makes it possible for you to
operate a branch provided you obtain permission from the Comptroller
and have the required capital?
Answering yes
Answering no
Non-committal
Question 6: If so, have you considered establishing such a branch?
Answering yes
Answering no
Non-committal
9


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Federal Reserve Bank of St. Louis
1-

31
10
4
16
19
10

14
13
18

25
13
7

26
9
10
5
26
14

Our next step was to contact the supervising authorities in the states permitting establishment of agencies and we found an attitude generally favorable to the
plans and their experience generally satisfactory.
Attempting to learn the attitude of the Comptroller of the Currency we discovered that his office takes the position that in states having statutes which authorize establishment of limited branch offices by state banks, it is permissible for
national banks, subject to approval and the usual capital limitations, to establish a
branch in such localities, which branch however, is unlimited in its branch functions and is not restricted to the services permitted to branch offices of state banks
under the state law. We also understood that the Comptroller's office holds that
once a branch is established, even though the authority rests upon such a statute
as those of the states we have studied which generally require closing of an agency
upon the establishment of a bank, the branch need not be withdrawn when a bank
is opened there.
We believe the position of the Comptroller's office to be of vital importance in
our study for the following reasons:
1. It would permit branch banking to' a certain extent.
2. It would in effect cause discrimination against the smaller national banks
for the reason that they would not be permitted to operate agencies of limited functions, nor could they establish a branch on account of inadequate capitalization.
We learned that "Credit Unions" and "Co-operative Credit Associations"
were being established in some states on a rather large scale. In some cases a
rather complete banking service is being rendered. Our investigation convinces
us that such organizations are in many cases in direct competition with banks, that
they do not as a general rule furnish a desirable amount of protection for their
patrons and that they are not a satisfactory solution for providing banking service to bankless communities. We recognize, however, that agitation can easily
arise for this type of service in the absence of an acceptable substitute.
The possibility was discussed of banking service being supplied to bankless
towns and cities by agencies, under appropriate licensing and supervision, such
agencies to be established by citizens of bankless communities and financed in
such localities, free from bank control and domination. Such agencies would eliminate the branch banking question which is apparent from the statutes enacted by
the states we have studied and from the Comptroller's ruling. It is apparent that
such agencies would have to be limited in their functions. We find no record
of the functioning of a similar plan but believe that it holds interesting possibilities.
Our time would not permit us to give this phase further study.
We present the following conclusions:
1. That very few of the 340 towns and cities which had one or more state
banks in 1926 and now have none could profitably support a regularly chartered
bank.
2. That the most essential banking services are inadequate in some respects,
particularly in connection with cashing checks and making change, in a sufficiently
large number of towns and cities to be of concern to bankers in Missouri.
3. That the establishment of Credit Unions or Co-operative Credit Associa-


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Federal Reserve Bank of St. Louis

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tions to supply general banking service to bankless communities is not a satisfactory solution, is undesirable from the standpoint of the public and the banks, and
should be opposed by the banks of Missouri.
4. That branch banking is not desirable or acceptable to the bankers in Missouri as a solution of the problem.
5. That the laws of the states of Iowa, Wisconsin, New Mexico, Arkansas,
and Kentucky, authorizing the supplying of banking services by banks to bankless
communities seem to be generally satisfactory to the state banks supplying such
service.
6. That national banks located in the towns where state banks operating such
agencies are located are divided in their opinion as to the desirability of such statutes, but that the majority believe that they are handicapped by such statutes from
a competitive standpoint.
7. That the supervising authorities of the five states supplying such service
consider the plans generally acceptable and satisfactory.
8. That the Comptroller of the Currency considers that the enactment of statutes such as those of the states above mentioned gives him authority to authorize
national banks to establish branches.
9. That small national banks in Missouri would be discriminated against by
a similar statute because they could not obtain a license to operate an agency of
limited functions, nor could they establish a branch on account of capital requirements.
10. That on account of the branch banking question and the discrimination
against small national banks, the enactment of such a statute in Missouri would, we
believe, be opposed by the majority of the bankers of Missouri, notwithstanding
the apparent reasonable success of such a plan in other states.
11. That the suggestion of a plan to provide for the establishment by the citizens of bankless communities of some kind of agency to supply, under proper authorization and supervision, the most needed banking services such as cashing
checks and making change, and possibly to accept deposits for transmission to a
chartered bank, has interesting possibilities and should be explored fully and given
further study by the Association.
12. That the entire problem is of importance and deserves the continued attention of the Association.
The Committee desires to express its appreciation of the assistance and cooperation of the President, the Secretary, Assistant Secretary and Association office force, the various Missouri bankers who assisted us, the various supervising
authorities and the bankers and bankers associations of the states studied.
Respectfully submitted,
R. R. CALKINS
CLARENCE EVANS
CLEM T. KELLY
F. W. PENDLETON
W.S. PETTIT
R. B. PRICE
j. C. WELMAN, Chairman.
11


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Federal Reserve Bank of St. Louis

J. W. Pole, Comptroller of the Currency
Hearings — S. Res. 71

, /93/
STATEMENT OF HON. J. W.POLE, COMPTROLLER OF THE CIIRRENCir

•

1

Mr. POLE. Mr. Chairman,I have prepared a brief statement which
I should like to give to the committee.
The CHAIRMAN. Very well.
Mr. POLE. Mr. Chairman, I have heretofore, in my annual report
to Congress for 1929, in my appearance before the House Committee
on I3anking and Currency and in my annual report to Congress for
the year 1930, made statements and recommendations with reference
to new banking legislation. These documents are available to your
committee and I shall not at this time engage in a repetition other
than to attempt briefly to summarize the position I have taken.
This can be stated under two heads: First, branch banking emanating from commercial centers should be permitted gradually to be
established in the rural communities in order to give to them the
benefits of the best type of banking we have developed, and, second,
f
that the question is national in scope and Congress alone has .the
power to make effective a policy which will put this type of branch
banking,•_into effect.
.
jOn the other hand, we have developed in the large commercial
c nters a type of banking which is fundamentally strong and effi- '
eient. They hold the bulk of the banking resources of the country ,
and they are the real support of the Federal reserve system. They
have not only developed a wide diversification of banking business '
within the cities in which they are located but they have an active
business in the entire geographical area in the rural communities ,
within the circumference of the trade zone or trade influence of such '
a city. It is for this reason that I have recommended that banks of i
this type be authorized to establish branches within the regional
trade area of the city in which they are situated. Many inhabitants
of rural communities are now dealing directly with these banks or
with branches of them but this is a cause of inconvenience. Would
it not be a sounder policy to permit the best type of banks we have
to establish branches in the surrounding local communities in order
that these outlying populations may enjoy the same safety and the
same variety of banking facilities which they could obtain by making
a journey to the city ? Under this theory these branches would no
doubt be established through business negotiations between the locq
bank and the city bank through the ordinary processes of merger
or purchase.
It is recognized that Congress can enlarge the charter powers onl&
of the national banks. In the present situation, it seems to me that
a positive declaration of a national policy for the further extension
of branch banking is essential. I have, therefore, predicated my
recommendations for trade area branch banking upon the theory
that it is necessary to disregard State boundary lines with respect
to the trade areas of many cities just as it was necessary to disregard State boundary lines in many cases when the Federal reserve
districts were established. I see no relief to be gained from branch
banking for the rural communities unless Congress is willing to
permit the national banks in the commercial centers to establish
branches in the trade area of the city, notwithstanding the fact that
such trade areas of some cities may embrace territory.in more than
one State and that the States in question have no similar branch
banking laws. Congress could not, of course, give to the large city


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Federal Reserve Bank of St. Louis

J. W. Pole — Page 2
/ 3/

4

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

State banks and trust companies in commercial centers a similar
authority to establish branches, but a way would be open for such
banks to convert into national banks for the purpose of gaining
these branch banking privileges if it carried with it an operating
advantage sufficient to justify such action. Many national banks
have taken out State charters for the reason that the State law
gave them operating advantages of much less importance over the
national law.

I

•

The CHAIRMAN. Mr. Comptroller, I do not understand that you
advocate chain banking.
Mr. POLE. Not at all; but the Senator's statement is not in accord
with our information—not only with our information but with our
actual knowledge. While it is true there have been a (Treat many
banks which were quite good banks—the best in that whore section of
the country—which have been taken over by these groups, at the
same time the groups have come to the relief of many banks which
would not have weathered the storm without that relief.
Senator NORBECK. In the same way that banks.in the large cities
have come to the relief of their correspondent banks out in the
country. And'that condition has existed for 50 years. Therefore
the chain part does not enter into it. .
Mr. POLE. Of course, you understand I am not advocating chain
banking.
Senator NORBECK. I thought that was the thing you advocated.
Mr. POLE. No. Perhaps you do not distinguish in your mind between chain, group, and branch banking.
Senator NORBECK. Well, they are all controlled from the center;
they are all alike in being controlled from the center.
Mr. POLE. Not with respect to group and chain banking. The
group-bank system is generally controlled from the center.
Senator NORBECK. And branch banks—are they not alike in being
controlled from the center V
Mr. POLE. Yes, there is central control.
Senator NORBECK. Well, I do not get the distinction.
The CHAIRMAN. There is a vast difference in responsibility between
branch banking and chain banking, is there not?
Mr. POLE. You put your finger on the very thing, then, Mr. Chairman. Branch banking would operate entirely differently with respect to the very thing you have in mind. Under a group-banking
system the members of the group, which are community banks, retain their local identity, have their own boards of directors, separate
officers, and operate independently, theoretically, but are more or less
managed from a head office, and necessarily have all the overhead
incident to an independent bank; whereas, if branch banking were
permitted, the parent bank could go out and throw all of its resources
and all of its facilities to the smallest hamlet, if you please.
Senator NORBECK. And could likewise draw the reserves from the
smallest; hamlet.
Mr. POLE. Without doubt, but what is the history of it ? The history of it, as far as branch banking has been carried in this country,
particularly in California, is that the parent banks have thrown far
more of their funds to the small rural communities than they have
ever drawn from them.

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Senator NORBECK. That is a California condition; if they had
foreseen that they probably would not have aquired all these
branches.
The CHAIRMAN. Is not that conspicuously true of the Canadian
system, Mr. Comptroller ?
Mr. POLE. I do not think there is any doubt about it, Senator.
Senator NORBECK. Is the branch banking you advocate similar to
the Canadian system?
Mr. POLE. It is similar, but not as comprehensive. I will say that.
My idea is that branch banking should develop gradually and that
it should develop from centers of importance, to the limits of what
I term the trade areas of those particular centers, so that I have no
idea of advocating, nor have I ever done so, a branch-bankina system
which would comprehend the whole United States, which istlhe case
in Canada.

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'Senator NORBECK. Was it not fortunate indeed that bank did not
have hundreds of branche,s over the country?
Mr. POLE. Under my recommended system, Senator, that bank
would not have had country branches.
Senator NORBECK. IS it not fortunate inde,ed that they were not
allowed to have branches outside of New York? As a matter of
fact, they had 50 or 60 there.
Mr. POLE. I think it was fortunate, Senator, but I am not advocating that that bank should ever have been permitted to--Senator NORBECK. But you are advocating a system that would
permit banks like that to have branches?
POLE. I beg your pardon Senator, not like that--unlike that.
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Senator NORBECK. Would it not be well to let Mr. Pole amplify
the distinction between chain banks and branch banks? He make
'rite a distinction. I do not make so much. Let us have the dis
unction, in his own words.
The CHAIRMAN. All right. Go ahead, Senator. You are privileged to ask any questions you please.
Mr. POLE. A chain bank is a system of independent banks usually
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measure--by an individual or a group of individuals without central
management.
A group-banking system is usually a number of banks, the stock
of each owned or controlled in an important measure, by a holding
corporation formed for that purpose, and the management of these
independent banks being usually through a central member of the
holding corporation, which is located at a central point.
Senator NORBECK. What designation would you give under that
definition to the chain system that exists in the Northwest now?
Mr. POLE. I would call that a group banking system where the
stock of the individual bank is held by the holding corporation.
Senator NORBECK. With a branch banking system such as you suggest, there would be no stock owned by a holding company? The
banks themselves would issue no stock?
Mr. POLE. No stock at all.
SellaOr NORBECK. And they would have no stockholders—the
branches would not?
Mr. POLE. Not as a branch.
Senator NORBECK. They would have no local lioard of directors?
Mr. POLE. Not in the sense that the independent bank has. It
would probably have a local advisory board.
Senator NORBECK. Yes; but not local directors. The power
Mr. POLE. Unless you would call this local advisory board the local
board, which is the custom now—
Senator NORBECK. But their function would be only advisory.
They would have no power. For instance, if the central bank should
say,"Send us $50,000," they would have to send it?
Mr. POLE. Yes.
Senator NORBECK. The control would be in the center, as in the
chain-banking system?
Mr. Pom. Yes.
Senator NORBECK. In that northwestern situation, the c,omptroller's view is that this thing has rather been a good thing for the
Northwest--this acquiring of the branches or these chain banks
throughout the Northwest has been rather a good thing for the
banking situation?
Mr. POLE. I think so.
Senator NORBECK. What benefit has accrued to the small banks or
to the communities where the acquired banks are located?
Mr. POLE. They have loaned money—probably not quite as great
an amount as loaned formerly, but they have done it more scientifically ; they have prevented many banks from failing and, in a
great many instances, the very banks they took over would have
failed.
Senator NORBECK. The banks acquired by the Northwest chain system are banks that have stood the test of the deflation. They were
recognized as sound. I think the comptroller will agree with me
that all South Dakota banks acquired by the chains enjoyed the confidence of the community, with the possible exception of one, against
which some withdrawals were being made, but it must have been
financially sound or it would not have been taken over by the chain.
Do you believe they would have bought one that was not good?
Mr. POLE. Not without readjustment.

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Senator NORBECK. In other words, it had to be susceptible of rea,djustment or they would not have bought it.
Mr. POLE. They seemed to be very willing to go in and give a
rea,sonable premium on whatever good business there might be there.
Senator NORBECK. But the comptroller -will also agree with me
that helping a community also consists of pushing out money to the
community in times like this?
Mr. POLE. Yes; where it can be done soundly.
Senator NORBECK. But the comptroller insists that it has been
going the other way—it has been pulled into the centers. The comptroller has called attention to the fact that this great growth of
branch banking in the Twin Cities has progressed to the extent of
acquiring 150 branches. He says the Twin Cities showed increased
deposits.
Mr. POLE. We are talking about two different things. I think each
has helped the other.
Senator NORBECK. But if there are more funds in Minneapolis,
and less in South Dakota, who is helped?
Mr. POLE. I do not know of any good account in the small communities which the First Bank stock- or the Northwest Bank Corportation is permitting to suffer.
Senator NORBECK. That, of course, is a matter of opinion. A
banker can say"We are not making any loans and therefore nobody
is suffering." That is their view. The fact of the matter is that
they are hardly making any loans, are they?
The CHAIRMAN. Mr. Comptroller—
Mr. POLE. I hope you understand, Senator, that I am not advocating or defending the group or chain systems.
The CHAIRMAN. On that point, Mr. Comptroller, have you examined—
Senator NORBECK. But there is this distinction between a chain
and group: You do not recommend the group, but you recommend
the chain. But the group has certain advantages; for instance, local
capital and a local board and partially local management. The chain
would have none. It would be all governed from the center.
Mr. POLE. That is branch banking.
Senator NORBECK. I beg your pardon. I said chain, did I not?
Mr. POLE. Yes.
The CHAIRMAN. Would not the branch have its local office and
local agents and local establishments?
Mr. POLE. I think one of the things which the Senator overlooks
is the fact that, while it is true that under a group banking system
the member of the group must be a bank of a character which could
be profitably operated under this—
Senator NORBECK. In other words, it must have been a good bank,
or they would not have bought it; therefore they are not helping a
community by buying good banks which have been getting along
all
right and getting control of them and taking funds out of the
community.
Mr. POLE. They do not always do that. But under the
central
management with better management it is better able to operate
successfully. Under the branch banking system the large bank could
throw its resources into the small communities that might need

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Senator NORBECK. I note the word"could."
Mr. POLE. Could throw its facilities and resources to the farthest
corner within its district, whatever its district may be, and deal with
that branch as though you were dealing with the main office in
Minneapolis.
The CHAIRMAN. Would it not have been the same acquisitive inducement to do that with the local bank?
Mr. POLE. Precisely.
Senator NORBECK. Would not the manao•ement of any bank put
the money where it was worst needed, or where they could gain the
most from its use? Human nature is the same in banks as in politics.
Mr. POLE. Well, banking is a business.
Senator NORBECK. It is a business for gain.
Mr. POLE. Banking is a business in which people engage for
profit as in any other business • and if they are simply going to bleed
the business for some particular selfish interest, of course the end
of that business is disaster.
Now, they are going to operate that business scientifically, which
means that they would distribute their funds over the district, because they are not going to make an investment in an outlying district and then starve it to death; they are going to build it up.
Senator NORBECK. Exactly, but they will have no investment. You
propose that they should do away with the local stock and management and have no investment there. You prefer the branch.
Mr. PoLE. It would be a distribution of the investment they make
as a part of their whole system. A part would be made to the
small hamlet—a small part because the amount of business is small—
but having invested that in the banking house, salaries of officers,
stationery, and general expenses of that bank, there would be that
investment, be it large or small. It would be large or small in proportion to the amount of business done. They will not make anv
investment there and starve it to death. They will foster it, nourish
it, and feed it funds when necessary, and experience h_as shown that
in....m.y_• _many instlaus_maneg. is sent-nut from the head office...fir
in excess of the amount of the deposits_Ythich rrLay be collected from
Mit- little community.
-The CHAIRMAN. On this question of chain banking: Have you
examined S. 4723? Look at section 3 and see if you think that
abates the evil of chain banking, if it may be said to be an evil ? I
am not asking you if you think it would be a valid exercise of authority or whether the authority would be valid. I am asking what
you think the effect of it would be.
Mr. POLE. I am not prepared at this time to say what the effect of
that would be, Senator.
The CHAIRMAN. That would at least maintain control of the bank
in the local community, would it not?
Mr. POLE. Yes, sir. I think that the history of the disposition of
these corporations which hold stock is naturally in the direction of
the idea of having that stock pretty well distributed and undoubtedly
if it were a branch of a bank established in a certain locality, it would
be the disposition of the parent bank to distribute a reasonable
amount of that stock within that community which, of course, would
be held by individuals and voted as such.
The CHAIRMAN. That would not permit a central bank to vote ite
stock in the local bank?
Mr. POLE. No.
The CHAIRMAN. That does not relate to branch banking.
POLE. I understand that.

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Senator BULKLEY. The other thing I wanted to ask you about is 1
his: You said under your proposal there would be no branches at
11 established by such a bank as the one that recently had trouble
n New York City. Will you amplify that a little bit? I did not
quite catch the distinction.
Mr. POLE. That is a State bank, and my information with respect
to it is only from the newspapers, but I have been led to understand
that it was a bank which indulged in unsound banking practices, and
I am taking it for granted that by any comptroller there would be
no branch banks permitted to any bank unles.s the bank itself were a
bank which had proven itself to be sound and indulged in safe and
sound banking.
Senator BULKLEY. Your plan would be for each bank to. get the
approval of the comptroller with respect to the establishment of each
branch ?
Mr. POLE. That is my recommendation.
Senator NORBECK. IS it not a fact that many banks well organized
and well set up and well managed go wrong gradually afterwards
and make the comptroller a lot of trouble?
Mr. POLE. Yes.
Senator NORBECK. Would the fact that they have branches tend to
obviate—would that make them virtuous or would they be subject to
the same peculiarities of human nature ?
Mr. POLE. That might happen to any business, Senator. In other
words, we can not forsee what will happen, and if a bank is in good
shape now you can not deny it privileges because, say, six years from
now it may have gone down instead of up.
Senator NORBECK. And the same might _happen with a branchbanking system as might happen to a bank without branches?
Mr. POLE. Yes.

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Mr. Wm.'s. I have one question about chain banking, Mr. Comptroller. When you have a situation like that which existed in the
Northwest, how does it affect the double liability of the shareholders
provision?
Mr. POLE. We call that a group-banking system in the Northwest.
In the case of the Northwest and the First Bank Stock Corporation,
I think that their stock is not subject to the double liability, although
the stock of some holding corporations is subject to double liability.
But in the case of those two corporations, in those particular cases-not that it obtains too generally—they have invested in securities
other than bank stocks, so that a judgment against either one of those
corporations would be good for the assessment.
Mr. WILLIs. In those particular cases?
Mr. POLE. In those particular cases; yes, sir.
Mr. Wax's. But there are cases where they are not subject to the
assessment?
Mr. POLE. There are cases where they are not subject to the assessment; yes, and where they hold nothing but bank stocks.
Mr. Wm.'s. In those cases where you have an affiliated bank that
buys all the stock of the bank itself, what becomes of the double
liability of the shareholder?
Mr. POLE. The securities company where it buys the stock of the
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George L. Harrison, Governor, FRB, N. Y.
Hearings — S. Res. 71
Governor HARRISON. Unfortlinately, practically everything I say
about this rate relationship must refer to the money market, because
in this country the barriers between the principal money centers and
the country districts are very great. There is great reluctance on
the part of funds to seep out from the money centers to the more ‘,
remote districts even when rates get as easy as they are in New
York to-day.
That reluctance is due to a number of causes. New York City
banks may have a large overage of funds that they do not know what
to do with, an overage of reserves in excess of requirements, because
they have not employed their funds. Those funds may not go out
of town for two reasons—first, there may not be an active demand
of the kind or in the sections that these banks have been accustomed
to dealing with, and, second, the conservative attitude on the part
of the banking community in periods such as we have been hearing
about and a consequent desire to keep in a very liquid position. In
this connection, Mr. Chairman, there has never been a time since I

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have been in New York,in 10 years, when I have considered the principal banks in New York generally as liquid as they are to-day.
Now, if it were possible to develop a system of branch banking
which would enable banks in New York City and in other money
centers to feed out their surplus funds to the interior through management and officers who are their own, and whom they know, and
who know their policies, I think you would take one great step
toward a more effective distribution of credit now available in the,
various centers.
The CHAIRMAN. You mean nation-wide branch banking ?
Governor HARRISON. I imagine that is not practicable, and I
would not advocate it. I like the phrase that the comptroller has
used, trade areas, although I do not know exactly what it would
mean. The difficulty is a practical one. The normal and natural
thing to do, and I felt five years ago that it might be wise, is to
authorize State-wide branch banking because it is a definite and
concrete limitation to prescribe. On the other hand, that obviously
works some injustices. There may be very much more reason why
you should authorize branches within a radius of a hundred miles
than within State limits. In the case of New York City, for
instance, if you authorize a New York City bank to put a branch
in White Plains, N. Y., and not in Newark, N. J., it would not seem
a logical distinction to make. On the other hand, a definition of a
trade area that would permit a branch being established in Newark
as well as in White Plains would, I think, be quite reasonable.
Whether you can define trade area by geographical radius or not
I do not know, but I think the thing your committee will likely
wish to consider is what sort of limitation you may put upon branch
banking that will be adequately restrictive without defeating the
very purpose that you are trying to accomplish. The Federal
Reserve System has done a good deal to equalize interest rates
throughout the country already. It has also done much to equalize
interest rates in the different seasons throughout the year, as well
as throughout the country, but there is yet much to be accomplished
in making for •a, better distribution of credit from the principal
centers out to the more remote country districts, where rates have
been much more reluctant to decline. That is due to two reasons:

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First of all there is a natural shortage, or not so much credit
available, in more remote districts, and, secondly, in the agricultural
or other sections where borrowers have already been forced by
economic conditions to hold over their loans for a year or more,
bankers are a little reluctant to loan at a lesser rate, and, indeed,
are entitled to lend at a higher rate. Even so, I think branch
banking would do much to make for a somewhat better distribution
of credit at more equal rates in the different sections of the country.
The CHAIRMAN. On that point I am going to ask leave of the
committee, if there is no objection, to insert in the record a brief
that I have asked to be prepared giving the court decisions on the
question of branch banking and the right to have the system adopted
across State lines. I may incidentally say that my own view is that
it is not feasible to attempt to do anything of the kind, but I would
like that to go into the record, so that the members of the committee
and others may see what has been the court decision on the question.
(The paper referred to is printed in full, as follows:)
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

THE ESTABLISHMENT OF
THE CONSTITUTIONAL POWER OF CONGRESS TO AUTHORIZE
BRANCHES BY NATIONA.L BANKS IRRESPECTIVE OF STATE LAWS

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The first Bank of the United States, 1791-1811.—The legal theory upon which
Congress enacted the national bank act and the Federal reserve act is the
same as that upon which Congress authorized the establishment of the first
Bank of the United States in 1791 and the second Bank of'the United States
in 1816. When the first bank was proposed in Congress the constitutionality
of the bill was seriously debated, but a majority of both Houses supported it.
President Washington signed the bill after considering the official opinions both
for and against its constitutionality.
The first Bank of the United States was opened December 12, 1791, and
established eight branches in several States, namely, at Boston, New York,
Baltimore, Washington, Norfolk, Charleston, Savannah, and New Orleans. This
is the first precedent of the establishment of branches by a national bank.
the bank,
upon the occasion of the failure of Congress to renew the charter of and
some
vvhich expired in 1811, the constitutional question was again raised,
of the opposition against the renewal was upon the ground that Congress was
without power to establish and maintain a national bank.
The second National Bank of the Un4ted States, 1816-1836.—The attempt to
finance the War of 1812-1814 without any banking instrumentality under the
control of the Federal Government proved so disastrous that Congress in 1816
passed a new bill to charter a Bank of the United States similar to the first
bank, President Madison approving the act, having the year before vetoed
a similar measure which did not meet his views. As compared with the first
Bank of the United States, there was little difference between their organization and purpose.
The second Bank of the United States likewise established branches in
various States in the Union. In 1818 the Legislature of the State of Maryland
passed an act, the effect of which was to place a special tax upon the branch
of the Bank of the United States in operation in Baltimore. The Baltimore
branch refused to pay this tax, its cashier, McCulioch, was sued in the State
court, and a judgment sustained against him by the court of final jurisdiction.
He thereupon sued out a writ of error under which the case was brought
before the Supreme Court of the United States. Here for the first time the
constitutional power of Congress to establish the bank and of the bank to
establish branches was considered by that tribunal. (McCulloch v. Maryland,
4 Wheat. 424.)
In the following year, 1819, the State of Ohio imposed a tax of $50,000 on
each of the two branches of the Bank of the United States established at Cincinnati and Chillicothe. Upon the refusal of these branches to pay the tax the
sheriff on behalf of the State seized $98,000 in money. The State officials concerned were arrested by the Federal authorities and tried in the Federal circuit
court, where judgment was rendered against them to restore to the bank with
interest the funds seized. An appeal was taken to the Supreme Court of the
United States (Osborn v. Bank of the United States, 9 Wheat. 738), where
again the constitutional power of Congress was brought into question and
formed the basis of the opinion.
The opinions in both of these cases were written by Chief Justice Marshall
and for practical purposes can be considered as one case, the second being an
aboration and a review of the first.
The principles decided in these cases may be briefly stated as follows:
(1) Congress has the constitutional power to incorporate a national bank.
(2) The existence of State banks can have no influence upon the question
of this paramount power of Congress.

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(3) "After the most deliberate consideration, it is the unanimous and decided opinion of this court that the act to incorporate the Bank of the United
States is a law made in pursuance of the Constitution, and is a part of the
1-,
supreme law of the land. The branches proceeding from the same stock, and
i "--being conducive to the complete accomplishment of the object, are equally
424.)
constitutional." (McCulloch case, 4 Wheat.
(4) Congress having the constitutional power to create a national bank
has also the constitutional power to determine, authorize, or create the faculties necessary to enable it to perform the services for which it was created,
and Congress alone is the judge of the means to be employed in the exercise
of these faculties.
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The Supreme Court of the United States in these two cases upheld the power
of a national bank to establish branches in the various States without permission or authority from the State Governments.
The national bank act of 1863.—With the failure of Congress to renew the
charter of the second Bank of the United States the Federal Government
operated without a banking instrumentality under its control until the enactment of the national bank act in 1863. That act set up a system of independent national banks rather than one central national bank with branches.
The question of the power of national banks to establish branches did not
again come before the Supreme Court of the United States until 1924, more
than a century after the decisions of McCulloch v. Maryland, and Osborn v.
Bank of the United States, when it was presented in the case of the First
National Bank in St. Louis v. Missouri (263 U. S. 640).
In the meantime, however many cases had come before the Supreme Court
of the United States in which it became necessary to interpret and construe
the national bank act with reference to the charter powers of national banks
in their relationship to the State legislatures, in all of which the fundamental
principles enunciated in the McCulloch and the Osborn cases were sustained
and followed. It seems appropriate to consider some of these cases before
proceeding to the First National Bank in St. Louis v. Missouri.
Farmers d Mechanics' National Bank v. Dearing (91 U. S. 29, 1875).—
This was the first case before the Supreme Court which construed the nationalbank act with reference to the authority of the State governments and involved
the application of the usury law of the State of New York. The court said:
"The constitutionality of the act of 1864 is not questioned. It rests on the
same principle as the act creating the second Bank of the United States. The
reasoning of Secretary Hamilton and of this court in McCulloch v. Maryland (4
Wheat. 316) and in Osborn v. Bank (9 Wheat. 738) therefore applies. The
national banks organized under the act are instruments designed to be used to
aid the Government in the administration of an important branch of the public
service. They are means appropriate to that end. Of the degree of the necessity which existed for creating them Congress is the sole judge.
"Being such means, brought into existence for this purpose, and intended to
be so employed, the States can exercise no control over then), nor in any wise
affect their operation except in so far as Congress may see proper to permit.
Anything beyond this is an abuse, because it is the usurpation of power which
a single State can not give.' Against the national will the States have no
power, by taxation or otherwise, to retard, impede, burthen, or in any manner
control the operation of the constitutional laws enacted by Congress to carry
into execution the powers vested in the General Government.' Osborn v. Bank,
supra ; Weston v. Charleston (2 Pet. 466) ; Brown v. Maryland (12 Wheat.
419) ; Dobbins v. Erie Co. (16 Pet. 435).
"The power to create carries with it the power to preserve. The latter is a
corollary from the former.
The principle, announced in the authorities cited, is indispensable to the efficiency, the independence, and, indeed, to the beneficial existence of the General
Government ; otherwise it would be liable, in the discharge of its most important trusts, to be annoyed and thwarted by the will or caprice of every State in
the Union. Infinite confusion would follow. The Government would be reduced
to a pitiable condition of weakness. The form might remain, but the vital
essence would have departed. In the complex system of polity which obtains in
this country the powers of government may be divided into four classes:
"Those which belong exclusively to the States;
"Those which belong exclusively to the National Government;
"Those which may be exercised concurrently and independently by both ;
"And those which may be exercised by the States, but only with the consent,
express or implied, of Congress.
"Whenever the will of the Nation intervenes exclusively in this class of cases
the authority of the State retires and lies in abeyance until a proper occasion
for its exercise shall recur. Gilman v. Philadelphia (3 Wall. 713, 18 L. Ed.
96); Ex parte McNiel (13 Wall. 240, 20 L. Ed. 625).
"The power of the States to tax the existing national banks lies within the
category last mentioned.
"It must always be borne in mind that the Constitution of the United States
and the laws which shall be made in pursuance thereof'are the supreme law
of the land'(Const. Art. VI). and that this law is as much a part of the law

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of each State, and as binding upon its authorities and people, as its own local
constitution and laws."
Casey v. Galli (94 U. S. 673, 18'77).—This case held that Congress had the
power to authorize a State-chartered ba,nk to convert into a national bank
without any assent or permission by the State. upon the ground that no
authority from the State was necessary.
Davis v. Elnvira Savings Bank (161 U. S. 275, 1896).—The court in denying
the validity of at statute of the State of New York fixing preference in cases
of insolvency, in so far as it applied to national banks, through Mr. Justice
White, said:
"National banks are instrumentalities of the Federal Government, created
for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a State to define their
duties or control the conduct of their affairs is absolutely void, wherever such
:attempted exercise of authority expressly conflicts with the laws of the United
:States, and either frustrates the purpose of the national legislation or impairs
the efficiency of these agencies of the Federal Government to discharge the
duties for the performance of which they were created. These principles are
axiomatic and are sanctioned by the repeated adjudications of this court."
Easton v. Iowa (188 U. S. 220, 1903).—In this case the president of a national
bank was sentenced under a criminal statute of the State penalizing the receipt
a deposits with knowledge of the insolvency of the bank. In taking issue with the supreme court of the State Mr. Justice Shiras, in
delivering the opinion of the court, said:
"We think that this view of the subject is not based on a correct conception of the Federal legislation creating and regulating national banks. r.t.'hat
legislation has in view the erection of a system extending throughout the
'country, and independent, so far as powers conferred are concerned, of State
legislation which, if permitted to be applicable, might impose limitations and
restrictions as various and as numerous as the States. Having due regard to
the national character and purposes of that system, we can not concur in the
suggestions that national banks, in respect to the powers conferred upon them,
are to be viewed as solely organized and operated for private gain. The prin.
,ciples enunciated in McCullough v. Maryland (4 Wheat. 425, 4 L. ed. 606) and
in Osborn v. Bank of United States (9 Wheat. 738, 6 L. ed. 204), though exPressed in respect to banks incorporated directly by acts of Congress, are
Yet applicable to the latter and present system of national banks.
"Such being the nature of these national institutions, it must be obvious
that their operations caul not be limited or controlled by State legislation, and
the Supreme Court of Iowa was in error when it held that national banks
are organized and their business prosecuted for private gain, and that there
is no reason why the officers of such banks should be exempt from the penalties
prescribed for fraudulent banking."
First National Bank v. Fellows (244 U. S. 416, 1917).—In this ease the
State of Michigan contested the power of Congress to enact the provisions of
the Federal reserve act conferring trust powers upon national banks. The
Supreme Court of the United States (opinion delivered by Mr. Chief Justice
White) revel sed the Supreme Court of Michigan and upheld the powers of
Congress, citing with approval the principles enunciated in McCullough v.
Maryland and Osborn v. Bank of the United States. Referring to the basic
principles of constitutional law laid down in the above two cases, the court
further said: "The doctrines thus announced have been reiterated in a multitude of judicial decisions, and have been undeviatingly applied in legislative
:and enforced in administrative action."
Burnes National Bank v. Duncan (265 U. S. 17, 1924).—In this case the
'State of Missouri attempted to enforce against a national bank the State
law regulating the exercise of trust powers. The Supreme Court of the United
States reversed the State supreme court upon the authority of the Fellows
case and others above cited. Mr. Justice Holmes in delivering the opinion
44 the court reiterated the principle that the constitutional power of Congress
was to be tested by the right to create the bank and the authority to attach
to it that which vvas revelant in the judgment of Congress to make the business
,of the bank successful, and that this excluded the power of the State in
such cases,
First National Bank itt St. Louis v. Missouri (263 U. S. 640, 1924).—This
case involved primarily the question of the power of national banks to estab-

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list branches under the authority of the national bank act and rests upon a
state of facts different from that of McCulloch r. 11laryland, in which the
question of branches for national banks was first considered by the Supreme
Court.
to
The First National Bank. upon the advice of its own counsel, proceeded
establish and conduct a branch bank in the city of st. Louis upon the theory
that whereas the Federal statutes did not expressly authorize national banks
to establishArranches, such banks nevertheless possessed the incidental charter
power so 1•6,..tdo. No permission from the comptroller was obtained for the.
establishment of the branch. There was upon the statute books of the State a
law prohibiting the establishment of branch banks in that State. The attorney general of Missouri on behalf of the State took the position. first. that
the national bank act
the national bank exceeded its charter powers under
when it established,the branch and, second, that there being no permissive
Federal statute, the 'State was competent to enforce against the national bank
its own law against branches. The following propositions are quoted from.
the brief of the attorney general of the State, which he tiled before the Supreme
Court of the United States:
(1) "Branch banking by a national bank in a State is conduct in excessof any authority from the Nation."
(2) "Acts of a national bank in a State which are in excess of any authority
from the Nation, and in contravention of State law, can be stopped by the
State."
(3) "An unauthorized, unlawful act of a national bank in a State should
stand upon the same footing as the unauthorized, unlawful act of any other.
corporation."
(4) "A national agency is no more free from responsibility to the State.
for unlawful acts done in the State beyond the scope of its powers and
authority than is a State agent."
(5) "The same conduct may be an offense against both State and national
sovereignty, and may be restrained by both Nation and State."
It was upon these grounds that the action was brought by the State in.
the supreme court of the State in the nature of quo warranto. The formal
allegation of the State was to the effect, first, that the bank was not authorized
by Congress to establish a branch and, second, that in establishing the branch
it violated a statute of the State expressly prohibiting the establishment of
branch banks.
At the request of the Comptroller of the Currency the Attorney General
of the United States intervened in this case, not, however, for the purpose of
upholding the right of the national bank to establish the branch but to contest
the jurisdiction of the State to inquire into the question whether Congress.
had authorized a national bank to establish a branch.
It was shown before the court that the office of the Comptroller of the.
Currency had for years construed the national bank act as denying the right
of national banks to establish branches. This opinion was supported by an
opinion of the Attorney General, May 11, 1911, which was cited with approval
in sthe opinion of the court in this case. The principal argument of counsel
on both sides before the court, and the bulk of the opinion of the court, is,
devoted to the question of whether Congress had authorized national banks.
to establish branches. The court reached the conclusion that there was no
doubt, especially in view of the long-continued construction of the national
bank act by the Comptroller of the Currency, that Congress had not conferred
upon national banks the charter power to establish branches.
In view, therefore, of this condition precedent the court held that the State.
was competent to enforce its own law against the national bank. The question, therefore, of the constitutional power of Congress to permit national
banks to establish branches was not involved in this case. The case is in
harmony with the previous decisions of the court hereinabove considered..
Had there been upon the Federal statute books an amendment to the national
bank act permitting national banks to establish branches the Supreme Court
of the United States would have undoubtedly held the State law invalid as
applied to national banks. The question asked by the court of the State law..
"Does it conflict with the laws of the United States?" would have been necessarily answered in the affirmative. In the absence of such an amendment
the question WfIS answered in the negative.
Congress inserted in the so-called MeFadden-Pepper Aet of February 25:
1927, a clause in its branch banking section that branehes of national hanks

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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would be permitted only in those States which permitted the State banks to
establish branches. This clause was a concession to the States not as a matter
of constitutional necessity but rather as a matter of legislative policy.
In view of the above consideration there appears to be no doubt of the constitutional power of Congress to permit the national banks to establish branches
in any State of the Union, Irrespective of the laws of the State. If Congress
determines that the national banks could better serve as instrumentalities of
the Federal Government through the establishment of branches it would
not be within the jurisdiction of a State to prohibit or restrict the purpose
of the National Legislature to this effect.

George L. Harrison - Page 6
/f /
/ Senator WALcOrr. I would like to refer. fOr a moment to the bank-I
/ ing system. Are you familiar with the English system of branch
banking?
Governor HARRISON. Just generally.
\ Senator WALcorr. In the method of controlling the organization
N,there you had a system which is exceedingly flexible, where you have-

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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a maximum responsibility on the branch banks rather than in the
dictation from headquarters. Take Lloyds for instance, or any
'
d example, where you
large bank ; take Midland, which is a goo
have now a pretty well-defined tendency of different groups or different banks to go into what we are trying to define as trade areas,
trades, certain trades, into which certain banks ramify, or on which
they specialize and with great flexibility and broad powers lodged
in the branches themselves, because they are supposed to be expert,
and because they are localized ; they are in that particular trade
center, like Manchester textiles, like steel in Lancaster, and so forth,
and shipping in Liverpool.
Governor HARIUSON. Yes.
Senator WALcurr. Are we working toward that or are we not t
Apparently,I judge from the conversations that we are not working
toward it at all.
Governor HARRISON. I think we have not worked very far in that
irection as yet. Of course you can never do it in this country in
11he same degree that they have in England, in my judgment, because
of the difference in geographical area, and also secondarily because
of the complication of conflicting State and Federal laws. We have
never looked into the question whether Congress could authorize a
national bank to have branches in several different States, but I suppose that would be possible.
The CHAIRMAN. You know it took us 14 months, do you not, under
the so-called McFadden bill, to get a fragmentary branch banking
authorization.
Governor HARRISON. But if our experience is demonstrating, Mr.
Chairman, that the small country bank is finding less and less need
for its existence, if the small banks will not find it profitable or
necessary for them to continue in small communities, is there not the
risk that sooner or later there will be certain sections of the country
that will need some sort of banking accommodation with credit supplies from the central reservoirs where it is more plentiful ? I feeI
that there is a real need for that system of conduits from the centers.
to the more remote communities.
The CHAIRMAN. Yes, I have felt that for a long time, but I have
never been able to show it to Congress.
Governor HARRISON. One danger of not doing so we are facing
‘now in the development of the chain and group banking, which in my
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J. H. Case, Chairman, FRB, N. Y.
Hearings — S. Res. 71
/93/
( The CHAIRMAN. Mr. Case, I take it from some of your observa/ tions there in your prepared statement, that you are rather disposed
to favor a system of branch banking.
Mr. CASE. Mr. Chairman, it seems to me at the present time that
we are gradually drifting toward branch banking. Personally,
while I think we are a long way off—and I personally hope we shall
continue to be a long way off—from nation-wide branch banking,
it seems to me that it might be desirable to permit a gradual extension of the branch-banking privilege, allowing banks, for instance,.
to spread throughout their own county, and in course of time throughout the State. Then, as suggested by the comptroller, natural trade
areas would develop.
The CHAIRMAN. Would it not be extremely difficult to determine
what is a trade area ?
Mr. CASE. Perhaps it would. Of course, I am thinking of the
metropolitan area, and it seems to me that there it would not be
difficult. In New York we have the northern part of New Jersey
and one corner of Connecticut, the southern tier of Connecticut.
It seems to me--I do not know whether Senator Walcott will agree
with this—that perhaps Bridgeport a,nd Stamford are large enough
cities to become the center of a trade area in Connecticut, and that
Newark, Pat,erson, Passaic, Elizabeth, and of course Jersey City
and Hoboken and other places adjacent to the metropolis, might
constitute trade areas of New York City.

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The CHAIRMAN. Are not there in Connecticut towns or banks large
enough which might have their branches throughout the State of
Connecticut, confined to State lines of Connecticut, who could attend to the commercial and industria 1 requirements of that State
pretty well V
Mr. CASE. I should think they might do that pretty well, although
of course large corporations which are domiciled, say, in Bridgeport,
might elect to either come to New York, or continue their banking
)connections in New York, which have been established over a period
of years.
The CHAIRMAN. Of course, they do that under the State banking
law.
Mr. CASE. Yes, that is true. Still I would think there are or
could be developed suitable banking institutions in Connecticut.
The CHAIRMAN. You see the difficulty is, that we have to deal
with this much contemned specimen of humanity called a politician,
and there are some in Congress, as well as a large number of statesmen, and we can not jump right into the nation-wide branch
banking.
Mr. CASE. No,I should hope we would not.
The CHAIRMAN. And probably with no expectation on earth of
doing anything with it. It is very doubtful whether we can do
much with the state-wide branch-banking proposition. I hope we
may.
Mr. CASE. Yes.

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The CHAIRMAN. But certainly we can not go beyond that.
Mr. CASE. These bank failures, of course, are very disconcerting, and when you consider the number of lives which are adversely
affected by them it seems clear that we must try to find a solution.
It seems to me that a banker in a small community occupies pretty
much the same position toward that community in a financial way
as the local physician does in looking after the physical health of
the people of the community. If the physicians do not do a good
job, you do not have a healthy commumty, and similarly it seems to •._
me this is true of banks. When they are not able properly to adjust
themselves to the economic changes, which have been alluded to, we i
have too many failures and the community suffers. It is our duty )
to study the problem and find some way of solving it.
The CHAIRMAN. You differentiate very greatly, do you not, be-----i
tween branch banking and chain and group banking?
Mr. CASE. Oh, my, yes, sir ; I certainly do.
Senator WALcoTT. I hope, Mr. Chairman, we can bring that out
before we are through with all of our questions, because that, to my
mind, is very important and there is a great deal of misconception
about it all.
The CHAIRMAN. A very small conception.
Senator WALCUIT. The public knows little about the difference.
The CHAIRMAN. I think we will be able to do that by our inquiries
and the report which they shall make to the committee as a result
of these inquiries.

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Albert H. Wiggin, Chairman, Chase Nat'l Bk., N. Y.
Hearings - S. Res. 71
/93/
The ACTING CHAIRMAN. Let us discuss, for a little while, this question of chain banking versus branch banking and see if we can clear
up the minds of the public to some extent. There is a great deal of
confusion to-day that exists between those two terms. You are, of
course, familiar with the English system of branch banking. What
do you think of extending that system to some extent in this country,
gradu ally?
Mr. WIGGIN. Every community in this country that will support
a bank is well cared for already. The communities that are not provided with banking facilities are communities that can not support
a bank. We have had a very long experience in acting as correspondent of banks throughout the country, and we do not know of a cas
where a solvent bank has been permitted to fail from lack of accommo
dation from its correspondent.
Our own preference would be not to see any extension of braneh
bankin . If the branch banking were limited to...trade areas or. to
e era reserve di.strids, it woulcLcause, in the New Y.-ork district,

1

lanks in other cities, which we
a coinpetition in the buying of.sAtel
would-dislike to see,__
present banking system as set
-Y ou must also remember, with our
York bank serving Nebraska
New
a
for
reason
much
up, there is just as
We act as the correYork.
New
of
as there is for serving the State the country and we lend those banks
over
all
from
spondent of banks
was any_suggestion of brush
from all over the country and if therecountry, we would conislez it
whole
the
_of
extenk
banking to the
difficulty and impossilaty
eTc-Fidingly inactiFigible bemuse of the
a satisfactory_wyay. A lot
in
e,
distanc
a
uch
i
ritrs
iiiore
llinii
OrriMi
-ittee and I
the
House comm
before
argd
orthis you had Notarirtlifipe
much.
too
repeat
to
do not want
r it be country-wide
So in the suggestion of branch banking, whethe
see nothing that is
I
can
ts,
e
distric
reserv
l
Federa
or
area
or trade
t a bank, with a
suppor
not
will
that
nity
going to supply a commu
g for.
strivin
are
they
thing
one
the
is
ntly
appare
that
bank, and
banks
many
too
are
there
think
you
Do
The ACTING CHAIRMAN.
now?
a mushroom
Mr. WIGGIN. Oh, I do not know. I think there was
few years,
last
the
in
growth of banks, especially in the larger cities
hat in the
somew
d
reduce
been
has
that
but
thy,
that has been unheal
last few months.
taken care of?
The ACTING CHAIRMAN. Most of them have been do not know.
I
drawn,
be
Mr. WIGGIN. Where that line should
nice point to say
The ACTING CHAIRMAN. Of course, it iS a pretty
. You are, of
system
g
bankin
where any line should be drawn in a
ations and
ramific
its
and
Board
Loan
Farm
our
r
with
course, familia
system of
the
with
r
familia
are
the system of banking set up. You
g. They
sleddin
hard
having
been
have
They
banks.
land
joint-stock
ment.
Govern
the
by
are not, in any sense, guaranteed
helped without
Have you an idea as to how that situation can be
too much paternalism?
I think
Mr. WIGGIN. No; I think we have helped it too much.
I
able.
obtain
easily
too
her
altoget
we have made the farm loans
think that is one of the causes of the trouble. ral?
The ACTING CHAIRMAN. Insufficient collate
s money, he buys
Mr. WIGGIN. Well, the minute a farmer borrow
liquid.
kept
not
was
another farm. It
Mr. WiLus. It is not the fault of the banks?
Mr. WIGGIN. In part.
The ACTING CHAIRMAN. The bank permits that?
Mr. WIGGIN. Yes.

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The ACTING CHAIRMAN. It might be well to cover chain banking
for the record.
Mr. WIGGIN. Well, I have no objection to chain banking.
We
simply do not want to do it ourselves.
Mr. WILLis. Is it a sound system, Mr. Wiggin?
NIr. WIGGIN. Well, y-es; I think it is sound. It is all a question of
how far it goes and who does it.
Mr. WILLIs. Under past conditions, do you think it can continue
to be carried on?
Mr. WIGGIN. Yes.
Mr. WILms. Does it not tend to exert a central control, without
central responsibility?

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

Nlr. WIGGIN. No; I think the responsibility is there just the same.
Mr. WILLis. It largely nullifies or may nullify the double liability
on bank stocks, for whatever it is worth, may it not?
IvIr. WIGGIN. That is true.
Mr. WILLts. What do you think of the provision in this bill with
reference to chain banking—or have you examined that?
Mr. WIGGIN. I do not know the provisions of the bill and I will
not try to answer that.
Mr. WILLis. The provision, in brief, is simply to give the voting
power solely to the local owners so that the outside owners lose their
voting power on the shares they OWD.
Mr. Wmcusr. Is that constitutional?
NIr. WILLis. I think it has been held that Congress can make the
holding of national bank shares subject to whatever conditions it
may see fit to impose, within specified limits. Suppose it were constitutional: Do you think it would have any beneficial effect, or the
reverse?
Mr. WIGGIN. I do not think so. I think there are several groups
of chain banks that have strengthened the local banks.
Nlr. WILLIs. Strengthened the local control
Mr. WIGGIN. Strengthened the institution.
NIr. WILLIs. IIere is a question, as it seems to me: The people in
the various towns where banks aro bought up, for one reason or
another—perhaps unwisely—object to that. They think they should
have an institution locally controlled. Ought they not to be able to
control that bank locally so that if an outsider conies in and buys it,
he simply buys an investment, or ought they remain subject to the
danger of losing their control of the local bank?
Mr. WIGGIN. All they have to do, if they sell it, is to start another
bank.
Mr. WILLis. But you have already said there were too many
banks.
Mr. WIGGIN. No; I said I did not know whether there were too
many banks.
Mr. WILLIs. I thought you said there had been a fortunate reduction of a lot of weak ones.
Mr. WIGGIN. Yes; I said that.
Mr. WILLis. Then, the starting of another bank is not a satisfactory remedy for the existing situation. is it?

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Mr. WIGG'IN. It depends on the community and its particular needs.
Mr. WILLis. Take the ordinary small community, that can support a small bank; it ought not to have more than one, should it?
Mr. WIGGIN. That is right.
Mr. Wimas. It ought not to be necessary to start another bank to
bring about a satisfactory conduct of that particular bank?
Mr. WIGGIN. No.
Mr. WILLis. It is perfectly true that if the people who ov,-n the bank
stock resolutely say: "We will not sell it"—if they feel that way—
we need not discuss it, but they do not feel that way, and when they
have a high price offered them, they frequently sell to the disadvantage
of the welfare of the town. That has happened. Is it not well to
have a limitation on that,if you are going to continue to have a system
based on the idea of the unit bank? You yourself have spoken
against branch banking.

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Mr. WIGGIN. I think the people who put their money in the banks
should have the right to run it.
Mr. WiLms. Regardless of what they do?
Mr. WIGGIN. I do not mean to say they should have the right to
abuse it.
Mr. WILLis. We are assuming they are abusing it; that they are
withdrawing funds from the community; using the local bank as a
means of mopping up the funds of the community and sending them
elsewhere, which undoubtedly has been done in many cases, so that
local industries have not been given the loaning facilities they ought
to have. I am speaking now purposely assuming sound banking,
but that the local funds have been mopped up and sent somewhere else.
Mr. WIGGIN. Well, all they have to do is to start another bank.
Mr. WILLis. But you are recommending as a remedy,the same thing
that you have pointed out as a crying evil.
Mr. WIGGIN. There are two different purposes involved. The local
purpose did not exist for starting the bank where there were too
many before, but in the event this bank that has been sold is run in
such a way that local industries feel they are suffering, then they can
correct that by starting another bank.
Mr. WILLis. But suppose the comptroller said they should not have
a charter?
Mr. WIGGIN. He would not, if it was a respectable crowd.
Mr. WiLus. Suppose he said he would prefer to give a charter
to the local bank in a chain?
Mr. WIGGIN. You are going a little too far for me. I do not
know what would happen.
Mr. WILLis. It seems to me you would have to make some
provision against that contingency.
The ACTING CHAIRMAN. Of course, we do not want to go into any
unborn contingencies that may happen. I think we have briefly
covered the ground we have covered with the various Federal reserve
directors. Have you any questions, Senator Norbeck, you want to
bring out?
Senator NORBECK. I have none.

Albert H. Wiggin — Page 4

/ 95 /

enator tsuLicLEy. 1 shouict ince to return to tn' at question of branch
banks. I think you said the only purpose of permitting branch banks
would be to provide banks for small communities that are possibly
not in shape to sustain banks. As I understood Comptroller Pole's
recommendation, it had a further purpose than that. I think his
theory was that many small communities that have already banks
would have stronger and better managed banks if they were taken
over as branches of larger institutions. Would you care to comment
on that?
Mr. WIGGIN. Now, let me see if I understand. You are asking
about the small bank in the small place?
Senator BULKLEY. I am asking about the desirability of permitting
branch banks, and one element of that is what effect it would have on
the banks in the small communities. Now, as I understand it,
Comptroller Pole believes that by permitting the larger banks in
centers to buy up existing banks, or establish branches.in communities that can well support branches, those communities would be
better served in that they would have banks of greater responsibility and better management represented in their Communities.
Mr. WIGGIN. Well, where the community will. support a bank, I
think that community is just as well served by one locally owned, as
one owned outside
,

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Edmund Platt, V. P., Marine Midland Corp.
Hearings - S. Res. 71

See clippings filed
under No. 1

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Edmund Platt, V. P., Marine Midland Corp.
Hearings — S. Res. 71
/93/

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Mr. WILids. I have read, in your writings, the statement iha
.t
well-managed country banks may helpfully establish sound branch
banks.
Mr. PLATT. Well, the word "country" is applied to banks as a
technical expression. As used by the comptroller, it includes some
rather large banks It does not mean ten or twenty five thousand
dollar capitalized banks. It may be.banks of four or five hundred
thousand dollars or a million capital.
The ACTING CHAIRMAN. Suppose you go ahead and develop your
suggested remedy for this.
Mr. PLATT. I think the banking. laws should be amended so that
country banks can consolidate just as the city banks do. I think the
McFadden Act discriminates against the country banks. Under that
act, you can combine the banks in fotu. or five counties if you cover
them with brick and mortar, as in New York, but you can not combine
them even in one county if it contains several small cities or towns.
I do not see why they should not be allowed to merge.
The thing that is important is that the country bank should be
given an opportunity to do a diversified business. It should not be
confined to one crop or to one class of.business—agriculture or anything else. Most of the country banks in this country, are, outside of
New England and the East, where they generally have a sufficient
diversification, so that those country banks can lend on a lot of
different things. Outside of the New England and eastern country
banks, the country banks are often located in neighborhoods where
they have no chance to do a diversified business.
The Chase National Bank, the National City Bank, and other large
banks izr New York do business all over the country. It is not only
business done with correspondent banks,. but with big business.
Pretty nearly every town of any size has individuals and corporations
that carry accounts in New York. Generally speaking, the local
bank is not large enough to handle their business. Some of those
local banks could be increased to handle the business by consolidations. That is one of the things the comptroller speaks about as
decentralization of credit. I do not know how much that will amount
to. I think big business will always carry accounts to ft large extent
with New York and Chicago. They are our financial centers.

218

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

However, when...Led:pin banks were consolidated in Dowit they
held certain of the business
.Eit.
reviouslv forced to New
York. The same thin Eappened in tifraTo and in tTe-velanT.—
sai , in my speec es on ranc an ing, tta
-TTIE-oirght the
"-Blaine law, permitting branches in groups of counties, was about
right. If you can start with that and allow branches further away,
through consolidation, where necessary for diversification, as it would
be in the Dakotas and much of the West, where you would have to
go much farther away in order to get enough diversification—if you
can start in that way, you can begin to build up a system that will
stand up.
,
3
I think our banking system, for the purpose of serving small agricultural communities—I think it serves the cities excellently, as a
rule--but for the purpose of serving safely and adequately the small
agricultural cOmmunities, we have the worst banking system in the
world. We practically deny access to the strong banks to the small
man.

Edmund Platt - Page 2

Mr. WILus. Just following that up: You talk about the consolidation of the small banks or isolated country banks. How are you
going to get diversification? Let us take a group of small banks in
South Carolina or North Dakota or Wyoming, where they are mostly
all farmers, and in South Carolina where they raise cotton, and so
forth, where you have a one-crop situation: How are you going to do
it, unless you have a contact with some large center outside of that
area?
Mr. PLATT. In many places I think you would have to do that.
Buc there is in South Carolina, since you have mentioned that, a.
bank called, I believe, the South Carolina National Bank, with its
headquarters in Charleston and a branch in Columbia and a branch
over in the Piedmont at Greenville, and Mr. Small, president of that
bank, in getting out his circular with relation to it, stated that when
Charleston has a surplus of money and is lending it in New York,
Greenville has a demand for money and, conversely, when Greenville
was lending in Wall Street, Charleston had a demand for money.
So, by connecting the banks across the country, they could keep the
money in the State and more fully employed at home. In other
words, Greenville is a manufacturing center, and the Columbia
section has diversified fruit growing and cotton, mostly, while Charleston has some shipping and largely garden .truck, so that the peak
demands do not come at exactly the same time. On a smaller scale
it is very much what happens in California.
I used to say that branch banking within city limits was of no
consequence, economically; that it was all a matter of accomodation, like branch post offices, but since I have been getting some
actual experience I find that our little group of five branches of the
Marine Midland Trust in New York handle quite a diversified line
of business. For instance, the branch at Chambers Street they call
the butter and eggs branch, the branch at West and Liberty Streets
does business with the railroads, so there is some diversification
through branches in the big cities. The uptown branches handle a
business differing considerably from that of the down-town offices.
Mr. WILLIs. The group in South Carolina was a group of small
banks picked up because they had gotten so weak they could not
carry on?

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

219

Mr. PLATT. You are speaking of a different group. This group of
banks, consolidated into a branch banking system by Mr. Small, was
organized in January, 1926. There has been a group, perhaps more
than one, organized since. The recent systems took a number of
banks out of the Federal reserve system. The Federal reserve law
as amended by the McFadden Act, does not allow branch banks
outside of city limits.
• Mr. WILLis. Would you apply the English development of branchbanking business to this country? Would that help?
Mr. PLATT. I should agree with Mr. Wiggin, that I should hate to I
see our banks have to compete with each other for branches all over ,___..
the country. You may come to that in the long run, but it seems to
me it will be a long time coming and I do not believe there is any
reason for authorizing it at the present time. All we need to do is
to give the country banks a chance to gro_up themselves together for
vouTd insure aThouse with an insurance
diversification. No aiFT—
company that had all of its risks in one town. But that is what
depositors in some of the small banks are doing. Some of these
banks are not really
iust drying
failinz, but.
, 1.1D.
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The ACTING CHAIRMAN. You approve, in a general way, m certain
cases, of branch banks; in certain other cases you approve of group
banks, where you have an economic and geographical situation that
favors it?
Mr. PLATT. Yes. I think a proper definition of group banking is
the one the comptroller gave; a group of banks, the stock of which is
controlled by a holding company and more or less integrated in
management with a rather large central institution.
The ACTING CHAIRMAN. Located in some proximity to the general
area?
Mr. PLATT. Yes. In the old chain banks there was never, as a
rule, any big bank or parent bank, so-called. They were simply a
string of small banks of about the same size. I think in Iowa there

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was a chain of banks with what they called a parent bank not much
larger, however, than the others.
The ACTING CHAIRMAN. Bllt a Chicago bank could not have a
small cluster of banks in North Dakota and call that a group banking
system? It would be much nearer branch banking?
Mr. PLATT. I do not know that I understood the question.
The ACTING CHAIRMAN. It is a zonal thing or a regional thing?
Mr. PLATT. Yes; the central institution should be contiguous to
the rest of the group. All these nationally known groups have a
large bank in the same general region with which the other banks are
more or less integrated in management. They advise them on buying
bonds, and so forth, and supervise their loaning policies, and it seems
to me there is a great deal of advantage in the system. It is not as
economical as branch banking, but it is the best that can be done in
the circumstances. When the stock of the holding company has been
exchanged for the stock of the banks,it seems to me you still have the
neighborhood bank idea. The people still have a stock interest in
the local bank as well as the group.
Senator BULKLEY. Are you in accord with the comptroller's
recommendation in that respect?
Mr. PLATT. I think so. I think he has given us the right recommendation. It will give us the strongest branch banking systems.
If I understand him correctly, he considers trade areas as rather large
areas, and I am not quite sure that they need to be very large. You
can have a trade area around a town of 50,000 inhabitants or even
25,000 inhabitants that would include two or three counties.
Senator BULKLEY. We have had some difficulty in defining trade
areas. What would you suggest as the limit, if not trade areas?
Mr. PLATT. I think"trade areas"is perhaps as good a term as you
could use, but I would not say that the trade area can exist only
outside of a city of 500,000. I think that cities of 50,000 inhabitants
or smaller also have trade areas that would compete with each other.
I think all we need is an area large enough to psrmit diversification
so that the banks will not have too many eggs in one-Kaska:— —
--The ACTING CHAIRMAN. Treir, obviou-iTy, you can not limit a trade
area to any radius, m miles; you must get diversification no matter
how far you reach out for it?
Mr. PLATT. Yes. Still, there is some diversification even in
agricultural products. There is some advantage in loaning some money on wheat and some on corn and some on flax, and so forth. Crops
do not all go down at once.
Senator NORBECK. I think Mr. Platt is laboring under a great deal
of misapprehension as to the products of our State. For instance,
our income from butter and eggs is larger than our revenue from
wheat; our income from tourists is greater than the income from
wheat, and we lead in gold production.
Mr. PLATT. Yes; that is right--out in the Black Hills. I got you
for the moment mixed up with North Dakota.
Senator NORBECK. North Dakota is a wonderful wheat State, and
Canada is even better. There they have conditions which permit
them to raise wheat at an advantage of 42 cents a bushel over the
American farmer.

4 •

B. W. Trafford, Vice Chairman, First National Bank of Boston
Hearings — S. Res. 71

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The ACTING CHAIRMAN. Mr. Trafford, We want to consider the
branch-banking question a little, also groups and chains. Of course,
there is some modification between them. Have you given much ,
thought to branch banking and would you advise an extension of some
form of branch banking for New England or the Northeastern group?*
Mr. TRAFFORD. Speaking just of New England?
The ACTING CHAIRMAN. Well, yes.
Mr. TRAFFORD. I do not see any need for branch banking in New
England.
The ACTING &AIRMAN. Are you familiar with the point of view of
the present Comptroller of the Currency on branch banking? He
speaks of trade areas which, or course, is a pretty indefinite term. It
might be a radius of 100 miles in the East and a thousand miles in the
West. But whatever that might mean, branch banking, somewhat
along the English line, perhaps.
Mr. TRAFFORD. We would like that.
The ACTING CHAIRMAN. You would like that?
Mr. TRAFFORD. Yes, in trade areas.
244

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The ACTING CHAIRMAN. You would like to go out and establish
branches—say, commercial banks along sound lines in any particular field?
MT. TRAFFORD. Buy them.
The ACTING CHAIRMAN. Buy up existing banks?
Mr. TRAFFORD. 011r bank would, because Boston, as you know, is
a little island with 30 municipalities around it. Municipal Boston is
really a small thing. We think we would like to have banks not only
in this municipality but in this entire area, which is simply metropolitan Boston.
Mr. WILLis. Would that need be relieved by allowing branches
to be established in counties—adjacent counties?
Mr. TRAFFORD. Yes; but we would have to take in four or five
counties. The city itself is one.
Mr. WILLis. That has been suggested here.
Mr. TRAFFORD. Certain adjoining counties.
Mr. WILLis. Any county adjoining the one in which you are
located?
Mr. TRAFFORD. That might fit our case. I do not know what
kind of arrangement you would have for the country over, to put
that into effect. My own feeling is that the slower you go in branch
banking at present, the better. Personally, I would go to as limited
an extent and area as possible.
Mr. WILLis. You think branch banking would give rise to unsoundness in banking or bad management in banking? One witness
from New York has said that the effect of branch banking on a large
scale would be to produce a race for the nurchase of banks, with the
result of embarking upon perhaps a feverish speculaTfori. in the stock
of those banks. Is that your thought?
Mr. TRAFFORD. Yes; I think they are all right on the line ready
to go. I do not know how many would go. I think it would have
that effect. I do not think it would do much good.
Mr. WILLis. If you had it in your Federal reserve district, as
proposed by others, do you think the same effect would be produced?
Mr. TRAFFORD. Yes; on a much smaller scale. There would be a
few banks in New England bidding against each other.
The ACTING CHAIRMAN. And you would bid those values up probably out of all reason?
MT. TRAFFORD. That is quite true.

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B. 77. Trafford — Page 2
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The ACTING CHAIRMAN.•Then, there is not anything in the suggestion unless it is done very quietly and without competition, and that
is pretty difficult to regulate.
Mr. TRAFFORD. If you raise the bars, that would allow a certain
amount of competition. If you raise the bars for the county, there
would be some; in the State it would be a little more, in the district
it would be still more, but if you made it the whole country, there
would be a great stampede. I do not think it would do any particular
good. The larger banks do not need to be larger. The large business
can be taken care of as it is now.
245
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
damage
Mr. WiLus. You think the branch-banking system would
off
them
cut
to
your correspondent relationships considerably—tend
and drive them away?
but if
Mr. TRAFFORD. Yes; it would chop that system to pieces,
would
ities
commun
the
think
not
do
I
law,
it were permitted by
resent it as much as if it were done indirectly.
is some
The ACTING CHAIRMAN. What we are feeling around for
e the
becaus
d,
EnOan
New
in
way of improvement—not particularly
st.
Southea
the
like
s,
section
other
in
than
there
r
situation is sounde
h
throug
periods
lean
long
have
and
There you have a 1-crop situation
the
where
ition
compet
-store
grocery
your
have
you
each year, and
villages, and often a
trader is practically the banker in one of those system
would relieve
group
the
r
whethe
Now,
factor.
very bad load
to steer the
group
the
in
bank
large
the situation, with perhaps one
group--good group.
Mr. TRAFFORD. I suppose it would if it was aserious
in the Southvery
is
m
proble
The
AN.
CHAIRM
The ACTING
units being
weak
e
imagin
not
you
Can
east and the Northwest.
group which
that
in
bank
ling
control
single
a
h
throug
strengthened
could diversify their loans and their business?
Mr. TRAFFORD. YeS; I can.
in New England for
The ACTING CHAIRMAN. There is no parallel
that situation, is there?
e farming is a small perMr. TRAFFORD. No; there is not; becauscountr
y banks are pretty
the
even
centage of the business there and
ion quite as
depress
the
have
not
do
we
locally
and
well diversified
and so we
rule,
a
as
good
pretty
is
ment
hard, and I think the manage
s of
section
other
in
had
have
they
uences
conseq
dire
have not the
The
help.
any
needs
really
that
end
the country. That is the only
bank does not. I
big bank does not need it and the middle-sizedwhat
the answer is.
know
not
do
I
bank.
think it is only the little
had been
they
if
losses
same
the
made
have
would
I suppose they
in mortthe
money
had
they
If
bank.
-by
the branches of some near
affected
have
not
it
might
but
there,
been
have
would
losses
gages, the
bank.
the depositors of that
had close
The ACTING CHAIRMAN. IS it not conceivable that if they
have
g
would
bankin
their
bank,
master
ed
affiliation with a so-call
ative?
conserv
more
and
r
sounde
little
a
been
I do not know
Mr. TRAFFORD. It might have been more sound. owned
by a big
is
it
r
Whethe
.
district
p
1-cro
a
in
do
can
you
what
banks,
small
the
of
case
the
In
a
loss.
is
there
bank or a small bank,
get
could
you
if
ly
Probab
the
money.
lose
ors
deposit
the
s
perhap
areas,
small
in
g
bankin
group
than
rather
g
bankin
some small branch
une to-1
that might help the situation./ I do not think it is opport
presen.t
the
at
scale,
a
large
g
on
bankin
branch
to
open the country
and
time. I would rather see an improvement in the management
-be
would
-We
d7
o
-Tfed
is
prett
got,
which
have
we
what
stuRervision of
do
I
lly
Persona
ft.
not
or
nriert—iii experiment Which might
rymg
fit.
would
not lmow what
extenThe ACTING CHAIRMAN. Of course, branch banking is a very
the
think
I
d.
Midlan
City
ds,
London
d—Lloy
Englan
in
sive system
s.
branche
of
number
vast
London City Midland has a
Mr. TRAFFORD. Two thousand two hundred branches.

B. W. Trafford — Page 3

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The ACTING CHAIRMAN. hi England alon.e, which is a very small
area.
Mr. TRAFFORD. Yes. If you put England down on this map [indicating] it would not look very large. I do not luiow whether it works
well.
The ACTING CHAIRMAN. They think so.
Mr. TRAFFORD. Perhaps it does. It might work better than ours,
but it is not entirely clear to me.
The ACTING CHAIRMAN. Have you any questions that occur to
you, Doctor Willis?
Mr. WILLIs. Yes; one or two. Have you any development -of
chain banking in New England to any important extent?
Mr. TRAFFORD. It is not growing. We have, I think, the largest
chain.
Mr. Wm.'s. Including how many members?
Mr. TRAFFORD. We call it a group. We have what we call the
Old Colony Associates, in which our corporation owns 10 per cent of
the stock. The "Associates" which is a holding group banking
system, owns a certain amount of stock of, I think it is, 20 of these
suburban banks around Boston.
Mr. WILLIs. What function does it perform in reference to them?
What is its relation to the banks?
Mr. TRAFFORD. They help the management. They have a management committee and they try to introduce the best methods of
one into all others—really run them.
Mr. WILLis. Do they pass on loans and discounts in the Old Colony
Associates, or in each of the banks?
Mr. TRAFFORD. They have a central loan committee which, I
think, passes on loans over a certain size.
Mr. WILLIs. Do you have a local board of directors in each case?
i Mr. TRAFFORD. Yes.
Senator TOWNSEND. Is the local board permitted to make loans?
Mr. TRAFFORD. Up to a certain figure, and above that the central
committee.
Mr. WILLIs. How many such chains are there in New England?
Mr. TRAFFORD. We have about 20 in that group which may represent $100,000,000 deposits. In case of branch banking of the type
which has been suggested, they would likely become branches.
I think there are three other chains, or two others, in Boston.
Then there is a chain in Worcester County. I am not sure whether
there are any more.
Mr. WILLIs. Are these chains pretty successful?
Mr. TRAFFORD. They have done very well.
Mr. WILLIs. The central management has been a good thing; it
has been shown to be a practical way of managing?
Mr. TRAFFORD. Our management committee tell us so.
Mr. WILLIs. I am spealung of it in general terms and questioning
you about it as a method of banking, and not merely as handled by
one of the best banks, or under its auspices, but handled generally
Mr. TRAFFORD. I, personally, would prefer the branch-banking
method. It seems to me the responsibilit is more centralized.
Mr. WILLI . I al 1:
.I : ,, :, :lu yvu ctittlrorthink
highly of branch banking.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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247

Mr. TRAFFORD. I think it is a mistake to do it now. Whether,
20 years from now, we will have it, I do not know.
Mr. WILLIs. It is preferable to a chain.
Mr. TRAFFORD. Yes; you have it all under one head and there is
no shifting around.
Mr. WILLIs. Who owns the other 90 cer cent of the old Colony
Associates stock?
Mr. TRAFFORD. The public.
The ACTING CHAIRMAN. Where is your chief saving in a chain
banking system? Are you saving in the overhead?
Mr. TRAFFORD. Yes; we are saving a bit in the overhead, but not
much.
The ACTING CHAIRMAN. You think you could. do better where you
have central control—
Mr. TRAFFORD. They think they do it better. They think now
that bank No. 20 is run just as well as bank No. 1, which had a spectacular record.
The ACTING CHAIRMAN. That is by comparison of details of management?
Mr. TRAFFORD. Yes,and watching the security lists, watching gen•eral trends, and so forth, and they think they have generally good
results, and I think they have myself.
Mr. WILLis. Do they give out to the public the information that
they are in a chain system?
Mr. TRAFFORD. I think they all do it—issue elaborate pamphlets.
The ACTING CHAIRMAN. There is nothing hidden about it?
MT. TRAFFORD. NO.
The ACTING CHAIRMAN. Does the State take any cognizance of it?
Mr. TRAFFORD. NO.
The ACTING CHAIRMAN. There is no recognition legally?
Mr. TRAFFORD. No.
The ACTING CHAIRMAN. NO interference with it?
Mr. TRAFFORD. No.
Mr. WILLIs. They simply examine the banks each as an independent unit?
Mr. TRAFFORD. Yes.
The ACTING CHAIRMAN. Can a national bank take into its chain
both a State bank and/or National bank and carry them in the
same chain?
Mr. TRAFFORD. Well, the chain is done through a vehicle which
can do it.
The ACTING CHAIRMAN. I mean such a vehicle.
Mr. TRAFFORD. Yes.
The ACTING CHAIRMAN. And that vehicle may be entirely owned
by a national bank?
Mr. TRAFFORD. It can not be held by a national bank, can it?
Mr. WILLIS. By the stockholders.
Mr. TRAFFORD. By a holding company; yes.
Senator TOWNSEND.• Your published statements—are they published separately for each bank in a chain or altogether?
Mr. TRAFFORD. In the legal statements they are each published
separately and then the associates get out a group consolidated
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George W. Davison, Pres., Central Hanover Bank & Trust Co.
Hearings — S. Res. 71

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The CHAIRMAN. Mr. Davison, we are obliged to you for coming
down. We have in process a general inquiry into the banking situation of the country with the expectation and hope of being able to
do something to prevent a recurrence of such a situation as we now
have. I believe you appeared before the House Committee on the
5th of last June?
MT. DAVISON. YeS.
The CHAIRMAN. And practically confined your statement to a discussion of the question of branch banks?
MT. DAVISON. Yes.
The CHAIRMAN. So that that hearing is available to the committee
and the likelihood is that we shall not ask you to talk, certainly in
an extended way, about branch banking, except that some members
of the committee might have occasion to ask you some question about
that.
What we should like you to do is to give us a general statement of
the situation as you see it, and of proposed legislation or any legislation that may commend itself to your favorable consideration; in
other words, state to us what is the situation and what you think
may be done to prevent a recurrence of it, if it is bad.
Mr. DAVISON. That is a very large order, Mr. Chairman.
The CHAIRMAN. Yes, but that is what we are making the inquiry
about.
Mr. DAVISON. I do not believe that you could make good banking
by legislation. I do not know of any good banks that have failed.
I think one—
The CHAIRMAN. What we want to do is to prevent bad banking,
as far as we may by legislation.
251

_ .
The CHAIRMAN. And the only reason we did not have a very
decided currency panic was, that under the Vreeland-Aldrich Act as
amended, we put out about $300,000,000 of emergency currency.
I believe—in fact, I know, having read your testimony—you are
ppposed to branch banking.
Mr. DAVISON. Noi_ I am not_ opposed to branch bankin_g within
definite limits. I think I am opposed to chain banking of any kind".—The CHAIRMAN. And group banking?
Mr. DAVISON. I thinkitis hadiinchrresponalLk. Branch banking
within defmite limits, where your head office can know the needs of a
community and where the branch is in close touch with the head office,
has proven to be a satisfactory form of banking.
The CHAIRMAN. Would state-wide branch banking appeal to your
judgment?
Mr. DAVISON. It would not. It would be very unfortunate. I
think it would mean a remote control, which is entirely foreign to all
our ideas and the theory and practice upon which this country has
been built up. You would have clerks running the branch office,
whose prime purpose would be safety, and loans made on personal
character would not be made.
The CHAIRMAN. Why would they not be made?

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

Me. DAVISON. Well, the record of branch management_is_go_ing to
be, as far as the manager can make it, that he inalitLko losses. He
will play safe always.
The CHAIRMAN. Would not the parent bank be somewhat guided
by the recotnmendation of its local representatives?
Mr. DAVISON. Lt_a!yid npthave_the_touch and..knowledge that is
riece_sary in_making some kin.da_of 14-)ans— loans that oeople would he
entitled to.
Senator WALCOTT. Would you be willing to extend branch banking
somewhat as under the English system?
Mr. DAVISON. I do not think our people would like it at all, and
after I made some remarks about this out in San Francisco,I got one or
two letters, particularly from a man who had been in touch with
Canada, and he said that the people in outlying sec,tions there were
just dried up;that the branches were deposit places, but they could not
at loan's.
Senator WALCOTT. They have practically the English method?
Mr. DAVISON. They have; but it is a different nature of people.
The CHAIRMAN. Well, is not the unit banking system carried to
an undesirable, if not a disastrous, extreme when you have banks
chartered all over the country with a capital anywhere from $15,000
up to $50,000?
Mr. DAVISON. I am very sure that it is.
The CHAIRMAN. And they break all to pieces. Could statewide
branch banking do any worse than that?
Mr. DAVISON. I do not think it would help it at all, because in all
the groups that have been formed, you can not find the people,
forming them, buying the little country banks. They buy the big, v.
well-established country banks.
The CHAIRMAN. Of course they would not buy these little country
banks. They are simply pawnshops. They are not banks.
Mr. DAVISON. You will not have branches going out there.
The CHAIRMAN. No community should have any banking facilities
if it be not able to support a bank.
Mr. DAVISON. That is right.
The CHAIRMAN. A unit bank that will stand, I mean.
I
Mr. DAVISON. YOU should not have more than the community
can support.
Senator TOWNSEND. Mr. Davison, you said you favored branch
banking, but not on State lines. How would you define the limit?
,Z,A..trtMr. DAVISON. The limit would be where
head office could be
with
the
familiar
situation
of
the
thorotIghly
branc anrs and where
tbranch could be in constant touch with the head office, so that
the wlio-le situation would We before_ diem.
Senator TOWNSEND. Afid—ial—WOUld define it by county lines or
trade areas?
\
Mr. DAVISON. No. Trade areas might be very wide and too wide.
The CHAIRMAN. Mr. Davison, is not the correspondent bank
system of the country now practically nation-wide branch banking?
Mr. DAVISON. No;it is not practically nation-wide branch banking.
I think it is very much better than branch banking in that in each
community you have a responsible body or bank that knows the


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NATIONAL AND FEDERAL RESER'VE BANKING SYSTEMS

needs of that community and, as a rule, commands the respect of
the community and knows all about it. It does its business independent of any direction whatever from the correspondent bank, but it
does know that when it has made good loans and has pressure for
money, it can always go and get money from the.correspondent bank,
but the initiative and responsibiity are in the locality where they
should be.
Senator TOWNSEND. Would that be true with a well established
and soundly-conducted parent bank with an agency in the community?
Mr. DAVISON. I do not think it would. If you would go into one of
the English banks, you would find they would receive your money,
but when you wanted to talk about a loan, you would find it was a
matter of long negotiation. The local managpment, as a rule, has no
authority_i___ I think an extearTrbrancli baniing system would be
simply using the remote community as a source of contributing, in a
sense—simply draining money out of that community to the money
center.
The CHAIRMAN. There is one thing in connection with this discussion of branch banking that has always appeared to be outstanding
to me, Mr. Davison. I have been in Congress about 30 years, on the
Banking and Currency Committee of the House for 18 years and on
this committee for 12 years, and I have never known a borrower to
object to branch bankin. The onlyTobjeclions.farhavne
have come from the bankers theinseives, and there seems to be some
indicated by the more recent
bankers,
Change 91-1171.7F-aniong
_Bind
iers Association.
action of the Americtui,
Mr.ThvisoN. That was very limited, and that was a rather
equivocal resolution that they passed. Certainly when I saw the
American Bankers Association a year ago, in October, in San Francisco, they were whole-heartedly opposed to branch banking to any
extent, and the way bankers talk to me, they feel that way still.
The CHAIRMAN. Two years ago the American Bankers Association,
was it not, at Los Angeles-Mr. DAVISON. They were at San Francisco a year ago in October.
The CHAIRMAN. Well, were they not at Los Angeles two years ago
when they had the McFadden Bill under discussion, with its very
meagre, limited grant of branch banking?
Mr. DAVISON. I do not know.
Mr. WILLis. It was four years ago.
The CHAIRMAN. Time goes by fast with me now.
Mr. DAVISON. It certainly does.
The CHAIRMAN. I know the American Bankers Association then
reversed its attitude and 1 have never known a man or an association
r lythaavaated_fredit to_ cthiectJAL a branch bankimg -system.
_____Leji
of
Under the 10 per cent limitation, Mr. Davison, on loans to individuals, concerns or corporations, would a branch banking system overcome the many objections to that restriction?
Mr. DAVISON. I do not believe that it works a hardship. If a inan
is entitled to further credit, the correspondent bank is usually glad to
takg_the.excess of it.
—The CHAIRMAN. Is not that an aspect of branch banking?
Mr. DAVISON. It is an aspect of cooperation which helps to overcome what you might call an objection to a local bank.

•

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The CHAIRMAN. It helps if it is always available.
Mr. DAVISON. It is going to be just as available as the loan is going
to be available if it is the branch of some bank, because we are going
to have the same knowledge and going to have a man with experience
and whose money is at stake in the community, rather than some one
we hire.
The CHAIRMAN. You think you have carried the spirit of independent banking to an excess when we charter a lot of little banks all
over the country that can not stand up?
Mr. DAVISON. I think beyond question.

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John A. Broderick, Supt. of Banks, State of New York,
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/9'3/
The CHAIRMAN. I do not think so. What do you think, Mr.
Broderick, of branch banking?
Mr. BRODERICK. Well, first off, I think there is no power on the
globe that can stop the development of branch banking. Whether
it is the best thing or not for the country is something that experience
alone will show. It is coming. It is the only thing for cities. The
day of the small bank in the cities has gone. It is hard for a small
b,ank to find the type of managem.ent that is:_necessary to piotielly
run the bank. The small banks get the extra hazardous credit risks,
atia tiol the big banks.
The CHAIRMAN. What is your exact definition of a city?
Mr. BRODERICK. Well
The CHAIRMAN. A city in which a small bank may not exist'?
Mr. BRODERICK. I would say 100,000 or more. I find a tendency
in every city of that size. A small bank will be chartered and it will

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be run about a year and then sold out. So with the national bank.
A national bank will be chartered and will run about a year and will
then sell out.
Senator TOWNSEND. They convert them into branches?
Mr. BRODERICK. We have killed that by giving branches direct.
The CHAIRMAN. Is there a distinct analogy between a correspondent bank and a branch bank?
Mr. BRODERICK. Somewhat, except the correspondent banks that
take in the whole country.
The CHAIRMAN. It is nation-wide, if the bank is large enough?
XII% BRODERICK. I do not think we will ever have a nation-wide
branch banking system that will run successfully.
The CHAIRMAN. Bid we -have a correspondent banking system
that is nation-wide.
Mr. BRODERICK. That is true, but that has been built up over a
period of years. In most cases, you will find there is a generation of
experience with the particular banks. There is only a small number
of banks in New York that have that system.
The CHAIRMAN. If there is objection to branch banking, even to a
limited extent, such as State wide branch banking, would not the
same objection apply with equal force to the correspondent banking—
nation-wide correspondent banking?
Mr. BRODERICK. It is a case where we have one and have not the
other.
The CHAIRMAN. Well, have you not to some extent the other?
Mr. BRODERICK. The New York City banks and Chicago banks
that have a large number of correspondents are really banks of rediscount. They are doing a large rediscount business for their
correspondent banks, performying the same function for their correspondents, as the Federal reserve banks do for their members.
The CHAIRMAN. Which it was never intended they should do.

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Mr. BRODERICK. May I go on and answer the question about
, branch banking?
The CHAIRMAN. Yes.
Mr. BRODERICK. I think there are two or three things that will
bring about branch banking within limited areas.. One is the difficulty
in replacing the present inanagers of small unit banks and one subreason for that is the expense of running these small banks is growing
each year and the income is not sufficient, and the second big reason
is that in a community like New York or New England, where most of
the banks have excess funds on deposit—that is, deposits in excess of
the borrowing demand in that particular community—are having
difficulty in properly and safely investing their surplus funds. The
average banker at the present time has not the skill that is necessary
to invest those funds in the proper way.
The CHAIRMAN. Is there any greater incentive for a small bank,
locally organized, to do business than there is for the established
agency of a branch bank in the same community?
Mr. BRODERICK. I do not think I am clear on that question,
Senator.
The CHAIRMAN. What I mean is
Mr. BRODERICK. What is the advantage?
The CHAIRMAN. Is there more incentive to a bank locally organized
and conducted by officers and the board of directors, to do business

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283

in the community than there would be for a branch bank of a large
parent bank, doing business through an agency?
Mr. BRODERICK. No; except the prestige which generally comes
to a man who is president or a director in a bank. Objection is raised
by the opponents of branch banking that the communities would not
I II he branch of an existin
lg Lnk as
receive as much co I •
_ ...2
they would from an independent institution,.
The UHAIRMAN. Why-hair-That is wbat I am trying to reach.
Mr. BRODERICK. I can not answer that. I think that idea is _a
fallacy.
The CHAIRMAN. The parent bank is in business to do a banking
business and I should think it would to the fullest extent respond to
the demands of the local community just as readily and as completely
as a locally organized bank.
Mr. BRODERICK. For all the legitimate needs of the community.
What they really mean is that they want a local bank there because
thez will hayelin easier credit policy than they wouldzet from a Targer
institution.
rITAIRMAN. Would that be true if the overhead of the local
--TECt
bank exceeds considerably the charge of an agency there?
Mr. BRODERICK. It would exceed it.
The CHAIRMAN. Well, I say it would exceed it, and if it would
exceed it to any considerable extent, could not the branch agency of a
parent bank be just as liberal as a local bank with its credit accommodations?
Mr. BRODERICK. YeS; except a local bank will be probably more
liberal to its own officers and-directors than an outside institution.--Th--6 CHAIRMAN.-Arid that has been an abuse, has it not?
Mr. BRODERICK. Yes; and I think you will find one of the recommendations I have here is an attempt to curb quite a few abuses,
Senator, which I would not dare mention in times like this.


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Charles E. Mitchell, Chairman, National City Bank, N. Y.
Hearings - S. Res. 71

/93/
Mr. MITCHELL. I take no firm position as favoring unit, branch,
group, or chain banking. I can not, however, be blind to the fact
that while unit banking as a sole system has played a prominent part
in the development of our country, and still has its ardent.adherents,
there is a very definite trend away from it, a trend that is fostered
not by individual authorities but by public interest. It is to be.expected that as.time goes on and the public has tested these various
types of banking, the right kind of banking for this country will
develop from popular demand.
It is my observation that, while national feeling in the United
States is second to none existing anywhere else in the world, local
civic and neighborhood pride and desire for autonomy is prevalent
throughout the United States to an outstanding and exceptional
degree. I feel that this must be taken into consideration as the
trend in banking develops, and that, while in the ultimate whatever
system best serves the public interest will doubtless be adopted, it
is important that no banking trend should be forced by precipitate
legislation, either permissive or restrictive. The development should
be no more rapid in any direction than is sanctioned by the gradual
change of public feeling.
Frankly,it would seem clear that the small unit banks for outlying
and rural districts have as a system outrun their exclusive position
of popularity.
It always has been claimed for the locally owned unit institution
that it was more responsive to the wants of the conununity than a
branch of a larger institution, with headquarters elsewhere, would
be. Doubtless there is something in the argument, but it works
both ways. The most important of all considerations in valuing the
services of a bank to a community is that it shall care for the funds
entrusted to its custody in such manner that they shall always be
safe and ready for return to the depositors on demand. There
is such a thing as a banker.being too responsive to local applications
and too much under the influence of local and personal ap .41s.
from-Tocal
The fact that a local bank-e-i's is under greii"W.
borrowers than a branch manager, supervised by an outside author. depositors to be imperiled for the
ity, may cause the interests of
accommodation of borrowers; indeed, the record of failures proves
this to be frequently the case. Every period of boom times has
had many bank failures in its wake, because the local bankers were
under the same influences and affected by the same psychology as
their customers.
Branch banking where permitted by law, and group banking in
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

combination of these developments sometimes working hand in hand,
is gradually but assuredly taking hold alongside of the old unit
system. The development has come about not by the establishment of
new banks to compete with the old nor by aggressive action from
large financial centers. It has been largely due to local conditions
where the opportunity existed for constructive reorganization. It
is well that this movement is gradual, as it is educational to a public
that is primarily interested in banking service. It is not a movement
to be feared. Banking is not a business which can be monopolized.
_dra,w.n_ away_from-the
The idea that local molity_Dr_capital wi
cities and. thatioca 1 TIPPils_wilLgia...unc.ared
towns
for is unwarranitesl. It is not at all likely that money will be drawn
from a higher to a lower market, and since money is usually cheaper
in large centers than in the outlying districts, closer relations between
the two are most likely to result. There will be no monopoly.
It should be borne in mind, however, and the importance of it is so
vital as to justify repetition that the normal banking development
which has occurred in a natural and orderly way in most other countries has been discouraged and restricted in this country, and this
fact creates a danger of a hasty, competitive development and one
that will be publicly resented in case all'restrictions are taken off at
once. It is undoubtedly best that we gain experience gradually, with
legislation keeping pace therewith. No reasonable obte_ction,
ever from the standpoint of public inter_est _can_bei_offezeJ to the
atresisille branch banking privilege-for-State and zatio,pftl
tey_ond the present restricted areas. If such a develop- (
banks alike b
ment gives o the public ra. safer and better 'banking service, the
demand for a further extension of power will come from a convinced pubilic and the development will be a normal and accTpted
one.
How far immediate leg,islation should go in advantageously extending permissive powers for branch banking is a difficult problem.
The trade area suggestion appears to me at present too broad in its
scope. The suggestion of extension to county or to Siateliiies seems
a_rtifir-iaL The expansion to Federal reserve -districts -eitends the
territory ta-asuinKarranted, deffee,under existing circumstances and
furthermore is filled with impracticabilities owing to the fact that
the districts themselves do not represent either trade areas or spheres
of natural banking relationships. My one suggestion would be that
legislation should be such that under the carefully giyen yermits of
the_comptrAler's offica_tba_limitations of branch banking be extended to a somewhat larger field in IE.einainediiite vicinity
•, oLour
alTifiWing fhe ex-pertene-e- of this extension to be the guide in
future legislation.
I feel that group banking is playing a most important rale in what
may be a real trend from unit banking at the one pole to widely
practiced branch banking at the other. Where well managed, the
groups se,em to be satisfying the needs of the public which they
serve. That they lack the flexibility, the effectiveness, and the economies of the branch system is obvious. As a measure of prudence,
I feel that the holding companies should be under the inspection
powers of the office of the Comptroller of the Currency.
Senator WALcorr. You would rather have a swing toward the
branch banking idea than to work out its salvation ultimately

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

317

through the group-banking system. You think the natural trend
should be toward branch banking?
Mr. MircHELL. I feel that the trend is
to be toward branch
banking.

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Henry m. Robinson, Chairman, Security-First Nat. Bk. of Los Angeles
Hearings - B. Res. 71
/93/
been favorably
Mr. ROBINSON. Based on our experience, I have
amplification
the
of
impressed with the comptroller's suggestion
be defined
might
that
areas
in
s
branche
of the permission to extend
That
center.
the
as
ity
commun
larger
some
with
areas
ic
as econom
funa
be
would
think
I
That
nce.
experie
is based largely on our
change.
al
dament
Senator WALCOTT. You would let that grow slowly ?
Mr. ROBINSON. Yes; grow slowly.

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323

a
Senator WALCOTT. To avoid competing for banks at too high
price?
+Litd`;
Mr. ROBINSON. Yes, sir.
1
Senator WALcorr. A.nd if it went through it would be more along
?
Jeg4)
1 the English system, where you would actually own the branch
is
Mr. RosricsoN. I think it should be a branch instead of what
I base
called a chain or group bank. I believe. the control is better..
-ah7
frial
have
i that on my own experience where-We
veyi
The possibilities of, impropebr
ranc
inbecause
,
banking
much greater than they are in ranch
between the difbanking the definite information as to transactions the
management
by
both
ble,
obtaina
ferent branches is more readily
I think it is
.
banking
group
of
case
the
in
than
ies
and the authorit
safer and final Anare-iisconomical.
rs-t'started in branch banking was that,
ur experience when we fi—
many differin giving autonomy to the branches, we ran into a great t branches
differen
the
of
ement
manag,
the
of
part
the
ent attitudes on
ity and
as to what their duties and obligation$ were to the commun to get IQQA#44/v-.):::r
growth
slow
of
matter
a
been
has
it
And
itself.
to the-bank
Mtjpg
the branch managprs tio conforin_tio whaels considered bestthe
I
know
and
ate7
accentu
be
would
ibit
ihai
see
can
piadice.
banks
ual
individ
the
where
g
revifie accentuated in (Troup bankin
carry on, either along the lines that have been our experience or new
lines, and they may not always be safe or sound. I do not mean to
say that necessarily the branch-banking management is always safe
and sound, but that it can be more easily controlled as to safety and
soundness in a branch-banking system is my belief based on
experience.
Senator WALcorr. You think that the contact between the large
controlling bank and the outlying or small district bank is a wholesome thing for the small bank?
Mr. ROBINSON. Yes.
Senator WALCOTT. And do you think the small bank would give
fully as good service and perhaps be safer ?
Mr. ROBINSON. Our experience in the countr/ is that we have done
s
than the could-have done • • • II
more for the bra
ks. In other words city um, have gone to our
coUTTI ry- branc es. And that has been true for the last 10 years.
Senator WALcorr. So that the country districts are better oft, you
think, under the branch system?
Mr. ROBINSON. Not necessarily. That again would be a question
of the administration's view of its obligations to the various communities that it served. But I think in our experience that our
branch banks generally have done that.
Senator WALCOTT. And do you get through your branches a kind
of diversification ?
Mr. ROBINSON. In our particular case; yes, sir. We have almost
what the comptroller calls an economic area. We have a great,
wide diversity, and that means a better use of our funds than the
individual banks could have had.
Senator WALcarr. You increase your load factor for your loans?
Mr. Rosnisorr. Yes; for instance our crops come on through th
various months through the year. 'So it is almost a revolving fun
through the year.

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Senator WALcorr. Yes.
Mr. RoBiNsoN. So we are rather in a fortunate position in that
respect. But we do believe that diversity is good, and that you want
to get it through a branch-banking medium that covers a reasonable
area.
Senator WALcorr. Senator Norbeck, have you any questions on
this point ? These are rather general questions until we get to something more specific.
Senator NORBECK. I was late in attending the committee meeting,
so I did not hear the opening remarks of Mr. Robinson, but I am
•interested in what I did hear.
In speaking of getting the money out into the country in larger
quantity than before, is it not a fact that even prior to branch banking that funds from the center or cities went out into the country
banks more or less through their correspondents ?
Mr. ROBINSON. Yes Senator.
Senator NORBECK. in other words, in so far as the city banks are
concerned they had the outlet before as well as now, did they not ?'
Mr. RomNsoN. They had an outlet; yes. I do not think it was a
satisfactory outlet always.
Senator NOBBECK. That is rather a general description. I wish
you would go into that further and state as to what you consider
satisfactory.
Mr. ROBINSON. The difficulty was to be sure of the use of the funds
that were put out through the local banks. In our own branch organization we are able to appraise the value of the loan with greater
accuracy, and it was safer for the bank, and really safer for the
community through the brnch system, than it was where the city
bank advanced occasionally and on emergencies to the country banks,
the unit bank.
Senator NORBECK. You mean that in the past the local bank could
make too liberal loans, which can be avoided under the branch
system ?
Mr. ROBINSON. At times; yes1 sir. Not always. It depended
upon the character of the management of the unit bank.
Senator NORBECK. The local bank, of course, has a board of directors who live in the community and are generally familiar with the
personal situation as well as the security ?
Mr. ROBINSON. Yes.
Senator NORBECK. And under the branch system you have the one
man in charge who makes a written report to the centers, and on that
information the loan is generally made, is it not ?
Mr. ROBINSON. No, sir. We have in the local branches in each
case an executive board which corresponds with the board of the unit
bank, of the men in the community who are best informed. And
they have full authority to make loans up to certain limits without
any consultation with the head officers.
Senator NORBECK. And what would the limit usually be ?
Mr. ROBINSON. It varies somewhat with the community. It will
run as high as $50,000, and I think in one instance $100,000.
Senator NORBECK. And as low as what?
Mr. Rom/ism:T. As low as $10,000.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

Senator NORBECK. You do not maintain that usually that is the
way that the ordinary branch-bank system is handled ?
Mr. ROBINSON. I can not answer you RS to that. In the California
branch bank I think that is the usual system.
Senator NORBECK. A few years ago I spent some time in Canada,
and I found a farmer who wanted a few hundred dollars for seed
grain in the spring, and who had put in an application some time
earlier, and it was sent down to the central bank in Montreal or
Toronto, and he had to wait a week for a reply, and I know in one
case, at least, that the bank changed managers, and when the farmer
came in for his money the manager said,"Well, we decided not to
make any loans out here."
Mr. ROBINSON. That does not apply to our operation.
Senator NORBECK. Is not that a condition that can easily develop
where the authority is so far from the business?
Mr. RosiNsoN. I suppose it could, Senator. But it would seem
to me that the administration of a bank would be very unwise if it
permitted it to develop, because the bank, after all, is dependent upon
these various communities for its merchandise and for the sale of
its merchandise.
Senator NORBECK. I agree to that, but is not that almost the rule
of life, that the unwise things are done?
Mr. RomNsoN. At least occasionally.
Senator NORBECK. Both with bankers and farmers.
Mr. ROBINSON. I think some errors have been made by bankers.
Senator NORBECK. Are not they liable to be made under a branch
system, too ?
Mr. ROBINSON. The probability is not as great.
Senator WALcorrr. In other words, you give to your district bank
or branch almost complete autonomy ?
Mr. RomNsoN. No; as I say, not complete autonomy, because we
ask them to conform to proper banking practices, as we view them
in the head office and we try, of course, to study banking practices
And that means that they must conform as to their
all of the time. '
forms. And when it comes to the matter of loans the local executive
board has authority within limits that vary according to the com
munity to make the loans, and they do.
Senator NORBECK. I think you stated before I came in what your
connections were.
Mr. RosnrsoN. Yes, sir; I am chairman of the board of the
Security-First National Bank of Los Angeles.
Senator NORBECK. With how many branches ?
Mr. RomNsoN. I can not say exactly, but certainly I think 130.
We keep consolidating them.
Senator NORBECK. And when did you first branch out?
Mr. RonntsoN. About 1921.
Senator NORBECK. There is the same old trouble again. We have
pretty short experience on a matter which we are asked to legislate
upon.
Mr. ROBINSON. Yes, sir; it is only 10 years. But possibly our
experience is as old as most of them in the country.
Senator NORBECK. The unit banking system is much older in this
country ?
Mr. RomNsoN. Yes, sir ; and it seems to have had its troubles, too.

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Senator NORBECK. Why condemn the banking system because an
economic situation becomes so impossible that banks can not survive
in certain sections.
Mr. RoniNsoN. I think there is a good deal of truth in your statement, Senator. I may venture the opinion, however, that the other
is more elastic, and, a,s we view it, more beneficial to the local community than the unit bank has been in the past.
Senator NORBECK. I must admit that we in the prairie States are
/ deeply appreciative of the great concern that has been shown over
our welfare in the past few years. It seems that branch banking
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Senator WALCOTT. Mr. Robinson, are you familiar with this provision of the proposed law, section 4, on page 4? There is a proviWill
sion there which amplifies the law regarding branch banking.favor
?
with
you
strikes
it
whether
us
you glance at that and tell
Mr. RowNsort. I have never thought that we have reached a time
limits of
yet where it was a large advantage necessarily within_the economic
so-called
the
thought
I
that
believe,
I
stated,
I
State.
a
measure
area, if it could be properly established, would be a better furnish
really
boundaries
State
that
know
not
do
I
because
this
than
of necessity, a diversification.
Mr. Wthms. Is there any harm in this one, Mr. Robinson? Do
you see any danger in it at all?
Mr. ROBINSON. I do not know that I do.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
Senator WALcorr. That is without limitation to the area, or
would

328

you put in a mileage limitation ?
Mr. ROBINSON. A mileage limitation would be a very
difficult
thing.
Mr. WILLIs. How would you fix the area ?
Mr. ROBINSON. I understood the suggestion had been made of
trade
areas.
Senator WALCOTT. That is the comptroller's word, trade
areas.
Mr. ROBINSON. Yes, sir.
Senator WALcorr. But neither he nor we ourselves have ever
defined trade areas. It would be different with every section,
of course.
Mr. ROBINSON. I tried to study that out myself. But my
brance is that the suggestion was made that a committee rememof the Secretary of the Treasury, the comptroller, and theconsisting
of the Federal Reserve Bank act as a committee in trying governor
to define
such an area. And I think possibly they could do that.
Mr. Wm.'s. You mean you would let them fix the area in
every
case without having an application and on their own motion
?
Mr. ROBINSON. Yes, sir; I believe that would be a method.
of
getting at it.
Mr. WILLIs. Is the California law working out on the whole
satisfactorily now ? I mean to say is the legislative situation
there as
to branch banking about as good as vou can makp

Henry M. Rob Lnson — Page 5
/f3/

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Mr. ROBINSON. Of course, they have the law which
permits
branches anywhere in the State. There is only one bank that
undertaken that. The banks in California—the branch bankshas
California—could be put into really four groups • first, " in
statewide "; what might be called "economic area" as
2; and No.
3 "metropolitan area "; and as No. 4 "city branches ". There
is
only one attempt to :g,o state-wide.
Our bank is next in order, and covers what we call the
area, and we get as our boundary on the north the point economic
rail rates break as between San Francisco and Los Angeles. where the
Mr. WILLis. Now, the California law has some
nts as
to number of branches, hasn't it, in proportion torequireme
capital of the
bank, or am I wrong about that?
Mr. ROBINSON. I do not recall that. I think not.
Mr. Wm.'s. Do you think there should be any such ?
Mr. ROBINSON. I do.
Mr. Wm.'s. How would you arrange that?
Mr. ROBINSON. There,.._again, I think it would depend
somewhat
on the character of the business being done in the area where
branches would be located. I would hesitate to say what ratio the
that
should be.
"Mr. WiLus. You would limit the number of branches in
proportion to the capital of the bank ?
Mr. ROBINSON. Yes.
Mr. Wm.'s Would not that eliminate a great many
objections
that have been made to branch banking
Mr. ROBINSON. I think so. Of course, we have had an
area of
competition in our particular section for the creation of
branches
that has created an unwholesome condition, and that would
be a step
in the right direction, undoubtedly.

NO.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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329

Mr. Wniss. Are there any changes in the California law that are
contemplated in the early future ?
Mr. ROBINSON. I have heard of none; no.
Senator NORBECK. I am impressed with your using the words"unwholesome condition" with branch banking in California. Might
we not also get an unwholesome condition when we get branch bankin in South Dakota ?
. r. Rosucsorr. If it comes in the immediate future I think there
is very little danger. You see ours was a type of competition that
came in when the speculation in the banking field was very high.
Senator WALcorr. The prices of the banks were too high ?

• ...

Mr Rnwricsnw_ Yes.

...„ ...,. .. . . . .

Senator NORBECK. I notice again we have our branch banking discussion based on the 10-year experience. I would like to have it based
on the 50-year experience, which I think would be a better one.
Mr. RomNsoN. I agree that it would be better, but I am afraid
that I will not be present at that time.


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Henry M. Robinson — Page 6

Senator INTORBE-CK. Tell us about these committees of the branc
banks that are authorized to make loans without consulting the cen
tral bank. I wish you would explain that a little further. I pre
sume there is a fixed limit as to the amount they may loan.
i
Mr. ROBINSON. Not in any given case.
Senator NORBECK. Nor as a total for the branch ?
Mr. ROBINSON. No ,• not that exactly. But we show them a chart,
give them a chart, which indicates what, if they were a unit bank,
\ they would have a right to loan. When they have reached that in
their loans they then take up with the head office to find out whether
we might be willing for them to go beyond that.
Senator NORBECK. In other words, you determine what you allocate to the community.
Mr. ROBINSON. By its deposits.
Senator NORBECK. By its deposits?
MT. ROBINSON. Yes.
Senator NORBECK. Are they the actual deposits or theoretical
deposits ?
Mr. RosucsoN. No; the actual.
Senator NORBECK. The actual deposits ?
Mr. ROBINSON. YeS.
Senator NORBECK. And they are permitted to loan what part
of those deposits ?

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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335

Mr. ROBINSON. The same percentage that we would in the head
office.
Senator NORBECK. And then if there is anything further they
have got to apply to the head office ?
Mr. ROBINSON. Yes; to go beyond that.
Senator NORBECK. I can not see they differ much. If they were
a unit bank they would be able to loan just the same amount they
are loaning now.
Mr. ROBINSON. Yes, sir.
Senator NORBECK. Only in the latter case they would apply to
the other bank for additional funds.
Mr. RosiNsoN. Yes; additional funds.
Senator NORBECK. I can not see the distinction. I can not get
the advantage that comes to the branch with those limitations on it.
Mr. RoniNsoN. There is just one other difference, which is that
with the unit banking system the city bank might not be as willing
to advance excess funds as the central office might be willing to
advance to its own branch.
Senator NORBECK. Might it not also work both ways? Does not
the city bank advance funds to its correspondent to help it hold its
business ?
Mr. ROBINSON. Yes; I think that is the primary reason.
Senator NORBECK. And that influence would not enter here, since
the branch banks would be the only banks.
Mr. ROBINSON. No. But the other influence I think is stronger,
and that is a desire to maintain your community. For instance,
these advances are seasonal, and, as I say, in our area they are rather
revolving, and one bank at one time flourishes, and at another time
another bank, and it enables the funds to go to different districts.
They do not fail to employ their funds in that way, and I think it
works out better than it would with the unit banking system in that
respect.

Henry M. Robinson — Page 7
/9 /
Senator NORBECK. For instance, here is a correspondent bank
getting money from you, getting funds from you rather, for which
they pay a certain rate of interest somewhat below the rate at which
they loaned ; is that right?
Mr. ROBINSON. Yes.
Senator NORBECK. In this case you get the benefit of the whole
return on whatever the money is put out at, do you not ?
Mr. ROBINSON. Yes. _
Senator NORBECK. In other words, where you might be putting
money out to a correspondent at 4 per cent, you can in this way put
it out at 6 per cent?
Mr. RosiNsoN. Yes, you can do that. And, on the other hand,
I think—I do not know that I would want to state it positively—
it would show during the last eight years that the community has
had a lower rate than it would have had from unit banks borrowing
from central banks.
Senator NORBECK. But this much you admit, you take more out of
the community than the unit bank did.
Mr. ROBINSON. No,I do not. I say we take less, I think.
Senator NORBECK. I mean in the way of interest charge.
Mr. RomNsorr. I mean in the way of interest charge.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

Senator NORBECK. Your interest to a correspondent bank might be
4 per cent, and now you get 6.
Mr. ROBINSON. That is correct, but we get it because we maintain
an office in the community.
Senator NORBECK. Yes.
Mr. ROBINSON. And furnish the machinery that a unit bank
furnishes. And I say the community bank gets it at a lower rate,
I believe, than it would where the unit bank in the community borrowed it from the central bank.
Senator NORBECK. Of course there would be less distribution in
the community of dividends and salaries than there was formerly.
Mr. ROBINSON. I do not even agree with you on that, because in
our case our stock is scattered and owned very largely in the communities where we have branches.
And I would say as to salaries that perhaps we do not pay quite
as much in the large, but I do not think it would differ very widely.
Senator NORBECK. As near as I can figure out, as you tell me, you
may have a certain greater advantage in dealing with the branch
'bank than in dealing with the correspondent.
Mr. ROBINSON. Yes.
Senator NORBECK. But I do not see where the community gets any
advantaffe out of it, except the possibility that in case of great need
they might be taken care of better.
Mr. ROBINSON. I am sorry you have gotten the impres.sion of possibility, because I have said that in our case that has been our practice.
Senator NORBECK. We are not talking about your practice. We
are talking about the banking laws of 48 States.
Mr. ROBINSON. I can tell you that I think that the administration
of the branch banking would take the same view that we have. This
is mv belief. It is only a matter of belief, of course.

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Senator NORBECK. Yes; it is possible. It is your belief that they
would have such a liberal attitude toward the small communities
and that they would furnish them more funds than they are getting
now V
Mr. ROBINSON. No; I would not put it on that ground. I think
that they would use the funds of their branch banking to the best
advantage of the communities, first, in safety, and then to the best
advantage of the communities in which a bank is placed.
Senator WALcorr. By diversification you can revolve and move the
funds from one community to another, and in that way you can keep
your money working better.
Mr. ROBINSON. Yes.
Senator NORBECK. May I ask if that has not been done for 100
years in banking in America ?
Mr. ROBINSON. Yes. Credit moves very fast.
Senator NORBECK. Yes. But this is not an innovation.
Mr. ROBINSON. No; it is not an innovation. It is an improvement,
because I think there was a definite lag in the movement of funds
where you had a multiplicity of the unit banks, a very definite one.
In the first place the management of the small unit bank, we will
say, from which the customer is desirous of obtaining funds, has
quite a little time making up its mind. Then it goes to the city bank

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

337

and they wrangle about security, and this and that, and try to appraise the security value, and at last get the money. Yet, at other
times, hardships have come because the city bank felt no responsibility for the community,.which the branch bank does, and at times
would decline to assist, where the head office of the branch bank
would feel that it was its duty to assist.

1

/—Senator WALCOTT. Has the progess of bank mergers in Calis/
fornia been retarded or furthered by the branch-banking system ?
\ 1 ,\ Mr. ROBINSON. I ShOlIld say it had been retarded, because
most
\9_f the banks have gotten into branch banking by this time.


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Owen D. YounE, Chairman, General Electric Co.
Hearings — S. Res. 71
/93/
77f7=7

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The CHAIRMAN. Do you advocate branch banking ?
Mr. YOUNG. I see no escape from it if we are to have the required
credit service for the country.
The CHAIRMAN. Would you think that branch banking should be
nation-wide? Do you think we should attempt that at this time?
Mr. YOUNG. I should think not.
The CHAIRMAN. Would you confine it to the States?
Mr. YOUNG. Personally, I should experiment with it in limited
areas.
The CHAIRMAN. The Comptroller of the Currency suggested trade
areas. It occurs to some of us that that is a rather general term, and
it would be difficult in a statute to define a, trade area.
Mr. YouNo. Yes, sir. It seems to me as a practical matter you
would have to take some well-defined geographical division, either
State or, if one wished to make the experiment that large, a_ Federal
fe-§erve district. rilioTiI1 Have gnat doubt-whether branch banking ,
ever na-d be extended beyond the district, but so long as it, were
confined to the district--The CHAIRMAN. The Federal reserve districts ?
Mr. YOUNG. The Federal reserve districts; and the Federal reserve
bank of that district, therefore, being familiar with the home bank
and all its branches, there would be then no divided authority, and
__
possibly we might go that far even in an initial experiment. _

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Rome C. Stephenson, Pres., Americ8n Bankers Asso.
Hearings — S. Fes. 71
/9.3/
Mr. WILLis. The paper you read speaks in more general terms
of the broadening of the base.

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374

NATIONAL AND FEDERAL RESERVE BANKING
SYSTEMS

Mr. STEPHENSoN. Yes; it refers to munic
and railroad bonds._
, —At the Cleveland, Ohio, convention, held ipal
in September and Octo,
ber, 1930, there was a report adopted _which was
association on the subject of branch banking, and itthe voice of the
was as follows:
The American system of unit banking, as contra
sted with the banking systems of other countries, has been peculiarly adapte
community life of the United States. The futured to the highly diversified
demands the continued
growth and service of the unit bank in areas
econom
sound, independent banking of this type, especially ically able to support
as a protection against
undue centralization of banking power. Modern
economic changes, both in large centers and countr transportation and other
y districts, make necessary
some readjustment of banking facilities.
.
In view of these facts, this association, while reaffi
unit bank, recognized that a modification of its forme rming its belief in the
r resolutions condemning
branch banking in any form is advisable. The
association believes in the
economic desirability of community-wide branch
banking ip metropolitan areas
and county-wide branch banking in rural distric
ts
The' aRgoetatIon supPoits in every respect t- he where economically justifik.4.autonomy of the laws of the
separate States in respect to banking. No class
of banks in the several States
should enjoy greater rights in respect to
the establishment of branches than
banks chartered under the State laws.
-

/

Mr. Wm.'s. Does that community-wide branc
h banking that you
speak of mean that metropolitan banks shoul
allowed to spread
d
be
out into the counties in which they are situa
ted?
Mr. STEPHENSON. I believe it would, because
it says"communitywide branch banking."
Mr. Wimrs. That seems as if it were one of those
"weasel words"
that often appear in resolutions.
Mr. STEPHENSON. In many places, of course, the
city covers the
entire county, like Chicago, which covers all of Cook
York City; and Philadelphia; so I think that would County; New
mean that the
American Bankers Association was in favor of
branch banking in
the metropolitan areas, which indicates that it shoul
wide branch banking, and I think that would d be communitycover the whole
county.
The AcrusTo CHAIRMAN. And in the rural districts,
it would cover
several counties?
Mr. STEPHENSON. No; I think county-wide branc
banking would
limit the bank to having its branches within thehsame
county in
which it is located.
The Acrina CHAIRMAN. Does that imply that
bankers association would not favor suppressing or gradually the
doing
State banks in order to force all the banks under away with
the Federal
reserve system?
Mr. STEPHENSON. I think that this resolu
the preservation of the present State lawstion is very strong for
protecting the State
banks.
The Amiga CHAIRMAN. Which would mean that
they would want
to_p_reserve the State banks?
Mr. STEPHENSON. Yes, sir.

Rome C. Stephenson — Page 2
f3/
/ Mr. WiLms. We have heard that chain stores were very numerous /
f in that part of the country and you have them even in the smaller
places.
Mr. STEPHENSON. Not a great many, but you will find on investigation where they have these hard-surfaced roads many of the '
e,....e.tvA--c0
farmers have abandoned the smaller communities and go to the
^t.er
in
and
of
goods,
larger cities, where they have a larger assortment
, -,- Y
1 many instances they are slightly more reasonable, and if he does his I
'."
'
-15-...
his
deposits
to
the
trading in the larger cities he will naturally take
larger cities.
The ACTING CHAIRMAN. Does not that indicate we must put our
wits together and find some solution? Is it branch banking, in your
opinion, that will solve this problem? Apparently the American
Bankers Association has been, until recently, opposed to any extension of branch banking. Now,this committee that you are quoting is
apparently in favor of some slight modification toward branch banking. Would not branch banking tend to diversify the loans and
increase your load factor ; in other words, act as a kind of check or
shock absorber in saving some of the small communities?
Mr. STEPHENSON. I believe not. In a great many of these communities where the banks have closed there will never be any demand for banks for those communities again, because the citizens
7
who live in the communities surrounding the smaller places go to
back.
go
not
will
and
places
larger
the
Mr. WiLms. That is not the case in Great Britain, because you
have the branch banks all over the country in the smaller places, and

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

379

the same on the continent, sometimes keeping a, branch open o_Lty.
a day in the week. Is not that irtie
—IVIF.—SrEpHENsoN. I could not say from personal observation, because I have never been there.
Mr. Wm.'s. It is shown by descriptions that I have read. Why
should we have a different situation here than there?
Mr. STEl'HENSON. I do not believe that we would need any of the
branch banks in those smaller communities to be open a day or two
days when they have those hard-surfaced roads and can get into the
larger communities in 10 or 15 minutes.
Mr. WiLms. Well, they have the best roads in the world in England and Scotland.
Mr. STEPHENSON. But I do not believe they have as many automobiles there as here.
Mr. Wimis. But they have excellent bus systems so that what is
true here is equally true there.
Mr. STEPHENSON. From reading, I take it in those rural communities in Great Britain and Europe they have very few autos among
the members of the rural communities that would patronize banks.
Mr. Wm.'s. But they have excellent bus systems and there is no
reason why the situation would not be the same here, is there?
Mr. STEPHENSON. No.


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Mr. Wm.'s. is it. lio-t .a htc-t that the bank of deposit in the
smaller community has often not been well run under our existing
banking situation V
Mr. STEPHENSON. They seem to have had no difficulty until about
10 years ago in those communities, which was when the price of commodities was fair and reasonable and before real estate began to
depreciate. There were very few banks in the smaller communities
comparatively that failed at that time because farmers were enabled to pay their notes when the rural real estate was gradually
appreciating in price.
Mr. WiLms. If you had high prices for farm commodities you
think the small banks could have stood up in spite of the hard-surfaced roads?
Mr. STEPHENSON. I do not think so in a great many instances, because I think the business of those communities would be naturally
absorbed by the larger communities, and I do not believe the smaller
communities would get it back.
Mr. Wm.'s. The Northwestern chain banks are keepifig the units
of their chains open.
Mr. STEPHENSON. But the banks in the Northwest group are in
fairly good-sized communities. They are not in the very small communities, where the population is only from three to five hundred.
Senator NORBECK. Mr. Chairman, I think that is developing the
very point that will be of interest. In making reference to the small
community you do not have reference to the small county seats?
You mean the villages around in the counties?

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Melvin W. Traylor, Chairman, First National Bank of Chicago
Hearings — S. Res. 71
/f /

1

I belieVe in the independent unit system of banking which this -‘
country has always enjoyed. I believe the thing we have
most of all is the extent to which, in supposed emerge to fear
ncies, we
modify that system. My conviction is that if we were to nationa
which politically I think is impossible—our banking structu lize-re, that
the extension of branch banking would be inevitable and that
inevitable development of that system would be, perhaps not in the
our
lifetime, but in due course, a very small number of large units which
would control completely the credit facilities of this countr
y, which
I think would be extremely unfortunate.
,
The CHAIRMAN. Mr. Traylor, what is the practical difference between correspondent banking and branch banking?
Mr. TRAYLOR. You mean as we practice it to-day, and actual
branch banking?
The CHAIRMAN. As the larger banks of the country practice it.
Mr. TRAYLOR. I meant the banking fraternity.
The CHAIRMAN. Your bank has perhaps a larger number of correspondent banks than any other bank in the country.
Mr. TRAYLOR. No; I do not think so. The Continental probably
do have more corre,spondents than we have and so have some of the
banks in New York City.
The CHAIRMAN. The Continental is Mr. Reynolds's bank V
Mr. TRAYLOR. Yes.
The CHAIRMAN. Of course I know what is the technical difference,
but, in effect, what is the practical difference between correspondent
banking and branch banking?
Mr. TRAYLOR. Actual supervision of management, capital responsibility, and practically every difference that you could very well think
of,I should say.
The CHAIRD/IAN. I am trying to find what difference you think
there is. I do not think there is a great deal myself.
Mr. TRAYLOR. In the first place we have a bank down at Podunk,
we will say, which carries its account with us.
The CHAIRMAN. And you are not confined to the State of Illinoi
s
by any means.
Mr. TRAYLOR. Anywhere—wherever it may happen to be. We have
absolutely, first of all, no responsibility for the capital structu
We have no responsibility for management; no authority for re.
agement; we are concerned only, as a very practical proposition,manseeing that such loans as we make to that bank are proper with
ly and
safely secured, and that is really as far the mangernent of a
deposi
relationship, such as ours to the country banks, can really have.tory
periods of trouble, we do go down and actually sit_ with.the...bia In
ath
of _directora and do everything else _we can to heTP- them
out and
sometimes put up money.
My objection to group and chain bankina, as distin
guished from
direct branch banking, is very much of ta same
character. I do
not think a group of banks can be successfully
run unless they are
run from the head office. .
The CHAIRMAN. I agree with you.
Mr. TRAYLOR. I know they will not be successful unless
the head office. That can best be done without local boardsrun from
of directors—
Mr. Wmas. The California branches have been very
successful
in having local boards of directors, have they
not?
Mr. TRAYLOR. They seem to be.
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The CHAIRMAN. Is Chicago now in favor of branch banking in any
measure?
Mr. TRAYLOR. Senator, our friends, who rode us so hard, are now
its most noted exponents and champions.
The CHAIRMAN. They are?
Mr. TRAYLOR. Yes. I think I can say that without any fear of
contradiction.
The CHAIRMAN. They would have saved me 14 months of hard
work if they had felt that way at first.
Mr. TRAYLOR. I have some sympathy with you.
The CHAIRMAN. Everyone in Chicago now is in favor of branch
banking as set forth in the McFadden Act?
Mr. TRAYLOR. If I was quoted as saying
_ so they might deny it.
but privately I think they are.
Senator NORBECK. How old is- ou'r experience in granch
banking'e
Is it not rather modern?
Mr. TRAYLOR. Not over 8 or 10 years, I should say.
Senator NORBECK. You feel that is not long enough to
determine
the relative merits of the system?
Mr. TRAYLOR. Well, I think the te,st that that
particular experiment has gone through in the last two years is pretty
conclusive evidence that, if properly managed, the system
sound. It gets back
to the degree of sanity in management within is
the system.

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Oscar Tells, Chairman, First National Bank, Birmingham, Alabama
Hearings — S. Res. 71
/79/
The CHAIRMAN. What have you to say about the problem of branch
banking? We have had various suggestions along that line—
one by the Comptroller of the Currency—to have branch banking
for designated trade areas.
Mr. WELLS. Senator Glass, I am rather in favor of the development of independent banks rather than the development of branch
banks, but I recognize that that is not an answer to present conditions. 'The American Bankers Association has also come to that
recognifion as at the last convention? I realize the conflict of interest that has arisen by the development of branch banking in some
States. and by the development of group banking in others.

422

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The CHAIRMAN. Which do you prefer?
Mr. WELLS. I think that most group bankers will admit that they
think that branch banking is desirable as against group banking.
The CHAIRMAN. And they engage in group banking because-Mr. WELLS. Because they have no facilities for developing branch
banking, although there have been some instanceT-Where group-bunking lias
undettliken on a large-geale iihere branai banking,
in
---Tartent;l
a___
itts be-en-in practice, silet as in.Detroit.
e
ShOuld we adopt a system of branch banking,
do you think it should be confined to the State; that is, should we
have state-wide branch banking?
Mr. WELLs. I am not yet in favor of saying we should have statewide branch banking, but at any rate I do not think we should go
beyond that. In saying that I have particular regard for the status
of the State-chartered banks.

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Prof. Iarcus Nadler, of N.Y. Univ.
Hearings — S. Res. 71
/9.3/
Branch banking: Under modern conditions of rapid transportation, of chain stores and branch factories, small unit banks have to
a considerable extent outlived their purpose. Failure of banks with
branches, however, is not unknown in Europe and in the United
States. A failure of a bank with a string of branches operating in
one district would cause disaster to the entire district. Branch banking also tends to create a monopoly of banking business in certain
sections of the country.
Furthermore, business houses are accustomed to have two or more
banking accounts. The absorption of one bank by another often results in unnecessarily restricting the line of credit to individual
firms. It would seem to me,therefore, advisable that if branch banking is allow, certain provisions should be made to guard against the
creation of a banking monopoly in certain parts of the country; and,
secondly, not to restrict unnecessarily legitimate business. Before
branch banking is allowed, it seems to me that the powers of the,/
Comptroller of the Currency should be greatly increased.

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H. Pushae Williams, Chairman of the
Executive Committee of the N.Y. Title & Mortgage Co.
Hearings — S. Res. 71
f.9/
Mr. Wm.'s. In England they have a rather serious re-al-estate
problem growing out of the branch-banking situation, and in Ireland,
too, and I think the same on the Continent.
Do you think that branch banking necessarily involves any serious
real-estate question through the buying of branch buildings and
carrying them along in the portfolio of the parent?
Mr. WILLIAMS. I can not say that as to England, but I would
absolutely say it was necessary in New York. You can not get a

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

location unless you buy. If you get a location by rentals,
it is
very high and not economical.
Mr. WILLIs. Branch banking involves a large real-estate portfolio on the part of the parent bank, does it not?
Mr. WILLIAMS. Yes. It has been extraordinarily successful
with
us. I suppose we bought at the right time.

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J. Cameron Thomson, V. P., Northwest Bancorporation, Minneapolis
Hearings — S. Res. 71
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Mr. THOMSON. The Northwest Bancorporation—I am going to describe it later—is a holding company, owning stock in financial institutions, including national banks. We went into this plan of ours
on the basis that we would try to get the leading key banks as our
partners and work this thing out. We realized that whether we
succeeded depended on our ability to manage our affairs, and we
therefore got the key banks because they were the banks that could
afford to pay for good management, and they were the banks that
were more representative and banks that would be the best partners.
We tried to set this company up on the basis that these banks
would really be partners, managing their own affairs. I think our
by-laws provide that 75 per cent of the directors of these banks have
to be local men, and more than that percentage of the directors of
these banks are local men. We said, further, that these banks must
come in on the basis of exchanging stock. We wanted to make sure
that the banks would be willing to say to us that"We will not sell
out to you, but we will exchange our stock for your stock. We will
become your partners, and you will be our partners."
We felt in doing this that we were not only benefiting the communities but were also benefiting the stockholders of these banks,
because they got an investment that represented a diversified interest and ownership in the larger banks in the territory, covering a
wider range of territory than individual banks could serve, not so
much dependent upon the local bank's business in any one year, and
we felt if we could stabilize the banking situation we would benefit
not only the customers and the banks but the territory as a whole.
The CHAIRMAN. You say they would not sell out to you ?
Mr. THOMSON. That is right.
The CHAIRMAN. Would not that largely depend on the terms on
which you exchanged your stock ?
Mr. THomsoN. That gets to a question of whether we have been
paying high prices or whether we have been offering a fair price.
We think, Senator Glass, if you were to investigate it yourself,
you would find that both the Northwest Bancorporation and the
First Bank Stock Corporation have paid very reasonable prices and
less than many other organizations that have bought bank stocks
have paid ; in fact, we would not pay what some people have paid,
and our whole idea was to convince the people that came to us that
they were going really to become our partners, and if the whole
thing was right and well managed that they would eventually benefit
by becoming associated in this central holding company.
The CHAIRMAN. I have not intended to imply that you did not pay
a fair price. Nevertheless, it would largely depend upon the adjustment of the holdin_gs as to whether you owned them or they own you.
Mr. THomsow. You are right in that.
The Northwest Bancorporation itself is a Delaware corporation, a
holding company not engaged in the banking business and making
very careful that it does not get into the banking business. It is a
Delaware corporation. It was not advantageous to our own stockholders to have a Minnesota corporation because of the risk of
double taxation.
It exists for the purpose of providing supervision to the extent that
such supervision helps the individual bank, also that such supervision

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protects the corporation, and for rendering service in that territory.
We believe this service is generally appreciated to-day, and if appreciated and extended it is going to make the Bancorporation a valuable property for the stockholders.
As to the fundamentals in that corporation : They are just the
same as in an individual bank. I think that our principle of operation is right and I will give you, a little more in detail, a description
of how we operate and you can judge from that.
The CHAIRMAN. Have you done that in the House hearings, Mr.
Thomson
Mr. THomsort. No• we did not, Senator. We think that we are
well located in that t'erritory in spite of all the failures and in spite
of all the changing conditions.
As to the management, I will leave with you copies of the annual
report of the Northwest Bancorporation which has some comparisons
with a year ago, a list of our directors, and a statement of our stockholders and where they reside. Every important city in our section
of the country is represented in either one of these two corporations.
These are the men that have been interested in the development of
that territory. They are the men who will profit by the continued
development of the territory. These men, we believe, with an institution so vital to the success of that territory and an institution with
the chances for profitable operation that these corporations have, are
going to see that the corporations are well managed.
We have, in the Northwest Bancorporation, an active executive
committee as fully informed regarding the operations of the Northwest Bancorporation and in general of the operations of the banks,
as the executive committee of a bank. In fact, they are better
informed than the executive committee of many banks.
The CHAIRMAN. WhO supervises the corporation ?
Mr. THOMSON. The executive committee, and the active officers.
The CHAIRMAN. Is there any State examination provided for it ?
Mr. THOMSON. There is no examination by any public body. We
are on record with Mr. Pole, personally, and I would like to be on
record here, as favoring an examination by the comptroller's office
of the affiliates and the corporation itself and of the bank. We
should like that.
The CHAIRMAN. And publicity of statements likewise ?
Mr. THomsow. Yes, sir.
Mr. Wimirs. Who owns the majority of the stock , of this corporation?
Mr. TnomsoN. The majority of the stock is owned in the four principal States that we do business in. Ninety-five per cent of the stock
is owned, Doctor Willis, in the territory we serve.
Mr. WILLIS. What bank has a predominating ownership in the
stock ?
Mr. TnomsoN. There is not any one bank.
Mr. Wmus. What is the largest stock ownership in any one
individual institution V
Mr. THomsorr. I do not recall, but I think that the largest individual
holding would be around 20,000 shares out of 1,670,000 shares, and
of course the largest block of stock is owned by the men who are
connected with the Northwestern National Bank of Minneapolis.

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MI% WILLIS. HOW much stock is owned by interests, men or corporations, or affiliates, connected with the Northwestern National
Bank of Minneapolis?
Mr. THomsoN. I do not know that offhand, but I shall be glad to
get it for you.
Mr.
You can give it approximately.
Mr. THOMSON. I do not know that, Doctor.
Senator NoRRECK. Is it a control?
Mr. THomsoN. No; this corporation is owned by the public in
that territory, and there is no one interest that has control. If, for
instance, you should go to the First Nationak, of Duluth, that city,
being a very strong competitor of Minneapolis, as you know, Senator,
the First and American National Bank is the largest bank in northern Minnesota outside of the Twin Cities; they would tell you they
had as much right and interest in the corporation as the Northwestern
National Bank of Minneapolis.
Mr. Wm.'s. You will send in here a complete list of the stock
holdings?
Mr. THomsoN. Yes, sir.
Mr. Winus. Showing not only the names but the groups, so as
to show the affiliations of the owners, and so to indicate in whose
hands the control really is ?
Mr. THomsort. Yes, sir.
(The witness submitted partial listings of stockholders of the
Northwest Bancorporation, as follows:)

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Distribution of stock in States in which we operate, as follows: Stockholders
in Minnesota own 929,212 shares; Iowa, 132,912; Montana, 34,702; Nebraska,
70,761; North Dakota, 36,647 ; South Dakota, 67,626; Washington, 39,072; Wisconsin, 38,895.
Stockholders in miscellaneous States own 320,000 shares, of which the largest
holdings are as follows: Illinois, 116,864; New York, 95,135; California, 53,221.
We have stockholders in practically every State in the Union. One individual
stockholder has over 25,000 shares and half a dozen other individuals own over
12,000 shares.
The officers and directors of Northwestern National (Minneapolis) and affiiates
own 213,920 shares; the officers and directors of Iowa-Des Moines National Bank
& Trust Co., Des Moines, 27,441 ; the officers and directors of First and American National Bank, Duluth, 107,9'73; the officers and directors of United States

National Bank and Stock Yards National Bank, Omaha, 25,704; the officers
and directors of Spokane & Eastern Trust Co., Spokane, Wash., 11,581.

Mr. THOMSON. We believe that this set-up gives us a diversification because of the territory that we cover, and the range of business
transacted in that territory.
May I just call your attention to this situation: If you are going
to have diversification on a large scale in our section, you have to
cover territory. The total bank resources of the ninth Federal
reserve district are not so large as the resources of one bank in
New York. We have whole sections that are largely dependent on
wheat. So, to get diversification on a large scale, you have to cover
territory and covering the territory that we do we have diversification through various forms of agriculture and industries. The
largest portion of our income from agriculture comes from livestock
and livestock products. We have copper mining and iron mining.
We have some manufacturing. Iowa produces as much values in

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manufacturing as it does in agriculture. Des Moines is one of the
largest—
Senator NORBECS. May I ask, for information, just one question ?
That would include such manufacturing as creameries and cheese
factories, milk, and so forth?
Mr. THOMSON. Yes,sir.
Senator NORBECH. Even that might mean that agricultural products predominated, even in manufacturing, as well as agriculture?
Mr. THOMSON. Agricultural products are the predominating factor in that territory.
Mr. WILLTs. How many banks are owned in this corporation?
Mr. THOMSON. I am coming to that. We have, as of to-day, 134
institutions in the group.
Mr. WILLTs. How many banks are there in your Federal Reserve
district?
Mr. THomsozi. There are 2,200 in the ninth Federal reserve
district.
Mr. Winus. Do you have a vote for each of your banks in electing
directors of the Federal reserve bank?
Mr. THomsoN. These banks are not all members of the Federal
reserve system.
Mr. WILLIS. But as far as they are members of the Federal reserve system—
Mr. THomsox. Each bank, a member of the Federal reserve, votes
as a member bank in any other district.
Mr. WILLis. Does your Bancorporation have the right to, and does
it, tell them how to vote?
Mr. THomsoN. The Bancorporation on all matters of policy—
and I should be very glad to have you verify that—tells the banks
to do just exactly as they feel they should in the interest of their
local community.
Mr. Wimis. But theoretically it is possible, is it not, by the working out of this system, as it goes further, that there may be vested in
one or two or a small number of corporations of this kind, the entire
control of the Federal Reserve Bank of Minneapolis? That is possible, is it notf
Mr. THOMSON. I suppose it might be possible, but may I also raise
this question with you, doctor: Talking of things theoretically, we
ean figure out dangers, but, in the last analysis, this depends upon
management and personality, does it not ?
Mr. Wm.'s. As everything does.
Mr. THOMSON. As everything does ; yes sir. Now,our thought has
been—and for instance, if you personally were to investigate our
,
ituation' and knew the men, you would realize that to-day. and as
far as anybody can humanly see, we are not interested in controlling
Mr. WILLI& I know the men and think highly of them, but you
are not immortal and what you are doing is setting up a system that
might profoundly affect the Federal reserve system. You do that
by a corporation not controlled by, supervised, or subject to public
law. Does not that present a serious problem for constructive and
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Mr. THomsoN. Well,there is that possibility and it certainly ought
to be taken into account by this committee.
Mr. Wm.'s. That is all I wanted to bring out.
Mr. THOMSON. I should like to add one thing more. The First
Bank Stock Corporation represents, in its key banks, and personnel,
some of the very finest banks in our territory, and that institution
is strongly competitive.
Mr. Wn,Lis. Under present management?
Mr. THOMPSON. Yes.
Mr. Wm.'s. But we are considering legislation for the future,
when the present generation shall have passed from the scene.
Mr. THomsow. We have felt in our corporation that it was the best
/thing in the world in this territory that it had the strong competing
'groups, and while we have, as Mr. Wakefield will tell you, the utmost
/
confidence in the men of their group and feel we are working toward
the same thing, nevertheless we are- strong competitors. We feel
that to be a good thing for us and for the territory. It is a safeguard for the territory at the pre,sent time. It is not a legal restriction, but it is a safeguard against control or domination or anything
\ of that kind in that territory.
\ We have in these 134 institutions 122 banks and 12 investment or
\cattle loaning companies.

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Mr. THomsoN. The activities of our institutions are confined to the
banking business as transacted in that territory ; that is, we have
the
ordinary banking facilities and trust facilities. Our affiliates
in the
security business are in the business of underwriting and
distributing
securties.
Mr. WiLms. You have affiliates who are in the securities business?
Mr. THOMSON. Yes, Doctor Willis.
Mr. Wmus. How many of those have you ?
Mr. THomsow. I believe there are five.
Mr. WiLus. What do they do ?
Mr. THOMSON. Those affiliates were the affiliates of banks that
became members of our group and we took them in ; that is, in
they had the First National Duluth Co. In Minneapolis the Duluth
Minne\sota Loan & Trust Co. had—
Mr. Wm.'s. You merely inherited those and have not created any
.affiliates?
\it Mr. THOMSON. I do recall that we created a single securities
ffiliate.

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573

Mr. Wthris. You have not done so?
Mr. THOMSON. No, sir. We have two or three cattle-loan companies. We are, I suppose, the largest factor in that territory in
making loans on livestock and that business was largely an inheritance resulting from the affiliation of certain banks doing that
business.
Mr. Wm.'s. When you bring out securities or make cattle loans
in these affiliates, do you do so with the understanding or agreement
that they will be. absorbed by the various banks in your chain or
group?
Mr. THOMSON. You can find in all the operations of the Northwest
Bancorporation that no bank is ever asked to purchase any securitie,s,
whether it comes from our own affiliates or any other bank; that we
have continuously stressed and have insisted that the management
of these individual banks and boards of directors must understand
that we hold them solely accountable for the management of their
banks and the Bancorporation will not do anything in the way of
recommendation or suggestion that will relieve thern from the feeling
that they have the absolute responsibility for the operation of their
bank and its management.
Senator NORBECK. I do not question that at all. but it makes me
wonder why you insist on 51 per cent of the stock instead of 49, if
you are going to leave the control and maRagement with them.
Mr. THOMSON. YOU might ask Mr. Wakefield about that. Our
general feeling in the start of the Northwest Bancorporation wa::
that if a man was going to be your partner he would prefer to come
in entirely rather than have a divided interest, and we have found
that you can not get the better banks in the territory to come in on a
basis of divided interest.
Senator,NoRsEcR. They only came in 51 per cent
Mr. THOMSON. In our corporation we have, from the beginning,
held over 95 per cent of the stock of the banks in our group, and.
in addition to_that 95 per cent, there is over 2 per cent that represents
the qualifying shares of the directors of those banks.
Senator NOIUIECK. I am glad you brought that out because I have
not understood that. Does that mean then that only 5 per cent of
the stock is held locally by the particular group of directors that
manages the bank in a town?
Mr. THOMSON. That is right.
The CHAIRMAN. In your view. after all. it conies down to a question of management ?
Mr. THOMSON. Absolutely.
The CIIAIRMAN. Your vindication of the system is good management?
Mr. THomsoN. Absolutely.
The CHAIRMAN. What would happen if there had been bad management?
Mr. THOMSON. Of course, you can do a lot of harm. You have an
illustration in recent months of that, but we believe that, with the
character of banks that are the foundation of our structure and
with the business interests that are represented there and with the
necessity for meeting competition in that territory, you are not
going to have to worry about the corporation being well managed.
,' Mr. THomsoN. I should like to go further and state that the North/west Bancorporation management is separate and distinct from any
affiliate. We are just as much working for the United States National Bank of Omaha, which is one of our partners, as we may be
for the Northwestern National Bank of Minneapolis.
We take the position that any of our affiliates can compete for the
business of our group. We have gone further and set up a securities department in the Northwestern Bancorporation office for the

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575

sole purpose of furnishing information to our banks and of cooperat
and
get
they
ion
informat
the
check
can
they
that
so
them
with
ing
for
each bank in our group may write in for recommendations or also
we
on,
suggesti
or
ndation
recomme
a
make
we
if
but
ons,
suggesti
tell them in the last analysis they must determine whether they will
buy that security or not.
I shall be perfectly frank with you and go further and say that in
a group such as this, the group management has got to see that those
banks are well run, and if those banks bought poor securities and
the management and the local board of directors did not correct that
situation, we would have to see that that situation was corrected,
but—
Mr. %%Timis. You would never bring out bad ones through your
affiliates ?
Mr. THomsoN. Never intentionally.
Mr. WILLIs. So that they would be good, would they not V
Mr. THOMSON. Yes.
Mr. Wm.'s. So, if a member of your group wanted to buy really
good securities, you would not tell them yours were bad?
Mr. THOMSON. You understand, of course, we can not get enough
good securities, nor can we probably get as great a diversification,
as we would like.
Mr. Wuxi's. Of course.
Mr. THOMSON. Of the 122 banks that have been taken into our
group, 102 of them came in without a change of their corporate
status.
Senator NORBECK. May I ask just what that means?
Mr. THomsoN. That is, these banks were taken in on a basis of
exchanging our stock for theirs, without changing their corporate
structure.
Senator NORBECK. Do a great many banks change their corporate
structure?
Mr. THOMSON. We started out to get the strong key banks in order
to have the benefit of good partners and good management, but in
probably 30 cases out of 122 banks coming into our group we have
taken what you might call remedial action in one way or another,
either to save a bank or recapitalize it or put in a new bank where
there were no banking facilities. One hundred and two banks came
in without either recapitalization or without putting up a new
bank—just as they were, in effect.
The CHAIRMAN. What becomes of the American spirit of unit
banking when an outside unit bank undertakes to compete with your
system ?
Mr. TnomsoN. Mr. Adams, here from Fergus Falls, is one of the
outstanding bankers in Minnesota, and he has a bank that competes
with another bank that is a member of our group in his own town.
The First Bank Stock Corporation is not represented in that town.
I do not know what Mr. Adams will say, but you can get a frank
statement from him, a strong independent banker, as to whether we
are a good competitor or a constructive factor in the community.
I think you can ask Mr. Bremer, who is an independent competitor
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The CHAIRMAN. I do not think the reference to one or two strong
banks would afford a sufficient answer to the question.
Mr. THomsoN. Generally speaking, the Northwest Bancorporation has been a very constructive factor and we welcome the competition of independent banks.
In the last analysis, if we are Ting to run a good bank, Senator,
and the other fellow runs a good ank, the difference in the business
they get is going to depend upon the personality and the local appeal.
If we can not get business, we do not deserve to live under that kind
of competition. We are a constructive factor and are good citizens
and have not hurt any independent well-run bank.
We have, for instance, in the last year, devoted our energies to
perfecting our management rather than going out for a lot more
banks; but of the 31 institutions taken in last year, 19 represented
cases where we took in a bank in order to help a local situation.
I should like to say this without its getting into your public record.
The CHAIRMAN. You may say it off the record, if you care to.
(Discussion off the record.)
Senator NORBECK. I should like to say at that point I have not
talked to Comptroller Pole this last year about it, but about a year
or so ago, or a little over a year ago we had a discussion about banks
that had then been taken over by die groups in South Dakota or by
chains, and we went over them individually and carefully. That
was prior to your taking over the Milbank bank. Up to that time I
had not been able to discover you had taken over any weak ones.
You may have since.
The CHAIRMAN. Let me ask you this question Mr. Thomson: How
and in what measure do you differentiate interst;te banking by group
and interstate branch banking?
Mr. THOMSON. Well, on the question of branch banking, our
officers are opposed to nation-wide branch banking.
The CHAIRMAN. I did not say nation-wide.
Mr. THomsoN. On the question generally of branch banking, we
believe that is a matter directly for these States to settle. It is conceivable that in general terms of management a group-banking organization covering all these States might be very comparable to a
branch-banking organization; but we are, as far as we are concerned,
perfectly willing to leave that decision as to branch banking in the
hands of the States we do business in; and as far as the public goes,
they will keep a check on our operations and if they do not think
that they want branch banking or do no't want our banks to have
branches in view of the fact we are covering these various States
Mr. WILLIS. I do not think that covers the question.
Mr. THomsoN. I am wondering whether you mean the difference
in the operation or from the public standpoint or
Mr. WILLIS. I think the important thing is: In what way do the
effects of the banking you carry on differ from the actual operating
effects of the Northwestern National Bank if it had an equal number
of branches equally capitalized in the same places you have unit
banks?
Mr. THOMSON. If we had branch banking in our section, obviously
these banks would be branches of, say, the Northwestern of Minneapolis, or if it was just state-wide branch banking of, say, our largest
bank in South Dakota
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Mr. WIws. Let us say that the Northwestern of Minneapolis buys
out your system and amalgamates your system with it—in what way
would the financial results or effects of that system differ from that
which exists now ?
Mr. THomsoN. There certainly would be more centralized management, Doctor. Now we are operating as partners. Then we would
have a definite centralized management vested in the parent bank.
Senator NORBECK. Your partners have two things—they have 5 per
rent of the stock and have jobs and are on the pay roll. At the
present time I should think the partners would be very anxious to
please you or they would lose their nieal ticket. In what way
would that differ from branch banking, where you would have an
employee in charge of a branch?
Mr. THOMSON. In the first place, these men have a very strong
local interest.
Senator NORBECK. But they sold their interest to you.
Mr. THOMSON. No • they did not.
Senator NORBECK. 'Well, 95 per cent of it.
Mr. THomsoN. They just exchanged their stock for ours.
Senator NORBECK. But your stock is not local stock.
Mr. THomsoN. It is very largely local in that territory, and 95
per cent is owned in that territory. They own their own homes
and their focal business and they profit by the development of their
own local community. Naturally they are thinking in terms directly
,of what is in the interest of their local community, and they realize
that those banks will not develop in those communities nor be profitable to themselves or to this corporation unless the local bank is
prosperous and the community is prosperous.
Senator NORBECK. I do not want to question the motives of the
men who sofd out to you, but I do not see how they have their local
business after selling it out to you.
Mr. THomsoN. In actual practice those men are as interested in
that territory as before, and those men tell us they are more interested than before and I think you will find that the men who are
s are working harder to-day than when they had
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individual banks.
The CHAIRMAN. Not one of these banks employs anyone whose
services they do not ne,ed?
Mr. THOMSON. That is right.
The CHAIRMAN. That would be true of a central bank with
branches.
Mr. THomsoN. In the last analysis, when it gets down to management and operation, I can conceive of a branch-banking organization being of just as much service to a community. I presume you
think there would be a greater centralization of funds under branch
banking. There is no diversion of funds in our banks.
The CHAIRMAN. I think a branch bank would be as much interested in deveroping the community as your bank is.
Mr. THomsoN. I think it depends on the manao•ement.
The CHAIRMAN. Yes; it all devolves on the management.
Senator NORBECK. You are not going to assert that self-interest
is not a strong element in the business? You are not going to assert
that a man on salary is more interested in the success of the institution than the owner?


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The CHAIRMAN. The question here is, Who is the owner ?
Senator NORBECK. That has changed, of course.
Mr. THOMSON. He is still the owner.
Senator NORBECK. He owns about 1 per cent of the stock
Senator WALcoTr. The man who has transferred his stock has
diversified his risk.
Senator NORBECK. It is less local than it was.
Senator WALCOTT. He is a member of a group instead of an individual, but would you not have picked out the same type of man
in that community if you had a branch banking system ?
Mr. THOMSON. By all means.
Senator WALcorr. The same personnel, in other words?
Mr. THomsoN. We have the largest bank in Minne,sota, North
Dakota, South Dakota, and Iowa, and the oldest bank in Nebraska.
Naturally we would try to get banks of that type and men who
could build up that type of bank.
Senator WALCOTT. Does it not boil down to this, that your essential difference is not a matter of personnel, but a matter of individual
initiative? There must be some difference there.
Mr. THOMSON. Yes; but I think, though, that this plan of operation, maintaining a local unit, does retain more local intere,st and
a stronger sense of responsibility in our territory than if you had
branch banking to-day. Whether that would be true eventually,
time only will tell.
The CHAIRMAN. What is to prevent your parent bank in Minneapolis from acquiring a greater proportion of the stock of these
other banks?
Mr. THOMSON. In our section ?
The CHAIRMAN. Yes.
Mr. THomsoN. Well, in the first place, we do not want to do it.
The CHAIRMAN. Well, suppose you had a board of directors that
would want to do it? • What would prevent it?
Mr. THomsoN. In the second place, it is inconceivable that the
directors would, want to acquire them on a basis that was not of
benefit to the parent corporation.
The CHAIRMAN. Of course not.
Mr. THomsoN. And the other man is not under any obligation to
sell.
The CHAIRMAN. But it is conceivable that the parent organization
might want to acquire them because they are profitable.
Mr. THomsoN. There is no legal restriction against our going out
and buying all the banks we want to buy providing we think it
would be profitable, which we do not, and providing we would buy
them on a fair basis and we are satisfied we are getting good management.
We have in our corporation 12,750 stockholders and 95 per cent
of them live in our territory. In a great many cases the number
of stockholders in the Northwest Bancorporation in a community
where we have a bank, has increased very decidedly over the number
of stockholders that the local bank had; in other words, there is
a vastly greater number of people who are stockholders in the Bancorporation in a given locality than there were that were stockholders
in the local bank. So there is a wider public interest in the success


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of the Bancorporation than there was, certainly, in a great many
cases, in the individual local bank.
That does not apply in every case, but in a great many cases it
does apply.
As to the basic principles of operation and supervision that we
apply: In the first place, we have an efficient examining department
which examines these banks at least once a year. These examiners
, and leave
oflicars-ami-the exeettt
with the
the
reports
over
go
corporation
the
of
e
or a representativ
officers and the executive committee of each bank in person, and leave
with the directors a written report of our examination of the bank.
That report is made from the standpoint of a partner. It covers not
only the condition of the bank but the personnel and the earnings
and the development of the business. It represents, from an impartial
viewpoint, our analysis of the way that bank is operated and it
should, and I believe does, give the directors of that bank a better opportunity to be good directors than in a very large number of cases
they could have been before their bank was a member of the corporation. We insist that the executive committee and the directors shall
definitely go over that report with our own people. Naturally, as
owners of the stock of those banks, and as partners we are in a position to go further and more into detail than the National or State
examiner would be.
The CHAIRMAN. Suppose your management was to imitate some
other managements, of which we have had examples, and undertake
to put off on these individual banks of your group, at an exaggerated
price, minor stocks or other stocks or securities that were practically
worthless, what would happen to you ?
Mr. THomsoN. Well, if we did that over a period of time the Bancorporation would not be worth anything. But as against that, you
have our present policy and our present management and supervision
by National and State authorities, which would certainly check that
condition in a very short time.
Senator WALCO1T. They do not examine the holding company ?
Mr. THOMSON. No; but I think it would be only a fair statement to
say here that we have done everythinug in our power to acquaint not
only Mr. Pole but the supervisors of banks in these various States,
with not only the set-up of the holding company and its assets but the
plan of operation and we would welcome all the supervision that those
public officials want to give our corporation.
I believe that they are familiar with the character of the management and policy of the management of these groups in our territory;
in other words. we say to these communities that we will see that
their banks are well managed. If the officers do not manage them
in the right way, we will come to the directors as the responsible
heads of that bank. If the management is wrong and the directors
do not correct it, then the Bancorporation will see that those situations are corrected.
The CHAIRMAN. You are talking altogether about administration
and not about the system.
Mr. THomsoN. That is right. I grant you that.
Senator NORBECK. I might say, Mr. Chairman, that I do not think
there is any member of this committee who has yet questioned their


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administration of their system. However, I am sure there is a.difference of view in the committee as to whether it is a good system
or not.
Mr. THOMSON. I should like to make this statement, since you
gentlemen evidently may have in mind what may happen and what
has happened in some cases.
There is not, in the set-up of the Northwest Bancorporation, any
bonus stock—just one class of stock owned by the public—there was
no promotion expense. The only expenses were just the ordinary
legal expenses. The stocks of our banks are carried on the books
of the corporation at actual cost or less and—
Senator NORBECK. Which stocks?
Mr. THOMSON. The stocks of the banks which we own are carried
on the books of the corporation at actual cost or less.
Senator NORBECK. At the actual purchase price or less?
Mr. THOMSON. Yes.
Senator NORBECK. That might have a different relation to the book
value, might it not?
Mr. THomsoN. That is right, absolutely.
Senator NORBECK. IS it not a fact you paid large premiums for a
great many of these banks?
Mr. THOMSON. No; that is not true, Senator.
Senator NORBECK. IS it not a fact you paid 51/2 to 1 for some of this
stock ?
Mr. THomsoN. Well, the statement that we paid 51/2 shares to 1
means nothing unless you know the book value and the earningcapacity of the bank.
Senator NORBECK. That is the reason I asked the question. Did
you pay more than that for some of them?
Mr. THomsoN. I do not remember the figures. I shall be glad to
give you the total figures.
Senator NORBECK. But you have stated that the cost was not necessarily the book value. That is the reason I asked the other question.
Mr. THomsox. The actual liquidating value of the Northwestern
Bancorporation stock, without taking into account nonledger assets,
without any value for good will, and after writing down considerably on furniture and fixtures, is approximately $37 a share and the
par value is $50 a share.
Senator WALcorr. What is the market value?
Mr. THOMSON. The market value to-day is about $34. It is following just the same tendency as other bank stocks are.
Senator NORBECK. How high did the bank stock go ?
Mr. THOMSON. Against our desire it went to 99.
Senator NORBECK. What is the highest you sold any treasury
stock at?
Mr. THomsoN. Well, we offered to our stockholders, our corporation
by-la ws provide that—aside from an original issue of $5,000,000 for
cash in order to provide the first working capital—no stock can be
sold except as it is offered to the stockholders; we twice offered stock
to our stockholders, in 1929 once at $62 a share and once at $72.50 a
share. Those are the highest prices at which stock was offered to
them, and not all stockholders availed themselves of the privileges.
Senator NORBECK. Now, at what price was the original $5,000,000
sold ?


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Mr. THOMSON. At $50.
$72.50?
Senator NORBECK. But you sold some at $62 and some at
.
olders
stockh
our
to
that
offered
Mr. THOMSON. We
Senator NORBECK. Did they take some at that figure ?
Mr. THomsoN. They did not have to take it.
Senator NORBECK. But you did sell some at that price ?
Mr. THOMSON. Yes sir.
Senator NORBECK. And it is now at $34 a share?
, you
Mr. THOMPSON. Yes; and if you will check up on the figures
will find that stock has followed the same trend as other bank
stocks.
butter
Senator NORBECK. Is that due to a surplus, the same as with
and wheat?
Mr. THomsort. It is due to lack of purchasing power.
banks in
Now, you might question in your mind why we have have
the
banks
These
ka.
Nebras
and
Iowa
as
such
some States
the
and
have,
ry
territo
our
in
banks
same general problems that
asked
cases,
many
in
States,
those
in
group
our
in
are
banks that
on livestock,
to be in our group. We are it large factor in loaningbusine
ss from
draws
Iowa,
in
City,
Sioux
tion
connec
and in that
larly,
particu
,
Omaha
ry.
territo
our
Minnesota and South Dakota in
ss
busine
draws
group,
our
in
is
which
Bank,
Yards
in the Stock
rather
would
they
said
banks
Those
from Montana in our territory.
. Having
be our partners than be in another group in another section
for inka,
Nebras
e
becaus
n
ficatio
these banks adds to our diversi
wheat
spring
a
y
largel
rather
are
we
while
wheat,
winter
stance, has
.
similar
lly
genera
country and yet our problems are
any cure-all, but we
We do not believe that the Bancorporation is
that is kept becau,;e
ts
interes
local
of
do believe that the combination
isory organizasuperv
a
of
s
benefit
the
with
rate,
directo
of the local
g which has
bankin
of
type
a
,
section
tion, have provided, for our
the public
by
ed
accept
now
is
which
factor,
ctive
constru
been a very
system,
best
the
is
it
that
to-day
and by the banks, and we believe
y.
countr
the
of
section
at least for our
does all
The question has been raised as to whether this systemnot
afford
can
that
towns
small
the
in
larly
particu
that may be done,
be inmight
you
States,
Those
to maintain an independent bank.
State
The
on.
questi
very
that
ering
consid
are
g,
terested in knowin
ing
of Iowa passed a limited branch banking bill last week providand
ts
deposi
receive
to
es
counti
uous
contig
in
banks
of
for branches
ed
maintain such other routine facilities as were necessary, provid
there
as
e
long
as
operat
to
and
nity,
commu
a
in
bank
a
there was not
was not a bank in that community.
The State of Montana has passed, in one branch of the legislature,
es
a bill providing for consolidations of banks in adjoining counti
superState
the
of
ision
the
superv
under
ued
contin
which might be
intendent of banks as branches.
best to
Those legislatures are in the best position to judge howfacilit
ies
g
bankin
of
sort
some
need
serve the local communities that
do,
may
they
ver
Whate
bank.
ndent
indepe
an
and can not afford
we will adjust our program to that situation.
I do not want to call on anybody unprepared, or suggest you call
sitting
anybody, but Colonel Marsh from Litchfield happens to be
defiyou
tell
can
He
group.
our
of
r
membe
a
is
here. His bank


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nitely of the basis on which they operate their bank
and we would
be glad if you could acquaint yourselves with the actual
effects of
the operation of these corporations in that territo
ry.
I am going to leave with you several copies of our
annual report
and I will see that all the members of this commit
tee
get a copy of
that report.
Senator NORBECK. I should like to ask you a few
point. Do I understand that your view is that thisquestions at this
group banking
Is a better banking system for the country generally
branch system, where it is all owned and controlled fromthan a pure
Mr. THomsorr. I think that group banking, owned by the center ?
the public
and operated by the local people, is very much preferable
to
or claim chain system owned by an individual or controlleda branch
by one
interest, without that local interest and management.
Senator NORBECK. You feel that the branch-bank system
would
' have too much of a tendency to centralize ?
Mr. THOMSON. There again it depends upon management.
Senator NORBECK. I know but you think there would be too
of a tendency to centralize. 'I know under good management it much
not necessarily be abused, but I am talking about the system. would
Mr. THomsoN. In our section of the country we do not think that-rather, we think that group banking is preferable to general branch
banking in that territory.
Senator NORBECK. Because it has not the same tendency to centra
lize • is that it ?
Mr. THOMSON. Yes; it has more local interest.
Senator NORBECK. It has less tendency to centralize than
the
branch-banking system?
Mr. THOMSON. YeS, sir.
Senator NORBECK. And therefore you feel it is better for the
country ?
Mr. THOMSON. Yes sir.
Senator NORBECK. frhat is your view as to the territory over which
the,se organizations should spread? You said you feel they should
not go all over the country.
Mr. THOMSON. Well, our whole feeling about the questi
of
whether we are going to have branch banking or group or on
chain
banking, covering the territory we operate in, is that those things
should develop along economic lines. The First Bank Stock Corpo
ration covers only the ninth Federal reserve district. They
are
in
Michigan, and we are not. We have reasons for determining the
ritory we cover. I think that should be determined by the econotermic
situation and the business situation rather than by any rule.
Senator NORBECK. In other words, you feel it should not be defined
by law, but by experience?
Mr. THOMSON. Certainly, by experience.
Senator NORBECK. As far as the law is concerned, you would leave
the whole 48 States or Territories open to any organization that
wanted to go out and attempt to branch out?
Mr. THomsort. I would rather let experience determine that
question.
Senator NORBECK. In other words, you do not advocate or
recommend a legal limit, limiting them to any territory or Federa
l
reserv
e
district or any particular area?

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Mr. THomsoN. I do not think it is necessary and I think experi
ence will determine that.
Senator NORBECK. Nor best?
Mr. THOMSON. NO, sir I do not.
Senator NORBECK. Speaking now of economic areas, what do you
especially have in mind in that statement?
Mr. THomsoN. Well, we think that ours is a good example of an
as
economic unit. Some people differ from us. No one, as I farecoory
satisfact
a
e
determin
to
able
been
has
read,
I have seen or
nomic unit, and son
Senator NORBECK. In other words, you feel that the expressio
define?
to
le
impossib
and
"an economic unit"is a very vague thing
Mr. THomsoN. That is right.
Senator NORBECK. How far from Minneapolis is your farthestaway bank, 2,000 miles?
Mr. THOMSON. No.
SeIlatOr NORBECK. Not quite?
Mr. THomsoN. Spokane is 1,200 miles west of us.
Senator NORBECK. Is that as far west as you have gone?
Mr. THOMSON. That is as far west as we have gone. Some of you
gentlemen who come from the East have got to visualize that, for
instance it is as far from Minneapolis to the western portion of the
Ninth Federal Reserve District as it is on an air line from Minneapolis to Jacksonville, Fla. So when you say 1,200 miles you have
got to keep in mind in our territory distances are enormous and that
this does not mean large population or large concentration of wealth
and that the Ninth Federal Reserve District stretches, I presume,
halfway across the United States from northern Michigan to the
western boundary of Montana, which is just east of Spokane.
Senator NORBECK. I am mistaken about 2,000 miles; it is only
1,200 miles?
Mr. THOMSON. Yes, sir.
Senator NORBECK. You go in the other direction, south, how far ?
Mr. THOMSON. I have never figured those distances.
Mr. WAKEFIELD. About 350 miles.
Senator NORBECK. Now, the capital of the bank
Mr. THomsow. Of the Northwestern National Bank?
Senator NORBECK. Yes.
Mr. THomsoN. The Northwestern Bank and its affiliates in Minneapolis employ about $13,000,000 in capital?
Senator NORBECK. How much of that is bank capital ?
Mr. THOMSON. The Northwestern Bank itself has $5,000,000
capital.
Senator NORBECK. How much surplus and undivided profits?
Mr. THomsow. It has $2,000,000 surplus and between a million and
two million undivided profits.
Senator NORBECK. Speaking of affiliates, how many affiliates do
you have V
Mr. THomsoN. The stock of the Minnesota Loan & Trust Co. is
owned by the stockholders of the Northwestern National Bank, which
has a million capital and a million and a half surplus and some
undivided profits. There are some other small banks in the city
included. When I speak of the affiliates, all told they employ about
$13,000,000 of capital.


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Senator NORBECK. How many affiliates does that capital include ?
Mr. THOMS0N. That includes six units.
Senator NORBECK. Would you place in the record, when you revise
your remarks, a list of those affiliates, the capital and surplus, and
the nature of their business V
Mr. THOMSON. It is all in the report.
SellatOr NORBECK. But we are not going to publish all of the
report.
Mr. THOMSON. The deposits, resources, and so forth, of every
institution in the group are included in the annual report.
(Thereafter the witness submitted the following statement:)
Following is the information asked for relative to institutions located in
Minneapolis that are affiliated with the Northwestern National Bank of Minneapolis. They are:
Northwestern National Bank : Lake Street office, Lincoln office, North American office; Minnesota Loan & Trust Co., Second Northwestern State Bank,
Third Northwestern National Bank, Fourth Northwestern National Bank, Fifth
Northwestern National Bank, Midland National Bank & Trust Co., and Central
National Bank.
The total capital and surplus, and undivided profits of these institutions ig
$13,981,749.04.

Senator NORBECK. You speak of the Bancorporation as an affiliate ?
Mr. THOMSON. No• the Bancorporation is a holding company.
Senator NORBECK.'And has $5,000,000 capital ?
Mr. THomsoN. The Bancorporation
Senator NORBECK. Oh, you started with $5,000.000—a first stock
issue of $5,000,000?
Mr. THomsow. The Bancorporation started with an exchange of
stock of four principal banks, the Northwestern National of Minneapolis, the First National of Fargo the First National of Mason
City, Iowa, and the National Bank of' La Crosse, Wis., and after it
was formed it sold this $5,000,000 of stock for cash.
Senator NORBECK. Now, may I ask what the par value of the
stock is?
Mr. TuomsoN. $50 a share.
Senator NORBECK. May I ask when the Northwestern 13ank was
taken into that corporation, at what figure it was taken in, and as of
what date?
Mr. THOMSON. The Northwestern Bank and its affiliates had over
$13,000,000 capital and the stockholders of the Northwestern Bank,
if they had all exchanged their stock, would have received $20,000,000
worth of Bancorporation stock and the actual asset value of that
stock, eliminating any nonledger assets, was in excess of $13,000,000.
Senator NORBECK. In other words, the ledger assets were about
$13,000,000 and the stock issued on it was about $20,000,000?
Mr. THomsoN. That is right.
Senator NORBECK. And the total issue of Bancorporation stock at
this time, you say, is what?
Mr. THOMSON. The total stock outstanding is $83,695,000.
Senator NORBECK. And most of that has been issued in exchange
for bank properties?
Mr. THomsoN. That is right.
Senator NORBECK. And the officers of the holding company are the
Northwestern National Banki


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585

Mr. THOMSON. No; the officers of the holding company—well, I
happen to be both vice president and general ma,nager of the holding
company, as well as vice president of the Northwestern National
Bank, but generally the officers of the Bancorporation are not connected with any unit in the group.
Senator NORBECK. How did they come into the corporation?
Those officers ? Did they come in by purchase of stock or cash or in
the taking in of bank properties ?
Mr. THOMSON. They were picked because of their ability—
Senator NORBECK. How did they happen to be stockholders ?
Mr. THomsoN. They were not picked because they were stockholders.
Senator NORBECK. Did they buy their stock for cash, or are they
men who turned in their properties ?
Mr. THOMSON. One or two of them were connected with banks
in the group. Some of them had no connection with the group, and
I will go further as long as you bring up the question—
Senator NORBECK. I do not care to go into that particular thing.
Our time is short and—
Mr. THomsoN. I do not think—
Senator NORBECK. The whole point I am trying to make is this:
Is the Bancorporation virtually controlled by the Northwestern or
controlled by some one else V
Mr. THOMSON. It is controlled by the interests identified with our
group.
Senator NORBECK. Or does the Northwestern own everything in
the way of size--Mr. THomsoN. I made the statement before, Senator, that the
Northwestern Bank group owns the largest block of stock, but it is
not control.
Senator NORBECK. But it overshadows the other banks. You can
explain it briefly by saying,"Yes; it is controlled by the Northwestern bankers and their friends and associates." I am not saying
that in criticism, but I want to get the record straight.
Mr. TuomsoN. Well,I suppose that is correct.
Senator NORBECK. If it is controlled by anyone else, say so. We
have lived long enough to know the public does not control anything.
Mr. TiromsoN. Some of our partners would resent the statement
that the Northwestern Bank is the overshadowing and dominating
interest in that group.
Senator NORBECK. But they would not resent your telling the truth
about it, if I put the question to you. I think you are right in that
you gave the figures which show they overshadow it.
Mr. THOMSON. I think that is right.
Senator NORBECK. You sold $5,000,000 for cash at $50 a share ?
Mr. THomsoN. That is right.
Senator NORBECK. How much of that did your Northwestern Bank
group take ? Most of it?
Mr. ThomsoN. The Northwestern National Bank and the original
banks that came,in took, I would say, almost entirely stock and no
cash.


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Senator NORBECK. The thing I am not clear on is this—and that
may be my fault and not yours: You spoke of a $5,000,000 stock
issue, sold for cash, at $50 a share.
Mr. THomsoN. That is right.
Senator NORBECK. And as I understand it, that was done after the
four big banks had gone in and formed the holding company. Who
bought the most of the $5,000,000?
Mr. THomsoN. I do not know whether our group bought the most
or another group. It was sold in that territory.
Senator NORBECK. Did the stockholders of your bank buy heavily
of it?
Mr. THomsoN. They have bought he,avily of Bancorporation stock
for cash at $50 a share and at vastly higher prices and still hold it.
Senator NORBECK. And still you think you are smarter than the
farmers who took a shrinkage in their lands?
Mr. THomsox. I am not quarreling with you about the farmers at
all. Senator.
Senator NORBECK. Now, then I do not question your good faith
in this matter at all. I am just'trying to get at the facts. Now, you
offered for sale at $62, stock at one time, as some still considerably
Iligher V
Mr. THomsoN. That is right.
Senator NORBECK. But you did not force anybody to take it?
Mr. THomsoN. That is right.
Senator NORBECK. That offer—was that sold by you or through
some brokerage concern? Have you sold that stock yourself ?
Mr. THOMSON. I think that was offered to the stockholders of the
Bancorporation.
Senator NORBECK. First?
Mr. THomsoN. First by the corporation and then
Senator WALcorr. Was it underwritten?
Mr. THomsoN. That issue at $62 was not underwritten. I think
there was a tremendous demand for the stock at that price. The
issue for $72.50 a share—
Senator NORBECK. Let us take one thing at a time. That was sold
direct by your coryoration?
Mr. THomsoN. Y es, sir.
Senator NORBECK. Would you mind putting in the record the
advertising or soliciting asking them to take the stock, or your
reconimendation ?
Mr. ThomsoN. We made no recommendation.
Senator NORBECK. But you made an offer; you sent out your letters
to the people about this stock. Would you put copies of them in the
record ?
Mr. THomsox. Yes.
(Copies of the letters referred to are printed in full as follows:)
NORTHWEST BANCORPORATION,
Minneapolis, Minn., July 18, 1929.
To the oaminan-stook holders of Northwest Bancorporation:
Northwest Bancorporation will offer to its common stockholder
s additional
shares of its common capital stock for subscription
at $62 per share as follows:
Stockholders entitled to subscribe: Common stockholders
of record at the
close of business on Thursday, August 15, 1929, will
be entitled to subscribe for
additional common stock in the proportion
of 1 share of common stock for
each 10 shares of common stock then held
by them as shown by the books of
the company.


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Closing of books: The stock-transfer books of the company will be closed
from the close of business on the 5th day of August, 1929, until the opening of
business on the 16th day of August, 1929, except that where executed contracts
are now, or may hereafter be, outstanding under the terms of which the shareholders of any bank, the stock of which has been acquired by the corporation,
may elect to become a party to such contract by executing a counterpart of such
contract and by depositing his bank stock, under the terms thereof, the stocktransfer books of the corporation will be open to the extent that it is necessary
to issue shares of this corporation, in exchange for the bank stock, pursuant
to any such contract.
Expiration of offer: The subscription privilege will expire on Saturday,
August 31, 1929. Warrants will become null and void and of no value, unless
exercised on or before such date.
Subscription rights: One "right attaches to each share of common stock
outstanding at the close of business on August 15, 1929. Common stockholders
of that date are entitled to subscription rights on the basis of shares then
registered in their names. Ten rights are required to subscribe for each share
of the additional stock. Subscriptions will be accepted by the company for full
shares only.
Issue of warrants: On August 15, 1929, warrants will be mailed to the common stockholders evidencing their subscription rights and specifying the
number of shares for which each is entitled to subscribe under this offer.
Warrants will be of two kinds: (1) Full-share warrants entitling the holder
to subscribe for one or more full shares of this stock and representing 10 rights
or multiples thereof ; and (2) fractional-share warrants for less than a full
share, representing less than 10 rights. Rights evidenced by full-share warrants may be transferred to others by assignments duly executed in the form
printed upon the warrants. Rights evidenced by fractional-share warrants may
be transferred to others by delivery.
Subscriptions: Subscriptions must be made by executing the subscription
agreements on the back of the warrants and delivering them with payment
at the rate of $62 for each full share and $62 for each 10 rights-10 rights being
the equivalent of 1 full shark )—said payment to be in cash or solvent checks
or drafts with Minneapolis Exchange, free and clear of collection charges, to
Northwest Banco'poration at the office of the Minnesota Loan & Trust Co.,
Minneapolb-., Minn., on or before August 31, 1929. Subscriptions will be
accepted for full shares only.
Payment: Payment for shares subscribed for must be made to Northwest
Bancorporation at the aforesaid office of the Minnesota Loan & Trust Co. not
later than August 31, 1929.
By order of the board of directors.
E. W. DECKER, President.

NORTII WEST BANCORPORATION,
Alinneapolis, Minn., August 15, 1929.
To the stockholders of Northwest Bancorporation:
In accordance with our circular letter dated July 18, 1929, addressed to the
stockholders of Northwest Bancorporation, we inclose to you herewith stock
purchase warrant (or warrants) showing the number of additional shares of
stock of Northwest Bancorporation for which you are entitled to subscribe at
$62 per share.
For your assistance we give you the following information:
Warrants to whom issued: Warrants are issued to the stockholders of record
of Northwest Bancorporation as of the close of business on the 15th day of
August, 1929.
How to subscribe: Subscriptions must be made by executing the subscription
agreement on the back of the warrants and delivering them, with payment in
full at $62 per share, to the company at the office of the Minnesota Loan &
Trust Co., 405 Marquette Avenue, Minneapolis, Minn., on or before August 31,
1929.
Payment: Payment of the subscription price in full, in cash or solvent cheeks
or drafts with Minneapolis exchange, free and clear of collection charges, must
accompany the subscription.
Fractional share warrants: Fractional shares of stock can not be issued.
If you have received a fractional share warrant, you may either purchase oil


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the market sufficient additional fractional share warrants so as to make up a
total of 10 rights (10 rights being the equivalent of one warrant for a full
share), or you may sell your fractional share warrant.
Expiration of time to subscribe: All rights to subscribe for additional stock
expire at the close of business on August 31, 1929. Warrants not exercised on
or before such date will become null and void. In order to exercise your right
to subscribe, your subscription, together with the subscription price, must actually be received by the company, at the office of the Minnesota Loan & Trust
Co., on or before such date; merely depositing same in the mail on or before
such date is not sufficient.
Signatures: Signatures on the subscription blank or assignment must correspond exactly with the name as written in the face of the warrant. Signatures
on assignments should be witnessed. All signatures not known to the company
should be guaranteed by a responsible bank or trust company. When assignments or subscriptions are executed by adminitrators, executors, trustees,
guardians, attorneys, etc., proper evidence of their authority to do so must be
tiled with the company at the office of the Minnesota Loan & Trust Co.
Assignment of rights: Inasmuch as the company is offering the stockholders
an opportunity to subscribe for stock at less than the present market price,
these warrants are valuable. If you do not care to exercise your rights to subscribe for additional stock, you may sell your rights. Full share warrants may
be assigned by executing the assignment on the reverse side of the warrants.
Fractional share warrants may be assigned and transferred by delivery without
executing a formal assignment. In the event of assignment, United States
stock transfer stamps, at the rate of 2 cents per hundred or fraction thereof
of the par value of the shares of stock for which rights are assigned, must be
affixed to the warrant and canceled. If you wish to assign a part of your
rights and retain part, you may surrender your warrant to the company at the
office of the Minnesota Loan & Trust Co. and new warrants will be issued in
the proportion which you desire.
Sale of warrants: If you wish to sell either your full share warrants or
your fractional share warrants and do not know with whom to list them for
sale, the same may be offered for sale either through this company or the
Minnesota Co. at 405 Marquette Avenue, Minneapolis, Minn.
Yours very truly,
E. W. DECKER, President.
NORTH WEST BANCORPORATION,
Minneapolis, Minn., October 12, 1929.
To the common-stock holders of Northwe.st Bancorporation:
Northwest Bancorporation will offer to its common stockholders additional
shares of its common capital stock for subscription at $72.50 per share, as
follows:
Stockholders entitled to subscribe: Common stockholders of record at the
close of business on Wednesday, October 30, 1929, will be entitled to subscribe
for additional common stock in the proportion of 1 share of common stock for
each 10 shares of common stock then held by them as shown by the books of the
company.
Closing of books: The stock transfer books of the company will be closed
from the close of business on the 19th day of October, 1929, until the opening
of business on the 31st day of October, 1929, except that where executed contracts are now, or may hereafter be, outstanding under the terms of which the
shareholders of any bank, the stock of which has been acquired by the corporation, may elect to become a party to such contract by executing a counterpart
of such contract and by depositing his bank stock, under the terms thereof,
the stock-transfer books of the corporation will be open to the extent that it is
necessary to issue shares of this corporation in exchange for the bank stock
pursuant to any such contract.
Expiration of offer: The subscription privilege will expire on Friday, November 15, 1929. Warrants will become null and void and of no value unless
exercised on or before such date.
Subscription rights: One "right" attaches to each share of common stock
outstanding at the close of business on October 30, 1929. Common-stock
holders of that date are entitled to subscription rights on the basis of
shares
then registered in their names. Ten rights are required to subscribe
for each


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share of the additional stock. Subscriptions will be accepted by the company
for full shares only.
Issue of warrants: On October 30, 1929, warrants will be mailed to the
common-stock holders evidencing their subscription rights and specifying the
number of shares for which each is entitled to subscribe under this offer.
Warrants will be.of two kinds: (1) Full-share warrants entitling the holder
to subscribe for one or more full shares of this stock and representing 10 rights
or multiples thereof ; and (2) fractional-share warrants for less than a full
share. representing less than 10 rights. Rights evidenced by full-share warrants may be transferred to others by assignment duly executed in the form
printed upon the warrants. Rights evidenced by fractional-share warrants may
be transferred to others by delivery.
Subscriptions: Subscriptions must be made by executing the subscription
agreements on the back of the warrants and delivering them with payment at
the rate of $72.50 for each full share and $72.50 for each 10 rights-10 rights
being the equivalent of one full share--said payment to be in cash or solvent
checks or drafts with Minneapolis exchange, free and clear of collection charges,
to Northwest Bancorporation at the office of the Minnesota Loan & Trust Co.,
Minneapolis, Minn., on or before November 15, 1929. Subscriptions will be
accepted for full shares only.
Payment: Payment for shares subscribed for must be made to Northwest
Bancorporation at the aforesaid office of the Minnesota Loan & Trust Co. not
later than November 15, 1929.
By order of the board of directors:
E. W. DECKrn, President.
NOTE.—Warrants will be mailed to the stockholders on October 30, 1929. No
action by the stockholders is necessary until the warrants have been mailed.

NORTH WEST BANCORPORATION,
Minneapolis, Minn., October 30, 1929.
To the stockholders of Northwest Bancorporation:
In accordance with our circular letter dated October 12, 1929, addressed to
the stockholders of Northwest Bancorporation, we inclose to you herewith stock
purchase warrant (or warrants) showing the number of additional shares of
stock of Northwest Bancorporation for which you are entitled to subscribe at
$72.50 per share.
For your assistance, we give you the following information:
Warrants, to whom issued: Warrants are issued to the stockholders of record
of Northwest Bancorporation as of the close of business on the 30th day of
October, 1929.
How to subscribe: Subscriptions must be made by executing the subscription
agreement on the back of the warrants and delivering them, with payment in
full, at $72.50 per share, to the company at the office of the Minnesota Loan &
Trust Co., 405 Marquette Avenue, Minneapolis. Minn., or to the Continental
Illinois Bank & Trust Co., Chicago, Ill., on or before November 15, 1929.
Payment: Payment of the subscription price in full, in cash or solvent checks
or drafts with Minneapolis or Chicago exehange, free and clear of colleetion
charges, must accompany the subscription.
Fractional share warrants: Fractional shares of stock can not be issued.
If you receive a fractional share warrant, you may either purchase, on the
market, sufficient additional fractional share warrants so as to make up a total
of 10 rights (10 rights being the equivalent of one warrant for a full share)
or you may sell your fractional share warrant.
Expiration of time to subscribe: All rights to subscribe for additional stock
expire at the close of business on November 15, 1929. Warrants not exercised
on or before such date will become null and void. In order to exercise your
right to subscribe, your subscription together with the subscription price must
actually be received by the cOmpany, at the office of the Minnesota Loan &
Trust Co., in Minneapolis, or the Continental Illinois Bank & Trust Co. in
Chicago. on or before such date; merely depositing same in the mail on or
before such date is not sufficient.
Signatures: Signatures on the subscription blank or assignment must correspond exactly with the name as written in the face of the warrant. 84:matures on assignments should be witnessed. All signatures not known to the
ompany should be guaranteed by a responsible bank or trust company. When
r,
34718--31—PT 4


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assignments or subscriptions are executed by administrators, executors, trustees,
guardians, attorneys, etc., proper evidence of their authority to do so must be
filed with the company at the office of the Minnesota Loan & Trust Co. or at
the Continental Illinciis Bank & Trust Co.
Assignment of rights: Inasmuch as the company is offering the stockholders
an opportunity to subscribe for stock at less than the present market price, these
warrants are valuable. If you do not care to exercise your rights to subscribe
for additional stock, you may sell your rights. Full share warrants may be
assigned by executing the assignment on the reverse side of the warrants and
surrendering the warrant to the company at the office of the Minnesota Loan &
Trust Co. in Minneapolis or the Continental Illinois Bank & Trust Co. in
Chicago, in exchange for new warrants to be issued tci the assignee. Fractional
share warrants may be assigned and transferred by delivery without executing
a formal assignment. In the event of assignment, United States stock transfer
stamps, at the rate of 2 cents per hundred or fraction thereof of the par value
of the shares of stock for which rights are assigned, must be affixed to the warrant and canceled. If you wish tci assign a part of your rights and retain
part, you may surrender your warrant to the company at the office of the
Minnesota Loan & Trust Co. in Minneapolis or at the office of the Continental
Illinois Bank & Trust Co. in Chicago, and new warrants will be issued in the
prciportion which you desire.
Sale of warrants: If you wish to sell either your full share warrants or your
fractional share warrants and do not know with whom to list them for sale,
the same may be offered for sale either through this company or the Minnewita
Co., at 405 Marquette Avenue, Minneapolis, or through A. G. Becker & Co., at
Chicago, ill.
Transfer or exercise of warrants at Chicago: For the convenience of those
whci wish to do so, arrangements have been made so that warrants may be transferred or exercised at the office of the Continental Illinois Bank & Trust Co.,
Chicago, Ill. Warrants issued by the Continental Illinois Bank & Trust Co., in
exchange for warrants which are transferred, must be countersigned by a duly
authorized officer of the Continental Illinois Bank & Trust Co. befcire they are
valid. In case warrants are exercised at the office of the Continental Illinois
Bank & Trust Co., the warrant holders must allow a reasonable time within
which the Continental Illinois Bank & Trust Co. may procure the stcick certificates from the office of the company or the transfer agent in Minneapolis, Minn.
By order of the board of directors:
E. W. DECKER, President.

Senator NORBECK. Was there more than one letter that went out
recommending the stock ?
Mr. THomsoN. There was not a letter that went out recommending
the stock. The Bancorporation has not recommended any stock. It k
has recommended, from the beginning, that the banks in the group
should not lend on the stock because we anticipated legislation. preventing us from doing that, and the only letters that went out were
the letters notifying the stockholders that the directors had authorized
a certain stock issue and they were entitled to buy it at a certain price.
Senator NORBECK. Whatever the letters contained, if we can put
them in the record, they will speak for themselves.
Mr. THomsoN. Yes.
Senator NORBECK. Now, the issue that was sold at $72.50. Why
was that offered at $72.50 instead of at $50?
Mr. THomsorr. At that time, in 1929, Senator, people were paying
higher prices for stocks generally than they are now. That represented the judgment of men in our group who were in touch with
general conditions as to a fair price for the stock under the conditions
at that time.
Senator NORBECK. In other words, there was a prospective profit
that would justify that?
Mr. THOMSON. It was felt that the corporation would be benefited
by having the amount realized above the par value of the stock.


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This was put in a surplus fund, and the corporation to-day is the
beneficiary of the surplus realized from the sale of that stock at
$72.50. We have felt from the beginning that this corporation
should have a surplus and we have provided that we must have
investments in other than bank stocks equal to more than 10 per cent
of our capital.
Senator NORBECK. All of which sounds good but does not answer
the question. Our time is getting short. If you felt that there were
prospective earnings that justified the $72.50 a share at the time you
offered it
Mr. THOMSON. The market value of the stock justified offering the
stock at that price, and there was no question of profit in the sense
of earnings-Senator NORBECK. In other words, you do not claim an earning
that justified that value?
Mr. THomsoN. No; not based on present conditions.
Senator NORBECK. But you sold it at that price?
Mr. THomsoN. We offered it at that price.
Senator NORBECK. And sold it at that price?
Mr. THomsow. A great many stockholders took it at that price.
Senator NORBECK. Then you sold it, did you not?
Mr. THomsoN. Yes• you can put it that way.
Senator NORBECK. bid those statements that went out promoting
that sale carry the statement that the book value of the property was
$37 a share?
Mr. THomsoN. I do not recall, Senator. I will send you a copy of
those letters and you can see for yourself, but our annual report of
last year
Senator NORBECK. I am speaking of the letter soliciting the stock
sales.
Mr. THomsoN. I do not recall. I shall have to get the letter for
you.
Senator NORBECK. What is the capital of your corporation?
Mr. THOMSON. $83,000,000, approximately.
Senator NORBECK. What dividends has the Northwest Bancorporation paid on this stock?
Mr. THomsoN. The Bancorporation has paid $1.80 per share dividend per annum since it started.
Senator NORBECK. How many dividends have been paid?
Mr. THomsoN. It paid eight quarterly dividends.
Senator NORBECK. They paid dividends for two years on the basis
of $1.80 per share per annum.
Mr. TnomsoN. Yes.
Senator WALcorr. Quarterly ?
Mr. THomsoN. On an annual basis.
Senator NORBECK. Forty-five cents quarterly ?
Mr. THOMSON. Yes, sir.
Senator NORBECK. You spo e in your opening remarks here of a
bad condition developing in the Northwest that led to people taking
their money out of banks and putting it into postal-savings certificates?
Mr. THOMSON. Yes.


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Senator NORBECK. Did you say $18,000,000 in the ninth Federal
reserve district has gone into postal savings?
Mr. THOMSON. I said the increa•se in postal-savings deposits in the
four States of Minnesota, North Dakota, South Dakota, and Montana in the last 10 years was in excess of $18,000,000, which -svas
more than the increase in postal-savings deposits in the entire United
States outside these four States during that period.
Senator NORBECK. Now, then, I notice you named one town. Let
me ask about other towns. The inference is that your bank came in
and corrected a bad situation. Did you have any such situation
at Lead when you bought the bank there? You spoke of Milbank.
Did you have that situation at Lead?
Mr. THOMSON. I do not recall whether our deposits in Lead have
gone up or not.
Senator NORBECK. Have you an increase in postal-savings certificates in Lead?
Mr. THomsoN. I do not know, Senator.
Senator NORBECK. Is Milbank the only one you have in my Statp
Mr. THOMSON. I would have to look it up.
Senator NORBECK. Is that the only one you can think of ?
THOMSON. The reason I remember that is that I happened
to be down here making provision for getting some of that postalsavings money and I recall that particularly.
Senator NORBECK. Do you not recall that prior to your purchase
of the bank at Milbank, that there was a row between the stockholders and they went into court and put witnesses on the stand to
show that the large part of the bank loans was worthless?
Mr. THOMSON. They did have a row there.
Senator NORBECK. Exactly. But they did not have that sort of
situation in other places, did they ? That would not be a fair
reflection of the situation in that territory as a whole?
Mr. THOMSON. All I wanted to convey was that the establishment
of a bank owned by the Northwest Bancorporation in that town did
restore confidence in that bank.
Senator NORBEC'K. That is admitted, because there was no confidence in it before. It is the same as though you started a new bank.
Mr. THomsow. That is true.
Senator NORBECK. IS it not true that you acquired banks out there—
a bank like the Lead bank—which had weathered the storm and was
in splendid condition when you bought it ?
Mr. THOMSON. That is right.
Senator NORBECK. Was it not as good as any bank in the United
States?
Mr. THOMSON. I will not say that, but it was a good bank. and we
are glad to have it.
Senator NORBECK. IS it not a fact that its assets were liquid and
carried a large surplus fund and had nothing to charge against it ?
Was not the largest part of the assets in Government bonds?
Mr. THomsoN. I do not recall whether that was true, but it was a
good bank and we were glad to have it in the corporation.
Senator NORBECK. Was not the bank at Deadwood a good bank?
Mr. THOMSON. Yes, sir.
Senator NORBECK. And was not the Miller bank a good bank?
Mr. THemsos. Miller is not in our group.


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Senator NORBECK. The bank is a powerful factor in selling some:
thing. European bonds are sold here by the banks. The banks of
New York allot them around and say, Your share is so much,"
and they have to take them. I have no doubt you can allot a lot of
bonds to your banks and they will have to take them.
Mr. THomsoN. Except that in our case you have independent banks
that determine their own policies. They are under supervision by
either State or national authority and we have a definite policy that
these banks or their affiliates shall determine what they wish to buy
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Senator NORBECK. As far as that policy is concerned, I commend
it. I do not say you are running the worst kind of banking system.
Not at all; but you are running a new kind, and while it sounds nice
to say the directors are in charge, they are, in fact, in charge as long
as vou let them have a meal ticket.
You also said your banks had an opportunity to sell out to eastern
interests.
Mr. THOMSON. That is right.
Senator NORBECK. There was a demand from the East to acquire
t he properties?
Mr. THomsoN. Yes sir.
Senator NORBECK. Your holding company would control the banks
if it had a majority of the stock ?
Mr. THOMSON. Y es, sir.
Senator NORBECK. If some one had a majority of the holding company stock, they would control the whole thing, would they not ?
Mr. THOMSON. They could.
Senator NoRBEcKAnd might also easily control the Federal
Reserve Bank of Minneapolis?
Mr. THomsoN. Yes sir; with the First Bank Stock Corporation.
Senator NORBECK. 'And all they would have to invest was about
one-eighth of the capital?
Mr. THOMSON. As a practical proposition—and this has got to be
my opinion—I do not think there is much chance of the Northwest
Bancorporation either owning or controlling—
Senator NORBECK. But I am talking about the system now, and
not the way it is administered under your policies.
Mr. THomsoN. Oh, you can raise all the questions you want as to
what might happen. You say one-eighth of the value of the banks
might control all ?
Senator NORBECK. In other words, the capital of that bank is
$20,000,000. What is the total deposits of your banks?
Mr. THomsow. $409,000,000.
Senator NORBECK. For five or six million dollars properly placed
the whole $400,000,000 stock could be controlled.
MI% THOMPSON. The capital of the holding company is $83,000,000.
Senator NORBECK. In other words, they would have to get half of
that?
Mr. THomsori. Yes; and if some one owned a majority of that
stock or any other corporation they could control it.

Elmer E. Adams, Pres., First Nat. Bank of Fergus Falls, Minn.
Hearings — S. Res. 71

772a---„Z
,
, -•
/ Mr. VViLus. What rate were they paying for savings ?
Mr. ADAMS. Four per cent was the going rate in Minnesota until
about three years ago, when we cut to 3/
2 and 3. Every time a new
1
bank came in they would start at 5 per cent and disconcert things.
They would advertise even 5 or 6, and that would tend to draw
ignorant people from the regular banks, but I think we have a State
law now that no bank can pay more than 4 per cent.
We all concede that as a result of the purchase of local banks by
the groups or chains, banking conditions are improved. They must,
of necessity, tighten up in requiring their links to comply with certain fixed standards and rules with which the local bankers had

Or

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been remiss and careless. This is particularly true in the requiring
of financial statements and in insisting. that a note be paid or
attended to when due and in the maintaining of a proper deposit or
the paying of a charge for failing to do so. Competition is vigorous
between the group banks and those locally owned. The group
banks must make dividends or the management will be changed, and
the local banks are eager to make money as their stockholders need
the dividends.
Depositors who have lost their money in closed banks complain
bitterly that they are unable to get any information as to why.their
deposits are lost and why they were not paid more by the receivers.
Practically no information is given out to the depositors, and they
only know that the bank was closed. If our authorities in the Northwest would dig into some of the bank failures, as is being done in
New York in the case of the Bank of the United States, it would
certainly have a more salutary effect.
Four hundred State banks have failed in Minnesota in the last
eight or nine years. I have not the figures, but I think this is a
larger proportion than is the case with the national banks. However, many bankers are now considering the advisability of asking
the legislature to drop the word "State"from their names as there
is a feeling that there is a loss of prestige. A great many good
"State" banks are suffering on account of the failure of the poor
ones.
There is a good deal of discussion as to the advisability and
necessity of permitting local banks to operate branches in near-by
areas. Many of the small villages which have had 1, 2, and 3 banks
are now without 1, and they complain of the inconvenience and
are urging that the banks in the county seats be permitted to operate branches in such villages. I am myself in doubt as to the
necessity and whether the branches could be made to pay. The improvement of the roads makes it possible for the residents of the
small villages of the county to drive to the larger points without gi:eat inconvenience. They go to the larger places to do their
shopping, and with rural mail delivery there is grave doubt whether
branches would pay in these villages which have lost their own
banks.

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I think most independent bankers agree that in the metropolitan
districts the large banks should be allowed to operate branches
within the city limits. The inconvenience of traffic and the constantly increasing menace of hold-ups make it next to impossible
for people living at a very great distance to reach the down-town
institutions. If legislation of this kind is enacted, I think the independent bankers feel that the branches ought to be restricted to the
metropolitan districts and that the large banks of the terminal centers should not be permitted to invade the territory where local
banks are able to handle the business satisfactorily.
The crying need, however, is for banks which will take care of the
poor borrowers. By the poor borrowers I mean the men who never
want to pay a note when it is due and who, too often, want to add
the interest to the principal. These men need help and must be
helped if they are going to function. They have to have seed when
spring comes. They have to have feed for their stock if there is a

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shortage, and they are quite likely to need machinery and twine
when it is time to harvest. They mean to pay their notes, but every
now and then some disaster comes and they are tillable to do what
they agreed to do; and so these banks, which have been carrying
this class of business, have been involved in situations from wilich
it was impossible to extricate themselves. Neither a group bank or
a branch bank will ever take care of this class of trade. The local
banks have done their share of it. In former days the general merchant and the implement dealer aided. They not only gave them
credit for goods but it was not an uncommon thing for the farmer
who was trading at a store to borrow small sums until he could
harvest, sell an animal, or raise the funds in some other way. The
old-time storekeepers were generous in this way and the banks carried them, but you can imagine a farmer who suddenly needs a little
money going to see Mr. Woolworth's manager. or Mr. Montgomery
Ward's manager, or Mr. Sears-Roebuck's manager and getting die
accommodation which he used to get from the old-time merchant.
This situation of the poor borrower is constantly gettin worse as
the number of farms acquired by mortgages increases. 1he tenants
on these farms are very seldom in financial condition so that thev can
provide an equipment of machinery, their one-half of the stock, and
get along from harvest to harvest. There is a crying need for institutions to take care of this class of business, but I am unable to
determine how it can be done, and I have lived among them for
, many years. We do what we can along these lines, and while the
\ losses have not been very large, it is because we have been very
\ discriminating in accepting them.

L. E. Wakefield, V. P., First Bank Stock Corp., Minneapolis,
Hearings — S. Res. 71

1

1

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Federal Reserve Bank of St. Louis

condiMr. WAKEFIELD. Mr. Chairman,I want to explain to you the
in doing
tions that exist in our territory in a banking way and believe ons and
so that your primary interest is in knowing those conditi fit to
situations. in order that in any legislation that you may see
as ours and
pass you may not do an injustic,e to a community such
what we
doing
ahead
going
and
ce
existen
in
to institutions that are
job.
good
a
be
to
believe
Federal
I want first to call your attention to just what the ninth
Stock CorBank
First
The
way.
g
bankin
a
in
is
district
reserve
poration operates in the ninth Federal reserve district.
Senator NORBECK. That is your corporation?
district was
Mr. WAKEFIELD. Yes, sir. The ninth Federal reserve bank and
reserve
Federal
the
of
n
creatio
the
of
time
the
created at
g business,
was determined by.the flow of transactions in the bankin that parin
tions
transac
those
of
center
the
being
Cities
the Twin
establishticular area. The borders of it were, at the time of its borders
those
in
be
may
there
and
ersial
controv
at
ment, somewh
is
to-day some conflict as to the flow of banking transactions, which
markets
the
is
that
tions;
transac
s
busines
of
flow
the
of
ive
indicat
terriwhere they come from or originate in and the limits of those
consists
It
area.
osen
well-ch
pretty
a
believe,
I
was,
it
But
tories.
Montana,
of the States of Minnesota, North Dakota, South Dakota, of Wisoff
strip
little
a
and
an,
Michig
of
la
peninsu
n
norther
the
close
consin. So, our business of the Twin Cities has naturally been
area.
lar
particu
that
in
nship
relatio
its
had
and
to
g
The ninth Federal reserve district, when considered as to bankin
resources and deposits, is of comparative unimportance in its relaour
tionship to the entire banking facilities of the country, and yet
banking resources and deposits are all we have to work with. They
are of vital importance to us.
We have now, in the ninth district, 2,218 banks with total deposits
of $1,594,580,000. Those deposits are $979,800,000 in Minnesota;
$109,7002000 in North Dakota; $143,000,000 in South Dakota ; $149,000,000 in Montana; there are $88,800,000 deposits in the northern
peninsula of Michigan, and $123,700,000 in the ninth Federal reserve
district in Wisconsin.
So. when we think of the ninth Federal reserve district in its relation 'to a country-wide consideration, we recognize its comparative
unimportance. But we also recognize that as far as it concerns those
of us who are residents in and do business in that particular territory, it is of vital importance.
Our competition, in a banking way, has for a great many years in
the Twin Cities been more definitely related with Chicago and New
York banks than with any other single factor, and they to-day are
our chief competition. When it comes to the rates that we make to
borrowers of importance those rates are definitely related to the
rates they make in New York and Chicago. We are in competition
all the time in matters of that kind.
We have in the First Bank Stock Corporation just about 100
banks to-day. the center of those institutions being the two Twin City
banks that are in our group ; that is, the First National Bank of St.
Paul and the First National Bank of Minneapolis and we also have
about 85 or 90 banks—I have forgotten the exact' number—outside.
The CHAIRMAN. Is your company an affiliate of these national
banks ?
Mr. WAKEFIELD. Our company, the First Bank Stock Corporation, is a holding company which owns practically 98 per cent of the

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NATIONAL AND .FEDERAL RESERVE BANKING SYSTEMS

capital stock of all of the banks in the group. The First Bank Stock
Corporation has outstanding, at the present time, 3,097,000 shares
of stock of a, par value of $25 per share. That stock is owned by
17,918 stockholders. Of that number of stockholders, 13,223 own
74.19 per cent of the total number of shares and reside in Minnesota.
In Montana there are 1,180 stockhAders owning 6.6 per cent of
:he stock. In North Dakota there are 1,062 sAwkliolders owning 5.92
per cent of the stock. In South Dakota there are 598 stockholders
owning 3 33 per cent of the stock. In 'Wisconsin there are 486 sto..kli iders owning 2.172 per cent and in. States outside of the ninth FeJeral reserve district there. are 846 stockholders owning 4.73 per cent
of the stock of the corporation.
Now, in the relation of the stock ownership to the $385,000,000 of
deposits in the group of banks in the First Bank Stock Corporation,
$286,639,000 is in Minnesota banks, or 75 per cent of the deposits are
in Minnesota banks, and 74 per cent of the stock is owned by Minnesota people.
The next largest amount is $62,415,000 of the deposits, which are
in Montana banks, which own 61A per cent of the stock; $18,666,000
is in North Dakota banks, and $10,070,000 is in South DakOta banks;
$8,043,000 is in banks in the northern peninsula of Michigan, and we
have none in Wisconsin.
Now, the thing that I am trying to bring to your attention is this,
that this corporation is owned, operated, and managed by people
whose every business interest and investment is in the territory
served by the banks and that its vital interest is always in the development and improvement and carrying on of this business which is
in the ninth district, which is the vital' factor on which we have to
depend for our progress and success.
In addition to the group of men who are directors of the First
Bank Stock Corporation, in every town where we have a bank we
have a local board of directors, and no bank operated by the group
system could get to first base or be successful in any degree except
with the hearty approval and support of that local board of directors. I would not give 5 cents for a bank in any town up there
except with the support and approval of a group of business people
in that town who were interested in the town and the banks that
are there.
Senator NORBECK. You do not consider the branch-banking system
a good system at all?
Mr. WAKEFIELD. I am going to get to that. But I consider
this
set-up of ownership and control, with its vital interest in the local
territory, a. more responsive and better system thin anv that can
be devised.
Now, then, that, being the case, and with all of the changes that
have taken place over which we had no control, but which we have
been obliged to meet in a banking way, there have been mistakes in
the past. No one can be blamed. These people who have run their
banks in the past could be put before you and you could get the history, time after time, where the men associated with the banks that
have been closed up have given every bit of everything in them and
every bit of property that they owned and their friends and associates have put in everything in addition to save the depositors from
loss. Sa it is not anything that .you can lightly talk about or ant


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you can pass off with just an expression of some particular facto?
being responsible. It was the result of conditions that have occurred and of economic changes, and there was not any way of stopping it. Our interest in group banking is not because in the First
National Bank of St. Paul and the First National Bank of Minneapolis we were desirous of gaining control of a greater number of
institutions. It was because of the fact that we know that as far as
the Twin Cities are concerned, they can not develop and grow in a
business and banking way except as there is that same growth and
development and stability in the territory from which we draw our
business and in which our associates are located. The facts are, as
far as making money for the stockholders of the First National
Bank of St. Paul and the First National Bank of Minneapolis is
concerned, we knew when we went into this undertaking that we
were going to help be the cause of improving the general situation
the Northwest ; that it was not going to be an added money maker
to us except as it conies from the continuous development and improvement of the territory served. In the years to come there may
be profit to us in it in proportion as we aid the territory's
development.
But the fact is, that what we have had to do and what we have
done is to attempt to build a structure which would be in the position
of assisting and advising and controlling the management of banks
out through the territory. When a bank becomes associated with
the First Bank Stock Corporation we recognize that at that time, ,
regardless of what we may wish to do Or anyone inay want to say, „.
that the responsibility for that bank rests on its, and under no circumstances can we permit it to go to pieces.
So, in building up our method of administering these properties,
we called together a year ago, immediately after we got these banks,
two or three representatives from each bank, and.we sat down and
discussed with them methods of operation. and in this particular
enterprise you will be interested.
In' the first place, one of the first things they said to us was this,
"that we have been obliged, in years past, and more so all of the
time, to purchase bonds and securities for some of the funds in our
banks. We recognize that this is a topic about which we have not
adequate facilities and information, and so we would like to have
you set up some kind of machinery which will do that purchasing
for us."
We did that in this way: We established in the head office of the
First Bank Stock Corporation a department which has charge of
the securities owned in any one of our banks, and in all of them.
That department is in charge of a vice president, whose business it
is to follow and watch securities which we own. Some of the bonds
which came into our banks are not bonds we want to keep. We
have been turning those out and converting them and bringing
them into satisfactory line. But no bond is purchased bv any
bank in the First Bank Stock group except as it is purchased
through that department in the head office, and it has to have the
approval of a group of several men before it is purchased, and our
ONVII securities company can not sell any bond to any bank in our
group except as they are purchased for the group through the main
office.


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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

We keep a control in the main office of every single security owned
and where it is lodged—which bank it is in—in order that we may
not find ourselves sometimes with more bonds of a particular issue
lodged in our banks than we think it would be wise for us to hold a.s
a single line of securities.
When it comes to buying commercial paper, we do exactly- the
same thing. We do not send a bond to a bank. We send them a
list of bonds and they can choose what they want to buy, but it must
have the approval of the main office.
In buying commercial paper, our banks have set up this program-it is their program ; we have constructed it and they have put it
into.operation. It provides that in the purchase of commercial paper
all companies whose paper we would be willing to buy and have in
our banks, shall be approved by the executive committee in the First
Bank Stock Corporation. We have also, built up a credit file of
commercial paper names; that is, the names of paper that appears
in the market, and we have checked those companies from every angle
that a bank would check them if they were giving them a line of
credit and then have approved an amount we are willing to carry-, of,
say, $200,000 of the paper of a eertain concern. That amount is approved and that name goes on the list and, with that approval, the
management may buy the paper of that concern if it appears in the
market and we will furnish it to those banks. There is not any way
of doing a constructive job, in my opinion, unless you organize to
give it the most competent and experienced management that you
can give it and do it with the approval of the people who are interested in it.
We have found that that program is heartily approved and indorsed by the people in our banks. They are enthusiastic about it.
They like to feel that they have some direct way of getting this stuff
and yet know what they are getting, and I think we will find, as time
goes on, that this system will be of material—very material—benefit
to those banks.
We have organized an examining force, which is making two examinations each year of each bank, in an exhaustive way. Every
loan that is made in any bank is reported to the head office the day
following with a statement of the borrower or the collateral. We
have credit files in the main office of all borrowers in all banks.
The creation of this machinery has cost money and the main contributor to the cost of the operation comes from the two big banks in
the Twin Cities. I am simply giving you that to show you that the
interest of those banks is more vitally concerned with good banking
in the territory than with the immediate purpose of attempting to
make an extra dollar, because we believe, and I know this is true,
that the entry of these two groups into the field has helped the banking situation in the Northwest.
Mr. Wthus. Are all of the* surplus funds of these banks deposited
in the bank in St. Paul?
Mr. WAKEFIELD. No; they carry the usual deposits they used to
\ send to--\\,
Mr. WiLus. To the eastern cities ?
Mr. WAKEFIELD. Yes, sir.


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Mr. WILLis. Does the central board, or whatever you call it in
the Bank Stock Corporation—does that dictate to them how much
they shall send to the correspondents?
Mr. WAKEFIELD. No; it is according to the volume of their business, and so forth.
Mr. WILLIs. You never have placed call loans for them ?
Mr. WAKEFIELD. It never has. I wish the call money market would
pick up. We have plenty of money.
Mr. Wthms. It did pick up.
Mr. WAKEFIELD. During the period of the high call rate some of
the banks in the group did have money in the call market. We (the
First National Bank in Minneapolis) did not. During that period
of 1929 we did not have a dollar Maned on call.
Mr. Wm.'s. You exercised no control over their entry into the call
market in any way whatever ?
Mr. WAKEFIELD. I certainly think we would advise with them at
the time.
Mr. WILLIs. But at that time you did not?
Mr. WAKEFIELD. This group has been going since--it has operated
nearly two years.
Mr. WILLIs. You have never done it so far ?
Mr. WAKEFrELD. No, sir.
Mr. WiLus. But in the future it would be part of this central
board's policy ?
Mr. WAKEFIELD. I think we would use some judgment as to what
was being done.
The CHAIRMAN. And what rate must the call-money rate get to
before you would go into the call market?
Mr. WAKEFIELD. We are not in it at the present time because the
rates are not satisfactory. With the excess money we have to-day
we would like to be. in.
The CHAIRMAN. At what rate would you ordinarily want to go
into the call-money market?
Mr. WAKEFIELD. That depends on the comparative situation.
The CHAIRMAN. Do you ever give your own merchants and your
own industries the advantage of a low rate of discount? For instance right now, when you have more money than you need or what
you know what to do with.
Mr. WAKEFIELD. Oh, they make the rates for us.
Mr. Willa's. You do not fix a uniform rate for the borrowers in
the several towns?
Mr. WAKEFIELD. We have never disturbed those rates in those
towns.
The CHAIRMAN. You never disturb them in any town?
Mr. WAKEFIELD. You must remember this, Senator Glass, which
is a point I want to bring out: It has be,en said by some people that
there was a conflict of interest between the independent banker and
the group bank. I claim that there is not.
The CHAIRMAN. I am not discussing that particular point now.
What I want to find out is why the bankers generally utterly refuse
to demoralize their standard rate of interest by giving the local industries and commerce of their own territory the advantage of abundant funds and credits rather than play the market with it?


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Mr. WAKEFIELD. Let me tell you that in 1929, when the call money
was loaning at 9, 10, 11, and 12 per cent, we never had a rate in our
banks to our business people above 6 per cent. Six per cent was
our top rate. We did charge people who borrowed on stocks and
bonds as high as 7 per cent.
The CHAIRMAN. What is your leaal rate?
Mr. WAKEFIELD. Eight per cent. We were never above 6 per cent.
Mr. WILLis. Have you been below it?
Mr. WAKEFIELD. On standard paper to-day the rate is 3 per cent.
WiLLis. I mean the average man in the small town.
Arr. 'WAKEFIELD. He will pay 6 per cent.
Mr. WILLis. Just as he always did?
A r. WAKEFIELD. Yes.
r. WiLms. He has a stable, unvarying rate of interest?
Mr. WAKEFIELD. Yes. Let me give you an illustration. I want
to bring this out so you will see what that relationship is. For
instance. the First National Bank of Minneapolis has to-day the
correspondent accounts of 1,400 banks. The business of those 1,400
banks represented a deposit account with our bank of over $20,000,000,
or practically one-fifth of our deposits. Our relationship with those
people is such, and we are interested sufficiently in them and their
business, so we have been always in the position of wanting to keep
them sound and prosperous and we will go a long way with them.
The CHAIRMAN. Why should you keep them sound and prosperous?
Mr. WAKEFIELD. Because they are—well, here is the situation
The CHAIRMAN. In other words, you accommodate them when they
are in an emergency?
Mr. WAKEFIELD. Yes.
The CHAIRMAN. And that makes them practically subservient
to your bank?
Mr. WAKEFIELD. NO.
The CIIAIRMAN. I think it does.
Mr. WAKEFIELD. Here is the situation. I will illustrate to-day
how this is going on. Here is a banker in a small town in Mennesota with a bank with $1,000,000 of deposits. He arrives in the
office Saturday morning and states on account/ of the closing of the
bank in a near-by town that in about 90 days he had lost $450,000
of his deposits. Now, I know that, because we have helped him
take care of the payment of those deposits. He came in and said
this: "Unless you fellows can find some way to step in and take
this bank, I have got to close it Monday mormng. I can not open."
Now, remember that everything we do to-day has a vital effect
upon those banks in our territory, and you gentlemen do not need to
be told of the disaster that follows the closing of a bank, no matter
how small, if it relates in its size to the resources of that town and we
can not afford to do what we may sometimes desire to do; we can not
afford to disturb the earnino• power of those institutions under present conditions. It can not bte done.
The CHAIRMAN. That is an extraordinary emergency. That does
not relate to the ordinary relationship of correspondent bank—taking
over a bank like that.
Mr. WAKEFIELD. Oh, no; but in all these ways the man who happened to be a correspondent of our bank has not been subservient to

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613

us. We have been very careful to try to handle his business in a way
which would keep him a customer of ours instead of going to another bank.
The CHAIRMAN. When I use the word "subservient,'" that does not
mean a legal or practical compulsion. You put him under such
obliaations he is obliged to patronize you.
Arr. WAKEFIELD. Oh, he can pay us off and move to-morrow.
The CHARMAN. He can, but he does not.
Mr. WAKEFIELD. No; because (rood treatment will keep him.
Mr. Wii.ms. It seems to me this is the right point to enlarge upon
the question I asked Mr. Thomson this morning as to how you think
this remarkable, new structure fits in with the general situation of
our banking system and the Federal reserve. Here you have something that is not under the supervision of the State or Federal authorities. How many votes have you in the Federal reserve bank ?
Mr. WAKEFIELD. There are three classes of directors in the Federal reserve bank.
Mr. Wm.'s. Yes.
Mr. WAKEFIELD. I think our two groups could elect one class. I
think of the number of banks of that size, we have perhaps enough
to elect one class.
Mr. Wthms. Theoretically, you two concerns can control one-third
of the directors of the Federal reserve bank in Minnesota.
Mr. WAKF.FIELD. Yes; but I would be willing to make an absolute
agreement, if you can fix up some method of electing Federal
reserve directors, to let them be elected—
Mr. WILLIS. The Government controls one-third and all the other
banks one-third.
Mr. WAKEFIELD. Yes.
Mr. Wm.'s. Look at the thing from the public standpoint—and of
course you are looking at that—and you must realize that this is a
great innovation in bank control. What plan do you suggest to
modify the present banking system to accord with your scheme ?
What regulation of your system is desirable?
Mr. WAKEFIELD. You have two questions in one, but I will answer
them in this way: Our position is this, that we are very anxious—we
have even asked, for our own protection, because we are on the level
in this undertaking and we recognize that what other people may
do will affect us—we would welcome and want some provision made
whereby the comptroller's office, if that seems to be the proper place.
will have a perfect right and obligation to examine not only our
national banks (78 of our banks are national), but all affiliations of
any nature with which we are connected, and the holding company
included. We know that would be a protection to us and a value and
advantaae to us.
Mr. IfiLms. And you would also be willing to give up the votes in
these banks as provided in the proposed bill?
Mr. WAKEFIELD. I would be perfectly willing—the votes of each
bank--Mr.
For the election Of the Federal Reserve Board
directors.
Mr. WAKEFIELD. I am willing to do that if they will keep the
right people in the reserve bank.


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Mr. WILLis. What about the provision in the Glass bill about the
voting of stock in the Federal reserve banks?
Mr. WAKEFIELD. I am coming to that. That is one of the things
that I wanted to say just a word about.
The CHAIRMAN. Before you do that, on the question of control, I
do not think Doctor Willis has stated the thing fully. You have the
absolute power of selection of one-third of the directors
Mr. WAKEFIELD. We would, probably, between the two groups.
The CHAIRMAN. Then, the Government has one-third, and then
you have a very appreciable effect on the remaining thirds.
Mr. WAKEFIELD. Yes; I think that is true. This I would like to
say, that I regard the Federal reserve bank as the bulwark of the
banking business. We recognize its value. I should like to make
this statement: That I heard and listened to the criticisms of the
Federal reserve bank and the Federal reserve system, and I am not
one of those who is willing to subscribe to those criticisms. The
Federal reserve bank is a new institution. It may have had some
faults. It must learn from experience, and those things could not
be thouhgt out in advance. But the Federal reserve bank is the backbone of the business of this country. Without it we would be in a
serious situation. I would not want to be in the banking business
to-day if we did not have the Federal reserve.
The CHAIRMAN. You would not be in it.
Mr. WAKEFIELD. I do not believe we would, and so we have never
been a critic of the Federal reserve system. We want it to be preserved. We have always said that during the period of inflation
when the Federal Reserve Board were issuing statements concerning
the situation, which were intended to warn the public, that if the
public had listened we would have been a long sight better off than
we are to-day.
The CHAIRMAN. If one notable bank official had been compelled to
listen to the Federal Reserve Board, the Federal Reserve Board
would have been better off to-day.
Mr. WAKEFIELD. I do not know much about that. But in the
so-called Glass bill, which I understand is a tentative proposal, in
paragraph 3 you provide that only bona fide individual stockholders
of the national banks can vote their stock. It disqualifies all associations, corporations, or partnerships who may own stock, and disqualifies all individuals who are officers, directors, or employees of
such corporations, associations, or partnerships. So, it necessarily
disqualifies all trusteeships2 whether testamentary or otherwise, holdin bank stocks for beneficiaries.
ow, we are in a pgculiar position in that respect. We have the
First Bank Stock Corporation, which is a holding company, owning
the capital stock of the group of banks which are in our group.
There is no means that I know of whereby we can unscramble that
particular situation. If a bill of this kind became law, the only way
out we would have would be we would be forced to abandon the Federal reserve system, which we would dislike doing, and probably convert our institutions under State law. That we never want to do, but
we could be placed by legislation of this kind in a position where we
might either have to quit entirely—I do not know of any way we
could unscramble the thing—


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The CHAIRMAN.' Your statement, so far. impresses me in this way :
You have emphasized almost exclusively the sound and fine management of your corporation. I have not any question on earth but
that you have done that accurately and fairly. But suppose a similar
corporation should get into the hands of people who are not fairly
disposed and whose acquisitiveness might amount to greed. Suppose
your corporation at some time in the future got into the possession of
people of that kind. What would happen ? In other words, you are
not discussing the system so much as the fine management of your
particular corporation.
Mr. WAKEFIELD. Of course, all that I know about the system is
what I know of my own institution. Now, in answer to your inquiry, we recognize just as well as you do that there is that danger of
unscrupulous management. That is why we are urgent in our statement that we would like to have our holaing company and our affiliations of every nature brought in under the comptroller's office in some
manner that would make us sure that we could not be damaged or
that some future management could not damage our institution by
wrongful handling of it, because I know just what you have in mind
might happen. This stock collapse and changing conditions have
stopped the promotion of schemes at the present. I do not doubt,
however, but for that to-day we might be confronted by such
situations.
Mr. Wm.'s. Has the First National Bank of St. Paul made its
exchange of bank stocks the same as the others ?
Mr. WAKEFIELD. Yes, sir. Originally the First National Bank of
St. Paul and ourselves thought that we were a little smarter than the
Northwestern group and we said, "We are not going to put our
banks into a holding company, but to do something along that line,
we will form a separate corporation which will be owned by the First
National of St. Paul and the First National of Minneapolis, and we
will go out and buy 51 per cent of the local banks-51 per cent, because when we become connected with it it is our responsibility, and
in order to fulfill that responsibility we must be in a position of
control." There is no doubt about that--and we went out and operated on that basis for six months and found it would not work at all;
1 hat the local people in the towns affected did not want to continue to
own stock in the local bank. They said,"No; we recognize the fact
that whatever difficulties may arise in our territory will affect this
bank, and what we want to do is to participate in the whole show
and diversify and spread our investment and risks in order that we
inay be taken care of in a more substantial way," and we were obliged
to change our system and adopt the system of the Northwestern
Bancorporation.
Mr. Wm.'s. Who controls the corporation?
Mr. WAKEFIELD. We have 18,000 stockholders. It would take
about 1,200 of the largest stockholders to make a control.
Mr. Wii.us. What is the largest single holding?
Mr. WAKEFIELD. I think the Hill interests in St. Paul, through the
ownership of the First National Bank,own the largest amount. That
is somewhere around 180,000 shares.
Mr. WiLus. That would be what percentage of the total?
Mr. WAKEFIELD. There are 3,096,000 shares.


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Mr. WILLIs. Now,take all the shares including those in the hands
ef the affiliated group of persons who center around these banks:
What degree of control have they, perfectly frankly?
Mr. WAKEFIELD. I imagine—I have never sat down or figured
that up at all or paid any attention to it—but I presume if you took
the stockholders of the First National Bank of St. Paul and the
stockholders of the First National Bank of Minneapolis, that they
together would be a controlling interest.
Mr. WILLIs. But there is no arrangement that enables their stock
to be voted as one block ?
MI% WAKEFIELD. No.
Mr. WILLis. Simply the fact they have worked together for a long
time?
Mr. WAKEFIELD. We are in a little peculiar situation in this that
St. Paul and Minneapolis never did work together until we st'arted
this thing. So we are really watching each other.
Mr. Wrimis. Now,about the double liability of shareholders. How
does that arrangement affect that ?
Mr. WAKEFIELD. The stockholders of the Frst Bank Stock Corporation, being a Delaware corporation, do not have a double liability. When we started to organize this institution we did all the
work on the theory we would have it a Minnesota corporation. which
would have double liability. At the last minute when we found
that every stockholder in North Dakota, South Dakota, and Montana would, in case of death, have a double inheritance tax, they complained so strongly about that situation we shifted and put it into a
Delaware corporation.
Mr. WiLms. Is it fair to say you have practically abolished the
double liability of shareholders?
Mr. WAKEFIELD. I do not think so. I think the collection of an
assessment on the stock of the banks of the First Bank Stock Corporation is much more assured than it was ever under the ownership
of the individual people.
Mr. WILLIs. If the impossible should happen and the group of
banks collapse, their double liability would be ended?
MI'. WAKEFIELD. It would not exist, except there is a very large
investment in the First Bank Stock Corporation not in bank stock.
Mr. WiLms. How do you recommend that some corrective should
be applied to a situation in which a Delaware corporation controls a
large number of banks all through the Northwest. then operates in
Minnesota and practically controls, with the aid of another corporation like it, at least one-third of the directors of the Federal Reserve
Bank of Minneapolis and, as the chairman has pointed out, has an
interest in the other third and yet is not subject to any public supervision whatsoever? Does not that seem to call for some sort of
recognition in law ?
Mr. WAKEFIELD. I do not think that it does, and I will tell you
why.
Mr. Mums. You think there should be no legislation affecting it?
Mr. WAKEFIELD. I do not think it necessarily calls for any legislation affecting it as relating to the Federal reserve bank. It is perfectly all right to me that it should, but I want to say this: We have
no exclusive franchise in the banking business. There is no business


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617

that I know of that can be destroyed by mismanagement as rapidly
as the banking business, and it is not possible for me to believe that
any control could come into power in our First Bank Stock Corporation and misuse the facilities in the territory in which it must draw
its business and continue to exist. I think the business would leave
it and go to the other system.
Mr. WILLis. Would not this system be a great deal stronger and
better if it were definitely recognized in law and subject to the same
control as other bank systems?
Mr. WAKEFIELD. That is the point I a,m making,that we would like
to be. We would like to have every institution of this kind that is
started subject to the regulations of the comptroller's office.
Mr. WILLis. But your whole argument seems to be against any
legislative control. I understood you as saying that no legislation
was needed.
Mr. WAKEFIELD. You were speakink of this being a Delaware corporation and operating in Minnesota.
III% WILLIS. I am talking about the whole situation.
Mr. WAKEFIELD. No; we were talking about the matter of control.
Mr. WILLis. For example, to put a hypothetical question: You
would not object to converting into a Federal corporation if that
was possible?
Mr. WAKEFIELD. I do not know the legal aspect of anything of
that kind, but I would be delighted with the opportunity.
Mr. WILLis. It seems to me, if I might suggest that it would be
a great forward step, if you were to devise some constructive plan
taking in such a scheme as this and fitting it into the banking laws
of the country.
Mr. WAKEFIELD. I do not think I am smart enough to make a suggestion along that line.
Mr. WILLIs. You seem to be smart enough to develop a system
outside of the law, and it seems to me it would be easier to fit it
into the law.
Mr. WAKEFIEI.D. I do not think we are doing anything that is
really' outside of the law.
Mr. WILLis. I did not mean to suggest that you were indulgino•
in anything that was illegal. Like yourself, I have not the known
edge or smartness to detect it.
The CHAIRMAN. Doctor Willis wants you to substitute your ingenuity for our lack of it. I confess mine.
Mr. WAKEFIELD. This has been on my mind all the time, but I do
not. know the answer. The main purpose of my wanting to come
here and talk with you to-day is because I wanted you, in your effort
to find some solution. at least to understand the problems that we
were confronted with and the situation that. we are in, in order that
you might not do us a great injustice.
Mr. Mims. I think we understood those from your very intere.sting hearing of last spring and the testimony of Mr. Decker in the
House. The problem, it. seems to me, is that, of finding some satisfactory and constructive way of dealing with it.
Mr. WAKEFIELD. There has been some talk about branch banking.
I am not in favor of branch banking. I am definitely opposed to
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indication of the importance of the business in the ninth Federal
reserve district. If that became a part of a nation-wide branchbanking system we do not stand anywhere.
The CHAIRMAN. Now, right there: Do you think nation-wide
branch banking is in the remotest way possible?
Mr. WAKEFIELD. I am afraid that, given a start, the thing ma.,
develop into that and we feel definitely that the ownership by, and
the business interests of, the people that own our institutions—and
this is the same thing as all independent banks of a town—that their
desire to carry on as it should be carried on, the banking business,
is more assured under our system.
The CHAIRMAN. You do not want somebody else's system of branch
banking, but you prefer your own?
Mr. WAKEFIELD. No.
The CHAIRMAN. Oh, yes. The correspondent bank is nothing more
than a branch bank, in a meastire--nothing more on earth.
Mr. WAKEFIELD. I have stated our position on branch banking.
We reco(rnize this fact—
The CHAIRMAN. Do you mean that to apply to all branch banking,
city branch banking or state-wide branch banking?
Mr. WAKEFIELD. No; but when it comes to country-wide branch
banking, I do noj want to see that in any circumstances. When it
comes to sitting down and looking at what we have, that is another
thing. There is no doubt but in the changed situations that have
taken place some branch-banking privilege of some kind within a
limited area is necessary in order that people without banking facilities may be again taken care of. Of course I would not stand in the
way of a development of that kind.
As Mr. Thomson says, it is coming up in our territory. I hope to
see it come on the part of the States. If those laws are put into effect
in those States prior to the action of Congress, I can see a chance
that somebody may get excited and there may be quite a shift from
the national banking system into the State banking system in order
to avail themselves of the privileges that they can not enjoy under
Federal charters.
The CHAIRMAN. Y011 know the provision in the bill we have here
takes care of that situation.
Mr. WAKEFIELD. Of course, that will not come until another session
)
of Cong.
.ress.
The CHAIRMAN. Of course not.
Mr. WAKEFIELD. But in the meantime certain State legislatures are
starting off, which will leave an embarrassing situation.
The CHAIRMAN. I think Congress would be willing to protect the
national system.
Mr. WAKEFIELD. I think so, too, but I am only worrying about the
i nterim.
e HAIRMAN. Oh, well.
ADAMS. Senator Glass, I wish u would bring out, whil
are he the advantages of a dual syst —State and Natio
The C IRMAN. I do not know of any. I should like to serti unified
banking sy em in the country because whenever we ha a proposition to do an hing to strengthen the national banking' ystem we are
confronted with,the coMplaint that certain privileges—some totally
,insound in my opknpin—prevail in the State banking systein; so,

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Senator NORBECK. I think Mr. Wakefield has expressed himselt
on a great many matters I wanted to inquire about. You suggested
you were opposed to branch banking as such. What are the great
advantages or disadvantages?
Mr. WAKEFIELD. There are some advantages in making money.
You can simplify its management and control very easily, but I
claim that the system we have at the time, with its tie-up to the
local people, is more responsive.
Senator NORBECK. A substantial investment still remaining in the
community ?
Mr. WAKEFIELD. Yes, sir.
Senator NORBECK. And the stockholders' liability in the CO/IIIn unity—
Mr. WAKEFIELD. We were just talking about the holding company
having no liability—
Senator NORBECK. But the 49 per cent that remains in the local

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Mr. WAKEFIELD. No; that does not remain there. The people do
not want to have the stock of a single bank in their community.
They wanted to hold the stock of the group, and so we own 98 per
cent of the stock of all the banks in the system.
The CHAIRMAN. How do you explain this, to me, extraordinary
phenomenon ? I have been in Congress 30 years, and on the Banking and Currency Committee of one House or the other for the
whole period, and I have never known a borrower—a man who
wanted credit—to object to a branch-banking system. I do not
mean nation-wide branch banking.
Mr. WAKEFIELD. 17011 should listen to the people over the radio-the people who are candidates for office in our territory.
The CHAIRMAN. I am not talking about candidates, but people
• who want credit. I have never,. in that whole period, had people
appear and object to branch banking who wanted credit.
Mr. WAKEFIELD. The very nature of the banking business is such
that their selfish interest—every selfish motive that a banker has—
obliges him to do his best to soundly develop the business of the territory in which he operates. If he does not do that
The CHAIRMAN. you are talking about sound bankers,but there are
excessively acquisitive bankers as well as public-spirited bankers.
Mr. WAKEFIELD. I can give my idea on that by repeating what
some one at the time of the House hearings asked; namely, what
would prevent some Wall Street outfit coming out and buying control of the First Bank Stock Corporation and running it out of New
York ? There is nothing to prevent it, unless you want to do some34718-31-PT 4-5

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thing to destroy the negotiability of the stock; but, in my opinion, if
somebody in Wall Street bought control of the First Bank Stock
Corporation, they would be obliged to run it as it is being run, or
they would destroy the value of the very thing they are purchasing,
because banking is competitive and they could not continue to come
out there and take the money from the Northwest and get away
with it.
The CHAIRMAN. Under the proposed banking system that I would
like to see established, no Wall Street outfit could establish any branch
in Minnesota or any other State except New York.
Senator NORBECK. The danger is getting the banking situation
where it is not competitive ?
Mr. WAKEFIELD. Could it ever be ?
Senator NORBECK. You say that the protection of the public lies
in the competitive feature that exists to-day ?
Mr. WAKEFIELD. Yes.
Senator NORBECK. The danger would be if we destroyed that competitive feature by having only one bank in the community.
Mr. WAKEFIELD. You can only destroy it by passing a law to prevent a bank coming into a community.
Senator NORBECK. You realize the tendency in that respect. Now,
then, why do you limit yourself to the ninth Federal reserve district ?
Mr. WAKEFIELD. Because that is the country in which we feel that
our relationships were established.
Senator NORBECK. You feel that a group bank, chain bank, or
branch-banking system should not in any event be nation-wide ?
Mr. WAKEFIELD. It all depends on what relationships existed there.
I am not sure whether the Northwest Bank Corporation has banks
in Omaha or Des Moines, but we have very close relationships to that
territory. It is simply a matter of our judgment as to where we want
to confine ourselves.

Otto Bremer, Chairman, American Nat. Bank of St. Paul, Minn.
Hearings — S. Res. 71

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The CHAIRMAN. You do not know whether you are in favor of
group banking or chain banking or not?
Mr. BREMER. You did not ask me about branch banking. I have
some ideas about branch banking. I do not think it would be a good
thing for our country at large if we had branch banking all over. In
a few localities it may be preferable, but as a whole I think it is
un-American.
The CHAIRMAN. How un-American?
Mr. BREMER. In a way a man likes to be independent.
Mr. WiLms. Do you mean to say it is German or English? They
have branch banking there.
Mr. BREMER. Yes; they have branch banking there, Doctor Willis,
but I am just about between these two ideas: I consider myself and
with my friend Elmer Adams, as an independent banker, although I
have interests in other banks.
I have just had a report of a large German bank in my home town
which has gone out of its way to acquire an interest in two old banks
in order to provide better banking facilities at those places. One was
established in 1761 and the other in 1794, and it reports in its statements that these small banks served a good purpose, being closely
allied with the producing and trading middle class. It is business
that the big banks are not familiar with and do not want and it, the
Bank of Brunswick, invested some money in those banks in order to
keep them functioning as two independent banks.
Senator NORBECK. You feel there is a real need of small banks over
the country as well as large banks?
Mr. BREMER. Yes; and I repeat again that the management of
these two groups has done a great deal to help steady the situation
in our territory, but it seems to me that at the same time there is a
field for the unit banker, but after all I think it is absolutely up to
the public. If the public is attracted to large figures—if those big
figures are the only attraction then the little unit bank is out of the
picture. But I think the unit bank has just as much chance as it
ever had to do its business.
The CHAIRMAN. You say you have stock in 40 different banks?
Mr. BREMER. Yes, sir.
Senator NORBECK. You feel the danger of branch banking is too
;much centralized control and too far from the public'? / Mr. BREMER. Yes; and not a good thing for the district in which
it operates.
Coming back to my idea ibout the home bank: My idea about the
banks is this: The home district comes first. The bank that I am
interested in are not going outside of their sphere and neither I nor
the banks are interested in selling or underwriting any bonds or
securities. I may be dead wrong in this and may have foregone a
great deal of profit. I do not care for that line of business. I am,
if you will permit the expression, an old-fashioned banker who takes
deposits from the people who trust us with them and lend them out
hrPnd nnd hiittpr
return.7 and that is
at a slightly larger
a
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Hearings - S. Res. 71
Appendix
Letter to Senator Norbeck from Arndt E. Dahl,
V. P., Citizens State Bank, Castlewood, S. Dak., Feb. 4, 1931
/ ps9
_
We here at Castlewood are competing with group bankers every day. They
have two of them at Watertown, only 16 miles from here. So far they have
not hurt us any that we know of, so that I am not writing this because I have
any grievance against them. The people do not like the group banking institutions and when they are assured of equal safety in a unit bank they prefer the
unit institutions. N'Ve have had deposits come to us because of the fact that
they are group institutions.

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Personally I am not opposed to all branch flanking. I believe that limited
branch banking within a large city is desirable. I believe that limited branch
banking within the county would not be so bad, as it would probably be better
than the cut-throat competition we had a few years ago in South Dakota. The
only bad feature is that if branch bankinig is given a start that the areas will
gradually increase. However, I do not believe we should have interstate branch
banking or group banking spread over such a large territory as we have in the
Northwest now. The worst feature is that trouble in one territory or in one
bank may spread over the entire system. We now have in the Northwest one
group chain that has a bank way out in Washington, a large bank in Omaha,
the largest bank in Iowa, the largest ba.nk in Duluth, the largest bank in South
Dakota, the largest bank in North Dakota, and a number of banks in Montana,
and the head bank is located in Minneapolis, and its ratio of capital to its
deposits is much smaller than most of the large banks, and many of the small
ones, too. It is such a vast organization with a number of large banks in the
group, that any serious trouble in one of the large group banks might easily
spread over the entire system. The deposits of its affiliates totals much larger
than the head bank itself, and I do not think that this is a good thing. The
other group in the Northwest, I believe, is better situated. I do not think that
they are wholly in favor of group banking, but was forced into it by its competitor and they had to form a group of their own or let their competitor take
their correspondents away from them. Furthermore, in this group they have
two large banks to bear the burden. The deposits of the affiliates outside of
the two head banks are in better proportion. In other words, they are in better
position to take care of trouble in a part of their group, because the head banks
are larger in proportion to the rest of the group.
There is another feature of group banking that appears bad to me, and that is
pyramiding of deposits. For instance: A bank at Ree Hights, S. Dak., is listed
in the Blue Book to use the bank at Miller as a correspondent. A former officer
of the Miller bank is now an officer of the bank at Huron recently organized, and
undoubtedly the Miller bank uses Huron as a correspondent ; the Huron bank
will naturally use the head bank in Minneapolis as a correspondent. All these
banks are members of the same group. Now, if a farmer deposits $1,000 in the
Ree Hights bank, the Ree Hights bank may deposit this in the Miller bank, and
the Miller bank may deposit in the Huron bank, and finally the Huron bank
will deposit this in the head bank. Now, the deposits in all these banks have
increased each $1,000 from the same deposit. In a consolidated statement of all
the members of the group, the original $1,000 will show up as a $4,000 deposit in
the group total, and each bank will have increased its cash reserve $1,000, and
the group total of cash will also show as $4,000 as the result of the one deposit.
Although this may be an extreme case, it shows how deposits and cash reserves
may be pyramided by interdeposits within the group. It would therefore be
most interesting to see a consolidated statement of the group with all interdeposits, intereash, and interadvances eliminated. Surely it would greatly reduce the footings and total resources now so much advertised. In other words,
the totals are not there when intertransactions are eliminated. It shows
the
possibilities of deception so that statements will not tell the true condition.
It is very encouraging, however, to note what the leading bankers of New
York say about branch and group banking on a nation-wide scale. I
notice
many of them do not favor it. It is also encouraging to see what the leading
financial magazines say about it. The Financial Chronicle of New York in their
June 14th issue, page 4122, certainly did not indorse the group and branch
banking, and ended up by saying "it is a false growth—one not in accord
with the
best banking and business interest." In the November 22d issue, after
the failure of the Banco-Kentucky group, it stated, on page 3248,"The ease with
which
trouble in one of the banks in an affiliated group extended to all the other
banks
in the same chain or group is evidence that chain or group banking
is no protection against disaster ; rather the reverse. The reason is perfectly plain.
Suspicion or doubt with reference to one of the members naturally quickly
brings other members of the group or affiliation under similar doubt
picion. And when this is said the chief argument urged in support and susof collective banking disappears." The New York Journal of Commerce, on November
19 and November 20, 1930, in two editorials condemned group banking.
The
American Bankers' Association Journal in their last two issues commented editorially on the fact that it was not the form of banking, whether group,
chain,
or unit which was most important, but pointed out that each class
has had
failures.

Hearings - S. Res. 71
Appendix
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AMERICAN NATIONAL BANK,
Santa Monica, Calif., January 22, 1931.
HOD. HIRAM JOHNSON,
Senator front California, Washington, D. C.
DEAR SIR: We wish to call your attention to a matter now before the Congress of the United States—that is, proposed revisions of the national banking
act and the legislation dealing with the operation of banks and the Federal
reserve system.
The independent banker occupies a place in the community that can not
uccessfully be replaced by the local manager of a branch or chain organization. No other business comes so close to the vital needs of every community ;
ns one has better understanding of the people in a community or their part1cular problems than the local independent banker; who has his own funds
invested in the bank and whOse prosperity must be keyed to the community's
prosperity. The one element in American life which has given this Nation
its greatness has been the individual initiative and enterprise of our independent business man. The American tradition of equal opportunity for every

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boy to become what he chboses is fast perishing and will cease to exist unless
the opportunity for the individual with intelligence, integrity, and perseverence
to continue a business for himself with relatively small amounts of capital is
protected.
The Federal reserve system, if it is to be of any benefit to the majority of
these smaller independent banks, must be modified. As it operates at present
the great majority of the smaller suburban and country banks do not have
any opportunity to use the Federal reserve system. The compulsory membership in the Federal reserve system often proves an expense and drain without
compensating benefits. A change in the rules of accepting paper for rediscount
must be made if these banks are to be able to use the Federal reserve system
in the manner in which we believe the founders of the Federal reserve system
intended. Paper held by such banks which is safe and liquid sufficient to pass
an examiner's approval should be made eligible for rediscount to the Federal
reserve bank under some proper rules and regulations. Many small banks with
plenty of paper, even better secured than much of that now accepted by the
Federal reserve, have been forced to close during a run because of the refusal
of the Federal reserve to advance a dollar against these assets.
The question of safety of a bank obviously does not depend on mere size—
it is rather the relation of quick assets to deposit liabilities and the quality
of loans held by the bank. The smaller unit bank given equal opportunity to
utilize its resources, with proper supervision and management, should be, we
believe, the safest type of financial institution and certainly should not be
discriminated against by the Federal reserve in favor of large combinations
of the country's finances.
We believe this question to be of utmost importance to the welfare and
future of the country. Is business by the smaller independent concerns to be
allowed to continue and prosper, or shall the children of the great majority
have nothing to look forward to save a precarious vassalage to some giant
industrial or financial creature of the law, with an ever-diminishing opportunity for any degree of independence in the inevitable extinction of that
individual initiative and enterprise that produces a nation of leaders and
great men?
Undoubtedly you are aware of these circumstances, but the nature of the issue
is such that those whose interests lie with the ever-increasing power of the
large and monopolistic concerns are in a position to present their view before
the Congreas and throughout the press, whereas those whose interests are on
the other side of this controversy (and we believe them to be the great
majority) can not have their views receive adequate publicity, nor will they
so often be presented and insisted upon. Not only as business men but as
citizens we feel so sincerely on this question that we would feel we had been
guilty of gross negligence of duty as patriotic citizens if we did not express
ourselves accordingly.
We trust you will find it in accordance with your duty to the Nation and
to your constituents to take an actiye part and do what you can toward safeguarding the welfare of the independent bank.
Yours very truly,
RICHARD K. GANDY.


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Leo T. Grorley, Chairman of the Board, Federal Deposit Insurance Corporation
Hearings — S. 1715 and H. R. 7617

•

April, 1955.
Mr. CROWLEY. Well, I think you have got a problem all the way
through your whole banking system that you have got to consider
in the next few years, and that is how to give these communities
banking servicg. There are a great many communities now that
need banking service; they have none, and yet they are not able to
raise sufficient capital. I think the whole principle of this thing
goes back to a correction of your whole banking system and making
certain changes that are going to give to your corporation better
protection, and strengthening of the banking system.
Senator GLASS. Do you think a branch banking system, Statewide, would do that?
Mr. CROWLEY. It might. There are something like 17 States that
have no branch banking, whereas 30 or 31 do permit it. In my opinion there must eventually be a thorough study of our entire banking
system made, at which time the subject of branch banking ought to
be impartially discussed.

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Marriner S. Eccles, Governor of the Federal Reserve Board
dearings — S. 1715 and H. R. 7617
May, 1955.
Senator GLASS. Before you get to that, Governor, and adverting
to the question of the small banks, do you believe in branch banking?
Governor ECCLES. I do.
Senator GLASS. State-wide?

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Governor ECCLES. Either state-wide or regional, trade area. I
believe in the extension of limited branch banking.
Senator GLASS. Do you think that would in a large measure solve
the problem of the small banks?
Governor ECCLES. I do.
Senator TOWNSEND. Is that provided for in this bill ?
Governor ECCLES. It is not.
Senator TOWNSEND. Would you favor putting it in the bill?
Governor ECCLES. Not at the present time. I am expressing, of
course, a personal opinion, and I recognize how controversial the
question is,the question of State's rights that arises in connection with
giving national banks the right to establish branches in States where
branch banking is not permitted. The problem raises an issue which
I think sooner or later must be met.
Senator GLASS. Does that mean to suggest that you do not mind
controverting the judgment of, the Senate but you do not like
to
undertake to controvert the judgment of the House?
Governor ECCLES. No; I would not say that. I do not want
to
consider too many controversial questions. It seems to me that there
have already been introduced sufficient, possibly, for one
Senator GLASS. Is not that a vital problem ?
Governor ECCLES. It is a vital problem, and it is a problem that
must be met. I personally have been, in favor of the unification
banking and branch banking and have recognized the need for a of
good
number of years.
Senator GLASS. Well, we have been studying that problem, to
my
personal knowledge, for 35 years. Why need we study it any further ? Why not act?
Governor ECCLES. Well, of course, there has been progress in the
development of branch banking in the last few years. Even
the
States have taken some initiative and leadership; and the bill that
was passed in 1933 permitting national banks to establish branche
in those States where Stat,es permitted it was a step in the right direc-s
tion. Progress is being made,I think,in that regard.
Senator GLASS. Yes; but you do not want any more made
right
now ; is that your idea?
Governor ECCLES. Well, I can
Senator GLASS. You want it made, but you do not want a controversy ?
Governor ECCLES. I, personally, am in favor of it, because I
believe
it is constructive. I think it would serve the public interest
.
I
think
it would strengthen the banking system.
Senator COUZENS. I think you would find a very consider
able
diversity of opinion on that.

Marriaer S. Eccles — Page 2.
Governor ECCLES. I recoanize that. I think that is one reason it
may be well to consider it at't some other time. I feel, however, that
branch banking should be limited in its scope; and I also feel that
where there are communities, small communities, that have banking
service, that it should not be--Senator GLASS. That is provided in existing law.
Governor EccLEs. Yes. That a bank should not be permitted to
go in and establish a bank and drive out an existing bank that is
already there and established.

304

BANKING ACT OF 1935

Senator GLASS. Your ideas are more liberal than mine. You want
it regional, and I think it ought to be confined to the States.
Governor ECCLES. Well, I have thought of it in connection with
Federal Reserve district branch areas,from the standpoint of administration, because the banks carry their reserves, and bank examinations
are conducted from that area, and it is a logical busine,ss unit, it
seems to me.
Senator GLASS. I do not dioagree there, but right at that point I
join you in not wanting too much controversy.
Goverilor ECCLES. I think it would be
Senator GLASS. I want to get rid of this talk about States' rights.
The Stat,es have no rights left, so far as that is concerned, but I
would like to get rid of that much of it.

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L. M. Aiggins, President Bank of Hartsville, S. C.
Hearings — S. 1715 and H. R. 7617
May, 1955.
STATEMENT Or L. M. WIGGINS, PRESIDENT BANK OF
HARTSVILLE, S. C.

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Mr. WIGGINS. Mr. Chairman and gentlemen, I testify before you
not as a banker nor an economist nor as one"qualified by education
or experience or both to participate in the formulation of national
economic and monetary policies." I represent the. viewpoint of
industry, agriculture,. and commerce in South Carolina and, to a
lesser degree, banking; being president of a small State bank, which
is a member of the Federal Reserve System.
With reference to title r of the proposed banking bill, I am in
full accord with its provisions, and urge its prompt adoption, with
the exception of one provision. I present the serious objections on
the part of bankers and business men in our State to the provision
in title I that will discontinue on a fixed future date the insurance
of deposits in banks not members of the Federal Reserve System.
Although it may be a desirable ultimate objective to have every
bank of deposit in the United States a member of the Federal Reserve
System, it is a practical impossibility for many of the small banks
and cash depositories in our State to meet reasonable membership
requirements and to survive the loss of revenue which would follow
membership in the Reserve System. The only alternative to the discontinuance of banking facilities in many of our small towns and
communities would be a restoration of wide-spread branch banking.
South Carolina has sustained such serious losses in the operation of
branch banks in the State that it will be many years, if ever, before
this type of banking will have the confidence of the people. We
believe that the farmers and business men of small communities have
the right to provide and use banking facilities so long as the institutions set up are soundly administered a,nd profitably operated,
even as that right is enjoyed in the larger centers of population.
Senator GLASS. Did you have branch banking or chain banking?
Mr. WIGGINS. We had one main bank in the city of Charlesto-n,
with branches all over the State-46 of them,I believe.
Senator GLASS. Were they exactly branches of that bank, or were
the smaller banks owned by that bank ?
Mr. WIGGINS. They were branches of that bank.
Senator COUZENS. Did they fail?
Mr. WIGGINS. They failed, and the depositors, up to now, have
received 10 percent of their deposits.
Senator BYRNES. The Western Carolina Bank, with 12 branches,
failed.

BANKING ACT OF 1935

829

Mr. WIGGINS. Yes; it failed. The South Carolina National Bank,
with three branches, failed.
Senator CorrzENs. Your State law permits branch banking?
Mr. WIGGINS. Yes, sir.
Senator COUZENS. Anywhere in the State ?
Mr. WIGGINS. Yes. The profitable operation of many of the
smaller banks in our State under the requirements of Federal Reserve
membership would be impossible. We,therefore, urge upon you the
postponement if not the present abandonment of the proposal to
require banks which have their deposits insured to become members
of the Federal Reserve System by a specified date.

L. M. Wiggins — Page 2.

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Senator COUZENS. What do yo-u think of the proposal to require
all those with more than half a million dollars worth of assets to
come in and exclude those below that amount?
Mr. *imam. I think that would be all right. In fact, I know
of no bank in our State of that size that is not a member.
Senator GLASS. What do you think of the proposal to defer the
matter until 1938, according to one suggestion, and 1940, according
to another?
Mr. WIGGINS. My idea, sir, is that at the present time it would be I
pure speculation to determine a future date, considerably in the
future, for that to be brought about.
Senator BYRNES. What will be the effect upon your State banks
and cash depositories to which you refer if they are not given time ?
Mr. WIGGINS. I did not quite get the question.
\ Senator BYRNES. If the present plan is carried out, what would be
\the effect upon those cash depositories ?
Mr. WIGGINS. Most of them will have to go out of business.
Senator CouzEws. Because their earnings are not enough or because
their assets are not good enough ?
Mr. Wiaams. Because their earnings are not enough. Their assets
are good.
Senator BYRNES. The earnings come from the amount they charge
for cashing checks.
Mr. WIGGINS. That is true. They are principally capitalized at
very small amounts. They are prohibited from lending money.
They are safeguarded with every provision for soundness, and they
must make their earnings out of various charges which the community is willing to pay.
Senator COUZENS. Do I understand you to say that they do not
lend any money ?
Mr. WicraiNs. No, sir.
Senator BYRNES. They opened just after the bank holiday to serve
the communities.
Mr. WiaGiNs. That is true; when capital was so limite,d that it
was impossible to organize an ordinary bank we established a system
of cash depositories.
Senator CotrzENs. Without capital ?
Mr. WiocaNs. No,sir. They have a small capital—$10,000 in some
cases.
Senator BULKLEY. Do they invest deposited funds?
Mr. WIGGINS. No, sir; not without the permission of the depositor.
They can invest their own capital, but not the deposits.


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No. 12

Hecrings - S. 4115
Edward Ball
Howard Bruce
Governor Harrison
Robert 0. Lord
Eugene Meyer
Wilson W. Mills
W. R. McQuaid
Senator Norbeck
John K. Ottley
William K. Payne
Edmund S. Platt
J. W. Pole
Thomas R. Preston
George F. Rand
Charles E. Rieman
L. E. Wakefield
Charles F. Zimmerman

a

Edward Ball, Atlantic National Bank, Jacksonville, Fla.
Hearings — S. 4115
March 1932

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Mr. BALL. Senator, there is one point in the bill on branch banking that we do favor. We believe branch banking would be a good
thing, either within the State or throughout the United States. The
Senator here spoke just a moment ago of the British system, which
is a branch-banking system.
Senator BROOKHART. I was not talking about the branch-banking
system I was talking about the cooperative system. I am opposed
to branch banking.
Mr. BALL. Senator, I thought in the British Isles they had branch
banking.
Senator BROOK HART. You know they had a cooperative system
with $4,000,000,000 in it, cooperative, not any of your competitive
system, where they let one man vote regardless of how much stock
he owns and where the earnings of the capital were absolutely fixed
and where the use of credit for speculation is absolutely prohibited.
You did not know about that system at all?
Mr. BALL. Senator, don't we have a competitive system in the
Dominion of Canada which is strictly a branch-banking system, and
where they have had so few bank failures since that system was
installed?
Senator BROOKHART. We just checked that over. They had 11
banks. Of course, they have many more branches, and they havP
had 16 failures; so it was about 140 per cent in failures in anada
in their system since it started. So I do not know as they are any
better off on that than your individuality.


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Howard Bruce, Chairman, Baltimore Trust Co., Baltimore
Hearings — S. 4115
March 1932
,,. .
Senator GL.ks. The Comptroller of the Currency,'
for example,
thinks the adoption of branch banking would do
something.
Mr. BRUCE. fllat iS all right. I have no objection to that.
ci____

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Memorandum to Committee on Banking and Currency
Submitted by Governor Harrison, FEB of NY
Dated April 7, 1952
(Included with Hearings — S. 4115)
- In conclusion, there do not appear to us to be any parts of the bill for which
there is imperative need for immediate passage, although two sections of the
bill are, indeed, of a character which might be expected to be helpful in the
present emergency. They are the proposal for a liquidating, corporation. section 10 (B), and the proposal for a wider extension of branch banking, section
21. If the liquidating corporation is to prove helpful, however, it would seem
to us to he essential that the amendment suggested by the Federal Reserve
Board be adopted, since a number of features of the proposal in the pending
bill might well be unnecessarily disturbing. The branch-bank proposal would be
helpful and useful in providing a mechanism for reorganizing and revitalizing
many small banks not now able to render adequate banking service in their
eommunities.

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Federal Reserve Bank of St. Louis

Robert 0. Lord, Pres., Guardian Detroit Union Group
Hearings — S. 4115
March 1932

•

If branch banking is to be preferred to group ownership ot hanks
and trust companies, then the bill should either permit branch banking within State limits or other approved areas, regardless of the
laws of the State or States in question; or the bill should permit the
existing groups to consolidate their member banks into a single institution and operate such banks which are now members of a group
as branches, regardless of the law or the State or States in question,
with a further restriction if deemed wise that no new branches shall
be permitted except as the State laws may permit.
Presumably, the purpose of section 20, subsections (b) and (c),
is to prevent the evasion of the double liability on bank stocks
through the ownership by a holding company of such bank stocks.
In the case of the Guardian Detroit Union Group, we recognized at
the time of our incorporation nearly four years ago that the double
liability protection to depositors should be preserved. Our charter,
and in fact our stock certificate itself includes the following provisions—I would like for the information of this committee to have
you see how that is worded [passing specimen stock certificates to
members of the committee]. There are some stock certificates, and
on the back is that provision, which is a part of the certificate.
That provision is as follows:
The holders of stock of this corporation shall be individually and severally
liable (in proportion to the number of shares of its stock held by them respectively) for any statutory liability imposed upon this corporation by reason of
its ownership of shares of the capital stock of any bank or trust companY,
and the stockholders of this corporation by the acceptance of their Certificates of stock of this corporation severally agree that such liability may be
enforced in the same manner as statutory liability may now or hereafter be
enforceable against stockholders of banks or trust companies under the laws
of the United States or the State of Michigan. A list of the stockholders of
this corporation shall be filed with the banking commissioner of Michigan and
the Comptroller of the Currency whenever requested by either of those
officers.

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So long as this double liability is carried through to the holders
of the stock of the group company, there is no more reason for a
group company to be compelled to carry a reserve to protect that
double liability than there is for the national or State banking
departments to require the individual holder of stock in a unit bank
to deposit cash or securities to cover his own personal double liability
in case his bank should become insolvent.

The bill includes restrictions against group banking which seem ,
to me to be both unnecessary and unfair, in view of the record and
standing of the group-banking institutions. None have failed to
my knowledge where they have been honestly and conscientiously '
run. Dishonesty is just as responsible for the failure of unit banks
as it is for group banks or branch banks.

Robert O. Lord — Page 2
March 1932

124

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The existing groups have probably contributed vastly more to the
stability and safety of the smaller communities throughout this
country than have the unit banks, due to their financial strength
and to the confidence in which they are held 13y the public. According to the testimony of Governor Young of the Federal Reserve
Bank before the Banking and Currency Committee of the House
on March 19, 1930, group banking at that time included 2103 banks,
or one-twelfth of the total number of banks in the country with
total loans and investments of about $11,200,000,000, or nearly onefifth of the aggregate loans and investments of all hanks in the
United States.
It seems to me especially dangerous at this time to either destroy
or impair, by legislation, banking institutions representing so great
a percentage of the entire banking resources of this country. The
repercussion upon industry and the public would be far more serious
than the effect upon the banks themselves. The present is far too
critical a period in the financial and industrial life of this Nation
to enact legislation which does not have the fully approval of the
Treasury Department, the Federal Reserve experts, the department
of the Comptroller of the Currency, and the approval of the ablest
and soundest banking minds of the United States, as well as the
_approval of this committee.

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and I have
Section 21 refers also to group and branch banking,
already stated our position.
whole proSenator COITZENS. In other words, you object to that
it?
that
is
group;
the
vision limiting the voting power of
s, is it not ?
Mr. LORD. Section 21, Senator, is in regard to branche
ing the
regulat
there
n
provisio
a
Senator CotrzEics. I mean there is
bank.
group
the
of
voting power
ed to vote
Mr. LORD. Senator Couzens, if the banks are permitt
am not a
I
r,
behavio
good
to
subject
and
isions
v
prounder certain
bit afraid of that. We will behave.
to prevent
Senator GLAss. The purpose of that, as you know, was
Federal
the
ely
complet
ing
controll
the holding company from
itself.
reserve bank
perfectly proper,
Mr. LORD. I understand that. I think that is not. In our own
could
they
that
so
division
a
be
should
that there
because there are
district neither of our groups could control it,, that if groups are
however
feel,
do
I
banks—
dent
plenty of indepen
do a banking business
to be limited in any'way as to their power to,got to have some place
have
we
units,
the
to
ng
ly,
accordi
separate
memorandum, was that
to go. My sug,gestion, as made in this ss of the State laws, for
regardle
ed
permitt
be
should
banking
branch
take their present
national banks, or that the groups be allowed to
powers of extension,
with
s
branche
as
them
e
organiz
and
iinits
ed it.
if it is thought wise, unless the State law permitt
banks?
national
As
WiLus.
Mr.
Mr. LORD. As national banks; yes. sir.

Robert O. Lord — Page 3
March 1932

Senator GIASS. I think you would not experience any difficulty
in convincing the subcommittee on that point if the subcommittee
could feel that it is possible to get such provisions through Congress.
C Senator COUZENS. Would you be willing to abandon group banking
if branch bankipLwasTermitisid.throughout the State.4
(---Mi•.
---Li5RiiTres, sir • and we_ woukt _put.our banks_into _one,.institution,_a natmal boyar.- Of our institutions the larger ones are all
----national banks, but the Highland Park State Bank and the bank in
Flint and two or three small banks are State institutions. Most of
them are national institutions.
The CHAIRMAN. I am not sure that I understood what you meant
there. Of course, each bank is operating under its own charter?
Mr. LORD. Each bank is operating under its own charter. Each
bank, under the group company's by-laws, must have at least 75 per
cent of their directors local men.

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

The CHAIRMAN. And how much of the stock is held by the holding
company in each instance?
Mr. LORD. Except for one case, we own all or practically all—in
most cases we own all except the directors' shares.
The CHAIRMAN. You protest against the suggested provision in
this bill of building up a reserve to protect stockholders' liability; is
that your feeling, that your stockholders are legally bound for double
liability at the present time?
Mr. LORD. Absolutely.
The CHAIRMAN. Has this form of agreement that they signed been
submitted to the attorneys at the Comptroller's office to its binding effect ?
Mr. LORD. I believe they have seen it, although the holding company is a State corporation. It was submitted to the attorney general of the State of Michigan and the banking department there, both
of whom approved it.
The CHAIRMAN. Both of whom held that they could hold them the
same as though. they were stockholders in the bank ?
Mr. LORD. Y eS, sir.
The CHAIRMAN. But your banks are not all in one State ?
Mr. LORD. They are ; all in Michigan.
The CHAIRMAN. They are all in Michigan ?
Mr. LORD. We have no institution of any kind outside of the State.
The CHAIRMAN. The liability of nation,a1 banks would be enforced in the Federal court, and the others is the State courts, of
course?
Mr. Losn. Correct.
The CHAIRMAN. Should this not be a matter to be submitted to
the comptroller's office for their consideration ?
Mr. LORD._ Yes, sir. I think they do know about it, Senator.

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Robert O. Lord — Page 4
March 1932

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Senator FLETCHER. As a matter of fact, as stockholders in your
institution you own all the stock practically in all of those?
Mr. LORD. Yes; but the owners of the stock of the company that
owns these banks have that double liability through the provision
in our stock certificate. Iri other words, you not only have the individual double liability passed on the holders of stock in the holding
company, but in addition you have whatever other assets the holding company may have as protection. You have a greater protection than merely the double liability of a unit bank.
Senator FLETCHER. The double liability attaches to the stockholders of the holding company ?
Mr. LORD. Of the holding company; yes, sir.
The CHAIRMAN. Under a form of agreement that they sign and
that is indorsed on the certificate.
Senator GLASS. There is double liability in many of the unit banks
but it does not amount to much, does it ?
Air. LoRD. That is very true these days, Senator Glass.
The CHAIRMAN. May I ask—there are a dozen or so large groups
throughout the country, are there not?
Air. LORD. Yes, sir; I think there are more than that.
The CHAIRMAN. There is a larger number of large groups than
a dozen
Mr. LORD. I do not think as large as we are. In our own State
there are the two principal groups, and I understand there are others

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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133

covering the northwest section, and there are the groups in Utah
and adjacent States, and there is the group in New York and also
other groups in the Southeast.
The CHAIRMAN. Do you know whether any other groups use this
form of certificate, bringing the stockholders in the holding-company
under the double liability ?
Mr. LORD. The Detroit Bankers, which is in Michigan also, and I
believe Wisconsin Bank Shares Corporation. I do not know whether
others do or not, Senator.
The CHAIRMAN. ill other words, so far as you know, there are
just a few of them that follow that.
Mr. LORD. I know that some do. Whether they all do, I can not
say.
The CHAIRMAN. You realize, of course, the effort of the committee to protect was due to the fact that the committee did not believe
that it was a general rule to hold the stockholders in the holding
company to double liability. In fact, some members of the committee believed the whole purpose of the organization was to evade
a good law that provided for stockholders' liability.
Air. LORD. That was not ours, because we put it in the charter
when we organized.
The CHAIRMAN. No; I see, because you stuck to it and carried it
film-1i .

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Robert O. Lord - Page 5
March 1932
The CHAIRMAN. Your suggestion as to the groups would be this,
that they would be regulated but not extended? Is that your
thought?
Air. LORD. Unless the State laws permit it. I think the provision
you have in as to that territorial provision is excellent. I think
that is fine. The objection I have to the bill as it stands to-day
is that there is no branch banking permitted except in States where
the laws of those States permit it.

NATIONAL AND FEDERAL RESERVE BANIcING SYSTEMS

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139

The CHAIRMAN. Would you override the sovereignty of the State
in a matter of this kind? Is there not a great deal of danger in
doing that?
Mr. LORD. Perhaps.
The CHAIRMAN. Are you not getting centralized too much now
and taking this power and that power away from the States?
Mr. LORD. I am in favor of doing it for the national banks. The
States have no control over national banks now.
Senator GLASS. Now that the exceedingly conservative chairman
of this committee suggests an objection of that sort, just what sort
of objections may we encounter from the radical members?
[Laughter.]
Senator GORE. When the reds get after it?
Mr. LORD. Senator, the question of branch banking is a very
interesting one, and I think that, frankly, it is the ultimate solution of our banking troubles. If it can be handled in such_kway as
to prevent a centralization of_power in AmieLplaceLT believe it Ay9_11_(1
be the solution.
winAN. 'Well, I think your"if"is the main part of your
tre
statement.
Mr. LORD. All right; su posing that the directors of a bank perthe State must
mitted to have branch an
-be 90 pet cent fmi etrrliFat State?
The CHAIRNI AN. Well. I certainly share your view that it should
not be located outside the State but should be owned by the people
of the State, if you want to avoid centralization.
Mr. Loap..Of course, you can not prevent ownership of stock
passing from one locality to another, but you can prevent a directoo7&an Francisco and. attempting to opei'ate
rateliving,in New.Uira,corporation elsewhere.
The CHAIRMAN. We all know that directors are sometimes just
dummies. They are just representatives of some one who lives at a
distance.
Senator GORE. Would it he feasible tQ, prevent „itockholders who
live outside of thtritate ri)in otTitc77
• Yon know that tinirTvas
flonf in triiittir Stops hfink,:
Mr. Loan. I think it would. That is a legal question. But that
would answer your question as to the directors being dummies.
Senator GLASS. The subcommittee would not go into mourning
altogether if you were to prevail upon Congress to take that view
of it. I would not.
Mr. LORD. Can you prevail upon Congress to take that view,
Senator?
Senator GLAss. I do not know. It seems that I can not prevail
upon the Bankine Committee to let us pass a reform bankinz bill.

c',
€101

Eugene Meyer, Governor, Federal Reserve Board
Hearings - S. 4115
March 1932
Senator GLAss. Does the board favor- branch banking? Mr. MEYER. The board did not take a vote on branch banking,
because it is such a big subject and we did not have very much time
for it. We had our experts analyzing the bill and explaining it to
us for the best part of a week, and we just had two sessions of about
three hours each and we did not get around to a thorough discussion
of banking.
Senator GLAss. I have had this analysis of your experts on my
table for a month.
Mr. MEYER. That was another analysis.
Senator GLASS. I have not observed any difference in it.
Mr. MEYER. On the subject of branch banking I should say the
board would not be able to reach a unanimous expression Senator.
There are some differences of opinion. Some forms of branch
banking might be favored by some of us. We were not able in this
document, which is unanimous on the points which are discussed, to
express an opinion.
Senator GLAss. You want to put the entire responsibility of the
solution of this unhappy problem on us, do you?
Mr. MEYER. You do not seem to worry about responsibility, and
we feel you are amply equipped t,o handle it.

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Senator WALcorr. Governor, while we are on that: I do not think
it is betraying any confidence to say the members of the subcommittee would go even as far as the districts of the Federal reserve
system in making 35 branch districts, but we never could get it
through Congress. The subcommittee, I think, would unanimously
go as far as States with an exception on border-line towns within a

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396

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

radius of 50 or a hundred miles such as the bill provides for. There
have been witnesses here that have been familiar with and have been
very active in the group banking business that have testified unless
they could have some provision for branch banking at least statewide, irrespective of State lines, that it would be the doom of the
group system; they must have an escape from the group banking.
The CHAIRMAN. The Senator will recall that some of the witnesses
of the group system a year ago had the opposite view.
Senator WALcorr. Yes.
The CHAIRMAN. And appeared before this same committee on this
same bill.
Senator WALcorr. Exactly.
The CHAIRMAN. In other words, they told us that 40 years of experience' led to a judgment against branch banks. Now they say
they have had 41 and they have changed their minds. [Laughter.]
Senator WALCOTT. And they emphasized by saying that they must
have the branches.
The CHAIRMAN. In other words, they want to abandon experience
for_ a theory.
They
want to try a theory. _
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Wilson W. Mills, Chairman, First Wayne Nat. Bk. of Detroit
Hearings — S. 4115
March 1932

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Mr. MILLs. Now, I realize I am getting on some pretty debatable
ground with you gentlemen, particularly Senator Glass. Our bank
happens to be a member of a holding company group, no other
banks of any large consequence in it except a trust company. We
have one state bank outside Wayne County that is owned by the
holding company. That is all that we have. Mr. Lord, who will
follow me, is also in the holding company.
In Michigan at least there are no banks which have been members
of holding companies that have closed their doors or had any moratoriums or anything els,e, except paid their depositors when they
wanted it. In Michigan we have had 112 banks closed during 193i.
Michigan does not permit its State banks to engage in banking
beyond corporate limits.
My own view is that the drafters of this bill obviously believe in
wider than present banking limits. That is, the banking limits
should be wider than they now are. It even goes so far as, in certain circumstances, to permit banking to be done in two different
States.
Senator GLASS. Only to a. very, very limited. extent in extraordinary circumstances.
Mr. MILLs. Yes in proper circumstances, but it at least generally
contemplates that banking will go to an extent of state-wide bankin
nator GLASS. Yes.
Mr. Millis. In our case in Michigan I can see no reason, if the
drafters of this bill are in favor of state-wide banking for not going
sled length and saying: "All right, every national bank can go sled
length." Certainly, the results in Michigan have been perfectly
splendid. There have been no failures of any banks in Michigan
that have been members of the group. There have been no moratoriums of any of those banks. Those banks have met their customers' demands when they have been made, as against the 112
banks that have been closed.
Senator GLASS. You would say that regardless of State laws on
the subject?
Mr. Miu.s. I would, regardless of State laws, because if there is
strength, that would solve fully in Michigan, in my judgment,
Senator, all objection to group banking. There would not be any
group banks left. They will just go out of business.

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

115

Senator GLASS. I understood the committee would say that too,
and cheerfully, if they could get the bill through Congress.
Mr. MILLs. That is a matter that I can not judge.
Senator GLASS. Well, you may judge the future by the past. It
took us 16 months to get the limited branch banking facilities that
are granted in the McFadden bill.
Senator BROOKHART. Some of us think that was too quick.
Senator GLASS. Exactly.
Mr. MILL& I wanted to make that statement. Now, the holding
companies—I know they have been damned up one street and down
the other, but all the holding companies in Michigan provide for
double liability on the shares of stock of the holding company.
Senator GLASS. If that is true, there is no reason why the holding
companies in other States should not be required to have that, is
there?
Mr. MILLs. I do not know of any reason. We have done it voluntarily. Both holding companies in Michigan have done that voluntarily, and there is double liability on holders of stock of holding
companies.

Wilson W. Mills — Page 2
March 1932

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Senator BROOKHART. The fact that your holding companies have
done well in Michigan does not mean that they have throughout the
United States?
Mr. MILLs. No; they have not. So I will say, Senator, I will
grant you that in some places they have not.
Senator BROOKHART. I was out in Louisville and waked up in
the morning and a group bank went down and also carried with it
100 or 150 banks.
Mr. MILLs. If the Congress of the United States had passed a
law to the effect that you could have had branch banking and
branch banking in the future, the provisions as set out by this bill,
by a national bank, irrespective of the State, I do not think that you
would have had many holding companies in existence at all. The
necessity for them would not have been there.
Senator BROOKHART. Of course, a holding company may have been
a little worse than a branch, but not much.
Senator GLASS. Oh, yes.
Mr. MILLs. They are open to certain abuses in certain cases that
others are not. Before I leave, I just want to make three statements--The CHAIRMAN. There have been some inglorious failures of
branch banks, too.
Mr. MuLs. There have been, but I think if you look over the
history of the failures you will find an infinitesimally small number
of failures of branch banks.
Senator BROOKHART. How many branches did the Bank of thp
United States have up in New York?
Mr. MILL& I can not answer that, but I would be surprised if they
had more than three or four branches in New York City. I do not
know. I would be surprised if there were more than that.
The CHAIRMAN. Our committee was informed some 50 or 60.
Mr. MILLs. I did not know that. I ani not familiar. But I
would doubt if they had that number of branches.

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The CHAIRMAN. One fact was brought out rather strongly: The
money involved. in bank failures in the State of South Dakota was
not much over $50,000,000, and we have been thoroughly advertised
for the large number of bank failures. Here is this big branch
bank in New York that went down with over two hundred millions,
one single bank, dragged down four tinies as much as all the failures
in my State did. And still we are told we. have a poor system out
there because we have so many bank failures.
Mr. Mail's. Well, taking your own statement, Senator, do you
think if the banks there had united so that the strength of each
would have been the strength of the other--of course you would
have had the weaknesses also—there would have been the same
number of failures?
Senator BROOKHART. Yes; with the price of corn and hogs and
wheat and oats the way they are.
. Mr. Miu.s. You would have had the failures anyway, it didn't
make any difference, is that it, Senator ?
Senator BROOKHART. You are going to have failures of your coinin Michigan, because they will quit buying Fords pretty
binations
\
\soon.
`. Mr. MILLs. The failures there bad no relation to groups.

W. R. McQuaid, Pres., Barnett Nat. Bk., Jacksonville
Hearings — S. 4115
March 1952

r. McQuAm.\Yes.
liates and branch bankinff: I think there should be stricken
out of lines 21 and 22 of section21:
"If such establishment and operation are at the time permitted
to State banks by the law of the State in question."
Senator GLASS. You think we ought to go into the States whether
they want us or not, with national banks?
Mr. McQuAm. Yes, sir.
Holding companies were created because Federal law did not, and
many States do not, permit state-wide branch banking.
As a bank having affiliated banks in our State we would welcome
the opportunity to convert these separate affiliated banks into
branches and feel that other banks having affiliated banks would
do likewise. There would not be any need for any regulation bf
any holding corporation so far as we are concerned if you are able
to do that.
Senator GLASS. You know, one witness only to-day protested
against the invasion of State's rights to the extent of :s0 miles across
the border from the bank.
Mr. McQuAm. My preference, Senator, would be to confine it to
State
Senator GLASS. Whether the State law permits or not?
Mr. McQuAm. Whether they permit it or not. Why should
the Federal law, enacted to give a national, uniform system of banking, be modified and hampered by laws of any one of 48 States,
or the national banks of 1 State denied the facilities or rights given
national banks in another State ?
Senator GLASS. I am not disagreeing with you if you could get
an assurance that you could get the branch banking through Congress. I do not think this committee would largely disagree with
you.
Mr. MCQUAID. That would eliminate to a very considerable extent
some of these difficulties about holding corporations.
Senator GLAss. I would like you to have the job of managing
a bill like that through Congress. It took us 16 months to get the
small measure of branch banking
• in cities and counties.
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Under the provisions of section 19 no corporation or partnership
owning more than 10 per cent of the capital stock of a bank is
permitted to vote the stock unless a permit is received from the
Comptroller of the Currency, even though the ownership by the
corporation or yartnership is incidental to their real business, and
such permit will not be given if they engage in the distribution
of securities, and unless, among other things, reports be given periodically to the comptroller and permission be given to an examination
by national bank examiners.
While it may be desirable to require reports and permit examination of affiliate holding companies of banks owning control of affiliate banks--I have no objection at all to that—these restrictions
in other corporations owning more than 10 per cent of a bank's
stock are unnecessarily severe, at the most they should only be
required to satisfy the Comptroller of the Currency that they had

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March 1952

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sufficient other assets to meet any stock assessment that might be
levied upon bank stocks held.
I am perfectly in accord with the idea of regulating the affiliate
holding company such as ours is. We have a corporation whose
stock is indorsed upon the stock of our bank. It holds only bank
stocks, banks that we are interested in. I am perfectly willing that
that corporation be examined as many times as the comptroller
wants to examine it, and I am willing to comply with all the regulations you have provided in there, because that is strictly a holding
company of bank stocks. I am perfectly willing to create other assets that are sufficient to cover the par value of bank stocks. As
a matter of fact, we have cash now for almost the par value of the
bank stocks held in that corporation.
But when it comes to other corporations where they own bank
stock and their ownership is incidental, I think that is pretty severe.
Other lines of business are not going to permit examination by
Federal examiners.
Some of the radical changes and restrictions proposed in the
present bill, to which only brief reference can be made here, can
work tremendous harm to the banking and business interests of
our country. Change,s should be made only after careful consideration, both from the standpoint of actual practice and experience
as well as theory.

Material submitted by Senator Norbeck for Record
Hearings - S. 4115
March 1952

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355

AND SONE CALL IT "BETTER

[American Banker, January 15, 1932]

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Sundry short-sighted gentlemen of the press and of banking point to our
2,300 bank suspensions in 1931 as a convincing "argument" that branch banking is a better system.
But the last four months has utterly exploded the validity of their argument.
Branch banking as practiced in England and carried on in Canada has faults
more glaring and dangerous than any which can be charged against unit
banking.
If anything, the branch system is even further than unit banking from that
ideal of perfect bank responsibility, so desirable, yet, like other dreams of
human perfectibility, probably equally unattainable.
We have our bank closings. The figures tell the story. But branch-banking systemS, instead of suspending individually when they are faced with a
run, pull the monetary standard of their countries crashingly down when they
face the crisis of deflation.
Branch-banking systems are "too big" to fail or to be permitted to fail.
They can not suspend to liquidate, as do our American banks, making way
for the reorganization of a sound bank or the organization of a new bank.
Their liquidation can not be compartmentized and absorbed locally where
their credits were spent.
Every Britisher is paying to-day with 30 per cent of his deposits for the
"safety" of his branch banking system. Every Canadian is paying for
"safety" of his branch-banking system with 20 per cent of his deposits. True,
the Britisher and the Canadian have as many pounds sterling or Dominion
dollars in the accounts as they had before the crash. However, 20 to 30 per
cent of their value has been taken from them by the loss of purchasing power
of their funds. True, also, they hope to get full value back. But so do American beneficiaries of individual closed banks, with better reasons, as we see It.
Perhaps you can 6°1 the British and Canadian people into thinking that
'such a system of mass confiscation of their banked wealth is better. Concen• trate the money of a Nation into a few large banks through branch banking
if you like. Ignore, if you can, the fact that credit administration is thereby
taken from sympathetic local hands and put in the hands of distant city money'market manipulators. Forget, if you can, the fact that another field of the
individualistic enterprises to which we owe our American progress is thus
handed to a monopoly. Ignore such social and economic implications of branch
banking, if you can. But you can not escape the truth that mismanagement
hig banks is possible, and when it conies its very momentum is likely to be
more costly than we have found it under unit-banking systems. Mistakes can
be made by branch bankers. They were made in France, where, after some of
the smaller branch banks failed, the government was forced to pour billions of
fiat francs into the temaining branch-banking systems to keep them alive.
rold came simultaneously with this governFrench depositors' demands for ,
in Cletmany before the moratorium was comment subsidy. The situation '
plicated with branch-bank failures which could only be solved by the use of
government guaranties and freezing of deposits. Not only has branch banking given a poor amount of itself to its depositors, but countries which have
depended *upon it have fared badly.
But do we need to look abroad to see the danger which is inherent in the
branch bank idea? Our own Government has had to pledge both money and
credit to support at least one branch bankin,g situation where poor management policies in the boom had led to weakened depositors' confidence in the
depression. 'Mistakes in banking are being made. And they are bigger and
more dangerous in geometric proportion to the scope and size of the banking
organizations making them. The fact that the error may hinge upon Government fiscal policy as well as banking, only emphasizes the fact that bigness of
banks is a liability to governments rather than an asset in times of crisis.
London made such a mistake. It was a banking and credit blunder. Every
moneyed person in the British Empire is to-day paying the price of that mistake. The folly was too big to be absorbed in the reorganization or liquidation
of one or more banks. Closing even one big branch bank would have precipitated a national smash. instead, the British Government and bankers have
charged the cost of their 'mistakes to the entire wealth, of the country.' The
banks simPlY went off the gold standard. Unit banking can not exist without

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Hearings - S. 4115
March 1952
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

the implication that some banks will be run better than others. But unit
bankers can look forward to the hope that through the cooperative effort toward better bank management as expressed in American Bankers Association
work, in Federal reserve membership, local clearing-house associations, and thelike, the percentage of mismanagement and the percentage of victims of Government mismanagement can' be reduced to a smaller and smaller figtire.
Branch banking systems can not be operated without facing the danger that
mistakes at headquarters will plunge the whole country disastrously off its
gold base.
Only a fool can delude himself into the belief that any guaranty of bank
deposits is possible.
flis folly is no less if he worships the guaranty of deposits idea wider the
guise of branch banking.
FARMERS STATE BANK,
Westport, S. Dak., Marc*, 26, 1932.
HOD. PETER NORBECK,
United States Senate, Washington, D. C.
DEAR Ma. NORBECK : The provision in the Glass bill restricting branch banking to those States that permit State branch banking should be sustained.
There is going to be a fight on this restriction—the branch, chain, and group
banking interests in the country are going to bring their influence to bear
against this restriction in the hope that it will provide another wedge into the
dream of national branch banking over the entire country.
States rights should be held inviolate; the people in each State should have
the power to say whether they want branch banking. The big argument in favor
and which is being stressed by those interested is in safety, but the record
of failures of branch and chain banking in this country the past few years
amply demonstrates the fallacy of that theory. Unit banks can be and many
are just as safe as a bank should be; they have the interest of their own
communities at heart. Witness this bank which in the 12 years under my
control has been one of the few in the country that has never had to borrow
any money, and to-day we are taking care of the legitimate requirements of
our customers.
Branch banking in the final analysis will bring on economic stagnation. stifle
individual enterprise, and throttle the "little fellows," the farmers and small"
tradespeople. Why all this howl about losses to bank depositors? The percentage of loss has been less than to most anY other class_pf investoi: 173Ft's
take, for sake of argument, the cases of, say, four people, who three years ago
each had $5,000 to invest. One put his money into
farm, one into what he
had been led to believe were sound bonds, one into a first-class farm or city
his
into
put
a
last
bank.
mortgage, and
We will say the bank failed. Who
was the worst off? The record will show that the man who put his money into.
the
sustained,
in
majority
of
cases, the least loss of any.
the bank
The big banking interests of the country are simply using the present economic chaos into which the whole world finds itself as an excuse to sieze control of the banking business, to centralize the money power in the East for
the benefit of so-called big business and to the exclusion and disregard of the
agricultural sections of the country. If this succeeds it will mean ruin to
millions of people and the stifling of individual enterprise. If you have any
doubt of this you might take a trip into Canada, as I have on two different
occasions, and talk with people in that country—a country that is just as
wealthy in national resources as we are--you can come to but one conclusion,
and that is that their whole economic and individual development has been
permanently impaired--due, for the most part, to their system of branch
small tradesman, the merchant, and the farmer sim 1 ha n't a
banking.
chance. If, f1na y,-We liave nation-Wide WiTina-bank ng in
s country, t en
we are coming to the same condition—just as surely as the sun rises in the
morning, and nation-wide branch banking is what we are cgming to unless the
people wake up in time. There have been losses under our present form of
banking—losses which no system of banking can entirely overcome--but rather
those losses than the loss of our individuad initiative and economic progress
that is bound to follow the abolition of "independent" banking.
I am going to watch with much interest the scrap that is bound to come up,
over the restriction in the Glass bill to which I have referred.
Yours very truly,
DOR W. DE VIM.

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John K. Ottley, Pres., First Nat. Bank of Atlanta, Ga.
Hearings — S. 4115
March 1932

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Group banks: The act would, in my o inion, have a disastrous
effect on the group of banks in Georgia a liated with the First National Bank of Atlanta. This group was organized in accordance
with the law, and rights have grown up which could not be _protected under the Federal reserve system if this act is passed. Each
bank in this group is unquestionably stronger and able to afford
better service to the public as a member of the group than it would
be if operated independently.
As between group banking and branch banking under proper regulations, I have no hesitation in saying that I advocate the latter.
Section 21 of the act, page 45, is an approval of branch bankina, but
it does not go far enou_gh to save the groups already organizecrsince
it is limited to those States which permit branch banking by State
law. Georgia permits branches but under such limitations and restrictions as would not be'applicable to our group. The legislature
of the State is not scheduled to meet for more than a year and we
could not, therefore, reasonably expect to secure the necessary legislation in time to save our group unless this act is amended by permitting groups alrvady organized to be converted into one bank
with branches at the places where the established banks are now
located.
All members of our group are national banks and, therefore, members of the Federal reserve system. They are operated by independent officers, and in every instance care has been exercised to retain
the local boards of directors primarily interested in the welfare of
their communities and the accommodation of commerce, industry,
and agriculture in the contiguous territory. In addition to subscribing their full quota to the National Credit Corporation and
aiding in every legitimte way the other financial institutions in
Georgia, these banks have retained the confidence of the public and
have been able during the depression through which we have passed
to afford adequate banking: facilities to their respective localities.
Having been organized in full compliance with the laws of both
of State a,nd Nation, valid contracts have been raade and relationships
have been established affecting extensive property rights. Having
done no wrong and having committed no crime,I respectfully submit
that we should not be punished because some one else has broken faith
or abused a privilege. The many provisions of the act aimed at
group banking would affect seriously not only our banks. which represent 30 per cent of the banking capital and deposits of Georgia, but
also another sound and well-organized group in the same territory.
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

! These two groups furnish to the commerce, industry, and agriculture
of Georgia more than half of its banking accommodations.
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William K. Payne, Chairman, Auburn—Cayuga Nat. Bk. & Tr. Co., Auburn, N.Y.
Hearings — S. 4115
March 1932

On the questioon of the branch bank business: Many of our country banks have long given their community satisfactory service under
the unit banking system and view with some apprehension a further
extension of chain and branch banking. My own opinion is that this
system will grow as, if, and when it suits the business needs. It is
a slow and evolutionary growth, and its final form will come through
. the trial and error system. Whatever legislation is enacted will not
be perfect; there will be defects in it, and during that time of experimentation it will be costly to the banking system, but I think
it has got to come.
Senator GLASS. What has got to come ?
Mr. PAYNE. Experiments as to What is the ultimate form of our
banking system. But it seems tt• me that this is not the time to go
through those experiments. If you gentlemen feel at all the way I
feel about the serious situation we are in now,it seems to me you can
agree with me th,at anything in the nature of experimental legislation looking to a change or to new forms of the machinery of business
should not be undertaken at the present time.
, Senator GLASS. TM we have had witness after witness to tell us
that we not only should have branch banking but that we should
go into States regardless of State laws.

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337

Mr. PAYNE. That may be so, Senator. I do not think any of us
can predict what the ultimate form is going to evolve out of this
system. I think there are going to be changes as there are in practically every other form of business activity, retailing and other
things, but it seenis to me this is not the time to begin those
experiments.
Senator GLASS. Do you favor general banking or group banking?
Mr. PAYNE. Do I favor it?
Senator GLASS. Yes.
Mr. PAYNE. Frankly, I do not know what the solution is. We
have grown up under a unit system and we like it. I do not think
it is going. to continue. Of course, it is not now the only system.
We are going through an evolution, and what the ultimate outcome
iS T do not know. I wish I did.

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Edmund S. Platt, V. Pres., Marine Midland Corp., Buffalo
Hearings — S. 4115
March 1932

1

Governor PLATT. I was moved to remark, in answer to Mr. Zimmerman, that I wondered how the city of Philadelphia has managed
to survive all these years with a branch or two located in it across
State lines. The Camden National Bank of Camden, N. J., has
had a branch in Philadelphia for ahnost 120 years, and Philadelphia
is still there. That branch was established in the old days when
crops used to be moved from the lower part of New Jersey into
Philadelphia and was established about 1813 to help move the crops,
and it has been there all these years. It was a State bank originally.
Senator BROOKHART. Do you think the idea was that Philadelphia would like to get even with Camden?
Governor PLATT. As a mattter of actual fact, branch banking is
not a cormorant and does not grow half as fast as its opponents
think it will. Maryland, Virginia, North Carolina, and a number
of other States have had state-wide branch banking for years, and
no bank in Baltimore has got a branch outside the city except in
the immediate locality, if I remember right, Senator Glass.
I believe that the only way to stop bank failures is to allow banks
to consolidate. Why should they be restricted from consolidating
if they do not happen to be located within the same limits? The
national bank act curiously provides that banks may consolidate
within county limits, but if you do consolidate them within county
limits and they do not happen to be within the same municipal

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311

limits, one of them has to be closed, and I do not see any sense
in that at all.
Senator BROOKHART. Out in my country they consolidated, and
both of them failed afterwards. [Laughter.]
Governor PLAIT. I know when I was on the Federal Reserve
Board we agreed to a consolidation of two banks that were 30 miles
apart--in South Dakota, I think—and it was said that there was
a good road between the two towns, and therefore there was no reason why the other town should have a bank. It would seem to me
20 miles is quite a long way to go. I have talked a good deal about
branch banking at various times, and I now want to say a few
words about the Federal reserve parts of the bill.
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Governor PLArr. I do not think that we need to have nation-widebranch banking. Until recently there was a very nice little bank
in Saskatchewan with 25 branches, all in one Province, Saskatchewan, the Weyburn Security Bank. All of the agricultural territory was hard hit. They did not fail. They are in an agricultural territory, but good management or some additional spread of
risk through branches in different communities kept them from
failure._
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J. W. Pole, Comptroller of the Currency
Hearings — S. 4115
March 1952
Mr. POLE. Attention Cs pariicularly directed to the fact that this
section is a restriction upon national bank members of the Federal
reserve system only and does not apply to State member banks.
This is true also of section 20, which places restrictive regulations
and reserve requirements upon group bank holding companies which
have national banks in their groups. These two sections as they
stand would undoubtedly lead to the withdrawal of the great
ume of resources now held by national banks in group bank organizations from the national system for the simple reason that any
such group organization can escape these burdens by becoming a
State bank and still remain within the Federal reserve system.
Senator GLASS. You think that group banking is a wholesome
system of banking then, do you?
Mr. POLE. I have never been in favor of it, Senator, except that.
as I have said, before it is legislated against, some provision should
be made for that large amount of capital which is invested in group
bankina, and that group banking has been extremely beneficial in
la number of sections of this country.
Section 21 contains the branch banking provisions tof the bill, but
:permits national banks to establish branches only in those States
;where the State law permits it and only to the extent permitted by
such State lai,v except for the proviso for a 50-mile extension beyond
State lines in certain cases. In my judgment, this section will accomplish little or nothing in the way of branch banking, since only a
few States permit state-wide branch banking. The particular need
for branch banking by national banks is in those States which do
not permit branch banking to the State banks. There is a cryina
need for banking facilities which can be given by strong city banIL
in the rural communities of the United States. I know of no other sound solution of the rural bank question.

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

433

I need not dwell upon this matter since I have expressed my

views at length both before this committee and before the House
Committee on Banking and Currency, but I may add that subsequent events have only confirmed me in the recommendations I made
for wider branch-banking facilities, in my reports to Congress for
the Years 1929, 1930, and 1931.

J. W. Pole — Page 2
March 1932

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Sena-tor TOWN-SEND. I recall some of the witnesses who testified
here and indicated that any legislation of this time might be detrimental to the banking interests of the country. What is your judg,ment on that ?
Mr. POLE. I think decidedly to the contrary that it would be
extremely helpful at this time. In fact,I should say that if Congress
would amend this provision of Section 21, I think it is, which has
to do with branch banking, leaving the section just as it is, with
the amendment "regardless of whether or not the States permit it,"
it would enable the strong banks to give relief and extend their
facilities to the rural communities, which would be of invaluable
assistance to the country.
Senator GLASS. Are you satisfied, Mr. Pole, that the decisions of
the courts certainly ma'ke that constitutional?
Mr. POLE. I have been so advised, Senator.
Senator GLASS. I put into the record when we had the prolonged
hearings last year a summary of court decisions prepared and given
to me by Mr. Collins, formerly deputy comptroller, and I would
judge from this summary that it would be entirely within the province of Congress to authorize state-wide branch banking regardless
of the laws of the States.
Mr. POLE. I have been advised so by what I regard as first-class
authority.
Senator GLASS. But you can not give us any guarantee that Congress would accept our view of it, can you
Mr. POLE. I am afraid I can not do that. I think we could make
an effort, however.
Senator GLASS. As well organized as the effort has been to tear
this bill down V
Mr. POLE. I think there is a lot of support for that kind of legislation, because there are a great many thinking people who realize
that something has to be done for the banking system, something
more than this. We have to protect the rural communities. That is
what we are not doing now.
Senator GLASS. I am very sorry you were not a tutor at the night
school, because all of the testimony that we have heard here except
Governor Meyer today has been to the effect that it would be a fearful thing to enact any legislation at all at this particular time.
Mr. POLE. I think it would be a very good thing. I am not saying
there should be any disturbing or drastic legislation, but I do say
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Thomas R. Preston, Pres., Hamilton Nat. Bank, Chattanooga
Hearings — S. 4115
March 1952

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AI PRESTON. Now, we have a small group, and under the terms
of this bill—well, I will first describe the group: We have a group
only in our immediate territory. The parent bank is one and there
are 16 others. Our total deposits normally are about $40,000,000.
There are 4 groups in Tennessee, 2 in Nashville, 1 in Chattanooga, and 1 in West Tennessee, composed wholly of country
banks. Not a single one of those banks has had any trouble during
this depression, and I will say that I have been in the banking business a good many years, and have gone through five depressions, but
I have never seen values melt as they have during this time. The
depression of 1893 was bad, but not as bad as- this. None of these
banks has failed ot: taken the 60 days' withdrawal notice, and I think
all of them have done constructive work, and they have saved a good
many weak banks. We have ourselves taken over six in the past year
and. a half, and some of those I know would have failed.
Another thing we have found, and I think it is true of all sections
of our State: The public are not agpin4. branch or _group_ banks.

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Senator GLASS. Well, they are not the same thing, Mr. Preston..
Mr. PRESTON. I know they are not -the same thing.
Senator GLAss. They are not the same thing by any means.
Mr. PRESTON. 1311t the public have no objection to either kind so
far as I have been able to ascertain.
Senator GLASS. We have been urged to abolish group banking
altogether.
Mr. PRESTON. Well,I think it is all right to abolish group banking
if we had some place to go.
Senator GLASS. Well, we have tried to provide you a place in this
bill to go, in the matter of branch banking.
Mr. PRESTON. Branch banking would be all right. The bill provides that we can go to branch banking only when the State laws
allow the same privilege to State banks. As an example, you gentlemen would follow the Tennessee Legislature, and it looks to me like
it would be fairer for the Tennessee Legislature to follow Congress.
Senator TOWNSEND. Doesn't the State of Tennessee permit branch
banking?
Mr. PRESTON. Only within city limits.
Senator GLASS. If it permits it at all under this bill a national
bank would not be confined to a State. We do not require that.
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March 1932

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Mr. PRESTON. You permit only state-wide branch banking or areawide branch banking when the State permits it.
Senator GLASS. Yes.
Mr. PRESTON. Then some national banks in some States would
have a state-wide privilege, while in Tennessee they would not have
it. It may be all right, but I don't just quite understand the
provision.
Senator GLASS. That might put you to the necessity of going to
the Tennessee Legislature and getting them to legislate on a sound
basis for branch banking.
Mr. PRESTON. It would.
Senator GLAss. But if you can assure us that Congress will make
it otherwise we will be very glad for you to do it.
Mr. PRESTON. It 100kS to me like these limits could be put on
branch banking. For instance, you could have the groups covert
their units into branches and stop there, or you could permit them
to extend their branch banking when they bought out an older
institution and allow them to go on.
I think the unit bank has served a great purpose, and that it
should be pre,served and protectea. I do not believe that a large
bank should be allowed to put up a branch in any community at
will. They might buy an old bank or something like that or absorb
one and create a branch.
Senator GLASS. Did you ever hear of a borrower at a bank, a business man or merchant, who wanted credit at a bank. who objected to
branch banking?
Mr. PRESTON. In few instances I have.
Senator GLASS. I never have.
Mr. PRESTON. In fact, most complaints come from the borrower.
Senator GLASS. Well, I have been in Congress 30 years, and I
have sat in at many bank hearings, and I have never known a man
who wanted credit, who was a borrower at a. bank, to object to branch
banking.
Mr. PRESTON. It is seldom the case, that is true.
Senator BROOKHART. I can bring you some that will make very
emphatic objections out of their own experience.
Senator GLASS. They might be major stockholders in some bank
who wanted to monopolize the community.
Senator BROOKHART. No; they are not bankers at all.
Mr. PRESTON. I think the key to this whole business is the branch
banking feature if it is extended and you allow these groups to
convert. I think that will do as much to stabilize the financial situation as anything else, and probably more than anything else I
know of.
Senator BROOKHART. In branch banking doesn't it often turn out
that the local branch has to get authority from a higher place?
Mr. PRESTON. Sometimes that is true, but that depends upon
managers.
Senator BROOKHART. And it is very detrimental to the local
community.
Mr. PRESTON. Sometimes that is true. And sometimes it would
be better if it were true more frequently, to have at least a conference about loans.
Senator BROOKHART. You may proceed with your statement.

George F. Rand, Pres., Marine Trust Co., Buffalo
Hearings — S. 4115
March 1952

•

It is an interesting thing to me that so many group banking organizations, with practically no knowledge of each other, sprang up
almost simultaneously in different sections of the country as the
result of a distinct need for this type of banking. The northwest
group, the Michigan group, Atlanta group, our group in western
New York developed along very much the same lines, although entirely independent of each other and with no conferences and with
no working together in any way. It seems to me that they fill a
distinct need in our banking structure. Group banking, during the
past two years, has been one of the most constructive features in
our whole banking situation.
In the provisions of the new Glass bill we hope that the splendid
work done by group organizations will be given recognition and
encouragement and will not be penalized by burdensome restrictions.
I arrived last evening and had the privilege of reading Mr. Wakefield's statement to • your committee yesterday. Mr. Wakefield's
statement represents my views in many respects. I concur in his
recommendations regarding section 20 in reference to the reserves
in assets other than bank stocks to be accumulated by holding companies, in reference to branch banking contained in section 21, in
reference to the reserve requirements for national and member banks
contained in section 13, in reference to limitation of investments of
time
_ deposits
. . contained in section 14.

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In closing, I again refer to the constructive work done by our
group in western and central New York, and in illustration I would
like to cite two concrete instances. In Albion, N. Y., in Orleans
County, 11 banks had closed their doors in 27 days, within a radius
of 20 miles, including the Citizens National Bank of Albion, leaving
our Orleans County Trust Co. the only operating bank in this
vicinity. Within 2 months and 11 days of closing of the Citizens
National Bank, we had made arrangements with the national banking department and had given iminediate credit of 50 per cent to the
depositors of the closed bank, which set a record for speed in liquidation in our territory. At the present time we are planning to open a
new bank in Medina, a village of MOO population, where both banks
have failed, and at the request of the banking department, we are
organizing a new bank there, which will be opened about April 4,
and will take over certain assets of the closed banks and give depositors of the closed banks credit for a proportion of their deposits.
I cite these two instances, and these are typical, to show the constructive work we are doing, and I might say that rural New York
State does not present essentially different problems from the other
groups in the West and South.
In conclusion, I submit that the record made by group banks
throughout the country, during the past two years, has demonstrated
beyond doubt, the economic soundness of the principle. upon which

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they have been organized, and their right to recognition and encouragement in any new legislation.

George F. Rand - Page 2
March 1952

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Senator BARKLEY. Your group is largely country banks?
Air. RAND. No. Our group is built up around the Marine Trust
Co. of Buffalo, which is a $250,000,000 bank, and we have a large
bank in Rochester and a large bank in New York City, the Marine
Midland Trust Co., which is a member of the New York Clearing
House Association.
Senator GLASS. Mr. Rand, in a sense, then, and in a degree do
we not have nation-wide branch banking in this country now ?
Mr. RAND. Do we not have nation-wide branch banking?
Senator GLASS. In a sense and in a degree, through correspondent
banks? In other words, does a bank in Chicago and various banks
in New York have as many as 4,000 or 5,000 correspondent banks
throughout the country? Is not that in a sense and in a degree
branch banking?
Mr. RAND. No, I do not see, Senator Glass, how it is. It may
be in some sense, in some degree.
SellatOr GLASS. That is what I am saying. In other words, the
correspondent bank, usually the little country bank that has its
-correspondent in New York City or in Chicago or in St. Louis, is
in a sense subservient to its big bank, is it not ?
Mr. RAND. No; I would not say that, Senator Glass.
Senator GLASS. I know you would not, but I would.
Mr. RAND. The difference is that the New York bank has no 1./
*urisdiction over its investments.
enator Ga§73-.-It litis-ifol-Statutory jurisdiction over it, but it
extends its privileges, does it not, for which it is duly' thankful, or
gives it advice, does it not, which it usually follows?
Air. RAND. I would not say that. It will if it is asked for, probably. It depends on the local situation. I3ut where a New York
bank has several thousand correspondents, I do not see how it can
take very much interest in the internal affairs of any one of those
correspondents.
Senator GLASS. It does not extend privileges without knowing
something about their business, does it?
Mr. RAND. I did not understand that question.
Senator FIAETCHER. They do not really extend privileges; they
require the correspondent bank to put up the money with them, do
they not V
Mr. RAND. I am not qualified to answer on that.
Senator GLAss. I know, but the reason they put up the money is
that they expect the privileges to be extended, and they are extenCled,
and the little bank feels under obligation to the big bank.

George F. Rand — Page 3
March 1932

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Senator BROOKHART. There are times when the big bank allots
investment issues to the little banks, and they usually take their
allotment.
The CHAIRMAN. In .confirmation of the statement of Senator
Glass, I will say I have noticed that our small bankers in South
Da,kota, in conversation, will state,"I have just been down to Sioux
City and talked with the big bankers, and so and so." When I am in
Sioux City, they say,"We have just been to Chicago and we saw
the Chicago banker.' He says he has just been to New York City.
Now, it seems where our banks were loaded with poor securities
and we have talked to them, they say,"Why, yes. The Sioux City
people say it is all right." The Sioux City people say they have
talked with Chicago, and Chicago said it was all right. The Chicago people say they have talked with New York, and New York
says it is all right. So I quite agree with Senator Glass that we
have a branch banking sy-stem now, and, in my opinion, too much
of it, and I think the condition of our banks in the country is proof
of it.
Mr. RAND. I think we have the very opposite of that. The New
York banks or the large city correspondents have no control over
the purchase of securities or the investments of the smaller ba,nks;
and there are so many other agencies that are selling securities to
the small bank that I think you will find the proportion of the
securities sold to the correspondent banks by their New York bank
correspondents is not high .but very small.

Letter from Charles E. Rieman, Pres., Western Nat. Bk., Baltimore
Presented for Record by Senator Goldsborough
Hearings - S. 4115
March 1932

(Letter dated Mar. 22, 1952)
- The amendment to national bank act, section 5255, in reference to branch
banking does not go far enough. If it is desirable that national banks can
have state-wide branch banking In one State, it applies to all States, and if
there ever was a need for branch banking it is now, which should be developed
under Federal laws and not under State laws. This is the one item in the whole
bill that is in the nature of constructive legislation but falls short of nationwide benefit.
.11 nif, +hes •.11.t.,n neNirs+o
cre,
limo. lust 17 tn dicwirmrsive InPrrihprshin
thP

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L. E. Wakefield, Pres., First Nat. Bank of Minneapolis, Minn.
Hearings — S. 4115
March 1932


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Federal Reserve Bank of St. Louis

_
I shall confine my remarks to the effect of this-bill in its present
form on group banking as it exists in the Northwest. I believe that
the purpose of the bill is constructive and contains great possibilities
for good, but after careful study we in the Northwest are convinced
that it should be altered in several particulars to avoid a. harmful
result which outweighs helpful features.
group
By way of introduction I would like to state in a word what
are
group
our
of
banks
the
of
Most
banking, with us, means.
holding
a
by
owned
is
banks
these
of
stock
The
banks.
l
nationa
the
company and for the most part was acquired by exchangingthat
so
banks,
the
of
stock
the
for
y
compan
holding
the
of
stock
a
each original stockholder in an individual bank continues to be of
a
number
over
spread
s
interest
stock
his
with
but
lder
stockho
of
banks instead of being confined to one single bank. The result
a
n
of
creatio
the
to
effect,
l
practica
in
s,
amount
ge
exchan
this
ty
of
diversi
benefit
the
obtain
s
partner
the
partnership, in which all
of assets increased efficiency of management, and economy through
standardization of banking methods. Inasmuch as the two cities of
Minneapolis and St. Paul predominate enormously in population
over the rest of our territory, which is largely rural, this partnership.
is in reality a partnership existing between the cities and the country
out to be a
Up to the present time the partnership has turnedgeous
one for
advanta
y
ondingl
corresp
a
and
cities
the
for
one
poor
agriand
ture
agricul
in
ion
depress
extreme
the
the country, because
and
banks
country
the
to
losses
heavy
in
ng
resulti
values,
l
cultura
it
imposmade
only
not
has
assets,
frozen
a great increase in their
s of the
sible for these banks to produce their share of the earning
ies
compan
holding
the
for
ry
necessa
it
made
partnership, but has
their impaired
restore
to
money
of
sums
large
with
them
supply
to
condition.
capital and reserves and keep them in a sound and safe
proved
However expensive this has been for the cities, it has in facthad
nuhave
We
whole.
a
as
district
the
to
of inestimable value
no big
merous failures of small independent banks, but we have had values,
bank failures. In spite of the disappearance of farm lands, cattle,
in spite of drastic reductions in the price of farm product
ed in
etc., and in spite of drought and grasshoppers, we have succeed
section,
maintaining a sound banking structure for the people of ourwhich
is
and this success can only be attributed to the strength
inherent in the group system of banking.
Michigan, remain
We did not, as in the case of our friends in
that, with the
reason
simple
the
for
State,
one
of
borders
within the
our territory
in
State
one
no
is
there
ta,
Minneso
possible exception of
make group
to
es
resourc
of
y
diversit
nt
sufficie
affords
itself
which of
pment
The
safe.
develo
or
le
profitab
either
banking, thus limited,
g
system
bankin
group
any
that
clear
it
makes
years
two
past
of the
or in North
which had attempted to operate in Montana alone
the most
had
have
would
alone
Dakota
South
in
or
alone
Dakota
d
any
one of
involve
have
y
probabl
would
and
disastrous experience
re.
g
structu
bankin
its
of
e
collaps
e
complet
a
in
states
those
Our task is by no means completed. We are willing to accept
the responsibility for completing it and hope to do so without ask-

L. E. Wakefield — Page 2
March 1952

NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

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I
ing any financial assistance from the Reconstruction Finance Corporation, the National Credit Corporation, or any other agency.
We only ask that we be not hampered or hindered by the enactment
of legislation which would make our task any more onerous than
it already is.
Naturally that portion of this bill which is of paramount and
absolutely vital importance to us is section 20,. which prescribes that
group bank holding companies shall maintain certain reserves in
assets other than bank stocks for the purpose of protecting any
future stockholders' liability. The enactment of this section as
written would completely put us out of business, or at least force
us out of the Federal reserve system. This is not a threat; it is a
plain statement of fact. We do not want to abandon the Federal
reserve system, but we are physically unable to comply with these
requirements. The assets which would have enabled us to maintain
these required reserves have been depleted by contributions to our
country banks for the purpose of restoring their capital and reserves.
Even if this were not so, we think the reserve requirements are altogether too severe and that they are particularly unwise in that they
require the holding company to maintain them in a frozen condition and only permits their use after a bank has failed rather than
allowing them to be used to prevent such failure.
I understand that an amendment is before the committee which
reduces these reserve requirements and makes them available by
way of prevention before failure as well as a cure afterwards. If
this amendment is adopted,. it will remove our objections to
section 20.
The other provision of the section, requiring reports and examinations of the holding company and its affiliates, have our hearty approval and support.
The next subject of great interest to us as group bankers, and of
even greater importance to the communities we serve, is the matter
of branch banking, section 21 of the bill. As this section is now
drawn, with the limits as to State law included, it accomplishes
nothing so far as the Northwest is concerned. If this limitation were
removed, it is almost impossible to exaggerate what it would accomplish in our territory. I recognize that, in_adirocallirie-wide
brangli_banking. at this time, I am departing from opinions
pressed in my testimony before the subcommittee a year ago. I admi
that frankly. We have learned by our experience of the last thr
years how much more effective branch banking would be than grou
bankina. I do not think that a year ago the people in the countr
district's were ready to accept branch banking, but this sentiment ha
undergone a great change, and I am certain that the majority o
these people are not only no longer opposed to branch banking bu
anxiously hoping that it will be accomplished with least possibl
delay.
Aside from the correction of faults and abuses which have de
veloped in the banking business during the last few years, it is essential that any banking legislation should be directed toward relieving
the emergency which exists at present in the banks of the country,
by preservation of the deposits in existing banks, the restoration of
confidence by the prevention of further bank failures, and the estab-

WI/

L. F. Wakefield - Page 3
March 1932

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

lishment of a sound banking structure as the prime requisite to
revival of general business.
At this time there are a large number of banks open and operating where the capital and surplus have been impaired through depreciation in the value of securities held and losses on loans caused
by the general depression. In addition to this there are many places
which formerly had banking lacilities,but wL-Ch are not nciiv- Wein-Tg
by_an.y banit."-TbeTieve that the only thing that can even partially save or correct this situation is a law which will authorize
state-wide branch banking by national banks immediately and without waiting for the State legislatures to meet. I make this stateso
ment far the following reasons:
At the present time it is not possible to raise capital for the purpose of establishing small banks in connnunities which are not noW
..
seriTed.—
'
---The public authorities, the comptroller's office, and the various
superintendents of banks, in their anxiety to hold our banking system
intact so far as possible, are at present carrying on with a large number of banks whose capital and surplus have been impaired by both
depreciation and losses. They are doing this in the hope that banking legislation will provide some means whereby the deposits in these
banks can be rescued and taken over into sound banking institutions
and be preserved as live deposits instead of turned into the obligations of a closed bank. There are a large number of these institutions
which c,ould furnish a sufficient amount of sound assets so that their
deposit liabilities could be assumed by another bank as a branch
office. The local stockholder has, to a large extent, suffered business
reverses; he has paid in additional capital to his bank in the past
and is no longer able to supply the founds necessary for recapitalization at this time.
For these reasons it seems to me imperative that if there is any
desire on the part of Congress to preserve the greatest amount of
our present bank deposits, Congress should reco„omize this situation
and provide a means immediately which will make this preservation
possible.
The suggestion is made that Congress is loath to legislate arbitrarily in this matter, preferring to leave the ultimate decision to
the legislatures of the various States. To me this is inconsistent
with the principles underlying the national banking system. This
system was established by Congress without regard to State law,
and Congress has jealously retained all rights and supervision over
it, so that any amendment to the national bank act could not be
legitimately considered as an interference with the sovereign rights
of any State. Furthermore, if the matter is left to the States, and
national banks are granted the same branch banking privileges as are
granted to State banks, we shall have the national banks of the
country operating under 48 different branch banking laws.
Just as a matter of interest I would like to refer to the fact
that the Reconstruction Finance Corporation is experiencing the
greatest difficulty in confusion on account of its having to adopt
itself to these various State laws-48 different systems, each one
.having its own regulations and of a very peculiar nature and the
provision authorizing national banks to operate branch banks, as
provided by State law, would simply mean the bringing of that same


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confusion of regulation and privilege into the national banking
system, which now prevails among the 48 States, and it seems to me
to be a very undesirable thing to do.
The advantaae of havina the entire system operating under one
standard law is'-'too obviounor argument. Aside from all this however, the controlling factor is time. If this matter is delayed for the
time necessary to secure State legislative action, the various banking
departments will not be able to put off taking the steps necessary to
remedy the present ipondition, which can only result in a great
increase in the number of closed institutions. A year's delay would
be fatal. Every bank which closes _between now and next _year
represents a local tragedy. Each one which might have been prevented-by-biana-Valiking at this time will forever stand as a
reproach to the legislative body that might have saved it by the
exercise of political courao.e when it was most needed.
The CHAIRMAN. Woullyou be willing to take over all the banks
out there if you could ?
Mr. WAKEFIELD. That would have to be done under regulations
that would permit it.
The CHAIRMAN. Would you take over the solvent and the insolvent
also?
Mr. WAKEFIELD. As far as it would make possible negotiations.
Not all of them by any means.
The CHAIRMAN. I suspect, when this would come as a remedy, you
would find three classes of banks: First, those you could not buy;
second, those you would not buy, and the third, the ones you would
dicker for.
Mr. WAKEFIELD. I think it is the most favorable time, if there is
ever going to be a time, to permit branch banking for this reason
The CHAIRMAN. I do not care to go into my argument on that
Mr. Wakefield, but I thought your statement was too broad, holding
out the hope that branch banking will save the situation the trouble
of ours which has an underlying cause. If you advocaled a better
price for the farm products up there, the banking situation would
respond to something of that kind. Our trouble is agricultural,
rather than banking.
_ _ That is my view.
Mr. WAKEFIELD. I am only seeking to point out the only spot that
I know of which we know could be created, which would make possible at this time the rescue and maintenance of a substantial portion
of now live deposits and continuing them in that shape.
There is probably no man on this committee who does not believe
—Wiacts7.144:6that branch banking in some fox,I :lots :
table S- ooner or later. If"go, no time could be selected when it would
do more-good-than at present. It has been suggested that group
banks be permitted to convert their present units into branches,
restricted by State boundaries If for political reasons it is impostinwutheitlternatime would+,of
sible to obtain branch bank.1
t woul be of enormous help to us in carrying
couL§g. e_ ,•
olWthe difficult work we are now engaged in, but there is no denying
the fact that it would not supply the needs of the rural communities
which I have mentioned. It would not enable us to prevent further
failures of small banks, nor would it enable us to furnish banking
service to communities which now have none.
We would respectfully urge that section 21 be amended by striking
out from page 45, lines 21 and 22, the clause:"If such establishment
and operation are at the time permitted to State banks by the law
-.ti-u-e-stion.”
o-f the- Sta
.- te•- in
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Charles F. Zimmerman, Pres., First Nat. Bk. of Huntingdon, Pa.
Hearings — S. 4115
March 1932
The particuiar clause which arouses my interest, and I might say,
amazement, being a country banker in the State of Pennsylvania,
which represents approximately one-tenth of the banking resources
of the United States, is the section that has to do with branch banking. In connection with my remarks on that section I should like
to say that the bane of our banking system as we have seen it develop
during that last six or seven years can be predicated upon the word
"promotion." If we had not been given to bank promotion in this
country as we had, there would not be so much difficulty in respect
to banking, nor would there be so much perplexity facing those who
wish to straighten out these difficulties. More than that, the burden
of the promotional side of banking, as I have viewed it, has fallen
tremendously upon the country banker, so much so that his interests
have been assailed on every hand, his position as an economic factor
has been belittled; and now it seems that those who have scrambled
the eggs of what we have heretofore considered sound banking and
sound banking methods, are asking to be defended by new legislation rather than reckoned with in respect to the restoration of those

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methods which have been time tested during our entire previous
history.
I come here without any prejudice in respect to the specific questions hinging upon the development of a certain branch, group, or
chain types of banking. I do come here feeling that it is a mistake
that Congress should in any way seek to cater to what I choose to
call the go-getter spirit in bank promotion, and that we ought to
the best of our ability, right about face in respect to the reestablishment of unit banking so far as that may be done. I have listened
to the remarks that have been made before this committee by those
who have, on their own initiative and, perhaps, in violation of the
more conservative standards in banking, gone ahead and built up
these banking structures. I have been impressed with this fact,
that they have not been bankers in essence or to the extent which
would disallow ihe injection of other than high banking ideals in
our banking system. Thor now seek to hold the ground gained
through the sacrifice of those standards and wish to have it beconie
part and parcel of our thought about Federal legislation. To that
extent that we yield, it seems to me, more and more we are going
to be led into a maze of difficulty from which we might all seek to be
relieved in time to ccane. I have read the hearings that have been
held by the Senate subcommittee in respect to the suggestions to be
embodied in the Glass bill, and I could not help but feel that very,
very little attention was paid to the viewpoint of those who have
ardently sought to preserve the best standards in the conduct of
he business of banking.
With regard to this question of State's rights, I am simply
stounded to think that Congress would seriously consider the proposal to grant the right for a national bank to cross State lines in
so-called trade areas. I am at a loss to know where any substantial
demand of that sort should arise so far as the practical administration of banking is concerned and so far as the service of banking
to its constituency is concerned, except as it relates -tUelf to the pro::.
." -Olioniii idea in bankiiig. Now,I lia,Ve not- a- wide experience. I
qi
have a wide acquainiiinceship with many bankers, not only throughout the State of Pennsylvania but, I should say, throughout the
Nation, and I am at a loss to discover where any economic need
exists for the Federal Government to grant any branch banking
privilege which contravenes the autonomy of our State banking
laws_

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Charles F. Zimmerman — Page 2
March 1952
Senator GLASS. Mr. Zimmerman, I suppose, of course, you have
read the report of the Comptroller of the Currency on that program?
Mr. ZIMMERMAN. I have read all of them.
Senator GLAss. You will have noted there that he does not want
to confine us to state-wide branch banking, and he does not want to
confine us to Federa,1 reserve zones. He wants us to have branch
banking in what he indefinitely defines as trade area..s.
Mr. ZIMMERMAN. Senator Glass,I try to be open-minded on these
luestions, but I am just as far—after all of my reading and investigation, from believing that proper ground has been established
by the Comptroller of the Currency in his various arguments or by
any other agency interested in that question—as I have ever laten.

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307

Senator GLASS. Would you advocate state-wide branch banking
by national banks in those States that are permitted to have State
banks?
Mr. ZIMMERMAN. I am a believer in the equalization of the rights
and prerogatives of national banks with State banking systems no
matter what they may be.
Senator GLASS. But you would oppose giving the right to national
banks to have branches in States which do not permit branch banking
in the State system?
Mr. ZIMMERMAN. Unquestionably.
Senator GLASS. I may say to you, as to your suggested opposition to crossing State lines, if you will read the bill you will note that
that may be done only in extraordinary circumstances. The case is
cited to the coinmittee of banks located in cities, that there are very
few of them in this country that cross State lines, and to banks located so near the border as that their main business may be across
the border. So it is not the thought of the committee that that
provision of the bill would be very largely availed of. The text of
the bill is that it may be done only in extraordinary circumstances.
Mr. ZIMMERMAN. Senator, the provisions in the bill inay be harmless enough, but its significance only comes out in respect to what
results from its application. I have a very clear idea as to what
would happen with respect to Pennsylvania if such a privilege were
to be granted. For instance--not that I think it is even remotely
thought of by any bank—in Philadelphia there would have to be
. necessarily some compensating privilege granted to the State institution, otherwise, the natural inclination, if there were at least
any rivalry between two of the leading institutions in the city,
would be to leave the State system, and go into the national system.
But the compensating advantage would probably be along the lines
of extending branch banking and weakening the regulation of the
State bank. That is where I feel the danger lies.
Now, we are talking in terms in this country of strengthening
administrative practices of banks and the supervisory processes
as between the State and national systems. The only basis on which
they can be properly coordinated is the common basis on which
they operate. To whatever extent through Federal law you draw
a distinction between that parity, you ruin the highest standards,
it seems to me, that those of us who try to think sanely on banking
questions, have, namely the coordination more and more of the two
types of systems and the eventual bringing about of conditions
which will induce every State chartered institution, to become a
member of the Federal reserve system.

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Charles F. Zimmerman — Page 3
March 1932

Senator GLASS. Does Pennsylv'ania permit branch banking at all?
Mr. ZIMMERMAN. Oh, no; not beyond city limits.
Senator GLASS. Then how could this bill affect you?
Mr. ZIMMERMAN. In respect to a possible extension of the right
of a Philadelphia bank to establish a branch in New Jersey.
Senator GLASS. Do you think that is very likely under the terms
of this bill? What would be the extraordinary circumstances?
Mr. ZIMMERMAN. I fully gra,sp the significance of your thought;
but, Senator, if the experience of recent years have taught us anything, it is that through concentration of banking capital the weight
of influence possessed by large banks inevitably brings concussions

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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS

and, perhaps, abuses that never were originally thought of when
the law was drafted, And so I think if we have learned. anything
we must get away from the appearance of evil in respect to the
extension of the branch banking privilege,
Senator GLAss. Yes, That has been 'startlingly illustrated in the
15-day provision of the Federal reserve act.
Mr. ZIMMERMAN. Quite so.
Senator GLASS. I IMISt confeSs I can not see how under the text
of this bill any Philadelphia bank would be permitted to establish
a branch in New Jersey.
. Mr. ZIMMERMAN. I think the right is certainly conceded if the
pressure were sufficiently strong to persuade the Federal Reserve
Board that it was an extraordinary case.
The CHAIRMAN. III other words, it could only be done by the
Bank of the State of New Jersey that has made you feel the need
of such an extension?
Mr. ZIMMERMAN. I have no such thought.
Senator GLASS. St
ould
e not it be done?
Mr. ZIMMERMAN. The branch-banking privilege accorded a national bank should
. upon a parity with that accorded to the
\ State bank, without a single exception or deviation of any kind.

1

Charles F. Zimmerman — Page 4
March 1932

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Senator BROOK HART. 1 was considerably impressed with what you
said about this promotion proposition of banking. Did the comptroller and his examiners examining the national banks in Pennsylvania approve investments in listed bonds on the stock exchange?
Did he approve that kind of investment as liquid assets?
Mr. ZIMMERMAN. 011, yes. I have no thought that in any singlel
institution in Pennsylvania the comptroller would have taken strong
exception to the method of conducting the bank except in so far
as it might ha.ve invested in weak assets. In other words, the finer
details of banking, as I think of them, have characterized every
banking institution, Now, if you make mistakes
Senator BROOKHART. He might describe those bonds as secondary'
reserves and recommend them as strongly, as that.
Mr. ZIMMERMAN. Oh, yes; there has been a good deal of that;
but I would not attribute tO the comptroller's office any supposed
management of a local bank through the recommendation of particular types of securities.
Senator BROOKHART. Has not that system of banking made the
little country banks sustain these big New York promotions all the
time?
Mr. ZIMMERMAN. I have not a great deal of understanding of the
effect of that, intimately -within banks, but my discussion with
bankers, unit bankers particularly in Pennsylvania, leads me to believe that many of their securities were bought for the purpose of
secondary reserves due to their confidence in the big bank responsible
for•issuing them.
Senator IiitooKHART. In other words, they greatly depreciated
those same securities?
Mr. ZIMMERMAN. That is quite true.
Senator BROOKHART. And I find in the West that the banks were
every:where loaded up with those stock-exchange securities and now
they are frozen up worse than the farmers' loans were preceding
them.
Senator BROOKHART. Yes, I agree with you; internationally; and
the comptroller, who used every opportunity he had to put out
statements for branch banking, was the same comptroller who loaded
up these banks with these securities all over the country, is he not?
Mr. ZIMMERMAN. I shall not admit that he loaded them up, Senator. I do not know anything about his official policies or actions.
Senator BROOKHART. You know, his bank examiners said that was
good banking, to buy those securities.
Mr. ZIMMERMAN. I do not think any of them ever said it to me
in our bank, but they may have elsewhere. I should like to offer
this as a closing thought in respect to branch banking: I feel that
ranch banking in that clause is a
the mere mention of sta_. - •
unit banking I do not feel
threat mnrp,ArJess_ta the futurA,
its case in America. I
has
proved
banking
branch
state-wide
that
,
v believe I could produce--The CHAIRMAN. And it will take several years to find out?
Mr. ZIMMERMAN. Quite so. And I believe I could produce evidence that would be corroborative of that viewpoint, which I would
not care to do; but the mere mention of state-wide branch banking
as though it were an ideal for the national bank system, is uncalled
for. If that whole clause were amended simply to say in respect
to branch banking, as was pronounced in the resolution adopted by
the American Bankers' Association, that the autonolny of State
should be upheld,_I fee .that (,)Q,Ugrekas EaR answered
ban
tiun_ so far as tlieileed —foureserving the soundness of
ranch banking methods in Ainerica -is concerned. I see no reasQn
re—depart from it, Seilittcir.

Charles F. Zimmerman — Page 5
March 1932

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Senator GLASS. Suppose we were to omit from that provision
the authorization with respect to crossing the State line in unusual
circumstances. What would be the objection to the provision then ?
Mr. ZIMMERMAN. I think there is no inherent objection except the
one that I have in my mind as to the inference that state-wide branch
banking in itself is a tested system and that national banks are ready
to go along in any State that might think it was right.
Senator GLAss. Well, do you not think national banks should be
permitted to go along in any State that authorizes State banks to
have branches ?
Mr. ZIMMER3IAN. I do. Now, Senator, you realize, perhaps, very
much more than I do, that the mere mention of a type of banking
in a bill oftentimes results in the layman getting the wrong idea
about the whole thing. I think we need to avoid even the appearance of danger if we can do it satisfactorily by the wording of the
clause.


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T. F. T. O'Connor, Comptroller of the Currency; Accompanied
by F. G. Awalt, Deputr Comptroller of the Currency
Hearings — H. R. 5357
21/41.4/9dv—
---IVI—rThRowx.of Michigan, Now-,the final subject that I have is the
question of small'branch banks. I -am speaking for the smaller communities. A great. many of them have been deprived of banking
facilities by reason of the dosing of something around one-half of
i the banks, and I have the feeling that to reorganize banks in towns
of from 800 to 2,000 in population is not for the best interests of
the business public.
In several States, and the State that I have in mind principally
is the State of Wisconsin, provision has been made by State law
for the establishment of what they call "receiving and paying stations", where a banking business consisting solely of the receiving
of deposits and the, paying out of the deposits is carried on in offices
located in those small communities, controlled by banks in larger
nearby towns. I think that the Wisconsin statute confines the establishment of such offices to the comity in which the parent bank is
located, and I think one State law provides a radius of 30 miles
from the home office.
Most of those communities had banking service before the collapse,
and. it seems to ine that we ought to liberalize the law .to permit the
establishment of Aations of that character. with also the authority
to receive applications for loans in such banks, both for the purpose
of convenience to the public in those communities, and to prevent. the
establishment of a. larger number. of .banks with very small. capital.
, The collapse that we had largely originated in smaller places. and
if we could prevent the .establishment of banks in those smaller
places by giving such service, it seems to me that it would be a wise
thing.
To show you how chary the legislature seemed to be, in the State
of Wisconsin, they limited the effect of that law to a period of
about 2 years from the time when it was enacted. It expires on
July 1, 1935.
My attention has been called to a statute somewhat similar in the
State of New Jersey.
I happen to live in a section of 'Michigan largely given over
to the resort business, the island of Mackinac. It had a State bank.
It was inadequately capitalized, and it fell down. That communitv
has for 9 months of the year, a population of 450 people. For 3
months of the year, in the summertime, it has from 10,000 to 20,000
people. It ought to have banking facilities during that period of
time, but you cannot set up a bank there that could make any money,
but a branch bank of a national or State bank could be established
there for that period, a branch office and business could be conducted that would be reasonably satisfactory for the needs of the
people.
I discussed it with the chairman of the committee, and I have
discussed it with Mr. Goldsborough and some of the other members
of the committee, and I would just like to have the reaction of vour
Department to such a set-up.
Mr. GOLDSBOROUGH. You did not mean to indicate that I approved
such a set-up?
Mr. BROWN of Michigan. No: I did not say so. I said that I
discussed it with you.
Mr. DIRIESEN. Do you have in mind a currency exchange, rather
than a bank?
Mr. BROWN of Michigan. A receiving and paying station.
Mr. DnutsEN. There is nothing to prevent anybody from setting
up a place to change money. and to do anything except to accept
deposits.
Mr. BROWN of Michigan. Ye.s: there is.
Mr. DIRKSEN. I mean so far as the ordinary medium of exchange
in a community is concerned.. I have been through some Of those
resort areas in your State, and this is purely a private notion on
my part, but it seems to ine that most any one of those chain stores
in a little town can fit itself up with a little booth, with some wire
netting, and make exchanges there, for you do not need any banking facilities in the ordinary accepted sense of a commercial bank.


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J.F.T.O'Connor, Comptroller of the Currency; Accompanied
by F. G. Awalt, Deputy Comptroller of the Currency -Page 2

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Mr. BROWN of Michigan. I think that I agree with your philosophy regarding the encouragement of small-town life. I think that
there is a need for the kind of legislation that I have proposed here.
There are a great many communities having a population from 800
to 1,000, and that, in my judgment, is about the right limitation as
to size, where there is not sufficient capital for the establishment of
a bank, and yet they ought to have some banking facilities, and I
think that the only reason that we have not had them is because of
the fear of a great many Congressmen that we would be encouraging the branch-banking business. But it does seem to me that we
would be supplying a ne,cessary need, and at the same time be doing
what I know your Department thinks should be done, that is, the
establishment of banks in communities that are two small to support them with sufficient and adequate capital.
As I said, it seems to me that there is need for that kind of legislation, with proper limitations, and I have read a good many of them
to you, particularly having in mind that there would be no discouragement to the establishment of a bank if the community is big
enough to need one.
Mr. FoRD. Is there not another factor in there, Mr. Brown? We
will take a community such as you de„scribe. There are a great
inany objections that we hear to branch banking, but what is the
objection, in a case of that kind, to a strong bank, with a number of
branches, that is willing to put a branch in there and to possibly go
along at cost for 2 or 3 years, on the assuniption that the banking
facilities being afforded to that community will develop the coinAnunity and will bring it up to a point where it will be profitable to,
have a bank there.
Mr. O'CoNNoR. Mr. Ford, you, of course, have stated the general
principle underlying the licensing of a branch wherever we are•
permitted to do it, and those are the questions that are investigated
and determined before we license the bank.
MI'. FORD. Surely, but it seems to me that if a bank with branches
goes into a community and finds that there is not enough business
there to warrant a bank, but if that institution is willing to go im
1
.
there and probably for 3 or 4 years not make their expenses, or
just barely make them, and by so doing they will attract enough.
business there ultimately to make a branch bank profitable, where
a small bank could not afford it or the community could not afford
to organize a bank, but the branch bank can give all of the facilities.
that a banking institution could afford such a town, they ought to
be permitted to do it.
M1'. DIRKSEN. You advocate branch banking, I take it ?
r. FORD. I do, yes. I think that it is a good thing.
Mr. DIRKsEic. I might just as well state my objection rig-ht now ag
wen as any other time. I am absolutely and unequivocally averse'
to vesting the control of the,se little communities in some group or
agency that may be 300, 400, or 500 miles away.
Mr. FORD. I do not think that I would let it go that far.
The CHAIRMAN. Who is going to say how far it should go?
MI'. DIRKSEN. That is right.
The CHAIRMAN. Branch banking is either a good thing or a bad
thing. If it is a good thing, we ought to say so, and enact it into,
law, and let the Federal Reserve System adopt the' best plan for the
banking business. If it is vicious, and wrong, and monopolistic,.
un-American, and destructive of community life and financial inde- I
pendence, we ought to repudiate it, and never allow it to be extended
in the United States.
We ought to take one position or the othe,r. Of course I have a.
very definite view about it myself.

S. F. T. O'Connor and F. G. Await
Page 3

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Mr. Bil()\\ N of Michigan. Of course, we have. a good deal of
branch banking now, Mr. Chairman.
The CHAIRMAN. I know we have, and we are going to have.moreThis is just a repetition of the discussion that we had a long time
ago. ()f course, we start with a county, and then as soon as the
necessity arises, we extend it beyond the county line.. and after awhile the bridle is off. We have adopted the, policy of letting the
States decide whether branch banking is or. is not a good thing for
this country, because we have said that we will permit the, establishment of branches by national banks in any State where the legislature of that State decides that branch banking is a good thing.
()f course, while I am not one of them, there are a great many
people who take the position that there is not very much intelligence.
in the State legislatures with reference to banking or anything else,
but we are on record as committing this country to whatever poUcy
may be determined upon by the legislature of each particular Statui'ar as branch banking is concerned.
I luny be not without shame entirely for having taken that attitude,
,,but it never represented a view of mine. or any desire of mine.

Mr. GOLDSBOROUGH. I want to say- that I fought the thing, as far
as I could, but I did succeed in keeping Maryland out of the picture,
and that is as far as I could get.
Mr. CROSS. As far as I see, the branch bank in a little while would
. be such that every State could dictate to it,s legislature, through them,
and it would spread all over the country, and everybody could dictate
to Congress.
Mr. HANCOCK. If it were confined to county lines, there would be
no serious objection to it, would there, Mr. Chairman'?
The CHAIRMAN. There is no way in the world to confine it. That
is the history of it. If it is a good thing it ought not to be confined.
Mr. GOLDSBOROUGH. I remember the time when there was only one
bank in my county, and you had to take off your shoes and carry in
in a: petition to get a loan, not a promissory note but a petition.
Mr. Form. You have to do that now.
Mr. GOLDSBOROUGH. Since we have seven banks there now we have
a very much better situation, more democracy in our banking, and in
our community life.
Mr. FORD. You paid a big price for it.
Mr. GOLDSBOROUGH. You cannot pay too much of a price for it.
• Mr. FORD. Yes,. you can.
Mr. BROWN of Michigan. Let me say, I have been in opposition to
general branch banking, and I so voted heretofore, but I do not like
an attitude which blindly shuts out consideration of a meritorious
proposition. It will, I think, prevent the establishment of a number of under-capitalized State banks. The proposition puts proper
limitations around the establishment of these so-called "receiving
stations." It would be a good thing, and I am going to do my utmost
to bring it about.


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-

CROSS—REFERENCE SHEETS

f;
0:1,
9

i-OLDER

waras

Better folders for better files

306S
Send your Order to the nearcst "Y and E"
Repreentatives cr to our Home Office

YAWMAN

AND 71'77,1t,

mr.G.

Vaia Factories :oz! Executive Of1;.1.15
ROCHESTER, ?C.V..
Eranches and Agents in all Principal Cities

CROSS

REFERENCE

FILE NO.

12B

SUBJECT: "Du Bois, Hollister, Independents, Visit Washington
AMERICAN BANKER, December 13, 1937
Chiefs"

SEE FILE NO.


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7A


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12,

CRuSS REFETiENCE

,
,SAYS ALL A. B. A. Nut PLEDGED Tu SUPPuRT UNIT BANKING'
'

American Banker, uct. 15, 1937

See File # 7

oPPoSE CHANGES IN CLAIPTRuLum,s PuitERSn


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12

CROSS REFERBNCE

"ECCLES MOLD GIVE F. R. BUARD FINAL AUTHLRITY
ALL B_LNKS"

American Banker, Nov. 6, 1937

See File # 7


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12

CEuSS REFERENCE

"SAYS PATMAN BILL CUNTAINS DANG0:1 FuE UNIT BANKEES"
American Banker, Nov. 18, 1937

See File

12


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12

CRuSS REFhTENCE

"ADAMS 'ti,IILD MAKE PUBLIC CuNSCIroUS

American Banker,

See File # 7

U. S. DEFICIT"

15, 1937

If


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ee

da-7-6/fe,

/,),7

/elee?.#7

File /I 12

CROrS REFERENCE

REPORT OF THE RESEARCH COMMITTEE, Indiana Bankers AFSOC.
19F7.

See File 7'./ 7


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•

•
CROSS

FILE NO.

SUEXECT:

SEE

FTLE


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REFERENCE

12B

"Brookings Report Would Give FDIC Power to Permit Branch
AMERICAN BANKER, August 18, 1937
Banking"

NO.

#9A

•
CROSS

FILE NO.

REFERENCE

12B

SUBJECT: "FDIC Urges Branch Extension Be Based on Capital Demands"
AMERICAN BANKER, July 21, 1937

SEE FILE NO. #7A


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L

•
CROSS REFERENCE
File

" Y;.B.A. HITS YCADOO BILLS, U.S. CONTROL OF RESERVE BANKS"

American Banker, June 24, 1937

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12

•
CROSS REFERENCE
File # 12

"PRESS NATIONAL ORGANIZATION TO DEFEND UNIT BANKS"

ArERICAN BANKER, June 25, 1937

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7

•
SIMMINIX

FILL. No.

SUBIIIC'h Wow tor las
Creitare Mama alt lb*
hem Ile filareari Banitan, Ansatatleas
*Jawlas Iffitkie Paces tbe Patism18

au nu se•


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Federal Reserve Bank of St. Louis

12 B

Nay 114 1917.
elawart,

•
CROSS REFI.ENCE

FILE NO.

SUBJECT: "News from the Viewpoint of the Nation's Capital"
AMERICAN BANKER, June 7, 1937

SEE FILE NO.


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Federal Reserve Bank of St. Louis

7A

12B

FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No. 12
"JERSEY SURVEY corrissim TO AVOID NATIONAL RESEARCH PLAT:"

Subject

Americpn Banker, May 22, 1937

SEE # 2
File No.
Letter of

Dated
Remarks


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Federal Reserve Bank of St. Louis

O. 8. 00V
.
.. .

111117

•
FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No.
Subject

"OVL,R 100 HOUSE FETTERS BACK PATEEL PLA. ON
12 F. R. BANKS"
American Banker, April 17, 1937

SEE
File No.

7ile 7

Letter of

Dated
Remarks


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Federal Reserve Bank of St. Louis

12

t/

E. OOVERNMENr rnistIno OFFICE' Itrat

•
FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No.
Subject

"Supervisors Plan Close Watch on Congress"
Dr. Luther Harr
AMERICA

BANKET, December 23, 1936

SEE
File No.

9

Letter of

Dated
Remarks


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Federal Reserve Bank of St. Louis

U. R. 00V..

MM Nr1.111141,10 OFF1Ct:

1921

FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No.
"Branch Banking and Credit Control"

Subject

Journal of Commerde,
American Banker, Dec.29,1936

SEE
File No.
Letter of

Dated
Remarks


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Federal Reserve Bank of St. Louis

V

011V.. ..Nr TIIINTINO orrice. let,

FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No.
Subject

"Oklahoma Chief Would Liberalize Loan Powers"
H.C.Johnson will urge legislation
putting State banks on par with
nationals.

American Banker,Dec.30,1936

SEE
File No.
Letter of

Dated
Remarks


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U

R. 00V RR N KK Nr PRINTINO OFFICL: MV

12

•
FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No..42
Subject

Clipping from American Banker, January 72 1937 entitled
"White Asks Revision of N. Y. Banking Law"

SEE
File No. #7
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

U. S. GOVIIIINNINT PRINTING OVIPICR: 1911

•
FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET
11=•11=MINIIMINI

File No.
"Keep Yourself, Public and Washington Officials Informed"
By U. V. Wilcox

Subject

American Banker,
Nov, 21, 1936

SEE
File No. #
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

V. IN onvinmir.r PRINTING

•
FEDERAL RESERVE BOARD
Form 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No.
StibjeCt

"Zimmerman

Attacks Research Program"

American Banker Nov.16, 1936

SEE
File No.
Letter o

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

U. S. °ovum.),/IMMO OrTIC.:

12

•
FEDERAL RESERVE BOARD
Form. 156

THE FEDERAL RESERVE BOARD
CROSS REFERENCE SHEET

File No. #1pB
Subject

Clippj.ng from AMERICAN BANKER, November 7, 1936, entitled
"Economists Plan Conference to Frame Legislation"

SEE
File No. #7A
Letter o

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

U. R 00V RR

R

PRINTING

orrice: int

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. 12
StibjeCrt Clippi,ng from AMERICAN BANKER, September 142 19362 "Independent
Bankers' Resolutions Call for Delegation to A. B. A. Convention,
Cut in Postal Savings Rate, FDIC Change

SEE
File No. #7A.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
ha.
Federal Reserve Bank of St. Louis

e. arreeptimrr PRINTING orrice. 1933

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. #12
StibjeCrt

Clipping from C & F Chronicle--ABA Cony.--Nov. 17, 1934,
"What the Country Wantsu by Clinton B. Axford, Editor
American Banker, N. Y. C.

SEE
File No. #8A
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

t B.

ramp.oreux

1933

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Statement for the Systan Committee on Legimintivo_Program
October 16, 1934

SEE
File No.

Study # 7

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u. s. ooviganiurNT ritivrtwo orrtcr: 1933

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Three letters between E. A. Goldenweiser, Geo. J. Schaller
and A. A. Elsesser
November 1934
re
Bank Supervision

SEE
File No.

Study # 8

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

_LL

713RNI1E11.9 PRINTING 09910E: 1933
U. 3. (10,

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Confidential

Report NO. 2

*Special Committee on Proposed Revision of Federal Banking Laws*
American Bilnkers Assoc.

SEE

Study # 16

File No._
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u. e. oovicemmerrr riterm(o °FRCP: 1033

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
qnutes of the meeting of the Svstem Committee
Subjecf rra-s-h-i-n-gton,---1).---C-"---S-apt-.---6---an-d--7,

SEE

Study # 7

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

V. S. OOTIRNMENT PITNIING OPTIOlt: 1033

178151

12

on the Recovery Progrrn

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Trytik-tiire- PP-ogrInt tor Retorip- -of--Beilkin-g--Systent
io/5.54

SEE
File No.

,

Letter of

Dated
Remarks

IL


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•••

oorenxidswf rammfo orncr: 1933

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Letter to Dr,
Goldenweimor from Ira Clark of th.; Fed,ReE, Bk.
of sw.
L. ..,otOor 251,
.- uggestions on bsnking rearm

SEE

Study i

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.

oorranwner uarmaa °mar: loss

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

SEE

Supplementary Proposal for Banking Legislation a:1d for changes
in Adniiiiistration of- E)dsting -Law.

Sti)dy #2

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

o.

00VIRMIECT

riummto orncr. um

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. _
Subject

"Should America Adopt a Unified Banking Systum"?
The "Dual" System vs. the "Unified" System
The Branch Banking Controversy
Guaranty of Bank Deposits
Divorce of AffiIiaies
Pro and Con

SEE
Study # 7

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.

oovinprimrr ranrrnro °mar los3

178151

•

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject art:tr usq. rsaB aura, tub

SEE
File No. ,1.3A
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.. aoymaxrcrcr raven.orno. ion

178151

Wore t5r Callas (Chi, irri

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. _
Subject

it(Imuld America Adopt a Unified 7

kino, Systomn

The "Dual' System vs. t'lq IThifiedi' System
The Branch Brking Controv9rsy
Guaranty of Bank Deposits
Divorce or Affiliates
Pro and Con

SEE
#

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
k
Federal Reserve Bank of St. Louis

o. e. 00•11RNIIITIT reivrrno orrice: 1933

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

The Future of Independent Banking by Mr. Geo. V. McLaughlin
President;The- Brooklyn'Tr. Go.
May 1934

SEE
File No. Study # 15 A
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ir

v.

vovvivivver rancrnee omer: I.33

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Clipping from The Bankers Magazine, June 1935
"Strangulation of Small Banks"

SEE
File No.

#8A

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u. e. oovseewewr 11113111310 OTFICZ: 1933

178151

12

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
SlitkieCrt

Clawkinga_fx_aa_taatinany_af_a.___a„aach4__Eugane_aay_an"I---__Rala,
and Allan
Pope on S. 4115

SEE
File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

u. s. oontimmurr pRurrnro °mac: 1933

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Meeting held
Present:

ct, ber 4, 1934

Messrs. Stark, Williams, Kr-st and Eddy

Taken fr m file 'f C mmittee -n Legislative Pr-gram-Stark File
(fc11 wing discussicn of unified banking)

SEE
File No.

Study #7

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

U. 5. 00VIIINMENT PRIMP.°Meg: 1933

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Irra Publisher Urges Retentin

State_Banks"

American Banker, May 10, 1933
Cliffc.rd DePuy

SEE

and_Walt2r Wyatt.

Study # 8

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

mom

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Glass and Meyer W'rk to Create Unified Banking"
American Banker, ictnber 18, 193

SEE

Study # 7

File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u. e. oorzenerprr renrrnio orncr. ins

178151

12

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Hecht Tells Part 15 Meet

S. Benking la on Way Up"

Yune 2.?, 1936

SEE
File No.

Study

15

Letter o

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u s. ceovinoturrrr rnirrnivo orncs. 1933

178151

Paris, Francs,

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject azarkin===trigivisir-Ite -4--Osphart.

SEE
File No. rticii #10
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.

oeveniterwr rim/Tree orrice: 1933

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Porposal2 l'cr•

C

'lePrZM -*

Prom file of Neu ea Legislative PrOrAllat

SEE
File No. study 1Pr D
Letter of

Dated


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.

ooyeamminrr piturrma orricr: Imo

178151

19re

Octk

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Clip_pi ng
_B.e_2_ut
not, given (Library clipping)

Re

SEE
File No.

7

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

u.

ooveRxmaicr rErNrrna cones: 1933

178151

12

aria -naw-s-pa-1)e-r

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Banking Developments in New York State2 192,7-1K4"
Commission for Study of the Banking Structure,
N. Y. St. Bkors. Asso.

SEE
File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

e. 00111RNMENT pairTmo orner: 1933

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Three Seasonal
June 18, 1936

encies Open Under Bank Act - Article American Banker

SEE
File No. Study j6
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

u. 5. oovsturvemr ?Rum.ornce: loss

178131

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. rIIemorandum to Dr. John villiams from George Eddy,
on the subject of "Banking Reform"

Stilkieet

SEE
File No.

Study #7

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

U. S. GOVILRNMUTYT

rarriTmo OFFIC.:

30

178151

ept. 19, 19Mi

•

6-3-36

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Natiol,a1 versus State Banks by Ray B.
The Anna1:7,1 January 19-34

SEE
File No. study #7
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

v s. ooTrummENT PRTNTING orricz

1933

178151

csterfield

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

Excerpt from Report on Banks of Deposit t Discount, etc.
"Branch Banking"
N. Y. 1934

SEE
File No.

Stucly #9

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

u

ooyeemerwr PR 11,1110 orrice. iges

178151

THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No.
Subject

"Gephart cites four low rate factora", Indianapolis, Ind. Indiana
Bankers Assoc. convention, May 21

SEE
File No.

Study 8

Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

12

U. 13 00,337,11131YT

raurrnro oilier: 1933

178151

•
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET

File No. 12,
Subject

Excerpts from addre_ss by_ ROD, Jo_seph_A.
oke_ri_cic_
Savings Banks Association of State of New York, Oct. 18-19, 1934,
from Association News Bulletin

SEE
File No.
Letter of

Dated
Remarks


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

v. is. aoyzwimcwr rRrcnwo orrics: 1933

178151

AILZAllil
TIME ?XL

12J3

1--TEXTT: "Wilcox Cites Need for Unit Banking Front in Washington"
AMERICAN BANKER, September 20, 1937

sn MX NO'.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

9A

AILIAllil

FM*

summ

#12B

"The Challenge of Monopoly to Independence in Credit
and Banking" by Wright Patman
AMERICAN BANKER, August 25, 1937

SEE FILE W. 7A


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

CROSS

REFERENCE

FILE NO. 12B

FUEJECT: "Thomas Complains Bankers Don't Respond" -- Washington, D. C.
Banking Angles in the News at the Nation's Capital
AMERICAN BANKER, August 12, 1937

SZE FEU NO.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

7A

.1.7).LLIZL1.141
FILE TX).

FM:13-2CT:

"Harr Calls upon Bankers -to Conserve Democracy"
AMERICAN BANKER, July 16, 1937

SD WIZ AO, 9A


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

,


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

SPEECHES

EMPIRE FOLDER
Better folders .for better files

306S
Send you:. Ci- lcr

tho nearest "Y and E"

Representatives or to our Home Office
YANCtIFIAN AND

ERPT, MFG.0.

Main Factories and Executive Mins
ROCHESTER, N. Y.
Eranches and Agents in all Principal Cities

12


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

MISCELLANEOUS

EMPIRE FOLDER
Better folders for better files

306 •.1
Send your Order to the nearest "Y and E"
RepresentativeS or to our Horne Office

IAWMAN AND ERBE MFG.O.
Main Factories end Executive Maas
ROCHESTER, N. Y.
Branches and Ai-,ren13 in all iriw7p-1 CL:.3


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

EXCERPTS

EMPIRE FOLDER
Better folders for better files

3063
Send your Order to t17,2 nearest "Y and E"
Representatives or tJ our fionic Office.

-YAWP1AN AND FRBE MFG.0.
Factories and Executive Ogices
ROCHESTER, N. Y.
Branches and Agents in all Principal Citics

•

1
SOURCE:

NORTHWESTERN BANKER---JULY 1956

NEWS AND VIEWS OF THE BANKING WORLD--by Clifford DePuy
Page 10

W. S. ELLIOTT, vice president of the Bank of Canton, Canton,
Georgia, gave a very effective address aoinst branch banking recently
and pointed out that the country was built by unit banks and that
objections to branch banking consisted of centralization and control
of credit, which was bad and also, that there-ias a danger of political
control under a branch banking system.
"Unit banking", he said, "was the traditional system of this
country because it furnished local capital, local knowledge and local
management of conditions which was a decided asset."
he also pointed out that 17 branch bank systems had failed with
136 branches during the depression and that they had deposits of 41,611,000,000 which was one-half of all the deposits of all the bank hich
closed during this period.


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

SOURCE:

NORTHWESTERN BANKER—JULY 1956

Page 53
"FRANK WARNER AND BRANCH BANKING"---Fred Figge, Pres. Ossian State Bank
The following remarks concerning the part Frank Warner, secretary
of the Iowa Bankers Association, had in fighting branch banking at the
New Orleans convention of the A.B.A. were made by Fred Figge before the
state convention last month:
"The matter of unit banks has been mentioned at this convention.
I want to bring before you the facts concerning the fight which was had
at New Orleans to save the individual banks against branch banking. You
all know that there was a fight. That fight was not only brought about
by men high in government positions, but also by some of the larger banks.
"At New Orleans the fight between the two candidates for second
vice president of the A.B.A. seemed to center around this one point of
branch banking. The candidate for the independent bankers had virtually
given up; as one who was there told me, they had all crawled under the
table, they felt whipped. Frank Warner, our secretary, in his quiet and
unassuming way, gathered together the boys who had lost courage and at a
little luncheon discussed the matter and one by one he brought out his
plans, and before that luncheon was over the entire stage was set with
the result the candidate representing branch banking withdrew his candidacy and Orval Adams was elected.
"Now, Mr. Adams can't do everything alone. That fight at New
Orleans would have been entirely lost had it not been for Frank Warner.
You all received the advertisement of the Bank of America, California.
On one side is the picture of a traveler's check. L'n the other side
was the picture of the state of California. There is a line drawn from every
town to the outside, showing which points are under the dominance of that
bank and under the CONTROL OF ONE MAN. Do we want that system? It will
flood our state and every other state if we do not fight it now.
"It is needless for me to go back to the records and show what Frank
Warner has done to prevent branch banking."


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

source;

northwestern banker---July 1936

IOWA CONVENTION RESOLUTIONS

Page 54
* * * * * ** ** **

(/

We recommend that Iowa banks as they may deem it advisable,
establish bank "offices" in communities which are now in need of
bEinking facilities.

/


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

*****

***

*

•

Z,

Ixcerpt from nonsreadum to the Beard by Or. Hommemd
(4/30/56) em the subject of "Summery of Bank Relations
Reports"

attat44, toward IbILLIdWailkingOOLiciAtia

The reports ineicate that the prevailing attituee ic one
of friendliness. At the same ttne, the amall nonmember hanks in gener
al sem te
feel that membership in the System would bring no advantage?
not already
available to them in the correspondent relationship. Moreo
ver, MOMMOM—
ere *hich now derive important income from axchange charges see
positive
eisadvart&ges in membership.
1Naslug, swidifilega
Banks Are reported os generally concerned because their
income is
low. In thi? connection the importance of charging excha
nge where that
practice prevails is all the more emphasized. Banks are
also reported am
increasingly interested in F. N. A. loans, personal loans,
ane instammmt
financing, and in making service chomps.
ExcernI, taginimo;te
*This county (St. Lawrence County, NT% York) one in Which branch
banking migbt correct sem et the problems which
exist and which are
apt to arise in the fttere. Tf there is my nee(' for s
hank in certain
of the smaller communities which mew have banks, this need
could be supplied by a branch hank with Amager menagement and execu
tive ability
than it is peesible for an independent bank to obtain. The
Ogdensburg
Truat Compeer is the only institution in t'e county
with capital sufficient to operate a branch banking system but its menag
ement is unmilling to take over any or the smaller banks although
they own an interest in three or four of the small banks and assist
them banks with
advice and suggestions." (N. Y. report)
"Comments of the bankers in thin county (St, Lawrence)
indicate
that they have a very limited interest in, and understand
inz of, the
policies of the Federal Reserve System, and that they are
primarily interested in the Federal Reserve Bank as a correspondent
bank from Which
they can obtain ',arise* services Cheaper and of greater
efficiency than
from the ordinary correspondent. Visits to these boas
usually arouse
a number of euestions regarding letters, circulars. and
regulations received Prom F,deral which the executive officers have
been unable to
understand fully.' (N.
report)
*Attitude sd:glogoigpUmnimp Comments were entirely favor
able
ameng such nonmember banks (Wyoming County, New !ark) as are
familiar
with the policies and functions of the Federal Reserve Syste
m. Reasons
expressed for not joining the Federal Reserve System include
the fellow'mix


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

4:4-

-2
a. Objections TAD 4 fmrther supervising authority in addition
to the Aeccetetructim Finance Corporativn, Federe41
poAt Insueance Corporation, ane the State Banking Pepartmonte
b4

Extra labor involved in furnishing reports and keeping of
records.

seeomnodatione,
c. in the prevent -tbaence of neceptty
411 other services are rendered by correspondent banks without oost.° (N. Y. report)
Cleveland report:
okt the waeLing of th.oup Six of the Ohl* Bankers Association (meet
central section of the stee) a reaoluttos yes adopted onpoming compelmr7 nembertohip in the Itderal Reserve System for insurod state memmemPMS8 resolntiem
banks am provided in thd, linking Act of UBE.
alee ereorded the dual bunking system and oppoeld agy action which bee
lees taken or may be taken looking to unification of the banking ireten under federal supervision."
*All of our Field Repreatntatives re?ort that, Ln conversation with
member bankers, there has b.en expressed a doubt as to the good faith of
the liserdts statement released in oemnection with the recent increase
in reserve requirements of member beeks. The idea wee expressed that
the &Olen was taken solely for the purpose of leaking mare funds available to Federal reeerve banks for the support of the government bone
market. AS indicated above these comments were quite general and cone
fres all sections of the district."
olgenber bankers, particularly in the southweatern 'action of Ohio,
are complaining of undue activity on the part of the Production Credit
Corporation which la active in seking loans to farmers particularly in
connection with live stock financing. In seme of the smeller manufacturing centers complaint is maee that ctty banke are taking over desirable
industrial and commercial accounts at eubstantially lower ratea. The
truth of tile metter appears to bn that banks in tNitt eection art still
maintaining the level of interest rates prevailing in recent years despite
the easy money condition."
rimm qicIlmond repart:
*Tn discussing membership with nonmember banks it should be remembered
that there are mere than 500 nonpar banks in the Fifth Federal Reserve District, the majority of theme institutions being located in the two Carolinae.
Their apparent advantage over member banks with reepect to exchange charges
and more liberal regUlatiome is a pronounced factor in the consideration of
membership in the System by these hanks.°


https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

ONO

:Tram Atlanta rt7.Tort:
nithout exception the reports of visite to banks+ reflect a resit.'
of friendlinees toward the Federal Reserve Eyetem. The principal re's,*
why the rmaller nonmember banks do not join it the importance which they
attach to revenues from exchange.°
From St. Louis report:
"Several bankers coemented on the increase in non-par points, particularly in the State of M.ssouri, and expreesed
opinion that the
usefulness of the Reserve Bank was being seriovely impaired on that account.'
Prom Minneapolis repcala
"At vazioue group meetings of the Minnesota Bankers' Association:, the
Secretary called attention to the uide difference in exchanv charges made
by varies, banks awl urged then to get tegether through county associations
or district aseociatiom 'or the perpoole of adopting t fair and reasonable
uniform charge. 114 versed them that if they did not do so, customers would
probably take some political action which might result in the elinination
entirely of such charges.*
From Kansas City reportt
wrhe cashier of the Firet National Bank of Olathe, (Colorado), reported
that he eas very much pleased with the ssr-rice rw lered b7 the Federal Reserve Bank on non cash collection items represented by the usual drafts for
the shipment of produce and other like commodities out of the immediate
Olathe territory, and representing a gross total of from 1750,000 to q„000,000 in 1955. He said that thie had been the source of considerable ineome
to his bank.°
"Of the semmember banks visited (in Nebraska) the majority are not on
the par flat and their reluctanee to forego the income derived from exchange
deductions is one of the rearms for their net being interested in membership. Until conditions change, vim they again have demand for Deane and
enable them to offeet, in part at least, the
earnings therefrom that
is
little or no likelihood that they will be
there
exchange,
revenue from
is a vital question noreadaye with many
Rawson
memberehip.
interested in
to do scarcely more than exist on their
able
are
which
banks
of these smell
few
talk
of liquidating, stating that the
of
business.
volume
present
farmers to pay their debts,
emebling
While
green,
crop
the
wheat
of
avails
banks
as it sight have hem. Some
the
bemefits
to
of
productive
not
as
yes
operations in debt, in
sissies
start
next
would
farmers
the
that
me
told
view of rhich if dreath conditions continue ever next year with anything
like the severity of the last, it is difficult to see how same of these
snall banks can survivel•m


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Federal Reserve Bank of St. Louis

•

SOURCE:

REPORT OF H. C. TIMBERLAKE--during visit through western and
southern South Dakota, July 10-40, 1956 (submitted with Mr.
Peyton's letter of 7-30-36

Page 14

While all of the banks visited were FDIC members, some of them
find it difficult to see any definite advantage of ouch membership. One
banker said thet no one had had enough funds since 1933 to make deposit
insurance necessary. Another said that FDIC mdmbership may do some good
but that the necessary reports increased the amount of clerical work in
the office to such an extent that he didn't know whether the benefits were
worthwhile. He wagzested that the daily computation of deposits be
eliminated and that FDIC name 6 (or even 12) miscellaneous dates throughout the yenr to be averavd in order to determine tl,e net deposit average
for assessment purposes.
South Dakota laws permit the establishment of branches under certain
conditions but as yet no state banks have been authorized to establish thell.
White Lake is a bankless town at present and several nearby banks are considering the establishment of a branch or moving there. Some of the stnte
bankers feel that some of the examiners are too insistent on liquidation
and °there who are "liquidation-minded" are surprised at Toan recommPndations
that other examiners make. One banker whose loan limit is t3,300 refuaed to
extent a 1,2,200 loan an 200 head of cattle for six months while the examiners
were at his institution, and they told him that was the best loan on his
books. The banker felt that if feed purch,lses became necessary, the loan
would soon become excessive, so told his customer he would carry the
balance if he would reduce to 100 head, but if not, he would have to
obtain his funds elsewhere. The Saath Dakota Superintendent of Banks used
the "standard call report form" for the first time for the June 30 call
much to the delight of many bankers who had previously complianed at the
multiplicity of reports. On the invitation of Supt. Strain, I attended a
session of the Guaranty Fund Commission at Rapid City which gave me a
very clear conception of thc close attention thnt is being paid to some of
the weaker banks.


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Federal Reserve Bank of St. Louis

•
SOURCE:

JOURNAL OF THE CANADIAN BANKERS' ASSOCIATION--JULY 1956

"Lending Money" address by S. C. Norsworthy, Asst. General Manager,
Bank of Montreal, Que., at a luncheon of the Kiwanis Club of
Montreal on May 7, 1936.

Page 407-408
A feature of the branch banking system which is sometimes
criticized is that branch managers are required to submit for approval
to a central authority all credit applications for more than a stated
amount.

":;re

Figures compiled some years ago by the Bank of Montreal showed
that in point of number, 90% of the loans applied for were within the
mbnagers' discretionary limits and could therefore be dealt with promptly.

A branch manager, with the customer sitting on the other side of
his desk, is under the handicap in judging a loan that he has prominently
in his mind his desire not to offend his customer. Unless he is an
experienced lender, this might lead him, if he had a wide discretionary
power, to make advances which his own judgment would, immediately afterwards, tell him were unwise.
The President of a large New York bank which had no branches once
said to me, "I envy you your opportunities for training your men. An
appointment as branch manager under your system of loaning limits and
supervision teaches a sound banker to creep before he is called on to
walk."
A final argument in favour of loaning limits for branch managers
is contained in an incident which occurred during the inspection of our
2exico Branch. The non-current loans contained an item, "Miss Mabel
Taylor, $102.76," and this was found to represent he cheque for t100 on
Los Angeles plus cost of protest for non-payment. It turned out that Miss
Taylor had represented herself as a movie actress. The Inspector expressed
the view that the risk should never have been taken. The manager could
only reply,--"Ah, but you haven't seen Mabel!"


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Federal Reserve Bank of St. Louis

E,A3ICT:

hYPOFT OF F. C. Dinlop, Auditor, coverint visits to 47 banks
in So. Lak. during week of June 8, 19W--:,ubmitted by
linneapoliE office of Res. Bank under date of June 19.

* ***** * ****

In quite v. number of the smell banks visited, the officere
expressed doubt as to the future of the institution. Deposi
ts are
ehowing little, if any cbonge. Whet smell income the farmer obtain
e
from creemery deliveriee or other products soid is needed for
neceeeities or to retire eeed or feec loam with Government
Agencies.
There iE also little borrowink-, elthough eome farmere obtained
funas
for purcheeing brood sows. The fermer het; had hie fill of
borroeing
for non-eseentiels in advance of expected crops. ihe eanks 5re
mighty
careful sled about making loens. In many Minnesota banks vieite
a, real
estate paper found favor, but it wae a rsrity to find the small
bank in
L'outh Lakota with more than one or two of mach loans. I
si:.ould judge
there were very few loene: being made under Title II of the Notion
al
aousing Act. It WEIS also noticeable t&,t
g,roup bank membere had a
much.lowr_ratio of locel loens to depoeits
The ease lack of. eggressiviiiitii-wTres-PPiireiirin the group members locetea
iin Southern Ainnevota.
/14:14-'
t
/r +4.

"

AL , A'A°''

44`.

5A1
/

k * * * * * ** ***

it ie quite evident thet talking aembership t'.2, the small South
Lekota bunke at thie time wouldnot produce results. k.iarnin
gs ore so poor
that none woulc; coneider Ovine up_gisiAnge. :Some of-thi-siiiiIr
venher-banks
--wourle-selcom
lypportUnity to r:dd a little exchange to their income.
Formerly land sale commissione and insurance helped omt materi
ally, but
there is little profit from thia source et the present time.


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Federal Reserve Bank of St. Louis

* ** * *** * * * *

SOURCE&

THE FINANCIaL AGE---JUNL 1956 (Convention no.)
N.Y. 6tate Bankers Association

ADDRESS Of THE PRESIDENT—S. Sloan Colt
Page 445

It is of intereet to note in thie connection that E hundred
years ago the banking system in England was suffering from many
of
the came difficulties which we are facing today. In periods
of depressian there were many private bank failuree which repeatedly
shook
the confidence of the public and led to the gradual development of
pint stock banks cad the growth of branch banking. The result
s are
familiar to you ell. In spite of all the economic diffic
ulties of England
during the depression no depositor in England hae suffered
the loss of a
single doller from bank failurea eince
in fact only teo 1,anke have
failed in England since 1914, and the deposits of thoee two
banks, together were leeF than L6,000,000. Iet there hae been no lack
of adequate
service to the English public. At the preeent time there are
aver 10,000
comer ial banking °Meet; in England serving 41,000,00
people, ae
contrasted with about 18,500 banking offices in the Unitec kWee
serving
la,000,000 people. In other words, England, which is muchTt
hickly
populated then this. country, has a benking office for ever;/. 4,000
people
aE compared with a banking office for about every 6,900 people
in the
United States. If we take the thickly populated State of
Mew York we
have a commercial banking office for every 9,400 people. If
we make ths
comperivon on the baeis of area, England hte
banking office for about
every eix square miles, while New York State has a banking
office for
about every thirty-four equare milEa.

lab.

The banking record in Caneda hes been similer to that in EnL
land.
Canaealr economic problems ere eomewhet similar to those in
the United
Stetes, and yet in that country no depositor has lost a dollar
of his
deposits through bank failures since 19k!. In Caneds there
is a banking
office for every 5,000 people contracted with one for every
6,900 people
in the United States.
FOR BETTER SERVICE

/

I point these matters out not by way of suggesting thet we should
duplicate the English or the Canadian banking system, but merely
to show
the type of service which it is possible for a banking eystem to
render
and which the public in this country mey ultimately demend.
Banking is
not an end in itself, it is merely an instrumentality for eervin
g the
public, and if the service we are nor furnishing does not prove
to be
satisfactory it is likely to demand romething different.
Are we ingenious
mouth and far-sighted enough to anticipate that demend
?


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Federal Reserve Bank of St. Louis

A4,e--June 1956
S. Sloan Colt
Pup 445(contd.)

Legislation which hbts already been emwted permit the development
of regional systems of branch,_,E that Aight serve the public effectively.
If more banking offices are required in the 6tate the:, should be established
not through the chertering of new banka, but rhthir b.y existing banks tt,king
- ,anking within kocified districta
advantage of laws wllich pe.-mit branch :
of the ,..tatP.


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Federal Reserve Bank of St. Louis

•
SOURCE:

NOTES ON BANK VISIT TRIP OF O. S. POWELL, May 21-28, 1936
(Submitted with letter from Fed. Res. Bk. of Minneapolis,
dated June 20, 1936)

Page 3

Bank consolidations have occurred in two cases west of the Missouri,
thus giving the remaining banks larger trade territories in the ranching
country. The new management at Dupree, who formerly ran the bank at Marcus,
are stated to be in favor of placing their bank on the par list and
they
might be interested in joining the Federal Reserve System at a later
date.
The independent banks are growing in deposits and loans, whereas
the group banks appear to be standing still.


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Federal Reserve Bank of St. Louis

•
SOURCE:

Addresses at the 45d Annual Convention of N.Y. STATE Bankers Asso.
June 20-22, 1936

Address of the Pres.-S. Sloan Colt.

Pages 9-10
**** ** **

It is of interest to note in this connection that a hundred years
ago the banking system in England was suffering from many of the same
difficulties which we are facing today. In periods of depression there
were many private bank failures whicn repeatedly shook the confidence
of the public and led to the gradual development of joint stock banks
and the growth of branch banking. The results are familiar to you all.
In spite of all the economic difficulties of England during the depression
no depositor in England has suffered the loss of a single dollar from
bank failures since 1925. In fact, only two banks have failed in England since 1914, and the deposits of those two banks together were
less than b5,000,000. Yet there has been no lack of adequate service
to the English public. At the present time there are over 10,000 commercial banking offices in England serving 41,000,000 people, as contrasted
about 18,500 banking offices in the United States serving 128,000,000 people.
In other words, England, which is much more thickly populated than this
country, has a banking office for every 4,000 people as compared with a
banking office for about every 6,900 people in the United States. If we
take the thickly populated State of New York we have a commercial banking
office for every 9,400 people. If we make the comparison on the basis of
area, England has a banking office for about every six square miles, while
New York State has a banking office for about every thirty-four square miles.
The banking record in Canada has been similar to that in England.
Canada's economic problems are somewhat similar to those in the United States,
and yet in that country no depositor has lost a dollar of his deposits
through bank failures since 1923. In Canada there is a banking office
for every 3,000 people contrasted witn one for every 6,900 people in the
United States.
I point these matters out not by way of suggesting that we should
duplicate the English or the Canadian banking system, but merely to show
the type of service which it is possible for a banking system to render and
which the public in this country may ultimately demand. Banking is not an
end in itself, it is merely an instrumentality for serving the public, and
if-the seriice we are now furnishing does not prove to be satisfactory it is
likely to demand something different. Are we ingenious enough and farsighted-enough to anticipate that demand?
Legislation which has already been enacted permits the development
of regional systems of branches that might serve the public effectively. If
more banking offices are required in the State they should be established not
through the chartering of new banks, but rather by existing banks taking
advantage of laws which permit branch banking within specified Districts of the

Statkr. https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis

*** ** * *

•
SOURCE:

NOTES ON BANK VISIT TRIP OF O. S. POWELL, May 21-28, 1936
(Submitted with letter from Fed. Res. Bk. of Minneapolis,
dated June 20, 1936)

Page 3

Branch banking is practiced by one of the group banks at Aberdeen.
Both the head-office officials of this small branch banking institution
and the managers of the various branches seemed well satisfied with their
experiment. They stated that branch banking allows bettu_Lervice
tQ__1419_
community, especially in a livestock area where the loan limit to individual
borrowers should be hia4er than small country banks can supply. This branch
banking system Sas developed a simple form of accounting so that the
traditional branch banking red tape has been cut to a minimum. They seem
to rely largely on government examination of the branches instead of
supplementing it by head office supervision. One independent bank near
Aberdeen thinks that branch banking is inevitable but not if $50,000 of
capital is required per branch.


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Federal Reserve Bank of St. Louis

•

-- -____
,,

StFATREih Address delivered -by H. A. BrBankerr-Aeeeeilft-tien, at the annual meeting held in Kansas City, Mo.,
(
'N
May 5-6, 1936
-

Along this same line there is another matter that bankers should
be studying and thinking about. In other states and possibly in this state,
the county-seat banks, or larger banks in the other towns, have been sending an employ-e to neighboring towns two or three times a week to make
change, cash checks and accept deposits. While this may be nuite an accommodation to the small community without banking facilities, at the
same time this practice involves many dangerous features. To me.the
first danger rould be that such action might be the opening wedge for
branch banking in Kansas. This is an expensive operation, and, first
of all, if prficticed, should be only on a profitable basis. Then the
robbery hazard is involved, the question as to which banks should operate
in certain localities would enter into the plan. It is not my intention
to endorse or oppose this issue at this time, but it is one of those things
that vill be coming up in the near future and should receive careful study
from all sides. 4


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Federal Reserve Bank of St. Louis

SWIM Address of George La Harrison
at 804-Annual Dinner liestings,Acedesay
of Political Science, New York City,
Thursday, April 2, 1956, pp. 11-12.

FILE*

Study

apsed under the
So, also, our comm8rcial banking motes which coll
,
safeeporded in various respects.
*train of 1951, 1932, and 1935, has bee*
leeks believed to be sound
After the banking holiday of 1935, only these
s Pere eliminated from
were permitted to reopen, so that many veak bank
e number of banks have since
the banking structure. Furthermore, a larg
r some form of national
joined the P*415,44 Meeerve Symbee sea are now unde
em or the Federal Deposit
supervision three. the Pe/ma iseeree Syst
cture of underi-capitalized benks
beememee Corporation. The capital stru
criptione and through the Reconbee heen restored through private subs
struction Finance Corporation.
still eons fundamental
In spite of these steps, however, there are
which, to my mind, must some day be
shortcomings in our banking system
ness.
seises4ed if we want to avoid future meek
like Topsy.
Our commercial bookies oyster grew yr auch

At the be-

d of about 24,000 separate unit
ginning of the depression it easidate
ender 49 different sets of laws - the
beaks all organised and operating
state*. Some of thee* banks were
Federal law and the lams of the 18
System but two thirds of them ogre aot.
embere of the Federal Reserve
superimposed upon this heterogamous
Ibmo !Were' Reserve Systme vas
without amy subetantial change la the
peep of banking institutioes
beide whoa

ttiat,

a "Nebo
No central bankimg system ass be fate

gystem. Selp shile amay Mope
stitato tor a mewed eemmerelal banking
be able to boast of a vholll
have already beep teheek, we shell net


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Federal Reserve Bank of St. Louis

-2

adequate booking structure un4il such time as it may be possible to develop a more unified commercial banking opotam with greater oemsostration of both authority and responsibility.
This inplies a greater uniformity of booking laws tefteem the different states, on the one hand, and betweem the states and the Federal
government, on the other. It imaies greater consistency and effectiveness oe banking supervisions responsibility for which is now divided
soon too many agencies. It implies the useassity of imprOving the general character of book assegsment through the development of some more
liberal system of teem* benikimg within apprepriate areas. It implies
Sege eatisfactory disposition et tbe boot* problem of separating the
essmercial banking fnmetion from the savings banking function. The
combination of these two functions in the same institution has bean one
of the apparent causes of our banking troubles of the past. Lastly,
it implies the ultimate necessity of brimeingell the commercial banks
of the country into the Federal Reserve Systwou
The precise answer to these questions

difficult to determine

either as to time or method. It will require thoroughgoing and thoughtful study, and perhaps a gradual solution; but wit should not rest content
until the problem has boom recognised and its solution undertaken. I
do not mean to imply that our banking system today endangers the economic
etability of the country or the funds of its depositors. But I do mean,
that it will never function to the full limit of its usefulness and
satoby mail these questions are coomidered and disposed of tn some
ootistiebory fashiom.


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Federal Reserve Bank of St. Louis

t --t

(f'
/Cx,
WORM

2111 100110=2 ...- SWAIM of Canada Special Bevie,--London Jan, 16,1iM

hirLia
VII.--SAME

Anr

INSURANCE

Trends im Oamadian Banking
by Pref. J.F. Parkinson
The typical Canadian bank is a ossperatively large institution,
operating branches across the country amd transacting a traditionally British I/
commercial an4 deposit-banking business. Government regulation of banking in
Canada is a matter of Dominion jurisdiction, so that the development of
Canadian banks since Confederation hhs boom free from the problems which
divided authority creates, in contrast to the situation in the United States.
Canadian banks have, therefore, been able to extend their breaches across
the Dominiem as fct as the frostier was pushed outwards. The nentralisation
of reserves and management which a branch-banking system provides has sinplified
the task of keeping assets liquid and diversified. The Bank Act proscribee a
minimmn of financial strength which has effectively eliminated the possibility
of amy growth of small regional banks comparable to those which grew up in the
United btates in the same period. Far from proving a handicap to new communities the systen of large banks, coupled with their note-issuing powers,
have enabled banks in the past to provide banking facilitiee for new coo,
enmities as soon as they began to be settled. The existence of private note
issues to-day appears to some people to be an anomaly. There can be little
doubt, however, that this power of the chartered banks—destined for oansiderable
reduction over the next fifteen years--has ehimpomed the cost of maintaining
till money in remote branches. To that extant it has speeded up tke provision
of hanking accommodation.


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Federal Reserve Bank of St. Louis

* * * *••* * *

•
QOURCE: THE ECONOMIST—Dominion of Canada Special Review—London Jan. 18, 1956

Page 49
VII.--BANKING AND INSURANCE
Trends in Canadian Banking
by Prof. J. F. Parkinson

The consolidation movement which took place in prewar days, and
to some extent after the war, has reduced the number of banks from a
maximum of 41 (in 1885) to the present ten. Of these, the four largest
together possess roughly 75 per cent. of the total banking assets. The
business of these ten banks was carried on at 3,527 branches at the end
of 1934; some 550 unprofitable branches have been closed since 1950,
including several foreign agencies.

Pve 51
The next move came in the spring of 1933, when the banks, not without
Government encouragement, reduced the rate paid on savings deposits from 3
per cent. to 2i per cent. Until recent years the rate of interest charged
by the banks on good commercial loans has been fairly rigid in good times
and bad, being held constant at around 6 per cent. throughout the depression
period, with rather high rates prevailing in the western provinces. The
reduction in the savings deposit rates in May, 1935, constituted the first
change in thirty years, and it was not until Noveuber, 1934, on the occasion
of the second reduction in deposit rates, that loan rates were officially
lowered. Even at that, the reduction was confined to agricultural and
municipal borrowers. The pressure to reduce rates of interest paid on deposits
came partly from the fall in the yield from bank investments, and partly as
a result of the Government's desire to prepare the capital market for further
Government borrowing.


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Federal Reserve Bank of St. Louis

"American Bank Failures" by C. D. Bremer
(Columbia University Press, 1935)
Chapter VIII, Pages 138-140

The anomalous policy forced upon the federal authorities in connection
with branch banking is an outstanding example of the defects inherent in
the division of authority over the country's banks. Although, as we have
seen, Congress has shown no hesitation to emulating the state authorities
in their promotion of unsaund and dangerous legislation, it has carefully
refrained from conferring upon the national system any constructive advantages. On the other hand, state banks have been granted the right to
partake of the benefits of the deposit guaranty, which, in connection with
the fact the minimum requirements for a national charter have been reduced,
must necessarily result in the re-establishment of many small state banks,
and will enable many uneconomic banks to continue to vegetate on the communities in which they are established. Of course, the revival of the
independent unit system was one of the major purposes of Representative
Steagalli s Deposit Insurance bills of 1932 and 1933. It is indeed unfortunate that political expediency necessitated the elimination from the
earlier Glass bills of those sections which would have permitted national
banks to establish branches irrespective of the State statutes, and would
have enabled a sounder reconstruction of the banking system. The fact that
several states during the past few years have abandoned their exclusive
unit-banking policy, while others have liberalized the existing branch
banking provisions of their statutes, hardly alters the situation, because
of the absurd restrictions on the establishment of branches, in most of
these statutes.

I

It should be apparent that only by unifying legislative control over
the country's banks will it be possible to carry through the necessary reconstruction and reorganization of the banking system. Abandonment of dual
jurisdiction will do away with the ruinous competition between the national
and state authorities which has attended banking legislation in the past,
and enable the national government to adopt a uniform branch banking policy
for the entire country. This will permit the orderly elimination from the
banking system of the multitude of small banks which are at present, and
will continue to be, a threat to the safety of the guaranty fund. By closing
the loophole through which banks have been able in the past to escape from
one jurisdiction, which for one reason or other was obnoxious to them, to
another of more leniency, it will be possible to force all banks to adhere
to one standard of operation, thus increasing the safety of the institutions.
The nature of measures which should raise this standard above the level of
the past years, and strengthen the internal condition of the banks, has
already been indicated. The assumption that the guaranty-of-deposit plan
has disposed of the problem created by the intermixture of deposit and investment banking is entirely unwarranted. On the contrary, this plan calls
or closer circumscription of the sphere of operations of commercial banks,
and for placing further restrictions on their security investment snd speculative operations, in order that their portfolios may not again become
filled with all sorts of securities unfit to provide the bank with the necessary liquidity. If commercial banks are to be permitted to continue their


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Federal Reserve Bank of St. Louis

2

savings banking business, provision should be made for the separation of
savings deposits from those arising from commercial activities. Thus the
law should lay down definite rules regarding the type of investments which
should be kept in the savings department.
Of course, the task of preventing banks from developing an unsound
or embarrassed condition looms larger than ever before among the duties
of the superVisory and examining authorities. They should, therefore, be
given adequate powers, and be required to make full and effective use of
tbem, in order that an incipient unhealthy condition may be immediately
corrected, and that uneconomic banks may be closed before they reach a
state where liquidation would involve losses.
These considerations emphasize the fact that a guaranty-of-deposits
plan is itself no solution of the bank-failure problem. However, by
combining the beneficent features of the plan with legislation equally
applicable to all banks, and adherence to which is enforced by strict
supervision end regular, effective examinations, it should be possible
to obtain a sounder and stronger banking system, and prevent the recurrence
of failure epidemics.


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Federal Reserve Bank of St. Louis

M. D. Brett (Mississippi)
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

*********

* * * * * * * * We have had three bank mergers into larger banks,
availing ourselves of the branch office law of 1934, and these banks
absorb the small banks and have opened branch offices in the community
wherein the smaller bank was located. * * * * * * * *


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Federal Reserve Bank of St. Louis

****** * **

•
Discussion on the Address of Mr. Crowley
Proceedings of the 54th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

* * *** * **

Mr. Hood (N. Car.): We have 84 banks with deposits of less than
t250,000 with losses in operation the last year, and a discussion has
been going on in certain communities to take five, six or eight banks
and consolidate them in a new town, it would be the same institution
and the large town would be the home office and the smaller towns
tellers windows or smaller branches. Would the Corporation look
favorably on that with reference to taking care of future operations?
Mr. Crowley: Where the states permit that, it is going to be the
practical thing for the state to do. It will permit a more central
management.
Mr. Hood: In other words, we have a group representing six banks
with one man as cashier of one bank operating all five banks with
cashiers rho are not up to the standard of ability. If these six
banks make him the executive head, don't you think that is better
than liquidating unprofitable banks?
Mr. Crowley: No question about it, and it would be a great contribution to the banking system. We would be very glad to help such
a program as that.


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Federal Reserve Bank of St. Louis

** * ** ****

IV

Adam A. Lefor (North Dakota)
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935

********

* * * * * * We have no large banks, we haven't one state bank with
a million dollar footing, they are all small banks and our duty now
is consolidating where we_can and moving around_the banks to better
centeTt- andthem a chance to make a livipg. We have taken over
175-1-6---ttrts—t-tintr—grirrrainrial banks and are vvorking on three now. We
have the so-called "joint banks" -- two groups in the Twin Cities, one
is called the "First Group" and the other the "Northwestern Group" and
these and similar institutions are taking over the little state banks.


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Federal Reserve Bank of St. Louis

****** **

.

AAt''

•
by Marion D. Brett, State Comptroller, Miss.
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November, 1935.

Address

* * ********

New Banking Offices and Mergers
Besides pnrmitting branch banks with certain restrictions and
limitations as to capital and territory our state law izermits banks to
establish branch offices within the county of its d9miqi1e
a
...stating muritret7—STEEKrAmen-Corbranch banks reauires the majority
vote of the governor, attorney general, and state comptroller on the
auestion of public convenience and necessity, while the establishment
of branch offices, which may do everything that a bank or branch bank
may do except make loans, is wholly within the discretion of the state
comptroller. The law also provides as to branch banks that a branch
bank may not be established in any town or city of less than 5,500
population where such town or city has one or more going banks. There
have been quite a few applications from banks within the state to open
branch offices within the territorial limitations allowed by law. In
considerIng these applications for branch offices in cities of less
than 3,500 population wherein there are banks operating, I have rejected them, feeling a responsibility to the banks and to the cublic
generally justified this action because if the Comptroller Tere so
inclined he could permit branch offices without number, which could
do a complete barfcing business, at least impliedly under the law, except make loans, and thus bring about a very unpleasant and unwholesome situation in banking in our state. Many of these applications
for branch offices are the result of certain dissatisfied ones in a
particular community against a bank that does not seem to be doing
things just PS they would have them do, and therefore invite competition by banks in neighboring towns, cities, and counties. My understanding of the branch office privilege is to furnish banking facilities
to a community that will support such branch office with resulting
profit to the main office, but which community is Ainable to raise the
minimum capital required of an individual or branch bank, and in each
case, aside from the question of whether or not there is already a going
bank in the town or city, the test of public convenience and economic
necessity is made. This branch office privilege has been the means of
merging a few small banks with banks of larger size through mergers and
decreased operating costs, and at the same time, if the absorbing bank
desires it, may maintain a branch office in the community of the merged
bank, thus affording banking facilities to the community. In the case
of new banks as far as it concerns my office the test of public convenience and economic necessity is followed and showing required to be
made that the proposed new bank could be operated profitably and in the
case of seeking to organize a new bank in a community where there is
already a bank, besides the test mentioned, it is our position that
not only the proposed new bank could be operated profitably but that
the organization and operation of a new bank would not jeopardize the
other banks' existence. Those in authority should proceed very carefully on this matter, for I believe that we have been overbanked in the
past and this has been a contributing cause to the situations we have

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Federal Reserve Bank of St. Louis

•
recently gone through, for it brought about a h'gh degree of competition
and many unfair and unethical practices contrary to good banking and
business rules. our „at4te _laws are vaplx_rlelablg_to aff2rd at least
community which has had or pow wants
one banking house to eve
E' accommodation.
seAs grid—Fa=p7o
now
t
which never had-one
For more than a
-Verfrrivient.
ra
o"rrieThtirtint-ttrn
—
riErriTh-gliiMre
organized.
been
has
year no new bank


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Federal Reserve Bank of St. Louis

*********

e-771

SOURCE:

327.

PUBLICITY ACTIVITIES - F.R. BANK, MINNEAPOLIS

Report of Deputy Governor Ziemer, attached to
August 13, 1935.

r. Peyton's letter of

Page 2 (of the report)
*

*

*

BANKERS' ATTITUDE
The two banking groups are firmly entrenched in idontana, and
of the 58 banks visited, 17 of them belong to one of the two corporations.
Most of the group banks are situated in the larger cities.. The banks
which are affiliated with the corporations situated in the smaller communities, will be sold to local interests as soon as the corporations are
able to dispose of them. The corporations feel the volume does not justify their retaining them.
Competition is very keen between independent and group banks,
but it is clean and no unfair practices are apparent. Some of the independent banks claim that the group banks are inclined to arbitrarily dictate the interest rate to be paid on deposits. In several instances, the
independent banks have emphatically refused to reduce their interest rate
to correspond with that paid by the group banks. Another common complaint
is that the corporation banks give no consideration to local borrowers.
Being familiar with credits, it is my personal opinion that as these banks
have an abundance of money to lend, it is not their policy to refuse any v/
applicant entitled to credit.

Observations of Otis R. Preston - attached to Air. Peyton's letter of
August 7, 1935
Pagf 2 (of the report)

ATTITUDE OF BANKERS.
A peculiar situation exists in Montana in that the two banking
groups are represented either one or the other, or both, in all the larger
cities, including county seats. Although keen, the competition with independent banks is clean and follows conservative banking practices. These
group banks, in my opinion, maintain a leveling influence on the independent banker, constantly restraining him from practices heretofore resulting to the detriment of the community.
The non-member banks are not interested in the pending Banking
Act of 1935. Although generally informed as to its provisions, obviously
they cannot determine their future course as to Federal Reserve Bank membership
until they know what will be written into the law. A number of

state
banks
on the par list are potential members.
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Federal Reserve Bank of St. Louis

cwth S. Banking Problems' by Sirs daises T. Ourtinheur„ New
Tork
(Joursal of the Onsatissikeame Mums, *eater, 1935)University
** * * * * * * **

In spite of the houseelemaing *Leh has tube* plume, there
number of small institutions *tab hew se place in the Amerie is a large
em bunking
Armature exempt as bramehee of string esteepelitaa isstit
etteess ?he
attire benhimg situation mild be greatly beeefited by the
temmies of brae& basking sit that all *isolable communities gredsal oz.
selld have ede.
lest* mei safe basking seretees eitheet taking the
cheap that asses ghee
small lead institetiess boodle the bustaesm during bed years.
Pediro1
Smeermeeet ememet safely assume this berdes through the PIM
/he
affai
rs
iat the latter ere going alias very ateely et
%weever, Weems. of
the recast hessellsamies4 bet all mush schemes
their teethe' tine
emly after year* have elapse&
** * * * * * * **

This problem of loess is closely esmemited with la* type ef
settees required by the Verielli authorities,' Seee bulk seMmin bask eneet.
ers
it mere difficult for banks to increase lease duets* the past two love awls
rears be.
ems* of ummeeesearily rigid requirements, Is gemerel State
examiners have
bees the nest Umlaut, Federal Seserve balk emmmtmors quite strict
but not
as severe se National bank emmpteerss Sad' a system of matip
le examination
promote bathe asking oey loses exor2t those 'hid) Are extremely
liquid and
fikt short derotiset sled it would appear safe now to relax the rules
someiheim
Stamderdinatios ef Imo* examinations sad coneestration of ft*
work sithis
see ergenisatioa is imperative. .
The Vetted States seed* a meifled booking structure, All
State banks
should be required te join the Amberol Sessowe Systes, awl
as seem as expedient all members of the system Mould be pet maim natiom
al Mortars The
trend toward unification has bees etas in several respects
beams. the
preeest dual beikieg erste. ems in se smell may reepensible
for
banking trouble* shilb led up to the book holiday or about two the state
years ape
It is significest that greater progress ha* beam mode ia
releasiag deposits
in ember batiks them in nom.memberes The suggestion that banks
sew inideet
to Federal resolation eould ovoid atifisatise
beeemimg aseposuber Moto
beaks is nowise 'duos it night eanse retaliatory memmeres by
a
Administration, Ala hes mot hesitated to intrednee redisel ladiseml
seeseree, end
thus precipitate a eemossent for immediate natiomalisation of
ell brakes
* *•

***** *

Me illusion that the partleelar age in Which a Owen banking practice
exists is final is one that is eattimeinyteteg disrupted* theor
ise mei
practises of American hankies ihesld undergo great dimmes
. It is nessomm,
to resspizo the fact that beaks marry Mike mei stiffer lessee
s ?he
hesitater for many years of banks to install adequate serviee Charg
es mast
steps Seeks realise they are entitled to this Mures of inane but seem
te fuer lite reaction on the pert ef their ousteeers who might resent the


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Federal Reserve Bank of St. Louis

banks' change of policy in this respect. Free sondes* have coot the banks
of the U. S. as high as $300,000,000 within a single year, Several years
ago a natiem-vide survey indicated that if all U. S. egimercial banks
a:'opted a small float charge more than 00,000,000 would be added to
earnings signally. This, of course, is only one type of service charge.
As has beem indicated, on the other hand, costs can best be eut by cooperative sotto& te reduce the meet important expemse item vhieb is
interest paid em deposits. Particularly in rural area* many country banks
are operating epos earnings insufficient to justify their capital invest.
sent bat beam* of eompetitive conditions are paying excessive rates of
interest ma time deposits. This must be ohmemed, mei there are indications
that a start bee boom made by the beak, in deellei idth all theee problems.


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Federal Reserve Bank of St. Louis

Address by R. E. Reichert,
Michigan State Banking Commissioner
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)

**********

There is one more point that I wish to touch on. That is that our
institutions must absolutely be so operated that they show a profit.
Consequently it is impossible to try to operate them in too small units.
I am and always have been in favor of the unit bank with certain reservations that that unit bank be large enough so that it can be profitably
operated. Because of my view on that subject I have been in favor of
branch bankinE with certain limitations. I believe that many of these
communities thould have banking facilities, and that they should be
furnished by a larger bank close to that particular community. If
there is not enough business in the community to support the branch,
the branch should be closed the same you would close any other bust1-"
-ness that proved unprofitable. Only by first making your institution
profitable and sound can you have a sound banking structure. I believe
that the experience over the past years should teach us not to attempt
to operate on any basis except upon a sound and conservative one,
keeping at all times in mind the relfare of the people we are attempting
to serve.


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Federal Reserve Bank of St. Louis

***********

•
From "American Banker"
Published in
The Hoosier Banker, June, 1935

Eccles Would Limit Branch Banking by Twelve Districts
Explains Purpose of Compulsory Reserve
Membership for Insured Banks to
Committee; Wants National Charter Control
In the questions with which senators interrupted Governor Eccles
at the hearing on the Banking Bill recently, it was brought out that
he personally favored branch banking extensions, noting that the trend
was in that direction.
"I believe in a state-wide or a regional branch banking," Governor
Eccles said, adding that his plans would make the twelve Reserve regions
the basis of the control. However, he decliaed to say that such provisions should be placed in the bill and pointed out that it is a disputed matter, involving the controversial nuestion of state rights.


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Federal Reserve Bank of St. Louis

**** ******

•
SOURCE:

THE FINANCIAL AGE — June 18, 1935

THE PRESIDENT'S ADDRESS--Edgar A. Jones, Vice Pres. of Scranton—Lacka—
wanna Trust Co., Scranton, and Pres. of Pa. Bankers
Association

Page 419-420

A statement has been issued to our membership relative to
the enlcrgement of the scope of branch banking in Pennsylvania.
The principles set forth in the stetement were unanimously ap—
proved by the members of your executive committee, your committee
on legislation, your committee on branch banking, and your officers
and, upon submission to the secretary of banking, approved by him.
Ledt evening the council of administration, likewise, approved
thereof. I assure you that the action taken was necessary and
that the interests of our members are protected. I, therefore,
ask that all our members whole—heartedly approve and subscribe
to the princi-ples set forth in the statement, which are:
1. 1Jranches may be authorized in localities where there are no
banking facilities, but not beyond the counties contiguouc to the
county in which the home office of the bank establishing the branch
is located.
It shall be written in the Act that where establishment of any
branch is deemed feasible, an applying benk within any county would
be given the preference, other things being equal.
2. Branches may be authorized where the local situation should
v be strengthened and where the banking assets can best be conserved
by merger and retention as branches, but not beyond counties
contiguous to the county in which the principal office of the bank
establishing the branch is located.


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The Financial Age -- June 18, 1935

COMMITTEE ON BRANCH BANKING--Harry J. Haas, Chairman

Page 421

Any figures that I might give probably would not remain in your
thoughts, but I will just say that we sent out 1,064 cuestionnaires
and got back 539 replies, over 50 per cent, on the first one. The
only question on which there was a close vote was the first one:
"Are you opposed to all forms of branch banking?" There were 287
voted "yes" and 233 "no". On the question: "Do you favor national
legislation which would permit branches for national banks within
the several States on the same basis that branches in any Stete are
permitted for State-chartered institutions" the vote was 219 in favor
and 266, I presume all the State bankers, said "no".
Now, after we had done this work for a year, we hao this meeting
at Harrisburg with Dr. harr and he pointed out to us the importance
of extended limited branch banking, where it would help Um banking
situation apd would not interfere with Any_existing_ bank. It is so
worded that it is impossible, if the law is passed, in any way for
any branch to interfere with any existing bank. bo, Aith your
permission, I will finish this report.

1


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Federal Reserve Bank of St. Louis

•
The financial Age -- June 18, 1935

COPUITTEE ON LEGISLATION—T. Walter Ulson, Chairman

Page 425

EXTENSION OF BRANCH BANKING
Second--The other measure to which I wish to call your atten—
tion in particular is the one covering the extension of branch
banking in Pennsylvania which was also outlined in our letter of
June 1st. This important development accepted in a spirit of
mutual understanding resulted from conferences of your committee
with the secretary of banking. Since it is also an administration
measure it is my thought that Secretary Harr will elaborate upon this
plan in his address on Thursday morning and there is, therefore, no
occasion for me to take more of your time on this point. Suffice
it to say that extension of branches under this bill is also made
subject to the approval of the banking board and thatia, w/
be established in a community which aireaUTEErgaing facilities.


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The Financial Age--June 18, 1935

THE CURRENT BANKING SITUATION-Dr. Luther A. Harr, State Secy. of
Banking, harrisburg

Page 429
********

Another measure which we believe to be essential to the
well-being of the people of the :
.itate
is our branch banking
bill.
The bill provides: First, that branches can be extended
only in the county in which the parent institution is situated
or counties contiguous thereto; second, that no branch can be
established in a community which already has banking facilities.
One exception is made to this provision, namely, thtt a branch
can be established in a community through merger where the
comlnunity would be without banking facilities other than the
merged institution. The third provision requires each branch
to carry as much capital and surplus as it would have to carry
were it an independent institution. An exception is made for
branches in communities of less than 3,000 where only 50 per
cent of the legal capital and surplus will be required.
Finally the bill states that no family, chain, or holding
company can extend branches from more than one centre. This
eliminates the possibility of a family, chain or holding company acquiring banks in widely separated counties and opening
up branches from each of the banks so acquired.
At the suggestion of your legislative committee we agreed to
amend the bill to provide further that extension of branches shall
be subject to approval of the Banking Board.
With the bill so drawn I cannot see the slightest danger of
unfair use of the branch banking privilege. And there are many
benefits to be derived therefrom. Let me give you an example.

Paes 429-450
There are now throughout the Commonwealth scores of small
communities, townships, boroughs that have no bank. The communities
do not have the financial resources to support an independent institution. It is doubtful if even were one established it could make
money.

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Federal Reserve Bank of St. Louis

•

•

•

•

-2The Financial Age -- June 18, 1935

Dr. Luther A. Harr
Pages 429-430 (contd.

But if this branch banking bill passes, end I believe it
will, people in these communities will enjoy banking facilities
and business in those centres and through the State generally
v'
will benefit. It will extend the benefits enjoyed by Upper
state.
entire
the
to
Ardmore
Darby and
I know that your association has opposed branch banking in
the past. Ldany of you still do. But I am sure that as you study
our bill you will agree with us that it is a necessary measure
and that every precaution to prevent undue extension of branches
has been taken.


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Federal Reserve Bank of St. Louis

SOURCE:

THE MISSISSIPPI BANKER - Aay 1n5

ADDRESS OF M. D. BRETT, State Comptroller, Department of Bank Supervision

Pages BZ-B4

Sectione 6Z, to 67 of the lew provide for banks with brenchee and
"Branch Offices", all within certain limits, es to number concerning
branchea, end territorial liaitations as to both. Ectablishment of e
brench bank requiree the majority vote of the Governor, Attorney-General
Load State Comptroller on the question of public convenience and neceslaity, while the establishment of "Branch Offices", which ma:i do everything
that a bank or branch bank Mhy do except nuke loans, ic wholly within
the discretion of the State Comptroller. A large capital is required
for a brunch benking system because the parent bank must have a capital
of ut lebrt il0J,00J.00 and additional capital of at leaet /15,000.00
muet be provided for each branch with limitation of fifteen branchee,
yet it is possible for a small bank heretofore establiehed of
410,000.00 cepitul to open an unlimited number of branch officee within
the county of ite domicile or adjoining counties, and in a test of this
poseibility, I have found thet in one county at leaet within the state
where a bank domiciled therein with only 0_0,000.00 capital might, if
the Coaptrollkr saw fit, establish ut leest uixteen branch offices within the territorial limitetions, in the small towns end at least two
large citis, while a brunch system aaj not have over fifteen banks.
The lew also provides as to branch bunks, that a branch bank may not
be established in any town or city of less than !,500 population, where
such town or city has one or aore banke in operation. There have been
quite a few applicatione by banks within the state to open branch
offices within the territorial Units allowed by lew. In considering
these applications for branch offices in toms or cities less than
3,500 population wherein there are already beaks opereting, I have
rejected theat feeling that the groat responsibility to the banks and
the public generelly justified this action. If the ComptrollLr were
so inclined he could permit breach offices without number Which could do
& complete banking business, at least iapliedly under the law, except
sake 14ans, which is forbidden, but in which loan applicatione might be
taken and forearded to the home office or bank, and thue bring about a
very unpleesant anc unwholesome eituetion in banking in our state. In
the arguments for "Blanch Offices" and the discussions at the time this
pert of the present banking law, it was
Section vas proposed as
suggested that these would be beneficial in extending banking facilities
to communities thut could not support en independent or branch bank.
It wee further arguud thet becaure of the fact that capital requirements
were raised to U5,000.00 minimum, in many instances it would not be
poseible to raise thie and organize a bank or for a parent bank to


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Federal Reserve Bank of St. Louis

sZI

.

‘t.
a;

S
e
41

Ck)
itt;

a

4111111fr...

The Misaissippi Banker - Bay 1935

M. D. Brett
Pages 33-54 (contd.)

project a breach bank in the smeller oommunities. In many communities
where branch banks have lie,uioated or were liquideting for one reason
or another it, wee urgued thet thie would uffore u means of extending
banking facilities into thetas communitiee; also it was augg,eted that
where tLere was onc or more benke in the reetricted locality ellowed
by law in which it ma e tusk to ttern enough to pay operating expenses,
that a lareer bank in the county limita or adjoining county might
ebaorb these and by the "Branch Office" plLn re-extenn banking facilitiee
to those communities, thuu dicpensing wite coneiderable overheed and
meking more certuin the eerning capacity of the main office. Onder these
conditions several brunch ofiiceb have been ulloweo end are meetint with
succese enc. making more certain the BUCCOSE of the main bank. And,
until I chanie my thought on the purpose of thiu part of the lew, I feel
thet I ahould not grant branch officee in the face of alreeny organised
and exieting banks. Indeed, I vee a tencency tovard bank extension one
way or the other in thie uno othLr states, and the authoritiee charged
with the reeponsibility of supervising banke rhould proceed ver carefully,
for I believe that we have been "over-banked" in the past an thie,
probably more tien any other ene thine, flee brought about the eituation
we have recently gone through, for it brought about a high degree of
competition, in many instancee unfair and unethical practicee, contrary
to gooe bueinees rules. The thought wes prevalent thet everyone wes a
banker end thet to go into the buoiness sweat eaey money ahead, and
if the profits or earninge were grett the loesee could tuke cere of
themseivev, which es we now know, did not work out. This seems to be
the thought et this time of governmentel authoritiee hevinE to do with
the Eupervision of banks, both State anc National,and I trust that they
will maintain thie viewpoint against aver-extension and instead of
gratifying the clamor for more banks, thtt we all work together to make
those that we luxe better and etronger through volume of businese,
decreesed lossee ana expeases,and increased earnings, for if unjustified
extension of the National banking system through orgenization of new
benks is permitted then the policy of the state authorities gots for
naught. Under our State law umple flexibility ia given to afford at
least one banking house to every oommunit,y which hab ha6 and nov wante
which may never have he'd one, but now seeks such accosnodations.
This is the purpoee of the law and thiE ie sufficient.


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Federal Reserve Bank of St. Louis

•
SOURCE:

ECONOMIC CONDITIONS, GOVERNMENTAL FINANCE, U.S. SECURITIES
(The 'lat. City Bank of N.Y.)

Page 31 (Feb. 1935)

By way of comparison it may be added that the Canadian banking
system consists of only ten corporations, but operating about 3,500
branches. According to tint findings of a Banking Commission, which
reported about one year ago, the average net earnings of these corporations over the preceding ten years had been 6.36 per cent on their capital
funds, and average dividends to stockholders 5.93 per cent. Thq_Ju!anvh
banking system undoubtedly lowers both interest rates and capital charel.
by reducine both operating and capital costs.


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Federal Reserve Bank of St. Louis

*no Money and Baaktmg Situation in the United States*
by Dr. Gaines 1`,. Cartinhonr„ New York University,
(Journal of the Studien Bankers. Ansa., ant., 1930
** ****** * * * * *

Bankers who have tees criticised for hesitancy to make loans complain
eonflict in govermment policy. The government, they say, has insisted
ef
that banks make loans, on the one hand, while on the other bank examiners
have been making it sore difficult by their rigid recuirememts for safety
respecting loans and collateral. Drastic and unfair appraisals are alleged
to have been made. In general it seems that State examiners have been most
considerate. Federal Reserve Bank examiners have bean somewhat more drastic,
but not as severe as National Bank examiners, whom some bankers denounce as
having redueed value. ta their institutions to a point where the capital and
surplus have been practically wiped out.
The American Bankers' Association has loncerned itself with this probaem,
and ex-President Law has pointed out that as long as examiners believe it to
be their dintr constantly to hammer on loans that are admittedly good, only
because the, are slow, it will have the effect not only of forcing banks to
Wert unnecessary preesure on such loans but will prevent theI from making
agy new loans except those thPt are extremely liquid and of short duratiom.
This situation has been admitted br tok. Administration to be a serious
problem and standardisation of balk examisetiOn practice and consentration of
such work within one organizatioe in lUshiagiam is now advooated. At the
time this article is being written, (December 15th), it appears that the
Federal Deposit Insurance Cortoratiom will take over all activities along
this line being worried on by the Comptroller of the Currency, the Reserve
basks, anJ the Nesemstruction Finance Corporation. State banks are else ex,mined by State Smoking Departments in addition. Practically all national
banks heme been subjected to examination by at least three Federal agencies,
frequently using different yardsticks of value. The result has been that
they never could tiLl which of their loess might be questions& For national
beaks oue source of examinatiom Should be sufficient; for state banks which
are FDIC members joint examinations conducted by State and Federal authorities
should be arranged.
Fnrthermere, such a rolicy would save the beaks a great deal of espea004
One Wall Street institution estimate. that it empsedi at least $50,000•
year supplyieg the desands of baulk examiners. ?he correctioa of this sites*
tios will not make possible an immediate flood of new bank loans but will
remove one of the obstacles emaftontingAmerican bankers.
** ****** * *****

There have been renewed reports reoently of actioa te vally the
American banking system. The Federal Reserve Mord is esdarvieed to have
given this proposal consideration lately but its aumbers believe that it
is more a poliqy question for the President and Congress to handle. Should
there be attempts to unify the system, it could be brought about through
coapulsory membership of State banks in the F. R. System, compulsion on
State banks to tells sat national charters, or possibly tlrough unification
of State laws. The latter would not be as effective as the tomer. Many
questions of constitutionality, etc., would arise in the event this type
of legislation were recommended to Congress.

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Federal Reserve Bank of St. Louis

iii.msW.gelrr

r

- 2* * * * * * * ** * * * * *

:

?he satire banking situaties mould aleo be greatly benefited hy the
gradual mimeos ef breasb hankie. se that all communities oaa have adeqnste
baukiag service vithont taking the abases that oomes when small local institutions handle the business.


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Federal Reserve Bank of St. Louis

* * * * * *•
•*•* * *•

•
SOURCE:

PROCEEDINGS NEW YORK STATE BANKERS ASSOCIATION - 1934

Page 15 (Address of President McLaughlin)
* * * *
We have heard a great deal about legislation. Let us forget the past. I know many of you were annoyed at the pasgage of the Branch Banking Bill. In my own opinion, it was
not the ideal time to pass one, although I have always believed more extensive branch banking would come eventually.
But of all the bills proposed, I believe that the one that has
been enacted into law is theleast offensive. So I would say
that we should give our full co-operation to the authorities
who have to do with its administration, because undoubtedly
there will be some conflict between national and state banks
seeking a branch in the same communities.

Pages 150-51 (RECENT BANKING LEGISLATION - Address by Paul G. Reilly,
Counsel to the Joint Legislative Committee on Banking)
ed
tuf:

A bill which evolved a great deal of comment and discussion was the Stephens Bill, permitting branch banking in
various districts of the State. It represents, on a small scale,
the so-called regional or trade area type of branch banking.
Much has been said about this subject and probably a great
deal more will be said in the future.
The operation of this
law will be closely watched and may have a great deal to do
with future branch banking in this State and in the country.
I hope that the licensing authorities will sincerely and
earnestly endeavor to exercise the _privilezes_granted under
this bill_in_.5uch a manner as to prevent any undue expansion
that may bring about a return of the excessive competition
that_has been so roundly and justly condemned. I have in
mind a situation which may accurately foretell just how nearly
possible it is for the state and national systems to co-operate
in a so-called gentlemen's agreement. A certain town in this
state had two banks a few years ago, a state bank and a
national bank. Both of them failed. It may be said that one
of the contributing zauses to their demise was the economic
inability of the tam to support more than one good institution. Within a week after the Stephens Bill became a law,
a national bank located in a large city filed an application for
permission to open a branch in the town. At the same time a


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Federal Reserve Bank of St. Louis

-2-

•

Proceedings New York State Bankers Association - 1954

Pages 150-51 (contd.)
state bank from the same city applied for permission to operate a branch in the same town. Here will come the real acid
test. Can the systems co-operate intelligently and unselfishly
for the best interests of the people of the town and the banking structure as a whole, even though it may require sacrifice
will tell.
upon the pert of some? Time alont
.)

Packe 152
* * * It was not possible to produce any such
legislation and the best that could be obtained
ance of the Comptroller of the Currency that he
operate with the Superintendent of Banks in the
branch authorizations. * * *

limitations by
was the assurwould comatter of

An idea has recently occurred to me that might provide
some of the limitations sought by those who fear competition.
I have not fully thought out its feasibility but I believe it to
be worthy of consideration. Briefly it is this. Nearly all of
the banks in the country, both state and national, are members
of the FDIC. They represent nearly all of the banking resources of the country. The FDIC, is not, if it is properly
administered, biased in favor of either state or national banks
since both are members. It is vitally concerned with the welfare of every bank in the land because the welfare of the
whole system is dependent upon the welfare of every individual
member. It certainly can have no desire to see the security
of its members as individuals or as a whole threatened by an
excess of competition. It has a vital interest in seeing that
the economic security of its members is maintained to the
fullest possible extent. The future of deposit insurance will
be largely determined by the presence or absence of a sound banking structure. The present indications are that the FDIC
will continue in some form or other as a permanent feature
of our banking policy. * * *


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Federal Reserve Bank of St. Louis

Proceedings of the AIE6UURI BANKERS ASbOGIATION
ANNUAL ADDRESS OF Tra PRESIDENT
Willis R. Alexander

(Page U.)
I want to go on record nere and no% as being unequivoca
lly opposed
to both central and branch banking. No more tangi
ble justification of
tali:, view needs be citea tnan tae records of our
banks during the past
several years. Tnrough stress and storm, bunks
meusured up to the
demands made upon them far better than most other
lines of business. Tne
independent unit bank nas been the vital force in
buildinz up tae community througnout the nation and will continue to
do so if individual
initiative is not legislated atuy from it.
Most American blaks are community-owned insti
tutions. Tne men who
make tae policies and operate tne banks are perma
nent citizens. For this
reason Vie welfare of the community is their
paramount interest. As a
result of this local ownership and local management
of the banks, our
country has developeo industrially far beyond
otner countries saich do
not have this type of banking.
The independent unit bank is threatened by
attempts to extend branch
bunking. Shall we permitt the system which nas
and is nov contributing
60 largely to the developmen
t of our country to be strangled and smothered
out of existence? Personally, my answer
is no. And I aJa ready to wage
incessant turfare for the preservation
of our independent unit banking
system.


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Federal Reserve Bank of St. Louis

SOURCE: PROCFEDINCE NEN YOfdi STATE BASKERb ASSOCIPTION- 1954

Ptige 54 (Address by Hon. Leo T. Crowley, Chairman, FDIC - THY BENEFITS
OF DEPOSIT INSURANCE)

Recently, there hrs. btEm ?erfectee E rlivived form of bftrar
exmin;.tion report. This has been accomplished through
the =-operotim cf the office of the Com,itroller of tvle Currency, the Federel Reserve Boare and the Federal Deposit
Insu:ence Corporztion. The we of the new uniform ..ytmi_
nation report ie but the first step in this fruitful field es far
as co-operAiion end improvement of benk supervision ule
management is concernd.
are in hopet that we will be
ablL to makc. further edvslicr,v.
tbese lines, particularly
with a view to increasink the effectiveness of an exhmination
and L.t the same time redue_nt, Liu number of different examiniitions recuiree by the verious supervising withorities.
In this matter we invite your co-operatift. We are very
pleased thtt con;Aderable proLreev hLe 'Already leen awcle and
thLt the authorities concerned are so kinely eisposed to cooperate uiti, us.


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Federal Reserve Bank of St. Louis

SOVNegi WORT ON DANES OF DEPOSIT & DISCOUNT, ETC. -

BRANCH

1954

BANKINC

(Denking Seard)
The Stephens Act, dividing the state into nine districts and permitting branch banking by banks and trust companies within such
districts, has new been a les for about seWen months. The provisions • of that Act are clear that the Legislature was especially
concerned that it should be administered in such. a way as to avoid
undue and unsound expansion of banktng under its terms. This
principle the Board bas kept constantly in mind in the exercise of
its power under the het to approve or disapprove applications for
branches. Not only has the Board weighed with the utmost *are
all applications which have come before it but it has also aided and
approved the policy of the Superintendent in cooperating with the
office of the Comptroller of the Currency in an effort to establish
a common policy as betweem state and national system's. The continua**. of this polic3, is not only advisable but imperative if
branch banking is to develop on a sound basis. For the purposes
of determining in *hat communities and. alder what conditions
there is to be a further expansion of banking fasilitiee, all the
banks of the State must be treated as belonging to one system. The
single purpose of providing sealed end adequate banking facilities
for all section. of the State sennot be achieved in the absence et
cooperation between the two agencies which are authorized to permit
the formation of new banks or branches.
The belief of the Beard in this principle is reflected in resalstion adopted March 261 1965 pursuant to which the board meserialised Congresa to incorporate in any amendment to the Federal
banking laws provisiesn requiring the approval of state authorities for the estabiOhnent of a national bank or branch thereof in
any community termed by a state bank or trust company, provlded the State would likewise enact legislation requiring the
approval of the Federal authorities for the establiehment of a state
bank or trust company or branch thereof in any sonramity serVed
by a national bank.


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Federal Reserve Bank of St. Louis

SOURCEs

REPORT OF BANKS OF DEPOSIT & DISCOUNT, FTC. — CT. 1934

BRANCH

BANhING

Page 7
* * * ** * **

The Stephens Branch bunk Act should be helpful not only in
providing bunking services in communities where no bhnk is
presently loostod, but &leo RB
means of strengthening the entire
system by the conversion of uneconomic units into branch offices ,
of other institutions. While some progress in thie direction has
already been made, much still remains to be accomplis?led. It
should be borne in 11'nd th:,t. no matter how stront an individual
unit may be, continued opertion at h loes will eventually jeopardise
the securit.) of its depoFitore. A tentative survey indicatts that in
various sections of t'r.e State consolidations &re possible which
would result in the rendering of improved banking service at lower
costs, thus permitting a margin of profit affording bettcr protection ,
to depositors.


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Federal Reserve Bank of St. Louis

.
.
74
&U4r-i144

:tZr "44
14A2s.44. GoA,

Aerite/

•
SOURCE:

REPORT ON BANKS OF DEPOSIT & DISCOUNT, ETC. - N.Y. 1934

Page 6
BRANCH

BANKING

The Stephens Act, which divides the State into nine districts
and permits branch banking within such districts, became a law on
May 16, 1934. Since that date, and pursuant to that Act, branch
banks, includinb state and national have been established in_eleven
communities which_previously had been without banking facilities
for varying periods of time. In the main, this Act has proven
satisfactory and workable. While the present Superintendent favors
the principle of stkte-wide branch banking, it may be well not to
-1W tre—iiiIiiirntErmore experience has been
make a further change
had under the Stephens Act. Consideration should be given,
however, to the recognition of a policy which would permit banks
and trust companies to operate branches or stations to be open
for two or more days a week in communitirs not large enough to support a full time branch, but in which a need exists for banking
service.
* *

*

Page 17
INVESTIGATION BUREAU
The passage of the Stephens Act has reulted in an increase in
work of the Investigation Bureau, since it has been required, in
addition to its other duties, to conduct investigations in connection
with each branch application filed with the Banking Department.
Such investigations undertake to cover the need of the community
for the branch sought to be established and the facilities of the
applicant to serve the banking requirements of the community,
as well as any other relevant considerations which may affect the
particular case.


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Federal Reserve Bank of St. Louis

•
DRAFT OF MINUTES OF MEETING OF
SYSTEM COMMITTEE ON LEGISLATIVE PROGRAM
October 24, 1954
Room 422
Shoreham Building
Washington, D. C.

Following informal discussion of a tentative draft of the opening
portion of the Committee's report, presented by Mr. Goldenweiser, the
following members of the Committee met in formal session at about
11:50 A.M. Governor Harrison, Chairman, Mr. Thomas, Vice Governor
of the Federal Reserve Board, Governors Black, Norris, and Young,
(dhairmen Peyton and Williams, and Messrs. Goldenweiser and Stark.

The morning session adjourned at about 1 P.M. The Committee (with
Vice Governor Thomas absent) reconvenedat 2:40 P.M. The session was attended
by Messrs. Robert Fleming, Tom K. Smith, D. J. Needham and (later) R. S.
Hecht of the American Bankers' Association, and Messrs. L. E. Wakefield and
Guy Emerson representing the Association of Reserve City Bankers.
The Chairman stated the purpose of the System Committee on Legislative Program and summarized its work and its tentative conclusions as
follows:
1. Unification is desirable, FDIC is the most practicable lever
for accomplishment of substantial unification through membership in the
Federal Reserve System.
2. Supervision and examination of all banks doing a commercial
business should be centered in one agency. The Federal Reserve System,
on account of its regional organization and its long and close contact with
the banks of the country, is the agency best adapted to the performance
of this function.
3. The coordination of banking functions performed by various
Federal agencies is a natural part of a plan for unified and centralized
supervision.

Mr. Wakefield, President of the Association of Reserve City Bankers,
referred briefly to the Association's studies of the Banking Act of 1955,
Federal deposit insurance and unified banking, as well as to its active
interest in the preservation of the Federal Reserve System


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As to Governor Black's two points, Mr. Emerson stated that the
Association is actively interested in the preservation of the Federal
Reserve System and should be in a position to offer effective defense of
the System

Mr. Smith, Chairman of a sub-committee of the Committee on Legislation of the American Bankers' Association, stated that the sub-committee
is agreeable to unification through the extension of membership in the
Federal Reserve System. His sub-committee is actively interested in an
improved insurance law and an improved omnibus bill to correct the defects of
the Banking Act of 1935. It is prepared to act in defense of the Federal
Reserve System and in opposition to nationalization of banking. His subcommittee would be in agreement with the Chairman's statements regarding
the coordination of Federal agencies and regarding Federal deposit insurance.


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Federal Reserve Bank of St. Louis

SOURCE:

ANNUAL REPORT OF THE COMMISSIONER OF BANKS FOR MASS.PART II - 1934

Page vii
',Rcorkanizationa

In the last annual report, it is stated:
"Efforts are now being undertaken to further reorganize
this whole situation with a view of effecti4 additional
releases to depositors of the trust company and by reopening the trust company as a going institution and
place the stock of these bankm into individual ownership.
The early enactment of the county ?.ide branch banking bill
recommended by the Special Commission for the study of
the banking structure will materially aseist in the
development of such a plan, particularly in so far ae
the smaller affiliated banks are concerned."
This branch banking legislation was enacted 8nd became law on June
29, 1J!4. On September 19, 1934, a plan was ap)roved by the Federal
Reserve authorities, the Supreme Judicial Court and the Commiss
ioner
of Benks providing for the oombination of the assets of these five
banking institutiona into one under the charter of Worcester Bank v
TruA Company. Ae a result, Worcester Bank & Truet Company was
reopened under the name of "k)rcester County Truat Company" and
branches were established under the new branch banking law in the
offices formerly occupied by the affiliated banka. Tiv reorganized
bank has deposits and trust department businesa aggregating in
excess of t70,00J,OW and possesses,sound eapital structure of over
$4,000,000. The capital stock consists, of $2,000,000 of Clase "A"
preferred and t1,000,000 of common. As part of the plan, each
holder of a Class "A" certificate in Worcester Depositors' Corporation reckived an additional cash relehse of 40 per cent of the face
of his certificate and received for the balance of his certificate
Class "A" preferred stock in the reorganized bank retirable by the
trust company for the balance of his certific:,Ite. * * *


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Federal Reserve Bank of St. Louis

•
SOURCE:

PROCEEDINGS NEW YORK STATE BANKERS ASSOCIATION - 1934

Page 63 (REPORT OF THE COMgITTEE ON STATE LEGISLATION)

k

There was, however, one important recommendation of
the Superintendent which your Committee did not approve,
namely, that relating to branch banking. You will recall that
the Superintendent recommended that branches be permitted
throughout the county of the main office and adjoining
counties, subject to the approval of himself and the Banking
Board, provided, however, that no branch be established in
towns where banking facilities already existed, except by the
taking over of existing institutions or institutions in liquidation. He recommended state-wide branch privileges for
banks with capital and surplus funds of $25,000,000 or more.
Your committee, in its report submitted at the Mid-Winter
geeting, took the position that unless and until the overestablishment
- was
_______of branch banks, either state oriiarolitil",
prope-fIY guarded against by Federal and State law, we were
opposed to the extension of branch banking privileges in New
York State beyond the territorial limits then permitted.

Page 64

We nevertheless realize that excessive branch competition
would be detrimental to the interests of sound banking.
We have great confidence in the present incumbents of the
offices of Superintendent of Banks and Comptroller of the
Currency, and we do not believe that excessive branch competition between state and national banks will result from the
enactment of the Stephens Bill during their incumbency.
However, for the sake of future conditions which we cannot
at this time foresee, we believe it would be well to have the
Federal banking laws so amended as to provide adequate
safeguards against branch competition along the lines recommended by this Committee in its previous report.


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Federal Reserve Bank of St. Louis

•
Address by L. A. Andrew, Iowa
National Asso. of Supervisors of State Banks
35rd Annual Convention, Baltimore, Md., October 1954

We who have fought the unification of banking idea have seen the
dangers of that propaganda crystalize in proposals which have gone much
farther than any proposed unification of aur banking structure. It has
been openly advocated, and may be realized sooner than many of us now
think possible, that all banking in this country be done through a branch
system of a new Central Bank or the present Federal Reserve Bank, government owned. /n a way it is the natural development of the plan to unify
our banking structure by destroying the American dual system of banking.
We have seen the advocates of "safety in bigness" try out in succession
for public favor, group and chain banking and then concentrate on branch
banking, finally themselves being forced into a stand with the unification of banking idea. In their fight, many times during which unfair
tactics were used and untrue statistics published, they failed to see
that, under the stress of public loss of confidence, such a campaign
would naturally lead the proponents of governmeat banking into a favorable
light. The arguments used for the unification of our banking system became during the past year the arguments for the taking over by the Government of all banking functions and the operation of branches of a Central
Banking System in all sections of the country.

In our discussion of the future of the unit bank, we wish to take
up a number of points in its favor and then prove that the American Dual
Banking System is the best for the future development of this country,
as it has been in the past.
The unit country banks should be first defined as an institution
which is owned in the community and operated for the profit of the stockholders and for the benefit and development of the community in which it
exists. We believe that few, if au, will dispute the statement that
the unit country bank has been responsible in a large measure for the
development of the community life of this country and for the success
of individual effort in business. The unit bank is the heart of the community and furnishes the circulation of the life blood of business. When
properly managed it provides an ideal set-up for conserving the cash
assets of the community and for loaning these assets out safely so that
the community roundabout is properly developed and business can have its
temporary needs for additional funds supplied by people who are familiar
with the commanity problems. Of course, unit bankers have made mistakes.
These mistakes, hoWever, have been caused in most cases by a too
optimistic belief ia their own community. The losses sustained by the
unit bank were those which were brought about by a great economic change
over which neither the banker nor the customer had any control. It is
now apparent that many of these losses could have been avoided by more
carefUl management. However, the mistakes of judgment made by the
country unit banker were not nearly so expensive, in total, to the
depositors as were those made by larger city bankers.

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Federal Reserve Bank of St. Louis

*** ** * * *

•
- 2The question of whether the State Bank System shall be destroyed
and about half the banks of this country put out of business is now
right up to a decision. It is unfair that a great economic and financial
question, involving the existence of thousands of banks and the financial
stability of thousands of American communities should be brought up for
decision at this time of depression hysteria. The fight regarding the
American Dual System of Banking is a clear-cut issue between those who
believe in the sovereignty of our states and home rule, and those who are
in favor of a "unification of our banking system" into one Washington
bureau. It is also a fight between the unit bankers, both national and
state, and the proponents of a foreign system of branch banking. In fact
a careful analysis of the issue shows that the ultimate result of this
battle, if it should be lost by the state bankers, will be the placing
of seven or eight large branch banking organizations in charge of the
financial business of this country. In a recent discussion of the reconstruction period in the American Bankers Association Journal, A. A.
Berle, Jr., well known as a member of the Brain Trust and for many years
an advocate of centralization in banking, wrote a splendid article
favoring that side of the question. I was asked to present a plea for
the future of the unit bank. It is interesting to note that one of Mr.
Berle's conclusions was that a country-wide branch banking system was
probably the ideal set-up but unfortunately he said that America had no
bankers capable of handling propositions of this size. It is hoped
that, until these super-bankers are educated in the improved Berle
fashion, this danger will not materialize. Those who are using the
propaganda that the unit country bank has been a failure are putting
forward the remedy of "Safety in Bigness"; that is, the safest of the
foreign system of nation-wide branch banking. Their argument is based
upon an absolutely false position. They say that the unit country bank
has been a failure, and that the large number of failures among the
smaller banks, both national and state, make it necessary to change the
American Dual System of Banking to a foreign system. The American unit
bank has not been a failure. * * * * * * * * *
**** *** *

The movement to put all banks under the Federal Reserve System,
another angle in attack against the unit country bank, is equally indefensible. The Federal Reserve System should have the support of all
large commercial banks, and every bank doing a commercial business with
resources of over a million dollars should belong to the system, but
any effort to compel all the unit country banks to belong wauld not be
wise or even desirable from the Federal Reserve viewpoint. It would add
infinitely to the detail and responsibility of the system without
material benefit; in fact, the best posted men with a thorough knowledge
of the Federal Reserve System have repeatedly said that one-third of the
banks in this country have no place in the system. Their wants can be
taken care of better by the use of correspondent banks in Reserve centers.


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Federal Reserve Bank of St. Louis

** * *****

60UhCE:

ASSOCUTION NEWL BULIATIN

Ilanks Association of
State of New York

OCTOBER 18-19, 19Z4

ALDRESE BY HON. EUGENE R. BLACK, Governor, Fed. hes. 3dnk of Atlanta
and Former Governor, Fed. Res. Bd.

Pse4e f)4.

I have watched the trend of banking in America closely for
the past ten years. I have seeel developments that were disturbing
during that period.
remember the race for bigness in Anerich.
I remember the period of mergers in America, and without criticizing
any merger or commenting upon any merger, I persomlly fcel thht
there hes never been a good mergtr in America. When I sa;; that I
am speaking from America's standpoint, and not the bank standpoint.
Every mercer hec to combine two good banks, and lessen conpetition
in the community by tne combination; or every merger had to comoine
a good bank and a weak bank and pull down the good bank; Dr every
mercer had to combine two wer,k banks and multiply tenfold the weakness of both of them.
But ve had
peculiar spirit in America at thet time. Ze believed
thrt bicness was strength, and that bigness and strength gave power;
and there vas a race in AnericE for bigness and for strength and for
power.
"saw the change in commerci;-.1 bulking. I saw the old 1.enke in
Amertca get away largely from commerciEl banking. I saw collateral
banking take the pli.ce of commercial banking, iind I saw clerks in /
Miry bank checking collateral and not checking chsracter.
V


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Federal Reserve Bank of St. Louis

•
Proceedings of the 35rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 1934

***** ****

Thomas H. Daniel (State Bank Examiner, South Carolina): * * * * *
In 1932 the minimum capital stock was reduced with certain conditions
to 20% paid in instead of 10% and the prohibition against ownership of
real estate and prohibition of dividends until earned surplus equals
capital stock. That to some extent has solved the problem of the effort
to organize banks in towns where there are scarce1y enough people to
support the banks. Our cash depositaries, which we do not thoroughly
approve of in that they sometimes perhaps prevent the organization of a
bank in a community--on the other hand giving banking facilities in
communities where they could not support a bank, and it might be worth
consideration of some of you gentlemen to look into the cash depositary
law. Briefly, the capital stock requirement is very small, only
$2,500.00, and they make no loans under any circumstances, and the funds
are invested only in United States securities, bonds of South Carolina
or political subdivisions, and in case of voluntary liquidation the depositors are required to accept these bonds at the price paid for them
by the bank, so the speculative value of bonds doesn't bother the cash
depositor.


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Federal Reserve Bank of St. Louis

**********

Proceedings of the 55rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 1934

*********

L. W. Ballau (Bank Commissioner, Rhode Island): Mr. Chairman, I
don't know that I can offer you anything very constructive in regard
to the banks of Rhode Island, in fact, the banking situation can be
passed in just a word. I am not sorry that I have not a long story
on the banks, I came here to listen to your stories—Tou men with so
many banks. I take no credit for the conditions there, but we have
had no failures and the condition of the banks is very saund and strong.
Let me say to Mr. Gormley, we feel one good reason for the strength
of the banks in Rhode Island is that we believe in branch banking, the
big fellows take the little ones under their wings and we like state—
wide branch banking.


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Federal Reserve Bank of St. Louis

****** * **

Proceedings of the 33rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 1934

*** * * ***

R. E. Gormely (Superintendent of Banks, Georgia): * * * *

**

*** * * ***

In regard to the possibilities of legislation, I feel sure no additional legislation will be passed of major importance. Our position is
a defensive one--we are constantly in danger of repeal of our present
prohibition against branch banking. I expect a simillr attempt will be
made at the coming session during the early part of 1935 but I very much
doubt it will be successful. The position of the independent banks in
Georgia is that they are strong and able to overcome any effort to repeal the nrohibition against branch banking.
Like the gentleman from Connecticut, re are .Jpre alarmed over the
-possibilities of what mny come from Washington, the possibility of a
nationwide branch banking or granting the F. D. I. C. enforcement provisions, and they will undoubtedly seek additional enforcement of the
Fedeml Reserve membership in 1937 in order to retain membership in the
F. D. I. C. We have two hundred non-member banks, and I have possibly
stated to you,,exchange is one of the earninvs_la non-member_state banks
and I dg_not uo ilow the av,p,..nge quall_bmk can exist withou-LiI. Any
attempt to force Federal Reserve membership on non-mem er banki will result in the withdrawal from the F. D. I. C. of approximately 75% of our
banks.


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Federal Reserve Bank of St. Louis

*** *****

•

Address by C. B. Axford
38th Annual Convention, Indiana Bankers Asso., May, 1934
(The Hoosier Banker, June, 1934)

** ** ****

I seriously indict the American unit banker and his representatives
for not having called upon the American Bankers Association to adequately
publicise and advertise the American Unit Bank. The ABA would do it if
the movement is properly backed by the rank and file. But there has been
no such action. The unit banker ii„is ,seen Unself slandered and debased.
He has let the critics advance. He has chosen not to fight back.
But he can fight back. Locally he should be always ready to fight
back. We believe that there is no alternative to a strong, safe bank
statement in convincing the local population that it is better to have
a self-liquidating local institution than a bank responsible to strangers
and distant city financiers. The big bank offers bigness, which to the
average Ainerican still means safety. Distance lends enchantment to the
view. The local bank xust be able to prove its case for safety In
black_and white. I beliiii_fatEgbre tha-the more difkailed statement
is the agencylv which the local bank sho-uld be.
pze ared to rove that
a goo
e an a
ome s worth more to its loc
commun y -tEin—a
TD { -b-r'ink—w'ho-s-e—c-grirra

—rrr-=n ei arrr;rv-s--away.

The proper bank statement, properly presented, can tell the story of
the support of local industries and local credits which is a challenge
to any outside competitor. It can make clear its freedom from directors'
loans, pledged assets for deposits, and other points in its condition
which will throw down the gauntlet of both safety and service and
guarantee the local good will to the local bank.


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Federal Reserve Bank of St. Louis

* **** * * **

•
SOURCE:

7.

MINUTES OF FED. RES. AGENTS' CONFERENCE-Wash.May 1954 (Confidential)

FUTURE RESPONSIBILITIES.(Mr. I. Newton led discussion.)
Topic 7-A.
Topic 7-B.
Topic 7-C.

(27)
Future responsibilities in over-banked communities.
Future responsibilities in under-banked communities.
Form of branch banking for small communities.

After discussion of these topics, the following statement was adopted:
"This conference of Federal Reserve Agents respectfully directs the
attention of the Federal Reserve Board to the fact that group and dhain
i banking have proved unsatisfactory and that some deserving communities are
without proper banking facilities, while others are served by banks unable
to fulfill their functions adeouately through lack of sufficient capitalization.
"It is the belief of this conference that these unsatisfactory conditions would be improved by the authorization in the national banking system
of branch banking within designated areas, Bnd the repeal of that provision
of the lpw limiting branch banking to the States that specifically allow it."


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Federal Reserve Bank of St. Louis

•
SOURCE:

THE MISSISSIPPI BANKER -- MAY 1934

CHANGES IN MISSISSIPPI BANKING LAWS—by Hon. J.T.Brown, Pres.,
Capital National Bank in Jackson

Page 23

VII.
BRANCH BANKING
Under the Act of 1934 Branch Banking is expressly authorized.
A certificate of public necessity and convenience having been had
and obtained from the Comptroller, the Governor and the Attorney
Gener71, or any two of such officers, branch banks may be established
within a radius of one hundred miles of the parent bank, provided
not more than fifteen branches may be estnblished by any one parent
bank and that a branch cannot be located in a town of less than
thirty-five hundred population in which there iE a going bank.
Branch offices may be established by and with the consent of
the Comptroller within the limits of the City, or within the limits
of the County, or within the limits of a County adjacent to the
County within which the main bank is domiciled. Branch offices so
set up are not to be permitted to make loans, but may receive and
trummit loan applicetions to the main office or to another bank.
They are not considered ns branches and no additional capital is required therefor.
The name of every brench bank iF required to include the name of
the parent bank followed by the name of the municipality in which the
branch is located. No branch may be established unless the parent
bnnk has an unimpaired capital of at least 0_00,000.00, and this must
be increased by an amount not less than the minimum required capital
for a unit bank in the municipality in which thebranch is to be
located. In arriving at the required minimum of capital in such
cases, consideration is given to preferred as well as to common stock.
Provision is made whereby going banks may be annexed to or taken
over by other banks to be thereafter operated as branches. This may
be accomplished by the exchange of stock and is subject to the approval
of the Comptroller.
Established branches may be moved from one locality to another within
the territorial limits of the parent bank, but may not be disoontinued
without the consent of the Comptroller. Provision is made for the
formuletion by the Comptroller of rules and regulations koverning the
exemination of branch bank systems to the end that the parent banks and
all its branches shall be examined at one and the same time. When
reduced to writing these rules and regulations become law to be enforced
by the Comptroller ES other provisions of the Act.

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Federal Reserve Bank of St. Louis

-2—

The Mississippi Banker -- May 1934

Hon. J. T. Brown
Page 23 (contd.)

//-

Chain banking is prohibited but national banks are granted the
authority to establish branch banks with the same rights and subject
to the same restrictions as state banks. The provisions of the Act
relating to name, territorial limitations and minimum capital are not
applicable to branch banks heretofore established.
K,._


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Federal Reserve Bank of St. Louis

•
Address by C. B. Axford
58th Annual Convention, Indiana Bankers Asso., May 1234.
(The Hoosier Banker, June 19M)

* * * *********

Are we going to stand idly by and let the illusion that branch banking
is synonymous with reform in banking simply because the American public
is so incredibly uninformed abuut matters of finance and economics. When
the branch bankers come out with clean hands and say that they are going
to run better banks than the country has ever had before, we will concede
to them some right to public attention. But we know that branch banking
has been the tool of ambitious men who did not get along well enough in
t/
unit banking to satisfy themselves. We know that this was true in
Detroit, in New York City, in Kentucky, in Arkansas, in Ohio, in Massachusetts, and in 1934 alone, 17 branch banking institutions failed to
open, tying up 594 branches and over $1,350,000,000 in deposits. We
knov, that it was the crash of a multiple banking plant which wrecked
Chicago banking in 1930. We know that it was the Cleveland, New Orleans,
and Detroit branch banking crisis which brought the 1934 collapse to a
head. We know that the greatest branch bank in the United States, an
institution with over 400 branches, was saved in 1932 only because of
the fact that almost $150,000,000 of Government and other money was
available to save it from collapse. ‘ve know that it was the crisis of
this bank which underlay the statement of Herbert Hoover that in 1932
we were within two weeks of going off the gold standard. If this
branch bank had collapsed, we would have been in even a worse panic
than we were when the Detroit branch banks collapsed, a year later to
the day:
And we know too that the ends of ambitious bankers have been served
by a systematic propaganda for branch banking which has deceived a
large proportion of our people into the belief that branch banking is
in itself better banking. te know that that is bunk. In our American
capacity for lack of knowledge about banking, we should listen to the
British and Canadian critics of their Canadian systems before we
attempt to emulate them. te will see how bitterly they regret the
fact that once the eggs are scraTbled in building up a great centralized
bralch banking system they can never be unscrambled, and the price of
centralization is far greater than the price of local financial
indenendence and responsibility which the unit banking system exemplifies.
And finally on this matter on branch banking, I have one point to
make. In the summer of 1931 a terrific run was in progress on the Big
Five British banks. It was clear that if one or two of them should get
into difficulty, all would be ruined. Branch bankin is no better
guaranty of deposits than any other system. Two of these British banks
were at the end of their ability to liquidate. It was Government subsidy or close for them, but the British Treasury was unable to borrow
except from the big London banks. Instead, the British ended the run on
their banks by going off the gold standard. They saved the illusion that
their banking system was solvent by destroying the solvency of their
currency. Yet we are deluded, many of us, into thinking that branch
banking is a puncture-proof system of banking.

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Federal Reserve Bank of St. Louis

- 2Our problem with branch banking is one of public education. In the
face of msss advertisint); and propaganda campaigns from ambitious men to
serve their own ends by building vast banking pyramids out of local
money as far as they can reach, the only answer is opposition propaganda
and advertising.


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Federal Reserve Bank of St. Louis

* * * * * * * *

* *

&GUM: PROCITTINGS OF MISSOURI BAIKTTS gTOCIAT/ON—May 14-15-16, 1954

THE FUTURE OF TRF UNIT BANK—address by L.

Andrew

Pagea 90-91
A discussion of the future of the unit benk must neceesarily
become F discussion of thc. future of the Americen community, and,
in feet, in the last analysts, it concerns even the future of our
country itself. We who have fought to mrintain the inteerity of
the unit beak, repreeented for many years in thie country by cur
dual bankinK system, both matiomal and state, know thet the past year
has been a vital one in the struggle te: preserve the intecrity of our
Americen system of banking.
At no time in the history of this country n.e therf been sme
an unfair fight made on our unit banking system. The proponents of
branch banking, chain bankir4, and other forms of multiple office
institutions hsve been excessively bus3" but thedr effortr have not
been so troublesome as trk well defined propaganda for the teking
over of all banking functions by the Government.
We who have fought the unification of banking idea have seen
the canters of that propaEanda crystallize in proposals wlich have
gone much fOrther than any proposed unification of our banking structure.
It has bees openly advocated, end came neerer being realized than mask'
of ,- as know, thet all benking in thic countr.), should be done throuth a
branch slystem of our Federal Reserve Banks. In a wa:, it is the natural
development of the plan to unify our bankine etruature by destroying
the Americen dual system of bunkinc. We have seen the advocetee of
"safety in bigness" try out in succession for public favor, group and
chain banking and then c.ncentrate an branch banking, finally themselves being forced into a stand with the unification of banking idea.
In their fight, during which they uaed at many times' unfair tactics and
published untrue statistics, they failed to see that, under the stress
of public loss of confidence, such a campaign would neturally lead the
proponents of government blinking into a favorable light. The ergument
used for the unification of our banking syetea became during the past
year the arguments for the taking over by the Government of all banking
functions and the operation of branches of the Federal Reserve System in
all sections of the country.
Llt a study of this subject about a year ago, I made the suggestion
that, if the advocates of ti:e unification of banking were able to succeed,
they would nuturally try t; develop the Postal Savings System into government banka of commercial business, givint the customers of these instituptions the right to have checking accounts, loan money, and, in fact, allow
the system to conduct a general banking business. Within sixty dap, from


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Federal Reserve Bank of St. Louis

aro ...moo

I.. A. Andrew
Pages 90-91 (contd.)

th4A time a bill covering moth a program for the Postal Savings Systeal was introduced in COngress and still is receiving a large &mount
of support. It may be seen from this that it is unsafe for those
fighting fur the unit bank ovtin to ,aake a satiric&l muigestiaa.
.PaRe

** ** 4

4

It aay be that one of the main reasons for this kAropaganda against
the unit countri bank is the weiareat eusc with which certain interests
could control large groups of branch banks covering large sections of
the country. There is positive menace to the financial stability of the
United C'tates in tht stock market manipul&tions which may result if we
hGve any large concentration of bunking power tarLagh branch bunkine
systems. This is U phase of tile subject deserving c&rtful study Elk it
iS U real aanger.


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Federal Reserve Bank of St. Louis

SOURCE: PROCEEDING:: OF dIa,CURI BANKERS ASSOCIATION--NAY 14-15-16, 1934

THE FUTURE OF THE UNIT BANK--eddress by L. A. Andrew
Pages 91-9k

The advocates of chain banking and group btnking and also of
bran& banking have had a grtat deal of trouble during the pest two
years, but it has not loomed their fight oa the unit bank. !boy have
deplored with great gusto the large nunber of failures of emit booing in
the United States, but have not cared to make comparisons of anounto
involved nor to discuss at any great leagth the rescue parties Welch
halve been necessary to save mow of their own iituations.
In our discussiou of the future of the unit bank, we wish to take up
a number of points in its favor and then prow* thzit the Ateseican Dual Banisins system is the best for the future devolopuent of this 00wwtry, as it
Inei been in the past.
The Mit coumtry balk should be first defined as ell in$titutian
which is mimed in the communit and operated for the profit of the stockholders and for the benefit and developmest of the oommisnit:i in whict it
exists. le believe thst fee, if any, will dispute the statement that the
unit country bank has boon responsible in a large measure for the developmeat of the community life of this country and for the smoseas of individual
effort in businses. The unit b:..nk is the heert of tnt comommity and
fornishfs the circulation of the life blame. of business. 'hen properly
managed it provides ea ideal est-op for conserving the ftsh *mutts of the
4011WOmik aaG for lenning these assets out saely so thht the community
amd the countrz, roundabout are properly developed an, the business can have
its temporary needs for additional turn& eupplied by people who are fanilinr
with the community problems. Of ccurse emit bankers have made mistakes.
These aistakce, however, have been in most Osseo oausod by a too optimistic
belief in their own comnunity. The loolaso amstained by the unit bhnk were
those which were brought about by a great *canonic shame over which neither
the banker nor the custimar had am, control. It ean be sees now that NNW
of these lossee mould have been avoided by more eareful eau gement. Heelever, the mistakes of judgment in the country unit bunk were not neerly so
expensive in total to thr depositors es were those in the larger citi a.
The Altars of the unit country bank concerns primFrily tile future of
Miriam borings*. The question of ebotber the vod borrowers in the
overage imoricen community and the farmers in the couatry nearby are to have
necessary oredit for the carrying on of their business will bf. det,:,rninod by
the future development of this problem. The umit bi-zk in ite daily life
represents the success of th(' community in which it exists. It is owned and
managed by the pe,iple of the commumity and its suolooss is thrir eucceas and
its failure is their failure. The queettos of whether tilt unit bank iv to
continue as it hbs in the past with the American Dual Systole of Banking


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Federal Reserve Bank of St. Louis

?rafted/no Mistiuri Bankers Associhtion-May 14-16-16, 19B4
A. Andres
blies 91-4 (contd.)

depends upon better asmagesent in the unit bank. This does set mess
that a very large *maker of mnit banks have not had good mesafenest. w/
Incidentally, I as famili.r with a survey made in at least two st-tes
by the bank examining forces. They were asked to pic't. out V.v. twenty
best bankers in each one of these two states, and you say be surprised
to know that 76 per cent ia each state were bankers from the so-called
countr.c. towns. However, you us bankers kaew that there iE room for
improvement. *my lessons have been lee.rned during the past ten years,
lessons that ha-,e oast a greet deEl of mammy sad they ahould be cmsidered carefully ia any future proo'eam for Witt emit beak. I have
maintained for years, and I do not, theft there is no rinses sly gait
banks cannot be run es safely as any other form of basking.


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Federal Reserve Bank of St. Louis

SOURCE:
A CON.SIDERATION OY BANK INVEETIENT POLICIES—Prepared by Prof. B.R. Beckhart
for the Commission on Banking Law and Practice, Association of
Reserve City Bankers---Aay
1954

Pages 59-60

Ideally the commercial loan portfolio should reflect a wide
distribution of risk by industries and by borrowers. Country banks
fres/neatly find it impossible to effect euch distribution of riak and this
inability on their part kute been an important cause of the failure of the
small bankini institution. This zituation could no doubt be remedied if
brunch banking were permitted over large geographic areas. The development
of extensive branch systems mould veatly stremgthen the comGercial lcmn
portfolio of the banking system through the industrial And the geographic
distribution of risk effected thereby. AE c.n important by-product of this
movement would be the fact thet country sections would benefit from the
greater proportion of open-aerket assets held by the .arte city bonks.


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Federal Reserve Bank of St. Louis

•
SOURCE:

PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION--MAY 14-1E-16, 1934

THE FUTURE OF THE UNIT BANK--address by L. A. Andrew

Page 99
********

It is apparent that a strong effort will be made at the next
session of Congress to put through a law allowing branch banking by
national banks, even in states that prohibit it by statute.
/Destruction of state rights by this method should be considered
/beyond the possibility of enactment, hut it is going to take the
unified effort of all unit bankers, both national and sUte, to
p-reiiblit the passage of such legislation. The main advantage claimed
, for branch banking by those on the inside is that it makes possible
( the transaction of larger bank operations with less calatia. This
' argument should be considered as against public interest and the
tendency should be toward greater safety for deposits through larger
, capital structures, rather than smaller. The danger of stock
manipulations_in large branch banking groups is evident to all. The
danger of an aver-banked condition, which always makes for recklessness,
is just as apt to be present in branch banking as in unit banking, and
the results are the same. LBranch banking within metropolitan areas or
within adjoining counties may have some foundation, butioranch banking
cannot extend safely beyond the intimate credit information that the
officers of banks may enjoy. It is a well demonstrated fact that the
loaning of a bank's money cannot be safely delegated autside of the
executive officers of the institution. It has also been quite fully
demonstrated during the past few years that any institution with too
many paying-tellers windows is seriously handicapped in times of stress.


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Federal Reserve Bank of St. Louis

•
"The Lessons of Foreign Experience" by A. S. J. Baster,
The Annals, January 1934

Independence of banks
Partly due to the individualistic tradition of English business life,
to the prudence, generally speaking, of bank administration (which has preserved the country from epidemics of bank failures for nearly a century), and
to the degree of popular ignorance, not to say awe, of banking and monetary
affairs, the commercial banks in England are remarkably free from any
form of state control. They are incorporated under the general Companies' Acts,
file no important statutory returns as bankers, are subject to no special
restrictions on the scope of their business, and, most important, obey
no legal rules as to the proportions of the several items in their balance
sheets.
But tradition, in accord with the English custom, has shaped for the
banks tolerably certain and recognizable norms, particularly as to the
amount of cash and easily realizable assets which they keep as reserve
against withdrawals on deposit and current account. In fact, the London
banks have in the last dozen years maintained remarkably steady proportions between their "Cash in Hand" and "Balances at the Bank of England"
and their "Deposit and Current Accounts," of about 6 per cent and 5 per cent
respectively. Now, of the two sorts of "bank cash" which the banks use as
a base for the creation of credit, their balances at the Bank of England are
normally the more elastic and may be extended or contracted at the will of
the Bank. It is this most important form of control over their activities that
subordinates the power of the commercialbanks to create credit (and so inflate or deflate the currency) entirely to the policy of the Bank of England,
and turns the London money market and the banks into a folly integrated
system dominated by the Central Bank.

The Canadian system is regulated by Federal legislation--the Bank Act
of 1871 (the only comprehensive bank act in any country of the British Empire) and its subsequent amendments. The form of this legislation was undoubtedly derived from the British Colonial Banking Regulations of
1844, and has undergone remarkably few essential changes since pioneer days.
The system is characterized at present 5y a small group of large banks
separately chartered, which are dominated by a "Big Four" group on the
English model, and which have reached their present size partly through
amalgamations in recent years. Their headquarters are situated in Montreal
or Toronto, the two chief commercial centers of the Dominion, and they are
supported by a large number of branches and agencies througnout the country.
(Table III.)
rhe strict legal regulation of banking activities in Canada suggests
ideas of importance from the present point of view. The chartering of each


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Federal Reserve Bank of St. Louis

bank by the Federal Government is, in the first case, by no means a formal
matter, and together with the onerous statutory conditions of incorporation
(including a minimum capital of 4,500,000 in each case), presents a formidable obstacle to any increase in the number of the banks except on the
initiative of some group of undoubted means and first-class reputation. The
intention to discourage the creation of banks except by substantial capitalists has thus been carried out; but the unexpected effect in arousing saspicion—subsequently exacerbated by the postwar mergers--of a "money
trust" among the existing well-established banks is noteworthy. The suspicion is supported by the existence of a legally recogni2.ed and extremely
influential Bankers' Association, of which all the chartered banks are
members, and upon which some criticism has been directed in recent years
for an almost fanatical conservatism, especially in relation to sach issues
as Government inspection of the banks, and the Canadian Central Bank project.

Finally, the Central Bank in England, which is in close touch with each
one of the few commercial banks, yet undisputed leader of them all, is unhampered by any direct association with Treasury officials or politicians,
and is assured of the willing cooperation of all elements in the banking system in the application of its policy. Its record saggests that while British
financial difficulties have been more acute since the war, the Bank of England has been a more effective mechanism for dealing with them. An increase
in the comprehensiveness and independence of the Federal Reserve System
could not but increase its effectiveness along the same lines.
With all the qualifications mentioned in the first part of this paper,
the broad significance of these saggestions cannot be missed. Foreign experience was heavily drawn upon once before by the United States, in the investigations which led to the creation of the Federal Reserve System; it will
prove to be no less valuable in the solution of the present banking problem.
A. S. J. Baster is lecturer on economics at the
University College of Southwestern England. He
was formerly on the staff of the Barclays Bank
in London. He is author of "The Imperial Banks"
and "International Banks."
Of course, no one tould impute all the virtues which a banking gystem
may possess to the legal frametork in which it operates, or to the degree
of direct control which the state exercises over it. In Canada this control
is confined to the rights of inspection of the recently appointed InspectorGeneral of Banks; in England it is completely absent. A significant point
is that in neither case does the lat prescribe a fixed ratio of cash against
deposits.


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Federal Reserve Bank of St. Louis

SOURCE:

ANNUAL REPORT ON BANKS OF DEPObIT &

Discomfit,

ETC.-N.Y. 1933

Page 10 (Recommendations for amendinf the Bunking Law)

*

*

*

In submitting the foregoing recommendation, the writer does
not wish to foreclose consideration of branch banking on a more
restrictA basie. Considerable sup)ort has recently been apparent
for an amendment which would permit branch banking within
so-called banking or trade areae. The writer desires to make it
clear that in his opinion the adoption of such a plan would be
extremely helpful and a step forward, provided proper consideretion is given to centers of trade and population in creating such
areas or districts within the State.

1

1

Under the Banking Act of 1933, national banks are authorized
to maintain branch offices, provided the states in which they are
located grant such privilogges to state institutions. In other words,
the Congress of the United States hes given its approval to branch
banking but out of respect to the various states, has refrained
from permitting national banks to exercise such authority except
in those states which have also approved the principle for their
own institutions. It is fair to assume, however, that if the states
decline to adopt the necessary legislation within a reesonable time,
that the Congress will go forward with its own plan and prmit
nationel baniu, to establish branches without regard to state laws.
The insurance of bank deposits is not an enswer to all the banking problems of the United States. The work of strene,thening the
basic structure must still go on. In this as in other stktes, there
are many banks that cannot afford to hire the neceseary skill to
invest their surplus funds safely and with sufficient returns to
enable them t- pay operating expenses and remain in business on
a profitable basis. Arguments as to whether city or country
bankers are the more ethical or competent get us nowhere. The
",
facts are that in many communitim.ye have too many banks, while"
in_others there are none at all. Branch banking under proper
solution- te,o both these problems without in ak
supiiiiirdff-uffisrs
way jeopardizing the existence of strong, well-managed unit
institutions.


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SOURCE:

ANNUAL REPORT ON BANKS Oi DEPOEIT & DI6COUN1, FTC.-N.Y. 1955

Page 40 (Bankine Board Resolutions)

WHEREAS, It is eenerally recognized that one of the principel
weaknesbea of the banking syatem of this countr:y has been the
over-establishment and tht competitive establishment as between
Facteral and atate authorities of unit bankb, and
WaREAb, The potential dangers of the over-establishment of
branchea in ani system of branch banking which may be established is equally great, and
WHEREAS, It is desirable to have some degree of uniformity in
banking practicee and
further unification of our credit
facilities, and
WHLREAL, Congress now hate under consideration a general
amendment of the Federal banking laws, now, therefore, be it
heaolvid, That this Board memorialize Congress to incorporate
in an;y' new legislation with respect to branch banking adequate
safeguards against this evil, and furtiler
Resolveg, That it is the pease of the Board that such legislation
should provide that no national bank or branch theLeof shall be
established in an,/ coat.unity aerved by a state bank or trust company without the approval o'titailt .toriptits, if and provided the state will provide by law that no state bank or trust
company or oranci, thereof stual bt establisned in any community
served by a national bank without the approval of the Federt.1
authoritiis as well No of the proper otate authority, and it is
further
hes. lved, That we favor the requirement WS soon hS practicable,,
of compulsory membership in the Federa.L Reserve System of all
V
banks and trust companiea of this State.
Adopted diarch L3, 1933.


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Federal Reserve Bank of St. Louis

•
SOURCE:

ANNUAL REPORT ON BANKS OF DEPOSIT & DISCOUNT, ETC.- N.Y. 1933

Page 6_

Another feature of the Banking Act of 1953, which is very distinctly a step forward, is the authorization of branch banking
wherever state laws extend such rights to state institutions. The
responsibility now rests with the states to determine to whnt extent
branch banking shall be allowed to develop throughout the nation.
In the case of our own state, we must recognize that changed
economic conditions have greatly reduced the legitimate demand
for commercial bank credit by local merchants and industries in
rural communities and small cities. This condition has forced
institutions to seek investments in unfamiliar fields with the hope
of realizing an income that will permit profitable operation. The
answer to this problem and to a large extent to the problem of
inadequate bank capital lies in the demiopqwent of a sensible form
of branch banking. Elsewhere in this report, the writer therefore
renews his recommendation for the enactment of a law which will
authorize branch banking in this state.

Page 9 (Recommendations for amending the Banking Law)
1. Branch Banking
In the opinion of the writer, as recommended last year, the law
should be amended to permit banks and trust companies to establish branch offices anywhere in the counties in which their principal
offices are located and in adjoining counties; and to permit banks
and trust companies having capital and surplus funds of
$25,000,000 or more to establish branch offices in any city or village in the State; prov4ed, however, that no such branch offices
should be authorized to7established in cities or villages already
served by banking facilities, except through the process of assuming the business and relationships of existing institutions or institutions in liquidation. In all cases the opening of branch offices
should be permitted only upon the approval of the Superintendent
and the Banking Board.

14. Branch Offices for Savings Banks
Savings banks, with the approval of the Superintendent and the
Banking Board, should be permitted to maintain deposit and withdrawal stations within county limits; and have the privilege of
establishing branches in the county in which their principal offices

Eq-e located, and adJoining counties if and when similar power is
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:iven to baftks and trust colu anie
Federal Reserve Bank of St. Louis

2Annual report on Banks of Deposit & Discount,etc. - N.Y. 1933

Pages 14-15

Continuing its policy of encouraging consolidations of savings
banks, the department has approved three mergers during the past
year, making a total of fourteen for the past four years. We are
convinced that this policy should be furthered at every opportunity, with the ultimate purpose of reducing the number of savings banks to the point where each of the morlpopulous sections
of the State will be served by a few well-managed institutions.
Fewer savings banks will undoubtedly result in better management
and should insure more adequate earnings for those which remain.
Moreover, by eliminating unprofitable units, the entire systeo will
be strengthened and the cost of providing savings bank service
to the public will be reduced.

Page 27
BRANCH BANKING PROBLEMS
The Federal Banking Act of 1933 contains numerous provisions
regarding the possible extension of branch banking throughout the
various states. Inasmuch as the Federal statutes are applicable
only in the case of affirmative legislation by State authorities, the
Banking Board has made no definite decision regarding necessities in this State. But the Board has been concerned lest Federal
legislation be employed at some future time in such a way as to
exaggerate some of the evils variously experienced in other states
proceeding from failure to regulate closely the extension of this
type of banking. It has been recognized in particular that no
competition between state and national authorities should be
encouraged which might lead to the chartering of uneconomic
units. In line with this thought the Board, at its meeting of
March 23, approved a resolution containing the following:
11j(
/v ///

"RESOLVED, That this Board memorialize Congress to incorporate
in any new legislation with respect to branch banking adequate
safeguards against this evil (over-establishment of branches) and
further
"RESOLVED, That it is the sense of the Board that such legislation should provide that no national bank or branch thereof shall
be established in any community served by a state bank or trust
company without the approval of state authorities, if and provided
the state will provide by law that no state bank or trust company
or branch thereof shall be established in any community served by
a nationgfibank without the approval of the Federal authorities
as well as7the proper state authorities."


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3-

Annual report on Banks of Deposit & Discount, etc.- N.Y. 1933

Page 41 (Banking Board Resolutions)

25.
RESOLVED, That the provisions of subdivision 2 of section 245 or
any other sections of the Banking Law shall not be deemed to prohibit, and savings banks are hereby authorized in the discretion
of the Superintendent of Banks to maintain offices anywhere in
the State of New York for the limited purpose of facilitating the
supervision and conservation of real estate assets which they hold
or in which they are interested as investors.
t//
Adopted May 11, 1933.

Page 77 (Proposals for Amendment to the Banking La% which Failed of
Enactment)

Senate Int. 74
Senate Print 74
Proposed to amend Section 245 of the Banking Law to permit
savings banks to establish deposit and withdrawal stations Aithin
county limits.


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•
SOURCE:

THE TARHEEL BANKER - N.C. BANKERS ASSOCIATION PROCEEDINGS
October 1953

Report of the Secretary - Paul P. trown -

LEGISLATION

Another bill (H.B. 1317) provides that banks organized under the
Aycock bill with a capital stock of t1,000,000 or more may operate
as many branches in the state as the Commissioner of banks may
permit without requiring separate capital for each branch, provided
the parent institution maintains its capital stock and surplus in the
ratio of one to ten of its deposits.
Another bill (H.B. 1642) intended to place banking facilities in
certain sections, at present without banks, was introduced as a local
measure applying only to Guilford County and to Spring Hope in Nash
County. This bill was passed as a local measure after similar bills
of state-wide application had been reported unfavorably. The first
depository under this bill has been established in Greensboro and is
now in operation.


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SOURCE:

TU TARHEEL BANKER - N.C. Bankers Association Proceedings
October 1935

YOUR CUSTOMERS AND YOUR BANK - by Dr. Harold Stonier, National
Educational Director A.I.B.
PRROS 56-57
*** * * ** * *

But people do not sense the stability of American banking. They
see only its record of failure. They do not realise that failure
in America is a corollary to our speed. We have had k,000 business
failure a month in America for the past ten years, and yet we have
over 2,000,000 solvent concerns. This is a big country. As Woodrow
Wilson once said, "No one mind can comprehend the United States of
Americo." When people say, "Well, look at the British eyatea, that
is what we should have", they do not realise that we had the British
system of banking in this country for forty years.
We had it by law. We killed it by law. We didn't want it. At
one time we had branches of one bank ranting from New Tork to New
Orleans. We had a strong centralised control in the money center of
the country. That bank exercised supervision indirectly over every
issuance of every other bank in the United States. Yet, we did away
with it. We didn't want the British banking system. Why? I think
there was a good reason for it. I think that Am:erica would not have L,/
developed as it has developed west of Pittsburgh or south of Washington,
D.C., if we had continued with the British banking listem in the
United Staten.
We wanted quick, rapid, accelerated development of the natural
resources of this country, and I believe we would not have secured it
had we not evolved the banking system under via Anerica has been
operating. Don't let people tell you that the American banking
system hes not improved. In 1860 we had sixteen hundred different
kinds of money in the United States. We had the most elaborate,
intricate, and at the same time probably the weakest financial system
we have ever hed. Since then we have evolved a banking system which
can still be improved, but improved not so much by law until the
custoa and economic objectives of our people are changed.
We Americans are gamblers. The British gamble only on horae racee.
We gemble in the stock market, the real estate market, the wheat
market, the cotton market. We gamble in a way that affects the
economic cycle. The average Britisher does not. We want a flexible,
accessible banking system. The Inglishman wants his banking system
to be inflexible, conservative. The British system never would have
worked in America.
After all, if we have any critioisa of the banking system of America,


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The Tarheel Banker - Oct. 1933

Dr, Harold Stonier
?twee 6B-37 (contd.)
it is the same criticism that we can direct against America herself.
If we are ashamed of our banking system, *e have the same right to
be :shamed of our country. We have the largest number of banks over
100 years of age of any country in the world. We hcxe the largest number
of banks over 50 years of age of 6ny countr, in the world--banks which
have gone through things, which are seasoned institutione. We have
thousands of others just as liquid, just hki stable as they .3re, which
have been serving the American public well for sharter pekiods of tine.


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Address by L. A. Andrew.
State Bank Commissioner of Iowa,
37th Annual Convention, Indiana Bankers Asso., June 1935
(The Hoosier Banker, July 1933)

"Let us consider for a few minutes the statement repeatedly made
that the unit country bank has been a failure. It is conceded that a
large number of small unit banks thruughout the counLry have been
obliged to close, because as we have said, their customers could not
pay their obligations on account of a world-wide depression. Let us
look at the official figures for 1931. Total banks closed in that
year were 2,316. Banks under one million dollars in resources total
1,890, and banks of over one million dollars in resources number 426.
These banks had total deposits of .1,814,000,000.00. However, banks
under a million dollars in resources have had only t396,237,000.°0 of
deposits, while banks over one million dollars had $1,417,798,000.00.
In 1032 the record was practically the same. Banks with deposits over
a million dollars each accounted for 77 per cent. of the total deposit liability. In 1930 the record was even worse, as nearly half
the deposits in closed banks for that year were found in tto organizations, one a branch bank in New York and the other a group in Kentucky.
In the face of these official records we have been continually told
that banks with less than $50,000.00 capital and in towns of 10,000
and less were really the cause of the depression and had caused all
the bank trouble. This has been repeated so many tiaes that a great
many neople believe it. The offidal figures show this propaganda to
be absolutely untrue.
"It is also said that we must have branch banking in order to
provide safety. The official records for the pist two years show
seventeen banks with 5C7 branches have closed with $1,612,188,000.00
in deposits. If that is large branch hankinE safety, the record is
certainly decidedly worse than unit banking. The official records
for Federal Reserve member and non-member banks is eoually interesting.
In 1932, for 1,125 non-member banks and 331 member banks, nearly the
same proportion is shown, the deposits of the member banks were over
one-half of the deposits of non-member banks, the figures being
$269,000,000.00 for member banks and $446,000,000.00 for non-member
banks."


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****** **

"The Future of American Banking" - Address by A. A. Berle, Jr.,
Professor of Cornoration Finance at Columbia University
40th Annual Convention, New York State Bankers Asso., June 1933

* * Opposition to chain banking is still so great that we shall not have
it. Indeed I question whether, at the moment, there is any group in the
country able to assume the responsibilities that go with national chain banking.
We have, therefore, the great refuge that has been supplied in England, Canada
and Australia left on one side. Vwe have to travel some other course.
Hence it becomes necessary to think still more deeply to see what we really
want.
The first thing we want, I think, is to arrive at a situation in which
every unit is financially as strong as every other unit--to arrive at a point
where there never is any sense in a run on the X Bank so that the money may
then be deposited at the Y Bank, because so far as safety is concerned, the X
Bank and the Y Bank are equally safe.
Next, we want in aubstance a cessation of comnetitive banking either in
connection with deposits or in connection with credit. Competitive credit you
know all about; also competitive deposits. We all do compete. We have to.
It is our job. But is not good banking, it is not sound economics, it is not
common sense.
Further, and here if heterodox I am unrepentant, we want a cessation of the
condition which permits the control of banks to be thrown around from hand to
hand with entire irresponsibility. You will be perfectly familiar with that
feeling when some day you discover that the "control" of your bank, the controlling stockholders, are negotiating for the sale of a dominant stock interest to a chain company or a holding company whose policies may be quite
different. You know exactly what that means to you, to the credit of the bank,
to.the community. Or maybe you don't know exactly, but you have every reason
to wonder. I say this with entire knowledge of the fact that many of the great
holding companies are managing their banks extremely well, have even contributed, in some instances, a great deal of strength. But whole states could
bring damning testimony to the contrary; ask any one in the Tennessee Valley.
You are perfectly familiar with what it means if a bank which has remained
in responsible hands for years is left to the hazards of the market because
one or two men die, their heirs are compelled to sell, and some manipulator,
who has contrived to get control of an insurance company or a couple of holding
companies, uses their funds to acauire control of the bank to further some
other activity. I have seen one of New York's oldest and finest banks pass
out by that route. It is not a healthy situation. We have met it to some
extent by an expedient which may have been better, but which has no great
argument to be made for it: that of hasty absorption of banks by other banks;
hence, the shotgun mergers with which you are familiar, and the desperate way
in which certain interests, when the control of their bank threatened to go
to one set of hands, fled to other and stronger hands.


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•

Address of Willis H. Sargent, Chairman,
Committee on Banks of the Assembly of New York State
40th Annual Convention, New York State Bankers Asso., June 1933
**** ****

Gradually, however, the public will appreciate that for the most part
the bankers of this state have shown fortitude, courage, and intelligence,
and if there have been any serious mistakes--as I am going to speak to you
in a moment--they haven't come, in my opinion, from the small, independent
bankers. The trouble has come from other sources, partly, inevitably,
because of the economic situation in which v‘e find ourselves, and partly
because of what some of the big banks have done to the smaller banks, and
I will touch upon that in a minute when I talk about branch banking.
********

Today we are permitted to have in this state, as you know, a chain
of banks such as is represented by the Marine Midland. Now the difficulty
of that situation from their viewpoint is that each institution is a unit,
and while through the holding of stock in those units there is a power and
a responsibility granted which can permit the transfer of funds from one
bank to another to meet seasonal demands, and while it gives a greater
nobility of resources, it does not give, by any means, the same degree of
mobility and strategic position which there would be if all these institutions were branches of one great big institution.
I presume, too, that their argument is entirely sound, that, if you
have branch banking, as you have in Canada, for example, there cannot be
a *great profit made by the few and failure by others. So it tends to
become what we might call a leveling process. It does the same thing in
the banking field that the Industrial Recovery Bill does so far as business is concerned--it regiments to a certain extent the banks.
It would mean, I presume, that there would be less failures and
certainly there would be fewer banks. It is a kind of bill which all institutions, which have developed to a point where they no longer are
interested in private initiative which comes from individual effort, have
adopted. It is the kind of system which comes when a country is no lorwer
young, but has reached middle age. And the question comes before us in a
two-fold manner: Have we, we ask ourselves, reached a point where we are
in middle age? I am inclined to think that America is reaching now the
end of her youth and the beginning of her middle age, and middle age means
the tine when you must begin to conserve what you have. You can no longer
recklessly go on living without any regard for the future just because
youth is there and will build you up again.
To-day, America, in probably both a banking and an industrial sense,
has reached the point where she has to begin seriously to conserve, where
she has to make some sacrifice of individual effort for security and
stability. In other words, security is to be stressed and risk is to be
lessened. Therefore I come to that conclusion somewhat reluctantly, but
having come to it, I say if branch banking comes and I personally believe
that it soon will come, we arrive at the second question--in what form
should it come?

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_ 9

•

Now the three proposals, in a nutshell, which we have had before us
for some years and which came to a head this year, are, first, that there
should be branch banking on a county-wide or adjacent county basis. For
example, Erie wants to have not alone branch banking for Erie, but for
Niagara County which is right next door and is intimately connected with
Erie County in banking matters.
Then there is the other extreme which is state-wide branch banking.
under that suggestion, if we permitted branches anywhere, a New
is,
That
could come up to Erie and take over institutions. It
institution
York
other place in the state and take over institutions.
any
to
could come
The third proposition is what might be called regional branch banking,
that is, branch banking where you divide the state into certain natural,
geoFfraphically defined trade areas, and you thereby allow branch banking
for those particular areas within themselves. Now my mind is entirely
open on this subject, but I am inclined to think that probably that has
the best chance of any of being adopted as a permanent policy.
Of course, the smallest step would be county-wide branch banking,
but if you do that, you tend to impede to a certain extent a natural
development which might come about if you had regional or trade area
branch banking. All of these plans provide, naturally, for the consent
of the Banking Department before a branch can be obtained, and that, of
course, must necessarily be a provision of any bill.

Third, no way has been worked out except through the enforcement of
the Department, whereby you can protect those small banks which are going
to be in the same community with those that are taken by the big banks.
In other words, we know that the competition, which can be given by a
well run branch of a large institution with its far greater resources to
meet seasonal demands, with better management, if you please, is going to
be hard for the small, limited resourced bank to meet, and there ought to
be something worked out whereby these other banks will not be ruined in
their particular communities.


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•
SOURCE:

THE CALIFORNIA BANKER—JUNE 1933

CAUSES OF THE RECENT BANKING CRISIS AND §UGGESTIONS FOR THEIR AVOILANCE
IN THE FUTURE--by Alden Andersoni'Pres., Capital Nat. Bank, Sacramento

Page 259
******
Build Now for the Future
I do not think we can do better than to pattern after the banking
system and practices of our Canadian neighbors. Their conditions are
very similar to oullown, only not so large. They have proved their
worth and stability in the fire of experience and have continued their
dividends and added to their surpluses. Their banking practices are
logically and economically sound and their methods and ways we should
have heretofore adopted without having had to have them show us the
example. Admitting that our banks that are now open are sound and
capably managed, we still must see that it will not be possible for a
condition to develop in the future that could produce a repetition of
what has happened in the last few years. If we do not do it, because
bank services are just as necessary as post-office services, someone
else will step in and do it. You know what is going on in Washington V
today. * * *


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•

Report of the Committee on State Legislation
40th Annual Convention, New York State Bankers Asso., June 1933.
(Chester R. Dewey, First Citizens Bank & Trust Co., Utica, N.Y.)

***********

In his annual report Mr. Joseph A. Broderick, State Superintendent of
Banks, recommended two types of branch banking--first, that a bank be
permitted to establish branches in its ()van and in adjoining counties by
complying with the usual capital requirements, and second, that any bank
or trust company having $25,000,000 capital and surplus be permitted to
establish branches anywhere within the State. This recommendation was incorporated in a bill introduced by Senator McCall, Chairman of the Senate
Committee on Banks. Mr. Robinson of the Assembly Committee on Banks
introduced a bill in substantially the same form sponsored by him in previous years, providing for county-wide branch banking. Mr. Moffatt, of
the Assembly Committee on Banks, introduced a bill providing for branch
banking within any one of the eight Banking Distrj_cts into which the State
was to be divided.
After full consideration of these various proposals your Committee
decided not to approve tny of these bills, but recommended the adoption of
a bill, as outlined in the report submitted January 20, providing-1. That no such branch office may be established except through
the process of taking over sode existing institution or ..an
tV
-a—that
institution that :nay hereaftei-& closed, or excel
branches may be opened in towns or localities not presently
served by existing banking institutions.
2. That no such branch be established except with the consent
of the Superintendent of Banks and the Banking Board.
3. That the capital of every bank or trust company having
branches shall at no time be less than the aggregate
minimum capital required by law for the establishment of an
equal aumber of trust companies situated in the various
places where such bank or trust company and its branches
are situated.
* ** * *******

* * * * * * Proponents and opponents of branch banking appeared at
the hearing before the Assembly Committee on Banks and presented their
respective arguments. The Committee decided not to report any of the
bills, feeling that the entire question should receive further study in
the light of probable enactment of the Glass Bill at Washington.


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*** *** * *** *


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121. CAGI2,
1-10R.1373T \i/
DR7173MBIS
1.1t. SOLOLION v
BLAT.'21:721V

FILE:

Study /

•

"New State Banking Laws" - by 0. W. Lundsten
Proceedings of 44th Annual Convention of
Minnesota Bankers Asso. - June 1955
(In: Commercial West, June 24, 1955)

********

Other bills defeated are as follows:
A bill creating a state owned bank, a measure eliminating life
sentence for bank robbers, various bills attempting to permit branch
banking in this state, either state-wide or of a limited character.


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* * ******

Unit or Independent Banking Committee of Minn. B. A.
Proceedings of 44th Annual Convention of
Minnesota Bankers Asso. - June 1933
(In: Commercial West, June 24, 1933)

**********

In view of the fact that branch bank legislation was being considered both by our state legislature and Federal government, your
committee felt it its duty to send out a questionnaire to find out
how the different bankers of the state stood on this question. A
questionnaire was sent to every banker of the state and the largest
portion of these questionnaires were returned. Upon carefully
checking the returns we found that an overwhelming majority of the
unit and independent banks were opposed to branch banking in any
form. Inasmuch as this committee was to work in the interest of
the unit banks we felt it our duty to use our influence to oppose
branch bank legislation. Consequently, telegrams were sent to the
senators and representatives in Congress in opposition to the Glass
bill and which bill lost in the House of Representatives. Members
of your committee also appeared at two hearings in St. Paul, one
being to favor the bill memorializing Congress to oppose branch
banking in any state that did not permit branch banking under its
own laws. The other was a committee hearing of the bill introduced
in our state legislature for state-wide branch banking. This bill
also was defeated.


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•

"The Branch Banking Problem as Affected
by the Glass Bill - The Problem in New York State"
Address by Dr. Benjamin M. Anderson, Jr.,
Economist of The Chase National Bank of N. Y.
40th Annual Convention, New York State Bankers Asso., June 1935

(

The Glass Bill, with its derosit guaranty provisions, has undoubtedly
necessitated a great modification of views with respect to the desirability
and even the necessity of e very widespread extension of branch banking in
the United States. It can be urged with great force that, if the banks in
tl'e financial centers are to be responsible for the deposits of banks all
over the country, they should also be responsible for management and
policies, and this consideration would involve a very widespread application
of branch banking indeed. On the other hand, the desirability of preserving
local financial independence in a country as great as ours is very real.
Yoreover, itls certain that a sudden, sweeping transformation of our system
would involve a great many difficulties and undesirable consequences.
**********

I do not think that one uniform type of legislation will do for all
the States. In some States, it is probably desirable that there should be
immediate provision for Statewide branch banking. It is possible that
there are some States, where banking capital is very scarce, which might
even be well advised to consider the admission of branches from strong institutions from other States. What I have to say here, however, relates to
what is desirable in the State of New York.

V'
'

In New York State, Te have, of course, the immense financial resources
of New York City, and, outside New York City, we have a number of very
strong financial centers, particularly in the region stretching across the
State from Albany to Buffalo. What should we do in New York? I am of the
opinion that it would not be desirable, in the immediate future certainly,
to have the great banks of New York City engage in a competitive struggle
for the purchase of the large, well-managed banks of the large cities of
the State outside New York City. On the other hand, I think it very
desirable that the great banks of New York City and the great banks in
other important cities in New York should be empowered and encouraged to
reach out into smaller places, under the supervision of the State banking
authorities and the office of the Comptroller of the Currency, and to take
linder the protection of their adequate capital an important number of solvent but weaker banks in smaller places. This should be done under terms
and conditions approved by the Comptroller or the State Banking Department,
with due consideration for local interests, as well as for the interests
of the banks in the financial centers. I should not wish the legislation
to permit the establishment of new branches in competition with existing
institutions in the smaller places, as this would aggravate the difficulties
of the situation rather than help them, the only exception being that, if
a community has no bank at all, a branch of a bank in a great city might


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-2 te in New York prowell be placed there. Instead, therefore, of a statu
ng, I should think that the
viding for unqualified Statewide branch banki
We shoulLkermit_banks of
legislation might take the following form:
hes in any part of the State,
qpi.tain minimum capital to establish branc
ation, the maximum being set low
in cities of a certain maximum popul
York City banks for control of
-enough to prevent a competition of New
.
othei impoitant -fidancial centers in the State
t banks of a smaller, but still
I think it would be desirable to permi
branches, other banks within
as
over,
take
substantial, oapitalization to
counties. The very small bank in
their own county or within two adjoining
horse and buggy days, which has
very small communities, established in the
importance as a result of the
lost a great deal of its business and of its
lost much of its business to
coming of the automobile, which has already
if made a branch of a
the county seat banks, would be much better off
the community would be better
strong county seat bank. In not a few cases
county seat bank, its assets
off if its one small bank were absorbed by the
the office closed
and liabilities transferred to the county seat and
it might remain open one
entirely. And there are other cases still where
msking cash disburse,ents
or two days a week for receiving deposits and for
of its business transfor local convenience, with, however, the main body
ferred to the main office in the county seat.
than as definite proI present these ideas as suggestions, rather
be considered anew in
posals. The whole subject of branch banking must
vies of the new legislation at Washington.


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"The Future of American Banking" - Address by A. A. Berle, Jr.,
Profesaor of Corporation Finance at Columbia University
40th Annual Convention, ger York State Bankers Asso., June 1933

But if you will check back, you will remember that the aggregate of
the interests thus at ha%ard is the aggregate monetary supply of the
country and that the interest in it is fundamentally national. One can
only join the trained Europeans in wondering hor long this kind of
system can exist.

So I think that aur third desideratum has to be some method of
arranging that the control of banks shall be permanently lodged in
permanently responaible hands. We must oust the theory which we held
not so long ago and which is likely to occur again, that we can play
with control of banks as in older days control of railroads was played
with, with resulting disaster, as to-day the public utilities are being
played with, and as some of the great chains which are already in
difficulties were played with. It cannot go on, nor is any one going to
allow it to go on. got because there is anythine morally wrong with
private ownership, but because responsible ownership flickering into
irresponsible ownership and peculiarly into corporate ownership forms a
fundamentally unsafe base on which to build the monetary eupply of the
country.
I h3ve my own reeling as to how that ought to be done, but that is
so entirely personal with me that I almost hesitate to auggeat it. The
financial ownership in which this country has the greatest confidence is
probably thP mutualized ownership of the great eav'ngs banks and of the
great insurance companies. PurP mutualization of national and state banks
is perhaas not practicable, so that a change in that direction would have
to take some other form. But the result could be attained.
Control of bank stocka and the sale of bank stocks ought not to be
trusted to the hazards of the market, or the stock exchange, but ought
to be in the hands of the central authorities in each district, that is
to Say, in the hands of the Federal Reserve Banks of the district. There
are many ways in which that might be done. It might be done under complete ownership which would effect a virtual mutualization, or it uight
be done less drastically under methods which would provide a more elastic
form of the same thing. This, or soaething like it, is going to be
demanded. As
listen to my friends in the outlying parts of the country
who come in with their ideas of banking, it is very plain that they have
no desire to let the situation rest where it is now.


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•
George V. McLaughlin, President,
Brooklyn Trust Company, Brooklyn, N. Y.
40th Annual Convention, New York State Bankers Asso., June 1933.

********

* * * * * * However, I am not, at the present time, in favor of
state—wide branch banking. I am, however, in favor of an extension of
the branch banking system and am inclined—to —believe—that It should be
confined first tu—trade areas or to the county of the main offiCi—Ehd
th-e--twunties. I am satisfied that with the help of—the
Siaterintendent of Banks and the data that he has in his possession, we
could work out an ideal branch system for this state. I am aure, too,
that the present Superintendent of Banks, who gave me my first training
not alone in banking but in bank examining, can, in his very diplomatic
way, convince the banks outside of the Federal Reserve System that they
should join it. It is my opinion that all banks should be Federal Reserve
members.


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* * * * -31-* * *

•

SOURCE:

THE MISSISSIPPI BANKER—JUNE 1955

PREEMIENT*6 ANNUAL ALM:ZS, Before tne aississi
ppi Bankers CouveMtiom
May a, 1953, at Jackson, MiSsissippi, G. U.
Pres.
Pages .5.4

Reformation ot the banking business is an
important part in
tnis program. There are inportAat and responsi
ble authorities who
advocate unificetion of our banking, syste41,
ane stAe wice branch
banking. bone of these authorities charge thut
the fuel bAnkine
system is en importlmt contributing fLetor
to the deprustAon. I
tic, not believe such a chr.re-: 01.43
be sustained by the facts. The
experirtnces of the pest fey; yeara havc reve
aled weaknesses in both
systems. The 8tate Banking Systems of this
country have justified
their existence, and the systew should be
protected ae it constitutes
4n point of rk,sources by fur the major pert of
the bankinc cevitel
of thc Abtion. Iturcover, unification
can be accomplished thiough
membership in the Yederal Reserve 6y6tero with
out dostroiag tile dual
systen. I Lila firmly convinced that unificat
ion of our bankiat
resources is nut only desixable Lut roAktcitua
r4 tO 1.11,0 future progx%-ss
Lnd securit.) af the banking business, and I
sincerely believe this
Convention should memoralise the Congress
to give ample protection
toisud preserve tile IntegritT of state banks
in say bsnkini legislation
tht.t it may consider for the. unification of
the nations banking resources.
I advocate branch biaakinc limitec, to trd
e arecs between fiftz, to one
hundred milcs as a meaLna of making safe
and adequate banking facilities
availaule to communities unable to profitab
ly support an independent
unit bank. If such
system hhd been authorized in Aialdeap
pi four
years aEo, suet, of our banking difficulties
since 1.5i.9 evuld have been
avoided. I trust the Bank Study COMWiLia
011 authorised by the last
Legislature of Mississippi will provide
in it revision of our Walking
laws authority to 'same in branch
banking restricted to definite
trade areas.


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•
O. Howard Wolfe, Pres., Pa. B. A.
Speech - Annual Convention, Pa. B. A., May 1933.
Source: The Financial Age, May 1933.

***********

State-wide Branch Bankini,UnnecessaTy
In order that you may not misunderstand what I am trying to say, let me
make it clear that I am by no means persuaded that even so radical a departure
frow our present banking methods in Pennsylvania as State-wide branch banking
is either desirable or necessary; in fact, I am definitely against such a
program. We have often had pointed out to us that during these trying years
no bank in Canada has failed, and the inference seems to be that this is
because our Northern neighbors operate under a branch banking system. In my
judgment the strength of the Canadian banking system lies in other factors
than the country-wide branch banking privilege. For example, Canadian banks
can make no real estate loans whatever, and we might remind ourselves at this
point that it was not until 1913 that national banks in this country were
permitted to make such loans. Canadian banks may not make loans against bank
stock, either their own or the shares of another bank in Canada. Canadian
banks enjoy the advantages of a system of preference claims, which is so
widely drawn as to its provisions that it practically amounts to making banks
preferred creditors in case of bankruptcy on the part of borrorers. No bank
in Canada may be organi7ed with less capital than $500,000, and here incidentally
is the reason why branch banking is necessary in that country. Finally, one
might refer to the fact that in Canada the matter of changes in legislation is
in the hands of the Canadian Bankers Association, who ordinarily are able to
agree on what is needed, and changes, if any are deemed necessary, are made
regularly every ten years.


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** * * * * * ****

Editorial Comment - The garch of Events
Journal of the Canadian Bunkers' Asso., April 19Z6

** * * * * *

**

Zap United 5Wtee Battking Crisie
X *

Preeident Roosevelt himself hat, already* made clear that Ae will call
for fundseaentel cuunges in the United States banking system. It has been
apparent for many years that there exieted definite etructurel weaknesses •
ehich have resulted in inordinate numbers of bunk failures vineuever the
country *as subjected to economic pressure. the Federel Reserve System
itself constituted a great step forward but taet alone could not remedy
the weeknesseL$ of national bank legislation and particu/arly of the State
banking syeteme chartered under the most varied lats. Colonel Ayres of the
Cleveland Trust Company has pointed out three important weaknesses in the
United States baneing systems In the first piece, loans on real estate have
proved the undoing of very many banks, and suet loans ought to be curbed,
if not prohibited, as they are in eanadian baneing law. In Lae second
place, tae twelve Federal Reserve banks loosely joined together by'a Federal
Reserve Board, have not proved capable of presenting a united front to the
forces of panic and depression. Something 'ill probly 4,ve to be done to
give more unity to the Feaeral Reserve Bystem, making eech Federal Reeerve
Bank sow:thing close to a brancn of a single central benk. In the third place,
there is need for sore unity in the entire bunking structure. Colonel Ayres
does not go so far as to suggest specifically branch banking, but there iv no
doubt taut tue United Stetes eill have to tuke LA lonc .-,tep
torard branch
banking if it is LID strengthen its badly veakened systen. One muat remember,
of course, that to convert a united bunking syem into a branch bunking
system in a short space of tine is an exceedingly difficult process ana one
fraught with the oTatest danger; mere Kmendment of the banking lee, permitting
widespread branch banking, rould probeoly =loom, an orgy of competitive
speculation in bank purchases waich would further weaken the system. Probably
a system of branch banking within each Federal Reserve district, lith authority
given to some public bogy to approve not oaly all bank azalgamatione, but also
the terns on which banks might be purceased and absorbed by others, 'ill be
I
Litocessery.


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* * * *

* *

* **

r•

SPriviary Steps for Banking Reform'
W. Lamont, of J. P. Morgan & Co.
Paper presented at the meeting of
the Academy of Political Beismoo„
Juuary, 193S.
Ofteseedisgo of the Academy of Political Science, Vol. XV)

* * * * * Today in the Federal Reserve System we have a thoroughlg
scientifie and sound foundation. But the System's scope is not yet breed
enough, and the ills which the oommonity has mirrored in the 3Jiet three
years show clearly enough how mmOb still remains to he remedied.

* * * * * Tot whnt aur average citisen very naturally fails to wiriort.
steed is why, if the Fe1eml Meer,* has such manifest virtnee, it is
unable to prevent the terrific crop of basking ftilures which the ovum*,
ham witnessed la the last decade—and especially in the last two year*.
* *** *
Figures of Bank Failures
im that ported (1M-1931) there have been total bemk failures
aggregatiag 9,1101, with deposits thus tied up er la part dissipated ef
04,278,000,000. Of this total only 1,800 banks were members of the
/Wesel Reserve ani almost four and a half times as many, namely 7,07
bulks, wore outside the *viten. In the years loso-195.1 ales* the bask
failures totaled 3,643, and here again the proportion of nowlmember to
smOber beaks was almost as four smd a half to ass. It ehould he added
that the most of theft, fiailures were of small tanks with extra*,
limited oarital. Therefore olio should not be mislecl
thee, filmes,
bad as they are into *Waft thflt more thee a small pereentage of the
oountres banking resemrees was elm. tied up in failure.
empervielon which the Federal Icocrve Banks are able
•* * * *
to exercise over usher banks is of oourse limited. But over memsmember
balks the Federal Reserve has mo control ihateoever. These mempomember
Ussike are without exception state institutions, subject to greatly verytag degrees and kinds of legislative requirements and of administrative
espervisiemo So that it is no wonder that objective students of ear
busking system are bewildered and declare it--despite the existemee of
the Federal leseree--to be no system at all.
••* *•It is a noteworthy fact that, in number, ninety per cent
of the beaks Whisk failed in the deem& of 1921-19Z0 were located in
rural semmmaities, subject to all this vicissitudes of crop failures, or
of the empansicm mad deflation of business *boonsi" without any of the
proteettea afforded tir a parent institution fortified with ample capital
and memaged 11, emperiemeed mem.


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p!he Question of Brandh-Banking
* *•*•*••
Almost all the failures early this year of small auborbes books around
Weep* sod almost all the resultant throats to the goeseel booking situ.,
time, weld have been avoided if it hod met boon for the ?act that the
Illinois statutes permit me trench-booking of any kind within the limits
ef the state, It W60 quite impomdbilesmider the law tor the large Mileage
basks te attempt le serve, through limeashes. the important sebarbs around
lbe eity. The lessees of smihasitnatissi most be glaringly obvious te
snoosssrul ohaisAanking
the 'hole esmatry. Despite the develeposat
in a few smattered isetesseso there is no present effective method 'under
the law by which stress institutioas in our looding finaneial centres sea
extend the benefit of their emple reserves, their experience and ordinarily
*area management to lbe weeker books in tho out4ing district..

itripweloe Different Sets ef Laws
Our chief liffleolty, thee, as must be seen, has clearly been, aot
leek of aors extended state amstrol, but rather failure of orgosisation
Tnti seordinatima. I hove alresit, spokes of the confusion reselling free
our varying Moral amd state tmoblog laws. is banking. mar seastry has
fortp-mine different sevarelgos. Ando as saor persons lenis *so pointed
onto a seselost state of osupstltieu exists belossa the Oompliroller of
the Carrels, al lashiugtes mod the forty-4044 Denkieg ilaporintonrients
states. Meek one of these fortponine officials is
ef our
desirous Jo
m* geM, lost1tutiens es peseible registered under his
is tbs.% beemoms et this emspetitiono
emosequerbee
!he
jurisdiction.
laxity creep. in.
The oonpetities as smog the vi,rious systole has net boss soh as
to make banking requirements sere waservNtive but to stoke then awe
liberal. A promotion not of hotter banking but of pourer bunking Imo
bona the inevitable result. This warm:titles hue met only foiled en.
preemies in liberalisation ef the respective legislative requirements
geversiag the various benkiag systoles, but it has also resulted, as I
say. to adetaistrolive laxitY La granting charters and in providing
adequate sopervisiaa of the ooaduet of banks,
Thousands of Walks Lack Proper itafestards
As te DOthOde of aortae our troubles, Ouldiniss see spend hundreds
dollars in see hearings and publish volumes of toetinews
of thousands
But it seed hew ne bop. of ever smaing to the rest ef the evil until
it realises that se bankisg opts' emus foassidea adequately when it
essersheods within it ea4 a limited portion of the bookie' oomsmaity.
sloAr per oust Jo somber of the country's basks are eutsile the
aftivai Mersa. Beeerve Wilsey amd this sixty per east comprises a


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Federal Reserve Bank of St. Louis

r
total in benkimaseesseess of over $12,000,000,000. Thew lesser lembing
institutions—whose segregate resources ::re nevertheless so eemmidersible-sr* unuhle or unwilling to con* tinier the rules of the Federal Swerve
System. Thus thew lash its restrictions and its safegmards6 And the
almest unbridled license Shish these small basks in sae Astern apparently
bave outside the Fedortl Users, System tempts tbem Freimently, (is the
sod sword has proved, to folly sad disaster*
The fact is that, despite the meloscholy MOW of eliminations thst
hove taken ;Assert the coustry has today far tee seer beaks* Our basking
emits should en the average be tar larger than they are today* The small,
ill-capitalised institutions 'bead be merged so as te gain the morsel
stability, diversity, economy emd sessgemeet of the larger oonceras*
One reason for the Teak:mess of tbe smell interior teak is that its
overhead expemses are proportionately liss bossy. The benk is tempted te
per tee high rates of interest im order te attract deposits* These little
looal tellbe have, because of tics rapid gemwOh ef business units, ef cosinsmisatiosa sad of motor treespeit* bees left in a baCkester *ere the
better lousiness passes them Iv* limes up-eoustry institutions have no
opportunity te diversify sod overage their risks* If geseral emaditions
affect their isvesteemts umfavor&b4, the same senditiems are likely to
Involve thea in swims looses from their lemallsed lemma, sod at the
sees time disastrous depeeit withdrawals. Memeaver, fir lie monY of
these 'elk and mosholtered. interior banks b:ve teem salvaged by Inezperiemeed persons desiring tbe satisfaction of beaming 'bankers*.
Tee Vital Change& teeeemary
I Ingest whet sem, others tome already pointed ant, namely, that
no thoreugh-going banking referee ean be brought about until tro vital
ohanges have been ansempliShed. The first is to bring sll the commends'
hanky of the comstry, small re 'ell Se large, unier the single tegis of
the Federal Deserve System* The seemed is to emtablidt seeable provisioes for regional trenebAosking. the seepaPhies1 limits fur each
segios to be earefully esslied set end revisited* ?ben se should have
semo!thing worth taIkieg abeet* Slosh retorms, beseght about gradually,
ought to begin te yield to the country some measure et bankinc
There are mamy Osseo of the basal% situation that of opuses
have met ettemptei to tomb mem* Ares even this brief review, besever.
It meet lie apparent thet the develepmemt of bunking in America has been
a podia pr040110 of evolution Aid' has by nemeses seedbed ite sed6
Seeh of the bedding arises to whidi I have allmded has Immght the oes,
aunty some ome Imesem, but este new diaastor ales revealed a fresh webmess to be remedied* rudest, beeking development ia this emantry has
bees a slow sad paisfv1 grafts 1110 Pilgries mores* mall have bees
mere arduous or beset with greater pitfalls*
The ?rust tbat is Sepeeed

Um Prevost System

The preposition to bring sll the comacreial honk* of Ue country
into thcs 'wawa" Reserve System has sameidmes been opposed ou the


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Federal Reserve Bank of St. Louis

"
4
4
0

-

-4:••••tE

111

d

t
W
4
p

06

t4

,

/f

... 4 allegation that the System had already proved itself to he allow Trust',
amd that its eathority ghoul& be curtailed rather thaw ectended• As to
mak eriticism it -my ho fair to point out that, if the System bed astually
proved itself to bo anything in the mature of a money trust, it ems eorm.
taialy a bomewolent sod eseperative awl for the record Shish / have ousted
shows that *visitors ia the beaks mid trurt companies that sere members
ef the System were smeeneusly benseited VI such membership; amd that
sithin the aystemo.eith Ito save cod asfegoarde.they sejspediamperetive
tammeity fres diftlaulty ea asopsred with lepositere in the beeklagusits
AAA had railed to table advantage of its stremgth.
lho object of basking legislatiee is not to give aimentages te, or
to impels* penalties upon, basks or beakers. it is to provide the psblie
Igo we mow and credit, and sato dspoeitaries of their fends* im the
modems world bank cheeks drama against bask deTosits eirsulatet as sew,
emd the gold rtrerves of Ike Podsral lemerre Banks or* the bass ups.
*IA feet not only the ?edema lessees wigs issued rir the Todesal le.
mom Monks, but the *vette of the mentor books sod of memomember blithe
as well, also the Cheeks that cirsulate against thee* de °sites Aftmr
the Civil war, state beak motes, which had had euth a deplorablo reamed
of repudiation, sere taxed out of calstemee sad uatismal bank notes sih.
stiteted is our currency system* ?he reform lee tesemplets, boom,* it
dealt say with ame side of the beues fenstisa„ the note-issuing pews?.
It iid not deal with the other side of the bunking Fiction, the power to
receive depeelts Shish circulate in the fere 0." cheeks end will*, as I
say, are supported upon the some gold bass held by the Federal leserve
Soaks. We muot some to regard a banking *tarter not ea s privilege ous.
rowed upon a 'hoses few, armrest an unseleeted many, in order that they
"say wake sow with other people's money; belt ss a public trust, sod im
that *onset sod ia that *ease only, as a meow trust% It is the plats
duty of the semmmaity to see to it that the interest of the AMONUMB
people in the safety of their deporlts, sled elf the viols sosiOry in the
saffisiemoy and seandmase of our bookies system, sheeld be pet before
the spesial interest or spy beak sr bomber, great or small%
The Olsen of the Federal Isseres lystem
The hope for
towards reel orderlimees and stability lies,
as it always dope In
matters, ta en aremeed asd intelligent public
spinier", and tu constant stutty imir the experts of methods to strengthen
the Morel Reserve apotes. No mem or intelligemes„ etude's* llos
eeesal werkinrs of this *stew, sea haw* foiled to be impressed siOk the
Immeasurable boseito *lib it has buseght to Amorists bolostsir
ess.
merge* It is hard. tee, to see koo ibo lammenssint scold over Moe
serried ea its war amd pest•ear fissmame sithopt tbo sow System. Without it, iaflatioe es en almost disesteems seals (witmess the ememples
or the Serepean sountrios) might well hewer been resorted to. To the
midst of the distress through Shish portions of the honking esmommit,
hews been passing in these last few years, tbe semotrostiv* soospAillo.
sem,. of our irederial %serve asaks may. have been semmihnt lest AIM See
Yet without the resource. mad 'he prudent, tarsightodtbasoutog of these
tostitsilsmo suer plight would ham loss inealculably worse them it hms
bees* All twelve ef them have bees like isles of safety, basioro
nidst of a violist storm%
verso is


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- 5of the Pederhl Reserve System
Lot es !visit out see reemst development
110 te February of lgrf,
ance.
e
of
import
immens
proved
that hes already
n
powers tb4t it seeded to
ism,
certai
the
ludo"
d,
loehe
the Spites still
c
and
cable* Sea peers
elasti
mere
practi
s
smile
reader it. SWOP of GP
eed. ?hese. the
peoese
have
ies
aligre
*vestr
ether
ef
hooks
the central
in
19!P,
early
seeselbet
law,
mll
pealed
4teeg
elase
the
of
provisions
14 leder those
sd
the
ve
!scar
1101441
l
l000r
poseid
Federa
gore
rovers
eimilsr
the System now hae the eathority to buttroso the credit situation 'here
there is the motes* see& Already these extended peelers have asabiell
System te lighten immeasurably the burdens of the communitrs
Aided by the previsiems of this Act the ?eland leeerwe Smoke bees
nor the last six seethe been pureeing with wisdom emd viper a se-eallot
opsa narket policy, *Ma hes already proved itself te be a pest noses,
le arreetlog the hiledleme deflation of credit and pri000 thish was beesnies se disestreee6


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* *** * * * * *

10The Straeture of the Banking *Mime,
I* Pierre Jay, Chairmen, Fiduciary Trust Oe• of N. T.
Paper promoted at the mooting of
the Academy of Political Baiones4
Januery, 1935.
(Proceedings of tho Academy of Political Science, Vol. IV)
** ** * * **

Over ovary individual bank steads a smpervisis$ national or state,
to madosvor to eaters, the law and sorriest shusmo.
amok of the entire structure steed* the Federal Seeerve System, a
eeeperative organisation of the amber basket te provide currency and a
seams of rediscounting paper, sod authorised to exorcise oertain rights
et supervision over its ambers.
* * * * *•
•
•

Calm* of Tabu*. 'tom the host imformatiom obtainable concerning
Oho bank failures of this oleinsorear pe1104, two immoral observations
new be me -les
First, the vast majority of them were due to aismonagomemt reflected principally in over-lending, in exploitation by offioers and direeters and in same disregard of legal restrictions. The present amsemis dspoossism, followiag closely am thA of 1920-11, has, of course,
hod on importmat in"lsonso, and the great reduction of all values has
sendirod basktng difficult fee every bank. But the supportive emit
homkimg ossno4 point to the depression as em alibi, sines thousands of
sepahlr assaged hmoks im all parts of the SSOntry hsve 0600d its strain
and remained etromg amd selii. Nor doss depreciation in hood valve*
appear to have boon am imperUnt element is actual failures except there
inferior securities had beem purshasod for their high yield, vekrtieularly
by banks paying high interest rates for savings Upsets.
Ths second observation is that about 80 per font of the failures
were thoea of very small local honks. having loans and investments of
loos than $500,000 sash. Banks so small as this are relatively ex,
peasive to operate, their profits ars negligible. They cannot pay for
snporiemsed mousgsment, even if it vire leeally available* Moreover,
ostcmobiles, psi sles_da and the gmnarel tendency towards business 00*castration are adding to their diffisaltios by taking banking business
to larger please,
If mismanagement was the primaipal sense of failures, it seems fair
that the failure of honk ompervisisa to serroot it should also be assigned eome soommdary share in the responsibility for what has oosnrred.
On the other heed, I believe, though of course it amsmot be proved, that
the supervisory organisatiess. both national and state, have never hoes
so strong as in the p ,st dosed*, lmt in assigntag a Share of the


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'Tr

responsibility te supervision, it mist be borme ia mind that
neither
booking lass nor beib supervision sea ever perform the positive
function
et assuring seamd bank ammagement. Sisk supervisors do not manage
basks
sad, at best, they ems slay perform the negative function of
criticis
ing,
after the feet, the looms and investments which bank masagere
have medal
sad only by extreme measures, *ihich the laws *oldie permit, oan
they
make their criticism* effective if balk officers and director
s are met
eeeperstive, in fairness to bank supervision as an effective
element la
the banking structure, it should also be observed that uoder our
eesailed 'dual system', partly natiamml basks and portly state hooka,
has been a growing tendency towards sempetitivo relaxation of legal there
re.
strictions on basking; and towards ssupetitive granting of dberters,
often rithout ame regard to the important* of applicants amd to existing
basking facilities; thereby creating over-banked places amd umassmd
bamking competition. In addition, the ease with wilt* a motional
bomb.
if criticised toe severely, sam convert itself into state beak.
er
vino versa—a prOOSOS 'hi& every vaperdiserattsrally likes to easist...
has farther teeded lowerds lees strist sepervisioa.
Sore broadly, however, resent bankiag failures have emphasised toss
inherent verisesses of the unit local beak. 'First, that it is tos ewe
Warted tir limax psepperity or adversity, particularly in please 'hers
there is a simile interest, agricultural or industrial. Adequate
diversification ef portfolio is lacking; there are too many eigv In am*
basket. Sewed, that the smaller the place, the less bask officere ere
likely to apply the perspeetive of general credit °matt:dams to their
local credit problems or to realiTe the necessity of a sibatantial
slamest of liquidity to tbe portfolios. That sago city beak effieers
bow else been equally short-sighted does not alter the owe.

jimods. The various remedies which have been smassted for this
sitmation easter about two proposals? (1) greater unifisation; (2)
videspread brew* basking.
(1) clyeaier ttailissam. The most authoritative proposal for
greater unificatles in the tanking structure io that ihisk the rederal
Reserve %lard unamimously mods to the banking sommittees af Csagress
on March 29„ 1952, as follows *It shaild he reseemised that effective
supervisiss of booking Ls this neuntrflies bees seriously' hampered by
the competition between member smd usemeember beaks sod that the
establishment of a unified system of besikiag soder Illittella sepervisiem
is essamtial to fundamental banking reform.
,
There vin be no doubt that the proposal ef the Federal Rsesrve
leard, if it could be brought about, you'd be as impenitent step in
ad'emses There are today about 6,086 natiesol books sled 11,520 state
banks (other than mated savings beaks). All state beaks with sof.
fieient capital have bed the optima far many years of either eemrerting
into national banks or of joining the Padirel Deserve Mystaa. /t is
obvious, therefore, that unification of a banking structure whom,
roots go far back into eur history could be bremaht about only by
fore.. to have already' imiss smarted soh faresw-first when the
National Desk Act vas passed; and seised, Whoa the Pederal Deserve
System wee created. la* aesemplished its immediate objective, but
neither bas prevented bank failures,

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- 5It should also be observed thqt unification within the framework
of the Natiomal Bank Act would not react the groat mess of small state,
banks akish new have insufficient cajtal to qualify as motional balks,
Their number mould be farther increased if the mininso capital ef
national basks were increased from #11,000 to $110.000 as the banking
bill now before Cameross propeoes. Yet these very small state beaks*
as already indirseted. ars the score* of soot of our bank failures.,
Clearly, there would be advantages is unifieetiaa wader national
supervision. It would ressve present compAitias between "sties."' sad
State authorities ravening in lowered legal reatrictioas, loss strict
amporvisioa and lover stasdsrds in greeting awe dbartors. Nevertheless
it appears to ae not to go really to the vest of tho trambla. Tor, as
already indicated, supervision is largely sagative sad exerted after the
fact. !Yen the prorosal of the bashlme bill to permit the Federal 60..
serve Board to remove offioors said directors of banks which smog* Im
unsafe or unsound practices dose not provide safe amd send Wiser* or
directors to take their plane, Ihst is really nooded is somothimg
posittves mssely better bask ummagmsent. The small banks, an 0416'winced, fun *either find nor stMard better management except through
a shame. in tbe bankinp, itructaile skiA will pmrmit tbon to be operated
as brandhes of a larger beih•
(P) Widespread Branch B4odsg. This leads directly to the aecond
proposed moor for the recent flood of bank failures, namely widespread brans* banking. This in itself would doubtless bring about,
not by force but by evolution, an important massers of unification. A
large bank with brenshos could herdly afford not to bo a member of the
Federal Reserve Mystenk Moreover, the umifioatiou mould probably occur
largely within the framework e the national tanking welt's, since
only the National Bask Aet is capable of permitting brandies freely to
arose state lines uslass, indeed, such Federal branch legislation
Should stimulate same of the states to offer reciprocal trona bank
esortasiaa mommg themselves.
AgriallhalbaggiLlokigas (1) /t would offer to
smell communitiesos well as largo mos, the lankily; services of institutioss sefieiently large to boo able to hire sompotamt and smperionced memseammst,
(4 lb. portfolio.' Is whildh the deposits of small asommmities would
los Invested would be diversified luotoad of naisly local; and umder any
oeussmobly ussourgrative nomaismost lbw Mould also have a snbstantial
olasest of liquidity.
(I) In addition to present outside) aparvision, the bresdhoo usuld
smbjeet to santimmous internal supervision. This would be really
entboritattre imperwisios because it would hwe power instantly to change
losal mssaemmast wherever it was provise ussatisfsotory. load,offiee
control ever the larger loans should tend to cheek over-imitasoloso of
local credit. whist' have proved to be as ruinous for legal borrowers ao
for local banks. And Mad-office purchase of securities Should be mere
expert sad emnservstive.


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.;:;•
,
k••

- 4(4) Branches eould be "peasd tentatively in small ,.7,lommO sod Uttar
withdrawn if they proved napretitable. Un1Pr unit banking. sash small
local banks, ones established, seldom vithlrow except by MUM,
o/
ObJecttxas to Wideeoread IMIIIIMUNAUst (1) The trnditioaal
American prsindiee—one nor almost sey fetish--in fk,vor of the
Waiststretion by legal bombers of lima deposits and credits, and against
alloving a distant beaker to say *ea and hom 'T,uch e local me war
borrow.

(r) The fear that lorml deposits mey be draiaed away mad loaned ta
larger atlas.
These I believe are the objections Issally sasalsod, r.016 they are
closely allied. In theory there is much to be said for both of
then.
In *steal experienso, however, theyUrgely disappear. * * * * * *••
*
In the main, however, hanks with bra/aches, like unit banks, are in
ts sake money; rates for local credits are nearly always
higher *an sew market rntes; and the fastest My branch can grow
amd beeves profitable is by making all the pod local loans it can.
Nereewer, baMbed by a larger capital, the branch can extol** larger
Jodi:44ml aredits than the local bank, and it cart draw as tho
head
offiee for sdditional funds Then local credit requirements 611000d
local
deposits.
(3) There is this further objection--that if a bank with say aro
hundred bramshes were to fail, every one of its offices mold dose*
*berms if ea& of its °Memo wore a local bank, probably a firer
number of then would fail. This, to sly mind, is the one twadanonta1
objection to brand; banking over a wide area. More is, of *aurae, no
way of assuring sound mansgelteat for all banks hawing widespread
branches. But to shrink from branch banking became of this risk is
to yield to , counsel of despair. Both Great Britain sad Canada, where,
as with us, deposit banking prevails, have had failures of banks with
branches. Out thp porcentsge of their resources involved has bees as
mash less th&n in our unit bank failures that tho answer to this
objection is reasonably satisfactory. * * * * * * *
Ixperiense above that tbe looding and supervisory organisations
which basks doing actsmatre boom* banking have to maintain and eam
afford to naistain contribste powerfully in themselves towards earofel
samegammit, while the 'ids area covered brini7A diversifioation of risk.
* * * * * * * * army groups and Shaine tAkve been formed awaiting
the necessary authority te seavert into breaches; the eauree of events
has greatly weakened tho opposition of the smaller unit bolts; and the
banking sesnittees of COMM, have introduced a bill providing that a
national beak nay establish branches within its own state and fifty
miles Mood ito borders,. thus, as a remedy for the obvious weaknesses
of unit braking. we appear likely soon to embark upon braask banking
;Bide by side with malt basking. If And vibes we take this emadmmeatil
step towards a rarmrealhiag Ohmage is oar beating structure, it soma
important that we Should take the stop mot teatatively or half-hearted)"
but fully convineed of its desirability as a lotions' policy desigaed
to afford better protection to deposits.

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-s
Like magy ether supporters of unit banking,
hajlettrittil eleitt events to Change my views, and I now resod brew* balking as the only fesdameatal room* for the
demonstrAed
seehmeeses of unit baukimg, particularly is the emalleT
plass*. put to
bosses an effestive isetweeent of national policy branch banki
ng should
be posultted to develop under countless moot favorable to its
sucoss.
Moss oonditions involve esestiese el (1) area; (2)
oupF,r
vision
; (!)
easpetities with unit banks.
(1) Ares. Under the balking bill, a national Wok may estab
lise
brougham anywhere within the limits of its own state and
vithiu costiptoes territory fifty miles outside. This provision, while
a
tremesdess step in. advance, still savors of halfheartedness. If vs are
willimg te go this far, we sight better recognise at the
outset that
stets lines ars usually
r;,,ther than economic; and that es &ell
MOB have to amend the lav to permit brumase
over sore natural trade
Waage as en4omptreller Pole recestly ressm
ussdid. To Shut our buss&
tanhisi up in forty-eight separate sompartnouts as if
it ogre somethiag
us feared, ie to ignore the ouporionee of all tho other
coantries of
the world Sher% as far as I hasui there is no terri
toria
l restrictions
This does not masa that r would somt late for the
e*
Unite
d
States, ovum
for the distant fUture, bras& buiting *Joh
covered the entire eenstry.
Distance sad sectional feelings are spinet it; prep9
r dtworstfloatios
does not require it; end obviously there out
he sows limits. Bet
surely all will agree that a state—plus fifty miles
o—will in many eases
prove a limitation that has elements of unsafeness.
In states over,
whelmingly agricultural, for example, state lines
will render it difficult to attain that ftumiamastal requisite or branch
baski
portfolio. The limits, it seems to me, should be suffi ng—a diversified
eiently wide, and
more than this, sufficiently elastic, to permit of
found diversification.
The twelve 'Federal Reserve Districts approximete natur
al trade areas, in
spit* of some arbitnariness„ and they appear to me to
be the sest
practieable limits within which to work. But the Teder
el lisorve Board,
which mew the proposed bill is to nothorise ell
branches, Ahead, it
seems to me, be empowered to allow brenehes to overstep
district lines
afieseaary to *over tistie amis or to assure
diversification. * * * *
(2) 403Lpervtplep. Widespread bran& basking introduces into
the
streeture the possibility net of sore bank failures,
but of larger and
more serious failures. The balking bill wisely
provi
that the
sotabltihmest of every trigs* Shall be subject to thedes
approval of the
tederal loosove Beard. lag places both prope
rly aei elearely upon the
board awe the Weems" Reserve Banks the primary respo
nsibility for the
sommd ciewelopmost of branch basking. /t goose impor
tant that they
Should also have authority to provost seek state imeti
tatione with
brandhes fres becoming members of the Besorve
System by Smowersion into
or oonsolidatios with sational banks. lhother the brook
baaimi institutions shit* are permitted te &visibly &all he stron
g and sousd or
shall serely represest * crow' ~ties of existing omit book
usmag
doponds, is thoughts, upon the standards thieh the Federal Reser omost
ve Board
gots gqp as wide for its action, amd the rigidity and ruthlessne
ss
with ehich it anilines to authorise brusehoe for any bask *hese
past
reeord and paistes have aet been sound and seft, Thare &sold
be no
plea* in bran* balking for officers or digesters silo seek to operate
banks ia their OM selfish interest. And there is no cluesties that the


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$
public is in a mood to give full support to rnthleOOMeee emetted is the
public interest.
?he supervision of these larger invititutions will Wag heavier
mostoosibilities to their supervisors. But on the other beady with
tomer units to sopervise, sore concentrated attention emu be given; and
the ability of thee* larger institutions, both to find amd to pay for
geed emeeprey should remove one of the present difficulties in the
empervision of mall lesel banks.
csOmad element is the development of brio* tanking is the speed
witb libido it proceede; sed it is possible that here again the Federal
lieerve Board ger be abie to *moraine a restraining influence. Pieper
organisation* te uncrage branch hhnking systems cannot be developed
overnight. Selma ImMatisfactory situations would be likely to occur if
a competitive sersuble for branches, ouch as has recently token pl,,ce
in certain areas, Should be repeated over the seuatry as a whole.
Fortunately the present diffieult period fevers eoderntion in the
speed of establishing treadoess,
A third factor, itth abich no nntional or state supervisor hao
yet been sble to asps, tut with which it is to te helped the redorml
Reserve Board may find a say to deal, is the eompetitive
e
high rates of interest on deposits, particularly savimgs deposits.
Where not controlled by clearing house or other srreegmematey these
rotes have !site generally led directly to the purebase of inferior
toads with bid. ssopees, among which, on the law of averages, the
mortality to MO,
The initial est7,„blishneat
(!) competitim with Leal
ef branches mill doubtless p
the lines of least resistanee
by abaorbing local unit toudts. Mew stroag lees' hanks, however, may
deeline to become branches and the qaestion will then arise 'tether a
larger Institution Should be permitted to 7ut a branch ia ft& places,
While the sire of tn. place will beim a bearing on the decision,
should like to express a purely pereseal view that as sentimeat in
small places 'ill naturally fcvor tie local bask, the willing.*** ef a
strong well-managed tank to maintain a brew* alongside the legal teak
should at lettst be an important presumption in favor of greeting the
application. * * * * * * * * Provided a took has good uemagmumaty it
should, in general, be alleged to bring its services med adiemtages to
those places where its vesagers think they ean profitably °perste.
This closing thought serves to onp‘lasise mr beliAf that Maloof
in the bankiag structure &said be approached primarily fro* the steedpoint of safety of deposits rather than from the standpoint of amen*
of credit to be outmoded legally. Too often in the ivet the latter
has appeared to beth• primer, objective of bamkiag legislation. With
full ressgoitien of the fast that loess create derasitsy we shall be
on safe ground, nevertheleee, if we paraphrase the familiar English
adage, end eay, 'Let us take eare of the deposits aril the loans will
take *are of thenselves.*


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,
'
-;ry14,
‘Dltd
"

SOURCE:

k-4,1

7- '
Ave' )

il.A.."4""losird

CANADIAN BANKING--by E. L. Stewart Patterson (1932)

Chapter I--Historical and Economic Background
Pav 12

Joseph French Johnson summed up the outstanding advantages
of the Canadian system of branch banking as follors:
(a) l'arge capital behind each institution. No matter how
small the branch the customers share in the security which a large
capital offers.
(b) Unity of policy on the part of the leading banks during a
stringency, in contrast to the playing at cross purposes which, in the
panic of 1893, distinguished the action of the national banks in the
central reserve cities of the United States against the smaller country
banks. In 1907, if the country banks had been branches of the large
F
city banks, they would not have withdrawn funds from those banks when they
r‘t '14
were so badly needed, and the crisis would not have been so severe.
PP
.) t\-**- 1))
,
)r

P

• 1..t1.'
r

(

(c) Power to equip every branch with ample reserves for maintaininE
commercial credit by means of notes issued. It iF impossible in Canada
for the business needs of any community, no matte/ how remote, to outstrip
the banking facilities, as iE often the case with us. The resources
of the branch bank are quickly and indefinitely extended. Moreover, when
the need for additional facilities has passed, the business of the bank
can contract Eccordingly without loss to anyone.
(d) Uniformity of interest throughout the whole country which
does not vary more than one to two per cent. between the large cities in
the East and the newer towns and rapidly expanding cities of the West. In
the absence of competition, the necessity of depending upon small local
banks for accommodation reouires the business men of western towns in
the United States to pay monopoly rates for the use of capital.
(e) Expert supervision by the central office prevents bad banking.
The boards of directors of the large banks are responsible for all the
branches and they ere therefore forced to put into practice a method of
examination and supervision which is much more effective than Government
examination in the United States.
(f) Branches can be maintained in localities where the profits
of the business would not justify the establiEhment of a separate bank
with independent capital. The city banks can establish branches without
any investment in additional capital. Branches can be established where
the business is so small as to justify simply the employment of a few
clerks in a rented office.


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-2-

Canadian Bankine
Page 12 (contd.)

To this may be added the opinion expressed in a New York paper:
We know of no system that more closely conforms to the best
and broadest economic ideals of banking; none better calculated to
afford the largest possible public accommodations; none better adapted
to insure a safe utilization of the surplusbalances of the people; 8nd
none better qualified to supply the daily fluctuating wants of trade
with a safe and convenient circulating medium.


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"A
(
2‘11141
Ntkiv

SOURCE:

CANAEIAN BANKING--by E. L. Stewart Patterson (19F2)

Chapter II--Canada's Financial Structure
Page 20

The important part, played by the branch system with its
asset currency and decennial revisions, in a country such as Canada
with its great distances, scattered population, seasonal variEtions
and lack of working capital, cannot be overestimated. The freedom from panics and crises and the adaptability of the system to
every emergency such as war and post-war conditions shoulC also
be noted. A branch bank even though housed in a shack or tent,
as was often the case, could offer to the industries and settlers at
the most isolated point all the facilities of a metropolitan bank.
1.-//
Mr. S. H. Logan, present General Manager of the Canadian Bank
of Commerce, opened up a branch at Cobalt in a tent, which served
both as en office end residence of the staff. The great mining
district of the Kootenay and Grand Forks had banking facilities
before it was reached by the railAays, as did Dawson City in the
YuRon. A bank was established in the Peace River District
several years ahead of the railway, necessitating a trip of a week or I
ten days by boat and horse. When the railta. finally arrived it
found a well-developed settlement with produce ready for transportation.


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•

SOURCE:

NEW YORK STATE BANKERS ASSOCIPTION - 1952

REPORT OF THE COMMITTEE ON FEDERAL LEGISL1TION:

Page 83
Creation of a State-Wide Branch
Banking System
Your Committee approved in principle some form of branch
banking, but it was opposed to the establishment of branches
in neighboring States; furthermore, as the subject is such a
highly controversial one, it urged that this section be
divorced from the bill and some form of branch banking
legislation be embodied in a separate bill, in order that
it might be considered by itself.

OUR PROBLEM& - Mr. Harry J. Haas, Pres., American Bankers Asso.

Paze 169
Branch Banks: In regard to Section 19 of the bill
covering branch banking, we called attention to the
resolution of the American Bankers Association adopted
at Cleveland in 1930 which reaffirms its belief in the unit bank
modified to the extent that community-wide branch banking
in metropolitan areas and county-wide branch banking in rural
districts, where economically justified, may be desirable,
but in every respect we urge the preservation of the
autonomy of the laws of the separate states in respect
to branch banking.


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SOURCE:

Report of Banks of Deposit & Discount, etc., N.Y. 1931.

114ge C

The following are proposala for legislation which we believe have
a direct bearing on any effective program of reconetruction:
1. The las be anended to permit a bank or trust company to
establish branches sleewhere in thc county in which its piacipal office is located, and/or in en adjoining county; provided,
however, that no such branch office may be established except
through the pibcess of taking over some exieting institution,
or an institution that nay hereaftAr be closed, or except that
branchf2s may bc opened in toil= or localities not presc-ntly
served bj existing banking instit-tions; no such branch to be
establishc-d except with the consent of the Superintendent of
Banks and the Banking Board of the Etate of New York.
(It ie intended that thc above power shall be in addition
to thc present branch pavers not granted by the laws of this
State.)
2.. That banks and trust companifs having capital and surplus
of twenty-five million dollars or more be permitted to establist a branch or branches in any city or town in tA.s State;
provided, however, that no such branch nay be established
except through the process of merging with or gurchasing
the assets of an ex/stip& institution or the ascets of an institution that may hereafter be cloeed, or in a city or town not
then verved by exiating banking facilities; no such branch to
be established except with the consent of the Superintendent
of Banks and the Banking Board of the State of New 'ark.
Pase 7
The writer is a firm believer in the unit banking system
and is of the opinion further that where well managed, unit
banks will always be a successfUl and continuoue part of our
banking system. The recommendation as toaranch banks
is made solely because of our belief thatfis an economic
necessity and it may provide a means in sone instances of
strengthening the banking structure and affording better
protection to the depositing public.
Legislation proposed at Washington granting branch
facilities to National banks in a trade area, or restricting
such facilities in such states as vrmit state-wide branch
banking of state institutions, will give added inportance to
this question. In the past the conpetitive establishment of
National and State banks has brought many banking abuses
and sone meant; must be found in the event of thir establishsent of a branch banking system, to prevent destructive
competition.
In our opinion, neither State nor Rational branch banks
should be established except on the concurrence of the !Aate,
national and Federal Reserve authorities with the view of
etrengthening the banking system of the res)ec'Ave stAes.


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\


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Federal Reserve Bank of St. Louis

-2-

L. (Contd.)

In thia Statf-, new charters cannot be granted to Ftate
institutions eyeept with the approval of the Eupc?rint(7ndent
of Banks sno a two-thirds vote of the Banking Board cmposed of nine members. At the rement time all branch
applications ere also subaitted to the Bankint Board for
its aoproval, and we propose that in the event e branct,
banking law be enacted by the legislature, the law be
changed to provide by statute, for the approval by the Banking Board of branch applications in the same manner as it
ie now required in connection with the chert,r of new
institutions.

f

17/-

SOURCE:

CANADIAN BANKING--by Eip L. Stewart Patterson (1952)

Chapter II--Canada's Financial Structure
Page 21

All Canada and part of the United States are in the northern
temperate zone with agricultural activities limited to the duration
of a short summer. A great part of the United States, however, is in
the southern temperate zone which permits year round cultivation of almost every variety of semi-tropical fruit, cotton, sugar cane, oranges,
lemons, olives, etc. The unit_hank system of the United States, though
excellent in many respects, was not adapted to the requirements of a
growing country with seasonal varf7tions to contend with. The
United ttates may be said to have made progress in spite of her banking
system rather than because of it. Had Alexander Hamilton's bank not been
killed by politics II the country would have been spared many crises and
bank failures.
Without further comparison a question asked of a group of
bankers by Mr. A. B. Stickney, president of the Chicago and Western
Railway in 1902, affords a striking comparison of the two banking systems.
''How is it," he asked, "that a narrow fringe of population on the border
of the Artie Ocean can not only finance its own crops but advance millions
to move ours?"
The question was a pertinent one, as the population of Canada
at that time was a little over five million and that of the United States
over fifteen times more, with a thousand times more wealth. Mr. Stickney
referred to the branches of Canadian banks established in Minneapolis and
Chicago, which, with the foreign exchange facilities of their head offices
and New York agents, became important factors in moving the western crop
overseas. Mr. Stickney might have gone further and referred to the assistance
rendered by Canadian banks in the development of mining in the State of
Washington, to the work done
the Pacific coast branches from 1864 on,
and by the New Orleans branch in moving the cotton crops, etc.


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it
2
`ry, 4)

SOURCE:

CANALIAN BAKING---by h. L. Stewart Patterson (19!2)

Chapter V--Branch Bunkinz L/ystem
?age €.4

One of the Ao6t valuable assetr of n bank is the personnel of
its staff, who zae men treined from their youth up t' their profecaion.
In their early
,t0Ving from brrnch to brsuch, thej becAac thoIouihly
vereed in local cL;6Loras
r?nvironments, and in many cases gban expkixincei
in branches sbrw.td. As uccountant and winagers of large city branch:,s
they obtain a brobd knowledge of ir%tionl trnde &nd financx until,
//
geners1 managara or superint6ndent, they are found directinc the
administrhtion of their muserous brenches.


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SWAM WRICA1 ECOSOCC

Arvin,

0

Ek (19S2)

'7
BAIR MAW IN ?BR OUTIV STATE26.1alter E. Spahr, N.Y. University
132101PrAin IA Data 114 YIP OS
It is inetraetive as well as iateresting to mete that in
Cemadn, by my of eemtraat, beak failures appear to have very little
relation to sommercial failure** The remmrkably fee failurao which
have takes plass ta that country indicate that the branch banking
wyetea there is mmah better qualified to resist tht strain of bustmess
flumatuationo them emr system of unit banking is sae to with:ANN, tbe
Wane of besimeso flucimatisms in this eountry. Her business
fluctmatieme are mot as omen as ours amd one contributing fester
must he femme in tho fast that her hanks arc able to stand WWI
assist business la times Kneed. It mey be noted, also, Oat Usk
failuree are almost amberea im Maglamd, although, She has her Inninate
fluctuation. It would appear, therefor', that a fnmdamental explanation
of the souses of bank failures in this sountry is to be found, partly at
least, la the nature of our banking structure.
Befort
proseeding to a further analysis of thn causes, problems, and possible
oerrectivoe of bank failures, it may be halpful to summariae the essential
**mansions at IMO, es have arrived after an analysis of our statistical
dates
(1) Tho heaviest failures, absolutely emd relative/yr are smug
the state banks; (L) the failures are greatest among beaks with small
capitalisation; (3) tboy are heaviest in small tomes sad villages; (4)
thej aro heaviest among honks outside the federal Boom votes; (5) they
have bees uniformly heavier them failmrea of commercial enterpriacc eince
1920 bat net doting the period 16944920; (6) they ascompemy very closely
the rise omd fall in semmeroial failures novelly reediting tho peak at
the same tills; (7) they are mot only sound by bustness recoeolome bat
eastribute to nasound byelaw ecaditional amd (e) they ars mere
premeuneed them in amy ether soustry in tha world even in fairly normal
amd prosperous Usual., *la would saes to Wiest. that there are vole
famdamemtal emd organie defects in mr banking structure that require
eerreeilem.
40time1911* of tbasegivor bank failing. If the proonlimg acm.
elusions are serreet4 disdimed from the available statiatical widens*. it
would seem that Logic oempala us to attach the problem of imereaelag
bank failures by examining what appear to be the meet outstanding ead


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v-fo:

10.


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fleinesuMMOLdiefeete of our booking structure shish have contrfbuted
to the preseat wham situation, as well as these lectors that lit
estside the field elf beshlog*
IS shell eneshisr the pillions end possible corrective. eider
the rollout's& main Wades

1. Ibis defects Inherent in the organic structure of emir
omesorcial basks asd banking systes6
2. Them slue to the imadequate control of our credit structure
by the tederal Reserve eyetooth *Leh, in turn, result free two limitatioss,
(2) those inherent in the strecture of the Federal Reserve gystem, eed
(b) the inability or relustesse of the Reserve setherities to devise and
&PAY adequate principles et eredit sestrol.
Those amuses lying outside the banking field.
have on memeeessery and as swim
a
national and slate banks with
late
beaks
tarral
1"lia
os9
airYll
tvis
forty-nine legislative bodies regulating mod greeting special privileges
to their respective banks. For a loft tine state banks resolved
lyrivileges not accorded natiosal banks; them the national basking lee
wits liberalised to place satimmal basks ea ma equality with state beaks,
with the result that thie competitive liberalisatioe of bulk laws be. led
us to permit the crestioa of sessued banks emd the indulgesse of useeend
buskin prestioes. Such a system, with its furty.osine differeat
jurisdictional authorities and forty-nime sets of laws, by its very mature
involves Is* urinal:Comity in legislation, in standards of bookies, la
rates of presses., wed in supervision* Them eomditiome have beim permitted
to prevail far se better reason time es a senceesies to histerimal presedeet
esd the doetrine of states. rights* Romsereial bosklag is, and essaat be
egything else then, interstate in nature mad, as a result, there is no
logical basis aa 'high to defend the peewit claiesiticstion of cur banks
into both tuitional sad state with the orwailimg leek of usiformity in
banks and banking prectices.
(b) We heive tee espy banks—eirpeeially too mow smell books. The
statisties of the failures place this conteation beyesd dispute. Competitive liberalisation of our Tories* state amd national lave hes bees primerily responsible for this situation. The lemlease on the part of our lawmakers doubtless has bees due to the prevelemee el the doctrine of laisses
fairs La natters relutiag to business esterprise. As 11. part of this same
doctrine, sash community has desired its beak and, prefeesblys more
than one bemk in order to sears the full fruits of the sempetitive system.
/be securing of ome or neve local beaks was facilitated by the low capital requirements and the ease with mach the laws permitted the charierisg of beaks. Searty half of the banking moires. of the oesatry are in

the lunds of 1 per cent of our banks (250 in our metropolitan centers),
the other half being spread thinly
the other SO per cant. Twoldrfour beaks, national and state, is Sow
City alum have e espitalisation almost equal to that 414,10.000 country bunks altusttd in towns of
10,000 population er less.01)
(a) Too emmg beaks are outside thsOfederal leservt system with
the result that the Miserro outharitieo are mot in a pooitiom to regulate
or aid then. Me umfortunate aspeeta resulting from this situation rowel
themselves in a striktag aumer during arises like thee. of 2600 sod 11116*
Of the 6987 national sad state banks ihish failed Ouring the dosedo, 83
per sent were nonmember sod I? per mat amber bemka. The Imam to be
draws from this ewidemee stomed be abalones
(d) Small melt basks einem do not or cannot secure the proper diversis,
float/on of their portfolios due to the feet, perhaps, that they are In
sommusities is which e fee crops or industrial activities prodemiaste and
provide thee with as undo, preportioa et paper of a oartela type, with
the result thkt the welfare of the komsk &on& almost smtiroly upom the
poospority of the looal exemmmitg. llitrtitereore, with the iaereasood
of She automobile mmd other, seems et olammmieation, mesh of the important
bmelmesa of looal seemunitiee hes gums to the larger asters with the
vault thst small town beaks lead to hold only the unimportant local
mess,
(e) It
ears that the proportion of piper eligible for rediesemmt
vith the
Sieerve beak* is toe small for the safety of the sap.
moreial banks in times of stress. * *
(f) Closely related to this situation is this fist that *arias reeemt
years esmoreial beaks have bees steadily in
the properties et
their remorse* gives ewer to investments as
_with the proportion
going into looms sad dissousU. * * * These figures show *hat eommorsial
bunks aro shifilug more and sort trim the finammiug ef dommoreial Ammoactions and ere devotimg em imereasieg'preporliem of tkeir ruseurees to
the fimonsimg of fixed capital, lbeime shismsimg properties& eastributed
to the leek of liquidity in the resemrees of osamandallumdms.mad
probably reveal a ofttributimg fester to the imareased member rehash
failures. Tkis changing peeportios has sm ewes greater sigmifisamee
when oomeidered in eemmeatiom with the small unit banks vbieh invest
such a large properties of their resource* in local mortgages. /able II
will show semethiag of the trend.
(g) tireet4 associated with the (mediae of the increased proportion
of investments emg teems on investment paper emd aertgagea by eemmercial beaks ere those qmestiens relating to the imaressed nusiber of invest,
sent emit ether mea-oessercial bankimg affiliates *bleb have bean attPched
to eammereial banks, partioularly in metropolitan somters, is recent years. ***
It was reported that Shea the Beak of the United Stater, is Sew lark City,
failed, it had about fifty affiliates with relationships se involved that
it la doubtful if they could be disoolameled.


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Federal Reserve Bank of St. Louis

(3) Hearings on Branch, Chain, and Group Saakieg, Vol. I, Pt. I,
pp.22.18)

wear

th) Amefter teeter which has contributed to the weaheming et
our emeereial bombing structure has bees the steady iserease is the
proportion of time me against demand deposits. ea the bests ef the
avenge percentage* for the years 1919.1.5, ve find that deemed deposit,
aneested to BO per mat, se* ties deposits to SE.45 per see% st the
earning assets of the amber banks et this country, while, es Jens t3,
1010. deemed deposits summated to IS per sent and ties deposits to t8
per 'est of the sarsieg assets. Against these time deposits. shish have
tooressed aboeletely and relatively daring recent years, a reserve of
only 5 per coat is held despite the fast that the sash derived free these
ties depovits is treated like the sash reosieed from demand deposits
against shish a mob higher reserve east be kept. This eitmatiem hes
presented ma inviting. although a demserems. eppertusity to semmervial
hanks. It has been invitieg to semmeroial beaks beeause it hes bees
sore profitable for thee to empood their loess as4 inveiglements *ad resp
greater profits. It has bees a demgerous Pastor for tits beaks since
they have hem led iato making lease sad inv./twat* of * type met
appropriate ter basks espied in a saviags bbnkipg besiseee, end aloe
in the fast that their reserve ratio against gamine denend liabilitiee
has teaded to fall helm that required against mesh liabilitI*14. From
the point of view of the =wimp depositor, the situation hi,s been
fundamentally bad, although Its has smoolved sone samosaiemses sot afforded
by the genuine savimis books. In most isetemess he has been able to withdraw his time deposits without prier motive, mad quite ones, if not
usually, his eammercial busk has bees sere esavesiontly looated them the.
nearest serum, bank. Against these servieee, heeever, is the fast that
roserwss *ad
his deposits Imre not bees and are oat properly seemed
sa a bask the
res
of
a
event
inissisonts as well ae the fact that in tho
prosiest hie
to
days
time depositor sou be mode to vait at least thirty
the °leiter
meet
to
esontor
the
over
claims while his feedle are being paid
be *Con—
to
ere
ers
stdepositi
st the deemed dopositere. It the interests
small
the
if
am&
failures,
beak
with
sidered seriessly in assnesties
sever is to be gives the proper proteotles410. Maio thOS hero Is amtber
sod corractiam,
problem which, meeds
(i) The uhit cootie in our greet noltilmde of small beaks ere
relatively high and the met Morse are eery low. the prevelease or
meteatatises bsildiage amd equipment is se small factor in this sitmatioa.
An esalysis by the sosptroller of the ourresty of bank aerate,. showed
that a large properties et the banks outside of aistrmeeliten easter*
were set swains eeemgh to justify their existence. ibis vas tree even
wed 19t7. Is 1911?
is seeh relatively prosperous years as 1924
nearly NS amtiomal beaks were operetta at a lege, amd an miditiomal
2000 were sarming lee, them 5 per seat* This opostitt:ted *boat 36 per
eemt of all national beaks in the Mated Otates.vii The aitaatiea saes'
the stLte basks use ewes verse*
(j) Mother detect of emir mit booking Ostia, sopeeislly of our
small bank*, is tend is the peer seasissest Add' immorally Obaracter-


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(4) Moorings os Mreseh, Chain, & Gromp banking, Vol. I, Pt.
p• 5.)

AIINSwo

ivies those la gmmarel, the officers are of am inferior *art* Perhaps
the ematiers mud a few others in the bask, has bed eome formal training
in Waking preeedure mod principles, but the traimimg of the preside*
and others respemaible for runniag the bank hes probably hems els./
Ihe leading elitism in meet sonmetitia.'Novelly hope*
differmmt
to eemplete amd polish off his bmaimesa sereer, Whether b* he the
maseeseful grew or buttoner, by besemimg the preeideat of the legal
bloke This phamememee ie a treditiemal amid a pearlier ahareeteriatie
of Americas life* Sash men ordinarily are individualists emd ~let
oameporetioa., They are *pima amall-tems mem, oftee Gana herdAaesded
bosiass* mos and the baskhame et our natiem4 La the proper sees. of the
term, hemmeer, there...illy are sot beakers. They may %mew momethimg of
the technique of beehimg bat little of ite fomdememtal mod farioresehims
primeiples. They are mat loll **waisted with the literature es baskimg,
with thc tendencies, morreat problems, amd possible solution shish shield
be of interest to thms4 The, resist the sellastiag mad filing of data
on loaal mad mere immoral bmsimees emmditiume shish affest their Maki
they resist medernixisg methods; they atom permit aestimest to play tee
large s part in the makiag of leeel leaps; the directorate. usually ere
filled witk loeal hmsimese mem who knew little shoat Making mind often
are iadiftermat ragerdisi the bees affairs* Swerpeme, et seureep
resegnises that there are mem, time emmeptiosa to these gemeraliaatioas;
aewertheless *ober reflection met Impress eme with the immoral semerec7
et the platers emd with the fait that the type ef mmmagemeat ehereaterisimg
a large part of our emit Waking orate. is au important faster Ls beak
faller's. For example, the eamptreller et the aneremsy, is smalysimg the
eases of the failures of the national bankaja Omni* et reesivers ea
iltsber 51, 1930, listed them as follows* kS)
Per *mat
ee 38
1esmoes,44.4w
A4 Incompetent amassiamast••••••••• eoe,e..04.4,4
1. Dishonesty...*
C. Loss/ financial depresoion fres agricultural or
isesetrial dianater***.******...................... SO
Meseiver appointed te levy sad eollect *tea aesesemeet eseerimg detteiemey La value of assets sold**. S
Tempermry smspeasies*.*******...*.....******........*. 1


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•••••
•
*•

(k) Finally, es may mention the fact that the problem of imadequate
beek auperviaiea is still with es. roe frequestly to the yesth smd
relative inexperieace of maw of our beak examiners, it bosom* a fairly
simple matter for sharp book offieery to outwit them. Smelly the staffs
et examiners aed ef examination departmemte are imadeNuate sod poorly
paid* Ihe great number of tenures is outdone. et the fest that they are
,the Pfslamme
enable te mope with the situation* IL sdkattina 114, bev
arisimg flrem the sesfliet of matioerity, if mot a total lack of authority,
with room* te the same...natio' of ghats mad pump hooka mod the mono
benkimi WAIN eampories that are sometimes s part of them Systeme.
(5) Mosel Report of the Comptroller of the earremir
(Dee. 1, Imo), ppaaNsti.

•

14 also still find diffieelties in the way et quiek end effective
action en tho pert of the comptroller et tbe euiremer in earreeting
=mound banking Freetisee due to had ememipeemet es the pert of officer, wed diameters of beaks,
2,
blether f
tics
1
omr phemememal
et
is to be toned ia the inadequate control et audit, with pertieelar
reteremee to the audiesso cycle, whisk* ehmresterisee ear "Moral Reserve
weft*, ibis is 4me to the lisitatinae pissed spew.* peeeibilitiee of
aredit sestrol bonus* of the etruetural eharaetarletiee of the Swerve
prates end A* the imahility or leek et
of these in charge to
devise the priesiOlem mod meSbeeimm tbet are effective vithin the lisitx
whisk the etreetere et the system permits, II *

•

The emenat of eredit in use *bleb is beyond the control of the
Federal Roserve amtheritice„ end pei. effects busimeee condition* emd the
price level, is eutileieat to upset tbeir beet laid plena. le emly need
meetien the trenemdeme amount of credit used in the 'took market, the
eapeeity of the federal /*re Lees gifts* to extol. tee *eh eredit te
farmers, sad the -various other necousemmerelial bembiag systems sod esterprises lyisi eutside the Seserve system to appreelato the simpitleance
of this prehlen in the qualities et credit coatrel,

Besegmisimg. however, these ergemie limitoticas Wherest is the
mature et the limerve attest it is believed that uneh mere mould be demo
then bee been dem to eontrol credit in the intermit et price level
stsbilitr• •41
* * * Regardless of the present state of individutl opinies OR
these points, the feet meat
eppareat to ell that sine, the temmpuration
of the Sederal fteerve system vs have witmeesed the greatest fIestuntiems
in the prise level and the greateet number of bank thilurat for thereat.
imvolved %hot this sous*, bee ever ems. Prom these fasts the lessen
meet be eloper that the system Le not neeting preeent-dew daseade prep.
erly mud that some welle.eemaidered oerrectieme should be mode,
36 AMP,kW

etible

iladilLitiag•••••••

If ee ere to attempt to eurreet the etrueteral detects of our sem.
earelel bambini systems the evidence weld emus to imdleete that ell leo.
menial hembe should be brought withis the Mural Momerve system if
it le to emersise genuine ematrol ever ceneereltel credit, porters its other
fmmetiems properly, mad provide the proper aid sad pretesilem to eonmoreiel bombs. Partheinerep eines semmereial basking is isteretate ia
mature, it appears pmeterehle to eemvert all eemmereial bombs into no-


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Federal Reserve Bank of St. Louis

Lionel beaks, leaving for the vtate boat the aavings beak emd trust
company business in co fer LE possible, although it mild net ueem adviseble to dopy these function& to national oemmercial bombe else, aloe
there would be great nuabor of places in whieh there mead be eis
savings banks amd trust c,;),;.„,;.nios t,L- provide the nemesery ~vices to
the, people. The questions of states' rights cod cometitutimel
do not present immenemmtable difficulties* 'ham
bumpiness becomes taterstate in mature or beeemee an instrumentality vital to t40 tree eirreesat
of interstate commerce, the buaineea ie aetiemal in ehLrtcter mod ehmuld
be brought midir matimal jurisdiction* la seek cases the elates hire no
rights thet dome protection laR04 the public vell-beieg te at etdis•
As to the Semstitntionel c,spect of the question, it is cultr doubtful
whether there are amy constitutional difficulties involved. *•*
A farther argument ia fever of nttlonalixing, all aoseertial heLnks
rests upos the feet th(ct it is hardly rational to expect each program,
and oerbelelynoti milers progrese,
waitini for forty-nime different legislative bodies to ogre* upon and pcse *Ned and progressive logieletion.
A fundamental purpose of the lhoderal Seeerve systole ems to provide us
with a national polio). aad gets, but it cannot be made effeetive 'Pith the
present organieaties of omr commercial Waking strectire•
sea eccomplish these things threngh a setioncl law, linsiame eyeIss *re national in scope es are the priblems of credit control; immerse im
state and intereational in satire: the problem of a proper reserve otrucImre are satimal and even intenatimal in their remifleationa, ase sueh
quitieme em be dealt with adegmate4, 01'04 by a governmental bed,' with
the proper juriadietLemal astherity. It ia an tetoresting feet thet *bile
corefUl reflectioa Should hem aesiiiaosd
lemg age that a mattes met
hove • matimai sommercial beekimg metes amd plias mime
,this Is losmatial to national vell-heimg, we hove aostineed to permit a scattered
type of booklmg mith the
diffisim of authority that has
made am *Motive metiamel
Imposeible, Too mesh demerney in
haakimg has bees a devastating teeter la our economic life.
lt appear* also thut brameh basking should be provided for in arOer
to amble hemke to secure the proper divinity in their portfolios; to
ellaimate the problems mem associated with mall mit banking; to provide
adegeste eapitalisation se that the bombs Oan mime, not only in local
financlig, *ion toda4 is oftes berm& the capaeity of the local boobs
but is a wider type of commercial fimemeteg; to Insure a better grade
of memagemeat; amd to eliatccate some of the demgers am *mistletoe, with
Chaim end group backlog+ It seems logical, dee, for rush branch backlog
to be as vide Ls the Sidon' Assume districtE, if not netios-wide, la
order te secure proper diversificeties, and the ether virtues thrt appear
to amempamy well-ergeoised bmneh basking* alder such
Pretax., knish
office. eculd amd should be *posed there mit bank could, aat exist
profitably sad sithout demger to the community. It is intent/Wag te
consider the fact that *Ile is are willing to permit our large *Abe to


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Federal Reserve Bank of St. Louis

area.

establish feirache in the fez 0021110110 at the world, SO ball* bees
esp.
willing to pinged t then
eetablieh bremelms withiu the esentry despite
the feet that about SO per sent of our trade is natio/el rather theft
isterastiemel sad despite the fact that in wild regulate deesetla
kremehee aerie affeetively thsn the foreign,
Is Ogo ter se mit banking contain**, the einimma eapitalieation
limits should be reisods
Utedy sheald be siege to the question of the properties of redleementeble piper shish menher beaks Mould hold so well as to the
prepmetimmiet ether types et piper, eeposielly inveetmeat sad mertga
te
paper, *doh eight be imelmded with eatety in thkir portfolios. in
a
similar massr, *tisk sight be gives profitably to the possibility et
devising a ashen* for imereamiag the margia of collateral re‘uired ae
securi4 for lemma thee the price level is rising.
There else appear, to he c•)usiderobls merit la the propeeals
made
to aid, three. the erestiem of central mortgage redieeount bloke, the
various isstitsitioso which hold reel estate mertgege peper•
&lace geed emmhial bamkimg appears to depend upon the malmte
mmmee
of iicAiidity, =tease ears Ohemld be taken in admittimg any
nee type of
paw to the pertfoliee of the leeerve beam wbieh mutt impair
this
liquidity. The attempt to sive * eentral basking erase wide posers
of
credit control seems to conflict at cartels points eith the attemp to
t
maintain its licuidity.
non-oosmeroial basking uffilletas doubtless mheeld be bremght %oder
strict control of sod be suanined by the proper mummereial
beaktMS
authorities, if, lobbed, the7 should ae4, be severed frem eemmor
eial
banking tastitutimme, Cereful emnsideratima eheeld be gives also te the
possibilities of plowable striet limits epee tho total 'mount of lemma thieb
esumercial basks may nske to their affiliates in the event thoy are met
mowered fres the osunorcial basks.
Time deposits, espeetally thee* of & thrift or sawing, galore, should
be umder the amme restrietions es to investment as savings deposits
la
emeimgs banks see tbe resources segregated, or the reservers agelme
t these
deposits should be the same ce agmlaitdensatl deposits. Peibmpe an
effective combination of both ideas eield be demised*
kvery reasonable stop should be tabes to improve tho metes of
bank
reports, enamiestione, sad sethocs et deallaig with reealeitrant
balk
directors end offieers. Until & thorough overhauling of eur
enmmereial
betaking stresture le affected, the Seaptrollerts Office should be
given
authority to eseelme and meet reports from every mit in the
dela
and gremp basking systems shish Airo interstate in character or in which
a matlemal beak is mme of the emits*


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Steve shonld be taken to remove all obetaeles to Genteel which ere inbersmt Is the structure of the, Federni Rev!rwo ersten4 mod febAcv, now
hamper our Misoarve authoritis.

That OUT bLnking grates is cut If joist end in need of overhauling
seems clear. It is also vial understood that eat of every hominess +=isle
SOW deetiads for revision of our banking laws. It
a national habit
dospite the ftet th.t we know me already, have our )m..,.nkerr in legal straitjeekete 'ram' omparad with th:. freaks /Pm to benkfro in such a eenntry
es Ihgltnd. lovortholeat, this eeeas to be the ealy
ssy to
correct wasting defects, sines we oaaaat aftard to perpetuate our votes
of little mat banks, wit Its emeteur bankers, with its isebilit; to
cope witb modern business problems satiaftotoril7, and with its tram.
momdess slumber of bank failures which hurt ecused usiessurltd lemmas and
untold misee for aillioms
dopes/tore, :20rrowers, stcekholders, officers, sad directors, shoo hvvo striven -711D.ntly to acclivulete s little
surplus 'bleb will afford them security im tht evenint time of their live**
The Comptroller of the °wreath, beton: the CUrrerey Committee of tho
House of Representative, investigating ifrAp, chain, nod braneh bankimg„
painted thc jeturc vividly when be seid (in February, 1950)t "Mier*
no more distressing sight than
group of cititens, men and weeem, GloverJag Were the elosod doorr of t bsnk hewtiling the loss of their eavimge•
Thom, lessee fall upon the best snd moet substantial eitisens in the
comenalty sad *any of them nevar recover their previous fiaaseial somdities, Multiply this local eveat by nearly 6,000 ene scatter it thromithout
the groat agriculturyil states of the Onion nod the magnitude of its offests
reaches astounding proportiJns.
"It is estimated thAt 7,264096? de?ositore hove oontributed to ths
great total of mere then $1,70010001000 of deposite in felled hanks+ duriSS
the past tine years and that no lsa; than 114,))0 shilreholders hic,v* suffered
lospec Waramch these suspessiouse* 1.8)* * *
tragedloe of depositors and ethers tear. in e eenstry that is
eapp000d to knee semetbing about hor to devise laws to motatct the mooty
Against maseued seelal institutions and devites, ars a sarrieleull sooner la
themselves to thee* mho imsist that the laws do not need revieion. It is
oertainly hizh tint tht-,t those interested in the welfare of the depositors.
the imam man and
and the public in generel—und this mew tbe
legislators, the pees, the social seieatists, end theme outsteuding bombers
who see the benkimg business in its proper settimg--Ohemld join braika sot 4o
all this's possiible to sorreet present defects so that the losses sled
tragedies which characterise our present banking system will speedily smd
definitely become events of hiztory without probability of resurrenee*


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(6) Vol,

Pt. I, pp. lt-14.

PACIWZ9Ss Prederisk A* Bradford-.

froircesor apahrms analysis et the owes of bask failures.
I fool that be has filled sufficiently to dietinoish betiseen thee*
canoes *lob ore of f04%.reeehing imports's. amd these ehieh are of
suer or soeesdery signifies*** Thus, ta the dieemeetme et
the
detests ohleh aro isherent to the orgmais 'trusters et our eammormial
hanks and bembimg system. ao particular *trees is laid em amy
ose
more of the slaves defeats doeuribed. yet it seems apparent to me or
that the poor quality of the ammagememt. of the smaller bosh&
espesially*
is of untainted*" sigmifieemee. While the variety ef juriedidtiem
*Lich our bombe operate* the ommemeive melber et books. amd. in e under
states. the Worts. brood of balk espervisisse are also more some
iapertamt
than the ether OWNS defects, if them mostioned eould be remedi
ed. the
ethers geeld 'array take sere of themselves* I home little sympat
fir exesple„ with the notias that it is impossible for a beak los hy.
erep roam to diversify its hesiaese* %der sound mmaimplumigt akaallis•
balk mould issist on holding a tar properties ot its remoureee is epos
merbet pmper and high-swede, marketable beads. While somfluims its lemal
loess to tho very beet Amble* I also question the imams, in invest
igate.
per so. as a legitimate ammo ef beak foiluree. So lemg as the isvootmemte
awe in local mertgages, the Welk ilesemet, it is tree. strosgthem ita
position. bat probably useheam it. Investment is high-grade. marketable
seenrities. however. sersoly
belpimg to atteia diveraifisaties, would
have tended to diereses rather them to imams, the mumber of
small
eemstry book failures &rim, the period pcior to 1450* Melly, althou
gh
I ma quite aware of the deism of investment affiliates of sommer
eial
bombe. I am, not convineed that they have played emir groat part in
the
meat detail* of bank failures, except in the ease et the IWO 0 the
Omited Stoteelk
Inadequate sestrol et credit by the Federal.'Merv, authoritia.-heftiest apehrom semomd major muse of beak fallares....seems to me to
hmve bees ommomhat Orefflabuillisd• 41
**
nth regard to the possible esrvectivee of the emeatisfsetert bankJag situatiea is this eoustry. it memo to se that porateoive
%roma
bemkimg 411 a rather wide esale asd higher capital roquirouesto for emit
bombs are mere ompediest them the other ohmage& whieh Professor
Spahr has
sumgested end eseld probably more the desired reoults• I sever
de
qmotims *artier Withers to the offeet that *geed baskimg is prodmetire
od.
mot
Wooed lame. tut by geed beaterems Shen the bombers or this
anaktry.
teams in the aggregate. leers that their first dsty is to their
met their borrowers, mad that a* loan or investment which jeopardepositors.
dises the
esfety of their depoeitowl0 bads is justified* there will bo sompar
etively
few failures. ahatever the bembiag lava may be*


Ah
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Federal Reserve Bank of St. Louis

Theoretically, the maalleet snit basks ean be soundly run, but
often,

in practice, they are set. It would seem desirable. therefore to
permit branch banking sod to raise the mdmiems eapital rec,uireienta
for volt banks as the meet prebablpl and expediest mothede of eecuring
tor legislation the type of beak memegement Ohish is esseatial to a
good bankiog system.
* * *•
•
•

l'es if we insist thvt hanks should be able to weather my sort
of coadition that soonest it is only fair to then as it is to otber osehere
of our esonestic organisation taut sommd and effective mesbanisms be devised
for the stabilisation of business at bone amd thLt the eleeest istersational
financial es.operetion be fostered to the sad that external disiewbesses
may be radioed to a minimal.
quite agree with the two papers, however, that even with a stable
ecomarie enviromment our basking sarstes swift ossoiderible inprovemest.
we swot not, hemmer, fell to wershippiag moboolons mash as less,
regulations, sod totem' supervision. The ooly dopoodoble melbed for
achieving better baskimg is to develop bettor Wakiers. Send bunko aro
not necessarily member banks, uotioaal beaks
'
brossb basks, or large
banks. Shen all of the sets of the present booking tragedy have bees
written it will be feud that no type or system of bankiag vas free fres
the reekieeswies, 'rood, stupidity, amd dishonesty each have bees primmest
in the existimg sitnatiea. It gees without goyim' that a bask with larger
restore's, more careful supervisions greater opportunity to diversify
risks, end abilit3; to command better umooserial talest, other thisgs beteg
equal, will be better able te veather storms but eves ersh an instituties
will subject tbe stoehbelders end patrons to heavy lessee valeis it ia
wisely and homostly umnaged. The ability, oemservatises emd highly developed
Seise of obsonwilbip et the leglish banks are emabling then to weather meporterbed storm eves sore violeat than our ova banks are smoommterimg.
Shile there in mob to be said for a single national astern or basks
the ease is not quite se smem-eided as Dr. bpobr wouLd he's vs believe* We
have already duAped upon the central government so many of our local
problems that it is iintible to grapple with then attentively. While seme
of our state laws sod supervision systems are mot quite up to the stoodarde
of the national system I have found that the plane upea which bookies is
dons ta mar gives sonswaity is pretty web the same far asthma sad state
banks. The mistime ef dual system has permitted better adaptstien to
local seeds end. threegh the interchange of ideas, has resulted in greater
progress* As has bees the case with state-wide true& bookie', sae 'tate,
California, has served as the laboratory vithont the libels ementr, bevimg
been subject to the necessity' of emperismating with a sew VP* we
beekIME
structure.
I quite Wee with Dr* Spahr that the small book should be elimiaateds
brhnch banking be given a semelhat Drew bend. Shot stricter, as mall as


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Federal Reserve Bank of St. Louis

-12more seleatifieally devised, mulattos& be made lath rospeet te leers,
deposits mad reoerwes, and thst v better type et supervisios be prowided•
it iv still desirable to amphaelse the feet, however, thst the best of
regulations asd the ablest et supervivion will not sake ear basks failureproof in the fees et stupid and dishoaost masagessat.
*r. Spahrie insistease that every sommercial bash &sold belong to
the federal Reserve system mete with my epproval provided be wain** the
tors *bask* V3 these institutions that are esemereial la fait as well
an in name. Amy of thee* beaks that are still outside et the system do
est small a volume of easseretal betaking as soareely. to warreut l000roo
bent esebereltip•
. As tor the stricter reguletios et the irmarhmoWidepostmeste sad
Inweetmost &MILO** of basks, I would go a step terlbor sad lasts% that
**less this type of fieeeetel movies can he rendered without Waging
distrist mpea the thole iustitutiss it eight bettor be denied te mar banks.
TIM departmeat store Sims la nesse* is ia iteelf a thoroughly eomosadeble
ems sad I see se famdommotal roam tor derivift to either qualified motional or state imetitstioss the right to eagega in the whole genat of
fiesacial serviees. provided that a usiforely high standard is maintaised
le wary department.

if eoselosios le that we sheeld perfect our tusking laws set the quality
of supervisies to the highest degree hat thitt we abould regard those as wily
of miser importaeoe in our quest for a fallure-preet banking metes* Ihis
latter condltioa we eaumet ashisiel yeti' wo have placed 0010. geed buskere
chii.rge of 411 of ottr benkiej lastitutions.
* * * I think tbet the present soggosted ohmage, is
salUsmallika—
reserve requiremests of beaks, however bagel they mey be, sae et best
be *Ay• temporary relict. The are elAempts to sere toll ose pert of
a diseased body, whoa probably the entire system needs wadies' ettemAlos.
Professor ipahros paper ea bask fallawes builds a wea7 stress ease ler
beak refers. It is Moly that le shall putt through this provost
depressian in a, year or se sad shall then feel that our bashing elitists
not se bed after all, Seuever, the record of the pas& tea years elail stead
as a memusent td costly experiamatatismo
hors vitammed thi* lisestamar
of our benklag laws to met satioaal 4111111,14641.016 I an well aware that,
as has boss pointed oat, banking lows do sot asks good banking, but thht
good basking is attributable to the beakers themselves. let we bare
drays up for the honkers elaborate codes whisk would stteopt to set strict
limits es the bombers. That thaee limits him been overstepped le common
knowledge, The ass pareaeuat object to be desired in ear bookie, glisten
is adeqsate sad safe basking. It is bard to COMMOMPO low this eau be
oilseed eLth forty-eight differeat *apartment station, esch with ita
ovn individual la-s, es we have la this country. I an in accord with
Professer Spahrta soatenties that e system of bras* hasktog Is a solution.
I do mo6 believe that brae& banking is a pusassa, yet I feel that it woad
provide• united frost ehishaight offer as opportunity for uniformity of
control, Seeking, ss moo serried ca, is essestially isterstate is


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Federal Reserve Bank of St. Louis

r:

sherseter, ac have been altogether too individualistic end UMWoperative in thic buelmees, ,s is witnessed in practically emery bookine
sommity of the entire country. I reel that the price 'high le
see
Wog paid is altogether too high for perpetuation and eentiguatimi
oor present oest4 mutest.•* *
H. runs.-* * * It is true, homover, as Protegees Bell bee ao ably breeot
out in his analysis of the mature end olaseltiseties of bank deposits,
that time depocits ore by fte osilas beestellesea• A NNW sigregstioa
law should limit the protect's* to eavioge aosouldsoseml shoal aet
include all classes ot time deposits, *Joh may include large **pita'
accounts. More thee twenty rars of experieace have eurviesed the
public sad meet beakers in California mad °mon of the advantages et
see:cooties evem thee hemdicapped by unsatisfactory olessitioattea of
Lecowats.
* * * * *•
•

ilte proposal to brims ell evemersial beaks soder estiseel egateaa,
Is not mew, but Ise brompht into prosaism,* some momths odir
ohm
advocated by Owen D. /Oomg before the lomat. esmailloo em keeklog
amd
Ourreasy. It must be admitted that froshmais low bee operated la the
field of honking. /hers hoe beea epee to bookers the 'beim of
too
codes osier shish they might operate their hanks. Um etten they hew*,
Chosen the eme oith lower *spite' requireueote or looser soperviaion.
Our overbooked eemdition in memy states sea be attriboted to laxity in
laws and the osopetitlea terisedbere seder two erotism. Against this
must be set the galas from a davelopmeotol potat et vice et eoperismatation
end freod3s from monopolistic control of booking rooftrees.
It we wooed. that Cemgreos bee the power to establish a single tasking
system. we met still recognise that sook straw most be threshed beers
such a fair-reaching proposal am booms the low of the lead. Seantism, as
a practical proposition, it osema meet desirabl, to move la the direction
of a single syeten through stemderdisatima of state hankies legislattm
and supervision. * *
ftisting banking codes Is the seven states eseprieleg the Tweifth
Federal Meeerve District are barely e oterter of a amatory old. The some
asmditioa, with modificatios is typtsal laterally. In roost years the
treed of state logislatioa aid supervision has bees teuard deeidedly higher
stamdards. The old competitive spirit has disappeared. In ite stead
we
rtmi trowpsystion with the comptroller's dispertnisat sild a desire to briog
the lmoo ap to the beat steadied* of the matimmal temhimg emit. la tbc
natter of capital alone, states Isms adopted the mistmem requirements of
the national law.
In sly onn *tate of lashingtoo the past deeede hoe
witaeeme
distInct tread tosard oewardimatiea et banking policy. Perhaps d a
more real


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Federal Reserve Bank of St. Louis

74
;

§

progress may be made or ofteantrattog our maw upon bolsging
the stamderd of stale booking than in looklog toward the Ideal but
someehat dist.nt and emeortala goal of a single natimmel system of
°monomial banking.

Protemeor Lpahrim proposal for branch banking deserves eapperte,
Moreover, we Should establish * natioeal pelic;, upon branch and group
bbnxing. the leindden Act in sUbstance deelared against istereemewnity
branch banking sod left our national banks subject to state logislatim
in the establiahmeat of city branches. The result is that in many
e.g., &settle, group bulking
cities where branch bsntini.
easeeded that brae&
generally
has beeome the dominant fore. It is
The
remelt of this prosomt
permitted.
if
ecow,nic
basking would be nor*
to bosnOboo•
are
oquivaleat
of
many
whica
Imo Jo to give us groups,

It in inevitable, however. that the agricultural sectiome of the
tatela and limed& ettl hews a iLrger number or banking offices.
Mospits the vidoning se the trade area ar improved roods amd the nee ef
the automobile, the mall teem is still the seater of Wiliness and
nada/ life to a large proportion of our rural population. Oeneda, today.
has almoet double the number of Ixasking Wiese per capita that we have
in the United Oaten* A bramek Usk cas be neintainad far ears
mmagoall7 'ben an tnAmpondootimmiL This palate to branches es a
method et providing banking services to small teens. bone etatee, *4*,
Loon. boom airoedy authorised brsnek *banklethranehee oily in tome
ober. me independent bank is in operttion.
While reeogniting the outamalos of bras* banking as Inevitable and
dooirable, an anfAysis or the most pest ouggsete that we most prosood
'vitt ceutlon. *each end group systems have boas thrown together boo
rapidly. .5ystems heve beer entanded hater thee the elite meld be
integrated. Life..leng emit bankers hews boos tempted by high prises for
their banks and higher salaries than they have dared to pay themselves to
Nicene pert ef a group or breach systeL. But they essomet edinst overnight to the nee order of things.

lieday we may find branc*1 systems loaded with henvy ovelhood, nontrolled by absentee owners, unable to unify and co-ordinate the moemeement
sad epwatioas. The making ever of a system of unit banking into brash
bumble' will bring in its train grave problems. It rill require daesdee,
sot years, to asoomplish it suommiefully.

loom or later alemerest. must deciCe nItiamal policy regarding
breed' sad grasp banking• lbe information obtained at the 1930 end len
hearings of the Meese end Senate esemittees will soon be supplemented
by the findiegs of the Federel Reserve Beard's Committee em iremok, Group,


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Federal Reserve Bank of St. Louis

-15-

and Chain Bxtuking. Tith this and other available inforw,tion a sewed
?olie should be formulated. In the formmlation of this polioy belabor*
muiit assist, but not dictate. Senator Glass has skid that all of the
opposition to branch banking has comc fro* baster* and beakers' organisations.
••* * * ••

first branch beuking quebtion to settle in the eree
Pcrhaps
over which a bank may sates* its branches. City branches should be
&limbo; univerbally without regard to state lev. The dream of natinvids braneki banking is ever. iirobably the first step Should be to
limit branches to state lines or contiguous territory. ?rade erea
branches ma4 be feasible if tut trade are* is unrroyly defined at first.
In any event, brkner. exp&nsion should be subject to restriction and
control.
Group banking shoulo be brought strictly under the supervision of
the comptroller where any member ,f the group is s national bank. Soundly manage:.1 zrJups add etrength. The evils of -..insound management have
been deaaastrati7ed iu such groups as tile iiankers' Holdimg Corporation ef
Seattle, or the Caldwell group of Nashville. %moo experimmoas
demonstrated thkt group membarship may be a disastrous liabilit7 to a
nucceusful local bank drawn into weak or speeulative company thmagh
gxoui; affiliation.
rurally, I would agree heartily with. the pretryus speakers who have
• solution of hank failures. ThowAnee of unit
stresaed managemest
weathered the stomm and stress of 19!0 and 1931
saceasetUlly
bank4 huve
have brought condewnetion upon our present
failures
years whose wholesale
bran& and Frown system
poorly-administered
time,
the same
system.
A
banking structure aone,
changed.
results.
disastrous
Eva, iota*, dovu
stability.
of
a
be
guarantee
not
therefor*,

The state booking department in Reshingtaa boa adopted a gamaral
policy of tamer and stroager basks. (The majority of small boobs Imo
state ohortorod.) Workims osastructively ups. this policy, the department has beam able to complete cial7 three intarmammmmity mergers. It
would not be a serious hardship in oopr sore mom to morge books so that
they would be limited to trade aroma of sufficient sive to support a
hank adequately.


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SOURCE:

THE NORTH ARERICAN MIES-1951 JULT--DEC.
AfE BAKERS INTELLIGENT?
by
George E. Anderson

100 agars, ef this deProssion 44Xes tt a yaws kortthest amppAgg
itiMMUMUNI
There seems to be no question of the abmmemi statue of the
average booker. Not Lamy years ago he was, dieremeadine sex in
metaphors, the omen bee in the community hive. About hin revolved
all sorts of 'immunity sotivities from chureh sociable& to the
bmildimg ef the new plee factory. On his good will and assistance
depended all new enterprises. TO him cane all the secrets of the
lems1 business world. Ne controlled the destinies of the church,
the local chamber of eemmeree, Iivenis, Notary, tile country elub
and all the ihat,sacts of his hems teen. Through such and many other
inflmenees he enjoyed an enviable essial pesitioa. He was a power in
polities beeemse, from kmeeledge thus &aimed, he knew which strings to
pall mmi her to pull them to shape the destimies of his sity, county amd
State. Me bossed the city through legal business mommestions. Re
bossed the esentry throuvh farm loess sad rural business eonnectians.
The attraction of State govermasat dapesits etten led him to dip heavily
into the larger affairs of the commemealth with no mean sueeess. In
him, accordimg to the prevailing opinion of his eciateaperariee, lay all
the beeiness videos of the ages. At all event* he emmtrelled the parse
stria's.
It would be goimg tee far te eay that all this bas ohamged. Ummy
bankere still enjoy the posers smi privileces enumerated. Perhaps ta a large
majority of oommunities the UMW,iS still the kin. pin in the legal merks,
bay beakers, like espy beaks, hem passed through the (hanging tartness
of the past few years mmd have emerged greater, stronger, mere authoritative
than ever. Oa an average. hemmer, things have Ohmage* semsiderably. There
is no longer the ammo prestige in the banker's position; his authority is
not quite eo obviene. laperieacee of the past three years have dememstrated
that financial idols in metrepelitaa nosey centres have feet of taw. May
have made mistakes *high have oast themselves and the Isometry much. the
looal beaker, too, hes made mistake.--shaetly, ealanitoes6 Sams of them
have bees such as to paralyse whole semaimities, embarrassing. ghee they
have mot reined, thousands of people at one ral sweep. The eggxegate
results of these mistakes are overwhelming. There are certaialy logy
mama why the average banker has lost his peens emd his prestige ta hie
sommmaity--many reasons and all good.
It is ammeesemery, of sours*, to rub salt in the beaker's wounds.
For the sake et ergemeat, Weever, it is nemeseary to remind him and ourselves that in the past tea leers aae-third or the nattaa's banking
institutions hews sliest Voir deers involuntarily* that in itself has


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1
Federal
Reserve Bank of St. Louis

4.1.4.101.

Are

Booker. latelligentt.Oeorge E. Anderson

geed points. there mbre too mamy beaks, esposiall, too mmmy amm12,
leak ones. A large wisher of them should never have bees berm* Ole...
fOrtemotely these balk suspensioss home involved something mere this
the beaks ma the beldam They hems tied imp billies& of Mellow is
deposits, hare emberraceed literally millisms of depositors mod thousand,
of ocemsmities. working ruin au the Waimea, mms, the wage earimerip the
widow, the orphan and, of essree, upsa the lossior himeelf in a preemissa
daps,* lhommds of bombers beve lea everythimg they had in tbe world,
isoludimg silly tee often thallium ellieh mem prise above rubies.
It world seem to a perms of ordinary imtelligesoe that in view
of each a state ef things the tanker would be the first to do something
about it. 1hat presumption is arromeems. The banker has not auXY dabs
aothiag about it but he has preveated smy awe sloe doing amythimg about
it, Every ems (salter el* the subjea 'egoist:es the difficulty et
bask refers* Changing the fOrm er sdhstamee ef the banking system of a
natio* et a hmmdred *an tasty sillies people, resting upon a semplioated
belly of lave built up mot slily in the nation itmelf bet also is sash et
forty.eicht putative severeigs States, is sot easly. Nevertheless, after
years of observatims amd emperiesse, the matborities is leshingtes have
evolved certain Woes et progressive refers to Mash they have semght to
give reality. Amer these may be mama bras* beshipg, 'high meld enable
area( banks to supplest weak lesal basks is rural sommusities; imoreased
powers of supervision fOr the Comptroller et the Carrels"; a higher limit
for minimum espital in small tasks) membership of all basks in the Tederal
Meer, erotism sad mare strict antra of member beaks within that systomo
end the separation of savings ma ammososial bulks Vlore the tmo are
sombised in am* imatitutios es la se generally the ease at present. Above
all is the matter ef the osmtrol of credit amd the elimination of all weak
asd tomaleseme small State bombs amd the eashliehmemt of a unified swage
for the whole sountry 'oder seise firm ef astiasei supervisies and sostrel.
It mmy be admitted that mo eme of thee, reforms vould afford immediate
relief frail the primmest acute sitmatiosi asy ewe or all of them would require
time nu. beneficent resmItel probably all of thom would sot result in a
perfect systesi bet smy eme of thee would have indisatei seme progress teward betterment,
Iles the beaker advesated amy of these referee? lle has not. lremob
booklet has beem opposed by practically every small bank in the oomstry*am& gamy large IMO, imereased supervisory poser for the Comptroller has
bees bitterly resented ir mewl,' every mistime' bask as an inessies ef its
prerogatives although eider the present law the Comptroller am net even
*afore* existing statutes sigaiset resaleitrest beakers abort of moving for
the forfeiture of their 46411144116 Small basks realise to imams. their


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Federal Reserve Bank of St. Louis

'
•-•

-S.

Aro aeskoiro lattolligent?-4-George

Mums

"spite' although admittedly their very existenoe foss dm' te day 140
often endmmored by the inadequaey ef their vetting fonds* lmeteed
of increamiag melherehip in the hderal 0001,0 the number
neeher
banks is deereesimg. Small beaks dela that they een not affOrd to put
more mew into their Waimea. or beano meathere of the Federal Mieerve-tee peer to de businees safely but cult, willing to pley with other
peoples new at other people's risk. Commereial banks refUse too pert
with their swifts departments lest they leee deposits, although they
recognise that they ere a senstamt threat to their liquidity* Ma short,
not a simgle neemere of beak reform has been proposed by dominant basking
interests; met a simile meeenre of such reform prepeeed by othere hove they
aocepted.
Although the Iimptreller of the Currency, the Federal Meeerve beards
the Soots earditbse ea Seinklag amd Cinema mad at least a Urge minority
et the Nesse *mattes em the ease sehjest are agreed that no edequate
eemtrol of aredit end me safe bemkimg ayatsursaa exist in thie sommtry
eneept umder a vattlad system of booking mkt aational control, prebehly
minetromime onewhomdredths of tbe twelve tinseled State benke mew doing
besimeee ere reedy to faint with horror at the idea. Movie( embalm
advaatagee in the possession et State ahmlonso—mactly la the way et
loose eemtrol amd the privilege of meat, bembaug practice—they do met
promo to give then up, ssmaigtmla amid them some.
Merida, indeed, is the milk in the occoamets short-sighted end LOW*
anode opelfishmees em the part of the dominant element in Amerieen banking*
First of all there is the desire of the seem* small toms beaker, doing
Wetness under a State eherters to retain em asfair—ead Imeefe.edventage
ever a rivals usselly * national book* Ste motional beak rival testate *VOW
the right to met ampstittas ar preetiese equally unfair and meas.
this rivalry es& le equally ready te MO the law, if any, ditch woeld
provost imessed beskimg* qmder this rivalry sash insists epee the right
te control his book aotettbstaadiag law, pmblie policy, or the geed ef the
general publie. Admittimg that many of their practices ars eneemmdm-and
results dememstrate that they are Imecond *tether it is admitted er met,
—
they hope memo way or other to got by in se doinv-driftims, drifting,
driftimg in a leak, boat in a boisterous sea with a reeky ahem ahead et
thee straw with the wreekage of ten thessamd banks deetrerell to 4011704
,
94,
lbw, there is the matter of Jobe—jest plain, everpday lobe* V
hearts mere ages, all desires keens sad as esereta hid, beer mmmy bashers
\\,,,
would be femme opposing brush banking, fee, sample, ter fear that brume*
(
henkimg or bask
meld mallow up their ova positions? Mee Emmy
\
beak offisers bake marillingly followed emeafs buskin presticee et the
behest of interests which comtrol Jobe is the bean Mee meg, hookers heve
lost their
, their positiems is their eememmities, their homer,
their al1 ard
en of nally of their depeeitore
Vein effort aire4
to beld their jibe MOorammy big fregs in little puddles km risked ovarr.
thimg for themselves emd their elients for few et besides small frege le
big peddled


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Federal Reserve Bank of St. Louis

4M104.1Pli

Are Bankers Intelligent?—George 1. Andersen

Consider the earreweinded, pareehial outlook of the great
onjoritw of small tees beakers *Lek may toe many of their large
teen oollesagmes are by way ef shemime if not exceediag. Hew many of
the *verge run of bankers operate their institutions as parts of the
great eatiemal cracit and fiamasial mates shish they umdeukteAXY
are whether so reoognised er ma
memy of them have the vision to
seep barged the limits of their eon little bailiwicks, the larger
nevemeats in trial*, tissues Da Andestry which in reality =Irk the
smesees or failure of their eemiermostieme?
Of worse toe mach amst matte awaited et Woken spy mere than
free any other class of oitissury• Maskers are quite hommag meet of
them. in Awl* rather ordisorillyIemess In evaluating Niglio. te ouch
questisas se the shove, due regard must be had ter the ussameeses sled
foibles ef boson mature in every sulk ef
to every eemmtry nod in
ever* age. Sere nest of us in bookers, ahem, it Le quite prObable that
We would be tend doing exactly what the balker is sow doing. needing
the foibles sad veabmesses of human nature, believer, is no justification
for a oantinuation et * state of things which threatens the well-beiag et
a nation; nor can spy emsuat of explanation as te eby thiags are as they
are ternish a satisfactory excuse far their beiog se. loreever, if
bombers sore eeteally profit's( by e esatinuemee et preeeat conditions,
the explanation siiht be sere sassimeims. Oa the 'bele it le probable
that no clams of pimple gaffers mere tram the present state of Marlow&
banking than Merton* banker's themselves.
the feet As that• continuation of present bamhimg methods under the
existiog ememelems system or Leek of system la of advmatege to no one in
the isms rum4 itierytedy, in the lemg rm. mould be better Of under c
mined. sates motional eyetem. Sae being the ease eae is led to incuire
he, emd Why things are allowed to ge on as they have been going. Clan
bankers eee what is to their ma best interest? To pet the qualities
bamstIla are bashers intelligent, The lomg wares et bankiag disasters in
the past tea years, the vast saiority of shish have bed no emsmemties lest.
ever with boeimees Aspression, readers the question lees impomlimeat thou
sight at fired appear. On the whole, perhaps, we eel sessamde *het the
banker ia intelligent, but this moncludea is predicated "peel the coaditift
that he change hie liOwS of thing* end his way of thinking and be right
quick about it. There ems no larger be spy questisa that there Is semethiag
radically wrong with the American beihimg system' 'hien, judging by the se.
perigee* of other oemmtries, intelligens. eon losable end correct.
It would seem to be the part of intelligence ea the pert of the
average banker to sob to it, for his own peace of mind, for the sake of
his own investments, his mu
tation, his our job, met to oration his
duty to tbe pmblic, that
wells are eorreeted; aad to saerifioe, if


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Federal Reserve Bank of St. Louis

-6-

Are Beakers Zatelligentt-Aserge 14 Anderson

Need be, email preeemt interests for larger and more peruemmet interests.
Present reInctamee en the part of the bombers of the limited States to aeeept
bank refers not only threatems the momminess of Amerieem fimemeee emd the
well-beimg of every nen, woman and child in the country bet also etmmde
as a monumental simmplifieation of a crass lack of appreelation of their
rim position. Semik reform mill come promptly whoa bunkers agree to it.
The beet neessre of bank intelligence at the preeent time is am intellUmmt
appreciation ef the fact that the regime of irrespomeible plume bombing
must be does away with if tho booking fraternity is met to suffer the
epasequesses of the wrath of a lens suffering, outraged and me upper
patient people.


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Federal Reserve Bank of St. Louis

•

Referendum No. 63 on the Report of
the Special Committee on Banking, Part TI
Chamber of Commerce of the U. S. A.
December 9, 1932
Committee Report

Branch Banki.ni
The Committee presents a number of recommendations with regard to branch
banking,mhich tt considers to be one of the most important subjects treated
in its report. The recommendations, followed as a group by supporting statements, are:
(1) National banks, unlimited by restrictions of state laws, should be
permitted by federal statute to establish statewide branches, provided that
in any state continuing to prohibit statewide branches of state banks the
federal statute should not become effective for a period of six months after
its enactment.
(2) Any grant of branch banking powers to national banks should be given
also to state member banks of the reserve system, subject to concurrence of
state laws.
(3) Statutory permission to member banks to establish branches should be
conditioned upon the approval of administrative authorities, subject to
definite requirement that the capital of a branch system be at least the
aggregate of the capital that would be required if each banking office in the
system were an Independent national bank.
(4) Administrative authorities should be granted porer to require a
showing in case of the application for a branch that the general condition
of the branch system, as well as the conditions under which the branch would
operate, indicate the probability of successful maintenance of the proposed
branch.
(5) The right to establish a branch in any given location within the
branching area, should be denied if there is an administrative finding that
the banking requirements of the district of the proposed branch are being
adequately serviced.
(6) There should be legislative grant of discretion to the administrative
authorities to require suitable notice of intention to establish a de novo
branch or to acquire branches by merger, as well as of discretion to withhold
final approval for a reasonable period of time.
(7) Subject to the concurrence of the Federal Reserve Board, the authority
to permit or deny branches should be given to the Comptroller of the Currency
with respect to national banks and to the reserve banks with respect to state
member banks.


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Federal Reserve Bank of St. Louis

********

•
- 2Your Committee believes, however, that one road to improvement of aur
td,/
banking situation is the orderly and carefully regulated development of branch
banking. The loss of the independent status of some banks, not now in a
position to protect fully the safety of the bank depositor or to furnish
adequate banking facilities to their communities, would result in benefit if
those banks should be converted into branches of strong banks. It has also
become generally recognized that there must be careful avoidance of the
creation of unnecessary institutions whether they be unit or branch banks.
Considerable hardship has been experienced by some communities because
of the partial or complete break-down of their banking facilities. In
instances it is difficult, if not impossible, for local interests to assume
the entire burden of re-establishing needed banks or to protect adequately
the capital structure and deposits of existing banks. In a regrettable
number of cases, in the absence of branch banking, weak national and state
banks continue because no available means offer to affiliate them with strong
institutions. Branch banking would provide
solution to most of these
problems through enabling strong, well-managed institutions to invite existing
banks to combine with them and strengthen the facilities offered the public,
including the establishment of such offices as might be required in the
smaller towns and villages.
The Committee has reviewed studies of branch banking made here and
abroad, and concludes that doubts as to its broader applicability to our requirements are umarranted and must yield to the needs of the present situation. It believes, moreover, that branch banking, if it is to be effective,
must be so devised that each branching area shall include business centers
possessing adequate_financial_ strength and shall embrace a_reaeodare diversity of agricultural, business and industrial enterprises. While the most
desirable diversification may not be secured in all instances, the Committee
believes that state-wide branch banking will greatly strengthen the general
situation and will provide in a great many states the means of sufficient
banking stability.
********

Because of the prohibitions upon state-wide branch banking by national
and state member banks of the federal reserve system, which furnish about
sixty per cent of the banking resources of the country, and the fact that
either limited or no branching privileges are permitted state banks in many
states where relief is needed, it is imperative in the interest of general
improvement that branch banking legislation proceed from the Congress of the
United States.
********

* * * * * * In particular, it is of high importance that the properly
operated unit bank which is adequately serving the financial interests of
its community must not be subjected to unnecessary or uneconomical competition
from new branch banks established by outside interests. Sound banking requires also that branch systems should not be built by reckless competitive


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- 3-

•

bidding for the shares of existing banks. If the "over-banked" condition which
exists in some localities is to be avoided elsewhere, there should be a curb
upon any unbridled race for supremacy in both the number and extent of banking
offices and upon those forms of competition which compel a bank to enter
reluctantly upon branch banking in order to protect its correspondent banking
business or to maintain its position in the financial structure.
* * * * * * It would be fruitless, therefore, to propose branch banking
as a strengthening measure without requiring that there be demonstrated
capacity of management to cope with the problems confronting it before any
bank is allowed to engage in branch banking.
No less important is the requirement that a bank engaging in the operation of branches should have unimpaired capital funds adequate to serve the
needs of the communities in which it does business. In requiring the possession
of adequate capital, the Committee recognizes also that an effective check would
automatically be placed upon undesirable development of branch banking.
While favor is found for the proposal that the capital of a branch system
should not be less than the aggregate capital that would be required if each
branch of the parent bank were an independent national bank, the Committee believes that the additional branch banking powers should be devised with special
attention to servicing the requirements of rural communities and of small
cities. Some limited grant of discretion might be given to administrative
authorities to permit, under exceptional circumstances, the establishment of
branches in such communities if, for instance, the parent bank can meet the
capital requirements of state law for independent state banks in such particular locations.
After its canvass of the situation, the Committee has concluded that the
only effective manner in which the above recommendations could be properly
carried into effect, excepting those regarding capital requirements, would be
to vest broad discretionary powers in responsible supervisory officials to
grant or withhold permission to engage in branch banking. In order that there
may be uniformity in the development of branch banking within the confines of
the federal reserve system, it is proposed that so far es federal legislation
is concerned, the authority to prescribe regulations affecting branches of a
national bank be vested in the Comptroller of the Currency, and the authority
to prescribe regulations affecting branches of a state member bank be vested
in the federcl reserve bank, subject in both instances to the review and concurrence of the Federal Reserve Board. The reserve banks and the Federal Reserve Board should maintain consultative relationships with state superintendents
of banks and other state banking authorities in the matter of allowing or
denying branches to state member banks. *

* Messrs. Adams, Johnson, Lonsdale, McLuaas and McWhirter are not in
accord with the recommendation that a national bank be granted the power to
establish, under limitations, state-wide branches in those states in which
state banks are not permitted uuch branches under state laws. They support
the principle of state autonomy in relation to branch banks.
Mr. Lonsdale records that he takes this position for the reason, among

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4
Note - Continued
others, that since we have a dual state and national banking system, the
autonomy of the states should be respected to the extent that national banks
competing with state banks should not be given powers prohibited under state
laws to state banks. He observes that in recognition of this autonomy Congress
in the past has limited the rights of national banks to such as are permitted
to competing state banks operating under state legislation. He mentions as
examples the enactment of Section 11-k of the Federal Reserve Act, in which it
is provided that trust powers shall not be exercised by national banks where
such powers will contravene the state laws relative to competing state banks
and trust companies, and Section 9 of the Act which permits rather than compels
membership of state banks in the federal reserve system and allows such state
banks to become members even though they are operating branches to an extent
not permitted national banks.
Mr. McLuces records that he would have preferred that the Committee report
of
follow the resolutions on branch banking, adopted by the Executive Council
unit
that
effect
the
the American Bankers Association in April, 102, to
banking laws should be modified only to an extent that would permit, where
areas
economically justified, community-wide branch banking in metropolitan
however,
respect,
every
and county-wide branch banking in rural districts. In
branch
g
governin
he believes the autonomy of the laws of the separate states
banking should be preserved.
* *******

banks
Mr. Robinson supports the Committee's recommendation that national
whose
states
in
be allowed to establish state-wide branches, after a period,
opinion,
laws do not permit state banks to have such branches. He records the
branch,
a
h
however, that no national bank should be permitted to establis
over_an
outside the city of location of the parent bank, except by taking
branch be
existinLunit bank or a bank already affiliated_with it, unless the
state
or
national
established in i-City, town or village where there_is no
a
such
. He believes
baia rektilgTi-Maiacting customary banking business
Bill
to the Glass
Fe-itintion (much as provided in the Vandenburg-iiendment
adopted.
be
should
proposed in April, 1932)

Group Banking
The Committee recommends that:
systems to
(1) Provisions of law and supervision should require group
member banks,
include as far as may be practicable only national and state
system,
reserve
federal
the
of
members
ts
make all of their eligible componen
to
systems
group
within
banking
branch
and facilitate the development of
the limit of legislative grants of power to possess branches.


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Federal Reserve Bank of St. Louis

•

-5(2) Legislation should prohibit group banking aystems from acquiring additional component banks of more than one federal reserve district, except
with special approval of reserve authorities.
(3) Legislation should require that the books and records of a holding
company owning or controlling a national bank and/or a state member bank,
whether acquired prior or subsequent to such legislation, be made subject to
examination by the Comptroller of the Currency and/or the federal reserve
authorities. Where a group contains both member and non-member banks, the
parent corporation and all its components should be subject to examination by
federal authorities.
(4) Insofar as special regulations may be needed for the purpose of expediting examinations of group systems, federal authorities should be empowered
to require adequate reports of condition of the group banking corporation and of
each of its components.
(5) In the case of a group banking corporation holding shares of stock
of one or more member banks of the federal reserve system, there should be
statutory requirements for the establishment and maintenance of suitable reserves, invested in readily marketable negotiable assets, other than bank
stocks, in order to assist the group system in protecting the solvency of its
components. In general, the amount of such reserves should be not less than
25 per cent of the banking capital employed except that in cases where doubleliability attaches directly to the stock of the group banking corporation
somewhat smaller reserves might be designated. Such reserves should not be
available as security for any form of pledge except for the purposes for which
the reserves are required.
(6) Legislation should require that after a reasonable time no component
of a group banking system could lend upon the security of the stock of the
holding company of the group system.
(7) A component bank of a group system should be prevented by law from
lending to another component of the same group more than 10 per cent, of the
lending bank's capital and surplus. Its loans to all components of a group
system should be limited by law to a reasonable proportion, say 20 per cent,
of its capital and surplus. All loans of one component bank to another component should be required to be secured adequately and fully by readily
marketable securities or paper of the type rediscountable by a reserve bank.
(8) The capital issues of a holding company of a group banking system
should be confined to one class of stock; no debentures or other bond issues
should be permitted.
(9) Federal law should require that any undertaking to merge or to effect
other amalgamation of the stock interests of two or more group banking systems,
containing national or state member banks as components, be aubjected to the
consent of the federal supervisory authorities.
(10) Federal law should require that any group banking system containing
national bank or state member bank components, be prohibited from owning or


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Federal Reserve Bank of St. Louis

•

-6controlling the stock of a corporation not engaged in the usual business of
banking unless it has the permission of federal authorities vested with
power to supervise banking.
(11) Upon a finding by the Federal Reserve Board that the components of
one or more group systems control the election of directors of a federal reserve bank to the detriment of the interests of other member banks, the board
should have power to limit or suspend the voting privileges of such group
components.
********

The business of a corporation which controls banks through stock ornership
partakes so much of the nature of banking itself that it is proper to subject
it to public regulation similar to that imposed upon banking institutions. If
such regulation is to be effective, supervisory authorities must have power to
inspect each component of a group system in addition to the holding company.
A single holding company can control national banks and member and nonmember state banks of the federal reserve system. Its national banks would be
subject to the supervision of the Comptroller of the Currency, as well as of
the federal reserve authorities, and its state banks to the supervision of the
authorities of the states in which the banks are located as well as of reserve
authorities if member banks. If its national banks and state member banks are
located in more than one federal reserve district, they would be subject to the
supervision of the reserve authorities of their respective districts.
* * ** *****

To allow group banking to develop under diverse laws and regulations with
comnonents subject to examinations by different sets of authorities, federal
and state, presents possibilities of grave abuse through shifting of assets and
through failure of supervisory authorities to discern the effects of one component's situation upon the safety and strength of other components. It is
desirable that all member banks of the federal reserve system and the system
itself be protected from weaknesses that might be visited upon them through
improper operations of non-member banks not now subject to central supervision.
If group bank organizations are to be permitted to include many weak banks,
or through diversity of law and regulations to visit upon entire systems in an
aggravated manner the weaknesses that may develop in some components, grave
harm would result to bank depositors and to large sections in which such systems
are operating. Unregulated group banking has such potentialities of abuse that
so far as practicable its development should be related in the public interest
to the evolution, growth and solidarity of the national banking and federal reserve systems.
* * * * * * It is readily apparent that the capital structure of a group
banking organization, the methods of obtaining its operating funds, and the
establishment and protection of suitable reserves should conform to rigid
standards applicable to banking.


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Federal Reserve Bank of St. Louis

***** * *** *

* * * * * * The prohibitions which generally exist against the making of
loans by a bank upon the security of its own stock should be recognized in
relation to the stock of a holding company.
4 *******
In its discussion of branch banking, earlier presented, the committee has
recommended that administrative authorities should be pernitted to require a
showing, in case of the application for the right to establish a branch, that
the general conditions of the branch system as well as the conditions under
which the branch would operate indicate the probability of its successful
maintenance; that the power to establish a branch at any given location within
a branching area should be granted only after an administrative finding that
another bank, with or without branches, is not adequately servicing the banking
requirements of the district of the proposed branch, and that federal supervisory
authorities should be vested with power to prescribe regulations with respect
to the granting of branch banking privileges.
It is only consistent, therefore, to urge that group banking systems
should be subject to similar requirements when they undertake to add additional
component banks.
*** * * * **

In the Committee's judgment it is highly desirable to prevent group banking
systems, insofar as they can be made amenable to federal law and regulations,
from engaging in extensive, diverse interests outside of the usual field of
banking.


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Federal Reserve Bank of St. Louis

********

-

• *: .

lg.,
C-A-..merce
WiFI-tngton, D. C.
ILu-1,;.akvr

Walton L. Cfc.ck-r, PreS.,
John Hancock Mut. LifE,
Boeton, Mass.
M. 7..rb-;,rg, Ohm. of Board,
7.T.t.dttInt-1,11 P.:!ceTr.ln(!e Bank,
W-Jc
N. 7.

David M. Goodrich, Chr,A. of BoArd,
The B. F. Goodrich Co.,
250 Park Ave., New York, N. 7.

117.:

A. Lot-1), ChltirmAn,
Tra-.olvents Nc0-.1cnal Bank &
(Trust Co.
Phiiaielphlh,

Alba B. Johnson,
1521 Packard Building,
Philadelphia, Pa.

IV
wvcS! Ara

W. M. Baldwin, Pres.)
The Union Truat Co.,
Cleveland, Ohio.

loolge T. Ladd, Pres.,
United Engineering & Foundry Co.,
Pittsbureh, Pa.

J'hn M. Miller, Jr., Pres.,
First & Merchants Natl. Bank,
Richmond, Va

Junium P. Fishburn, Pres.,
Times-World Corporation,
Pc.mtnoke, Va.

Oliver G. Lucas, Pres.,
Canal Bank & Traat Co.,
New Orleans, La. •

P. G. Shook,
Shook Fletcher Supply Co.,
Birmingham, Ala.

Felix M. McWhirter, Pres.)
The Peoples Sta.te Bank,
Indianapolis, Ind.

J. Paul Clayton, Vice Pres.,
Central /11inois Public Service Co
Springfield, ril.

:ohn G. Lonsdaie, Pres.,
Mercantile-Commerce Bank &
(Trust Co.
St. Lou's. Mo.

Paul Dillard, Prea.,
Dillard & Coffin 0o.,
Mcmphib Tenn.

E. W. Decker, Pres.,
Northwestern Bancorporation,
Minneapolis, Minn.

ffilliam J. Dean, Prea.)
Nichols, Dean & Gregg,
Pt_ 2aul,

W. S. McLucas, Chrm. of Board,
Commerce Trust Co.,
Kansa, City, Mo.

W. L. Petrikin, Chairman,
The Great Western Sugar Co.,
Denver, Colo.

Nathan Adams, PrOS.,
American Exchange N.Al. Bank,
Dallas, Texas.

J. J. Culbertson, Vice Pres.
Southland Cotton Oil Co.,
Faris. Texas.

Hem, M. Robinson, Chairman,
Security-First Natl. Bank,
Los Angeles, Calif.

J. B. Levison, Pres.,
Firemen's FUni Insurtnce Co.,
San F-ancisco, Calif.

L

7.ork

V

Vi
Atlanta

VII
Chicago

St. Louis

IX
Minneapolis

Kansas City

Da13.6.8

XII
6en Francisco

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Federal Reserve Bank of St. Louis

•

Referendum No. 63 on the Report of
the Special Committee on Banking, Part II
Chamber of Commerce of the U. S. A.
December 9, 1952
Minority Report

It is desired to specifically and emphatically dissent from the recommendation of the committee:
National banks, unlimited by restrictions of state laws, should
be permitted by federal statute to establish statewide branches, provided that in aqy state continuing to prohibit statewide branches of
state banks the federal statute should not become effective for a
period of six months after its enactment,
as well as from certain aupporting statements pertinent to its recommendations.
It is obvious that those members of the Committee permitting their names to be
affixed as signing the report favor what is now known as Section 19 of the
third draft of the Glass Bill, S. 4412. Should their recommendations become
effective through legislation national banks would be permitted to establish
statewide branches in every state, regardless of the branch powers granted
state hanks--even, in fact, in states where it has been specifically declared
as the public policy of the sovereign state that branch banking shall be
absolutely prohibited.
This would be as flagrant an invasion of state rights in the financial
field by federal political power as has ever been attempted.
It would force almost unrestricted branch banking on the states regardless
of local sentiment.
It would give auch competitive advantages to national over state banks
as to lead definitely in the direction of a single banking system in the
country in place of the present system of state and national banks.


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Federal Reserve Bank of St. Louis

*** *****

Felix M. Mahirter,
Pres., Peoples State Bank (NM)
Indianapolis, Indiana.

Referendum No. 65 on the Report of
the Special Committee on Banking, Part II
Chamber of Commerce of the U. S. A.
December 9, 1952
Arguments in the Negative
*********

* * * * * * It is now proposed, however, that the larger national banks
in each and every state may operate branches throughout their several states,
upon obtaining permission from the Federal Reserve Board. That the people
of the state had by legislation declared they wanted no branch banking of any
kind within their borders could not make any difference; branch banks could
be thrust upon them regardless of their wishes.
** *******
*
* * * * On October 4, 1952, the State Bank Division of the American
Bankers Association adopted resolutions expressing determined opposition to
the provisions of the Glass Bill "which would give state-wide branch banking
powers to national banks in all states regardless of restrictions as to branch
banking on state banks by state laws." The resolution added: "This is a
deliberate attempt to overthrow the sovereignty of our states; it is contrary
to the policy which has built up this republic and would lead to a system of
nation-wide branch banking."

Smaller National Banks
National banks themselves, particularly the smaller ones and those outside large centers, would be exposed to competition of a destructive kind
against which they are now fairly well protected, if the provisions of the
Glass Bill were enacted; for a branch of a large national bank of another
city might be opened next door. The Committee suggests certain restrictions
but, if adopted, these restrictions could not prevent a new form of competition for national banks in smaller cities, with the branches that are set up
possibly taking away business from long-established and sound banks.
It is to be remeubered that there are diversities in managerial abilities
among large national banks as well as in other fields of endeavor, and there
is no assurance, and in the nature of things can be no assurance, that the
only large national banks to operate branches will be tl,ose that are conservatively and soundly managed. * * * * * *
Minority of Senate Committee
On opposing the part of the Glass Bill relating to branch banking, the
minority members of the Senate Committee on Banking and Currency said:
"All things considered, the American system has held up
wonderfully well. ... There is a movement on foot to control the
banking industry of the United States by centralization. .. Of
late years this movement has been becoming more evident. ... Our
dual system of banking has been one of the greatest motivating


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Federal Reserve Bank of St. Louis

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2
factors in ranking the United States the outstanding country that it
is today. Our country is too large, too widely diversified, to expect one banking system to be so versatile as to deal with so complex
a situation efficiently. The American people are individualistic and
so should be our banking structure. ... The placing of aur banking
structure with the now over-burdened bureaucracy in Washington is in
direct violation of the principle of state rights."

Local Branches Distinrmished
It is evident that up to the passaue of the McFadden Act there never had
been any disposition to alter the original conception of the national bank
system as a unit system. Even the provisions of the McFadden Act allowed
only intra-city branches in auch states as permit branch banking under their
own laws. The operation of additional offices within the limits of the city
in which the parent bank is located is not to be looked upon strictly as
branch banking. It is a local issue and contains no elements of danger to
the banking system of the country. The home-city branch is simply a means
of furnishing a convenient service to customers and gives to national banks
a means of competing in customer accommodation with other banks within the
city.
State-Wide Branches
It is in the broader application of the principle of branch banking to
state-wide areas that grave dangers arise. A single bank operating a number
of branches in many parts of a state is in a position to control the banking
facilities of entire communities and bring ruinous competition to the smaller
independent banks.
***** * **

Concentration of Control
Proposed measures for the extension of branch-banking privileges to
national and state member banks will have the effect of materially undermining the unit system of control and consequently the individualism in
operation Thich is fundamentally adapted to diversified conditions in the
United States. Branch banking is monopolistic in tendency. It furnishes
the means of concentrating the resources of a number of localities in the
hands of a few individuals, who have in their control the retardation or
or
the development, as their interests dictate, of individual communities
local
from
business enterprises. It introduces absentee operation, free
to be
pride or responsibility, and an opportunity for the banking business
conducted entirely in the interests of profits to outside concerns.
******* *

* * * * * * But it is in this larger and more desirable business that
the
the competition of branch banking system comes into conflict with
readily
more
grant
independent banker. These demands the branch banker can
be forced
would
banker
and more directly. The result is that the independent
to
ultimately
or
gradually to rely on the smaller and less desirable business

go out of existence.
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Federal Reserve Bank of St. Louis

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- 3* *** * * **

The membership of the federal reserve system is composed predominantly of
a large number of individual banking units under separate management, situated
in all sections of the country. The strength and utility of the system for meeting
a wide range of diversified conditions depends on the maintenance of a broad
membership and the coordination of widespread individual interests. Any substantial reduction of the number of separate national banks and state banks in
the system, through consolidation and conversion into branches, would evidently
produce limitations on diversified representation and the voting power in each
district. The resort to state-wide branch banking would conceivably have the
result of throwing the effective control of the entire system into the hands of
a relatively few interests. * * * * * *
***** * **

Group Banking
Holding companies do not exist under federal statutes, as do the national
banks and the federal reserve banks. Holding companies exist under state law.
Under their charter powers as granted by the states they may own capital stock,
not only in banks, national and state, but also in other corporations. Group
banking occurs when a holding company proceeds to acquire the stock of a series
of banks, subjecting them to a general central direction, much as a holding
company in the public utility field acquires the stocks of operating companies
and subjects them to a common direction.
A question at once arises if, whatever the mrposes with which existing
holding companies operating banks may have been organi7ed, and whatever the
immediate benefits they may have braught in some areas, ownership and control
of bank members of the federal reserve system in compatible with the basis of
the system--a series of independent banks so owned and managed that personal
responsibility can be enforced.
*********

Difficulties of Reoulation
The provisions of the Glass Bill suggest that there are the same difficulties
in regulating the holding companies in the banking field as were encountered
with such companies in other fields. The Interstate Commerce Commission has
advocated legislation which will make amenable to it holding companies owning
stocks in railroads. In the field of public utilities there are outstanding
Banking is like enterprises
problems of regulation by the state commissions.
public utility field, in
and
in
the
transportation
in the field of railroad
authority. Such regularegulation
by
public
that it is properly subjected to
and ownership that
management
tion is necessarily premised upon responsible
of a corporate device,
intervention
The
can be readily identified and reached.
inconsistent with
principle
is
in
ownership
and
management,
both
obscuring
adequate and proper regulations.


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Federal Reserve Bank of St. Louis

**********

•

4Inadvisability of Legj.slation
The differences which appear even in these brief outlines of four groups
bring out the circumstance that each has been moulded to meet the conditions
in its area. For instance, the group in the northwestern states shows an
effort to guard against the effects of adverse conditions in one or more of
the states, through inclusion of such a number of states that it is obviously
hoped that adverse conditions will not exist in all at the same time. In
each case, the conception is of a strong central organization, ably manned
with seasoned experience of the highest type afforded in the area, this
central organization providing not only advice and expert assistance, but
also financial aid. Such a development may well be in its initial stages,
and until there are untoward incidents, such as in fact do not seem yet to
have happened, legislation should not hamper the benefits which may be brought
to an area where banking stability is, under current conditions, most highly
desirable. In other words, the alternatives would seem to be either an
effort to prevent any holding companies in the banking field, for such reason
as has been suggested above, or freedom for the development of group banking
in ways that may greatly benefit agricultural and industrial areas which have
had troubles of a disastrous kind with wholly independent banks.


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er—r-10

SOURCE:

MINUTES OF THE FED. RES. AGENTS' CONFERENCE*Aash. Nov. 1932 (Confidentid)

Page 14 (?)---Pages not numbered.

NATIONAL AND STATE BANKING SYSTEMS OF THE COUNTRY.
(A discussion of the weaknesses that have developed in the
systems during the present period and what can be done to strengthen
these systems.)

(57)
districts in connection with group
various
of
Topic 5-C. Experiences
banking. - Mr. Stevens.
air. Stevens stated:
"I think it may be said that while this system may have had some considerable effect in lessening the number of bank failures, it has not been
satisfactory from an operating or an earning standpoint. I am quite sure that
all of these groups would welcome a branch bankin.g .law which llould enable them
to couvert their group_banks into branches. The group banks under local
management and with local boaiTE-ffave not always been amenable to the suggestions of the parent institution and have had their own ideas about how the
banks in their own communities should be run, and it has been difficult to
bring the various banks into common policy and practice. In numerous cases the
parent institution hes been called upon for very substantial sums to save these
banks from closing, and on the other hand the benefits to the parent institution have been com,aratively negli6Dle."
Mr. Case stated that from his observation of the operations of group banks,
several conclusions seemed to be obvious: "(1) For successful operation a
group of banks requires management of a quality higher than that necessary for
successful management of individual banks. (2) In the majority of cases, but
not in all cases, group management has improved the standards of the group
members. (3) Considerable advantages in the way of economies and lessened
losses can be obtained by group management. (4) Group banks are quite uuccessful in holding deposits and competing on favorable terms with independent
institutions. (5) Banking dangers which may result from losses due to poor
loL-ms, bad assets, etc., or from bank runs, are greater where they occur in
groups than for individual banks, for the reason that if one member of a group
loses the confidence of the public, the entire group is likely to be affected.
(6) Group banks offer to some extent the advantages which accrue frpm branch
banking operations, but the group banks do not obtain a like degree of flexibility or safety."


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•

A Review of the Proceedings of the Williamstown
rnstitute of Politics; 1932 Sessions
0ournal of Canadian Bankers' Asso., Oct., 1932)

******* **

Aserkm_ftkin
It was not only in its international field of action that American
finance was weighed in the balance and found wanting. Both American end
foreign speakers repeatedly referrod to the Inadequate banking system with
which the United States is burdened, Professor Gregory outlined sews possible measures of reform. Although the security-issaing subsidiaries or
the big Amorican banks night have fulfilled a very valuable function, if
they had been managed differently, nevertheless experience had soarinced
him that these subsidiaries ought to be abolished. Ns also hoped that, in
the fUtnre, the bankers would regard themselves as professional men rather
than highly convetitive business nen. Regarding the structure of American
honking, the two most necessary changes appeared to Professor Gregory to be,
first, the unification of the system by moose of the States revising their
banking legislation in line with the National Dank legislation of the
Federal Government. A first step in this direction would be the unification
of the various systems of inspection, since it is the more rigid inspection
requirements twined upon the natiamally chartered hanks and asebsee of the
Pectoral Reserve System whieh keep many banks with State &tartars from joining
the system, ?he second immoral line of rears which was recommended was the
axtension of branch banking, This qp_c_gr banking Diatc.simly weeds rub, but
also attracts a better type of man into th..Aeld t1204 cares to t4M1,
1 rt
*unit banking' ventures whose capital may be only a few thousand dollars and
jih—li_ciasmins may all be tied up in a one-horso town. Unfortunately these
isproweents depend upon lngislation by the forty-eight states. It is not
likely, therefore, that they will he introdused with a rush, In the UMW
while the Ameriems banking system will math as unco-ordinated and as
difficult to regulate as it stands today.

(


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*** * * ** * * *

•
Address by Harry B. McDowell, Vice Pres.,
McDowell National Bank, Sharon, Pa.
31st Annual Convention of
National Asso. of Supervisors of State Banks
Philadelphia, July 1932

** *** *** **

This subject of branch banking--both as a theoretical system in
America and as a banking process tending towards further concentration
of our money power--has been before bankers and governmental authorities
for many years. In 1925 a futile attempt was made to put the American
Bankers Association Convention on record in favor of nation-wide branch
banking. The subject was then permitted to lie dormant until May, 1928,
when the Comptroller of the Currency, Hon. John W. Pole, in an address
before the Maryland Bankers Association, stated that five thousand banks
had failed, having liabilities of one billion, five hundred millions of
dollars. He thereupon recommended enactment of a Federal law permitting
Branch Banking within so-called "Trade Areas". In 1930 the A. B. A.
again considered this question and again it was "thumbs down" on any and
all branch banking independently imposed by Federal law. The Association declared for identical branch banking privileges for state chartered
banks and national banks within the boundaries of any state. Also the
1930 resolution referred to community-wide branch banking in metropolitan
areas and country-wide branch banking in rural districts where economically
justified. We who oppose unified branch banking imposed by Federal law
do not object to the terms of this resolution, nor do we object to all
forms of branch banking, so long as the form is left to the judgment of
the individual states.
****** ****

We hear much today of frozen loans. Of course, strictly speaking,
loans are nearly always frozen. Very little credit can be liquidated in
cash, because there is not that much cash, and most loans are paid by a
transfer of credit. Depositors, however, have changed their status, and
have demanded cash for their credits, 8nd loanable funds have dried up.
The relationship between bank and depositor has changed, and when the
local bank fails, the people owe each other without the intervention of
the intermediary, the bank. Now if local improvements have been provided by local loans the community has benefitted, and all of the people
are the beneficiaries. So even the failure of the bank does not remove
all of the benefits that have been created in a given community by its
unit bank. A much different picture than we would have if a branch bank
gathered up money as deposits, and shipped the money to the head office
at another place for investment in pet projects either in this country
or abroad. Upon failure of that branch, the community has not only lost
its deposits, but has received no compensating advantages.


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**** * * ****

— 2 —
Those who read the inspired articles now appearing in all classes
of magazines and who do not take "setting—up exercises" with the head,
may have come to believe that with Group, Chain or Branch Banking
established, all banking troubles would disappear. This fallacy doubt—
less caused the birth of some of our largPst groups of banks, whose
promoters in addition to their craze for bigness, believed that the
Feder.J1 Farm Board would be able to stabilize grain prices. They know
better now and we know that they did not furnish those "much needed"
banking facIlities to small communities, as had been announced in high
places.
Let us review for a moment, five similar promises now being made bY
the advocates of branch banking:
1.

They promise a cessation of bank failures because weak banks
will be absorbed.

2.

They promise that branches will be widely scattered so as to
divide the risk caused by the lack of diversification in
local business enterprises.

3. They promise expert management—that is, the services of
professionals to be substituted for those of amateurs.
(By the way, I recently heard the definition of "an expert":
some one who knows more and more about less and less until he finally
knows everything about nothing.)
4.

They promise a sort of super—banker who sees all, hears all,
and knows all, and who can never make mistakes or be misled.

5.

They promise to restore confidence.
****** **

With regard to the conduct of banking in widely scattered locations,
it is well known that a widely scattered business cannot be well managed:
And you people know that that sort of bank cannot be properly examined,
nor can it be adequately supervised. So promise No. 2 can be dismissed.
The third promise has to do writh supplying expert bank management-that is, the services of "professionals" as opposed to the services of
amateurs. You will pardon a smile—not too gleeful—on my part. I am
the owner of certain stocks in companies managed by experts. My bank
owns bonds that were created, recommended, and sold by experts. There—
fore, I have some personal knowledge of what expert management costs.
When I invested my own funds and those of my bank, I did not know about
secret bonuses; about division of profits with the management; and about
rights to buy stock at secret prices. Now I know a lot about them and
have a better conception of what this word "professional" means in big
business.


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- 3A friend of mine was employed at $50,000.00 a year by a certain corporation. The corporation expanded and with the broadening of my friend's
work his nominal salary was increased to $75,000.00 a year--that is, the
stockholders believed his salary was t75,000.00. But my friend and his
fellow officers participated in a pool of 5% of the net earninus of the
corporation and also were permitted to buy corporation stock at 60% of
its then market value. Th,t job was worth to my friend one hundred and
seventy-five thousand dollars a year. This was "professional" management
in one very large corporation, and there have been many such. May the
Lord deliver us from "experts"!
*********

Let us now inquire as to the actual reason back of this sudden
agitation for branch banking.
According to an opinion rendered November 6, 1911, by Frederick W.
Lehman, Solicitor General of the United States, group and chain organizations owning stock of a national bank, are operating illegally. The
opinion follows:
"Referring to Section 5133 of the National Banking Act: "Associations for carrying on the business of banking under this title may be
formed by any number of Natural Persons not less in any case than five
* * * * *. It should be noted that only 'natural persons' may engage
in the formation of a bank * * * * *."
"Section 5146 provides: "Every director must, during his whole term
of service, be a citizen of the United States, and at least three-fourths
of the directors must have resided in the State, Territory, or District
in which the association is located, for at least one year immediately
preceding their election, and must be resident therein during their continuance of office." "Here the local character of the bank is secured."
"Section 5197 limits the rate of interest which may be taken to
that 'Allowed by the laws of the State, Territory, or District in which
the bank is located.'" "This again emphasi7es the local character of the
institution."
"Quoting from the Court's opinion in Concorn First National Bank vs.
Hawkins (174 U. S. 364) and referring to the National Bank Act: "One of
the evident purposes of this enactment is to confine the management of
each bank to persons who live in the neighborhood, and who may, for that
reason, be supposed to know the trustworthiness of those who are to be
appointed officers of the bank, and the character and financial ability
of those who may seek to borrow its money."
"Referring to the control of banks by interests outside the local
communities: "The property of the local stockholders, so far as thus invested, would not be managed by directors of their own selection, but
by distant and unknown persons. Another evil that might result, if large
and wealthy banks were permitted to buy and hold the capital stock of


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-4other banks, would be that in that way the banking capital of a community
might be concentrated in one concern, and business men be deprived of
the advantages that attend competition between banks. Such accumulation
of capital would be in disregard of the policy of the National Banking
law, as seen in its numerous provisions regulating the amount of the
capital stock and the methods to be pursued in increasing or reducing it.
The smaller banks in such a case would be in fact thaugh not in form
branches of the larger ones." * * * * * * * *
"Referring to Section 5201: "This provision forbidding a national
bank to own and hold shares of its own capital stock would, in effect,
be defeated if one national bank were permitted to own and hold a controlling interest in the capital stock of another."
"Here is an express recognition and assertion of the local and
independent character of our national banks and the denial of any power
which would tend to create what is in effect a central bank with
branches." * * * * * *
"From the history of the national banking act, from its terms and
provisions, and from the decisions of the Supreme Court construing it,
these propositions are derived:
"V. The powers of a national banking association are and can be
granted only by the United States, and as no grant of such powers is
made by the act to any State corroration (i. e. holding company) they
may not be exercised by such a corporation.
"These propositions relate to matters of substance, and so may be no
more evaded than violated. Indirection, if it accomplishes the same
purpose, stands upon the same footing with direction."
"It is not necessary to consider whether the National Banking Act
absolutely prohibits the holding of shares in a national bank by s State
corporation to any extent or for any purpose, and it may be conceded
that a State corporation may acquire such shares as an incident to securing payment of a debt and hold them to a convenient time for sale, or
that an institution like a trust company may hold them in a fiduciary
capacity, but certainly there can be no holding of such shares by any
corporation when the result is to defeat the policy of the National
Banking Act; that is, to destroy the local character of the bank, break
down its independence, vest its control in another corporation, and link
it in substantial proprietary interest with some other business than
national banking. * * * * * *
"No authority is given by the Federal statutes to the National
Banking Association for assigning their powers and delegating their duties
to a corporation created by a State, and which, under its charter from
the State, may engage in a business and exercise powers denied to the
banking association by the law of its creation.
"Here again it is to be observed that if the power in question
exists, it exists without limit. The company may extend its power to
the rull control of all the banks into which it has made entrance. Nor
need it stop with these. As it grows by what it feeds upon it may expand into a great central bank, with branches in every section of the


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-5country. It is in incipient stage a holding company with banks, with
added power to hold whatever else it may find to be to its advantage. * *
"If many enterprises and many banks are brought and bound together
in the nexus of a great holding corporation, the failure of one may involve all in a common disaster. And if the plan should prosper it would
mean a union of power in the same hands over industry, commerce, and
finance, with a resulting power over public affairs, which are the gravamen of objection to the United States Banks."
**** Company in its holdings of national
"I conclude, the ****
bank stock is in usurpation of Federal authority and in violation of
Federal law."


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Respectfully submitted,
Frederick W. Lehman,
Solicitor General of the U. S."


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. CAGLE tz'
LIR. HORTIRTT
. DR?,r.snBis
SOL01,101i
BLATTTER

Stucly

•
Address by j. S. Love, Superintendent of Banks, Miss.
31st Annnal Convention of
National Asso. of Supervisors of State Banks
Philadelphia, July 1932

* * * * * * * * **

There appears to be no check upon branch banking extension into
territories already adequately served. There are also no limitations
to prevent branch banking from springing up promiscuously, and there is
no respect for State laws prohibiting branch banking within its borders.
In other words, the Glass Bill will force such types of banking in the
State, whether it wants it or not.
We have all been at a loss to understand the reason for such
revolutionary proposals in the banking business, but undoubtedly there
is a motive behind it all that is not clear at this time. If this
measure becomes a law there will be no choice left for good solvent
banks. It either would have to sell to the highest bidding branch
system, or it would have to liquidate, or try to establish a branch
banking system of its own, provided it is a National institution.
** * *** ***

Branch banking, as proposed by the Glass Bill, is undemocratic
and un-American. It runs at variance to the well established austom of
self-government of local institutions. And in the end we can't get
away from the fact that this branch banking idea is being fostered by
a few large city bankers who have established large group banking systems
and are now desirous of converting them into branch banking systems for
reasons we can well understand.
**** ** * **

Branch banking with remote control discourages auch outstanding
factors in good banking as the employment of community resources for
the community's own benefit, and discourages the prevalent idea that
has prevailed in America that our leading citizens should have a part
in the management of their local institutions.
It has been said that this system of brancb banking, if enacted in
the law, would merely become a window dressing for the determined drive
to destroy our whole unit banking system, end it is admitted that it
strikes at the very foundation of American principles.
* *** *****

In discussing branch banking we offer no opposition to all forms
of branch banking. To the contrary we see merit in some features of
branch banking, and to further promote the interest of sound banking
and sound unit banking system thousands of smaller banks must go and
the capitalization of banks must be materially increased, and small
banks located in nearby communities should become branches of large
banks in that region.

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•

- 2Branch banking confined to a State and certain regions in that State
should be permitted. It will tend greatly to strengthen the banking
situation. For instance, it would be very much more advantageous to
have the small banks in one county to be consolilated with the larger
banks located in the county site,becoming a branch of that larger institution. I can see good reason in forcing such consolidations, thereby
establishing larger and better managed institutions in the various
counties or regions. I can go further than that: I favor forcing the
stockholders and directors of those institutions to take a substantial
loss in order to perfect this kind of organization. Other business
units consolidate and scale down in such fashion and orners take losses
in order to strengthen their organizations, and banks must do the same
thing.
Bank depositors now place safety of their deposits above the
question of where a bank is located or whether it is a branch or an
independent bank. In establishing branches of this nature, the persons
applying must be the proper ones to establibh the institution. They
must be required to furnish sufficient capital to serve the needs of
the community, leaving to the Commissioner of the State the question
of how much capital shall be required, bow much territory shall be
covered, and how many branches shall be established.
No bank should be permitted to establish a branch merely because it
has a capital. Tests other than capital are of greater importance.
Branch banking within a limited area has great merit, but it is absurd
to think about countrywide branches or National banks boiling down our
banking structure to a few systems with remote central control located
in our larger cities.


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Report of the Resolutions Committee
51st Annual Convention of
National Asso. of Supervisors of State Banks
Philadelphia, July 1932

**** * ****

"(3) BE IT FURnER RESOLVED, That we are opposed to Section 19
of the so-called Glass Bill, which provides that National banks of
$500,000 or more capital be granted the right to establish branches
in any state, even in states now prohibiting branch banking. We regard this as tending toward the ultimate elimination of the independent
unit bank, and is an attempt to destroy the sovereignty of the states-a fundamental principle of our democratic form of government even since
the establishment of this Republic. Safe and sound banking must
ultimately rest, as it always has, on management, regardless of the
form of banking.
"This Association has always stood for the continuance of the
present dual system of banking--State and National--and we feel that
any change in the form of banking, by legislation, either State or
National, should preserve in toto the rights of existing institutions,
and we believe that by doing so the interests of the public will be
best served.


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**********

"Recent Federal Banking Legislation"
Address by Col. James L. Walsh,
Ex. Vice Pres., Guardian Detroit Union Group, Inc.
46th Annual Convention, Michigan Bankers Asso., July, 1932.
(Michigan Investor, July 23, 1932)

********

In the face of such indictments, which after all merely serve to
bring into sharper focus current conditions of common knowledge, defenders
of the status quo in banking are assuming a heavy responsibility not
merely to the depositor public rightfully demanding an inherently stronger
banking structure for the better protection of their funds, not merely
to the bankers who are sincerely endeavoring to provide that stronger
structure through branch banking--but ultimately, perhaps, to their own
institutions, as suggested in a leading editorial in the "New York
Tribune" of June 29, 1932:
Chicago and Branch Banking
"The Chicago 'neighborhood' banks, in sponsoring the Hull
amendment, were fearful lest they be swallowed up if the Loop
banks were permitted to establish branches throughout the city's
environs. They might have saved themselves these apprehensions
for they have been virtually swallowed up even without such a
development. Out of 224 institutions in existence in 1929 only
---.1---.1reek the debacle of the 'neighborhood'
1 .3
about sixtz remain. ---7
bank reached its final stage when twenty-two such institutions
closed their doors within four days and induced temporary runs
even on some of the stronger banks in the city's Loop district.
"If it were the weak banks alone that had to pay it would
not be so unfortunate, but when weak banks topple they undermine confidence in other institutions, with the results that we
have witnessed in the case of Chicago. Chicago's record of more
than 100 bank failures in the course of the past year and a half,
as contrasted with thirteeu_in_New Yolt .Qity÷_sholald be the
2alTaarii-iiiiiment, if one were needed, _for the adoption of a
broad policy of state-wide branch banking throughout the United
States."
Here we have not only a graphic illustration of the potential danger
of the present situation even to the largest and soundest metropolitan
institutions and their thousand of correspondent banks--but a constructive suggestion from a disinterested source as to a possible remedy-namely, "state-wide branch banking throughout the United States." This
recommendation is concurred in by the report of the Banking Committee of
the Chamber of Commerce of the United States, as follows:
,Notwithstanding the problem of overcoming deep-seated
'
prejudices in favor of the exclusive development of unit
banking, your committee believes that one road to improvement of aur banking situation is the carefully regulated


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-2 development of branch banking. The loss of the independent
status of some banks not now in a position to protect fully the
safety of the bank depositor, to whose welfare all too little
attention has been paid, or to furnish ade-mate banking facilities to their communities, would produce benefit if these banks
should be converted into branches of strong banks."
"Considerable hardship has been experienced by some communities because of the partial or complete break-down of their
banking facilities. In such instances it is difficult, if not
impossible, for local interests to assume the entire burden of
re-establishing needed banks or to protect adeouately the capital structure and denosits of existing banks. In a regrettable
number of cases, also, weak national and state banks continue
because no available means, in the absence of branch banking,
offer to affiliate them with strong institutions. Branch banking would provide a solution to many of these problems through
enabling strong, well-managed institutions to invite existing
banks to combine with them and strengthen the facilities offered
the public, including the establishment of such offices as might
be required in outlying towns and villages."
********

e come next to the question of branch banking which has been for
a number of years &subject of acute interest in the banking fraternity.
As a matter of fact, the authorization of State-wide branch banking for
national banks is really of grec'ter interest to the public at large-particularly depositors in small rural banks--than it is to bankers
themselves. In this connection, perhaps I will be pardoned if I here
quote from an address by Senator Glass in the Senate of the United
States, on May 10th, 1932:
"Mr. President, I have been now for nearly 32 years a
member of the Banking and Currency Committee of the other
branch of Congress and of the Senate. I have been an intent
listener and observer to all measures of importance that
have been considered, and I assert here that never in the
whole period has any merchant or business man having relationship with banks ever protested against branch banking. No
man who has wanted credit, no man who wanted to borrow funds
with which to conduct his business has ever in that whole
period raised his voice against branch banking. It has only
been done by the bank which wanted a monopoly of credit in
its community."
In discussing this important gubject of branch banking, it is important to accurately define just what we are talking about. The
latest draft of the Glass Bill (Senate 4412), as modified by the
Vandenberg amendment, provides:
"Section 19. Paragraph (c) of Section 5155, of the Revised Statutes as amended, is amended to read as follows:


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- 3national banking association may, with the approval
(c)
of the Federal Reserve Board, establish and operate new
branches within the limits of the city, town or village, or
any point within the state in which said association is
situated. No such association shall establish a branch outside of the city, town or village in which it is situated
unless it has a paid-in and unimpaired capital stock of not
less than $500,000. Except in a city, town, or village where
there is no national or state bank regularly transacting austomary banking business, no such association shall establish
a branch, except by taking over an existing unit bank, or an
affiliate of such association."
The purpose of Section 19, as quoted above, is, fundamentally, to
authorize by law the continuance of banking facilities in communities
where, due to economic reasons, a small unit bank is finding it difficult to survive; and to authorize the establishment of some sort of
banking facilities in cities, towns or villages which are now without
any banking facilities whatsoever. The line of reasoning which has led
the Committee on Banking and Currency of the United States Senate, and
a large majority of the Senate itself, to approve the limited kind of
Branch Banking referred to above, was clearly and comprehensively
stated by our own Senator Arthur H. Vandenberg of Grand Rapids, in his
masterly address in the Senate of the United States on May 12th, 1932,
an extract of which I shall read to you:
"I have been one of those, and still am, who feel that
the preservation of decentralized community life is absolutely
essential to the preservation of the traditional American community character. I feel, furthermore, that decentralized
community life is impossible without a practical degree of
decentralized commercial and banking independence.
Confront Condition, Not Theory
"But we confront a condition and not a theory today, and,
even in defense of decentralized community life, situations
readily may arise in which limited branch banking might be the
only community salvation. Certainly it would not protect
deceatralized community welfare, Mr. President, to close the
door on a banking facility which might prove to be the community's only way of saving the solvency of its banking resources. Branch banking might be this sole available facility.
Neither does it protect decentralized community welfare to
close the door on a banking facility wnich may be the only
such facility available after all other banking facilities
have failed or been withdrawn. Indeed, it mi7ht well be
argued that under certain circumstances a resource to limited
branch banking may well prove to be the means of keeping alive
many a decentralized community which otherwise might disintegrate through its very inability to secure any banking
facilities whatsoever. It is only in line with that philosophy,


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- 4Mr. President, that I have been able to bring myself into
harmony with the theory that under existing circumstances
limited branch-banking permission might well be authorized
in the United States. Indeed, I am persuaded that it has
come to be necessary to provide this limited recourse under
proper protective restrictions. It is the creation of one
more optional emergency reliance for the benefit of communities and bank depositors and bank borrowers. I believe
my amendment adeauately protects the option against exploitations."
At this juncture, Senator Bulkley supplemented Senator Vandenberg's
remarks as follows:
"I rise to say, as a member of the subcommittee, that the
statement of the Senator from Michigan is entirely in harmony
with the views of the subcommittee. His amendment, as he has
said, would in practice probably work out just about the same
as the committee thought section 19 of the bill would work
out under the administration of the Federal Reserve Board; but,
in view of the fact that many small-town bankers are very much
afraid that they would be injured by potential competition in
the form of branch banks, it would undoubtedly be well to
adopt the amendment offered by the Senator from Michigan and
thus give them statutory assurance that such competition could
not be made possible by the provisions of this bill. I
sincerely hope the amendment of the Senator from Michigan
may be adopted. I may add, too, that I am authorized to say
that the Senator from Virginia, Mr. Glass, is in accord with
the view I have expressed."
The branch banking provisions of the bill, therefore, with the
Vandenberg amendment, would permit city banks to protect depositors in
country banks by taking over the deposit liabilities but would prohibit
the establishment of any de novo branches in rural communities where
there are operating banks. Under these provisions there could be no
cut-throat competition of city banks with country banks, but there would
be afforded an opportunity for co-operation between these two types of
banks for the protection of local communities. This is certainly a mild
form of branch banking extension and one the primary motive of which is
to permit enough flexibility in the banking system to meet some of the
existing emergency situations.
As Senator Glass clearly stated on the floor of the Senate, there
is no ouestion of states rights involved in this feature of the bill.
Every state has the right to permit its state banks to adopt a similar
branch banking policy if it may see fit. Many of them have already
enacted branch banking laws more extensive than the present Federal
law. Congress is the creator of the Federal reserve system and has the
responsibility and duty to the general public to maintain, promote and
conserve it as an instrumentality of the Federal government irrespective
of and independent of action by any state legislature. Opponents of
branch banking who raise the auestion of states rights put themselves
in the position of being accused, on the one hand, of insincerity, or,
on the other, of a lack of understanding of the issue involved.

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- 5 The Chamber of Commerce of the United States, in its Report published in May 1932, takes full cognizance of the theory of "state's
rights," but, apparently, feels that present-day conditions demand that
the Question of which legislative authority shall make the first move
is without merit, as compared to the vital necessity of having authority granted at the earliest possible date, as follows:
"Because of the prohibitions upon branch banking outside of restricted areas, by national and state member banks
of the Federal Reserve System, which furnish about sixty per
cent of the banking resources of the country, and the fact
that either insufficient or no branching privileges are permitted state banks in many states where relief is needed, it
is imperative in the interest of early general improvement
that branch banking legislation proceed from the Congress of
the United States."
In this connection, it should be borne in mind that the Committee
of the Chamber of Commerce of the United States, just referred to, consisted of twelve bankers and twelve business men. Four of the bankers
dissented from that part of the recommendation that
". ... a national bank should be permitted, subject to
carefully devised administrative regulations but unlimited
by restrictions of state law, to establish state-wide
branches. Federal legislation should not deny similar
powers to state member banks"
but all of the business men were in favor of state-wide branch banking
unlimited by restrictions of state law.
Possibly, by now we have established through testimony of unprejudiced witnesses that our heterogeneous collection of fifty different banking systems is not an unqualified success--at least in the
eyes of those who have most at stake, namely, the banks' depositors.
Possibly also, we have demonstrated that there is an increasing demand
on the part of the public that something be done about it--and done
quickly. The present frame of mind and trend of thought in this connection is admirably summed up in an editorial in "The Journal of Commerce of New York City, June 6, 1932, as follows:
"-* * * * However, opposition to such legislation outside Congress will apparently delay a sane solution of this
question until the logic of circumstances, or perhaps a new
series of difficulties, will finally bring a general realization of the need for modernization of the American banking
system, through a reduction in the number of appropriate institutions from the present total of almost 20,000 to a small
group of strong and as far as possible well-managed branch
banking organizations."


1‘..•
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********

Address by Chas. F. Zimmerman, Secretary, Pa. B. A.
31st Annual Convention
National Asso. of Supervisors of State Banks,
Philadelphia, July 1932

* **** ***

As previously stated the Lehman opinion establishes the illegality
of holding company ownership of national bank shares. Since "wrongs
cannot have a legal descent," the administration at Tashington faces
the necessity either of correcting this wrong as it exists today or of
permitting inevitably the growth of "pyramided" bank-share holding
companies precisely such as the Insull holding companies in the public
utility field. As a natiom, we have either to sit still and see our
sound, conservative unit banking system devoured by big interests or
we must rise up and smite these enemies of unit banking.
** * *****

The Federal Reserve Board has appointed a special committee to
investigate the obviously superficial question of the causes of failures
of unit banks, as a presumable substantiation of the immediate need for
branch banking federally imposed and for "unified banking." In the
light of the foregoing untoward developments, it is suggested that any
forthcoming pronouncement by this committee is certain to be the sheerest
flubdubbery, as compared with the more salient and significant considerations surrounding the present ownership of shares of bank-share holding
companies.
After all, it is the unit banks of the United States--or more properly,
the country banks and bankers--which are operating in strict observance
of this law by which the conditions of ownership of National bank snares
are already finally determined. Thus it is that from the unit banks most
of all must proceed forthright public sentiment (upholding lawful ownership) strong enough to throw the balance upon the side of right in this
simple question. This issue is now squarely drawn. Big business is
arrayed against the unit bank both because big business has the absurd
notion that the extension of federally imposed branch banking could help
big business and because big business men and bankers fear the effects
of administering this necessary corrective whereby corporate ownership
of shares of National banks shall be annulled.


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******* **

Proceedings of 31st Annual Convention
National Asso. of Supervisors of State Banks
Philadelphia, July 1932

*********

Peter G. Cameron (Pennsylvania): You all know my attitude towards
it. I am not opposed to branch banking--what I am for is the preserva—
tion of the economy of state law relating to branch banking. I am for
the preservation of the banking system and I think a bigger and better
law ought to be made to take care of a situation such as we have in
Ardmore, which was spoken of a few minutes ago. Mr. McDowell has made
some splendid points in favor of the present banking system. I trust
Mr. McDowell's address will be available in printed form so we may be
able to digest it.
*** * * * * **

L._ A. Andrew (Iowa):

*********

Our position has been clear over a term of years and in this present
fight--I want to call it a "fight" because it really is--we are trying
to be fair and unprejudiced. We believe we are right in this. We be—
lieve it is unfair to foster on a state branch banking when the state
itself has said it doesnIt want branch banking. It is against all the
principles of democratic government. I don't know that it is necessary
to take any more time in regard to that, because I believe the members
of the Convention are thorowp-hly in accord with that part of the program.


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•

Report of Legislative Committee
31st Annual Convention
National Asso. of Supervisors of State Banks
Philadelphia, July 1932

This Association is unalterably opposed to the effort being made to
undermine and eventually destroy our dual banking system and supercede
the independent unit bank with a branch banking system. The attempt is
a direct blow to our principles of democratic government in that it
would deprive the states of their right to create and control banks
and the use of such institutions that are distinctly their fiscal agents.
"The National Association of Supervisors of State Banks has always
recognized and respected the rights of National banks and has consistently
supported the idea of the dual system of banking. It has been under this
system, comprised of indeyendent unit banks, that our nation has
developed and now, when we are experiencing the difficulties incident
to a world-wide depression, certain powerful interests have seized upon
the situat:Ion as an opportunity to attack it.
"We, therefore, condemn this attempt to centralize our nation's
banking functions and resources under a bureau in Wash:Thgton as contrary
to the best interests of our people and distinctly inimical to the welfare
of our states."


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'Mere Banks Do Not Fails - by Horace F. Peserey, Nor York
(Journal of the Canadian Bankers* Asso., July 1932)
** *** * * * *

most distinctive feature of the Oesediee tanking primates is th' t in
the case of insolvency the notes of the balk are the fir:,t lien on its
assets, and further secured by the Bank Circulation Redemption rund to which
all banks subacribe on the basis of 5% of their average circulation not
covered by gold or Dominion notes deposited in the central gold reserves
established in 1913. This is forward looking bank legislation, and illuminates the fact of Canada's almost total lack of bank failures.
Up to 1923, following the failure of the Home Bank, banks' balance
sheets were audited and certified only by public chartered accountants.
Investigations after the failure of the Home Bank clearly indicated that
the chartered acoountant "oho certified their balance sheet vas inoompetent
and apparently had been chosen on this account. ?he failure produced such
widespread repercussions that the Government obligated itself to pay a
certain proo-)ortion of the deposits. To lessen the likelihood of such a
situation as was found in the Hoes amok arising again, the Government by
legislation made provision for the appointment of an Inspector-General of
Balks.
Through co-operation and supervision by the Dominion Government,
through the *tedium of periodic returns and the regulation of note issues
and reserves, a progressive move toward efficiency and a high degree of
safety is secured. * * * * *
** **** * * **

How vital, then, becomes the efficiency of a banking system and the
integrity of a bank's personnel; the decree of seriousness with which a
member of a banes board of directors regards his trustt In Canada the
qualifications of a director are defined and records of attendance at
board meetings kept ani brought to the attention of the bank's shareholders.
*** **** * **

Bet the secret of Canada's beektag soundness lis not *sly in the
branch Usk idea, but more in the megbod of training its MOS for
positions in them es that as they prOgrees and the time memo, for executive decisions, they mmy have the experience necessary to decide wisely
and promptly.
When
bottom, a
manifest,
office to


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a young men gets a job In a Canadian husk be starts at the
clerk. If intelligence, faithfnlnese sed gsesral ability are
he is moved up step by stop. He is thse soot from the hese
the breach, say tn Edmonton. From there, after a few yearn,

r
ArPf`:

- 2he mey be transferred to Vannanver; fron there maybe to St.
John; fro*
there bosh &gain to Calgary, and so on. He acquires an intima
te knowledge
sof Cseedle amd fiaally reaches the home office again as an execut
ive, say
assistant memeger, then manager, general manager, vice T.-reside
nt, president. This procedure is not practised by a few banks.
It is true of all
of them.
How valuable this man now becomest In some Canadian locali
ty, the
question of a loan comes up. The executive knows the condit
ions of that
locality through first hand intimate knowledge; he probab
ly knows
personally the heeds of the business seeking the loan.
/f it be grhnted
it is a good bet that the borrower was justified in seeking it
amd it
will be paid.
In etressing some of the advantages of the branch bankin
g system,
a Canadian bank accountant recently said:
Concentration of the surplus fund* of Canada through the
system of
branch banking makes for the equitable distributism of
the loanable funde
Of the tuition, with the result that memey is taken fres the
semmunities
whore buainess doeo not require Its use, and it is loaned
where needed
through the efficient local bank samegmrs, under the
skilled guidons'. of
the mature and tried julgment of the heed office offici
als, who at all
times are watching the pulse of the nation's business. These
thins. have
helped to an ineatimable degree the development of &made, where
the
peepLe of the new communities can borrow at the sass interest rates
as
those of relative finencial standina in tbe business centre
s.
As practised in Canada branch banking means distribution of the
loaning and earning risks not only to all parts of the aatio
n, but to
foreign countries of good possibilities, which h s resulted not on1y
in that highly prised diversification, but in the expansion of the
nation's export trade as well.
The oo-operation, good management, and safety of del-ositors which
are xentioned as highly desirable, *re all attained in Canada,
throuiTh
the branch banking system and thromgb The Canadian Bankars'
Association.
Their effects are patemt La the solidity of our banking inetitutions
in
tlAs time of worldwide eeamamic stress.
***

**** **

Canadian bank stocks are regarded in Canada as prise investaents,
and ars widely held by people of both large and small aeans
for income
return. This is evidenced by thP fact that la the past fifteen years
*ore than 60 per cent. of the total iesues of Canadian beaks have
been
sold within Canada. Due to the 'character of investment buying in Canadi
an
bank stocke, and the fact that practically all Shares are ovned
outright,
their market is usually verastable.


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r

.
'

During the post tow years the desirability of Canadian bank stocks
as an Investment has beeves more fully aprreciated by United States investors, and the large somber of American shareholders is constantly increasing.
Canadian securities represent onf, of the soundest forms of invest,Aent. ?hey have back of them not cali ame of the sounlest banking systems
of the world, but they have back of them as well a people of marked
integrity, notably free fro& pretense and notably industrious and saviss.
nether this state of affairs is inspired and fostered by the confiJemes
and nental security with which Canadians regard their banks is not claimed
here, but it might well be so.


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* * ***** * * *

•
SOURCE:

THE CALIFORNIA BANKER--JUNE 1932

ADDRESS OF THE PRESIDENT--Herbert H. Smock
******
Pages218-219
* * * We must also be prepared, both those of us who are branch
bankers and those of us who are unit bankers, to consider branch
banking eventually on a state-wide, if not nation-wide, scale. No
less an authority on banking than Senator Carter Glass has become so
much a convert as to provide in the revised version of his pending
bill in Congress for state-wide branch banking of national banks irrespective of State laws and to state personally that he would go so far
as to make provision for branch banking within Federal Reserve districts./
We may have divergent views on the subject, but as advocates of sound
banking and as Eood citizens it is our duty, at whatever personal disadvantage, to assist the country to arrive at a solution of our structural
problem.
It is not my intention to pursue further the subject of banking
structure and attempt to detail to you the proposals that are current
for changes in that structure. I shall merely mention while on the
subject the plan which has been offered to compel all banks to join the
Federal Reserve system and the proposal for the separation of commercial,
savings, and investment banking into entirely distinct and unrelated units.
The enactment of either or both of these measures would bring about changes
of the most important significance. * * *


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t....&•••••"'

•
SOURCE:

THE CALIFORNIA BANKER--JUNE 1932

OUR BANKING SYSTEM ON TRIAL--by Frank P. Bennett, Jr., Editor U.S. Investor,
Boston

Pa„ge 294
* *****
Appraisal of bafeguards
How then are we to preserve for American banking the desirable
features of popular selection of banks and at the same time purge our
system of such brutal possibilities as these failures from 1921 to
1931 show it clearly to include? This power of the depositors to take
deposits away from banks less skillfully conducted and to reward the
more capably managed banks with steady additions to resources is the
most effective influence for sound banking that has thus far been discovered.* * * The practical objection to branch banking as the way
out for the American banking system, now under indictment before the
bar of public opinion for its shortcomings, is that public opinion itself
seems not to be ready for branch banking, on that nation-wide scale that
probably must be adopted, if the record of the European and Canadian
banking systems for freedom from failures is to be duplicated in our
own system. The suggestion, also from distinguished sources, that
our banking system can be purged of its brutal possibilities, by lifting
bank management to a higher plane, seems a more practical alternative.


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•
SOURCE:

THE MISSISSIPPI BANKER—JUNE 1932

SEES BANKING UNIFICATION AS THREAT TO ECONOMIC FREEDOM--by Rudolf S. Hecht

Pages 22-23

He also advocated an extension of branch banking in both
state and national systems to enable strong_local financial center.
banks to extend support to communities now lacking adequate banking
facilities, but vigorously opposed the provision in the Glass Banking
Bill now pending in Congress to grant national banks, regardless of
state bank laws, state-wide branch powers in all states and limited
inter-state branches in certain localities. He declared that national
banks should be given just as wide branch powers as state banks withing any state but that they shauld not be given greater privileges
than are granted state banks in their own territory.

(

Mr. Hecht, in opposing nation-wide branch banking, presented a
vigorous refutation of comparisons between the Canadian and American
systems "making it appear the former has all the virtues, the latter
all the vices." It is true, he said, no bank failures occurred in
Canada in recent years "while thousands have closed their doors in
the United States--but there is far more for banking to do than merely
to keep its doors open." He went an to compare the "extraordinary
contrast of American progress as against the picture of Canada's
development," pointing out that Canadian authority estimates that of
560 million acres there available for agriculture, 200 million lie
neglected and that the mineral resources have been hardly scratched.
He also brought out that Canada, granting that there are larger
waste regions in her gross area which is equal to that of the United
States, supports only 10 million people against America's 122 million,
that her developed national wealth was only 29 billion dollars in 1926
against this country's 560 billion, and her income but $6,000,000,000
against $82,000,000,000.
"These facts are not to say that Canada is a backward country,
but they indicate that she has in no way comparable to the United
States yet entered into the great adventure of industrial and commercial expansion and exploitation which for all their contributions to
human progress are also attendedpy great social and financial hazards,"
he said. "Without contrasting standards of living, systems of education,
world-wide financial responsibilities and other contributions to human
progress, the United States has gone to far greater lengths than
Canada.
"This progress has been made possible under our banking systems
and methods for all their detects. The United States has ventured


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-2-

The Mississippi Banker—June 1952

Rudolf S. Hecht
Pages 22-25 (contd.)

greatly and American banks have at all times stood right beside
American agriculture, industry, commerce and finance and taken
their chances with them."
He asked whether Canadiwould not have made greater progress
if ninstead of less than a score of banks centralized in the big
cities, with four thousand branches reaching out and enforcing cautious, metropolitan financial policies upon the farms and local
industries throughout the country, she had the American system of
independent local banks, bound upin the welfare, progress and
ambitions of their local communities." He also expressed doubt
that America's greater progress would have been possible if local
development had been dependent upon a few great financial centers
instead of receiving aid from thousands of local bankers.
One bank in Canada alone, he said, with about a thousand
branches, controls 27 per cent of the nation's total commercial
banking resources, while the three largest, with 2,400 branches
controls 70 per cen. "We do not want any such centralization as
L,
that," he declared. "How foreign that is to anything this country
wants is obvious when we consider that many of our people grow
apprehensive because two or three of our great banks each control
resources of a billion and a half or two million dollars--about
7 per cent of the nation's total for the three largest combined,
as contrasted with the 70 per cent for Canada's three largest."


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SOURCI:

PROCEEDINu:; OF MISSOURI BAULK; AEWCIATION-May le-17-18, 19B2

ANNUAL ADDREbS OF THE PELSIDENT—Charles B. Judd
Ages 19-W

It ia true, I admit, that there are things here ancj there that
need revision or elinination, out I believe the proper procedure to
accomplish this reform is chiefly through better management and not
throuCI exceesive legislation. Legislation cennot make
good banker
eny more than it can make a good doctor or lawyer. Just now we are
eitnessing an attempt in Congrest. to isvose upon the banking world
through the Glass Bill further restrictions and regulations, and still
another plan is being evolved for nationalisatiom.
went to state
in no uncertain terms that I aa oppoaed to natiounlisation. I believe
now, as I always balm, in the dual system of banking which )ur nation
ha. always enjoyed. A nationalisation of our systea, in ny opinion,
would lead to but one tLing--an extension of branch banking with a
concentrotion of the control of national credit in a few enters (sic)
and in the hands of a few nen with dangeroub possibilities to our
nation US 6 Wh01114.
Permit me to remind you of Vx. resolution adopted by the State
Bank Division of the Americt:n Bankers Associetion in Clavelrnd in 1950,
which exactly expressef my views. That resolution said:
"Inereas, the prevailing dual -fly-stem of banking has contributed
substantially to the remarkable economic development of our country,
therefore be it resolved thtt we believe our present state and national
systemic should continue working in cooperation, thus assuring the endurance
and perman,nc of individual initiative and the free play of personalized
enterprise which history hes proved so desirable."
The question at issue is aimply whether banking and the related
ces of the nation are to be left to state autonomy or are to be
conc ntrated in one large national organitation of standardized units.
I favor state regulatiom but would not be opposed to placing national
banks on a psr with state banks by giving- national bankb such branch
privileges bEi stet. banks enjoy in an given comaonweslth. In this
way brunch bunking would remain a controllable factor within each state.


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Proceedings of Missouri Bankers Association--Uay 16-17-18, 1932


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PRESIDENT-ELECT HOLDLRMESB:

PaKe 137
* * ** * ** *

Perhaps you expect se to oay something on a moot question, and
I have the courage to say it. I haw, never bel,n in favor of group or
chLin banking. I have never been in favor of state-wide branch knkinf.
I should be very raretful if anything evcr happened in thin state to
stifle personal Lnitiative or hamper independent banking. By the same
token I should be most regretfUl if any misguided conception of
compatabilities should ever blind us to tilt:. desirabilit:y of aret. while
wholly unsuitable and undesirable in others. * * *
***** * * *

Committee on Banking
Chamber of Commerce of the United States
Preliminary Material - Meeting in Chicago
October 31, 1931

American Bankers Association - The Economic Policy Commission of this
important Association has been devoting attention, among other banking subjects, to branch, chain and group banking. It has published one compilation
of figures and has influenced the Association to further modify its whole
position, which formerly was in opposition to all forms of branch banking.
The Association now supports the economic desirability of community-wide
branch banking in metropolitan areas and county-wide branch banking in rural
areas where economically justified. It is to be expected that as the
Congressional situation develops the Association will make announcements
from time to time of its position.

It appears that prior to 1930, branch bank systems were relatively free
from failures. In the nine-year period 1921 to 1929, 41 branch systems
operating 80 branches and involving deposits of $48,000,000 closed their
doors. These systems for the most part consisted of one home office bank
and one out of town branch and the size of the banks was small. In the
past two years, however, there have been failures among city branch systems
as well as among banks operating extra-city branches, the detailed figures
concerning this phase of the matter will be available shortly.

Proposals for Branch Banking Legislation
Comptroller of the Currency - Outstanding among the branch banking proposals receiving attention is that of the Comptroller of the Currency. The
recommendation, in brief, is that national banks, with the permission of the
Comptroller of the Currency, be given power to establish branches within the
"trade areas of the cities in which such banks are situated." He has proposed that a committee consisting of the Secretary of the Treasury, the
Governor of the Federal Reserve Board, and the Comptroller of the Currency
be authorized to select the various cities which are commercial centers in
the United States and to map out their trade areas. He has suggested that
the term "trade area" be defined to embrace the regional floll of business
and trade to and from such cities and that state boundary lines not be considered in determining the territorial limits. To prevent undue banking concentration the Comptroller also hes recommended that he be given discretion
to approve or disapprove of banking consolidations within the trade area,
and that visitorial powers be conferred upon him to examine into the affairs
of any corporation owning or controlling a majority of the stock of any
national bank. FUrthernore, any national bank would be prohibited from


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•
making loans upon the security of the stock of any corporation which may own
the majority of the stock of such national bank, and a corporation °ming the
majority of the stock of a state bank would not be permitted to own a
majority of the stock of a national bank. The minimum capital suggested for
a bank engaging in this type of branch banking should not be less than
$1,000,000 with power reserved to the Comptroller to require larger capitalization.
American Bankers Association - While reaffirming its belief in the unit
bank, the Association recognizes that a modificaticn of its former resolutions condemning branch banking in any form is desirable. The Association
believes in the desirability of community-wide branch banking in metropolitan
areas and county-wide branch banking in rural areas where economically
justified. The Association supports the autonomy of the laws of the separate
states in respect to banking. No class of banks in the several states should
enjoy greater rights in respect to the establishment of branches than banks
chartered under the state laws. (Resolution passed at Cleveland Convention,
1930.)
Federal Reserve Board - The Federal Reserve Board has withheld any proposals for legislation regarding branch banking. It is possible that some
recom&endation based upon the findings of the Board's special committee on
banking may be made upon the completion of the Committee's rei,ort.

Chamber Position - In Referendum No. 45, April 20, 1925, the Chamber
recommended that subject to the regulations of the Comptroller of the
Currency, national banks, in states where branch banks may be operated by
state banks, should be permitted to establish and operate intra-city
branches. The Board of Directors of the Chamber has interpreted this commitment to support metropolitan area branch banking.
Miscellaneous - There have been proposals from various sources that
branch banking powers of national banks be extended to metropolitan limits,
county limits, state limits, and even to the boundaries of the United
States. Suggestions also have been made that "tellers windows" operated
by city banks be permitted in communities having no banking facilities. One
state, Iowa, has recently passed legislation designed to give this privilege
to state banks in that state.

Group and Chain Banking - Holding Com2fInies
Definition - Many definitions have been made of the terms group and
chain banking. A distinction proposed by the Comptroller of the Currency,
which is being widely adopted, restricts group banks to those systems in
which the individual units are controlled by holding corporations through
stock ownership. Chain bank systems are more informally put together and
include those aggregations in which more than one bank is subject to some
form of control by a single individual or group of individuals owning stock
in each bank. The term also has been applied in those instances where a
particular bank exercises control of other banks by stock ownership or
through its officers and directors.

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- 5-

•

Location of Group and Chain Systems - By far the greater number of chain
and group banks are located in states which prohibit branch banking. Those
states accounted for 71% (1520) of all group and chain banks on June 30, 1930.
States permitting restricted branch banking had 25% (538), and states allowing
state-wide branching had 4% (80 of all grour and chain banks.
Less than one-third of the loans and investments of group banks are in
non-branch banking states, more than one-half are in states permitting
restricted branch banking, and the remainder, about one-third, are in states
permitting state-wide branch banking.
Class of Banks in Chain and Group Systems - Less than one-half of the
P,144 banks belonginE to chains or groups on June 30, 1930, were members of
the Federal Reserve System. Loans and investments of the member banks in
chains and groups, however, accounted for 83% of the total for all group and
chain banks.

chain and group banke represent 9 per cent of all banks in
The
the United States and the $12,019,000,000 of loans investments of such banks
represents 20.6 per cent of the loans and investments of all banks.
The development of group and chain banking has reached larger proportions in some of the mid-western and western states than elsewhere in the
country. For example, of the 1,015 banks in Minnesota, 208, or 27 per cent,
were members of groups or chains, while $581,000,000, or 66 per cent, of
the total $877,000,000 loans and investments of Minnesota banks were held
by groups or chains. In California, 60, or 13 per cent, of the 437 banks,
and $1,974,000,000, or 58 per cent, of the total $3,353,000,000 loans and
investments belonged to groups or chains.

It is apparent, also, that group banking has developed most rapidly in
those sections where branch banking is either confined to restricted areas
or is prohibited altogether. It is fair to presume that group and chain
banking have been entered into in many instances because of the restrictions
imposed upon branch banking. It has been pointed out that more than onehalf of the assets of group systems are furnished by branch banking organizations, so that it appears undesirable to separste the two problems - group
banking and branch banking - in any general consideration of banking trends.

* * * * * * If there should be retroactive or retrospective legislation
with regard to group banking it may present important difficulties to existing
groups enjoying a considerable measure of local public support because of their
apparent success in providing their areas with stronger banks.


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•

-4

CHAMBER COMMITMENTS
(This is a statement of all present commitments of the
Chamber concerning (A) National Banking System, and
(B) Federal Reserve System.
A.

National BankingL System
1. "A national bank should be permitted, under regulation
of the Comptroller of the Currency, to have branches
within its own city if a state bank in the same city
is permitted to have branches." (The Committee recommendation favored "intra-city branches." The Board of
Directors has ruled that this commitment is in favor of
branches in contiguous territory where, as a matter of
fact, the corporate city and its contiguous territory
are embraced in an area commonly known as a "metropolitan area," that is, one which taken as a whole constitutes a single commercial community."

Comment: The law was changed to permit intra-city branches, but not to
permit branches in contiguous territory. This commitment, therefore, is applicable to present discussions of branch banking.
2.

"National banks should be given indeterminate charters
subject to forfeiture for cause and termination at the
will of Congress."

Comment:
5.

This was adopted in law.

"National banks should be authorized to deal in investment securities on a basis not inconsistent with the
generally recognized principles of sound banking practice."

Comment: The statutes were changed to legalize definitely the dealing
in investment securities under regulations prescribed by the Comptroller.


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r

,%:s.:21,;(5r

PnEs.,
Maz

Walton L. L;fc,eittr,
John Hancock Mut. Lifc
Boeton, Masa.

U. Warlrarg, Chrm. of Board,
ILtern%ti:;n41 A:.ce;t1n-e balk,
40 Wail St., New York, N. 7.

David M. Goodrich, Ohm. of Bo
The B. F. Goodrich Co.,
I:50 Park Ave., New York, 1. Y.

Howard A. Loeb, Chairman,
Tradesrents National Bank &
(Trust Co.
Philadelphia, Pe.

Alba B. Johnson,
1523. Paakard Building,
Philadelphia, Pa.

W. M. Baldwin, Pres.,
The Union Trust Co.,
Clt.velani, Ohio.

Gamic, T. Ladd, Pres.,
United Engineering & Foundry Cdo
Pittebure., Pa.

Jlian M. Miller, Jr., Pres.,
First & Merchhnts Natl. Bank,
RikIhmond, Va

Junius P. Filhburn, Pres.,
Times-World Corporation,
peanoke, Va.

Oliver G. Lacas, Pres.,
Canal Bank & Trust Co.,
New Orleans, La.

P. G. Shook,
Shook Yletcher Supply Co.,
Birmingham, Ala.

VTI
Chicago

Felix M. McWhirter, Pzes.,
Ths Peoples State Bank,
Indianapolis, Ind.

J. Paul Clayton, Vice Pres.,
Central Illinois Public Servics Go.,
Springfield, Ill.

VIII
St. Louis

:ohn G. Lonsdale, Pres.,
Mercantile-Commerce Bank &
(Trust Co.
St. Lous, Mo.

Paul Dillard, Pre3.p
Dillard & Coffin Co.,
Memphis, Tenn.

IX
Minneapolis

Z. W. Decker, Pres.,
Northwestern Bancorporation,
Mtnneapolis, Minn.

rfilliam J. Dean, Prea.,
Nichols, Dean & Gregg,
S+. Paul, MInn:

X
Kansas City

W. S. McLucas, Chrm. of Board,
Commerce Trust Co.,
Kansas City, Mo.

W. L. 7e+rikin. Chairman,
The Great Western Sugar Co.,
Denver, Colo.

Nathan Adams, Preb.,
American Exchange Natl. Bank,
Dallas, Texas.

J. J. Culbertson, Vice Preq.
Southland Cotton Oil Co.,
Paris, Texas.

;I:

:V

V
Richmoad

VI
Atla%ta

Dallas

XII
Hem/ M. Robinson, Chairman,
3an Francisco Security-First Natl. Bank,
Los Angeles, Calif.


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J. IL Ltvison, Pros.,
Firemen's PUnd Insurence Co.,
San Francisco, Calif.

SOURCE:

THE ECONOMICS OF BRANCH BANKING—Bernhard Ostrolenk (1930)
CHAPTER VIII
BRANCH BANKING IN THE UNITEL STATES

Fake 15:5

The situetion at thet tine wae not far different from the
present hanking situation in tilt United States. Today the treglish
banking system is in the hands of lerge companies; operating with
expert knoeledge of the business intereets of thE Empire; working
along lin 5 of well-tried practice which are noted for soundness
and conservativeness; and establishing branch banks in edequatel
if not excessive, numbers in all perts of the lamd. There hes not
been an iaportant bank failure since 1890, notwithstanding that tne
banking system was called on, in 1914, to withstend a trial of unusual severity. * *
We have already pointed out the large number of recent bank
mergers in metropolitan cities of the gaited States that accompanied
industrial centralizetion in production and distribution. The amalgamations that took place in England during the past hundred yeers
were of precisely the setae neture am were accelerated in the eerly
years of the World War when the banks realised that only larger institutions would be able te continue the financial supremacy of the
English money market. The consolidations differed from the recent
American consolidations in thet the Baglish beaks when merging took
over large numbers of private banks mad converted them into branch
banks or bank offices and whoa merging with the larger banks alreedy
in possession of branch banks theee new banks werc added to the system
and consolidated with it.
?aim 1B.4

In the United Statc.s, on the other hand, the mergers made for
larger metropolitan institutions and left the large number of unit
banks throughout the country untouched. In fact, the eonsolidations
were made necessary because businese was shifting from the smaller
banks to the metropolitan centere necessitating larger banks there.
The unit banks lost business which vent to tht larger cities, which
in turn strengthened their position by conselidation, but they ogre
prevested, because of the legal restrictione on branch benking, from
coming to the assistente of the country banks.


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Paces155-136

* * * Incidentally, it may be pertinent to point out whet
will be discussed more fully later, thEt it now seems probable
that further bunk amalgamation in England will be checked, not by
law, but by the uneconomic nature of additional amalgamations; that,
in fact, the banks havt. now grown so unwieldy thut earnings have
been reduced as tue number of branch banks increased. It is, therefore,
not improbable to expect thet in the United Vtates there will be
econoaic and administvItive limits to the number of branch banks
within a s:,stez even if the law should not limit them.

Pakes 14,1-4-4'6-44-0
* * * But it Math* reemphasized that the system of branch
banking in England primarily developed as L. consequence of consolidation of independent prink banks elk, only partially by opening of
new banks; hence, overlapping bankint services were frecuently the
aftermath of the planless groeth of private bank*.
In view of the argument advanced that the development of atrong
central bankint systems with wide-flunt brench banks w-uld seriously
affect the Federal Spites& it may not be amiss to inveatiEate thc
effect of the awlgametion of English privste bankr upon the Bank of
England.
It iv readily grhnted it.t. the outset that the situation is not
analogous *hd that the Federal 4stea is in many respects a widely
different institution from the Bank of England, yet it iE worthy of
notice that one of the argument, brought forward against English bank
amalgamation was that it would utterly destroy the fiduciary agent of
matter of fact, as these
the United Kingdoal the Bank of England. As
joint stock banks increased in power &aid in extent, the Bank of England
has increasingly withdrawn from the open bunkinc field until today it
has become a bankers' bank exclusively and occwies the hub of the banking
system of England. Issuing of notee, once the prerogative of scores of
banks throuk,hout England, hcs gradually been confined to the Bank of
England itself. In 1844, k07 private bankr and ri joint stock banks
issued a total of 1.8,6Z1,647. At that tiae the Bank of Englamd issued
4.14,000,000. Between then and 1921 the note issue of the private bank's,
hae totally disappeared and the Bank of England has increr,sed its note
issue to L19,750,800, thereby replecing the 8.6 million pounds sterling
issue of the private benks by 1.5,750,000 issue of the Bank of England.
* * * From a omrsory examination of the branch banking development
it would seem Obvious, therefore, that its influence an the Bank of


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-5-

Pages 141-42-0-44-45 (contd.)

England hos been sulutary and that it hmsetrengthened and solidified
the influence of the central bank ae an agent and clef...ring hause for
the benking eystem of the United Kingdom.
Some further attention shoulci be given to the increased aafety
of the btnks in Fngland in consequence of the amalgamation and the
development of branch bankinE. Prive0, bankers who operate in local
spheres uninfluenced by national conditions, unable to appreciate
the need for heavy reserves, operated on a totally different bank
policy from the centrelized joint stoek hanks which mainteined edequete and accurete public Accounting, aggreseive competition for
deposits, disinterestedneve in lending policies, oedulously seeking
for safety and with facilities to supply services to a varied industry
and a widely distributed public. The wer denonstrated that a small
number of large banke can pool their resources more readily then can
a large number of small banks and that the netianie finances can be
better mobilized through the branch bank eystem.

Aert
‘be
tAN
rr NrY

It ie entirely conceivable that fundamentelly also the private
banks in England in their day suffered from the sane maledy which to
a great extent affects the unit benks in the °kited States, and that
is the selection by the banks of investments that are unsound. It is
not improbable that the many failureE in the early history of Fngland
were the conresuence of lerge feounte of frozen aseets end unsound
banking systeme, a condition thst today weighs heevily upon the benking
system in the United States.

(Ye'

ait*A.
redt l
t,
1;‘
Ax&Afr ce-g

One more point needs to be emmaimmd, sod that is the relation of
profite to branch banking. An examinatimm of the banking system in
Miglano aver a period of years reveele a eurioue eituetion. As
aMalgametions decreheed the number of banke end increesed the number
of branch banks, grose eypenses continued to mount and net profits
steadily declined elthough gross profits continued to grow.(!) The
eame condition exieted with branch bemire scattered over the country
and with branch banks in the larse metropolitan centers. It had been
hoped originally that banks which absorbed others would ehow increased
earning powers as yeers went on. This hrs not been the cese. The law
of diminishing return has, therefore, set the limits for bank growth amd
amalgamatima.
The following explanations have been suggested. First, the small
banks were accustomed to keep u small percentate of liquid assets sod
'
after analgamation they were forced to increese liese assets in accordance
with their new rankinge, the incrcese in licuid assets necessarily
reducinL earning power. Second, bad end doubtfl debts ma:, have been
taken aver with amalgamations and necessitated their being written off.


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(5) Cf. Th

etatist, Aay lk, 1928, p. 83k.

-4-

hap, 14-0.43-44-45(contd.)

Third, rates allowed on deposits have been growin and de?osits
bearing ao iaterest have been diminishing. :ourth, continuPd
depres-ioa of investments bac eaten into profits. Fifth, there
are busks working on auch finer raseu; therefore, the benefits of
large amalgamation or aaslganation whics creates larhe banks revert
to the puolic.
Euembrissid, the Englisn bankinc system has paralleled the
American banking system only during a brief period when private banks
to &Oilte extent were as localized bs are the American unit banks, and that
branch banking in Itigland developed concurrently with bank amalgamations.
The proceae o.s anelgamation centrslized the financisl resources of the
countr) into a few strong banks, but dio not stifle competition. In
fact, coapetition was inteneifisd hs these oanks sought deposits in
all parts of the United Kingdom and ia all types of business enterprises.
The evidence clearly inoicates that the developing branch bank system
and amalgamation continued to dlsce before ttle country larher and
largsr numbers of bank offices and banking services. DepouitE increased
steadily and resorvss relative to aeposits am capital also increased.
Tileo banks of the United 4ingdon, the joint Stock Basks,
few in number
with widely distributes branch banks, have hss no failure for almost a
quarter of a century and during thst period the horld tar placed upon
the banks uaparalleled fihancisl stress. In fact, the mar period
demonstrated not only the stability of the English banks, but their
ability, be,..auze of their size and their effective power for organization,
to mobilise their resources in the interests of the nation. Two adverse
development& in the process of amalgamation may be noted here. First the
tendenoy of undercapitalizing, subsequently remedied by legislation, and
secondly, tus decreased net eorning power of banks Eal amalgamations
increased.


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_

.,....-------..

•

Annual Report of the Comptroller of the Currency
December 1, 1930

Pages 1 to 10
Since the publication of my 1929 annual report the subject of branch,
group and chain banking has received considerable attention. Bankers and
their associations, both national and State, the press, and the public
generally have evidenced an interest in the subject to a greater degree than
ever before. This interest has been due largely to the increasing number of
country bank failures and the changing conditions which have brought hitherto
isolated rural districts into closer touch with the commercial centers. These
developments were also important factors in prompting my suggestions to the
Seventy-first Congress that section 5155 of the Revised Statutes of the United
States be amended to permit national banks, with the approval of the Comptroller of the Currency, to establish branches within the regional trade areas
of the commercial centers in which they operate.
At the last session of Congress the Banking and Currency Committee of the
House of Representatives, under authority of House Resolution 141, conducted
extended hearings on the subject of branch, group and chain banking. During
the course of these hearings there appeared before the committee a number of
prominent Government officials, bankers and others, representing unit as well
as the different forms of so-called multiple banking in many sections of the
country. They testified from experience in their respective spheres, and
thraugh their testimony the committee was placed in possession of a fund of
first hand and valuable information. At this date the committee has not
rendered its report. Nothing, however, materialized during these hearings nor
has anything arisen since to justify any change in my attitude. Developments
\of the last year have, on the contrary, strengthened my belief that the type
lof branch banking put forward by me is sound and that such an amendment to the
law should be enacted.
Failures have not abated. During the fiscal year ended June 30, 1930,
there were 640 failures, 82 of which were national banks and 558 State banks,
as compared to a total of 549 failures during the fiscal year ended June 30,
1929, comprising 69 national banks and 480 state banks.
An analysis of the bank failures for the current year shows that the trend
toward the gradual elimination of small country banks in the agricultural
sections, which has been prevalent during the past decade, is still very
pronounced.
Nearly 96 per cent of these failures occurred in the agricultural States of
the South, Middle West, and West, while in the more densely populated industrial
areas of New England and the Eastern and Pacific Coast States, where a greater
diversification of business is possible, the number of failures has been
negligible.
In only one section of the country (the Western States) did the total
number of bank failures for the fiscal year 1930 fall below that of the preceding fiscal year. In that section 163 banks failed during the fiscal year
1930 as compared to 183 during 1929. This exception was, however, due solely


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- 2to the situation in Nebraska, where, following the collapse of the guaranty of
deposits law, 106 State banks closed their doors during the fiscal year of
1929, while only 50 failed during the comparable period of 1950.
Illinois, a State wherein antibranch-banking sentiment is quite pronounced,
suffered a striking increase in bank failures during the past year. During the
fiscal year 1929 only 8 State banks and 1 national bank in Illinois closed
their doors, while in 1930 no less than 42 State-chartered institutions and 11
national associations, a total of 53, were placed in receivership.
Other States contributing largely to the increase in bank failures during
the last fiscal year were Alabama, with only 5 failures in 1929 and 25 in 1930;
Oklahoma, also with 5 failures in 1929 and 26 in 1930; and Missouri, with 19
failures in 1929 compared to 50 in 1930. In each of these States, following the
general trend for the entire country, the great bulk of the failures was made up
of banks with limited capital, located in communities of the type which, in my
opinion, can be adequately served only by branches of the larger banks in the
nearest large commercial centers.
Since I have discussed the subject of bank failures at some length in
previous public utterances and in my annual report to Congress for 1929, I
shall ask your further indulgence on this occasion merely to point out that
the failure of about 5,600 banks in the past 10 years, tying up deposits of
nearly t2,000,000,000, constitutes one of the main factors responsible for the
crystallization of a strong sentiment in favor of some change in our banking
structure which will bring to our rural dlstricts, where more than four-fifths
of these failures have occurred, the benefits and protection of the strong
well-managed banks now operating in our commercial centers. It should not be
overlooked that those who have suffered most in these failures were persons of
small means--country business men, farmers, and savings depositors in farming
communities. That remedial legislation along this line is of great present
importance is strikingly emphasized by the latest -Pigures available,which show
that up to October 31 of this year no less than 742 banks, with deposits of
about $300,000,000, have closed their doors, as compared to a total of 522
suspensions, with deposits of $200,000,000, during the same period last year.
In the absence of legislation permitting the extension of branch banking
facilities to these rural communities, a type of multiple banking called group
banking, practically unknown at the time of the enactment of the McFadden bill,
has been evolved. That the development of group banking has been remarkably
rapid during the past two years is attested by the fact that on June 30, 1930,
there were in existence in this country 289 group and chain banking organizations, controlling 2,144 banks, with loans aad investments of approximately
$17,000,000,000, or nearly 21 per cent of the total loans and investments of
all the banks in the country.
In not a few instances a highly constructive service has been rendered by
group systems in taking over smaller banks which have found themselves in a
position where they could no longer function profitably or safely under the
conditions with which they were confronted. However, it is a rather significant
fact that both group and chain banking have had their greatest development in


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- 3the States where branch banking is prohibited. A recent survey discloses that
in the 9 States and the District of Columbia, wherein state-wide branch banking
is permitted, there were 86 banks in wroup and chain systems and 847 branches
located outside of the head office cities, besides 461 branches located in head
office cities. In the 22 States in which state-wide branch banking is prohibited,
however, there were 1,242 banks in group and chain systems. In these 22 States
there were 25 branches located outside of the head office cities and 27 in head
office cities, all of which were established prior to prohibitory legislation.
A highly important advantage possessed by branch banking over group banking
is the adaptability of the former system for extension into the most remote
/hamlets, while, generally speaking, group banking facilities are enjoyed only
by those communities which are able to support a well-managed independent bank.
My observation has been that group banking, instead of allpviating the rural
banking situation, has as a rule taken over only the stronger local banks in
prosperous communities, leaving the weaker institutions struggling for a meager
existence. Failures of these weaker banks have left many communities wholly
without local banking facilities, which, however, could readily be supplied by
branches of the larger city banks, with but a minimum of overhead expense to
the latter institutions.
It doPs not seem desirable to give sufficiently broad branch banking
powers to national banks to enable them to embrace in a single branch system
the entire geographical area now embraced by several of the larger group bank
systems. Group banking in the main is in capable hands, and includes some of
the best-managed banks in the country. However, the field of group banking is
now open to every type of operator or promoter who may be able to purchase
bank stocks. This constitutes a source of potential danger. In order to
facilitate the supervision of group banking, in those cases where the Federal
Government has any responsibility, it is my view that no national bank should
be permitted to become a constituent of such a group, except upon the condition
that all other banks in the group are also national banks. The Comptroller of
the Currency under these conditions could more effectively examine and supervise the entire group operations. It is therefore my view that group banking
should be brought under the visitorial powers of the Federal Government in
those cRses where membership in the group is composed in whole or in part of
national or State member banks of the Federal reserve system. Legislation
along these lines seems to be necessary in the public interest.
With reference to my recommendation that national banks situated in important commercial cities be permitted to extend branch banking facilities into
the trade area of such cities, it has been suggested that any such national
legislation would give to national banks an advantage over State chartered
institutions in those cities, the trade areas of which embrace territory in
more than one State. There are many such cities in the United States. The
proposal has, therefore, been made that national banks be given only those
branch banking powers which the State legislatures can give to State banks.
Such a procedure would seem to be an abdication of a national branch banking
policy in favor of the policies of the various States and is open to two
serious objections, one economic and the other constitutional.


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0

-4The theory of trade area branch banking rests upon economic grounds. Its
aim is to permit strong city banks to carry their banking facilities to the
community surrounding such city to a distance which is governed by the predominant flow of business and trade to and from the city as a trade center. It
is designed to give to the rural communities, which have for years been suffering from a lack of safe and adequate banking facilities, the high type of
banking and the security from bank failures which rcsidents of the large cities
have generally enjoyed. If Congress therefore adopts the policy of withholding
from national banks the power to cross State lines with branches in those cases
where the trade area of the city clearly does cross the State line, the whole
theory and plan of establishing in the rural communities a well-rounded and
sound branch banking system is broken down.
The State policy theory is objectionable upon the constitutional ground
that Congress alone is responsible for the establishment and maintenance of
the system of national banks as an instrumentality of the Federal Government.
These banks were established purely in the exercise of the legislative power
of Congress and solely upon a national policy. It gave to the United States
a uniform system of banking beyond the control of the States.
It is not a valid objection to the national legislation here proposed
that Congress would be conferring upon national banks banking powers more extensive than those which lay within the power of the State legislatures to
give to State banks. For many years we have witnessed what may be regarded
as the reverse of this situation. While Congress has at all times had the
constitutional power to give to the national banks charter advantages which
could not be acquired by State banks, it has nevertheless been extremely
reluctant to exercise this nower, although to do so in the manner herein recommended would strengthen our whole banking st-ucture. On the other hand, however, State legislatures have conferred upon State chartered institutions,
particularly upon trust companies, banking powers which national banks did not
at the time enjoy. As a consequence, the national banking system has within
recent years declined in size, importance, and influence, and has become thereby relatively less effective as an instrumentality of the Federal Government.
Through tne diversion of commercial banking from the national to the various
State banking systems, Congress has lost control over the major portion of the
commercial banking resources in the United States.
Upon the enactment of the McFadden bill the conversion into national banks
of several larger State branch banking institutions and the consolidation of
several State banks with national banks under the national charter gave rise
to the hope that the national banking system would reclaim the most important
banks which had left it to operate under State charters. However, this hope
was short lived, for there soon followed through State legislative or State
judicial action new advantages for State banks, particularly with respect to
the operation of the trust business and desertions from the national charter
in favor of those offered by the States began to increase. That the disparity
between the two systems of banks is pronounced is evidenced by the fact that
whereas in 1886 the national banks held 75 per cent of the total commercial
banking resources of the country, the latest compiled figures indicate that
this proportion has now shrunk to less than 40 per cent.


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-5Any advantage therefore which might accrue to the national banking system
through trade-area branch banking around those cities situated near State
boundary lines could fittingly be taken by Congress as an opportunity to
strengthen its control over a nation-wide system of commercial banking such as
was established under the original national bank act.
In view of the foregoing considerations, it is recommended that the act
of February 25, 1927, otherwise known as the McFadden Act, be amended to incorporate the following banking policy:
(1) That a committee composed of the Secretary of the Treasury, the
Governor of the Federal Reserve Board, and the Comptroller of the Currency be
authorized to select the various cities which are commercial centers in the
United States and to map out their trade areas.
(2) That the term "trade area" be defined to embrace the regional flow of
business and trade to and from such cities and that State boundary lines be not
considered in determining the territorial limits thereof.
(3) That national banks situated in such cities be permitted, with the
approval of the Comptroller of the Currency, to establish branches within the
limits of such regional trade areas.
(4) That the paid-in capital stock of such a national bank shall be not
less than $1,000,000 and that the ratio of capital and surplus to deposits
shall be maintained at not less than 1 to 10. The Comptroller of the Currency
would in his discretion require a larger capitalization.
(5) That the national bank consolidation act be amended so as to permit
any banks situated within the trade area to consolidate, with the approval of
the Comptroller of the Currency, under the national charter, but the Comptroller
of the Currency should be specifically empowered to disapprove any such consolidation upon the ground that it might result in an undue concentration of
banking capital within the trade area.
(6) That there be conferred upon the Comptroller of the Currency such
visitorial powers as may enable him to examine into the affairs of any corporation which owns or controls the majority of the stock of any national bank.
(7) That no corporation be permitted to own the majority of the stock of
any national bank if it at the same time owns the majority of the stock of a
State bank.
(8) That no national bank be permitted to make a loan upon the security
of the stock of a corporation which may own the majority of the stock of such
national bank.
During the past 12 months I have discussed at length the question of the
trade area as the logical basis for the development of branch banking in the
rural communities. Particularly at my appearance before the House Committee
on Banking and Currency last spring detailed consideration was given to many
aspects of the trade area in connection with the question of the extension of
the branch banking powers of the national banks. It may be desirable at this
time to summarize these discussions.

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-

A,

6-

In defining the trade area it is essential that we keep in mind the chief
purpose of proposed amendments to the national bank act with respect to the
establishment of branches. It is not the primary consideration that the large
city bank should be placed in a position further to develop its business with
attendant greater lorofits and wider influence notwithstanding this would and
should follow, as a matter of course, through the extension of branches to the
rural sections tributary to the city in which it is located. The primary
purpose is the strengthening of rural banking itself through the influence of
strongly capitalized and well-managed city bnnks of which the rural bank might
become an integral part. It is, therefore, necessary to consider the tradearea question from the point of view of the rural-bank situation rather than
from that of the city bank.
The difficulty in defining a trade area in the abstract is well recognized.
The subject has been studied by experts in many phases. MaxxxxxmlotxTxtxxximasmx
xxandimaxicxxxxlmotrximmummxxitxxxxx The country has been laid out into trade
areas from the standpoint of the manufacturers of nationally advertised commodities, the manufacturers of more localized products, wholesale distributors,
retailers and newspaper circulation. The present problem deals with a
different type of trade area--one which requires that the viewpoint be taken
from the rim of the area rather than from the hub.
The aim is the establishment in the rural communities of a sound system
of banking which will give to the country depositor a reasonable assurance of
safety and will offer to those requiring banking accommodation more adequate
facilities than is at present available to them. Those requirements can be
met only through the establishment of branches by city banks into the surrounding communities which have access to such a city as their principal market and
financial center. It is this surrounding area which I have termed the regional
trade area. It is the zone of the city's predominant economic influence in
the sense that in that zone the city is both the trade and credit center.
There can be no formula which would determine in advance the exact size
of any such trade area, but as has been frequently pointed out there is one
economic principle of fundamental and controlling significance. Every city
which may be selected as the center of a trade area must be of such importance
as a trade center for the surrounding geographical territory as to draw to it
a volume and a diversity of trade sufficient to form the potential basis for a
well-balanced branch banking system. This is what I have termed the requirement for economic diversification. By this it is meant that the loans made by
the bank to its customers in the trade area must rest upon the security of a
wide range of business enterprises and industrial pursuits. The bank should
be able to draw its business from the production of natural resources, agriculture, livestock, manufacturing, transportation by land and water, distribution, and communication. In each of these activities there would be further
subdivisions of diversification as, for example, the production of natural
resources would include the various types of mining, oil, gas, timber, hydroelectric power and so on. The essential weakness of rural banking as we now
have it lies in the danger of its complete dependence upon just one such
economic activity. By virtue of the small geographica; area of its operations
its loans rest principally upon one type of security. There is an insufficient
economic diversification of its loan portfolio. This objective can be attained
in a branch system of banking which taps a number of different types of security.


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0

-7It has been suggested that proper diversification can be obtained through
the purchase of investment securities on the general market. This procedure
faces two obstacles. It presupposes a technical equipment which the rural
bank does not possess and it would draw the funds of the bank in too great a
proportion away from the local field of the bankts operations to the detriment
of its legitimate borrowers.
In some sections of the country where industrial activity is concentrated
and where the population is dense there are offered a number of different
economic pursuits of relative independence, the one of the other. In auch a
case the physical extent of the trade area of a commercial center may be small
as compared with another city in the more sparsely settled sections of the
country where a greater territory may have to be embraced in order to gain
the required diversification. Every city indeed, no matter how small, has a
regional or local trade area but every such trade area would not be a suitable
field for branch banking. Under the plan herein recommended it would be
necessary for trio committee proceeding under a general authority from Congress
to select those cities the trade areas of which meet the requirements for
economic diversification. In this respect the committee would be dealing
with an economic situation very much similar to that presented to the committee
which under similar authority laid out the Federal reserve districts. The
Federal reserve districts vary in size according to the density of population
and the physical concentration of commercial and business activity.
It will be recalled that Congress designated the Secretary of the Treasury,
the Secretary of Agriculture, and the Comptroller of the Currency as a committee to lay out the Federal reserve districts under instructions to have "due
regard to the convenience and customary course of business and shall not
necessarily be coterminous with any State or States. The districts thus
created may be readjusted and new districts may from time to time be created
by the Federal Reserve Board, not to exceed twelve in all." This committee
experienced no great difficulty in carrying out these instructions of Congress.
There appears no reason to doubt the ability of a similar committee, such as I
have recommended, to map out the trade areas around the principal cities in
the United States.
These trade areas might be termed regional economic or trade zones to
distinguish them from the wider geographical area with which the business
enterprises of auch city have contact. Banks and business generally in every
large city may from tilie to time have trade relations and business transactions
extending to every part of the country and indeed over the whole world. In
contrast to this wider field there is an immediate geographical territory
surrounding every large city and reaching out into the outlying rural communities, a definite area which can be determined by boundary lines embracing
a population having customary access to such a city as the principal market.

Such a trade area might in some cases overlap an adjacent trade area of
another commercial center. If upon a determination of fact it be found that
the business of a given community flows in substantial volume to more than
one city as a financial and business center, it might be found desirable to
put such a community in more than one trade area. It would seem sound to
permit the establishment of branches to follow the natural flow of regional
commerce and trade, and cases of such overlapping would simply mean that a
few communities might have branches emanating from more than one trade area
center.

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-8As contrasted with the proposal for county-wide branch banking, tradearea branch banking would follow economic rather than political boundary
lines. County-wide branch banking could never form a sound economic basis
for a national policy in banking. The county seat is often not the most
important city in the county and in many cases it is more convenient for trade
to flow to an adjoining county. In a few cases it might be found that the
county seat is in fact an important center of trade but in such cases it will
ordinarily have a stronger trade influence in tne adjoining counties than any
city situated within them. County-wide branch banking would force banking
into artificial channels and would be economically unsound in those cases
where the parent bank was of insufficient size to offer adequate banking
facilities and safety to depositors or was situated in a county which did
not permit of a diversification in the banking business available to it.
There seems, therefore, no escape from the conclusion that rural branch
banking, in order to offer an improvement over the present system of rural
banking, must proceed from a parent bank situated in a city of sufficient
economic importance to sustain, by virtue of the commerce and trade within
it and its surrounding economic zone, a well-managed bank of not less than
$1,000,000 capital.
The suggestion for State-wide branch banking appears also economically
unsound as the basis for a national policy. In many States there may be
found cities whose regional trade areas are embraced within the boundary
lines of the State. On the other hand, however, there will be found a great
number of important cities situated in such close proximity to State boundary
lines that a prohibition against crossing the State line would result in a
one-sided branch-banking system for the banks in such a city. The trade
area here under discussion is a geographical area for banking purposes. It
has no direct political significance. Business and industry pay no heed to
State lines in the use of banking facilities. The normal business of a bank
in a city situated near the boundary line of more than one State flows over
such lines in response to the impulse of convenient comTunication and transportation. Depositors and borrowers in one State have no prejudices in
crossing over the State lines to gain access to their bank. To deny such a
bank, under these circumstances, the power to establish branches to meet the
convenience of its customers across State lines while at the same time permitting it to establish branches in another direction into the territory of
an entire State--in many cases extending far beyond its normal trade area-would set up a system of branch banking under national authority Ahich would
appear unworkable and indefensible.
In the consideration of the type or size of a city which would be chosen
as the center of a trade ares adequate for branch banking purposes, regard
must be had for the general banking situation in any given community. If the
city be important enough to have strong, successful national banks and is
surrounded by a community having a number of country banks whose principal
bank correspondent is in such a city, that city might be made the center of
a regional trade area. In many such cases the geographical area involved
might be not only less than that of a Federal reserve district but less in
area than the State in which the city is situated. There may be found a


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-9sufficient economic justification for several trade areas whose principal
territory is within a single State. Having regard for the situation that
branch banking by national banks began with the branch banking limited to the
city in which the bank is situated, it would seem the logical economic development to permit a natural growth of these branch-banking systems into the
territory where their influence in banking is predominant rather than to
proceed solely from the greatest metropolitan centers of the country, which
would give to relatively a few great metropolitan banks the exclusive privilege
of branch banking in the country districts and lesser cities. It would be
highly desirable to preserve as much as possible the element of local autonomy
in the establishment of trade areas provided the areas are not so small as to
sacrifice the principle of economic diversification.
confined
It is not meant to imply that trade area branch banking should be
d
permitte
now
is
banks
national
by
banking
branch
to those States in which
in
be
uniform
should
banking
branch
of
policy
new
The
within the city limits.
y
communit
rural
every
to
giving
thereby
nation,
the
its operation throughout
an opportunity of access to strong city banking facilities under national
supervision and control.
to the
It may, therefore, be said that the following elements contribute
banking:
branch
area
definition of trade
(1) The principal objective is to strengthen banking operations in the
rural communities.
(2) A secondary but not less positive result would be a strengthening of
the entire banking structure of the country.
a
(3) The surrounding geographical territory economically tributary to
center,
l
financia
and
market
chief
the
city and for which such city provides
may be described as its trade area.
trade area
(4) Every city may be said to have a trade area but not every
is suitable for branch banking purposes.
branch banking a
(5) In order to lay the basis for a sound system of
ication of
diversif
a
limits
physical
trade area should embrace within its
ut its
througho
branches
g
operatin
bank
economic activities in order that a
for its loans.
extent may also acquire a diversification in the security
trade areas should
(6) For branch banking purposes, therefore, only those
commercial center
be chosen which surround cities important enough to be the
diversification.
of a territory sufficient to meet the requirement of economic
area for
(7)Since the trade area under discussion is a regional economic
furnish a guide
banking purfloses the status of the banks in a given city will
of the
to its character and extent, particularly the number and location
ndents.
bank
correspo
l
principa
the
are
they
which
for
surrounding country banks
(8) It would not be a difficult undertaking for a committee composed of
and
the Secretary of the Treasury, the Governor of the Federal Reserve Board
in
centers
al
commerci
l
principa
the
select
to
Ourrency
the Comptroller of the
the United States for branch banking purposes.

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-10(9) Upon the selection of such a city the determination of the boundary
limits of its trade area wauld be a question of fact and could easily be discovered through a study of its banking operations and its general trade
influence and position.
Small country banks need have no fear that they would be driven out of
business through theEotablishment in their communities of de novo branches by
city banks. Such a procedure would be highly abnormal and it is inconceivable
to me that any Comptroller of the Currency would lend his office to its
support. The natural development of rural branch banking would occur through
the consolidation with or purchase of country banks by the city branch banking
institutions upon such terms as would be agreeable to each. The conversion of
the local bank into a branch of the city bank in this manner would have no
disturbing effect upon the local banking situation.
The type of branch banking here recommended would, as compared with the
present system of unit banking, lead to a decentralization of banking resources.
Within each trade area there wauld be a concentration of local or regional
banking capital and the best interests of the branch banking systems would
compel the employment of such capital in the various communities throughout the
trade area. The present tendency under our system of a large number of very
small banks and a small number of very large and strong banks is for the bulk
of the banking resources of the country to be concentrated in a few great
metropolitan centers. Under trade area branch banking there would undoubtedly
arise in the inland commercial centers regional banks of sufficient strength
to hold the banking business originating within their trade areas.


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**** * ***

.1.
SOURCE:

THE ECONOMICS OF BRANCH BANKING--Bernhard Ostrolenk (1930)

Pore 15Z (contd,)

Leveral banka in Canada, other than the Home Bank, did feel
the pinen of hard timea from 1920 to 19.24. Duch at appreched a
coneition of insolvenc took refuge in amalaamation with a sort
poaerful institution. In Canada the brench bank eystea offered
attractions ta powerful Eastern banks who were lookink for outlets
in tht. aoricultural 4est and the localit4 or bueiness aseets
compenvated for the non-liquidity of the bank. Thus. in many eases
the amalgamation worked to the benefit of the puelic end to the
benefit of the abaorbing bank.

bug
In the branches of Canadian banks the till money on bead
alienate to but a few hundred dealers. i unit baJak in the lilted
States could not operate one beer on such a small amount,. est Vie
is possible in Canada becauae of the principle of note issue. The
notts of banka are not coneidered money until they mre paid out by
the teller and there ia no lose of interest on till mammy, whisk in
the United &tate. amounts to a conaiderable sum.
This provision has been of great benefit to the entire systea
and has enabled it to supply banking services to regions where a
unit bank could not possibly operate. Many growing regions have not
reriched the point where financial stabilization is in sight, yet v
powerfUl branch bank can afford to operate with wean loss for some
,years in order to eatablish itself aed grow with the region. The Endson aay is such a region. It is developing and mmy in time beim* a
center of activity but no unit bank could possibly operate there at
a profit, yet the Royal Bank of Canada has opened a branch in Churchill.
It will probably teke a smell lose for some time but in the nc-antine it
is firmly establishing itself and Eiving the community the benefit of
banking facilities.
Supplying adequate banking fadilities to agriculture Mais 0MS
important reason for the establishment of the branch system in Canada»
Under similar conditions in the United States such regions have been
bespered and retarded by the lack of proper banking facilities. Tbe
mmit system cannot supply to agricultural regions the credit they seed
mad the danger of failure is slew, more Inminent.


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-3-

Paeee 150-60-61-6k

The fluid movement of funds in Canada, as well an the elasticity
of currency, hats been a great advantage to the country as a ehole,
evpecially to the agricultnral regione. The movement of funds from
East to West is of extreme importence especially when the crops are
to be exported or moved to sellint centers. Celia& hes been fortunate
in thet through its great brench eystem credit ie evailable at all times,
funds move reedily from surplus to deficient regions and thet ita
currency. iu one of the most delicate Eysteme of ita kind. The elesticity
of currency in the United Vtatee cannot and does not meaeure up to the
Cenadian eystem, credit is not so available and the movement of funds,
although facilitated through the Federal Reserve Syetee end correspondent banks, doer not work smoothly enough and often causes deleys.
there hew been easea of complaint ore the pGrt of certain croups
in Canada that they do not receive an adequate supply of capital or at
reasonable rhtes. Rather than indicating a defect of the eystee, this
exhibits one of tne beaefits to the country. The Maritime Provinces
have hhd to compete with others nik with more fevorable industrial
opportunities and business ham declined, and while a local unit bank
would buoy this up for some time the end would be disastrous. The more
favorably situated provinces are able to take adventage of the easier
credit while credit for less fevoreble reclons becomes tiehter. It ie
not a fault of the eystem but workv es an automatic reguletor of credit
and prevente overexpansion in territories not suited for ;tame particular
industry. rhe Andustriee of the scritine Provinces must compete with
industries of the other provinces on ea equal bevis end credit will
flow to such centers where the eeeene, is greeteet end accospenied with
sound industrial prospects.
Not only have Canadian farmere been able to obtain easier credit
but rates have been lower than in corresponding regions of the United
States. While ratca very and ao definite rate whioh Canadian fermers
have to pay ean be (luoted, the range is approximately from 7 to 10 per cent,
while the rate to fermers neer the Canaaien border in tIle United EtateE is
several per cent higher.
The reaeon for these lower rates
inherent in the system. It is
due to the rapid shifting of funds from the -hest to the West and back again
when not needed. The 1,1.0 number of branches facilitates tnis aeweseat,
and various induetries in need of credit at different times are paired off
against Eq ,ch other. Again, the grett sevinga in the overheed of a branch in
Aanitobe compered with a unit bank in Dakota nukes for lower operating caste
in Canade.
If tnis savings in overhead did not exist many of the branches
of Canedien banks could not operete profittbly.
Divereifieetion, a ocord that at prevent haa been assuming more and
more significence in the United Statea, hee been carried out in practice
in the Canadian brench banking system. Banks will not tie their assets in


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-4-

rages 159-C:-Cl-p. contd.)

any onc induetry nor one locality. The unit beak in the United Ctatee
hen little choice. It cannot diversify its aseete to tht extent that a
large brunch bank can and is compelled to associate its fortune with
the induetry in its particultr locality. If it ie in an ugricultural
region with farmere who are land poor and mtking no profita, the bank,
males* managed with more than averegi skill, frecNently will find its
assets; trona** * *
In the past acme benke in Cameea have frecuently had their
branches in me region. In the case of the Union Bank this was true,
but among the present chertered banks this tendency has precticall,;disappeared. in the ease of the Farmers Bank, which hed all its assets
tied op in e mining venture, the lemlay mine, tho failure was re2orted
to be due more to inefficient and dishonest mmangement than to a defect of the system. bnoh tendencies are mere prone tc exist in the umit
system teceuee a Urge brench system ema ettraot a higher type of camostive.
Especially is this true of positions in the head office, where misMagoe
sent is likely to te of grettest demege. The teadenci to &sable away Assets
of a bank time been corrected through the decennial reviaion of the Bank Act.
In the revision of 191! e etookholders' audit was amthorised to reduce the
risk of speculation on the pert of the somagement%

Nes 43-64
One criticism of the bronch banking system, that is often advanced,
is that not enough interest is taken in the industries of a saell con.
munity. The proponents of the unit spites point to the fact that in small
communities the lOoml industry is financed by the local bank. Viewed fres
the standpoint of the individual, th4i Gemmel intereet of e local hank has
many advantages. However, viewed from the gomeral economic interests of
the country, it will be granted that beak attar bank finances its local
industry without any regard to the demends or moods of the nation or the
position of the industry from a standpoint other then local. Canadian
banks take a wider viewpoint. 2he manager of a locul unit bank has not
the facilities at hand or is not so situated as to be in touch with all the
factore of a certain industry or view the industry as a whole.
A case in the United States where thie local viewpoint was carried
to an extreme hes been called to the writeeb attention. Within a radius
of eight miles three toems imitated each other in the establishment of &
hosiery mill. The bank of each town financed its own local mill with no
regard to the needs of the Market or to the demand for this oommodity.
* depression hit the industry, two
The sonsequPnee ins that as soca
* found these loans, 'high
of the rectories wont bankrupt and th

1


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; -r•;

,

Er
;
11'

-5-

Pr*es

(contds)

amounted to e. considerable sum, frozen. Although there are no definite
assumnces that this would mmt happeu under a branch biAking syetel,
the probubilitics are that the losn alone, such lino by any branch would
prompt4 receive the scrutiny arid reviot of the heed office, which would
be in u poeition to ju6ge the need of tilt. county--; for any particulnr
commodity.
It is interestinc to note that in Canede the bankcrs are in close
touch with their duhlic 1...nd with the state of each particular industry.
In part this ie because of the small numbers of customer* mod in part
cunt)* of say depositor to hews mere time ane
because it is mot
*
*
account. *
Personal knowledge of its financial public is an import8nt feature
of bbnking in Canada and partly dioproves thc allegations that the heae
office of a beak has no knowledge or interest in a particulnr community.
***

PaKe 16§
Another point in the Canadian system that haa been severely
criticised is the decline in the ratio of capital and surplus to total
liabilities. Table XVIII shows the extent to which this dceline hes
taken place (9)
TABLE

XVIII

EATIO OF CAPITAL ar SURPLUS TO TOTAL LIABILITIES
1885......57.35
1890.
1895......38.76
1900......27.t6
1905......22.48

1916......14.1E

19PE......10.56

1918......10.E6
1919...... 9.46
19C0...... 9.06

19L5...... 9.5ri
1926...... 9.29
1927...... 9.1t
1928...... 8.0

1915......16.76

1922......10.76

Plgefi 166-67

Another criticism that hae been directed against the Canadian
branch banking system is that it Weates a semey trust and reduces healthy
competition. That competition exists between the lirious banks in %media
is difficult to prove stttistically except by the fact that one Ati rum
in a small communit;y several branches of vtriour banks. Bmnks ere partie-


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(9) Canada ieer Book, 19E9, source for eapital and liabilities.

-6-

Lzep 166-C7 (cont4s1

ularl: eser to obtain the accounts of new induztries establishing
themselves in Canada, end this is ihere the irezUst oompetition
ariseF betweeu bauks. It is, Lowevers tk practice not to persutee
customers to switch their accounts.
A farther criticism of the system is that the local brula
samagers fail to take thE interest in thc community that is said
to be shaructEristic of the namager of u unit bank. The complaint
ha* bees mode that they are shifted just when they have become
acquainted with the needs of thc coanunity and that they are not
given sufficient authority but must refer too many matters to the head
office. This criticism is not E0 true tt present bs it W/18 when many
new branches were opening. It way more difficult f r e bank to chonee
the proper aan when it 174s expandiLg
ra-Adly. N6turally some inefficient men sere appointed bort these have boon reaoved end it is to thc
interest of Ma bank that itt local man dieplay interest in his COM=pity. The bank r,_alizec this am: when a asonger has proved his
tbility he is given xore liberty in ths asking of loans. Onse a
certain line of credit hue been given a customer it remains operative
witc the local branch without rcferaince to
hevd office, unless an
amount greeter than thi* is needed. * * *


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* * * ** * * *

SOURCE: nIANAGING THE PEOPLE'S

MONEY" by Joseph Ernest Goodbar

BRANCH BANKING AND BANKING CONTROL
Paae 167-168
That the development of branch banking has never been favored by the
national banking law is perfectly clear. That branch ba nking is favored
in other commercial countries, and has reached e;:traordinary development
in England and in Canada, suggests that the policy in this country may
perhaps have been unwise. It certainly has increased the difficulty of
intelligently managing the people's money.
A National bank, prior to 1933, might have branches in its orn city
when state law permits a like privilege to State banks, but no branch is
permitted in cities of less thsr 25,000 population, nor more than one
branch to each 50,000 population in cities of not more than 100,000 inhabitants. In larger cities the number of branches allowed is in the
discretion of the Comptroller of the Currency. State ba nks, on being
converted into or merged with a National bank, and mergers of two or more
National banks, are permitted to retain all branches lawfully in operation
at the time the permissive act wasapproved.
Unfriendly toward any kind of monopolistic development in banking,
the law prohibits alliance between a National bank and any other bank,
State or National, through interlocking directorates, employees, or officers when either such bank has "deposits, capital, surplus, and undivided
profits aggregating more than t5,000,000." If located in a city of over
200,000 population, no National bank may lawfully have a director, officer,
or employee who is also a private banker, or is a director, officer, or
employee in any other cumaercialbenk or trust company. Provided, however.
that when all stock of not more than one commercial bank is owned by stockholders in anothe-, the above prohibitions do not apply. The Federal Reserve Board is given authority io permit private bankers, or directors of
a Federal Reserve bank, to serve as director, officer, or employee of not
more than t-o commercial banks. To enforce these prohibitions, the Federal
Reserve Board is authorized, on proof of violation, to issue a "cease and
desist" order, enforceable in a proper circuit court.
Nor is it lawful for a National bank to acnuire branches by stock
ownership. As was stated in the early pages of this chapter, accuisition
of stock in another bank by direct purchase is Ultra vires. LaTful ownership might be temporarily acouired in protecting a loan, but intentional
ownership would probably sustain a proceeding, brought in the name of the
United States, to revoke the charter of the owning bank. Officers responsible for illea,a1 ownership of stock in another bank a re liable
criminally only if they intended to "injure or defraud" the bank.
Statute law and judicial decision have thus combined to circumscribe
the development of branches within very narrow limits, to prohibit the
alternative growth of interlocking management, and to prevent the indirect
attainment of branch banking, other than that expressly permitted, through
stock ownership by one bank of another.


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*et
•

•

Page 169_1'70-1'71
With the law as stated above, what do we find in practice? In
Michigan, the Guardian Detroit Uhion Group (Inc.), v Michigan corporation,
owned all or most of the cepital stock other tha- h directors' qualifying
shares, in nine National ba nks, including the Guardian National Bank of
Commerce of Detroit, and twelve State banks, all located in Michigan. The
group served over 400,000 depositors, and, ak December 31, 1931, held
aggregate deposits of $349,398,000. These banks and trust companies came
- into the control of the holding company through the exchange of stock on
an tppraised book-value basis. None were bought for cash. The holding
company's 1,544,844 shares of stock, having a par value of $20 per share,
was held by upwa rds of 8,000 shareholders--each being under double
liability in case of need to repay depositors in any failed bank. Another
holding company, Detroit Bankers Company, controlled 7reater resources
thanaid the Detroit Uhion Group; the two together controlling $1,090,000,000 in aggregate banking resources, which was more than 58 per cent of all
banking resources in the State. Of this total, $202,000,000 was in State
banks and trust companies, and the remaining $888,000,000 was in National
banks, this being 832i per cent of the total National bank resources of
the entire state of Michigan. It will/E noted that this grouping of
National banks is not only astonishingly efficient as a device of controlbut it in no way violates the letter of the Clayton Act (supra).
Over the country at large, 230 chains or groups of banks mere operating 1,561 banks, both State and National, on June 30, 1929. On October
14, of the same year 273 chains were operating 1,838 banks, according to
the Economic Policy Commission of the American Bankers' Association.
kccording to the latter report, three types of control were being exercised. One type, dominated by an independent non-banking holding company,
consisted of 28 groups, controlling 380 banks, having aggregate resources
of $5,335,100,000. A second type, dominated by a particular bank, consisted of 78 groups controlling 407 banks, having resources of $6,473,000,000. A third type, dominated by persons or groups of persons acting for
themselves, consisted of 167 groups, controlling 1,071 banks, with resources of $1,468,000,000.
According to the same account, chain or group banking had, in the
fall of 1929, developed relatively on a greater scale in Minnesota than
in any other state, 435 banks, with total resources in excess of $1,000,000,000 being under outside control. The control centering in New York
City, however, affected assets larger than those managed from any other
city. Seventeen chains had head offices in New York, with aggregate
assets of $4,000,000,000, and controlling important banks in Chicago,
Philadelphia, and San Francisco. One of these holding companies, the
Transamerica Corporation, of New York, owned the control of the Bank
of Italy, now the Bank of America, which carries on a very large branch
banking business in California. We have already seen that Michigan had
large banking chains. In Illinois there were eleven chains, with in
excess of a billion in assets--three of which were dominated by National
banks. Just how these National banks exercised control was not statea.


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iihr"
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•

But an affiliate company could have accomplished that result, despite the
statutes against owning stock in other banks, and against interlocking
directorates.
Another type of group banking is that of the Marine Midlnnd Corporation, chnrtered in Delaware, but operating in New York. This holding
company issued 1,000,000 shares in October, 1929, for 1..0 per share, less
underwriting commissions, giving it a cash capital of e57,285,236. With
the exception of about $19,000,000 this money has been used to buy new
bank stocks or to increase the capital and surplus of banks whose stock
had been accuired 1)7 original exchange of stock. There is no double
liability of stockholders. It controlled, in March, 1932, twenty banks
and trust companies, having a total capital of about $32,000,000 (apparently exclusive of surplus). In this particular plan, a "service corporation," the Marine Midland Group (Inc.), was organized under New York
lays, with a nominal capital owned by the various banks in the group.
This latter company furnished "service and advice to the member banks
through central auditing staff, central credit file, standardization of
forms and accounting practices, bond investment advice, publicity,
advertising, and new business, and so forth." The device of a service
corporation is well known to utility holding companies, and has always
been an excellent arrangement for boosting profits under the guise of
service. Nevertheless, it does have elements of real value to the
operating companies, and, with respect to group banks, might possibly
supply an adeouate central control, the lack of which is one of the weaknesses of group banking as compared with branch banking.
Branch banking itself has made comparatively small headway in this
country. State-wide branches are permitted in nine states, including
California. In Massachusetts, New Jersey, New York, and Ohio branches
arepErmitted within the limits of the city in which the ba nk is located.
In three states, the county, or the adjoining county, limits the extension of branches. Limited branch banking is permitted in Michigan,
Pennsylvania, and Kentucky. The remaining states, including Illinois,
do not permit any branch banks whatever. On June 30, 1929, out of a
then total of 25,115 individual State and National banks, 818 were
operating some 3,440 branches. Of these, only 1,078 were located beyond the limits of the parent bank's home city. Out of this total, 531
were located in California--the State in which branch banking has attained
its greatest development. Most of the branches were established de novo,
only 958 having been acouired by the purchase of existing unit banks.
Much has been said for and against branch banking. That it has existed in very large degree in England, in France, and in Canada, the
three countries whose banks have stood most firmly safe throughout the
period fram the end of our own Civil War in 1866 down to the present,
is a strong point in its favor. But branch banking is not of itself a
panacea. It expands the methods and skill that operate the bank. Government inspection usually has no remedy for faulty manacement, and waits
until insolvency occurs before closing a badly run bank, but the head
office of a bank can remove the local manager when its own inspectors


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Page 173-174
disclose unsound or inefficient management. It egualizes risks by reason
of greater diversity in territory and in customers served. But, as Joseph
Stagg Lawrence says "A far more vital difference (between Canadian banking
and banking in the United States) is the severe limitation in the number
of Canadian banks"
If the management of a large system of banks is unsound, then the
very magnitude of the institution intensifies the effects of the resulting
insolvency. The failure of Bank of United States is a perfect example.
The two great groups in Detroit, described at the beginning of this discussion of branch banking, themselves were about to crash, nnd caused the
declaration of a moratorium in Michigan, la te in February, 1933, which
precipitated the temporary closing of all banks in the United States on
March 4. Stockholders' suits asking receiverships for the Detroit Bankers' Company and the Guardian Detroit Union Group (Inc.) were filed on
March 25, 1933, in the Circuit Court at Detroit, seeking to prevent a
transfer of ,assets to the new National Bank of Detroit, organized to take
over and replace the old First National Bank, and the Guardian National
Bank of Commerce of Detroit, which had suspended payments. This new
National Bnnk of Detroit was organized on the initiative of the Treasury
Department, because of the pressi'lg necessity for sound banking facilities
in Detroit-412,500,000 of 6 per cent preferred stock having been subscribed by the Reconstruction Finance Corporation und,_ Title III, Section 304, of the Banking Act of March 9, 1933. The $12,500,000 for common stock zas advanced by General :Motors Company; this, however, being
intended to be offered to stockholders and depositors of the two failed
banks on an equitable basis, the motive being to hasten the eatablishment
of a g oina bank. 0 uite clearly, them, mere branch banking is not the
way out, although it offers many real advantages.
The direct control of the head office over branches is a more effective restraint on unwise banking than the indirect control of a holding
company over banks within its 0:roup. In the one case, branches are a part
of the whole,and the management is normally in the hands of bankers who
have been successful intanking. In the other case, group banks are legal
entities, often remaining in the hands of the original local management,
which means that they have, in addition to th-e-mansiganaltr-w134-eh-maans
ths—thisy-b*Ar.e., in addition to the shortcomings frenuently inherent in
small unit banks, the added handicap of absentee control without effective
central management. , The investment banker, who too often dixects the
activities of group b-nking, is inclined to think of the group in relntion to its value in supplying credit facilities for outside activities,
instead of as a commercial banking enterpriee to be controlled and operated
as effectively as possible in its own proper field. As between the two,
branch banking is far more likely to be carried on with a single-minded
interest in commercial banking, whereas group banks are more apt to be
managed in the interests of noncommercial banking projects.


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Page 174-175
Group banking has developed as a means of avoiding the regulations
imposed on branch banking. I regard it as inferior to branch banking
in every aspect. As will appear in part in the summary, which follows
section 11, and in the constructive discussion of branch banking that
will appear in Chapter VI, the development of branch banking, intelligently carried out, under regulations devised to guide its growth along
healthy lines, offers not only a more flexible and more substantial
body of banking institutions, but offers at the sPme time a form of
oreanization peculiarly adapted -b understand and carry out any wellconceived plan of monetary management that may emanate fram the Congress
and from the Monetary Authority. Its business, of course, will have
to be restricted to commercial banking.


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SOURCE: "MANAGING THE PEOPLE'S MONEY" by Toseph Ernest Goodbar
ADVANTAGES OF BRANCH BANKING
Page 306
************

The flexibility of these branch-banking companies, in bringing
banking service, at small expense, to villages and to communities of
no great commercial importance, was very impressive. Another striking
feature was the long and careful training of bank employees and officers.
Banking was a profession. Still another was the flexible freedom with
which the branches operated under a constant system of inspection controlled by the head office. Any manager could be removed for mere incompetence, as well as for other cause, without interfering with the
conduct of business in the branch. In the United States, prior to 1933,
recalcitrant violations of law by unit bankers could be stopped, in too
many cases, only by closing the bank.
************

Page 309-310
Present-day English joint-stock banking, then, is characterized,
first, by its adherence to the commercial type of banking; and, second,
by its extraordinary development in the field of branch banking. The
first characteristic is the one to which modern English banking owes its
great stability and through which it has contributed so largely to English
economic stability and progress. But I strongly doubt if the first
characteristic would have become so thoroughly a part of English banking
practice had it not been for the continuity of unified control over local
branches, through which sound policies have been made effective over the
entire country. This development of branch banking must have supplied
a superior grade of banking service--for there is no restriction on the
opening of small private bnnks in England, save only the practical one
of having to campete for business with existing branch banks. The elements
of safety, of service tu small communities where sound unit banks could
not live, of ample resources for la rge business units, of diversification,'
of thoroughly trained personnel, supply advantages to the public which few '
unit banks could even hope to equal—which the American system of unit
banking does not even begin to approximate--and this apparently explains
the sterility in birth rate of new private banks in England.
Such excellence, as compared with a unit-bank system, is, of course,
due in the first place to the intelligence, training, and traditions of
the management. But these policies of the managing officers are made
effective only through a large and scattered personnel of managers and
other officers. -Unlike the heads of unit banks, this personnel must
follow the traditional policies under pain of removal. It is this power
of removing recalcitrant managers, which may be exercised without in any
impairing public confidence in the branch, or interfering with the orderly
process of its business affairs, which, perhaps more than any other one
thing, explains why internallmk control, through a bank's own auditors,
has been so conspicuously successful in England, as contrasted with the
American method of attempted government control through publicly employed


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bank examiners. Until Dower of removal over bank officers was granted,
in 1933, unsound practices of American uniL banks could be corrected only
by closing or threatening to close the bank. Even with Dower of removal
in the hands of the Comptroller (or, in case of state member banks, the
Federal Reserve agent) and the Board of Governors, who is to succeed such
removed officer? The majority of American banks are modest in size. They
are largely "one man institutions." Among their employees and directors
may often not be found, in a distressingly large proportion of cases, any
proper successor for the officer whose removal is believed necessary. In
no case can a managing officer be repoved, from a unit bank, without probably impairing public confidence in its soundness. Branch managers may be
removed by the central management without disturbance. But the removal of
the managing officer of a unit bank by public authority appears little less
drastic, in its effect on the bank itself and its service to the community,
than closing the bank would be. It seems doubtful if such removal could be
accomplished without so injuring the prestige of a bank as sooner or later
to compel it to close its doors. The power of,painlessly. removing the
manager of a branch bank, constitutes, without doubt, one of the greatest
advantlges of branch banking over unit banking. It supplies the means tw
which sound banking policies may be imposed throughout a widespread banking
system.
Page 311
Nevertheless, this characteristic of branch banking can only have resulted so fortunately for England by reason of the fact, as hereinbefore
made plain, that English banking experience had ripened into a controlling
tradition that loans for speculative purposes, and/or for investment purposes are disastrous for commercial banks, and must therefore be avoided
by them as far as possible. laatever faults may be evident to those closely
in contact with English banking, the fact remains that in carrying out this
traditional policy it has largely prevented the disruptions to economic
stability 7:hich the contrary policies have so frecuently induced (or permitted) in the Uhited States, and has thereby spared England much of the
economic distress which has developed in the United States since the time
of the Civil War. (3ound banks, with economic stability greater than in
any other country over more than half a_ century, are tangible results.
And these results have accrued only after joint-stock ba nking methods
were divorced fram earlier practice of lending freely on speculative
enterprise and an the construction of new capital goods. Greater economic stability, and freedam from bank failures, developed in England
when English banks turned away fram speculative loans and investmenttype loans in favor of cumuercial loans.


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As suggested at the close of the preceding section, bowever, the
unhurried development of branch banking occurs largely by territorial
expansion of the more ably conducted institutions, which gradually take
over, absorb, or replace less efficient unit banks. During and after
times of stress the process is accelerated. Unsound methods, too freely
indulaed in, impose their own penalty. Wise and conservative management then comes into its own. Granting the possibility of Basonable
unimpeded extension of branches, the weaker units disappear and are
largely replaced by branches of the institutions whose strength has
proved itself under test. "Survival of the fittest" operates to improve the banking species, just as it does to innrove and tone up
the quality of natural species.
However, the Banking Act has imposed a restriction on branch banking which destroys a large part of its value, even where permitted. In
Scotland, where branch banking thrives, and in England, Alere it has
reached extraordinary development, small communities entirely unable
to maintain a omAll bank, or even a branch bank, are nevertheless given
banking facilities through branch banks that are, in same cases, open
but one or two days a week--the manager serving three or four such
communities on alternate days. Banking service is thus brought to
communities not large enough for a full branch.
When full-ttme service can be given, the expense account is kept
within reasonable limits, because the name of the bank is a sufficient
assurance to the public of its importance and stability. It does not
need to put up a costly bank building, such as an individual bank
would have to do, es a mere matter of advertising its strength and its
importance. The parent bank can adjust the expenses of each branch
to the volume of business; can, if it chooses, occupy mdest nuarters
without loss of prestige, employs only vliat capital is actually needed
in the business of the branch, and feels no neceFsity, ordinarily, of
freeziu a lot of capital in an unnecessarily pretentious building, as
is customary with balks in the United States.
These economies, and this widely distributed public service, is
impossible under our bank laws. The specific provision of the Banking
Act of 1933 that has this effect was, perhaps, intended merely to prevent banks from doing too large a business on a given capital. The
capital of a Nationalbenk shall be not less than the aggregate minimum of capital that would be required if all arancnes were independent
National ba king associations. This means that the bank must have,
on the average, a capital of rot less than $100,000 for every branch,
except that, for branches located in places having less than six
thousand population, only $50,000 is required. Additional capital
of $200,000 is reauired for each branch in a city of over fifty thousand population, unless located in out-lying districts where, in same
cases, $100,000 is sufficient. It is easy to see that the result of
this restriction is to destroy entirely what is, perhaps, the greatest
utility and value of branches--namely, their flexible adaptability to


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Reserve Bank of St. Louis
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the needs of the community.
The difficulty of giving safe banking facilities to communities
where an independent National bank could not exist did not entirely
escape the attention of the Committee on Banking and Currency. Conseauently, the Act of 1933 provides also that State banks and trust
companies, organized prior to the date of the Act (June 16, 1933)
located in places having a population not exceeding three thousand,
and having a capital of not less than $25,000, or which, prior to
July 1, 1936, increase their capital to not less than $25,000, may be
rldmitted to membership in the Federal Reserve System.
The Banking Act of 1935 has relieved, though apparently in a none
too satisfactory manner, a particular difficulty that had been inadvertently imposed on small-town State banks, too small to be members of the
Reserve system, by the Federal deposit-insurance provisions of the 1933
Act. By that Act, rtonmember State banks could not have Federal insurnnce for their deposits after July 1, 1936. Those State banks that
would have been obliged to remain outside the Reserve system, and also
outside the deposit-insurance system, would have found conditions exceedingly difficult. It might readily have happened that few of them
would have survived the double handicap--and this, of course, - ould
have meant that smallcommunities would either have no bank service fram
State banks, or a very precarious type of service. The 1935 Act, however, makes no insurance discrimination against nonmember State banks
on account of small size though requiring those whose deposits average
$1,000,000 or more to become member banks by July 1, 1942, or cease to
participate in Federal insurance.
Of course the National banks are unable to give any small community
banking service (other than the limited type referred to, previously,
for resort localities), because branch expansion is v-ry limited, in
any event, and even where permitted each branch requires an allowance
of fram $50,000 to $200,000 in capital, depending an its location.
Small communities, therefore, will continue to suffer the deficiencies
of banking service incident to dependence on small State banks, when
it would be perfectly possible, with added strength to our Peserve
system, to permit National banks to establish branches in such places,
without any such needless capital reauiruments as are now tmposed.

1

In Rhode Island banking law the protection of depositors, from
possible overexpansion of bank deposits in relation to size of capital
and surplus, has been effectively accomplished without imposing any
obstacles to the natural development of brnnches. The statute provided
thrit "the total amount of deposits on hand by an (bank), exclusive of
deposits in its wrings or participation departments, shall never exceed
ten times the combined amount of its unimpaired surylus and capital
1112.9.1_Rakult
: Rhode Tsland went through the banking difficulties
up to March 4, 1933 (when all banks were closed by presidential order),
without bank failures. A similar provision in the Banking Acts of 1933


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.41111-1

and 1935 would have given effective protection to the public against
overextension of business in relationship to capital, and yet would
have permitted the same economical operation of small branches, and
the same extraordinary reaching out of banking service into all communities, which is so characteristic of English and of Scotch banking.
Instead of safety 731us service, the statute, on this point, has
sacrificed service aLmost entirely. The effect, and perhaps the real
purpose also, of these restrictions on the establishment of branches
is to preserve the unit bank fram competition. The welfare of the unit
banker seems to have been put ahead of the kind of bank development
that sems prerequisite to the general acceptance of sound banking
practices. For the seemingly ostensible purpose of preventing the
creation of an easily avoided "money trust," the statute narroTly
limits the development of that phase of banking which, in England,
has, perhaps more than any other one thing, caused the elimination of
bankers who would not or could not carry on the business safely, and
caused them tc be succeeded by branches that extend the activities of
those who apparehtly knew hor to operate a bank with safety to all
concerned.
Branch banking--either within a single state, or within a single
Federal Reserve District--seems really essential to an adequate unification of safety with service. Limit the amount of deposits tolen
times the capital, and overextension is prevented. Limit executive
control to directors, officers, and voting stockholders whose residence
andflnancial interests are chiefly within the Reserve district in which
the bank operates, and protection is given against the creation of a
"money trust," under absentee control. Small and inexpensive branches
may then bring s-.)rvice to all communities. These need no pretentious
not the appearance of its branch
bank offices, as the bank's name
office, is the source of its prestige. They may have able and competent men as supervisors of the manager, instead of unskilled directors dominated, perhaps, by a small-tmn big-wig who knows merely
the pawnbroking features of banking; or may regard the bank as a
convenient accessory to his other business interests.
6,
1-\A few large branch-banking systems would seem unquestionably to be
4,- 'more easily held to sound banking principles than are myriads of separate4,
banks. By reason of the central-office control over the pay, the tenure,
and the advancement of all branch managers, the latter become sensitively
reponsive to the spirit, as well as the letter, of regulations imposed
./
by the central office. Valere a man can recognize his own self-interest,
there411 his heart be also--and a branch-bank manager's self-interest
is served by furthering the plans and methods emanating from his superiors. Regulations laid down by the Board of Governors of the Federal
of the Federal Reserve System, or by the Federal Treasury Department,
or by Act of Congress, however sound, are too often likely to seem contrary to the unit banker's estimate of his own financial interest. In
such case, his observance of them is limited to the letter of the law
only, and the real purpose of these regulations is likely to be deliberately circumvented.


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•

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•

SOURCE:

"MANAGING THE PEOPLE'S MONET" by Toseph Ernest Goodbar

GROUP BANKING AND HOLDING COMPANIES
Pages 353-364
Group banking under the control of holding companies received attention
in both of the Banking Acts under discussion. From an earlier chapter
it will be remembered that this type of banking control does not impress
me very favorably, although conducting the banking business through branch
banks meets with my entire approval. Some, at least, of the members of the
Senate Committee on Banking and Currency, in 1933, are said likewise to
have looked with disfavor on holding-campany control over banks, although
for reasons unlike my own. Little friendliness was to be found on that
Committee, other than on the part of Senator Glass, for any method of
bank control other than the traditional independent management of unit
banks.
It seems to have been thought, by some of the members of the Committee
that framed the Act of 1933, that the provisions of that Act would induce
the holding companies to dispose of their bank stocks within a period of
five years. It 'rould appear to me, however, that if this result should
materialize, it would not be because of the restrictions so much as because of economic conditions. Merely reading the Act itself would seem
to indicate no motive other than to remedy a few of the unsound financial
practices that had developed, and to subject them to Bgulation not unlike
that imposed on banks. Certainly the provisions do not seem unreasonable.
To begin with, a holding company is defined as any "corporation, business trust, association, or other similar organization" uhich through stock
ownership, or through trustees in control of stock, controls the election
"of a majority of the directors in any one bank." Any such holding copany
may vote the stock it holds in National banks and draw dividends from such
stock, provided it secures a votinz permit) which the Board of Governors
"may, in its discretion, grant or withhold. . . es the public interest may
require."
Granting of a permit depends on the good reputation of the applicant
therefor, but no holding company may le pranted such permit unless it consents that all banks under its control should submit to examination by the
regular bank examiners, end should publish statements of condition if reouired. This Provision was doubtless included because State banks, not
subject to Federal supervision, were often included in the controlled
group. The holding company must further consent that its officers and
employees should be subject to the same penalties that would apply to the
corresponding personnel of a bank with regard to false entries in the
books and reports of the company. It is further required to be shown
that the holding company has no financial or participating connection of
any kind with any investment banker or security company.
In addition to the above]Tovisions, concerned immediately with bringing
the group of banks under government supervision, and separating it fram


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Federal Reserve Bank of St. Louis

"".

irproper financial connections, there were requirements with regard to
the accumulation of a reserve. It must have been these requirements, if
any, that were expected t) bring about the dissolution of holding-campany
interest in National banks.
Inasmuch as a number of holding companies had voluntarily imposed
on their stockholders a double liability, for the protection of depositors
in controlled banks, in the event of failure, these were burdened more
sparingly than the others in regard to this mandatory accumulation of
reserve. The Banking Act of 1935, however, has since provided that
every National bank may free its shareholders of double liability on
July 1, 1937, or at any time thereafter, by giving a statutory public
notice six months in advance. Accordingly it was also provided, in 1935,
that the less onerous reserve recuirements should apply to all holding
companies, in so far as their stock ownership in banks without double
stockholder liability is concerned.
The favored holding connanies that came either wholly or partially
witliin the provisions in the above paragraph are, with respect to holdings
of bank stocks within those provisions, reauired, "after five years after"
:une 16, 1933, "to establish and maintain out of net earnings over and
above 6 per centum per annum on the book value of its own shares outstanding a reserve of readily marketable assets" amounting to not less
than 12 per cent of the "aggregate par value of bank stocks controlled
by it."
With respect to holdings of stocks in bmks that retain the double
liability of stockholders, a reserve of 12 per cent on the par value of
of all such bank stock, is recuired after five years from June 16, 19F3,
and this reserve must be augmented each year, if I understand the none too
clear language, by all income over 6 per cent on the company's outstanding
stock, and in any even by not less than 2 per cent of the par value of the
double-liability bank stock that may be controlled, until a reserve of
25 per cent on such stocks has been accumulated. This would appear to be
additional to whatever reserve might be recuired an bank stocks no longer
subjecttp double liability.
That these conditions ought to be salutary in their effects on the
conduct of holding companies in the exercise of control over operating
banks cannot reasonable be denied. It would not appear that companies
possessed of sufficient capital, and owning stock in banks that can pay
a return sufficient to Itermit compliance with the reserve accumulation
recuirements, will be induced to rtire from group banking by reason of
these enactments. Outside of the elements pertaining to gcvernment
supervision, which are consistent with general policy toward the banking
business, there is nothing here that a soundly conducted business of the
sort should not have done, or started to do, voluntarily and in its
own best interests.


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i'&10d44
Nevertheless, it seems only proper to point out that nothing I can
/find in the above statutes will prevent many of the more dangerous practi/ ces of the past. A promoter-type management of a group-bank holding
/ company may use the credit facilities of controlled banks in support of
. outside ventures, businesses, and even speculations, in which the management or its associates are interested, almost as freely as could have
been done before the Banking Acts of 1933 and 1935 became law.
While the holding company must satisfy the Board of Governors of the
Federal Reserve System that it has no financial connections with investment banks and security dealers, there is no restriction on its power, so
far as I have found, to own and control the stock in as many nonbanking
and nonfinancial companies as it may be able to acruire. Nor does there
seem to be any restriction on the managing officers with respect to their
personal interestsin similar nonbanking and nonfinancial companies. The
idea is not foreign to American businessmen, of the ambittous-for-bigness
type, that membership on the credit committee of a bank may be worth
almost as much to them as ownership of a gold mine.
The statute does provide that any single bank under the control of a
holding company may not lend more than 10 per cent of its capital and
surplus to any one affiliate, nor more than 20 per cent of its capital
and surplus, in the aggregate, to all such affiliates. If nonbanking
subsidiaries of the holding company are regarded as affiliates of the
subsidiary banks, es seams ouite probable, then these would be subject
to the 4gregate credit limit of 20 per cent on the capital and surplus
of all the banks under the control of the same holding company. This
particular set-up, though highly desirable from a promotional and business expansion standpoint, is more restricted than it was. But even with
these restrictions the possibility of a continuing flow of bank credit
into new capital goods, and/or intospeculation, is greater than the aggregate total of such credit that may be outstanding at any one time. In the
case of a very large group of banks extending credit to enterprises located in what might be called the same financial circuit, the principle
of self-liauidating capital-goods loans, in the sense discussed in Chapter I, would come into limited operation.
But there would be no real need for an ambitious business organizer
constantly in need of funds, to submit even to those limitations. Two
holding companies, with himself as the dominant influence in each, would
not be affiliates under the present law, so far as I have discovered,
es long as neither company holds controlling inte-est in the other. In
such case each and every controlled bank might extend ordinary loans up
to 10 per cent of its capital and surplus to any or all of the subsidiaries of the separate holding company.
Until the enactment of the Banking Act of 1935, moreover, each bank
was authorized to purchase the bonds of a single obligor, for investment,
up to 15 per cent of the capital and 25 per cent of the surplus of such
bank, provided that it took not more than 10 per cent of the entire obliga-


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tions of the obligor. But the Act of 1935 has brought the bond-investment
situation into line with the loan provisions, on this point, and now no
bank may lawfully extend credit to a single obligor, whether directly or
in the form of bond purchases, to an amount greater than 10 per cent of
its capital and surplus. Even with this modification, however, it would
seem that holding-company control of a group of banks, in conjunction with
similar control over business corporations by a separate company under
the same individual control, offers the possibility of an "inside track"
to bank credit that looks but little less inviting than it did before.
The technique has changed, but no material change has occurred in the
substance.
These two Acts, then, have not reached the really fundamental defect
that seems to be inherent in the Rrouping of banks under the management
of a holding company. Practically none of the advantages of branch banking are gained in the process, and almost all of the weaknesses of the
unit-banking system are retained. Group banking does little or nothing
to improve the quality of the personnel, which is ordinarily developed
in much the usual may for unit banks; it leaves unimproved the weaknesses and favoritisms and improper influences inseparable from a bank
under the management of local directors who are engaRed in businesses of
their own; and it imposes, in addition, a subservience to the outside
management whose knowledge, experience, and interests have often appeared
to lie in the direction of business consolidations.and promotions, rather
than in commercial banking.
The mere ability and training necessary to building up a holdingcompany-controlled group of banks presupposes an investment-banker type
of mind, a man whose success has been built on his skill in raising money
for his own enterprises, and whose talents lie in that direction, rather
than in the important but somewhat prosaic management and development of
a commercial bank. Even if inclined to believe that the banks of his
group ought tolimit their business to commercial banking--an unlikely
supposition--the man who can build up a financial structure of this type
is likely to be deficient in the intimate knowledge and special training
needed to give reality to the truth he may grasp in principle.
Again, if the ambitious-for-bigness type of businessman is financially
strong enough as an individual, or in conjunction with an informal group of
associates and friends, to acquire a controlling interest in more than one
ba-k, there is nothing in this statute that would seem to limit either the
size of the group, or the use that might be made of its credit facilities,
other than the 10 per cent borrowing limit, previously mentioned, that
applies under the National Bank Act.
This type of control is not lacking in quantitative importance. In
1929 there were 167 such groups, embracing 1,071 banks, with aggregate
resources of $1,468,000,000. One would expect that the prospect of complete personal ruin from a double stockholders' liability that would be
personal, in this type of control, to the owner management, would have


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tended to exert a sobering influence, as doubtless it did--but the accuisition and operation of such a group of banks would normally seem to
be motivated in a pramoter-type anbition that is disposed to say: "Damn
the torpedoes. Go ahead."
Apprehension of bank failure, in booming good times, seems unlikely,
in any event, to enter very seriously into the thoughts of men whose nature
refuses to acknowledge danger. I do not say this critically, since I am
myself an admirer of boldness and courageous disregard for possible danger,
are out of place in the banking field. A man may properly be bold, if he
chooses, in exposing himself and his own means to great risk in the hopeful expectancy of realizing commensurate gains. But when he involves a
part, or all, of the country's banking system in the gamble, while the
winnings, if any, are his own, his courage is not a virtue and his ethics
are nuestionable.
If the public were going to share ecuitably in the winnings, the
ethics would, of course, look better—although this vould seam contrary
to all the accepted rules. But even in that case, the promoting of the
private ventures of the management, through the use of the credit facilities of a group of controlled banks, is a gamble on which no man should
be entitled to embark credit facilities that are vital to the entire
community. Under the new Acts, the restraining2rospect of double liability, is ended. Is it not entirely too possible that group-bank individual management may henceforth say: "There are no torpedoes. Full steam
ahead"?
The record of holding-company group-bank control is none too good-even if we look at those which voluntarily imposed double liability on
their stockholders, and are accordingly treated with evident favor under
these acts. Of this type the most conspicuous examples Ikere doubtless
the Guardian Detroit Union Group, Incorporated, and the Detroit Bankers'
Company.
Under the control of these two holding companies were banks which
on December 31, 1931, had aggregate deposits of .t1,090,000,000, of which
$888,000,000 was in National banks. The unit banks controlled by both
these huge holding companies closed their doors in February, 1933, nearly
a month before the general "bank holiday" was declared on March 4. A year
later the liouidators of only two units of one of the groups still owed
$123,000,000 to unsecured depositors, and $84,000,000 in torrowed money.
The owners of the 1,775,465 outstanding shares of Detroit Bankers' Company have been assessed $14.06 per share, while the owners of the 1,544,088
outstanding shares in the Guardian Detroit Union Group, Incorporated, have
been assessed $6.44 a share, as a result of company liability on the bank
shares of one bank unit only inetch group.
Further details as to those two great failures are not material to
my purpose, which is merely to illustrate the lack of strength of holdingcompany group-bank cohtrol, even under the conditions most favored by the


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law. Double liability to shareholders is supriosed to be a double protection. The additional hazard to shareholders is thought to impose extra
care on the management, while whatever additional resources may actually
be available in case of failure are a protection to the public. The first
was insufficient to preserve these banks from insolvency and the second
has always been most disap-Dointing. Assessing a shareholder is not the
same thing as collecting from him.
Another element of grave importance--at least in the minds of the
Senate Committee on Banking and Currency, in 1933--is the possibility that
what is commonly termed a "money trust" may develop, with centers in New
York, and perhaps also in Chicago, as a form of irresponsible "absentee
control" over bank credit.
This feared concentration is not wholly a figment of the imagination,
as witness the fact that in 1929 the control of seventeen holding companies controlled chains of banks, having total assets of $4,000,000,000,
including banks in Chicago, Philadelphia, and San Francisco. The Transamerica Corporation of New York exercised control over the Bank of America,
of California, which itself operated a very large branch banking system.
It was doubtless the fear of this danger which induced the framers
of the Act to impose rigid limitations on the extension of branch banks,
which rill be the next subject for discussion. But the actual danger, as
at present manifested, lies in the development of holding companies, and
it has already been shown that nothing in the holding-company regulations
imposes any sufficient restriction to guard against the further development of the centralized banking control, which has already begun.
Concentrating banking control in Ner York and in Chicago would apparently tend to divert money flow from remote sections, even if the
management of the people's money were effectively opposed to diverting
bank credit into peculation and into investment in capital goods. The
diversion of bank credit, fran its locality of origin to same other section, would tend to be vastly larger, if absentee management might lawfully use it in support of speculation and in financing new investments.
Without directional control over bank credit, absentee control through
holding companies seems particularly undesirable.
By way of brief summary, then, it seems unlikely that the burdens
imposed on holding-company control of banks will cause them to rtire from
business, as is believed to have been envisaged by those who framed this
section of the Act. There is nothing, apparently, to prevent the promoter-type banker fram acquiring control of a holding company and using
its group of banks to supply credit for his own businesses and ventures,
nor will it prevent a holding company from having nonbanking subsidiaries
which it may largely finance through the subsidiary banks. It appears
to do little or nothing to protect the subsidiary banks from lending
policies emanating from a promoter-type genius at the top.


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With regard to the individually controlled groups of banks, no additional restrictions of serious moment seem to have been imposed on the
management's poRer to use the credit facilities of the controlled banks
for personal business purposes. In fact, removing stockholders' double
liability has freed the individual, who owns control of a group of banks,
from the sobering effect of prospective personal ruin in the event of disaster to his group of banks. His power seems virtually undiminished, while
his major personal risk from lawful abuse of power is extinguished.
There also remains the possible development of a concentrated money
and bank-credit control in New York and in Chicago which, in a country as
large and as varied in interests as is the United States, would seem to
endanger the free flow of bank credit in the less industrialized sections
of the country. Certainly, whatever evils may lurk in the development
of a "money trust" are likely to be aggravated under this type of control.
It would seem hardly needful to point out that using bank credit for
advancing the outside interests of the controlling management, in good
times, promotes inflation in capital goods or in speculetion, or in both.
Such use of group-bank credit is not only readily possible, under these
Acts, but it likewise seems quite probable, if one may judge from the investment-banker skill that has gone into the creation of these groups,
in connection with the opportunities they afford. If the effect of this
set-up were merely to make credit available more freely to those associated with the management at the expense of outside borrowers, the situation would crente special privileges that are socially deplorable. And
to the extent that such special privileges tend to expand new capital investment, and thus to upset economic equilibrium and promote disruption,
themrd-deplorable" ceases to describe the situation.
To leave the impression that holding-company control over groups of
banks is always or necessarily acquired from ulterior motives would not
be fair. It was said, for example, at the time of the controvergy over
the Banking Act of 1933, that same of these companies had indicated a
preference for converting their group-bank systems intoiranch-bank systems, if Congress would enact the necessary law, which Congress failed
to do. The legal structure, the methods of finance involved, and the
form of control and operation seem to predispose such groups to the
defects I have mentioned, but unquestionably these could be, and no
doubt are, frequently overcame, in large degree, by able and conservative
management.
If, however, our ill-conceived and illogi