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Federal Reserve Bank of St. Louis
(Pockets Only)
413.1a - Source Material
Obstacles to Unification
Study #8
bank Suspensions Study of 1936
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SOURCE:
THE TENNESSEE BANKER---JUNE 1936 (Convention number)
AN APPROACH TO BANKING PROBLEMS—Tom K. Smith, Pres., Boatmen's Nat. Bank,
St. Louis, First Vice-Pres., A.B.A.
Pages 76-77
In conclusion, gentlemen, may I impress upon you the fundamental
fact that many of our banking problems today and in the future are
problems of a national character, whether you happen to be connected
with a state bank or with a national bank. It means, therefore, that
you must havE a strong national organization representing you in
Washington. This organization should not be a lobby. The American
Bankers Association has not supported a lobby. Neither should this
organization be enmeshed in partisan politics. Whatever the political
competition or whatever the party in power may be, we shall always treat
our problems as business problems of an economic character affecting
all the people, and it has been long established in business that
acientific study and research are the only sane approach to a solution
of any business question. Political questions may be surrounded with
the heat of oratory where there isn't much light, but the national problems
which you and I as bankers must content with are problems of vast economic
importance which only study and research can solve.
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Federal Reserve Bank of St. Louis
*
* *
1:13
MO. BANKFRS ASSO.-KANSAS CITY—May 1936
Address by Phil S. Hanna, Editor of the Chicago Journal of Commerce
Pages 116-117
I do not want to seem pessimistic, but in my opinion, man is no
more able now to plan against a future world of calamitous conditions
than he was in 1913.
We know that buildings built with fire doors are safer than
buildings that are built without them. We know that boats are built with
water-tight compartments. We separate buildings, and do all these other
things because human experience shows that kind of installation prevents
trouble, The framers of the Constitution must have had that in mind when
they made three departments of government.
We do know that when the next frenzy comes, whatever its form, if
all banks are not tied into an interlocking device, there may be a nucleus
after the casualties are counted, upon which to rebuild. Oa the other hand,
if they are tied into a centralized system, let there be a mistake by the
centralized authority, and all will wither.
When we think of what happened in Russia as the result of an economic
mistake, I think it brings home a very important fact. Russia sought
three or four years ago to obtain outside capital. They had taxed their
farmers in kind, and so heavily that the farmers refused to grow more than
they needed for themselves. The result was a famine in Russia which cost
seven or eight million dollars and killed more people than were killed in
the war.
Neither do I favor a return to unlimited conditions, a return to that
situation where banks sprang up on every corner like the taverns in Chicago.
I recall how customers acted in 1914 and 1915. I was in a bank in North
Dakota at the time. I recall what, in my opinion, was the real beginning
of the farm problem. Ae carried our borrowers through the winter of 1915.
discounted more paper than we should have, in order to help our people. The
war came on and prices went up. Did our farmers pay us in the fall of 1915?
Did any political authority say to the farmers, "You are making a mistake.
You should not pay one hundred dollars for land that sold at thirty-five
dollars but a short time ago." Ogrs was the small voice. It did not register.
Mob action resulted in most of our borrowers using their first good cash
returns from their crops to buy more land and go more heavily into debt.
P
I do favor the original Reserve system principle, each bank being free
from political domination and controlled by its member banks. It seems to me
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Federal Reserve Bank of St. Louis
•
a
-2-
Mo. iiankers Asso--Kansas City May 1956
Phil S. Hanna
Pages 116-117 (contd.)
we need those checks and balances which were contained in
the original
Act. While no system is perfect, or even dependable, yet in
counteracting the effects of world inflation following a war, we should
neverthelessalways have such a system. Considering that a war period
was
incurred almost ilimediately after the institution of the
Reserve system,
bringing abaut almost at once unexpected conditions, I have yet
to be
convinced that it was necessary to change the fundamental basis
of the
Reserve system.
Page 118
I say candidly, we might as well face the fact that
a threat to
the security of all property in the United States, a
threat to our.
standard of living, will continue until politics is divorc
ed from our
banking, and until we ab?)ndon the new idea that the banking
machinery can
be used to control economic forces.
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Federal Reserve Bank of St. Louis
'The Future of the Unit Bank',
arc W. 'Coosa*, President
Security Sank, Ponca City
Before State Sank Division, May 7
(The OkInborn Banker, May, 1936)
********
It has bees fortunate for the unit banks, both state and national,
that at the present time amd for the past 18 months, there has been mnib
diseension and lack of °coordination in the different governmental agescies
which were in reality to have been the instrumentalities to bring about
unification in the minds of the framers of the 1935 Banking Act. Therefore, no definite nction has been takes on behalf of these agencies to
force all banks into a common system. There is a possibility, however,
that coordination will be brought about and when this happens me may expect a more aggressive campaign toward unificHtion.
The Americas anal system of banking, with its many individual unit
country banks, both 'National and state, I an owe are determined to fight
for their continuation and existence and all tbe omit banker really desires is an opportunity to be permitted to eerve his oommonity and continue to have his small part in the building up of our esantry. There
can be no question in the mind of anyone that the dual system of banking
and the unit gystem of banking should rsceive credit for the progress
made in this motion and the development of our natural resources. In
Oklahoma, the spirit of the pioneer is still with us and ire, as individual
unit bankers, mot certainly are in a better position to judge the credit
needs of our respective ommennities than some executive or official
residing in a new* state. I as quite sure that the spirit of America
and the desire to have a truly Anerioan system of banking is quite
pronounced in our respective eammenities and the folks back home vho
have prospered vith the unit bask and who have suffered when they were
unable to pay the obligations causing the umit bank trouble, are ready
and willing to continue the fight to maintain our unit balking system.
All they need is factual information, which you and I can give then.
**** ****
We in Oklahoma and other states are justly proud of our state rights
and, while I do not wish to get into the discussion of the subject of
state rights, there are acme things vhich seem important to me, that could
be accomplished and should be given oerious coneideration, which would
rurther fortify' and strengthen our state banking system. One of the aost
importmat of these underlakisgs is the forming of a saund policy for
etv.rtering banks. In approaching this subject one mast keep in mind that
there are 48 subdivisioos st our government, *sib state haviest authority to
issue charters for banks or corporations, and in most states tbe power to
issue a charter is vested in a board or oomeissies. These boards or commissions are, in most cases, of a political natters and their judgment is at
times swayed by political favoritism. It is, therefore, highly important
that a non-politioal board or comaission have the authority vested in it by
a state law to make a thorough investigation of a proposed organization of
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Federal Reserve Bank of St. Louis
flf
•=!.
- 2any bank or financial institution, before the application for a charter can
receive favorable consideration by the charter board or commission. In
states where they now have a banking board, whether they act in an advisory
capacity or are actually in Charge of supervision of financial institutions,
it would be a rather sleple matter to have state laws enacted which would give
this board ample authority to imvestigate the proposed organisers of the bank,
the need for a bank in its particular community, and the possibilities of its
profitable operation. Thls board should be given the power to make favorable
or unfavorable recommendations to the charter board or commission in their
respective states. The law should be so worded as to give the charter board
or commission the right to refuse to grant a charter, even though it had the
approval of the banking board, but limiting favorable action on those applitione which have the approvd of the banking board. In states where no
baaking board exists, a plan could be worked aut whereby a non-political
board or commission could act in its stead.
It Is my thought that by limiting the authority and eliminating, as
nearly as possible, all political favoritism in the granting of bank charters,
the danger of over-banked conditions, suet as existed previous to the bank
moratorium, could be prevented. By having a set-up similar to the above outline in all 48 states in the Union, I believe whole-hearted cosperation could
be expected sad obtained from the national authorities, in raw* to the
issuance of charters for national baaks. The attitude of the Comptroller's
office at present is quite favorable to the curtain*. of issuing of bank
charters without an ample justifieation for a new bulk. I an sure that the
banking beard of the State of Oklibims--or any other state, for that matteran0 the national supervisiag authorities would seises* any informatics as to
the banking history in the respective communities. I, therefore, believe
that all bankers should be in a position to furnish such Information to the
respective supervising agencies or banking boards. Therefere„ it would be
my suggestion that you make an enhisstive Andy sad survey of the baaking
history and conditions is your immensity, primarily for the purpose of being
informed as to the past experience in your oommunity and, secondly, to be in
a position and every ready to furnish detailed information to the various
supervising agencies, both state and national, should a movement be started
for additional banking facilities in your community.
*
* ****** *
Another very brortant thing which should receive careful consideration if we wish to strengthen and preserve the state banking system in the
State of Oklahoma, is a carefUl study should be made of the banking laws
governing the operation of state banks within our state. As the matter now
stands, Oklahoma state banks are very much testricted as to their investment policies, being limited to investing funds in Oklahoma municipal and
Oklahoma state bonds and warrants, and obligations of the United States
government. While vs all hPve the utmost confidence in Oklahoma municipal
mad state bonds awl Merrants, and I am sure re are all carrying a liberal
assamt of touch investments, we are at a considerable disadvantage whin we
compare our investment privileges with those *he national basks in Oklahoenjoy. It seems to as that we could eafely be permitted to tavola in
municipal bonds originating in other states of the United Statee ano other
evidences of indeftedassa isasad by corporations, under strict rules mod
regulations issued lir the banking board, asealag thereby that only smih
investments should be permitted as would pass the most rigid testa.
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Federal Reserve Bank of St. Louis
•
SOURCE:' NORTHWESTERN BANKER
JULY 1936
IOWA CONVENTION RESOLUTIONS
Pag,se 54
For years the bankers of this state through their various group
meetings and state conventions heve vigorously expressed their opposition
to branch banking and any attempt to displace unit banking and the dual
system of state and national banks by any central bank or by any other
form or system of banking. We today reaffirm our strict adherence to
that policy.
We in this convention instruct our state association officers and
association committees to oppose any form of banking that would jeopardize
the perpetuation of independent unit banking under the dual system as we
know it in Iowa, and to use all reasonable means at their command to defend
independent banking. It is our opinion that American unit banking and the
dual system of state and national banks as a system is the one best adapted
to the commercial, industrill and agricultural interests of our people.
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Federal Reserve Bank of St. Louis
f43
•
SOURCE:
NORTHWESTERN BANKER---JULY 1936
THE IOWA CONVENTION
Page 15
"The President's Address"---Melvin
Ellis, ‘res., First Security Bk.,
Charles City
We, WHO today, carry on this honorable callin
g of banking
here in Iowa have much for which to thank the foundc
rs of this
association. From those pioneers, and from the develo
pment work
of those who followed them, and preceded us, we have inheri
ted
rich blessings and substantial foundations upon which we
not only
may, but upon whi&I we are challenged to build. Out of
their debates
as to whether they should nationalize or ttateize'-(a term
used over
and over in these discussilns)--the advantage of superv
ised, chartered
banks became apparent and the accepted standard for
the banking professiou.
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Federal Reserve Bank of St. Louis
SOURCE:
NORTHWESTERN BANKER---JULY 1936
IOWA CONVENTION RESOLUTIONS
Page 54
We further oppose that section of the "Banking Act of 1935" that
compels state banks having more than $1,000,000 in deposits to become
members of the Federal Reserve System after July 1, 1942, and we recommend that that section of the act be amended to make the matter of
membership optional witq any state bank.
It is the consensus of opinion of this association that the practice
of deducting exchange charges by a bank on its own items is detrimental
to banking and we strongly urge such banks in this state to return to the
practice of paying their own checks at par.
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Federal Reserve Bank of St. Louis
* * * * * ** *
gr-r-a
•
SOURCE:
File-324. - Conference - 5/26/36 (Presidents)
CONFIDENTIAL
MINUTES OF MEETING OF THE CONFERENCE OF PRESIEENTS
HELD IN WASHINGTON ON TUESDAY, MAY 26, 1936
Page 3
NONMEMBER BANKS
The chairman referred to the informal discussion which took
place during the last Conference of Presidents, of the reasons why nonmember banks do not join the Federal Reserve System,and the understanding
that each member of the conference would submit, at this meeting, a
report on the steps being taken to increase membership in their respective
districts.
There followed a discussion in which each member of the conference
reviewed the work of his bank and the attitude of eligible nonmember banks
towards membership. This report developed the fact that each Reserve bank
is regularly contacting nonmember banks in its district with a view to
encouraging membership. The following were cited as some of the reasons
why more nonmember banks do not apply for membership:
1. The feeling that nonmember banks can now obtain most of the
benefits of membership through their correspondent banks, being themselves
in ultra liquid condition, and seeing no immediate need for rediscount
accommodations or the necessity for borrowing.
2. Reluctance to forego the income from exchange charges upon which
some of them depend very largely at this time.
5. Apprehension that if they become members, reserve requirements,
if increased by the Board of Governors may adversely affect them.
Page 4
4. Complexity of examinations, reports, regulations and red tape
incident to membership.
5.
Fear of political domination of Reserve System.
6. Belief that Federal Deposit Insurance Corporation gives adequate
protection without membership in the System.
7. Reluctance to take steps as to their own condition which are
necessary to meet requirements of membership.
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Federal Reserve Bank of St. Louis
•-•;
•
SOURCE:
THE ECONOMIST --
Dominion of Canada Special Review--London Jan. 18,195u
iage 49
VII.--BANKING AND INSURANCE
Trends in Canadian Banking
by Prof. J.F. Parkinson
The typical Canadian bank is a comparatively large institution,
operating branches across the country and transacting a traditionally British
commercial and deposit-banking business. Government regulation of banking in
Canada is a matter of Dominion jurisdiction, so that the development of
Canadian bankc since Confederation has been 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 branches across
the Dominion as favt as the frontier was pushed outwards. The centralisation
of reserves and management which a branch-banking system provides has simplified
the task of keeping assets liquid and diversified. The Bank Act prescribes a
minimum of financial strength which has effectively eliminated the possibility
of any 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 system of large banks, coupled with their note-issuing powers,
have enabled banks in the past to provide banking facilities for new communities as soon as they began to be settled. The existence of private note
issues to-day appears to some people to be an anoma1y. khere can be little
doubt, however, that this power of the chartered banks--destined for considerable
reduction over the next fifteen years--has cheapened the cost of maintaining
till money in remote branches. To that extent it has speeded up the orovision
of banking accommodation.
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Federal Reserve Bank of St. Louis
•
N..„.t
SOURCE:
PROCEEDINGS 46th ANNUAL CONVENTION MO. BANKER
MAY 1936
ASSO.-KANSAS CITY
OBSERVATIONS---Harold Stonier, Ph.D.
Page 91
In a state in the East I was talking to a bank officer one day
about getting the interest of his employees. He said, "How do you do
this?" I told him as best I could, about the size of the bank, the
capital resources, the Federal Reserve banks, and so on. Right there
he stopped me and said, "Everybody in this bank knows there are ten
Federal heserve banks"---and that was a bank officer.
I told the Board within the last two weeks that there was a great
them to do interpreting the Federal Reserve system to the bankers
for
job
and their employees. I know there are a great many bankers today, members
of the Federal Reserve system, who don't know how to use the system.
Page 92
What do they want to know? We find them interested in knowing,
first, how banks make money. It is a mystery to a great many people.
Some of you don't know yourselves. Neither do I. A great many people
don't. They want to know something about the Federal Reserve system. What
is this thing? We have talked so much about it; we have seen so much about
it in the newspapers. What is it? How does it affect us in our business?
Has it any relationship? These people want to know.
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Federal Reserve Bank of St. Louis
19:8
Study #8
SOURCE: Address delivered by H. A. Bryant, President of the Kansas
Bankers Association, at the annual meeting held in Kansas City, Mo.,
May5-61 1936
As we all know there is a decided trend towards centralized control
aver all banking institutions by the authority granted to the Board of
Governors of the Federal Reserve System and to the FDIC. It would hardly
seem reasonable to believe that this authority will be abused to any great
extent or that the regulations would be so unreasonable as to hamper business. Until time has demonstrated just what the effect will be, let us be
fair enough and open minded enough, to give both a thorough test. Thether
we like it or not, they are part of the program and, if wrong, then the
condition should and will be corrected.
There is another struggle going on that we are all interested in.
That is the preservation of the state banking systems, or the dual system
of banking. Right here I wish to commend our Bank Commissioner, the
Honorable Roy A Haines, for the stand he has taken and the fight 'le is
making for the state banking system. His cool judgment and hiE unr_ierstanding of the usefulness of the small unit bank, is invaluable. It is to be
hoped that his efforts will be rewarded by the continuation of the state
banking system.
-3HR4E-X-*
It is generally conceded that the insurance of deposits by the
FDIC will have a part in the banking structure of the United States for
some time. Perhaps until most of us are dead and gone. It is not my intention to discuss the merits or "demerits" of the insurance of deposits.
There is one thing certain. It is here and whether we like it or not is
beside the question. It so happens that state banks can take it or leave
it alone and at this time 261 banks in Kansas have left it alone. A year
ago, 244 state banks were insured and at this time the total is 272. If
the 261 banks can continue to operate without the insurance feature, all
good and well. If their position changes, the door will no doubt still
be open to them.
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Federal Reserve Bank of St. Louis
4I
dr—rw--•
•
SOURCE:
REPORT OF HARRY I. ZIEMER, VICE PRES. & CASHIER, to
Mr. Peyton, covering Bank Visitations iNeek of May 5, 1936.
Pages 2 and 3
Exchange charges, of course, are a predominating earning factor.
When a state bank can show annual earnings of from $750.00 to - ,500.001
it naturally follows that a national bank in the same territory gives
serious consideration to converting from a national to a state charter.
One national bank visited said that it would convert into a state
bank were it not for the fact that it is not in accord with the policies,
politics, and methods, of the present state banking department. One
banker expressed the opinion that the great deviation and exorbitant
exchange charges made in many instances, would in his opinion result
ultimately in the parring of all checks.
REPORT OF HARRY YAEGER, VICE PRES. to ilk-. Peyton, covering Bank
Visitations - Week of April 27 to May 2, 1936.
Pages 3 and 4
The non-member country banks did not seem to be interested in state
bank membership. They preferred their present exchange income as a sure
source of revenue and until the local demand increases to a point where
income from that source will produce dividends, they did not care to
apply for membership.
Criticism offered by member banks referred to the length and detail
of regulations. In their opinion, these regulations should be more
general. A number of banks referred to renewal of time certificates
within 10 days after maturity. In every instance, they stated they
would not inform the certificate-holder this could be done. If the
certificate was not presented at maturity, it would be dated as of renewal with interest from that date, the holder losing interest between
maturity and the renewal date.
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Federal Reserve Bank of St. Louis
C.
•
SOURCE:
SUM1ARY OF ARGUMENTS ON TITLE II OF THE BANKING BILL OF 1935
(Commission on Banking Law & Practice--Association of
Res. City Bankers—Wash. May 20, 1935)
Pages 4G-41-42
REQUIREMENTS FOR ADMISSION INTO THE
FEDERAL RESERVE SYSTEM
Arguments in .tavor
The changes suggested above are urged tiS necessary in order to
make membership in the Federal Reserve bystem more attractive and to
facilitate the admission of small banks into the System. It is reported
that some 2000 banks which are members of the Federal Deposit Insurance
Corporation do not have capital sufficient to admit them into the Reserve
System. Of these, 1500 are in towas with popnlation of less than 3000.
This provision would also facilitate the admission of banks which
have reorganized under plans involving the issuance of deferred certificates
of deposit to depositors who have waived a portion of their deposit claim.
Very often the condition of these banks has improved, but the Reserve Board
has ruled that they are not eligible for membership if such liabilities
impair their capital stock. h°ther banks have improved their financial
position through the sale of preferred stock or capital or debenture notes,
but have not been able, because of the provisions of state statutes, to
reduce their ca ital and thus to eliminate losses constituting an impairment
of capital.
A unified banking system is greatly to be desired and enlarged membership
in the :cederal Reserve System is one means of facilitating the achievement of
that objective. Unification would facilitate the supervision and xamination
of the banks by the uovernment and would enable the Federal Reserve banka to
come to t'cie immediate aid of a larger portion of the bankin6 structure in
case of difficulty. Since the Federal Reserve System is forced to take a measure
of responsibility for non-menber banks in an emergency, the Eystem ought to have
authority to supervise them at all times. Unification of banking is also an
important phase of the problem of concentrating responsibility for national
banking and credit policies in the Federal Reserve System.
The relaxation of requirements in favor of the particular banks which
might be admitted under the proposed amendment is a matter of small consequence,
compared with the added safety of banking and the*ncreased effectiveness of
credit policies to which the admission of all comMercial banks into the Federal
Reserve System would greatly contribute.
It has been suftested that were membership in the Federal Reserve System
made more attractive, it might also be possible to reintroduce into the bill
thelprovision requiring all banks whose deposits are gualanteed by the Federal
Deposit Insurance Corporation to become members of the Federal Reserve bystem
by a specified date. The original draft of this bill (H.R. 5357) set a deadline of July 1, 1,37; the revised draft (H.R.7617) omitted this requirement due,
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Federal Reserve Bank of St. Louis
-2-
Summary of Arguments on Title II of the Banking Act of 1935
Pages 40-41-42 (contd.)
Requirements for admission into
the Fed. Res. gyst,m.
it is believed, to the opposition of many representatives from the outlying regions who felt that smaller banks might be unfavorably affected
were they required to increase their capital to the minimum required by
existing statutes.
AEguments Against
Many observers agree that while every commercial bank in the United
States should eventually become affiliated with the Federal Reserve bystem,
there exists no emergency which demands that the standards of membership
be lowered to encourage affiliation at this time. Since the provision in
the original draft which required all insured banks to become members of
the Federal Reserve System by July 1, 1957, has been eliminated in the
revised version, this urgency no lonLer exists.
If the Federal heserve bystem is to bt. developed as the standard of sound
banking in the United States, it is a very grave question as to whether its
requirements for admission should be reduced as a lure to attract hanks which,
for one reason or another, have not been able to conform to standards required
for membership, with no assurance that they could ever be brought up to the
required standards. Many people would urge the undesirability of trying to
force non-member banks into the System, and would suggest instead that membership should be made so attractive that non-member banks would voluntarily
make every effort to join. To attain this desirable objective will require
careful cooperation between banks and governmental agencies. The Federal
Deposit Insurance Corporation could probably render a valuable service in
this connection. To many, instead of lowering the Federal Reserve standards, 1
it would seem preferable to give the Deposit insurance Corporation power to
work with the large number of small banks which have survived the depression
and which are rendering a useful service to their communities, until such
time as they can conform to the standards of a nation-wide banking system.
Then and only then is it likely that this country will have a banking structure
which will successfully survive in bad times as well as in good.
In his testimony before the Senate Committee, Governor Eccles su&ested
that the mandatory provision for joining the Federal Reserve bystem be
confined to banks with deposits of t500,000 or more. A prominent official
of a non-member bank, Jr. L. A. kndrew, recently testifying before the same
Uommittee, made a similar recommendation, but placed the limit at U.,000,000.
These recommendFtions would seem to constitute a practical and immediately
possible compromise of a controversial question and would lead at once to
a greatly strengthened banking system.
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Federal Reserve Bank of St. Louis
k
•
SOURCE:
ECONOMIC CONDITIONS, GOVERNMENTAL FINANCE, U.S. SECURITIES
(The Nat. City Bank of N.Y.)
PaRe 87--(June 1955)
The Proposed Banking Act of 1935
On May 20, 1935, Mr. James H. Perkins, Chairman of the Board of
this Bank, and member of the Federal Advisory Council from the New York
Federal Reserve District, appeared by invitation before the Subcommittee
of the United States Committee on Banking and Currency to give his views
on the pending banking bill under consideration by that Committee. It is
believed that the statement made by Mr. Perkins on that occasion will be
of interest to our readers. The statement follows:
Page 88
Moreover, three major subjects which are not covered in the bill
are the definite unification of the banking system, branch banking, and
the problem of the classification and investment of time and demand deposits.
I know of no present or probable emergency that cannot be met by the
law as it now stands (with the re—enactment of Section 10b).
Therefore, unless Title II is altered to include the changes suggested
by the Federal Advisory Council, I feel forced to express my objections to
it, and to urge postponement of this Title until the best qualified minds of
the country can explore the whole subject of our banking system, in the
hope that a law may be enacted tht will stand the test for at least a quarter
of a century.
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Federal Reserve Bank of St. Louis
145
•
SOURCE:
ECONOMIC CONLIT1CNS, GOVERNMENTAL FINANCE, U.S. SECURITIES-Feb. 1935
(The Nat. City Bank of N.Y.)
Page 27
The banking system is a vital part of the economic system, and
when for any cause the latter is thrown into disordez, the former usually
comes in for 8. major share of the blame. In all countries the bunking
system is practically 8 part of the iponetary system, although comparatively
few persons realize it or understand why it is so. * * *
Page 46 (March 1935)
The proposals affecting the banking system embodied in the new bill
before Congress known as the Banking Act of 1935 are of so fundamental e
nature as to make this bill the most important piece of benking legislation
since the Federal Reserve Act. The bill is of importance to ever bank
depositor beceuse it concerns the soundness end liquidity of banking assets,
and it is of importance to every man, woman and child because it concerns
the value of money. In a country like the United States, where 90 per cent
of the aggregate value of ell payments is mede by checks drawn against bank
deposits, it is obvious that the volume of bank credit is a far greater
factor in determining what the doller will buy than the amount of currency
outstanding.
rake 47
* The fact that more than twenty years heve passed since the
enaxtment of the Federal Reserve Act would alone constitute reason for a
thorough-going review of the workings of the System in the light of practical
experience. When, in addition, consideration is given to the manner in which
our banking and currency laws have been patched up and amended over the years,
and particular3y since the emergency legislation, until they bear little
semblance to the former order, the need for a scientific restudy of the
whole question of banking and currency is clearly apparent.
*
The question at issue, therefore, is not whether our banking and
currency laws need revision--of that there can be no doubt--but what is
the best way to go about revising them? Is it advisable to rush through
legislation of such fundamental importance without opportunity for any
real discussion, or is it advisable to take time out for mature thought
and deliberation?
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Federal Reserve Bank of St. Louis
-146
-2-
Economic Conditions,Governmental Finance, etc.
**
***
Page 88 (June 1935)— Statements by James H. .eerkins, Chmn, Board of
Nat. City Bank
I want to call attention not only to the powers that a central
monetary board has but also to its responsibilities, and to raise a doubt as
to the wisdom with which these 8re likely to bf met. The history of the
control of central banks by Governments both abroad and in this country
hardly justifies a belief in an all-wise exercise of such powers. There
is no doubt but that the unsound monetary policies of Germany, which
contributed so much to the collapse of the German Alark, were facilitated
by the Government control of the Reichsbank. Both in Germany and in France
the power of the Government to force continuous advances from the central
bank was a leading factor in the depreciation of the currency. In our
own recent experience with inflation between 1926-1929, I am impressed
with the fact that there were instances where the directors of the regional
Reserve Banks proved wiser in their analysis of the situation than the
majority of the Federal Reserve Board. * k * In short, I have a great
skepticism that this idea of the centralization of control and responsibility
will work as well in practice as it sounds in theory.
If, however, Congress does not wish to defer action on this bill,
I want to point out that Title II fundamentally changes our banking system.
It places in the handa of a Board the power to dictate arbitrarily the
money policies of the country (Section 205). Although I ascume that the
purpose of the bill is to provide a system of money control, it makes
possible the financing of the Government up to many billions of dollars
simply on the decision of e small Board working in conjunction with the
Treesury (Section 205, Section 208). The latter power would permit an
expansion of the currency of the country by about seven and a half billion
dollars, more than double the present amount, without the approval or
instruction of Congress.
The present Federal Reserve Law gave to the country, for the firet
time, a system whereby the supply of credit and currency expanded and
contracted automatically with the needs of commerce, induatry and agriculture.
In recent years, we have had a tendency toward managed control of credit.
If for the automatic control provided by the original Federal heserve Act
there is to be substituted the conscious control of a Board, the membership
of that Board must be as far removed as poosible from the influence of any
group, be it financial, industrial or political, and should be representative not only of the Government through the members of the Federal
heserve Board but of the Federal Reserve Banks which are in intimate daily
contact with conditions in the country. kor this reason, I have approved
the following recommendations of the Federal Advicory Council:
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Federal Reserve Bank of St. Louis
1.
That the Secretary of the Treasury and the Comptroller
of the Currency cease to be members of the Federal heserve
Board.
Economic Conditions, Governmental Finance, etc.
Page 88 (contd.)
James K. Perkine
(Page 89)
2.
That the Board be reduced to five members.
3.
That the governor and members be appointed for fifteen
years, and be removable only for cause and after appro—
priate notice and hearing, but, compelled to retire at
the age of seventy with adequate pensions.
4.
That the I4ederal Reserve Bank governors be appointed by
the directors of the Federal Reserve banks with the
approval of the l'ederal Reserve Board, but that after
the approval of the Federal Reserve Board has once been
obtained, the governors may be re—elected annuelly by the
directors of the banks.
5.
That a committee composed of the members of the Federal
Reserve Board and four of the bank governors, selected by
the twelve governors, shall be given the power to fix the
discount rate, the percentcge of reserves, end direct the
open market policies of the banks.
I further believe that even if the greateet success should be
attained in the selection of the group exercising these powers, common
prudence dictates that there should be LIMITS within which they shoule
operate. I according,ly approve the following recommendations of the
Federal Advisory Council:
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Federal Reserve Bank of St. Louis
1.
That the Open Market Committee should not have the power
to increase the percentage of reserves required of member
banks to more than 30% of total deposits.
2.
That there be 8 top limit set on the potential. open market
powers. This, et the same time, provides a safeguard in
that it limits the extent to which the Federal Reserve System
can be forced to finance governmental deficits. The Federal
Advisory Council hfis recommended that this be handled by
limiting to one billion dollars the amount of Government
securities which can be used as collateral for FedEral Reserve
notes.
-4Economic Conditions, Governmental Finance, etc.
Further Comment Upon the Bill
Page 90
As opposed to this view, Er. Adolph C. Miller, who resigned
from the facult;, of the University of California to accept appoin
tment as a member of the first Federal Reserve Board, and has remein
rd
a member to this day, responding to an inquir before the Senate
Committee as to the advisability of giving the Board authorit5,
over bank
credit, said:
Authorit5 should not be conferred on the board for that
purpose
unless you are prepared to give the board a status of
complete
independence--one thet is completely independent of any
improper
influence or legally suggested influence on the part of
banks or the
Government.
The Secretary of the Treasury, Ar. Morgenthau,
appearing before
the Committee, expressed the opinion that members of
the heserve Board
should have a position of complete independence, remova
ble only by
impeachment.
Page 95
IN CONCLUbION
The plan as a whole would take banking control and
direction
farther from the people who supply the banking capita
l of the country,
the people who supply the bank deposits and the
business public that
uses the facilities of the system, and plece
it with an authority too
far removed to capably use it. Also, by all
the experience of the
past it lowers the standard of bank invest
ments. Moreover, the proposal
is based in part at least upon the theory
or assumption that th4nterests
of bankers are in conflict with the intere
sts of the public, which has no
basis whatever in truth. * * *
Governor Eccles quotes President Vlilson
as saying early in 1913, when
banking legislation was in proskect, that
the public policy should be such
"that the banks may be the instruments, not the
masters, of business and of
individual enterprise and initiative." The
bankers of the country maintain
that this quotation describes precisely the position
they occupy,that their
own interests require them to occupy it, and that they
are controlled by
the same "automatic regulation" that inspires every honorable
business man
to serve and satisfy his patrons.
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Federal Reserve Bank of St. Louis
-5-
Economic Conditions, Governmental Finance, etc.
Pages 167-68 (Nov, 1935)
EFFECTS OF DEVALUATION
There is no doubt but that the problem of future control of
credit has been vastly complicated by the Government's policy of devaluation. The cheapening of the dollar was underttken on the theory
that it would raise commodity prices and so ease the burden upon the debtor.
Actually, it is not clear that devaluation has had any such effect, since
most of the advance that has taken place in commodity price indexes has
been due to advances in farm products which can be accounted for by the
drought and A.A.A. policies. It has had the effect, however, of leaving
as
legacy this enormously expanded gold stock, which, together with
that twin product of the devaluBtion policy--huge excess reservcs--is
causing great anxiety as to the future. Evidently, the Administration
likewise recognizes the inflationary possibilities in the situation, for
it will be recalled that Governor Eccles of the Federal Reserve Board,
the Administration's chief spokesman on behalf or the banking bill passed
by the last Congress, repeatedly urged these dangers as reasons for
strengthening the control powers of the Board.
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Federal Reserve Bank of St. Louis
•
SOURCE:
ECONOMIC CONDITIONS, GOVERNMENTAL FINANCE, U.S. SECURITIES
(The Nat. City Bank of N.Y.)
Page 28--(Feb. 1935)
Certain crude and mistaken ideas about the privileges and
powers of banking are widely circulated and evidently obtain considerable credence. In truth, banking derives no privileges or
powers from legislation, for legislation upon banking is regulative
and restrictive, rather than a grant of favors. Nothing is done
by banking that was not first done by individual traders in the
exercise of recognized contractural rights, but on account of the
growing importance of the business in community life, laws have been
enacted for its orderly regulation, and particulerly for the purpose
of giving stability to it. There is no objection to the public supervision of banking for this purpose.
Page 87--(June 1935)
Statement by James h. Perkins, Chmn. of Bd. of Nat. City Bank--before
Subcommittee of the U.S. Committee on Banking & Currency--May 20, 1935
I approve the enactment of Title Iagnd Title III of the proposed
banking bill. Such slight modifications/ere suggested in the report of
the Federal Advisory Council are technical in character and in no way
affect the purposes of these two sections which greatly improve and
simplify the present law.
I have never been a believer in deposit insurance, but I have felt
that at least one good might result if it could be made the instrument
for unifying the banking system. For this reason I wish particularly to
endorse the provision requiring all members of the Federal Deposit Insurance
Corporation to become members of the Federal Reserve System by 1937. I
believe our dual system of national and state banking, operating under fortynine different controls, is one of the worst features of our banking structure,
and I do not think that we shall ever have an effective supervision of banking until this dual system is unified. In setting up the deposit insurance
law, Congress very wisely recognized that banks participating in insurance
protection ought to conform to uniform standards of soundness and liquidity.
The provision requiring all insured banks to join the Reserve System has
had the double good effect of both strengthening the basis of the insurence
fund and of paving the way for the unification of banking control so badly
needed.
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Federal Reserve Bank of St. Louis
11 47
James H. Perkins
Page 87 (contd.)
Now, however, the lower House of Congress has seen fit to
delete from the bill the proNision requiring insured banks to be
members of the Federal Reserve System. I believe this is a serious
mistake, and I wish to add my voice to that of Governor Eccles and
others in urging that this provision be retained, with such modification as may be deemed desirable in order to aid banks in
Qualifying for membership.
PaKe 91
THE FEDERAL RESERVE SYSTEM
Dr.
in the article referred to, states a fact already
known, viz: that the authors of the original Reserve bill did not plan
that a government board should be the directing and responsible authority
of the heserve system. * * *
The intention, as Dr. Willis explicitly states, was to "place the
management of banking in the hands of bankers and to provide that the
Government should have the opportunity to be present at all deliberations,
to be fully informed upon what ras going on and express opinions and
have an adequate voice in reaching conclusions." Of courFe, it was to
have the responsibility of enforcing the law.
The plan was for an overhead structure based upon the existing
national and state banking systems, which would serve to integrate and
unify all banking facilities and give the country a stronger, more coherent and more serviceable banking organization than it ever had had
before. The authors did not want to disturb the existing banks, but to
provide c plan by which the; could cooperate more effectuslly. They
wanted to serve industry and trade--the regular business of the country-and to restrict banking to that task. They did not %ant to give large
powers in the active management of bankine to a government board. They
had to compromise in the matter of
full government boerd at Washington,
but they circumscribed its powers to conform to their general idea of
how the banking business should be conducted, as follows: (1) that,
subject to basic banking principles, the member banks should be responsive
to the wants of the people doing business with them, who, it may be noted,
are doing all of the other business of the country and supplying the
deposits that are the basis of the whole system; (0 that the Reserve
banks should be responsive to the member banks, who supply their capital;
and that the Federal Ileserve Board, overhead, two removes from the public,
shouldperform the functions of a coordinator and supervisor, exercising
a degree of authority to the end that the twelve Reserve institutions,
covering an area nearly equal to that of all Europe, should operate
harmoniously, cooperatively, and in compliance with the Reserve Act. They
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Federal Reserve Bank of St. Louis
-
Page 91 (contd.)
believed that a banking system thus conducted would automatically
maintain its equilibrium and render the greatest possible service to
production and trade, and thus to all the people.
This plan was a compromise between those who wanted less Government in the management and those who wanted more, but it satisfied the
former because it left the management of banking as close as it could be
to the people.
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Federal Reserve Bank of St. Louis
Proceedings of the MISSOURI BANKERS ASSOCIATION
ANNUAL ADDRESS OF THE PRESIDENT
tillis t. Alexander
A-
*
*
*
k
*
*
*
*
*
*
*
(Page 23)
I want to go on record nere ana now as being unequivocally opposed
to both central and branch banking. No more tangible justification of
tnis view needs be cited than tne records of our banks during the past
several years. Through stress and storm, banks have measured up to the
demands made upon tnem far better than most other lines of business. The
independent unit bank has been the vital force in building up the community throughout tine nation and till continue to do so if indiviaual
initiative is not legislated away from it.
Most American banks are community-owned institutions. The men who
make tae policies and operate tne banks are permanent citizens. For tnis
reason the telfare of the community is tneir paramount interest. As a
result of this local ownership and local management of the banks, our
country has developed industrially far beyond other countries tnich ao
not have this type of banking.
The inaependent unit bank is threatened by attempts to extend branch
banking. Shall we permit the system which has and is not contributing
so largely to the development of our country to be strangled ana smothered
out of existence? Personally, my anster is no. And I am ready to wage
incessant tarfare for the preservation of our independent unit banking
system.
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Federal Reserve Bank of St. Louis
411
Proceedings of the MISSOURI BANKLES ASSOCIATION
REPORT OF COMMITTEE ON RESOLUTIONS
*
*
*
*
*
The Banking Act of 1935
*
*
*
*
*
(Pages 90 and 91)
4. We are in sympathy with the purposes expressed in Title I
and Title III, believing them to be designed in the interest of the
public as well as the interest of banking, and with three notable
exceptions to Title I, we approve in substance these two titles.
Exception No. 2.:
With full faith in and loyalty to the Federal Reserve System,
naturally, we believe that universal membership in the system is
an ultimate consummation to be hoped for; however, the situation in
which we find ourselves would make it impracticable for a great many
good but small banks to be induced to come into the system, and for
this reason we are opposed to any legislation that would make membership in the Federal Reserve System compulsory. We favor the elimination of the requirement of such membership in order to be members of
the F. D. I. C. and endorse the action of the House of Representatives
in eliminating it. If Federal Reserve membership is required for
membership in the F. D. I. C. fund, we favor the liberalization of
the capital requirement for membership in the Federal Reserve System
in order that many good banks which may desire to do so may join the
system.
If, however, Congress is determined to include Title II in some
form in the present bill, we urge the following objections:
(a) We object to any clause or provision that would tend to
bring the Federal Reserve System under governmental domination or
political dictatorship.
(b) We believe that all the reserve banks should be represented
by officials of their own choosing in any body that is charged with
proposing an open-market policy and rediscount rates.
(c) We oppose those particular sections of the bill relating
to reserves and open market transactions. While we believe that
legislation on the subject of reserves is needed, we ho1E. to the view
that the proposed law is most dangerous and undesirable in that it
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Federal Reserve Bank of St. Louis
(-18
REPORT OP COMMITTEE ON RESOLUTIONS - Page 2
would place an unlimited proportion of the banking reserves of the
country in the control of one amall body of men, with the power to
divert from the usual channels of trade the cash resources of all
the banks into government financing subject to political exigencies.
In any event the laws should state definite percentages within which
required reserves could be changed by action of the Federal Reserve
Board and the power of the Board shoula be limited to a plan of minimum
and maximum reserves and proper method of computing such reserves.
(d) We believe the provisions of the bill with respect to real
estats loans are incompatible with the fundamental purposes of commercial
banking and that the present real estate loan provisions are adequate.
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Federal Reserve Bank of St. Louis
1
•
leaking Problems* Ify ire Ibises
Sortieheurt Rim Tett lialworsity
(Zossmal of the fl000lltai Sombers
,Ass**, eetebers IMO
* * * *•
•* * * *
Is spite of tho honseeleaaiag ishleh has taken plume ther
e is a large
ember of small Institutions *limb have se nloce to
tho
imai
llim
a basking
striation ossept as %wenches of stress eetrepolitsa
The
satire beebieg siteatiee meld he grestly benefite
d by the gredsa em.
temoiem ef hies* tolakims se that all sleeabie smom
mitlas eaeld lave *degate and este Inikiag ~Kees without tokims
the
Mum
. tho t same ohm
omen lead institetiene herao the biebiess
dari
ng
bad
yew
s. lbw 'federal
Oeverneent essuot safely assume this WA* through
lie
MIL
Ike *Hairs
of the latter ors going alemg very aionly at icres
oalis
beee
ver
•
bassmee et
the resent hookeeelsoming. bet all emelt schemes
0446
1
,
thei
r
toot
ing time
may after years hare elmpeed•
••*•
•*•
•
•
•
ilhe problem fof lefts is demi, OWISIMOMMIsith the
type of bank eenni•
sallow required le the verioes setherities. Sone
tank
emee
leers bewe node
it OM attiselt for tanks to imams. looms duri
ng
Um
Vest
tas Yews ben'
mugs et esmesemsorily rigid reqvirements.
geweral State euseinere have
beim Ike most lesieat, Federal Reserve bask re
enamisara quite sleet tat set
as severe as Ilatiesal leek ampiners. Susi
vete, for saltipto enseleatise
prevents beaks making soy lam swept thema*ble
are extremely liqued end
ef Short dowatinas end it meld appear este new b rela
te
x the riles senelbst.
Staaderdisation of Usk esmadmatioms med semesatr
ation of sok west within
me organisation la isporative4
The United "Ow seeds a unified bashing stru
cture. All State tanks
should be required te jots the Pedieal %se
rve System, end as sees es en.
softest ell numbers of the votes should
breed teeerdisifieatica has boon seem in palmoderoodiemal eherter.
several respeote
bonhing erste, ems in ne smell eNr responsiblebosom the
tremble* uhigh lod up to Mho benk holidiy of abou fere* acute
t tee years sees
It is eigaifisent lhat greeter progress has
been esde in releasing deposits
samber Who ems
manionmehore. The eiggsetlea that belbeimmtmuhdeet
to Pidorol regalattes meld *veld unification bp
beeeming menemenher abate
tusks is wavise atm it night cause retaliat
ory
mees
eres
* Pedoral
Adninistwettmey iihieh has net hesitated to intr
edme
e
redi
eal
nessores. eel
%has preeipitate a aevement for immediate nati
analivetios ef all lisio•
•* * 0 * * * * *
Tim illadres that the partieular age In *lob 4
giVOR brking pestles
exists is final is ono that le seetiema
lArliteg dierepied. Theorise end
privatises of Armies* beide( abseldus
kilp Mgt damp* It is esse
te resegiise the fast that bathe earl
y Was end suffer losses. !he ssitf
hesitantly far esny years of bake to Instal dom
e% servise chergoe met
steps leaks realise thay ere entitled to this
see
m ef imams bet sees
to fear the rosettes IS the pert of their east
erner, ehe night remit the
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Federal Reserve Bank of St. Louis
1I
t
bathes show of polio, la this respoot* tree ~dose have east the boats
111* so U.of $300.000.000 within a single rear* Several yosre
of Ube
eip a estisa-vide serve? Ladiestei that if an. V* 11* esousreial bake
esteptai a small float sheep aseep Use $50,000.000 weld be edited to
140 46111,10.
oarelege oemeally* This, of seers% is oay 0110 type le 0024,
WI 00Oat
be
beet
sat
Mhos toes Wielded, es tho ether head, oasts
is
obi*
itee
Ofillettre optima to redoes the seet importmat sopenes
sentry
sews
basks
repel
seer
letsseet gold SO deposits* PertiLarlarly
see epsrating spas oorsIngo iesufftelest to justify their sepital ievestim
wet bet beams et sempetitive ooaditisee ors min emeeemivo rates of
taterset es time deposits* This vest bs dissiod, sod time ore iedieatiess
that a start has base sods 14, lb* Who is deolleg oith ell Wm problem,
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°The Noney and Banking Situation in the United States°
by Dr. Gaines T. Cartinhour, New York University, N.Y.
(Journal of the Canadian Bankers' Ammo., Jan., 19!5)
** * * ***** * 4 **
Bankers who have been criticised for hesitancy to make loans complain
of a conflict in government policy. The government, they say, has insisted
that banks make loans, on the one hand, while on the other bank exaainers
have been making it more difficult by their rigid reeuirements for safety
respecting loans and collateral. Drastic and unfair appraisals are alleged
to have been made. In general it seems that State examiners ..ave been most
considerate. Federal Reserve Sank examiners have been somewhat more drastic,
but not as severe as National lank examiners, whom some bankers -:',enounce es
having reduced values in their institutions to a point where the capital and
eurplus have been practically wiped ont.
The American Bankers' kaeoeistion hes loncerned itself with this problem,
and ex-President Law hae pointed out that as long as examiners believe it to
be their duty constantly to hammer on loans that are admittelly good, only
because they are slow, it sill have the effect not only of forcing basks to
exert unnecessary pressure on sueh loans but will prevent the7 from making
any new loans except those that are extremely liquid and of short duration.
This situation has been admitted by the Administration to be a serious
problem and !standardization of bank examinatien practice an,3 cencentration of
sudh work within one organization in Washington is now advocated. At the
time this article is being written, (December 15th), it appears that the
Federal Deposit Insurance Corporation will take over all activities along
this lirie being carried on by the Comptroller of the Currency, the Reserve
banks, and the Reconstruction Finance Corporation. State banks are also examined by State Banking Departments in addition. Practically all national
banks have been subjected to examination by at least three Federal agencies,
frequently using different ysrdaticks of value. The result has been that
they never could till ehich of their loans might be questioned. For national
banks one source of exasiwition should be sufficient; for state banks which
are FDIC members joint exasinations conducted by State and Federal authorities
should be arranged.
FUrtheretore, euch a policy would save the baaks a great deal of expense.
One Wall Street institution estimates that it empends at least 00000 a
year supplying the demands of bank examiners. 'No correctimm of this situatiem will not make possible an immediate flood of sow bank loans but will
vesowo one of the obstacles comfromting Amerisam toakers.
* * *** ******* **
There have been renewed reports recently of action to unify the
American bmmking system. The Federal Reserve Board is understood to have
given this proposal consideration lately but its ambers believe that it
is more a policy question for the President and Congress to handle. Should
there be attempts to unify the system, it could be brought about through
compulsory membership of State baaks in the F. R. System, compulsion on
State banks to take eat national Charters, or possibly through unification
of State laws. The latter would not be as effective as the former. Many
questions of constitutionality, etc., would arise in the event this type ill&
of legislation
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Federal Reserve Bank of St. Louis
were recommended to Gologroso•
* * ** * **** * * ***
Ms intim Winking situation would also be greatly benefited by the
gradual extessias of branch banking so thut all ommunities can have adequate
banking service without taking the chRuce that mimeo when small local institutions handle the business.
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Federal Reserve Bank of St. Louis
* * * **** ** * * * * *
•
SOURCE:
THE ILLINOIS BANKERS ASSOCIATION BULLETIN--de 1935
INDEPENDENT BANKING--by C. B. Axford, Editor "American Banker", N.Y.
Pagee 53-54
The British people long ago learacd the lesson of central
banking and of keeping their central banks separate, and the
Bank of England ie no milk cow for the British government.
I do not think we need to be such fatalists. I think there
is a way out and, to me, it lies in the direction of Independent
banking, really independent banking, and something that we can do
something about. We like to pride outselves in America that we
have an independent bankii4 system and free banking hes been onr
watchword. But will our independence really stand analysis?
In ay effort to reduce to the simplest terns the problems
which confront the American bankine busimess, suet questions as
branch banking, bank failures, governmental control, nisunderstanding
of the money function, I find at the bottom of thints that what we
have tooay is not an independent banking system but a dependent system, dependent for its very life upon the maintenance of an illusion,
an illusion that billions of deposits can be invested in assets of
distant maturity and converted into cash in times of need wit.out
limit.
It is my sugg.stion, therefore,thht durine the next few years
American bankers should fight wbv..t is today an ever-growing trend
toward making all assets theoretically as good as cash by promising
to sell out our banks to the _Federal Reserve 4etem or t sone other
rediscount authority when, end if, tht pe,ple want to spend the mone:y
that they have saved.
This reform that I am suggestint should be done
changing the
depoait contract to a performable one, in place of the present
open
end demand against the bank. It should be, I tnink, the privilege
of every bank and the understanding of every depoLitor that funds in
the savings account could not be drawn upon at a rate so fast as to
impair the bank. Let those who wish to consider their moue: in the
bank as cash keep it in denand accounts, and let bankers themselve
s
keep these desand accounts in some fors of strictly self-licuidating
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Federal Reserve Bank of St. Louis
A6
',•1
-EC. B. Axford
Pagee 53-54 (contd.)
paper; but let the rest of
trustees in the investment
of depoeits, so-called, be
cete the liquidity and the
our people, who are making us the
of something like thirty-five billions
stopped from expecting us to guarante
e
par value of that investment.
The defense against the development of the
cash idea of
benk depovits—and it applies to the Federal
Reserve Syrtee at
the top as well as to the smallest locel bane
—is uncuestionably, I
think, n retreat of the banking system to a
position where it cannot
get caught short. Such a system would requ
ire thnt every cellable
liability be matched by a callable asset and
that no demand or shortnotice liabilittes be tied up in frozen or
sloe assets; and, since
the supply of oilick assets is distinctly
limited, the rest of the socalled deposit money should be inveeted unde
r terma which permit
liquidetion only et the discretion of the
banker in times of etress.
Then, and only then, when every long-ter
m asset is balenced by an
equally long-tern liability, will we be
able to say the Amerieen syatee
of banking is ladependent and will we able
to maintain against any
assault the independence of tht local
bank.
And it is inevitable, in my mind, thet
wesetine witin the next
few years, either by federal decr
ee or otherwise, we shall close up
this seam which sinks banks when the.)
run into the stormy seas of depression, the unlimited lieuidation of
slow assets. It ie quite muthinkable, no matter what we plan,
that the Federal Reserve System
will go on rediscounting assets, even
government bonds, forever, or
that the Federal Deposit Insurance Corp
oration can tura them into
cash any better than we oureelves. And
when the. stop, wnat can it
be but another banking holiday?, And
after another banking holiday,
I think we will find that the fede
ral governnent will be inclined to
cooperate, if American thought hes been
properly conditioned, to cooperate in some program which will
aegregate and defend the bank and
the bank deposits againnt the losses
of unlifeebed liquidation of theil
eccounts which are set up as savings
and invested by us more us trustees
than ac guaranto.s, is the las- anal
ysis.
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Federal Reserve Bank of St. Louis
SOURCE:
327. PUBLICITY ACTIVITIES- F.R. BANK, MINNEAPOLIS
Report of Deputy Governor Ziemer, attached to Mr. Peyton's letter of
August 13, 1935.
Pages 3-4
GENERAL BANKING CONDITIONS
Only 5 of the k.3 non-member banks visited are not on our par
list. The question of exchange so prevalent in other sections of our district rarely comes up for dibcussion. Virtually all the bankers in Montana feel that their income should be derived from a more legitimate
souce than that of charging exchange which, in their opinion, is an unfair
souce of revenue.
Observations of Otis R. Preston - attached to Mr. Peyton's letter of
August 7, 1935.
Pages 2-3
In my bank visitation trips in other parts of this district, I
was markedly impressed with the earnings from exchange charged by the
state banks. I was told they could not exist without such earnings. In
eastern Montana this practice prevailed, but bank& in the central and
western sections of Montana do not charge exchange; par their checks;
and seem to be content with their earnings which compare very favorably
to banks not on the par list. They indicate that the charging of exchanEe
is unfair.
Mr. Peyton's letter of Juli 26, 1955:
* * * I cuote in part a letter from Mr. A. L. Peterson, President
of the First National Bank, Buffalo, North Dakota:
"In regard to rumor that we are considering conversion into
a State bank, every time I attend a Banker's Convention
and hear the glowing reports of service charge earnings
of State bankers, principally from exchange on their own
checks, I feel that we are, and have been for a number of
years, passing up opportunity to improve our earning power.
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Federal Reserve Bank of St. Louis
C)
•
327. Publicity Activities- F.R. Bank, Minneapolis
Mr. Peyton's letter of July 26, 1935 (contd.)
"As I stated to you, your bank has been the best friend we
have ever had, our relations have always been pleasant.
and we feel that your officials have been more than fiiir
in all the business we have had with them.
"Frankly, we have been in hopes that National banks would
be allowed these exchange items the same as State banks,
and have held back doing anything definite awaitinE such
an outcome. We have heard that the matter was being considered, and if this information is correct, we would
certainly appreciate any information you are at liberty
to give."
Mr. Peyton's_letter of July 24, 1935.
* * * On the next to the last page of Air. Timberlake's report is
a paragraph with regard to Federal Reserve membership, from which I
Quote as follows:
"This fact is well known, of course, to our national
member banks, and several of them have been contemplating conversion to State banks."
This movement is motivated by the desire of banks to charge
exchange, and as an active evidence of this feeling, I am
today forwarding you in a separate letter an application of
the State Bank of Belle iplaine, Belle Plaine, akinnesota, to
withdraw from the Federal Reserve System. This bank, in requesting withdrawal, states "We have been well pleased with
our membership in the Federal Reserve System and with the
courtesies extended us, and it is only on account of the exchange charge that we wish to withdraw."
From my many contacts through the Ninth lederal Reserve
Listrict, I am convinced that this is but the forerunner of many
applications for withdrawal from the bys.tem, prompted by the
desire of the bank to collect exchange.
Bank Relations and Statistical Field Trip of H. C. Timberlake _i
!
Tuly 6-13, 1935)
Pa_ge 6
Federal Reserve Membership
Federal Reserve Alembership is usually accorded some advantages by
non-member banks, but they do not begin to offset the advantage of in-
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Federal Reserve Bank of St. Louis
-5-
327. Publicity Activities- F.R. Bank, linneapolis
Mr. Timberlake's report of July 6-131 1935 (contd.)
creased income from so-called "exchange". "It's our life blood". "We
couldn't exist without it" are typical expressions. Several bankers
segregate "exchange" income from "float", "service charge" and other
income and gladly showed me their books. 0600 - $800 - $1,000 were
usual amounts with a few nearly double that. Income from interest on
loans and investments (leEal rate 7 per cent effective July I, 1935) has
shrunk so low that income from service charges, exchange, float, etc. is
often 2 or 3 times as large as the interest income. This fact is well
known, of course, to our national member banks, and several of them have
been contemplating CONVERSION to STATE BANKS. This information was given
to me directly in one or two instances but in others, the information
was volunteered by bankers visited after the bank in question had been
called on. About 10 per cent of the state banks called on had previously
converted from national banks.
Report of L. E. Rast
Eight of the state non-member banks are on our par list,
principally because of competition from nearby member banks. Thirty
state non-member banks indicated that it was principally the earnings
derived from exchange that made membership in the iederal Reserve
System unattractive, although several bankers stated they have operated successfully under state charter and do not wish to change their
present practices of banking. The thirty banks not on our par list
reported earninws from exchange were $25 to $250 per month.
Mr. Swanson's memo. to mr. Peyton, dated July 3, 1935.
Page 2
Most of the State nonmember banks which I visited would not be
adverse to joining the Federal Reserve System if they are permitted to
charge exchange on checks. Several indicated they would like to belong
to the System if they would not be required to increase the capital stock.
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Federal Reserve Bank of St. Louis
-4-
327.Publicity Activities- F.R. Bank, Minneapolis
Report of H. C. Core, Asst. Cashier, during week of June 13 to 22,
attached to Mr. P_tyton's letter of June 27,„ 1935.
l'age 4
One non-member bank expects to make application for membership in the Federal Reserve System within the next thirty days but there
does not appear to be any general enthusiasm for membership at this
time.
Mr. Peyton's letter of June k. , 1935.
*
* * * Timberlake also brings out on Page 8 of his report the
fact that the nonmember banks in this territory are drifting back
into the custom of exorbitant charges, which existed in a more
modified form before the Federal Reserve Eystem came into existence.
The tendency in this territory is to increase charges against the
customer to a point where there is sure to be a reaction. Exchange
charges again appear as the vitally decisive factor which eliminates
consideration of membership in the -rederal Reserve System.
H. C. Timberlake's report of June 15-22, 1935, attached to Mr. Peyton's
letter of June 27, 1935.
Page 8
Several bankers indicated that they would be willing to at
least entertain the idea of increasing their capital stock if the
problem of income from exchange on cash letters could be satisfactorily
solved. They are convinced that the only satisfactory solution will
be the adoption of a uniform practice by all banks. Since it is
obligatory for member banks to remit at par and since that is
fundamentally the proper practice, non-member banks should do the same,
but before they will relinquish the income from exchange, some equally
productive source must be found.
If member banks would introduce a "per check drawn" charge (somewhat similar to the "checkmaster" plan being pioneered by the National
Safety Bank & Trust .ompany of New York City) that "equally productive
source" might be found. If such proved to be the case, bankers feel
that it would not be long before the non-member banks would fall in
line. In discussing this proposal with national bankers, they were in
accord with the suggestion, but were skeptical as to the possibility of
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Federal Reserve Bank of St. Louis
-5-
327. Publicity Activities - F.R. Bank, Minneapolis
H. C. Timberlake's report of June 15-22, 1935 (contd.)
gaining concerted action on it.
Mr. W. E. Peterson's memo to Mr. Peytoni dated June 7, 1935
* -A- * * *
As on a previous trip I find most of the non-member banks
charge exchange, which the consider essential to their income; with
some of the smaller banks this does not amount to very much, especially
those which clear checks originating in their community banks. One
bank, fairly well located, indicated their exchange amounted to about
$25. a day.
Report of Harry Yaeger attached to Mr. Peyton's letter of lay 11, 1935
Pa.ge 3
ATTITUDE TOWARD THE FEDERAL RESERVE BANK OF IINNEAPOLIS
*
*
*
The state non-member banks displayed some curiosity as to the
reason for my visit, but when I explained, they not only appeared pleased
to see a representative from our bank, but (with one exception) the;y all
gave me facts and figures from their books. The non-member banks, and
particularly the non-par banks, were not at all interested in state benk
membership. Their annual income from exchange is material and with
service and float charges almost all of them are paying for all clerical
and some official salaries. If some moderate exchange rate, say, 1/10
of 1% on the total of the cash letter, was enacted into law, many of
these banks would, in my opinion, immediately join the system. The
caAtal structure of these banks is sufficiently large for the community
requirements. They could not possibly increase their carAtal to the
amount required in the organization of a new national bank. The
community would suffer if these smaller country banks were eliminated.
The provisions in the proposed 1935 Banking Act with respect to state
bank membership were explained. Even so, the bankers feeling that some
future Federal Reserve Board might decide that the capital structure
should be increased, were extremely skeptical.
One or two of the smaller national banks having learned of the
profits derived from exchange, intimated the possibility of conversion
into a state bank.
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Federal Reserve Bank of St. Louis
-6-
327. Publicity ActivitiLs - F.R. Bank, Minneapolis
Report of Otis R. Preston attached to Mr. Peyton's letter of 5-4-35
Page 4
BANKING BILL OF 1935
It might be well for you to know the trend of thought on the
part of a number of national banks relative to membership in the System
if the Banking Bill of 1935 is passed. Several prominent bankers whom
I visited informed me that they would consider the conversion of their
bank into a state bank and relinquish Federal Deposit Insurance Corporation insurance if Title 2 of the 1935 Banking Bill is passed. The
following were factors in their point of view:
(1) Too much "government" in business creating new uncertainties.
(2)
Additional government red-tape.
(3)
More sympathetic treatment and understanding by the State Banking Department inasmuch as the state bank would be closer to
its supervising authority, whereas the national authorities
would be out-of-touch with, and unsympathetic to, the local
problems of the national bank.
(4)
F. D. I. C. assessments.
(5)
Exchange.
Report of H. C. Timberlake, April 13-21, 1935, attached to Mr. Peyton's
letter of April 24, 1935.
Page 10
Federal Reserve Membership
All of the non-member state banks were approached upon the
subject of membership in the Federal Reserve System. The bankers
were generally of the opinion that in a not too distant future they would
be compelled to join the Federal Reserve System or do without Federal
Deposit Insurance. Consequently they were interested in discussing
membership even though a number of them stated that they definitely
planned to postpone becoming members as long as possible so as to
enjoy the earnings from their so-called "exchange" charges, the
immediate elimination of which would make membership in the Federal
Reserve 6ystem too expensive for them at the present time. One state
bank in North Dakota and one state bank in Montanaaredefinitely interested in membership and plan to discuss the matter at their next
directors' meetings. One banker who remembers the time when the
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Federal Reserve Bank of St. Louis
-7-
327. Publicity Activities - F.R. Bank, Minneapolis
Report of H. C. Timberlake, April 13-U, 1935 (contd.)
Page 10
Federal Reserve Bank sent checks to local express offices for
collection stated that he did not intend to become a member of the
Federal Reserve System so long as it was possible for him to avoid
doing so.
A number of both state and national bankers asked whether it would
be possible to amend existing regulations so that a small "exchange"
charge might be made. They feel that they are performing a real service
in what they term the "transfer of funds" from one point to another
and are ent*d to compensation therefor. If such a change could be
made, it would be warmly welcomed by the national banks that find it
difficult to make satisfactory earnings under existinE circumstances,
and it would doubtless result in a gain of a large number of state
banks as members, for they are already definitely interested in membership and are anxious to obtain the benefits of membership, but as
stated above, a majority of them feel that the actual pecuniary benefits
at the present time would not offset the loss of earnings from "exchange."
Mr. Wm. E. Peterson's memo. to Mr. Peyton, dated April 18, 1935
*
**
I found that the state non-member banks, with a few exceptions,
were charging exchange which the; deemed very essential to them from
an earnings standpoint; that they realized from upwards of $1,000 to
better than t3,000 per year from this source. The usual charge is 10(t
per hundred dollars. I found generally the banks had installed schedules
of service charges, which were, however, not uniform. * * * *
ildr. E. W. SWANSON'S MEMO. TO MR. PEYTON
dated A ril 15
1935
Page 2
I was pleased over the,cordial welcome extended in every
instance except one. Cashier Laird, at Tyndall, had a peeve against
the .kederal heserve L7stem and my reception at first was lukewarm. His
feeling toward the Federal Reserve System dates back to some twelve or
fifteen years ago when he was running a bank at another town and the
Federal Reserve Bank attempted to collect checks drawn on his bank
through the express agent and later on, through the postmaster.
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Federal Reserve Bank of St. Louis
-8-
Ya. Publicity Activities - F.R. Bank, Minneapolis
Report of 0. S. Powell, Aarch 4-9, 1935, attached to Mr. Peyton's
letter of March 12 1935.
Pages 5-6
* * * The remainder stated that they preferred the present
established custom and could see no reason for making a change.
This matter of exchange is the only stumbling block at the present
time to the entrance of nearly every non-member bank in this area
into the Federal Reserve System, if capital requirements are
waived. Now that interest on correspondent balances has been
eliminated that disadvantage of membership no longer exists. Nonmember banks would like to secure the privileges of safekeeping of
securities, free currency movement, and investment in Federal
heserve stock, but these advantages do not amount to enough in
dollars and cents to offset the loss of revenue from exchange.
Memorandum of F. M. Bailey, dated March 5, 1935, attached to Mr. Peyton's
letter of warch 6, 1935.
The nonmember bankers interviewed appeared to be friendly
towards the Federal Reserve System and the only objection to membership
was the loss of exchange. This item of exchange, in most cases, runs
to a substantial figure, and in several instances, the banker felt that
his institution could not exist without the revenue received from exchange. With a few exceptions, they spoke very well of the FDIC, and
stated frankly that rather than give up the deposit insurance, they
would join the federal Reserve System even if they had to lose the exchange revenue in doing so. Some of the bankers claimed that the deposit insurance made no particular difference in their individual case
and they were thinking seriously of withdrawing from the FDIC. I found
one case where a bank had already withdrawn from the FDIC, and the
banker claimed he had not suffered any withdrawal of deposits even
though his neighboring banks had advertised the fact that his bank was
out of the FDIC.
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Federal Reserve Bank of St. Louis
M. E. Bristow (Virginia)
Discussion on the Address of Mr. Hecht
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935
I agree most emphatically with our speaker in the sentiment that
banking should not be made the subject of partisan politics. I submit
that the insurance system provides all of the unity which is desired
in our banking system. I favor membership in the Federal Reserve
System for all large and important banks, but deplore the compulsory
features which have been sought to be introduced. * * * * * * * * * * *
In reviewing the banking situation, may I suggest consideration of the
fact that this country is too large for its financial authority to be
concentrated in one place. One of the best features of the Federal
Reserve system was the effort to decentralize the financial control of
this country. There appears to me to be too much of a tendency to concentrate things in Washington, and it is calculated to result in a
breakdown sooner or later.
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Federal Reserve Bank of St. Louis
********
r-,r•
.
•
Address by R. S. Hecht, Pres., A. B. A.
Proceedings of the 34th Annual Convention
National Association of Supervisors of State Banks
Atlanta, November 1935
* * * * * * * Of course, tne new law which particularly interests
you gentlemen is Title I because it deals pr'marily with your banking
structure which comes directly under your supervision and eliminates
compulsory membership in the Federal Reserve system, which would have
required some 6500 state non—member banks with less than a million
dollars in deposits to join the system, but will remain just as it was
before and only something less than 1000 banks will have to join the
system by 1942 unless some further legislation is made before that
time. It is evident, therefore, that the unification of the banking
system advocated by some members of the Legislature has been indefinitely
postponed. * * * * * * * * *
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Federal Reserve Bank of St. Louis
*** *****
•
Address by W. S. Elliott,
Proceedings of the
National Association of
Atlanta,
V. Pres., Bank of Canton, Ga.
34th Annual Convention
Supervisors of State Banks
November 1935
********
Future of S+ate Banks
********
Banking Unification is sought by many neople. In my opinion history
justifies the maintenance of the dual system. If we are to commend precivil-war progress state banks should be commended, for they were then
the only chartered banks in the field. If the post-war period is considered the state bank did its share along with national banks. Vie
should have co-ordination instead of consolirlation, democracy instead
of Federalism, unity of purpose without centralization of control.
Federal Reserve biembership requirement has been postponed until
1941. Further deferment may be expected if necessary. Forcible joining
by state banks should not be required. The Federal Reserve System
should be made attractive so banks will want to join. Remuneration for
services rendered should be given to country banks who remit to a distant city in payment of their obligations.
*.* * * * * * *
State Banking System Should be Preserved
State Banking systems should be preserved; I believe they will be.
They should be improved. Errors should be corrected; coordination
should be had with other existing financial agencies. State banking
departnents can do this. They are close to the ground, every Superintendent has great advantage in personal contact with his bankers, he
speaks their language, he understands their problems. State banks are
near to the Democratic ideal and there was once a doctrine of State's
rights which was espoused by the great party now in nower. Some
peonle think, however, that States' rights joined the "forgotten man"
after the 18th amendment was repealed. Banking should be left in
private hands. Pre-war capitalization of banks with public funds
repeatedly led to failure. Nearly every Southern state tried the
exreriment to their sorrow. Bankers should not let the threats of
"mutualization" or "socialization" deter them from speaking plainly
about these problems which not only affect themselves but which concern the whole people. Let us abolish our inferiority-complex whereever it exists. National banks have given a good account of themselves
since the civil war. State banks have done so for xiore than 150 years.
There must be some real merit in a system which has pPrsisted through
the vicissitudes of such a long period. It should be preserved.
In conclusion we will go further: paraphrasing a passage in Holy
Writ we will say to our good friends, the national bankers, "When Uncle
Sam forsakes thee, then will the State Banking Departments take thee
up."
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Federal Reserve Bank of St. Louis
•
SOURCE:
ASSOCIATION NEWS BULLETIN — Savings 1;'anks Association of
State of N.Y.
Sept. 26-27, 1935
ANNUAL ADDRESS OF THE PRESIDENT -- Henry R. Kinsey
Page 16
if if if if if if
The second illustrat'on I should like to 1.ave wit':1 you is
in the legislative field. I have taken the trouble to look
back over the reports of our legislative committees for the
past several years. Many of you can remember when relatively
few pieces of legislation instroduced in Albany during the
session concerned the savings banks. Last year there were
over two hundred such pieces of legislation.
Not only have they increased in number, but in breadth of
subjects to be considered. Moreover, we have found ourselves
affected by Federal legislat.on and we may fairly consider that
we shall so continue to be affected, directly or indirectly,
whether we like it or not. * * *
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Federal Reserve Bank of St. Louis
?
•
SOURCE:
THE ILLINOIS BANKERS ASSOCIATION BULLETIN--MAY 1955
ADDRESS OF THE PRESIDENT--H. A. Brinkman, Retiring Pres., Ill. B.A.
PaReckT-25
This brief summary serves to indicate that the state bank
system in Illinois has been through fire and water with an experience the value of which cannot be questioned. There has been
a process of evolution and the laws as they stand, while they
should be revised at certain points, still provide for a safe,
sound and flexible banking service to the people of our state.
The state unit banker rightfully feels that he has played an important part in the development of agriculture and business in Illinois
and sees nothing in the record which should justify nationalization
of his business and not much in the records of other states which
suggests that branch banks would have made any more satisfactory
record had they been in existence here.
State sovereignty is precious. If the right of a sovereign
state to charter banking institutions is ever voided, or even
seriously abridged, through action of the national government, the
results will be more than unfortunate not only for the state banks
but for the national banks. The far-sighted national banker will
agree that the existence of the two systems, side by side, will
serve to postpone, if not actually foreEtall, obnoxious Federal
bureaucratic control. This is not a fight of the state banks alone.
Over 10,000 of the 16,000 banks in the country are state banks.
Numerically, therefore, they have more strength and while for the
most part of smaller average size, they serve, in many localities,
a field which could not be served otherwise because of capital
limitations. Our combination system of state and national banks has
served the people well--a peculiar service for a growing country.
I cannot believe that the people will turn their backs on the
dual system to which they are so much indebted for the high degree of
commercial and agricultural development in this country.
We all agree thatin some respects our banking system has not
measured up to its full requirements. The question now is not so much
as to whether we should patch up or make additions to the old law as
it is whether our people are willing to surrender to a centralized
government at Washington the control of the savings of the provident and
the thrifty. The country is not so much concerned with the details of
the laws but the thinking people of the nation see behind the desire
to amend the Federal Reserve Act two primary motives:
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Federal Reserve Bank of St. Louis
_2-
The I11. Bankers AssociEtion Bulletin--May 1955
H. A. Brinkman
Pages_22-2Z (contd.)
1. A desire for a centralized or socialized governmental,
and therefore a political, control of the banking
credit of the nation, with little or no recognition of
state rights or the needs of particular sections of the
country.
2.
A desire to have an assured outlet for government obligations issued to finance deficits with the accompanying
power to inflate aredit at will.
Remove the fear of these threats to our American ideal of
liberty and the right to individual ownership and control of private
property, and the bankers will be ready to cooperate in a sane, unprejudiced revision of the banking laws.
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Federal Reserve Bank of St. Louis
The I11. Bankers Association Bulletin--May 1935
INVESTMENT POLICIES FOR BANKS IN TIMES LIKE THESE--F. Lee Major
PaRes 45-46
Quite certainly there iF a move toward a eentral banking
system in this country. Just what that gystem will be, just what
it will mean to the individual banks of this country, and just how
it will ultimately terminate are matters about which no one can
hazard an opinion at this time. The reasons for such a move will
not be discussed, but some of the changes proposed in the 1935
Banking Bill will vitally affect our entire banking structure and
should merit close study by all bankers. It is believed that this
is the first major move which, in the next few years, will give this
country a unified system of banking, highly centralized, with supreme
authority in a small group. I do not mean to imply that a central
banking system is necessarily bad. I do, however, look back on the
pages of banking history and recall the first and second banks of the
United States with the disasters that followed.
Not until this country has learned that England learned many
years ago, that central banking, to be good bsnking, must be operated
with its own solvency as its first concern and without dictetion by
politically, constituted governments, will we be able to achieve a
really sound nonpolitical Federal Reserve System.
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Federal Reserve Bank of St. Louis
The Ill. Bankers Association Bulletin--May 1955
INDEPENDENT BANKING--by C. B. Axford, Editor "American Banker", N.Y.
Pages 52-55
I have no sympathy in regard to Title II for those who
would argue that the Banking Act of 1935 is largely unimportent
because it would merely put into words powers which the political
authorities now possess and will continue to possess, they say,
regardless of what we do. Such an argument seems to me to be
merely an apology, a confession of unwillingness to argue the
question of political control of the Federal Reserve System on
its own merits. Even as they stand, I may ask, are not the powers
of political influence already too great? If the measure merely
puts into words powers which already exist, why go to so much
trouble merely to re-write a law? And if more effectual control,
for selfish purposes, of our Federal Reserve bystem is not contemplated, why, in re-writing the law, not respond to the warnings
of history and of economic reason anddlminish rather than enlerge
the avenuea of political control, the avenues of the reduction of
the independence of our banking system?
The answer must be that in the minds of the great steering
committee down there in Washington a need exists to make absolutely
clear-cut the privilege of the political arm of our government to
conform to its will the American banking system all the way down
from the Federal Reserve Board to the smallest bank which can be
forced to surrender to the Federal Reserve supervision and membership.
* *****
If our leaders in Congress are willing to stand with us in
opposition to such a trend away from American ideals of independence,
and if they are ready to join with us in the theory that less rather
than more political control is needed in our so-called Supreme Court
of Banking, then there is no need for Title II, Rather, there is
need for rebuke for those predatory--and I use that word with
emphasis, if you please--thpse predatory forces in Congress and in
the American public who wish to feed their dreams upon the savings
of the American people.
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Federal Reserve Bank of St. Louis
The Ill. Bankers Association Bulletin—May 1955
DECLARATION OF POLICY OF THE ILLINOIS BANKERS ASSOCIATIONAdopted by the 45th Annual Convention
yage
We protest the requirement that State banks shall become
members of the Federal Reserve System in order that they may
continue to be insured in the Federal Deposit Insurance Corporation. We fear that the adoption of this provision would have the
effect of centralizing bank control and eventually eliminating the
present dual banking system. It wouldihave its greatest effect upon
the small rural banks which have servid their communities well and
are responsible to a great extent for the development of this country.
It would mean the extinction of most of these banks.
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Federal Reserve Bank of St. Louis
The Illinois Bankers Association Bulletin—May 1955
Mr. Nirdliqgerl. the new Pres.
Pae 74
* * * However, there is one thing that the Bankers Association
will have to look after more than ever in the next year and that
will be the maintenance of our dual system of banking and the
maintenance of the unit bank, and that probably should be our main
effort; but it can be done only by each bank keeping itself in shape
to be a unit bank, whether state or national, and keeping itself in
shape so that it can face itself and can face its own community
properly and act its own part in the Illinois Bankers AssociEtion.
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Federal Reserve Bank of St. Louis
f ***
; -•
•
SOURCE:
THE ILLINOIS BANKERS ASSOCIATION BULLETIN--MAY 1935
Page 78
COMMITTEE ON GRIEVANCES AND THE MAKING OF BANKING A LEGALIZED
PROFESSION
The Committee on Grievances and the Making of Banking a
Legalized Profession has not met during the year. No grievances
have been presented. Proposed state bank legislation and in
particular national banking legislation which is dealing with bank
and monetary structures has not made it desirable to press the
thought of making banking a legalized profession. The subject can
well wait for studied consideration until these new structures have
been agreed upon. But the objective should not be abandoned.
Believing in the unit bank system and local bank autonomy for the
United States, bankers recognize that laws can be adopted for the sound
organization of banks. But the chartered bank can be only a part of
banking. The management of banks lies in part in technical skill but
in larger part in a personal professional relationship and trusteeship
to the bank's customers. Indeed it is this personal relationship with
its possibilities of sound direction which constitutes the chief merit
of the unit system. Therefore we believe that bankers must be developed
for the continuation of that system, and that the system should in the
future be built as much around a body of professional bankers as around
the idea of a soundly chartered bank.
Starting largely by the licensing of those executives now in
charge of the banks we believe that a license system should be adopted
by the public for those men who hold themselves out as able to manage
banks. Other professions were so Hstortee. We believe that the running
of a bank requires a body of knowledge and a technique justifying the
public to set it up as a profession. We believe that the public has as
much right to know the qualifications of its bankers as it has to know
the nature of the assets of the banks.
We believe that the public when it has had a hand in qualifying
bankers will look to such a body of professional men for the financial
policies of Government as well as in personal and corporate finance.
We believe such a situation desirable for America.
The Committee takes satisfaction in the knowledge that the minds
of bankers are beginning to focus on the idea which it is advancing.
This is evidenced in the recent action of the American Bankers Association setting up a Graduate School of Banking to hold its first session this
coming June at Rutgers College in New Brunswick, New Jersey.
We recommend that the Illinois Bankers Association adopt a steady,
consistent program advancing these ideas to the point of their being
adopted into law.
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Federal Reserve Bank of St. Louis
ri
•
SOURCE:
PROCEEDINGS NEW JERSEY BANKERS ASSOCIATION-May 23,24,25,-1935
ALLRESS by HON. CARL K. WITHERS, Commissioner of Banking & insurance,
Trenton
Page 133
I appreciate full well the interEst of the Federal Government
in the protection of its investment in our Etate Institutions and
of its liability in guaranteeing our deposits, and I am willing
to pledge every reasonable cooperation in the protection of
that interest, but not at the cost of the ultimate survival and
independence of our State Banking System. (Applause.) I
am %Ming to concede, in the light of our recent national experience, the wizTiom of some sort of a uniform banking system with certain sound and well defined standards of ccnduct,
practice and examination, but I am not convinced, and will not
commit the Department of Banking and Insurance, to any legislation, or dictation, which will subject, or sacrifice, the very
life and principle of our State Banking System to any form of
central control. (Applause.)
Page 134
On the other hand, if we are going to defend our State Institutions against outside encroachment, or possible control,
more thought must be given to the character and ability of management and less to mere size, monumental quarters, and those
officials who give to their institutions but little more than the
use of their names. Sound management is the foundation on
which the future of our banking structure must be built, and
there will depend on this the protection of our depositore and
their funds, which is ever our first consideration. Given that,
your respective communities will respond with confidence and
increasing deposits. Without it, no institution can long, or
should survive, whether individual cr as a system.
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Federal Reserve Bank of St. Louis
•
SOURCE:
THF MONTH'S WORK -- SEPTEMBER, 1935
Causes of Increase
The MIDDLETOWN PRESS of Middletown, Conn., commented on the
report from the standpoint of public appreciation of mutual
savings banks and had thie to say:
"Still the deposits grow in the mutual savings banks of
the United States. The report for the first six months of
1935 is at hand from the National Association of Mutual
Savings Banks. It shows that thrifty people continue to
pile ud capital, that the total in the nation is near the
hiEhest record and that the inclination continues to use
the savings banks before any other instrument for invest—
ment.
"Additional significance may also be found in this
distinct preference for the mutual savings banks. It is
the financial institution that is more nearly democratic,
using the word in the broadest sense. Little government
interference attende. Certain specific limitations are
provided by law. Institutions that conform to the law
have no trouble in directing their affairs."
Federal Interference
"So far as Connecticut mutuals are concerned, there is
no federal interference whatever. So it came about that
no mutual bank in thie state closed its doors during the
bank disasters of 1933. Fortunately, too, the state had
so arranged that federal interference was impossible. That
made it easy for the officials to refuse ventures into
deposit insurance, with the healthy banks contributing to
save the unhealthy ones. Any failures here are doubly
guarded against by state provisions. No mutual savings
bank failures have been reported in this state for more
than a quarter of a century."
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Federal Reserve Bank of St. Louis
4.•
4
40
•
SOURCE:
THE TAEHEEL BANKER - N.C. BANKERS ASSOCIATION PROCEEDINGS
JUNE 1935
REPORT OF RESOLUTIONS COMMITTEE
Page 77 and 79
***** *****
"RESOLVED, That the North Carolina Bankers Association in Convention
assembled (135) does,
"First, endorse the position taken by United States Representative
H. B. Steagall regarding the question of compulsory Federal Reserve
membership of State Banks whose deposits are insured by the Eederal
Deposit Insurance Corporation;
"Second, That membership in the Federal Reserve System should be optional with said State Banks;
"Third, That our Senators and Representatives in Congress be requested
to support laws whicb will guarantee optional membership;
"Fourth, That a copy of this resolution be sent to our Senators and
Representatives, to the Honorable Carter Glass, United States Senator from
Virginia, and to Honorable H. B. Steagall, United SttteL Representative
from Alabama."
There may be
some discussion on that.
PRESIDENT JONES: Gentlemen, you have heathe resolution as read. I
might say th?.t your officers, following the different group meetings held
in our state, found that the sentiment of the banks was opposed to
compulsory membership in the Federal Reserve. We felt it was our duty
as officers to endeavor to convey that thought to Congressman Hancock from
this state, who is a member of the House Committee on Banking and Currency.
These resolutions more or less follow that effort on our part, and I
should like to hear some discussion or some recommendation in thLt rspect.
MR. H. T. SPEARS (Bank of Lillington):
of that resolution in toto.
Mr. President, I move adoption
The motion was duly seconded.
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Federal Reserve Bank of St. Louis
30
Address by R. E. Reichert,
Michigan State Banking Commissioner
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)
******* * * *
There has been a lot of argument about the question of Federal Reserve Membership in connection with the exchange rate that our small banks
feel is essential to the operation of their institutions, and for that
reason they cannot consider membership at this time. I have no quarrel
with the bank in feeling that it should be entitled to the exchange charge,
and I believe that probably one of the things that brought on a part of
our trouble was the fact that the exchange charge was removed, which made
it very easy for the customers to transfer funds. They enjoyed a
privilege that should not have been granted to them without charge. I
believe, however, that you are trying to get your exchange on the wrong
end. I believe that when a check comes in for a transfer of funds, the
exchange covering that check should be charged to the account. Instead
of reducinR. the check by the amount of exchange, the check should be increased by the amount of exchange, and that should be agreed to by your
customer at the tire of the opening of the account. It does not seem
reasonable that in the transfer of funds from your locality to Chicago,
New York, or other parts of the world, these funds should be transferred
by the writing of a check without any charge to cover the transfer,
because there is a lot of work entailed and considerable time elapses
before such transfer is completed. If this customer came into your
institution and bought a draft, you would make a charge, or if he went
to the post office and bought a money order a charge would be made, and
a charge which would be predicated uron the proper costs.
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Federal Reserve Bank of St. Louis
**********
26
•
Address by E. G. Bennett, Pres.,
First Security Corporation, Ogden, Utah
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)
* **** * * *
* * * * * The House sent the bill over without any Federal Reserve
membership requirement at all, and I think that will go out, so that
there will not be any compulsory Federal Reserve membership, and continuing with the permanent fund as set up in Title I.
Mr. Crowley, the chairman, has been quite insistent upon that from
the outset. He has felt that the small banks that have weathered this
depression should not be bludgeoned into coming into the Federal Reserve
System if they do not feel it is to their best interests to do so, if
they do not feel it is necessary to handle things in their community.
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Federal Reserve Bank of St. Louis
********
9:tro,
SOURCE:
THE MISSISSIPPI BANKER - May 1935
THE BANKING OUTLOOK - by R. S. Hecht, Pres. A.B.A.
Pave 14 - lb
What is particularly disturbing is the fact that even the more
conservative elements in both the administrative and legisletive
branches of our government appear to be strongly imbued with the
conviction thAt they have a mandate from the people of this country
to exert an increasing public control over the private business and
finance of the country, and to bring about a more direct public
management of economic processes. The application of this new view
of the function of government is particularly directed toward banking
through Title II of the Banking Act of 1935 as originally introduced.
We, of course, whether state or national bankers, have long been
accustomed to the concept that banking is a semi-public business, and
we have accepted without question in the public interest a large degree
of statutory law affecting banking and of administrative authority
supervising and regulating its conduct. This sort of government
influence in respect to banking has looked primarily, however, to promoting the safety of individual banks in the interest of their
depositors. It has not heretofore dealt with the operating of credit
policies of banks except as they had to do with the protection of
depositors, nor has it involved in any sense the creation of a national
credit control. It is true that a step in this direction was taken
through the establishment of the Federal Reserve System some twenty
years ago, but the effectiveness of this institution in bringing about
a co-ordinated credit position was mainly dependent upon voluntary
action on the part of the member banks.
Title II of the Banking Act of 1935 (as originally introduced)
proposes, however, fundamental changes in the banking business and
the control over it. It enters a field of banking theory regarding
which there are very vigorous differences of opinion not only among
bankers, but also among economists and general business leaders. These
differences of opinion raise the question as to whether the banking
business of the United States shall be subject to some form of
unification and central control and, if so, whether this central control
shall be under the government's domination or whether it shall be set up
on a basis maintaining the complete independence of the nation's banking
mechanism from the political influence of whatever party may be in
power. In this argument we bankers must take an active part and
fearlessly speak our mind.
* * * I am thinking of the term "political" not in respect to the
present administration, I am thinking of it in respect to the longer
view of our national life whatever political regime might happen to be
in power, whether it be democratic, republican, or some other form of
partisanship.
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Federal Reserve Bank of St. Louis
4-4a;
-
THE MISSISSIPPI BANKER - May 1935
R. S. Hecht
Page 14-15 (contd.)
I think we can all agree, that we are unequivocally opposed to any
political control of banking. I am sure we feel this way whatever our
party leanings, and whether the application of such political control
were to come about under the present administration or under any other
party or administration. Our objections spring from consideration of
sound banking policies for the common good and from the firm conviction
that banking is simply not the field for politics of any denomination.
RE2ORT OF THE LEGISLATIVE COMMITTEE, G. M. McWilliams, Chairman
Page 23
FEDERAL BANKING ACT OF 1935
The proposed Federal Banking Act of 1935 is perhaps the most
important
legislation now pending in the National Congress. The fundamen
tal
changes sought to be made by some of the provisions of this
Act in the
banking system of the nation encroach upon the rights of the
several
states, and have provoked nation-wide controversy from every
element
of business and industry.
Vre continue to hold that the dual system of Government as distinguished
between the Federal and the several states constitutes a bulwark
of
safety in the preservation of the rights and independence of
our people.
REPORT OF RESOLUTIONS COMMITTEE, J. T. Brovvn, Chairman
Page 25
Regarding Exchange Charge
WHEREAS, there is a tendency in pending national legislation to require
all non-member banks to enter the Federal heserve System; and
VdIEREAS, it is the belief those proposing such legislation thpt a
large per cent of the non-member banks would voluntarily join the Federal
Reserve System, provided no Lnpairment of earnings would result therefrom
by the loss of exchange, it beinj essential that this source of revenue be
preserved for the banks now.
THEREFORE, Be It Resolved that: In any such legislation there be included an amendment of section 342 of the Federal Reserve Act so as to remove
from said section the last twelve words thereof, to-wit, "but no such charge
shall be made against the Federal Reserve Bank."
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Federal Reserve Bank of St. Louis
-5—
THE MISSISSIPPI BANKER — May 1955
J. T. Brown
Pa,ge 25 (contd.)
RESOLVED, Further, That a copy of these Resolutions be sent
immediately to our representatives in Congress.
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Federal Reserve Bank of St. Louis
SOURCE: PROCEEDINGS NEW JERSEY BANKERS ASSOCIATION-May 23,24,25,-1935
ADDRESS by HON. CARL K. WITHERS, Commissioner of Banking & Insurance,
Trenton
page 133
For more than a century and a half, through good times and
bad, through all the wars that have been fought since our
struggle for independence, our State and its Institutions have
survived and adequately met the need of its thrifty and growing
population, and it is not unreasonable to suppose that left to
our own initiative and sense of responsibility we will once again
emerge the stronger for our experience. Thus has been the test
of time, the final arbiter of all human endeavor.
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Federal Reserve Bank of St. Louis
19
,droceedings New Jersey bankers Association-Aday 23024,25,-1935
ADDRESS by Pres.-Flect LESLIE G. McDOUALL, Trust Officer, Fidelity
Union Trust Co., Newark
Page 252
But the National Government has an alternative not available to its political subdivisions. It can issue currency or it can
sell more bonds--provided it has control of the banking system.
That the Federal Government is conscious of this fact is
indicated by the political control of banking contemplated in the
Banking Act of 1935 now pending in Congress. These political
motives are denied. But one may well esk, if the intention is
not to bend the banking system to the use of the Treasury, shy
was the provision for that written into the Bill?
We have heard and are hearing a great deal about state riEhts
which are worth preserving and fighting for. Sometimes one
wonders if Congress has forgotten what State Sovereignty
means. The banking Bill of 1935 contains many controversial
provisions and in the opinion of many, violates fundamental
principles of sound banking.
A grave problem is presented. Shall the public or political
parties control the banks of America? Do we want the credit
of this country to be controlled and dispersed for whatever the
Administration of today and tomorrow considers a desirable
purpose? Take heed and fight to keep our banks in the hands
of the business leaders of the nation.
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Federal Reserve Bank of St. Louis
tv=
)
•
SOURCE:
PROCEEDINGS NEW JERSEY BANKERS ASSOCIATION - hlay 23,24,25,-1935
ADDRESS—Mr. Julius S. Rippel, Pres., N.J. Bankers Association, Chmn.
of Board, gerchants & Newark Trust Co., Newark
Page 122
FEDERAL RESERVE BANK BILL
It would take the Federal heserve Banks and System out of
the hands of private bankers and substitute therefore political
control. The far reaching effects and dant:er of this bill cannot
be apprnised at this time. It is, however, of such a radical departure from the principles of sound banking that it has stirred
bankers in all sections of the country to protest against its
passage in the present form.
There are but two governmentally owned central banks in
the world, one of which is located in Russia and the other in
Italy. In all other countries they are privately owned. Should
this bill pass in its present form, it is the writer's opinion that
rather than remain under a system politically controlled, it would
be far better for bankers, in New Jersey at least, to give serious
consideration to the working -out of details and ways and means of
forming our own State Central Reserve Bank.
Page 123
* * * For py part, as a private banker, I am unwilling that our
institution shall be managed by a body of men who know nothing about
local conditions and who may make arbitrary rules for the conduct of
our banking.
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Federal Reserve Bank of St. Louis
•
Report of the Committee on Resolutions
39th Annual Convention, Indiana Bankers Asso., June, 1935
(The Hoosier Banker, June 1935)
Your Committee, appointed to formulate a body of resolutions for the
consideration of this, the thirty-ninth Annual Convention of the Indiana
Bankers Association, presents and recommends for adoption, the following
declaration of principles:
1. The Unit and Dual System of Banking.
We reaffirm our adherence to and advocacy for the existing
system of unit banking and for the dual system of state and national
banks as the system best adapted to the commercial, industrial and
agricultural interests of all the people and strongly oppose all provisions of the proposed Banking Act of 1935, or of any other act, which
encroaches upon or threatens the existence and perpetuation of independent banking in the United States, and of the independence of the
several states in the creation and supervision of state banking institutions. While favoring and inviting the most effective supervision
of state and national banks by their respective departments we strongly
oppose legislation which would deprive individual banks of their rightful autonomy, and which would ordain and establish governmental bureaucratic control over the management of privately owned national or state
banking institutions.
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Federal Reserve Bank of St. Louis
******* **
,= -=
•
Address by M. J. Kreisle, Pres.,
Indiana Bankers Association
39th Annual Convention, Indiana Bankers Asso., June 1935
(The Hoosier Banker, June 1935)
***********
The new Federal Banking Legislation which has recently passed the
House, and is now before the Senate Sub-Committee on Banking and Currency,
creates additional problems which bankers must face. It is the consensus
of opinion of bankers generally that the proposed new banking bill, if
enacted, means the end of private banking control in the United States.
The measure provides a political control, in which the President of the
United States virtually becomes the head of the system, and the officials
who will be responsible for the operation thereof are directly named by
him, and are removable at his will and Tleasure.
*** ********
A trend toward unification of the banking system is definitely in
the picture. Naturally, there exists some difference of opinion as to
the wisdom of a dual banking system. Up until a year or two ago I was
also of the opinion that the unification of the banking system would
tend to correct many of the weaknesses which developed in the years of
'31, ':32 and the early part of '33, but I have had a reversal of thought
on this cuestion. I now believe that if the right of a state to charter
banking institutions is taken away, or even seriously curtailed, through
the action of the National Government, the results will be more than unfortunate, not only for the state banks, but also for the national banks.
If he hns vision, the national banker will agree that the existence of
the two systems, side by side, will serve to postpone, and perhaps
entirely forestall undesirable Federal political control. This is not
a fight of the state banks alone. Probably two-thirds of the sixteen
thousand banks in this country are state institutions. In point of
numbers they have more strength, and although they are of smaller
average size, they serve in many localities, a field which could not
be served otherwise because of capital reouirements. Our combination
system of state and national banks has served the people well, and has
performed an outstanding service for a growing country.
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Federal Reserve Bank of St. Louis
*****
** * ***
•
SOURCE:
ASSOCIATION NEWS BULLETIN - SAVINGS BANKS ASSOCIATION OF
State of N.Y.
Sept. 26-27, 1935
THE ROOT--INDIVIDUAL BANK MANAGEMENT--by August Ihlefeld, Jr.,
Vice-Pres., Savings
Banks Trust Co.
Page 23
INTELLIGENT OPTIMISM
A system of unit banks has always been and ever will be
dependent upon sound management of the individual institutions.
Management will remain sound only as long as it uses its own
resourcefulness and the proper facilities that are available
to it to meet changing conditions. The system itself will be
successful only with a proper recognition of the community
of interest among its members.
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Federal Reserve Bank of St. Louis
046
s
•
Address by E. S. Woosley, V. Pres.,
First National Bank, Louisville, Ky.
49th Annual Convention, Michigan Bankers Asso., June 1935
(Michigan Investor, July 13, 1935)
******* **** *
It is quite possible for us to run safe banks and make a fair return
on aur stockholders' money, if we are open-minded, alert, courageous, and
are willing to co-operate with our neighbors. Banking is at the crossroads. It will go forward one of three waya: national unified banking
with managerial supervision; aocialized banking with government ownership; or a continuance of the present system under modernised management.
There is no question, I take it, about the choice of the vast majority
of bankers.
The logistics of good management are cooperation, profits and public
service. Cooperation is necessary for the assembling, analysis and
dissemination of facts and in their application. Cooperation is necessary in fighting specious economic theories, in the education of the
public, in providing a platform and a backing for banking leadership.
We have found that this age is too complex to go it alone. We can be sure
that if we do not ourselves establish a banking system that to all
intents and purposes is unified through cooperative thought and action,
the Government will unify it through supervision of ownership.
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Federal Reserve Bank of St. Louis
* **** * ** * * * *
SOURCE: ECONOMIC CONDITIONS, GOVERNMENTAL FINANCE, U.S. SECURITflf3
(The fiat. City Bank of N.Y.)
Pue 87--(June 1950
The Proposed B4pkime ALct of li)55
On Nay kO, 1955, Mr. James H. Perkins, Chairman of the Board of
this Bank, and weber of the Federal Advisory Council fron the New York
Federal Reserve District, appeared by invitation before the Subcommittee
of the United States Committee on Banking and Currew to give his views
an the pending bunking bill udder consideration by that Committee. It is
believed that the statement made by Vr. Parkins on that occasion will be
of interest to our readers. The statement follows:
Pltge 68
:ikoreover, three major subjects which are mot severed in the bill
are the definite mmification of the banking system, branch banking, end
the problem of the classification and invemftent of time and demand deposits.
I know of no present or probable emergemay tbat sannot be met by the
law as it now stands (with the re-enactment of Section 10b).
Therefore, unless Title II is altered to include the changes sugg&sted
by the Federal Adviesory Council, I feel lorded to express my objection* to
it, and to urge postponement of thi* Title until the best qualified minds of
the esuntr7 can explore the whole subject of our bankinc system, in the
hepe that a law mny be enacted thst will stand the test for at least a ouarter
of a century.
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Federal Reserve Bank of St. Louis
SOURCE':
ECONOMIC CONDITION:3, GOVERNMENTAL FINANCE,
(The Wt. City Bank of N.Y.)
l'ECURITIEE
Page 47---(March 1955)
* **** * * * *
TITLE II—AMENDMENTS TO THE FEDERAL hELEhVE ACT
Title II constitutes the heart of the bill, containing es it does
proposals for fundamental changes in banking control ano prectice. It
is this section in particulsr which calls for most careful consideration.
Bfiefly stated, the changes proposed in this section includes
1.
Limitation of the self-governing character of the
Federal heserve banks, ano the centralizetion of the
control, in the Federal Reserve floe= and the President.
L.
Broadening the eligibilit. requirements of the Reeerve
Banke,--now restricted to self-liquidating commercial
paper or member bank notes secured by U.S. Government
obligetions,--to include any "sound" aesets of member banks;
Federal Leserve notes to be secured by a first lien on all
aeeets of the issuing Bank.
E.
Authorization of national banks to inveet their entire
capital and surplus in real estate loane, which, if
amortized, may be up to 75 per cent of the value of the
property and run for twenty years; a-Lich investments in
real estete to be in adoitioc to the banks' own premiees.
It is evident that theseproposals concern basic principles of our
central banking organization. These principles, as they were leid down
in the Federal Reserve Act of 1915, were drawn from yawl of study sod
discussion dating back perticulerly to the panic of 1907 which exposed
the intolerable weelnees of our banking system in a manner so convincing
as to inspire the demand for banking reform. Responding te an aroueed
public opinion, Congress in 1908 appointed a Nationnl Aonetary Commission,
headed by Senetor Nelson W. Aldrich, to survey the banking spites and mike
recommendations for its improvement.
This commission undertook an exhaustive study, lasting over e period
of three yeers, during the course of whiee it held extenvive heorings, end
visited many foreign countries. ThP report of the commiseion, published
in twenty-three volumes, comorises the most complete treatise on central
banking ever assembled. hegerdless of how much the framers of the Federal
Reserve Act say or may not have drawn from this particular report, the
report ie of significance today, not only because of the vast amount of information which it containe, but beceuse it is indicative of the painsteking
research and scientific thouEht devoted to the problem of banking reform 8
generation ago.
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Federal Reserve Bank of St. Louis
5
•
SCURCE:
BANKING, Journal of the ABA--December 1934
Pagps 1E-16
IS BANKING A PUBLIC UTILITY?
by 0. Howard Wolfe
Cashier of the
National Bank
lphia
Philade
Today service charges are again a live topic. New factors have
introduced a different situation with respect to en old subject. Considering what these new factors are, it may not be amiss to include et
least one of the more important banking changes which influenced the
adoption of service charges some years ago--that is, the prohibition
against the charging of exchange by members of the Federel Reserve System. This loss of a considerable revenue that could always be depended
upon made serioua inroads in the earning capacity of many country banks,
especially those in sections of the country where the normal demand for
loans is not sufficient to produce an adequate income. With the general
drift in the direction of unification and control, non-member institutions
cannot escape giving consideration to the question whether they may not be
faced with what to them will be an unfavorable conclusion of a problem
that has continued to harass member banks since 1914.
It has long been the contention of far-sighted banking students that,
e
to paraphrase Lincoln, the unit bankink system cannot forever ex:st half exchang
can
banks
certain
that
ment
arrange
unfair
an
is
it
ly
and half par. Obvious
collect checks drawn on other institutions at par, while they themselves charge
not need
exchange on all items drawn upon themselves. In other words, one does
.
or
unsound
sound
are
e
charges
exchang
to engage in any argument as to whether
to
ed
be
permitt
can
ment
arrenge
present
One has merely to consider whether the
survive in contrast with regulations of such Government agencies ae the F.D.I.C.
be permitted
and Regulation Q of the Federal Reserve Board. If all banks should
would
none
then
Act,
to charge exchange by a revision of the Federal ReEerve
d
to
be
should
require
benefit, and if all banks, as seems more than likely,
n
questio
will
the
accept items drawn upon themselves at par, then more than ever
by
to be used
of service charges suggest itself as a sound and logical method
its
which
checks
g
the
handlin
of
cost
the
for
itself
a bank to reimburse
it.
customers may draw upon
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Federal Reserve Bank of St. Louis
*** ** ** * *
•
SOURCE:
PROCEEDINGS OF MISSOURI BANKFTE ASSOCIATION--May 14-15-16, 1934
THE FUTURE OF THE UNIT BANK--address by L. A. Andrew
Fakes 90-91
A discussion of the future of the unit bank must necessarily
become a discussion of the future of the American community, and,
in fact, in the last analysis, it concerns even the future of our
country itself. We who have fought to maintain the integrity of
the unit bank, represented for many years in this country by our
dual banking system, both national and state, know that the past year
has been a vital one in the struggle to preserve the integrity of our
American system of banking.
At no time in the history of this country has there been such
an unfair fight made on our unit banking system. The proponents of
branch banking, chain banking, and other forms of multiple office
institutions have been excessively busy, but their efforts have not
been so troublesome as the well defined propaganda for the taking
over of all banking functions by the Government.
We who have fought the unification of banking idea have seen
the dangers of that propaganda crystallize in proposals which have
gone much further than any proposed unification of our banking structure.
It has been openly advocated, and came nearer being realized than many
of us know, that all banking in this country should be done through a
branch system of our Federal Reserve Banks. In 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, during which they used 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 naturally lead the
proponents of government banking into a favorable light. The argument
used for the unification of our banking system became during the past
year the arguments for the taking aver by the Government of all banking
functions and the operation of branches of the Federal Reserve System in
all sections of the country.
In a study of this subject about a year ago, I made the suggestion
that, if the advocates of the unification of banking were able to succeed,
they would naturally try to develop the Postal Savings System into government banks of commercial business, giving the customers of these institutions the right to have checking accounts, loan money, and, in fact, allow
the system to conduct a general banking business. Within sixty days from
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Federal Reserve Bank of St. Louis
-2L. A. Andrew
Ages 90-91 (contd.)
that time a bill covering such a program for the Postal Savings System was introduced in Congress and still is receiving a large amount
of support. It may be seen from this that it is unsafe for those
fighting for the unit bank even to make a satirical suggestion.
Page 96
It may be that one of the main reasons for this propaganda against
the unit country bank is the apparent ease 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 States in the stock market manipulations which may result if
we
have any large concentration of banking power through branch banking
systems. This is a phase of the subject deserving careful study as
it
is a real danger.
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Federal Reserve Bank of St. Louis
•
SOURCE:
PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION--MAY 14-15-16, 1954
THE FUTURE OF THE UNIT BANK—address by L. A. Andrew
Dizes 91-92
The advocates of chain banking and group banking and also of
branch banking have had a great deal of trouble during the past two
years, but it has not lessened their fight on the unit bank. They have
deplored with great gusto the large number of failures of unit banks in
the United States, but have not cared to make comparisons of amounts
involved nor to discuss at any great length the rescue parties which
have been necessary to save many of their own situations.
In our discussion of the future of the unit bank, we wish to take up
of points in its favor and then prove that the American Dual Banknumber
a
ing system is the best for the future development of this country, as it
has been in the past.
The unit country bank 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 any, 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
communit.: and for loaning these assets out safely so that the community
and the country roundabout are properly developed an' the business can have
its temporary needs for additional funds supplied by people who are familiar
with the community problems. Of course unit bankers have made mistakes.
These mistakes, however, have been in most eases caused by a too optimistic
belief in 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 can be seen now that many
of these losses could have been avoided by more careful management. However, the mistakes of judgment in the country unit bank were not nearly so
expensive in total to the depositors as were those in the larger cities.
The future of the unit country bank concerns primarily the future of
American business. The question of whether the good borrowers in the
average American community and the farmers in the country nearby are to have
necessary credit for the carrying on of their business will be determined by
the future development of this problem. The unit bank in its daily life
represents the success of the community in which it exists. It is owned and
managed by the people of the community and its success is their success and
its failure is their failure. The question of whether the unit bank is to
continue as it has in the past with the American Dual System of Banking
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Federal Reserve Bank of St. Louis
-4A7
Proceedings Missouri Bankers Association-May 14-15-16, 1954
L. A. Andrew
Pagep, 91-92 (contd.)
depends upon better management in the unit bank. This does
not mean
that a very large number of unit banks have not had good manage
ment.
Incidentally, I am familiar with a survey made in at least two sthtes
by the bank examining forces. They were asked to pick aut the
twenty
best bankers in each aae of these two states, and you may be surpri
sed
to know that 75 per cent in each state were bankers from the so-cal
led
country towns. However, you as bankers know that there is room
for
improvement. Many lessons have been learned during the past ten
years,
lessons that have cost a great deal of money and they should be
considered carefully in any future program for the unit bank. I
have
maintained for years, and I do nos, that there is no reason why
unit
banks cannot be run as safely as any other form of banking.
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Federal Reserve Bank of St. Louis
•
SOURCE: PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION--MAY 14-15-16, 1934
THF FUTURE OF THE UNIT BANK--address by L. A. Andrew
Pages 94-95
The greatest danger confronting thE small unit country bank
today is the provision of the Banking Act of 1933, rhich makes memberchip in the Federal Reserve System compulsory for all banks havingthe
benefit of the Federal Deposit Insurance Corporation after July 1, 1956.
We are pleased to say that there has been a decided reversal of
sentiment during the past sixty days in regard to this requirement.
Chairman Steagall of the House Committee on Banking and Currency is
decidedly in favor of its elimination. The nonmember state banks must
continue to put up a strong fight on this proposition as it would mean
the death of a large number of banks who could not meet the Federal
Reserve requirements, particularly in regard to capital.
After winning the great fight over Section 19 of the Glass Bill,
which would have permitted branch banking by national institutions, even
where prohibited by state law, those of us who are determined that the
American dual system of banking shall be preserved, nor are faced with
a new line of attack in thus trying to force all banks into the Federal
Reserve System.
The 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 greet 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 stetes 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 8 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 notice that one of Mr. Berle's
conclueions was that a cauntry-wide branch banking system was probably the
ideal set-up but unfortunately he said that America had no bankers
capeble
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Federal Reserve Bank of St. Louis
-2-
L. A. Andrew
Pages 94-95 (contd.)
of handling propositions of this size. it is to be 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 safety of the foreign
system of nation-wide branch banking. Their argument is based upon an
absolutely false position. They say that the unit countr;, 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 so-called small country bank, whether national or
state, has indeed suffered from the greet nation-wide economic depression,
because the customers of these unit country banks were unable to pay
their obligations, and also in an equal measure, because the bonds sold
them by the large investment houses and a few correspondent banks turned
out to be a poor secondary reserve. Losses in the bond accounts of a
large number of the unit country banks have been as great or greeter
than
the losses on local loans. These bonds were the result of "Bigness
in
Business". Unit country banks held millions of so-called "gilt-edged
securities", sold them by "Big Business" listed on the Exchange as
collateral bonds, which, investigation afterwards showed, never
had a
dollar of collateral behind them. The losses in the large banks
were even
greater in proportion. This argument for "Safety in Bigness" is
false
from the ground up. The official figures on failures also prove that
the
arguments used against the unit country bank are false. *****
Paes96-97
Let us continue to protect the sovereignty of our individual Statee.
Let us continue 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 regulations and ample for both State and national banks which will
safeguard in every possible respect the money of depositors, but let us
fight to oppose a concentration of the banking and credit remources of
the
United States through any system of unified or centralized banking in
this
country upon the false idea that "Bigness" can ever mean "Safety". Let
us not easily forget the large business and banking crashes that have
come
from "Bigness" and these crashes have been heard from one end of the
land
to the other since 1929.
The fight against the unit country bank is not
political, but is a
fight that large interests are making to concentrate
the banking power of
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Federal Reserve Bank of St. Louis
L. A. Andrew
Pages 96-97 (contd.)
this country in a few hands. The campaigning is carefully manipulated,
untrue pronaganda isspread broadcast, and the unit banker, fighting
for his very life, is confused by the rapid changes in the form of
attack. The primary idea, of course, is to control all of the banking
interests in this country by one bureau in Washington. Wise National
bankers have known for years that the best check they had upon unwise
National bank regulations was the State bank systems, in that the State
bank systems were not more lenient, but that they were a constant check
against National legislation which might seriously interfere with National
banks. It is nearly inconceivable that any man with a knowledge of
Washington bureaucracy would want the entire financial resources of this
country tied up in one politically governed bureau in Washington.
The movement to put all banks under the Federal Reserve System,
another angle in the 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 would 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 know/edge of the
Federal Reserve System have repeatedly said that one-third of the banks in
this country have no place in the System. Their v.ants can be taken care of
better by the use of correspondent banks in Reserve centres.
The American Dual System of Banking with thousands of unit country
banks, both National and State, iE going to fight for the continuation of
its existence. All they want is the opportunity to continue to be of
service to their communities, to continue to have a large part in the
building of their country. They are Americans that are in favor of
American banking. They have worked for two generations in many places
to build ud safe and helpful banks. They protest against the use of depression hysteria to destroy their business. They have the right to demand,
at the very least, a careful study of the entire situation before Congress
takes action. The official records show that the unit bank has not been a
failure. Paid propagandists with selfish interests to promote have
continually misrepresented the situation. The millions of the folks back
home who have prospered with the unit bank and who have suffered when they
were unable to pay their obligations, causing the unit bank troubles, are
ready to fight for a continuation of the American system. They need to
be aroused because their communities are in &Inger of losing the greatest
factor in their success. The unit country banker needs today more than
ever before the fighting spirit of the pioneers, and with this fighting
spirit he must have continued faith, not only in his country, but in his bank
and in himself.
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Federal Reserve Bank of St. Louis
-4-
L. A. Andrew
Pves 96-97 (contd.)
A determined effort is continually being made to force all
of the banks in the country into one system. The Federal Reserve
has been selected by the proponents of this plan as the agency to
complete the deal and, according to the present law, all members
wishing to continue in the insurance corporation must be members of
the Federal Reserve System by July 1, 1956.
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Federal Reserve Bank of St. Louis
•
SOURCE:
BANKING, Journal of the ABA--October 1954
PaEe 77
To the Editor of Banking:
The writer's experience in sending checks to non-par points has
been expensive due to the varied rHtes of exchange charged. These
rates of exchange varied from 10 cents to 25 cents per t100 of items
sent for collection. Some banks would deduct the Gotrnment tax and
postage, whileithers would absorb these extra charges. It was almost
imposeible for the banker who accepted the items for collection to make
a profit and in some cases avoid a loss. The fee should, of course,
revert back to the customer, and the bank recelving the items for
collection should make a profit in the form of exchange charge.
In the case used here, a customer left two checks with a bank for
collection. The amounts of the two checks, drawn on different banks,
were $1 and $100. When returns on the smaller check were received the
net proceeds were 73 cents and after deducting 10 cents for handling,
check. The ;i100 chEck netted
this customer received 63 cents for the
cents for exchange chargc,
20
of
only
the customer 09.80, a deduction
and 10 cents for the
bank
which included 10 cents for the collecting
It
was no easy matter to
bank who accepted the item from the customer.
explain to this customer why he was charged two rates of exchange on
these two checks. There is always the chance that customers will not
understand this difference in exchange charge and it may result in the
loss of a good account. To the writer this varied rate of e;:change used
by banks seems unfair both to the customer and the banker.
a
a price to
In other lines of legitimate business the wholesaler
a
insuring
customer
the
to
price
another
the retEiler, who in turn hHs
exist
should
relation
this
that
profit for both. It seems to the writer
between banks to make possible a small profit to both the bank which
receives the item for collection from the customer, and also the bank
which makes the actual presentation and remittance of the item. It seems
only natural that banks must have an exchange rate which will cover the
float charge when immediate credit is given for a check or draft to the
customer's account, but they should also have an exchange charge to cover
collection items where credit is not given until actual payment is
received.
Not only is there a difference in the exchange rates of banks on
collections but the price of hew York, Chicago, St. Louis and other
drafts issued over the counter to customers. A uniform rate of exchange
for bank drafts purchased over the counter, properly advertised, should
increase the sale of this paper and bring more profits to the bank. Much
business is now handled in the Post Office Department in the form of
postal money orders that should be coming into the banks because the
public has not been advised and encouraged to purchase drafts from banks.
American Express Company money orders are examples of what can be done
with a uniform exchange rate.
George R. Smith, Assistant Cashier-is*
Commercial National Bank
Demopolis, Ala.
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Federal Reserve Bank of St. Louis
•
SOURCE:
PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION-MAY 14-15-16, 1934
THE FUTURE OF THE UNIT BANK--address by L. A. Andrew
Page 92
Let us consider a few of the attributes of a good bank: It has
sufficient capital to take care of a proper ratio with deposits. The
shares are rather closely held, giving a few men the responsibility.
Officers and directors are chosen from the outstanding men in the
community and from among those who are not steady borrowers, and does
not include those with any entanglements of prometion or connection
with enterprises that might require a large amount of money. Officers
are paid a salary sufficient to free them from outside domination or
the necessity for other earnings. In the loaning of money the usual
careful method is followed. A larger reserve is carried than has been
the custom in the past, this 6hould include a secondary reserve of short
maturities in government and other high class securities. Bankers must
always remember than demand deposits are payable on demand, and this
should always be the first consideration when loans are made from deposits
of that source. Loans must be made only on complete credit information and
only to those who know how and when the loan is to be paid. Loans must
be made only to those who can repay from the operation of their business
and at a definite time on definite transactions.
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Federal Reserve Bank of St. Louis
•
SOURCE: PROCEEDINGS MISSOURI BANKERS ASSOCIATION--MAY 14-15-16, 1954
THE FUTURE OF THE UNIT BANK--address by L. A. Andrew
Pages 92-93
If savings and time deposits are carried in volume and are
really Time Deposits, a certain percentage may be put into loans
on real estqte which have amortization payment requirements. In
regard to time and savings deposits, I have been of the opinion
for several years that they should be governed by laws which require
those who receive interest on their deposits to give at least ninety
days notice of withdrawal and require the bank to demand such notice.
I know of hundreds of banks which were forced to close because they
foolishly educated their patrons to think that time and savings
deposits were payable on demand. Furthermore, interest paid on
deposits must be kept well below the average interest returns on
loanable funds. A bank must first be conducted on a profitable basis.
Banks must be profitable to be safe. Of course, such a program includes
the charging for all services at a proper rate to show the bank a profit.
I also believe that banks should limit the amount of deposits on which
they pay interest. The accumulation of a large amount of time and
savings deposits has forced many banks to make unsafe loans and investments in order to employ the money. The ideal unit bank might be one
which pays no interest of any kind on deposits and carries at least
half of its assets in cash and early maturities of government and other
first class bonds. We found out during eight years spent as State
Superintendent of Banking: That loans in which officers or directors
had any interest were usually the poorest loans in the banks. Deposits
of trust funds and those payable on demand should be kept that way. A
bank is not a charitable institution and must makeaa profit. If the field
is too small for a profitable bank there should be/consolidation. We will
have fewer banks in the future and must have better banks.
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Federal Reserve Bank of St. Louis
,r
NZ
Discussion on Address of L. 4. Andrew
National Asso. of Supervisors of State Banks
55rd Annual Convention, Baltimore, Md., October 1934
******
***
J. S. Love (Mississippi): * * * * * * * * * * * * *
* * * * There are two questions: temnorary or permanent insurance;
second, whether a bank will continue on even under temporary or permanent insurance or shall go aut of business or become a member of the
Federal Reserve. We have only three banks out of a total of 212 banks,
including branches--only three members of the Federal Reserve System.
They don't like the Federal Reserve System, they don't see where the
Federal Reserve offers any inducement for them to come in; there is no
real point in becoming members of the Federal Reserve, on the contrary
some very good points why they ahould not become members. The Federal
Reserve is reasonably liberal on rediscaunting loans or eligible paper,
but who knows what eligible paper is? Very little of our paper seems
to be eligible and if a bank wants to borrow from the Federal Reserve
it has to put up more collateral. Rediscounting seems to be a thing of
the past. Furthermore, we have to do with the exchange charge and in
our country banks in Mississippi the exchange dharge is a vital item,
it furnishes at least one-third of the profits, and the banks are not
making very much money and if yau take away the exchange profits it will
really run them into the red; and unless and until the Federal Reserve
offers more inducement for members, I dont t see how banks are going to
become members of the Federal Reserve. Many bankers prefer to liquidate.
They see if they must become a member they will lose their profits, and
a bank to be safe must make money, and unless it does it is no longer a
safe institution. They are scarcel,y making any money today, and with
the exchange they are not getting will not break even; therefore, ean
not be classed as a safe bank. I believe banks prefer to liquidate
rather than be placed in the system.
* **** *** **
Really, what was the purpose of the insurance? To restore confidence. And confidence has been restored all over the country so why is
there needaf further insurance? To me it seems there is no further
need. If confidence has been restored there is no need for the permanent insurance, bringing the additional responsibility and choking our
institutions to death with taxation in an unlimited amount to pay the
depositors of some other bank we have nothing to do with. The insurance feature is all bosh. As a temporary emergency measure it was good,
but now it has accomplished its purpose and I think should be done away
with. That may be radical as well as different, but there are two things:
if we have insurance it should be temporary and gradually, as confidence
is restored, should be done away with. Certainly I don't think banks
should be forced into the Federal Reserve to be eligible for the insurance. Those are the two main things concerning us in Mississippi.
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Federal Reserve Bank of St. Louis
ni3
-2* ** * * * **
Mr. Barrett (Illinois): The first thing I think all of the commissioners in this room are aware of is that, regardless of whatever
the Federal Reserve may be, they are the predominant one because they
are the one who gives the Corporation its light. Regardless of what the
Federal Reserve or anyone else states, they are the men behind the scene.
During the moratorium, when the Federal Reserve licensed several Federal
members to reopen, our office determined they were not in a position to
reopen unless certain corrections were made and they did not reopen
until these corrections were made. However, I noticed in this morning's
paper an article advocating Government control of the Federal Reserve,
and that is just one of these circles we are working around in. The
present F. D. I. bill provides that every participating bank be a member
of the Federal Reserve and now the U. S. Government will step in and
dictate the policies of the Federal Reserve, which in time will be the
control of all the state banks. Personally, in the state of Illinois,
that is why many banks who are nothing but mere depositaries are
fighting this position of the government. Two of the largest banks in
the midwest with deposits of over $300,000,000--if an attempt of this'
nature is made will sell their stock in the Federal Reserve and try to
operate as individual units, and that is true of 85% of the banks in our
state. The big problem of this, Convention--the paramount question, is
what the 1(Tislature is going to do in Washington. The State Banking
authorities are a lot of puppets, the National government or whatever
board is selected is going to dictate the policies of state banks.
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Federal Reserve Bank of St. Louis
********
SOURCE:
THE CALIFORNIA BANKER--JUNE 1934
ADDRESS OF THE PRESIDENT--William A. Kennedy
:res., The First National Bank of Pomona
Pages 203-204
They say there should be a unified control of banks and not
the present dual system of state and national supervision under 49
different sets of laws. Theoretically that is a sound doctrine
and has much to recommend it. But I have reflected upon the
transition in recent years of our Federal Reserve banks from a great
central banking system created primarily as a reservoir of commercial
credit, to rediscount bank paper, to mobilize the gold reserves of the
country and issueOur currency.
Unified Control
I see this great institution gradually coming under political
influence, if not actual dominance, and departing from its original
function as a central reservoir of commercial credit and its investments
of a different character--long term bond issues instead of highly
liquid commercial paper. That many thoughtful bankers and noted
financial advisors and critics are seriously concerned aver this
definite trend and chenge, is seen by the outspoken criticism of many
eminent and conservative authorities, I shall quote from recent address es
by Dr. W. J. Carson and Dr. H. Parker Willis.
Quoting Dr. Carson: "While the powers of the Federal Reserve Board
over the reserve banks and member banks have been definitely strengthened,
the Federal Reserve Board itself is falling more and more under the
domination of the federal government. Indeed, for some time past, the
Federal Reserve system has been devoting itself to a very large extent
to the purchase of government securities in the open market and thereby
buying to aid the finances of the Treasury Department. And more recently,
permanent features of otherwise emergency legislation have resulted in
further direct encroachment by the government on the independence of the
Federal Reserve Board." *
kStructure and Powers of the Fed. Res. System in Evolution by Wm. J.
Carson, Asst. Prof. ofilnance, Wharton School, U. of Pe.--from Annals
of the Amer. Academy of Pol.441;
.afd Sociel 'Science, Jan. 1934
It is my firm belief that the Federal Reserve system as originally
established was the greatest banking system in the world.
Granted that the iederal Reserve system has rendered a public service
of enormous value by acting virtually as an underwriting and holding agency
for government operations in a national emergency, the fact remains that
148
it has to a great extent come under the control and domination of the
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Federal Reserve Bank of St. Louis
William A. Kennedy
Pages 205-204 (contd.)
Treasury Department to a degree never inten
ded by the Federal Reserve
Act. Under an elective form of government subje
ct to frequent change,
it is conceivable if not highly probable that
a political machine, not
always wise and beneficent, could assume contr
ol of the reserve system
and subject its machinery and resources to abuse
s in ways not pleasant
to contemplate.
Reserve
System
Controlled
Our national bank system up to this time has been
notably free from
political control and dictation. I can readily
visualize that under an
unified control this condition could quickly chang
e with no choice but that
of assumption by federal authority and that of autho
rity by change of
popular election in the hands of politicians.
We might readily see bank officers appointed
by those in power at
Washington just as postoffice and other appointmen
ts are now made. A
new form of dual banking could readily be devel
oped, that of ownership
of bank stocks by the government on one hand and
of political appointments
on the other. Such an opportunity for increased
patronage on a gigantic
scale would hardly escape the notice of those in
power at Washington or of
the Congress. While there are many disadvanta
ges in the present cumbersome
state and national bank laws, there is also
a degree of independence for
banks still possible, which bankers should
remember before climbing on the
bandwagon in favor of federal domination
of privately owned banks.
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Federal Reserve Bank of St. Louis
•
SOURCE:
ECONOMIC CONDITIONS, GOVERNMENTAL FINANCE, U.S. SECURITIES - 1934 Feb.
(The Nat. City Bk. of N.Y.)
Page 26
Owen D. Young's Views
Since the foregoing was written Mr. Owen D. Young has appeared
before the Senate Committee on Banking and Currency, at its invitation,
and given his testimony reEarding the bill. Mr. Young is a citizen of
personal distinction, but special interest attaches to his views in this
instance because he has been a member of the Board of Directors of the
Federal Reserve Bank of New York since 1921, and at present is serving as one
of the three members appointed by the Federal Reserve Board at Washington
to represent the United States Government, as provided by the Federal Reserve
Act. Replying to inquiries, Mr. Young expressed concern as to the effects
of the measure upon the Federal Reserve system. His opinion is concisely
stated in two paragraphs which we quote, with regret that we have not space
to quote the questions and replies following. He said:
then the influence over the credit volume of the country passes
from the Federal Reserve System to the Treasury, then the Federal
Reserve System is practically abolished. It still remains only, if
retained at all, as an administrative agency of the Treasury.
That is the reason why I think that you will have to be very
careful with this bill lest you destroy the Federal Reserve System,
perhaps unintentionally. Of course, so long as the Federal Reserve
System functions you will have two forces operating in the market.
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Federal Reserve Bank of St. Louis
-140
•
Remarks of Governor Thomas (Federal Reserve)
National Asso. of Supervisors of State Banks
35rd Annual Convention, Baltimore, Md., Oct. 1954
Gentlemen, I don't seem to have anything to say. I came here just
in time to hear your resolution. I was looking around to see if I
couldn't find a friend from Nebraska. I am sorry I couldn't be here
yesterday, I would have liked to have heard the discussion. I don't
want you to blame us for all the troubles of the administration or
charge us with all of its sins.
I took an interest in your resolution. I have known, probably, the
sentiment of the country and, since I have been on the board, we have
had plenty of troubles and are not wishing for more. We have no criticism to offer as far as the banks are concerned. I appreciate your
point of view, and naturally you want to retain your identity. On the
other hand, the board in Washington wants to reach out and get more
authority. It is in the lap of fate, and depends on Congress with its
wisdom.
I am glad to have this short visit with you. I wish / might
have heard the discussion of the commissioners on the resolution. I
might offer an alibi and say I am not a banker--that is not an apology,
I don't know whether it is an apology or a boast. Before I camehere,
for about four years, I was a lawyer and they were on the fire, and the
bankers are now on the fire. You have had your troubles, I am realizing
it in Washington, and I shall not feel bad about what you have said.
Congress will decide.
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Federal Reserve Bank of St. Louis
*** ** * * **
147
Proceedings of the 33rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 1934
****
****
D. W. Bates (Superintendent of Banks, Iowa): * * * * * * * * * *
* ********
Business generally is good. Mr. Barrett spoke of what is coming
out of Washin,Tton. I haven't as much fear of Wash'ngton as some of
the gentlemen seem to have. These fellows are made out of the same
kind of clay, and they have to go to Washington with our consent. They
have had some experience ac'ter returning home after putting upon us all
the legislation they did, and in my humble opinion a great many of
these august gentlemen will be a little more careful of just what legislation they do pass which is going to affect the banking situation of
the country.
******** **
The imrortant thing in the legislation at Washington is this, for
our mid-western country--these banks in towns of three thousand and
less shall still have the right to retain membership in the F. D. I. C.
without being forced to become members of the Federal Reserve. There
is no more use of a bank in a town of three thousand or less being a
member of the Federal Reserve than there is of my having three legs.
That legislation was fought day and ni,7.ht by Mr. Steagall, almost until
the close of that session. I was there a part of the time and I know
he fought desperately, but the best he could do was to get an extension
and an increase of the temporary fund to g5,000, with the hope that the
permanent fund will not be greater than P5,000.
There is a great deal of talk down in washington about a central
bank, and not only about a central bank but about putting the entire
system into the national system. Well, that may do in some of the
states in the Union, but in the mid-western country they will find
those farms and communities tv,ve been developed, not through the agencies
of the National Banking System but by the little town bank owned by the
community and with its support there, and if they destroy that they are
going back fifty years in the development of this country, and I do not
believe any Congressman has the guts to go to Congress and vote a thing
of that kind in the mid-western and in the far-west country.
********* *
H. . Koeneke (Bank Commissioner, Kansas): * * * * * * * * * * *
****** * ** *
I heartily agree with the Chairman as to what this body should do.
I do believe we'have been not properly represented in Washington. After
all, considering the figures our worthy Secretary quoted, the state banks
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Federal Reserve Bank of St. Louis
•
- 2of the United States control the larger part of the resources in all banks,
and why should not Congress take into consideration the position of the
state banks and State Banking System? I am very emphatically opposed to
a single system of banking and the only way the single system might
succeed would be to decentralize control of the single system. That of
course would not fit into the scheme of things the way I have heard it.
That is the only way I see that it could possibly be done. Take in Iowa,
Kansas and Southern Illinois and other agricultural states--you cantt
lay down a set of rules in Washington for New York, ?aryland and the
other states and still have it fit the mid-west. The only way the single
system could possibly succeed is to take away from the Comptroller of the
Currency the authority to classify the paper in the agricultural banks
and set up possibly a Deputy Comptroller with authority to supervise the
banks in his territory.
Secretary Sims: Gentlemen, I have a letter from the President of
the State Bnnk Division of the American Bankers Association:
"New York, October 3, 1934.
Mr. R. N. Sims,
c/o National Association of State Bank Supervisors.
Dear Mr. Sims:
It is with sincere regret that I find it impossible to
respond to your courteous invitation to meet with you in
Baltimore. I am sure it would afford me great pleasure to
be with you.
I want to express for and in behalf of the State Bank
Division our appreciation of the splendid cooperation and
support that you are giving our division in its various
objectives. Our interests are common and there is every
reason why this relationship should continue.
e are facing
the necessity of continuing the fight for the preservation
of the State Bank System as against unification. In this
effort we realize that your assistance is absolutely necessary and we are confident that we can depend upon it. We
hope to have you with us at 1Nashington after the close of
your meeting.
Cordially yours,
(Signed)
Clyde Hendrix, President,
State Bank Division."
***********
Secretary Sims: * * * * * Together, this Association can keep from
being trampled on. Oiat I said about the two systems of banks didn't
mean any criticism. The business of this country is big enough for us
both, all the country is big enough for the two systems, but we want
fair, square and just dealing--that is what we want to get over down in
Washington.
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Federal Reserve Bank of St. Louis
****** *** **
•
Address by Leo T. Crowley, Chairman,
Federal Deposit Insurance Corporation
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
***** *****
We appreciate the wholehearted cooperation we have received from
state banking authorities. Without it the Federal Del-osit Insurance
Corporation could not have accomplished iwany of its objectives. but
now I am fearful there may be a tendency to let down the bars a bit
and allow economically unsound banks to open. I cannot impress upon
you too strongly that if the state system of banking is to survive it
'aust be fundamentally strong. Its units murt be sound if the structure
as a whole is to be an dmportant part of our economic life.
It is my firm opinion that the state banking system can be as
strong and as important as any part of our system of banking if the
present trend is continued. Strengthened by funds from the Reconstruction Finance Corporation, which will be gradually replaced by local
money, buttressed by the Federal Deposit Insurance Corporation, and
properly supervised by state authorities, the state system is and will
continue a vital force in our financial life.
We
in that
in many
Federal
ties.
of the Federal Deposit Corporation come before you as partners
enterprise. Certainly no one, not even the bankers themselves
instances, is more interested in a strong state system than the
Deposit Insurance Corporation in view of its great responsibili-
**
*******
Our state banking systew was saved in 19:73 by Federal Deposit Insurance. Its continuance depends upon maintaining the integrity of this
insurance. Again that depends upon the effectiveness of banking supervision. The future must not merely duplicate the past. We have learned
our lesson. It is our job to see that there is no repetition of the
painful and disastrous experiences of the years between 19?1 and 1933,
either for the de ositors or for the bankers.
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Federal Reserve Bank of St. Louis
**********
Discussion following speeches by F. D. I. C. Officials
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
Mr. Broderick: May I refer back to the remarks. It is a very fine
staff you have with you this morning, and, so far as the State of New
York is concerned, it is not possible to have received more fair treatment or more constructive cooperation than we have had from your organization. 'ae have worked in perfect harmony and are very fortum5.te in our
choice of the Chief Examiner in New York acting for your Corporation being
an experienced examiner trained under one of the best examiners in the
country, and we are grateful to your organization for your cooperation
and arriving in constructive results in the State of New York. We have
a long ways to go. Looking back, we can see mistakes--looking back you
probably have a better view of the system we have had for twenty years.
The thing to do is to retain the best of the old and correct that which
is found wanting. It is a little difficult for a man in your position
and in oars, at times, not to use your official nosition for the furtherance
of ideas of your own. If there is one thing which helped to bring about
the condition ye have gone through more than the interest paid on deposits,
I don't know what it is. Certainly excessive dividends have been paid,
but speaking of the investment section of the East, the higher interest
paid on deposits forced these banks to invest in loans which carried more
than a fair business risk and to invest in securities which should not
have been in the 1 ortfolio of any institution. Banking institutions are
no different from ordinary business, the income determines them but the
theory is still correct, if the income is twenty shillings and the outgo
twenty-one, they are not making a success of it and the question arises
how to continue the institutions. Your remarks and those of your associates are very sound, but I would personally like to say something on
behalf of bank commissioners. They have received advice with the best
intentions, constructive and designed to help, and I know you have, as
I believe other government officials also have in mind, the big load has
been carried by the bank commissioners and the Comptroller of the Currency and upon them the duty rests to carry on, and may I say the debt
that is owed the bank commissioners of the states is one not understood.
They have been on the firing line for years, taken criticism and subjected
to all sorts of suits, both civil and otherwise, but they have carried
on and held the line and I do think they are entitled to praise as well
as criticism. Maybe we have too many institutions, maybe the system is
wrong--I don't know, but I believe in the maintenance of the two systems.
For twenty years I have advocated unit banking. My friends do not all
agree with that, but I am consistent in my belief that in unit banking
there is strength and if all institutions were members of the Federal Reserve it would be for the best interest of all, but I do not believe it
would be for the best interest of the banking institutions of this
country or their depositors to unify all banks in this country under the
National Banking System.
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Federal Reserve Bank of St. Louis
(117
•
- 2J. S. Love (Mississippi): I have listened with a great deal of interest to dr. Crowley's address and the discussions of his able assistants,
all of which has been of a great deal of benefit to me. I see one thing
in Mr. Crowley's address which appeals to me very much and I think to each
member of the Association: that is the question of the dual banking
system. If I understand what he has to say, he does not say it in so
many words, but he is in favor of the dual bankinp. system. We have gone
on record in this Convention, year after year, for the dual banking
system, knowing the country is sufficiently large to take care of and
maintain, and requires, both classes of service, state and national, and
if we continue to maintain and hold the dual system we must do some of
the things Mr. Crowley suggests. We must cooperate with the National
authorities, strengthen our banks, weeding out losses and make them
strong, efficient institutions. In other words, we must prove ourselves
and prove these banks--make them gufficiently sound to take a part in the
business of the government and the country and maintain their part in
carrying on. The only way we can do that is with the full cooperation
of the F. D. I. C. and its examiners and the R. F. C. in continuing to
build capital structure.
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Federal Reserve Bank of St. Louis
'
e
V
The Seattle Conference - Report by
Howard H. Hansen, Supervisor of Banking, Wash.
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1934
Just briefly about the compulsory membership reauirement: Mr. Sims'
re-ort shows over 10,000 state banks. Of these 10,000 (almost 11,000)
state banks only 975 are member banks, according to the Federal Reserve
Bulletin of kugust, 1934. That has the Federal Reserve to offer these
10,000 state banks not nor members? Rediscounting and borrowing
privileges, but other than that very little to offer the small bank.
The cost to the bank would just be an additional burden to them and in
many cases if a bank joined it would lose a aubstantial part of its
income.
The following is a resolution adopted at a recent conference of state
supervisory officials: (Wash., Ore., Montana, Idaho, North.Dakota)
"WHEREAS, the state banks of the several states exist and conduct
their business by virtue of state laws; and,
"WHEREAS, such state banking institutions have, for a period of
years been under the supervision and examination of departments created
by state law; and,
"WHEREAS, the several sunervisory derartments have, over a period
of years, accumulated essential information pertaining to each state
banking institution, its stock ownership, directorate and executive
officers, as well as an intimate knowledge of theeeonomic conditions
existing in and surrounding the communities served by such institutions;
and,
"wHEREAS, auch supervisory departments have in taeir employ experienced examiners who are conversant with the laws governing the conduct
of such banking institutions, the personnel responsible for their management and the various problems of each institution; and,
"WHEREAS, the creation and functioning of the Federal Reserve Bank,
the Reconstruction Finance Corporation and Federal Deposit Insurance
Corporation contemplates or has brought into practice a durlic.-tion of
examinations which has made or will make an unusual and unnecessary
demand upon the time of the executive officers and employees of the
state banking institutions and has or will materially increase the overhead expense of such institutions by reason of additional charges for
such examinations; and,
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Federal Reserve Bank of St. Louis
- 2"THEREAS, the undersigned state supervisory officials, in order to
accomplish the purposes set forth herein, hereby declare their willingness to adopt and use such uniform examination forms as may be adopted
or approved by said governmental agencies; and to furnish such agencies
with copies of such examination re, orts or other information requested;
and,
"WHEREAS, the duty and responsibility in the matter of compliance
with findings and reauirements of examiners rests with state supervisory
authorities,
"IT IS THEREFORE the sense of this meeting that each of the undersigned banking supervisory officials of the state designated recommends
that a discontinuance of the multiple examinations by other than state
supervisory departments of the several states with governmental agencies
be effected whereby the state supervisory authorities shall and will continue the examination of banking institutions under their supervision,
said examinations to be available for and supplied to each respective
governmental agency unon forms to be furnished or recomended by such
agency.
"AND FURTHERMORE, should any such governmental agency so elect, it
shall have the opportunity of designating a representative of its agency
to review such reports or examinations and to offer suggestions or make
reQuests for any corrective or remedial action which in its judgment
may properly be arplied or adopted l'or any institution; and,
"PROVIDED FURTHER, that such governmental agency shall have the
option at all times of making its own independent examination at any
time if such state supervisory denartment shall fail to conduct its
examination in accordance with the laws of the state or the recuirements
of the agency receiving such reuorts or shall fail to submit to such
governmental agency any rePort of examination made or recuested to be
made; and,
"IT IS HEREBY PROPOSED that a copy of this recommendation be
presented to the National Convention of state supervisory officials at
its meeting to be held in Baltimore, Maryland, during October, 1934."
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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 1954
*** ****
**
Wk. D. Gordon (Secretary of Banking, Pa.):
**** * ** **
In regard to preferred stock, I think our state has a relatively
small record in regard to the preferred stock sold to the R. F. C.
That is due to the fact that one of the requirements exacted of aur
banks was in many instances that they create a voting trust and turn
over the voting power to the R. F. C. When the banks were asked to
sell a certain amount of preferred stock to qualify for membership in
the Ir. D. I. C. they agreed to sell fifty or a hundred thousand dollars
worth, principally the small banks, and they insisted that was the condition under which they were taken in. A month or two months after
they were taken in, they were called to Washington and told who created
this voting trust giving the voting power to the R. F. C., and they went
back and discussed it with board members and invariably the members refused to pass it. Secondly, there is an agreement whereby in the
earlier statutes in the sale of preferred stock, it might be retired,
in Pennsylvania, with the consent of the R. F. C. or the Secretary of
Banking. As long as that remained in, the banks went along. They then
specified the articles of agreement had to be changed to say "with the
consent of the R. F. C. and the Secretary of Banking", which of course
meant I could be overruled. Then a third obstacle arose, it stated
that any new set of articles in connection with the sale of preferred
stock, that the preferred stock could not be retired by any bank unless
the entire amount outstanding was retired. If a bank borrowed $500,000
and felt they were liquid and strong enough to pay back some of the
money, they couldn't pay back and retire a penny's worth unless they
paid the full $500,000. With these provisions our bankers have refused to go in, with the result that relatively little preferred stock
has been sold in Pennsylvania. * * * * * * * * *
*********
L. Douglas Meredith (Commissioner of Banking and Insurance, Vt.):
*********
So far as the matter of centralization is concerned, no attention
is paid to it and I am surprised to find so much attention paid to it
here. You have a central bank now, in the R. F. C. and in the F. D. I. C.
You have merely been accepting it as a matter of fact. I have been
asked how soon I will accept F. D. I. C. examinations in the state examinations and my reply is: just as soon as the legislature authorized it.
So far as the Federal Reserve is concerned, we have no state member banks,
but if a banker came and asked my advice I would be inclined to urge him
to join. We have a few branch banks, and if a banker asked about two or
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Federal Reserve Bank of St. Louis
•
- 2three branches I should slap him on the back, and as far as centralization is concerned, with the matter as it stands the R. F. C. has voting
control with all banks in the F. D. I. C. and you might as well recognize
it is now highly centralized. We are pleased to note the F. D. I. C.
examinations are much better than those we were doing.
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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
********
Edward J. Barrett (Auditor of Public Accounts, Illinois): * * * *
In so far as banking legislation in our state, we haven't had any
in the past three years and will not until we have a definite opinion
of what Washington is going to do. We will not introduce or attempt to
introduce any legislation until the latter Dart of next May. The
Bankers' Association and our State government is in accord with that.
We don't wish to take a radical view, but if some of the measures suggested in the coming meeting of Congress are adopted, the Illinois
statP banks will completely divorce themselves from any helping hand
from Washington--and that is the Federal Reserve, F. D. I. C. and all
other branches.
Since I have had the supervision of banks we have only had six
failures, twenty-seven banks were put in voluntary liouidation and of
the six closed up, three are in the process of reorganization. Of
those closed one, at the time of closing, could have been consolidated
with another bank but there was one or two directors and stockholders
on the board of Vlis particular bank who thought to do a little sandbagging and realize something, and the result was that the institution
with which it was going to consolidate dropped it. Another bank, in a
100% solvent condition, was owned by an insurance company which went
into bankruptcy and so our dep4rtment took the bank over.
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Federal Reserve Bank of St. Louis
**********
4 4#
- .?r•
*Monetary Developments in the United States"
by Dr. Gaines T. Cartinhaur, New York University
CIourbal of the Canadian Bankers' Asso., April 1934)
* * * *•* * * * * * *
* * * * * * * Only the raising of the standards of banking practices,
wherever this may be necessary, will lead to the creation of a sounfi
banking system.
One risk which must be recogniped under derosit insurance during
norm' times is the eacouravment given to the assumption of increased
banking risks for the sake of higher profits. Without the restraining
influence or the effect of fotential lossee to del;ositors, bank manageaents may be tempted by risks offering higher but more speculative profits.
This may cause greater losses than in the past. Of course, it may be
pointed out that increased supervisory powers of the F.A.S. over its members and 1P.D.I.C. requirements are offsetting rectors, but increaaed supervision must be exercised effectively to offset the lossibilities of an unleashed profit motive among banks.
The structure as well as certain Anerican banking practices are in
great need of renovation in order to be in a better position to meet
problems which will arise in the Puture. Abolishing the payment of
interest on demand de,osits and the establishment of a maximum rate to
be paid on time deposits are desirable changes that have alrealy been
made and should stop the transferring of funls from bank to bank resulting
from over-bidding, secret or open, for a depositor's favor. Section 29 of
the Glase-Steagall Act, among others, which provides for the elimintion
of unsatisfactory bank officials by the Fednral Reserve Board on charges
brought before it by the Comptroller of the Currency, will be valuable if
this aceuired power is actually used.
In order to correct structural defects, all commercial banks should
be nationalized, and braught within the Federal Reverve System, minimum
capitalization limits should be raised, and legislation provided for a
substantial extension of branch banking within Federal Reserve Districts.
Branch banking extension is of vital importance. Literally thousands of
communities all ever the United States are destitute of banking facilitiee.
Furthermore, banking should be made a profession and it would stand
a better Chance of becoming professionalized if it were made up of large
branch systems. There is more reason for emphasizing the professional
aspect of banking at the present time than ever before. Not only has
banking increased in magnitude, but also in complexity.
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Federal Reserve Bank of St. Louis
p. 114
.1
SOURCE:
UPORT ON BANK6 OF DEPOSIT & DISCOUNT, ETC. - N.Y. 1954
Page 8
UNIFORMITY OF LAU AND SUPERVISION
The uniformity in supervisory policies which has been accomplished has been in keeping with the tread toward conforming state
and federal bankihg laws. Taking into coneideration amendmfints
'high were mtLde to the 1Lws of this State at the lest session of the
Legislature, state banks and trust companies are now subject to
substantially 'Lae seam legal requirements as apply to national
and state member banks. alch disparity as still exiets in banking
practices due tr difference in laws will tend to disappear as the
national program is earriird oat and ell banks having federal
deposit insurance become nombers of the 2ederal Reserve Systeal
aa they are required tc, do in order to renin deposit insurance after
July 1, 1957.
Ae indicated in 1Let yeLL-It re2ort, the present 6uperintendent
fmvora the unifiv,tion of banking through membership of all institutions in the Federal Reserve System. While a degree of cooperation presently exists between the various supervisory agencies,
greater coordination is inperative if conflicte bf policies are to
be avoided. Under prevent conditions the average institution finds
itself oubject to numeroue examinations ane. sometimes to ineonsiotent advice or directions of different supervieory authorities. If
the activities of all such federal authorities oould be centralised,
complete cooperation with the state authority could be acconplished. If this is not done, then a central authority with exclusive
jurisdiction over all banking institutions will probably result.
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Federal Reserve Bank of St. Louis
Aft2
"Is
isidress by L. A. Andrew, Iowa
National Asso. of Supervisors of State Banks
rd Annual Convention, Baltimore, Md., October 1934
We who have fought the unification of bankins idea have seea the
&lagers of that propaganda crystalize in prososals which hsve gone much
farther than any proposed unification of our banking structure. It has
been openly advocated, and may be realized sooner than many of us nor
think possible, that all banking in this country be done throush a branch
system of a new Central Bnnk or the present Federal Feserve Beak, government owned. In a way it le 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, graap end dhain banking and then concentrate on brutch
banking, finally themselves being forced into a stand with the unification of banking idea. In their fight, sany times during which Imtair
leatics were uaed and untrue statistics published, they failed to see
that, unjer the stress of public loss of confidence, such a campaign
wouist naturally lead the proponents of government banking into a favorsble
light. The arguments used for the unification of our banking system became (Wring the past year the arguments for the takIng over by the Government of all banking functions and the operation of branches of a Central
Bankieg System in all sections of the country.
In aur discussion of the future of the unit bank, we wish to tAcP
up a number of points in its favor and then prove that the Americsn Dual
Banking System is the best for the future development of this country,
as it has been in the past.
The unit country bunks 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 end development of the community in rhich it
. sts. We believe that few, if any, will dispute the statement that
the unit country bank has been ressonsible in a large measure for the
developsent of the community life of this country and for the success
sseividual effort in business. The unit bank is the heart of the *community and furnishes the circulation of the life blood of business. When
properly mansged it provides an ideal seteup for conservtng the cssh
assets of the community. and for loaning these assets out safely so that
the community roundabout is properly . eveloped and -susiness can hsve its
temporary needs for additional funds supplied by people who are familiar
with the oommunity problems. Of course, unit bankers have made mistakes.
These mistakes, however, hose been caused in most cases by a too
optimistic belief in their own community. The losses sustained by the
unit bank were those which yere brought about bs a great economic change
over which neither the banker nor the customer hA any control. It ia
now apparent that many of these losses could hsve been avoided by more
cereful management. However, the mistakes of juAsment made by the
country unit banker sere 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
0
** * * * * * *
The question of whether the State Bank System shall be destroyed
and about half the banks of this country 7ut out of business is
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 hys,teria. The fight regarding the
American Dual System of Bqnking 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
e careful analysis of the issue shows thst the ultimate result of this
tittle, if it should be lost by the state bankere, will be the placing
of seven or eight large branch banking organi7ations 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 th,J, 3ne 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 carsable of handling prorositions of this size. It is hoped
that, until these super-bankers srP educAed in the improved Berle
fashion, this danger will not materialize. Those who are using the
propaganda thiit the unit co:Titry bank Ivis been a failure are vatting
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 7:,osition. They say that the unit country bank
has been a failure, ane..! that the large number of failures among the
small,,r 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 unJer the Federal Reserve System,
another angle in attack against the unit eountry bank, is equally inleclasible. The Federal Reserve System should have the support of all
large comm -rcial banks, and every bank doing a commc.rcial business with
resources of over a million dollars should belong to the system, but
slny effort to compel all the unit country banks to belong would not
be
wise or even desirable from the Federal Reserve viewpoint. It would add
infinitely to the detail and responsibility o' the system without
material benefit; in fact, the best posted men rith 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 czn be
tAon cqre of better by the use of corrFspondent banks in Reservv cen
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Federal Reserve Bank of St. Louis
*** * ****
Address of J. S. Brock, President,
National Asso. of Supervisors of State Banks
33rd Annual Convention, Baltimore, Md., October 1954
*** * * * * * * *
There were instances in 1933 when different Federal bank exaainers
would examine the same state bank within a few months of each other and
their estimated losses would differ from one hundred to three hundred
per centum. An examiner from the Reconstruction Finance Corporation
would follow up an examination made by examiners of the Federal Derosit
Insurance Corporation and show absolutely different results. How can
a Georgia native knor the value of South Louisiana agricultural lands
after he comes direct from examining banks in Georgia? Or a New Tork
examiner know the value of Oregon real estate? In 1933 value was
indeed an abstruse word.
In the city of Baton Rouge, Louisiana, there were four comparatively
large banks: three state banks and one national bank. One of the state
banks was wholly owned by the national bank and was absorbed by this
national bank, making one hundred per cent available to its depositors.
The other two state banks, always considered as two of the very best
banks in the state, whose resources equalled some sixty per cent of the
four banks combined, not being members of the Federal Reserve System
because past experience had proved to them that it was expensive and
inexpedient, were forced, because of the actions taken by the Federal
authorities, to misunderstanding on the part of the public generally and
to fear on the part of the directing officials of the banks, to remain
on a restricted basis of operation. These two banks eventually pooled
their resources because of these restrictions ani formed a natioaal bank,
one of the banks paying fifty cents to the depositors and the other
seventy-five cents. If these two good banks (and they were--I had examined them for two decades) had been treated the same as the national
bank--and they were twice as large--then the banks would never have been
closed, the depositors would have received 100 cents on the dollar, and
the stockholders would not have taken such tremendous losses. This state
chartered savings affiliate was under my supervision, therefore I am
entirely certain of my statement. When these reorganizations were
effected during the middle of 1933, values were lor and, literally, a
wringing-out process was had. The ner bank had ninety per cent of its
assets represented by cash and United States bonds. This is just one
opt of hundreds of similar instances. How can the United States government, heving no knowledge of the sixty per cent of the banking facilities
of Baton Rouge, go to that city and, without giving a hearing of any
kind to the sixty per cent, save the forty per cent anl destroy the sixty?
*********
When the Federal authorities took over all the banks during the
national banking holidays, our work, which had been, up to that time,
practically a night and day affair, began to be continuous. It appeared
that whatever direction we turned we encountered fresh and more dangerous obstacles. When the state member banks in certain cities were
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Federal Reserve Bank of St. Louis
- 2not licensed to open, we faund ourselves in practically an impossible
position. Our hands were tied. By not granting licenses after the
banking holidays to open unrestrictedly the Federal government in New
Orleans alone had closed three of the largest Reserve city banks in
the south that carried hundreds of accounts of smaller banks. The two
larger of these banks have &lace proven in court, daring official investigation, that they were in a solvent condition. For years and years
my department had been making examinations of those banks, yet the
Federal authorities did not see fit to counsel with us, nor did they so
much as say one word to the State Department hefore taking the action
that they did take, and the one that brought about what trouble we had
during the year 1935.
** * ** * * **
Only the State non--ember banks throughout the United States were
examined by the Federal Deposit Insurance Corporation examiners, and all
national banks and State member banks of the Federal Reserve System were
automatically allowed to enter 1934 as members of the Temporary Deposit
Insurance FUnd. In other words our state banks--with all their tremendous
resources present and potential--had to place themselves in an min,peachable financial condition before they could be approved by the Federal
authorities, whereas it was apparently a foregoes conclusion that national
banks were entirely safe and solvent.
The member banks of the Federal Deposit Insurance Corporation will
contribute to the upkeep of the Insurance Fund fees based on deposit
liability. Is it fair to make two-thirds of the banking resources of the
United States clean house thoroughly and completely, and then in the
nature, after thousands of stockholders and millions of depositors have
sustained losses because of the house cleanings to also expect them to
pay the freight on the same basis as the remaining third that have not
been required to clean house thoroughly and completely?
*** ******
I do feel we need representation, particularly at the next session
of Congrees, for the state banks. We saw what came of this meeting in
Washington last time, and in my opinion we ahould have had more
authority and certainly there is going to be an onslaught of legislation
in regard to a central bank and the centralization of banking, many
phases which will directly affect state banks, and since we are their
guardians I tl'iak it behooves us to prepare aurselves to intelligent4
present facts and also definite policies regarding anything that say be'
brought up. /n other words, for us to learn as we did abaut the guarantee bill after it had passed, and we were told that member banks and
national banks were automatically admitted to the F. D. I. C. while state
non-member banks had to pass the test and have the approval of the Commissioners of Banking and in turn be passed upon by government authorities-that was autright discrimination against state banks. Fortunately, the
man on the board were fair and broad mlnded in their interpretation, and
I haven't heard of a single complaint from the banking commissioners regarding the treatment accorded state non-member banks in their districts.
Nevertheless, we want to be forewarned and forearmed. We need someone to
represent us in Washington. * * * * * * * * *
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Federal Reserve Bank of St. Louis
Proceedings of the 37,rd Annual Convention
National Asso. of Supervisors of State Banks
Baltimore, October 19M
* * * * * ***
R. E. Oormely (Superintendent of Bnrks, 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 simil-r attempt will be
made at the coming session during the early part of 1955 but I very much
doubt it will be successful. The nosition of the independent banks in
Georgia is that they are strong and able to overcome eny effort to repeal the prohibition against branch banking.
Like the gentleman from Connecticut, re are 1.0.re alarmed over the
possibilities of what may 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
Federal 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 earnings in non-member state banks
and I do not see how the =verage small bank can exist without it. Any
attempt to force Federal Reserve membership on non-assber banks will result in the withdrawal from the F. D. I. C. of approximately 75% of aur
banks.
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Federal Reserve Bank of St. Louis
* * * * * ***
•
SOURCE:
ANNUAL REPORT OF THE COMMISSIONER OF BANKS FOR MASS.PART II - 1954
-eage vii
2. Reorganizations
In the last annual report, it is stated:
"Efforts are now being undertaken to further reorganize
this whole situation with a view of effecting additional
releases to depositors of the trust company and by reopening the trust company as a going institution and
place the stock of these banks into individual ownership.
The early enactment of the county wide branch banking bill
recommended by the Special Commission for the study of
the banking structure will materially assist in the
development of such a plan, particularly in so far as
the smaller affiliated banks are concerned."
This branch banking legislation was enacted and became law on June
29, 1934. On September 19, 1954, a plan was approved by the Federal
Reserve authorities, the Supreme Judicial Court and the Commissioner
of Banks providing for the combination of the assets of these five
banking institutions into one under the charter of Wprcester Bank
& Trust Company. As a result, Worcester Bank & Trust Company was
reopened under the name of "Worcester County Trust Company" and
branches were established under the new branch banking law in the
offices formerly occupied by the affiliated banks. The reorganized
bank has deposits and trust departrent business aggregating in
excess of $70,000,000 and possessAmsound capital structure of over
$4,000,000. The capital stock consists of $2,000,000 of Class "A"
preferred and $1,000,000 of common. As part of the plan, each
holder of a Class "A" certificate in Worcester Depositors' Corporation received an additional cash release 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 certificate. * * *
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Federal Reserve Bank of St. Louis
•
4/1
SOURCE:
REPORT OF BANKS OF DEPOSIT & DISCOUNT, ETC. - N.Y. 1934
BRANCH
BANKING
Page 7,
* **** ***
The Stephens Branch Bank Act should be helpful not only in
providing banking services in communities where no bank is
presently located, but also as a means of strengthening the entire
system by the conversion of uneconomic units into branch offices
of other institutions. thile some progress in this direction has
already been made, much still remains to be accomplished. It
should be borne in mind that no matter how strong an individual
unit may be, continued operation at a loss will eventually jeopardize
the security of its depositors. A tentative surve:y indicates that in
various sections of the State consolidations are possible which
would result in the rendering of improved banking service at lower
costs, thus permitting a margin of profit affording better protection
to depositors.
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Federal Reserve Bank of St. Louis
eft tr?
• Ikki
•
SOURCE:
THE TARHEEL BANKER - N.C. BANKERS ASSOCIATION PROCEEDINGS
JUNE 1934
BANK MANAGEMENT PROBLEMS - by 0. Howard Wolfe, Cashier, Phila. Nat. Bank.
Page 37
GROUPS STUDYING PROBLEMS
There is at the present time a Federal Legislative Committee of
the American Bankers Association, and a Commission on Banking Laws
and Practices, consisting of members of the Association of Reserve
City Bankers. These two groups have been giving serious and careful study and attention to definite banking problems, and I am
satisfied that they will bring in reports and recommendations based
upon inescapable facts and sound conclusions. And I am equally
convinced that when and if a program so based is presented, there
will be bankers from all over the country who will rise to attack
every item in that program. Most of these attacks will be based
upon purely selfish interests and short-sighted objections, or upon
sheer ignorance of the problems presented or a total disregard of
the clear lessons of the past ten years. That has been the experience
whenever banking legislation is presented by bankers themselves, and
I am hopeful that we may be able at least once in the history of bank
organizations, to unite upon a program.
***** ***
I look for some proposals in the direction of a unified banking
system. I do not mean to suggest that all banks will be national
banks, or that state bank systems will be suspended. I do believe,
however, that every commercial bank should be a member of the Federal
Reserve System, and that such membership should depend not upon the
source of the charter, but upon the character of business transacted.
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Federal Reserve Bank of St. Louis
SOURCE:
REPORT ON BANKS OF DEPOSIT & DISCOUNT, ETC. - N.Y. 1934
BRANCH
BANKING
Page 24 (Banking Board)
The Stephens Act, dividing the state into nine districts and permitting branch banking by banks and trust companies within such
districts, has now been a law for about seven 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 banking under its terms. This
principle the Board has kept constant4 in mind in the exercise of
its power under the Act to approve or disapprove applications for
branches. Not only has the Board weighed with the utmost care
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 between state and national systems. The continuance of this policy is not only advisable but imperative if
branch banking is to develop on a sound basis. For the purposes
of determining in what communities and under what conditions
there is to be a further expansion of banking facilities, all the
banks of the State must be treated as belonging to one system. The
single purpose of providing sound and adequate banking facilities
for all sections of the State cannot be achieved in the absence of
cooperation between the two agencies which are authorized to permit
the formation of new banks or branches.
The belief of the Board in this principle is reflected in a resolution adopted March 23, 1933 pursuant to which the Board memorialized Congress to incorporate in any amendment to the Federal
banking laws provisions requiring the approval of state authorities for the establishment of a national bank or branch thereof in
any community served by a state bank or trust company, provided the State would likewise enact legislation requiring the
approval of the Federal authorities for the establishment of a state
bank or trust company or branch thereof in any community served
by a national bank.
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Federal Reserve Bank of St. Louis
28
Address by L. E. Birdzell, General Counsel,
Federal Deposit Ineurance Corporation.
Convention of Michigan Bankers Asso., June 22, 1934.
(Michigan Investor, July 7, 1934)
*********
Again, our system of banking, while unlike the Canadian system up
to the present time, through the medium of the Federal Deposit Insurance
Corporation, now presents a striking analogy to that of our neighbors to
the north. This has been accomplished without sacrificing unit banking,
which is so strongly favored in many states. The same fundamental safeguard now exists in both systems--that risks and losses shall not be
localized in the individual banks, but shall be spread over the entire
banking system. Upon this principle has been founded the vast insurance
portection now given our people--insurance against the hazards of fires,
earthquakes, floods and other calamities, and even against death, the
inevitable destiny of every one of us. And, as the preceding speaker
has said, if we had had the principle that is embodied in this law in
effect during the past ten-year period, it is doubtful whether any one
of us would have lost a dollar on account of the failure of our banks.
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Federal Reserve Bank of St. Louis
****
*****
"Closed and Distressed Banks"
A Study in Public Administration
by Uphan and Lamke
Brookia66 Institution - 1964
RFC Loz..ns to Closed Banks
r)
remaizied closet/ iifter the bank
Approxiiii6tely
6ere
state
cant
institutions. These closed
holiaays of which about 75 per
tau
of
cant
restrictou
deposiL,. Obviously,
state 1),Aakis held about 55 per
have
not
received their proportionate
taerefore, closed state institutions
share of RFC funds.
* * § * 4 51
oa the Corporation,
The blame for -this condition should not bc
however. National institutions to,ve benefited relatively acre because of
the possibility of close co-opar,tion with tao Co-ptrolier's office and
because of tae relatively greatvr difficulty of securing co-operation fron
p:.ssed .L4i41-tion auLhorizing
48 stt:te supervisors. Aoreover,
liquioators of closed national banks to Wire lull advmatage of this RFC
On the other hand,
service at the tins tue Corporatioa was
state legislatures wer naturally sio6er in doing :mos and i DOW states
court decisions aer necessary to uetermiae the riznt of closed state
banks to borroa.
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Federal Reserve Bank of St. Louis
SOURCE:
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 17, 1934
Address of President of State Bank Division, Clyde Hendrix, President
Tenn. Valley Bank, Decatur, Ala.
Pao 55
The State Bank Division has a heavy program ahead which will
afford its membership many opportunities for active service. Among
the more important objectives and the means for reaching them, it is
recommended:
1. That we continue to fight aggressively for the preservation
of the State Banking System as against any form of bureaucratic centralization.
2. That we take uuch steps as may be necessary in order to bring
about a further amendment to the Banking Act of 1955, modifying it so as
to not require nonmember State banks to become members of the Federal
Reserve pystem in order to continue their deposit insurance; and, if
possible, limit assessments to a fixed maximum within the ability of banks
to pay.
5. That we use our influence to bring about the co-ordination of
examinations by the several supervising authorities, with perhaps a revision
of standards and classifications.
4. That we continue to emphasize and develop better bank management through institutes and conferences and otherwise.
5. That we urge the putting into practice of reasonable stop-loss
that banking
and service charges and seek new sources for earnings, in order
profit.
operations may show a reasonable
6. That we encourage the appointment of competent State supervisors,
with adequate pay, and that we advocate that banking departments be removed
as far as is possible from political influence.
7. That we insist on greater care being exercised in the granting
the State supervisors and
of new charters, with a closer co-operation between
.
the Comptroller of the Currency with reference thereto
8. That we continue our program of promoting more uniform State
banking laws.
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Federal Reserve Bank of St. Louis
r
Address by L. A. Andrew,
State Bank Commissioner of Iowa,
37th Annual Convention, Indiana Bankers Asso., June 1953
(The Hoosier Banker, July 1933)
***** *****
"The American dual system of banking," said Mr. Andrew, "has proved
a success for over sixty years. Banks under state supervision in our
forty-eight states and banks under national supervision have gone along
year after year, serving not only their own communities, but the country
as a whole, and responsible, to a great extent, for the development of
the country.
"The unit bank, which in a large measure makes up this dual system
or banking, is now attacked by those in favor of the foreign systems of
banking, and an effort is being made to destroy the unit country bank
as it exists today and has existed for many years. The unit country bank,
whether national or state, owned and officered by men who have their
homes in the community where the bank is located, has been the greatest
factor in building up that community. It has prospered with the people
anri suffered with them from the depressions which have affected their
community.
"These so-called country banks have gathered together the savings
of their communities and used them in a large measure to build up their
home towns and the country roundabout. It has been an ideal financial
setup, both for the bankers and the customer. Mistakes may have been
made, but mistakes have been made in our large city banking. Unit
country banking has had its share of failures, because people who owed
the bank could not pay their obligations on account of world-wide
economic conditions over which they or their bank had no control.
"The fight against the unit country bank and the American dual
system of banking has been going on now for several years, but t-nis
fight has been intensified during the past year by the crisis existing
on account of the depression. Those who wish to destroy the American
dual system of banking have taken advantage of this great depression,
and, by making use of the hysteria resulting from the failure of American
business and untrue propaganda, have tried to bring the unit country bank
into great disfavor. This has gone so far that the ridiculous statement
has been made that the unit country bank has proved a failure. It has
not proved a failure any more than Federal Reserve banks, large national
banks, branch banking, group banking and chain bankinr, as the official
records will prove. For some reason the unit banker has gone along
attending to his business and has allowed this untrue propaganda to
spread day after day without proper denial. Now we are confronted with
a fight for the very existence of the unit country bank, both national
and state. We fought the first battle last year when Section 19 of the
Glass Bill would have put out of business all small national and state
banks. We were told that Section 19 was sure of being enacted in the
law. The unit banker was aroused, however, Con,Tress heard from the folks
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Federal Reserve Bank of St. Louis
t3
—
to'
—
back home, and Section 19 was defeated. Then those who have been fighting
the unit country bank changed their attack and proposed a unification of
our banking system. Ridiculous as it may seem, this unification of
banking idea proposed the destruction of half of our banks, making
membership in the Federal Reserve System the necessary attribute of every
bank in order for it to do business. Now the Federal Reserve System is
a wonderful institution, but it was never conceived with the idea of
being the entire banking system of the United States. As this part of
the prograw progressed and the bank deposit guaranty scheme was hung
unto the Federal Reserve System, with the confiscation of half the
earned surplus of the Federal Reserve banks, there was quite a change
of opinion. However, the hysteria to destroy continur,s and the unit
country bank is in greater danger today of being exterminated than at
any time during the period of its useful existence.
"Those of us who believe in the American dual system of banking
and those of us who wish to preserve the unit country bank may as well
realize now before it is too late that we have a fight on our hands.
The propaganda to destroy the American system and to put in its place
the foreign system, represented primarily by Canada and England, is
beIng pushed by powerful interests with plenty of money for promotion
purposes. State-wide branch banking is the first step in the program,
next comes so-called trade area branch banking, and then follows, as a
matter of course, nation-ride branch banking with seven or eight large
systems having three or four thouzand branches each.
"Don't misunierstand me in thinking that we say this is an
admiaistration program--it is not. We have in Washinwton tolay the
smartest politics that have been there for many years. We are reliably
informed that the administration is not in favor of even statewide branch
banking and, in fact, has hesitated at even the deposit insurance or
guaranty proposition. The fight against the unit country bank is not
political, but is a fight that large interests are making to concentrate
the banking power of this cauntry in a fer hands. The campaigning is
cleverly manipulated, untrue propaganda is spread broadcast and the unit
banker fighting for his life is confused by the rapid changes in the
form of attack. The primary idea, of course, is to control all the
bankinginterastsofthis country by one bureau in Washington. Wise national
bankers have known for years that the best check they hal upon unwise
national bank regulation was the state bank systems, in that the state
bank systems were not more lenient, but that they were a constant check
against national legislation which might seriously interfere with
national banks. It is nearly inconceivable that any man with a knowledge
of Washington bureaucracy would want the entire financial resources of
this country tied up in one politically governed bureau in Washington.
"The movement to put all banks under the Federal Reserve System,
another aryale in the attack against the unit country bank, is ecually
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 would not be wise
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Federal Reserve Bank of St. Louis
-3or 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."
"The recent acute period of our banking trouble followed by the
President's holiday was brought on mainly by the failure of several of
our largest ban'
,
_s not in any state system. In fact a total lack of
confidence in the large reserve banks in New York and Chicago and a
total collapse of the entire banking system showed that the people of
the country have no more confidence in so-called 'bigness' than they
have in the unit country bank."
** * *****
"It may be that one of the main reasons for this propaganda against
the unit country bank is the apparent ease that 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 States in the stock market manipulations which may result if we
have any large concentration of banking power through branch bank
systems. This is a phase ofthe subject deserving careful study and
is a real danger.
"The American dual system of banking with thousands of unit country
banks, both national and state, are going to fight for the continuation
of their existence. All they want is the opportunity to continue to be
of service to their communities, to continue to have a large part in
the building of their cauntry. They are Americans that are in favor of
American banking. They have worked for two generations in many places
to build ur safe and helpful banks. They protest against the use of
depression hysteria to destroy their business. They have the right to
demand, at the very least, a careful study of the entire situation
before Congress takes action. The official records show that the unit
bank has not been a failure. Paid propagandists with selfish interests
to promote have continually misrepresented the situation. The millions
of the folks back home who have prospered with the unit bank and who
have suffered when they were unable to pay their obligations, causing
the unit bank troubles, are ready to fight for a continuation of the
American system. They need to be aroused because their communities are
in dani7er of losing the greatest factor in their success. The unit
country banker needs today more than ever before the fighting suirit
of the pioneers, and with this fighting spirit he must have continued
faith, not only in his country, but in his bank and in himself."
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Federal Reserve Bank of St. Louis
or
"Recent Federal Banking Legislation"
Address by Col. James L. Walsh,
Ex. Vice Pres., Guardian Detroit Union Group, Inc.
46th Annual Convention, Michigan Bankcrs Asso., July, 1932
(Michigan Investor, July P3, 1932)
********
In the rerort of the National Industrial Conference Board, published
in June 1932, and characterized by the customary marshalling of all
pertinent facts and conservatism of statement which we have come to expect from that unprejudiced organization, we find the following conclusions:
"If the test of a sound banking system is its ability to
maintain its position and usefulness through economic adversity as well as prosperity, the American banking system
failed signally in recent years. The failure of the banking
system to function satisfactorily under conditions of business depression revealed two serious defects. First, it
showed that the functional changes in the banking system
that had brought it into closer relations with the security
markets involved manifold risks. Second, it revealed clearly
the structural weakness of a local independent unit banking
system, especially the one-sided character of the burden of
maintaining that system in smaller communities."
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* ** * ****
•
THE MISSISSIPPI BANKER -- June 1932
SEES BANKING UNIFICATION AS THREAT TO ECONOMIC FREEDOM--by Rudolf S. Hecht
Pages 19-20
Attacking official proposals at Washington to force all commercial
banking under Federal control, Rudolf S. Hecht of New Orleans told the
meeting of the Chamber of Commerce of the United States here today
that even if this idea "could be shown to be 100 per cent desirable on
purely banking grounds, the main question would remain as to how heavy
a price would be paid for it in terms of further encroachments of central
government domination aver private business and surrender of local
financial independence." He made a strong plea for the preservation of
the present plan of alternative state or national charters and supervision for banks.
°Complete banking unification would constitute abandonment of our
traditional defenses against over-centralized government", declared
Mr. Hecht, who is president of the Hibernia Bank & Trust Company and
chairman of the Economic Policy Commission of the American Bankers
Association. "Effectively centralized control over credit would mean
potential dominance over the very lives and liberties of the people."
He argued that the multiplicity of political jurisdictions in the
United States, especially in the dual division of authority between
state and national government, is inseparably a part of American
political security against over-centralization and the dual banking
system of state and national banks carries this out in the financial
field.
The nationel interests in respect to Federal government currency, fiscal
and other financial requirements, he said, were fully provided for by the
National Bank and Federal Reserve Systems and to consolidate central
government influence over banking any further would carry it too far.
"Continuation of the state banking systems enables business if it
chooses to conduct its financial affairs in entire independence of
federal influence", Mr. Hecht continued. "To bring all commercial
banking under Federal control would destroy this safeguard. It would
create opportunities for lines of political thought that do not now
exist, and opportunity inevitably becomes temptation, and temptation,
long enough continued seldom fails to become action sooner or later.
"The traditional aanctity that surrounds the Presidency and its zone
of administrative influence for bids picturing the possibility of a
national political regime using the power made possible by unified control
over all, commercial banking for base purposes or political manipulation.
But it does not forbid the general observations that the government has
a long time to live, that generations come and go, that even honest
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•
THE MISSISSIPPI BANKER -- June 1932
SEES BANKING UNIFICATION AS THREAT TO ECONOMIC FREEDOM--by Rudolf S. Hecht
Pages 19-20
Attacking official proposals at Washington to force all commercial
banking under Federal control, Rudolf S. Hecht of New Orleans told the
meeting of the Chamber of Commerce of the United States here today
that even if this idea "could be shown to be 100 per cent desirable on
purely banking grounds, the main question would remain as to how heavy
a price would be paid for it in terms of further encroachments of central
government domination over private business and surrender of local
financial independence." He made a strong plea for the preservation of
the present plan of alternative state or national charters and supervision for banks.
"Complete banking unification would constitute abandonment of our
traditional defenses against over-centralized government", declared
Mr. Hecht, who is president of the Hibernia Bank & Trust Company and
chairman of the Economic Policy Commission of the American Bankers
Association. "Effectively centralized control over credit would mean
potential dominance over the very lives and liberties of the people."
He argued that the multiplicity of political jurisdictions in the
United States, especially in the dual division of authority between
state and national government, is inseparably a part of American
political security against over-centralization and the dual banking
system of state and national banks carries this out in the financial
field.
The national interests in respect to Federal government currency, fiscal
and other financial requirements, he said, were fully provided for by the
National Bank and Federal Reserve Systems and to consolidate central
government influence over banking any further would carry it too far.
"Continuation of the state banking systems enables business if it
chooses to conduct its financial affairs in entire independence of
federal influence", Mr. Hecht continued. "To bring all commercial
banking under Federal control would destroy this safeguard. It would
create opportunities for lines of political thought that do not now
exist, and opportunity inevitably becomes temptation, and temptation,
long enough continued seldom fails to become action sooner or later.
"The traditional sanctity that surrounds the Presidency and its zone
of administrative influence for bids picturing the possibility of a
national political regime using the power made possible by unified control
over all, commercial banking for base purposes or political manipulation.
But it does not forbid the general observations that the government has
a long time to live, that generations come and go, that even honest
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Federal Reserve Bank of St. Louis
•••,‘•••••
The Mississippi Banker--June 1952
Rudolf S. Hecht
Pages 19-20 (contd.)
statesmanship may unconsciously fall under evil influence, that
human nature swings through wide extremes, and there is no telling
what changes in the state of political morals the future may witness.
"Ours is a government of checks and balances and the fact that
banking has free choice whether it shall render its services to the
people under Federal or state charter is one of the most important of
these. To force all commercial banks under Federal control by
abolishing the power of the states to cherter them would shut off
escape for banking from any bureaucratic tyranny or political coercion
that might conceivably arise. The fact that almost without exception,
particularly in recent years, Federal bank officials have been
characterized by the highest ideals of public service under the dliAl
banking system in the past, does not guerantee thet others would not
display a different attitude under a single unescapable system in the
future."
Mr. Hecht pointed out that all credit basically is local in
character, that inter-state trade does not demand a particular type
l'Agp 22 of inter-state financial function and that its free flow is in no
way hampered by the present multiplicity of banking jurisdictions
which it encounters. He also declared that, although statistically
banks under Federal auspices in the Federal Reserve and National
Systems had made a better record in respect to failures than state
banks, nevertheless even there the record was "so far from satisfactory as to fail to show that the mere transfer of our banking
from state to central government jurisdiction into a single unified
system would uupply the remedy for our banking troubles." The
remedy, he said, %as to preserve the dual system and to bring all
codes and supervisions up to the best standards that can be found in
either system.
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•
SOURCE:
EHE MISSISSIPPI BANKER,-JUNE 1955
PRESIDENT'S ANNUAL ADDRESS, Before the Mississippi Bankers Convention
May 25, 1955, at Jackson, Mississippi, G. M. McWilliams, Pres.
lgges 5-5
Reformation of the banking business is an important part in
There are important and responsible authorities who
program.
this
of aur banking system, and state wide branch
unification
advocate
authorities charge that the dual banking
of
these
Some
banking.
factor to the depression. I
contributing
important
an
system is
sustained by the facts. The
be
can
charge
a
such
do not believe
revealed weaknesses in both
have
years
few
the
past
experiences of
this country have justified
of
Systems
Banking
systems. The State
protected as it constitutes
be
should
system
the
their existence, and
of the banking capital
part
major
the
far
by
in point of resources
be
can
accomplished through
unification
Moreover,
of the nation.
destroying the dual
without
System
Reserve
membership in the Federal
our banking
of
unification
that
system. I am firmly convinced
future progress
the
to
but
necessary
resources is not only desirable
believe this
I
sincerely
and
and security of the banking business,
protection
ample
Convention should memoralize the Congress to give
to,and preserve thdpategrity of state banks in apy banking legislation
that it may consider for the unification of the nations banking resources.
I advocate branch banking ltmited to trade areas between fifty to one
hundred miles as a means of making safe and adequate banking facilities
available to communities unable to profitably support an independent
unit bank. If such a system had been authorized in Mississippi four
years ago, much of our banking difficulties since 1929 could have been
avoided. I trust the Bank Study Commission authorized by the last
Legislature of Mississippi will provide in it revision of our banking
laws authority to engage in branch banking restricted to definite
trade areas.
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•
bOURCE:
THE TARHEEL BANKER - N.C. Bankers Association Proceedings
October 1953
YOUR CUSTOMERS AND YOUR BANK - by Dr. Harold Stonier, National
Educational Director A.I.B.
Pages 36-37
* *** *****
It
But people do not sense the stability of American banking. They
see only its record of failure. They do not realize that failure
in America is a corollary to our speed. We have had 2,000 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
America." When people say, "Well, look at the British system, that
is what we should have", they do not realize 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 ranging from New York to New
Orleans. We had a strong centralized 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 America would not have
developed as it has developed west of Pitt3burgh or south of Washington,
D.C., if we had continued with the British banking system in the
United States.
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 which America has been
operating. Don't let people tell you that the American banking
system has 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 had. Since then we have evolved a banking system which
can still be improved, but improved not so much by law until the
custom and economic objectives of our people are changed.
We Americans are gamblers. The British gamble only on horse races.
We gamble 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 Englishman wants his banking system
to be inflexible, conservative. The British system never would have
worked in America.
After all, if we have any criticism of the banking system of America,
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The Tarheel Banker - Oct. 1933
Dr. Harold Stonier
Pages 56-37 (contd.)
it is the same criticism that we can direct against America herself.
If we are ashamed of our bankina system, we have the same right to
be ashamed of our country. We have the largest number of banks over
100 years of age of any country in the world. We have the largest number
of banks over 50 years of age of any country in the world--banks which
have gone through things, which are seasoned institutions. We have
thousands of others just as liouid, just as stable as they are, which
have been serving the American public well for shorter pekiods of time.
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•
SOURCE:
MASSACHUSETTS COMMISLIONER OF BANKS - ANNUAL REPORT 1933
Part I, relating to Svgs Bks and Institutions for Svgs.
Pag.es
*
This is apparently, by indirection, the beginning of the unification of the banking system of the country and its supervision by
Federal authorities. The Federal heserve bank has already put into
effect rules and regulations which have the effect of supersedinE
some of our state banking lews. The Federal Deposit Insurance
Corporation has also indicated by a recent ruling its intent to
regulate its member banks. Any general expansion of this procedure
will, in effect, supersede state authority over all banks which are
members of the Federal Reserve System or of the Federal Deposit
insurance Corporation. On December 30, 1935, the President, in
order to assure that the bankinE authorities in eech state shall
heve and exercise the sole responsibility for, and control over,
banking institutions which are not members of the Federal Reserve
System, issued a proclamation, effective January 1, 1934, amendinE
previous proclamations, orders and regulations, to exclude from
their scope banking institutions which are not members of the
Federal Reserve System. This proclamation still leaves a ouestion
es to the extent 0/ the authority the verious Federal agencies mey
exercise over the state benking institutions which are members of
these organizations.
I do not debate here the desirability of the unification of the
banking system of the country or question the merits of any rules
or regulations so far issued by the Federal agencieE. I report
these conditions only in order that you may be informed as to the
trend of events.
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Federal Reserve Bank of St. Louis
4.2
, a
•
SOURCE:
ANNUAL REPORT ON BANKS OF DEPOSIT & DIbCOUNT, ETC.-N.Y. 1935
Page 40 (Banking Board Resolutions)
25.
WHEREAS, It iF generally recognized that one of the principal
weaknesses of the banking system of this country has been the
over-establishment and the competitive establishment as between
Federal and state authorities of unit banks, and
WHEREAS, The potential dangers of the aver-establishment of
branches in any system of branch banking which may be established is equally great, and
WHEREAS, It is desirable to have some degree of uniformity in
banking practices and a further unification of our credit
facilities, and
WHEREAS, Congress now has under consideration a general
amendment of the Federal banking laws, now, therefore, be it
Resolved, That this Board memorialize Congress to incorporate
in any new legislation with respect to branch banking adequate
safeguards against this evil, 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 the state authorities, if and provided the state will provide by law that no state bank or trust
company or brancb thereof shall be established in any community
served by a national bank without the approval of the Federal
authorities as well as of the proper state authority, and it is
further
Resolved, That we favor the requirement as soon as practicable,
of cumpulsory membership in the Federal Reserve System of all
banks and trust companiEs of this State.
Adopted aarch 23, 1933.
'A/4o
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de,11
•
SOURCE:
REPORT ON BANKS OF DEPOSIT & DISCOUNT, ETC. * N.Y. 1933
,Fage 5_
At the close of an eventful year in the history of American banking, the fact most worthy of note is that the stage is set for the
unification of all banking institutions through membership in the
Federal Reserve System. The first step in this direction will be
completed on January 1, 1934. It consists of insuring by means
of the Federal Deposit Insurance Corporation, all deposits of :2,500
and less in institutions which qualify for membership in the temporary fund of the corporation. The second step will be taken on
July 1, 1934, when the permanent fund will be set up to insure all
deposits in full up to :10,000 and a substantial percentage of
deposits in excess of that amount in all institutions admitted to
membership. The final step must be completed by July 1, 1936,
by which time all banking institutions of the nation, whose
deposits are insured, must have Obtained membership in the Federal Reserve System. This last step is the one of greatest importance, for in bringing our banks under uniform laws and
supervision, we do more than insure deposits; we insure the means
of developing better banks and banking.
With the system thus unified, it will be possible to standardize
methods of examination, establish uniform measures for appraisals
and determination of values, and erase the differences and distinctions which heretofore have existed between national and state
institutions. In like manner, uniformity in the investment of savings and thrift deposits can be accomplished without regard to
the type of institution in which they are held. Regulations of general application can and must also be applied to prevent the continuance of the practice of re-paying time deposits upon demand.
The public should be educated concerning the differences between
these two classes of deposits.
Central control will also enable Federal Reserve and government
authorities to bring about needed consolidations of institutions,
thus eliminating unprofitable units with resulting benefit to the
system as a whole. Likewise, it will be possible to prevent the
organization of banks in communities where no need exists.
In addition to the advantages which we have a ri_ht to expect
from uniform supervision, all institutions upon becoming members
of the Federal Reserve System must comply with the Federal
Reserve Act. This means that practices of recent years which were
responsible for brin*ing criticism upon the banking business must
cease or be kept within the bounds prescribed by the Banking Act of
1933. Under that Act, the securities selling business must be
divorced from commercial banking; large, unwieldy boards of
directors are no longer authorized; deposits are forbidden to be
invested in stocks; and officers and directors who are guilty of
persistent violations of law or of uneound practices are subject to
from office.
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Federal Reserve Bank of St. Louis
1/
•
Joseph A. Broderick, Superintenient of Banks, N. Y.
40th Annual Convention, New York State Bankers Asso., June 1933
* ********
Gentlemen, we have all been through trying times. We have all had
battles. But when soqiebody else holds the trumps, it is necessary to
know how to play your tricks if you are to succeed. If the battle of the
state banking institutions of this state, particularly of the non-member
banks, is to be won, it is not going to be won through abuse. It is
going to be won through argument and persuasion. And if we are to accomplish it, different tactics will have to be used.
We are going through a period of transition. We have fought shoulder
to shoulder a pretty strong battle during the pm.st four years, but our
fight is not yet completed and we want to keep our powder dry during the
next year because we shall have plenty to do. If your Association
appoints a Committee such as that auggested by the Resolutions Committee
this morning, I am sure it will be a militant committee, who will fight
the battles of the state institutions, fight for their rights, along
intelligent and constructive lines.
It is only through that method that the good that we need will be
accomplished.
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4.9
•
"The Future of American Banking" - Address by A. A. Berle, Jr.,
Professor of Corporation Finance at Columbia University
40th Annual Convention, New York State Bankers Asso., June 1933
But if you will check back, you will remember that the aggregate of
the interests thus at hazard 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 how long this kind of
system can exist.
So I think that our third desideratum has to be some method of
arranging that the control of banks shall be permanently lodged in
permanently responsible 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. Not because there is anything 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 ta buili the monetary aupply of the
country.
I have my own feeling as to how that ought to be done, but that is
so entirely personal with me that I almost hesitate to suggest it. The
financial ownership in which this country has the greatest confidence is
probably the mutualized ownership of the great savings banks and of the
great insurance companies. Pure mutualization of national and state banks
is perhaps 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 stocks 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 might
be done less drastically under methods which would provide a more elastic
form of the same thing. This, or something like it, is going to be
demanded. As I 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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Federal Reserve Bank of St. Louis
*
g
• /1
•
"The Future of American Banking" - Address by A. A. Berle, Jr.,
Professor of Corporation Finance at Columbia University.
40th Annual Convention, New York State Bankers Asso., June 1935.
Under the old system, we had achieved the briniant result that the
strongest unit was liable to attack when the weakest unit went, but the
weakest unit did not command the strength of the strongest. In other
words, we had all the disadvantages of a competitive duplex system, but
became a single system for the purpose of mutual failure only. I recall
very clearly the discussions leading up to the banking holiday. Some of
you gentlemen were there. You may remember that they began at Mr. Ogden
Mills' house on March 1, and concluded, after dividing into a series of
conferences, in the night or rather in the early morning of march 4.
Rough]y speaking, a large part of the country lying outside the great
centers was insisting that the situation must be handled as a unit, and
that their banks could no longer stand the strain of an entire system
slowly crashing in. The strongest units in the large cities, aware of
their prestige, their tremendous liquidity, and the fact that their
affairs had been put in order, were prepared to stand out and see the
situation develop itself. They proposed to let nature take its course,
believing that their independent strength was on the whole a better thing
to trust than any attempt at unified action. To a theoretical student of
the problem, like myself, that position was impossible. In the last
analysis, when there is mass movement in progress, the system becomes
one in the public mind whether you choose it or not. It ceases to be a
question of the safety of this bank as against that bank. It becomes a
question of the safety of any bank at all. And as that mass movement
finally developed, it became perfectly obvious that collective action
was recuired.
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Federal Reserve Bank of St. Louis
•
4-
SOURCE:
THE CHANGING STRUCTURE OI AMERICAN BANKING--R. W. Goldschmidt
1955
CHAPTER XI
Some Suggestions for Reform
1211a___249-50-51
* * * The attempt made by the National Bank Act in 1863 towards
a unified banking system, virtually prohibiting the note issue of banks
other than national by means of a 10 per cent tax on their circulation,
failed, because other activities soon became much more important than
the business of issuing notes. Even at that early date, however, not
many sound reasons for retaining a diversity of state banking codes
could
be advanced. To-day, what there may have been to bc said for decentr
alized
regulation of banking then is no longer valid. The only reason still
seriously advanced is the diversity of economic structure in the differe
nt
parts of the United States, demanding, so it is argued, different types of
commercial banks. The correct way to take account of this diversity is,
however, the provision of different types of separate financial institutions, which are able to specialize in their field and to adapt their
whole structure to its needs, and not the development of commercial
banks,
who are first and foremost the depositoriEs and trustees for the liquid
funds of the community, and therefore necessarily guided by nearly
the
same principles everywhere, into a sort of financial omnibus.
There is thus a good case to be derived from the diversity-of-economicstructure argument forthe introduction of savings banks, building and loan
associations, or mortgage credit organizations into regions where they
have hitherto been lacking, but there is none to be made against uniform
regulation of commercial banking throughout the country. As a
matter of
fact, the real force behind decentralized regulation of commercial
banking
in the United States is the sectionalist conception of "State rights"
,
an idea dear to many conservative citizens but more important atill to
politicians, and more or less safely anchored in the constitution.
The
introduction of a unified banking system is therefore a purely politic
al
and not en economic problem. The impossibility of quick action in an
anergency for an agglomeration of forty-nine different authorities, the
difficulty of realizing any considered banking policy without unnecessary
evasion and cross-currents, and the process of "competition in laxity"
in
which the national and state banking authorities are forced to indulge in
order to keep their member banks, have been so patent that the case
may be
considered to be decided so far as economic considerations go. The
events
of this year seem to have convinoc,d even politicians and stbte bankers in
increasing numbers by hard facts.
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The Changing Structure of American Banki
ng
R. W. Goldschmidt
Page 277 (Chapter XI Contd.)
* * * A real change making commercial banking and
investment
banking into nearly entirely separate circles as
they are in England,
would presuppose a profaund alteration in the attit
ude of American
bankers, commercial as well as investment, and
radical changes in
the methods of issuing and distributing securities
. Signs of such a
development are not entirely lacking at the moment,
but it remains to
be seen if stern principles will withstand the lure
of another period
of prosperity.
PaRe 282-83
10. THE GCNETNMENT IN BANKING
Up to 1931 the National Government, as well as
states and
municipalities, have kept out of the sphere of comme
rcial banking
and investment banking more consistently in the Unite
d States than
in nearly any other large country. This has
been changed by the
crisis to an appreciable extent. The Reconstruc
tion Finance Corporation, a government-owned organization, has taken
over large blocks of
preferred shares in a number of reorganized banks
* * These developments have given or will shortly give the
United States Government an
important minority or even a majority of votin
g stock in an appreciable
part of the nation's banking system outside
New York City. It remains
to be seen how this power will be wielded.
Present trends should favour
a gradual selling of the R.F.C.'s holdings to
local capitalists in so
far as this is possible.
This direct influence of the Government on indiv
idual banks may
be very helpful during a transitory period if
it is used in the right way,
i.e. in the process of effecting necessary reorE
anizations and mergers,
and in the building up of regional branch banki
ng systems. In the long
run, however, the co-existence of a large numbe
r of banks in which the
Government is heavily interested as a shareholde
r with entirely private
banks is hardly possible without grave inconveniE
nces. Whatever the
respective merits of private banking and of a
system of government-owned
commercial banks mayte, that much can be regar
ded as certain, and proved
by experience abroad: it is a quertion of the one
or the other. A hybrid
system will not work and will probably develop
into a wholly socialized
one as time goes on.
*** *
1The Posta
l 6avings 4stem was completely unimportant, total deposits
not much over 150 million $ up to 1931.
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Federal Reserve Bank of St. Louis
SOUFCE: THE CHANGING MUMMY, OY AMERICAM BANKING—R. W. Goldsohmidt
1933
CHAPTER II
Sone Suggestions for Refers
rum g41-42
The previous chapters have been devoted to shoeing, moms
other things, that the weakness of the Americeui busking Wafts SIM
be attributed to six primary causes
1. The shimmer of a sufficient safeguard against excessive
expansion of credit*
2. The existence of forty-nine different banking systems,
competition in laxity and making co-ordimation extrems4
leadia4 tO
difficult. the development of a system of bras*
5. The legal barrier!
banks, which are a mooessity atter **anomie demiges have made tho
exolusive existomoo of mmit books, usually of very small xis*, am
inherent cans. of weakness and instability of the banking system is
groat parts of the country.
4. The excessive use of bank credit in financing urban real
estate developments.
5. The aloes ocanootion of sommerviol banks with the eeemrity
markets, resulting, an the ems hand, in a dowses dependence of
the value of bank assets es stock and bond quotations, and, on the
other, in an equally dangerous influence of investment bankers on the
administration of ommersial banks.
6. The diminishing role that oonnoroial banking in the strict
pew of the word has come to play within the American banking system
am m whole and even within the setivities of National Banks, State
Banks, amd Trust Companies.
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SOURCE:
THE CALIFOENIA BANER—JUNE 19t3
SOME THOUGHTS ON THL FUTURE OF AMERICAN BANKFR,-by Albert C. Agnew
Legal Adviser, Fed. Res. Bank, San Francisco
Pages 19'5-94
I have no hesitation in designtting as the chief and underlying
cause of weakneae H cause from which most of the other difficulties
encountered have flown, either directly or indirectly—the, existence
of the multiplicity of State banking mystems and the competition between
those systems and that governing national banks. I do not intend to
imply that, upon the correction of this condition, all the other ills
:, contrary,
to which the systeqn h8s been heir w/uld be cured. On th,
other fundamental and radical changes are vital nnd necessary, but, in
my humble opinion, the unificzition of sossertial banking under one law
and one control throughout the United States is the loeical and esaential
sUrting point.
We have within thccontinental United States 48 separntii and
distinct State banking Ostems, each governed by sextrate laws, with
differin aupervisory control, each governed by separate policy (or in
many instances no policy whatever), and all coapeting with the national
system for supremacy in number of banks en6 total resources.
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pno
"The Future of American Banking" - Address by A. A. Berle, Jr.,
Professor of Corporation Finance at Columbia University
40th Annual Convention, New York State Bankers Asso., June 19!7,
Banking is a Public Funetion
You are also aware--this, I think, is to me the most exciting phase-that the banks as a whole are in a position which is almost anomalous in
this day and age. As you know, the money of the country is to all intents
and purposes a combination of the actual cash that you have in your pocket
plus the aggregate of bank dee.)osits corrected for the velocity of its turnover. Bank derosits are larEely made by credit. Hence it comes about
that the benking structure as a whole ror all practical purposes has a
private franchise (in this country many thousand private franchiees) to
manufacture the money which the country needs through the medium of loans,
crelit, and creation of bank deposits.
You are also familiar with the very simple economic fact thst the
level of prices, the level of economic activity, which in turn means
employment, and such of what we
prosperity, has a very close relation
to the aggregate volume of aarrency and credit. The Federal Reserve Bank
of New York has been preaching that doctrine for years. Every economics
student, of course, has made it a part of his own calculations for a long
time past. The banks, therefore, form a private group which without any
correlation among its members, really dominates a large part of the
economic life of the country.
Extremely serious consequences flow from this. For example, in times
of depression, when credit ought to expand, a private group must set into
action to determine a policy, and we have no structure by which that can
be done. As individuals, whenever there is difficulty, all of you have
only one instinct, which is a sound one. The instinct is to be as liquid
as you can, to be prepared to meet any deiositor who comes along, to give
him hie -money and pay him aut. That is sound competitive banking, but
it is not saund economics, for the economics of the situation would
probably spell the exact opposite of the practice. It would spell a
standstill agreement and the extension of credit for a period. An understanding between all baaks that no bank would undertake to collect its
debts at the expense of the pool could be a real means to otabilize the
entire situation under many circumetances.
If that sounds like dreaming to you, I may merely point out that in
a country like Australia which wae fundamentally even harder hit than we,
the situation was swung by the banks on some much basis as that. But
they did not have the difficulties of many, many thousands of individual
institutions, to each of sesich the interests of the bank itself and of
its depositors must be paramount in any given situation. On the other
hand, we have a structural arrangement by which the individual interests
of each set of stockholders of each bank and of each set of depositors
become primary, and combined action becomes almost impossible--this at a
time when combined action may be the only salvation t any given moment.
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* * * * * * Behind the powerful agitation for hank guaranties was the
realisation by a tremendaus part of the country that ifs bank der.osits lay
at the mercy of a conflict of forces, the outcome of which no one could
foresee. Having already seen large de-osits wiped out and having dimly-not accurately I think, but dimly--seen the crushing effect on the com—
munities which they serve, there came this tremendous wave from the beaks
in aeveral parts of the country, notably from the Northwest, the Middle
Fest and the Southwest, demanding some se!curity. They thought of it in
terms of security of bank deposits, but if you were s)le to analyse the
lleaning back of the demand, it rould be for a secure banking system. It
is a just lemand. Whatever you may think of deposit guaranty, you cannot
merely ignore that demand and leave it unrecognized.
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* * 4
4 4 41
"The Future of American Banking" - Address by A. A. Berle, Jr.,
Professor of Corporation Finance at Colum'sis University
40th Annusl Convention, New York State Bankers Asso., June 19.'33
* * Opposition to chain banking is still so great that we shall not have
it. Indeed I question whether, at the moment, there is my 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. We have to travel some other course.
Hence it becomes necessary to think still more teeply 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 stoney 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 substance a censution of competitive banking either in
connection with deposits or in connection with credit. Comprtitive credit you
know all about; also competitive de;.osits. 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.
POrther,
lare if heterodox I am unrepentant, we want a cessation of the
condition which permits the control or banks to he thrown around from hand to
hand with pntire irresponsibility. You will be perfectly familiar rith 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
iifferent. You know exactly what that means to yau, 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 or the great
holding companies are managing their banks extremely well, have even contributed, in some instances, a great deal of strength. But whole Ptates 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 yPars is left to the hazards of the markPt 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
comT;anies, uses their funds to acquire control of the bank to further soma
other activity. I have seen one of New Yorkt 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 othPr banks;
hence, the shotgun lergers with vihich you are familiar, and the despPrate way
in which certain interests, when the control of their bank threatened to go
to one set of hands, fled to other an3 stronger hands.
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* *
*
SOURCE:
MASSACHUSETTS COMMISSIONER Ok
- ANNUAL REPORT 1935
PART I, relating to avgs Bks and institutions for Svgs.
Fake iv
During the final months of the deliberation:, of the Special
Commission for Investigation and Study of the bankins Structure
this department W68 o actively and continuously engagec; in
assiating in the, extremely important work of qualifying aur
non-member truA compenits for participation in the Temportr Fund
of the Yoder/Al Leposit Insurance Corporation thnt it was impossible
for me personally to co-operate as much as I wished to with the
Special Commission in its study of our banking structure. It
seems to me advisable to defer, as far as poesible, any substantial
changes in our present banking lawe until the course of action
to be token by the various Federal banking agencies in respect
to state-chartereo banks Call be more definitely ascertained.
The state-chartered bankinE institutione of the Commonwealth
have emerged from the crucial tests of the past year in a manner
that demonstrates their fundamental soundness. Emergency legislation
of a stabilizing nature enacted during the year was very effective.
Conditione are, however, constently changing and have frequently
necessiteted modification of piens. During the current year there
will be, in my opinion, a much more stahle situation and thc
prospecte for substantial progress are encouraEing.
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'
"7,
"The Future of American Banking" - Address by A. A. Berle, Jr.,
Proressor of Corporation Finance at Columbia University
40th Annual Convention, Iew York State Bankers Asso., June 197
The Need of a Mobile lechanism for Common Action
In the last analysis, what is needed perhaps -post of all is some
mechanism by which we can get centralized concerted action among all t'•.e
units throughout the country. It is simply absurd that a graup of banks
in one -.art of the state, let ue say, can undertake to grant loans in
order to enlarge (let us assume for the sake of argument), the paper business in that particular vortion of the state, rhen another group of banks
has discovered that there should be only limited credit for the paper
business, because the paper businese is already in top-heavy condition.
Yet that situation has happened over and over again. Equally, if and
when a situation arises when credit can be handled on more or less long
term basis, and thereby a situation may be saved, it im merely absurd to
leave any single bank in a position where it can precipitate a crisie or
an unnecessary bankruptcy because it declines to enter a coo:- erative
agreement.
To some extent organizations were jerry-rigged during the past crisis
and to some extent they are likely to gurvive, but there should be a way
in Witch thls combined control of aoney can be made available for the
services of a given community. It shoul not lie at the mercy of the conclusions of any srecial group.
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Pawril
•
SOURCE:
HARPER'S MAGAZINE---FEB. 1933
CONFIDENCE, CREDIT, AND CASH
Shall We Guarantee Them in Our Banks?
by J. M. DAIGER
Page 290-291
No one, I believe, would seriously contend that the Federal
Government should continue beyond this emergency to underwrite the
mistakes of the forty-eight State systems of banking, which in so many
instances differ widely from, and through "liberal" charters and laws
compete with, the more strictly regulated and circumscribed National
banking system. Some five out of every six failures occur under the
State systems; and the numerous failures of State banks are of course
the principal incitement to dangerous runs on other State banks and
National banks alike. Furthermore--and this is the serious structura
weakness of what bankers erroneously refer to as our "dual" system of
banking--the utter lack of either uniformity or cooperation among the
forty-eight State systems renders impossible (1) a decisive raising of
banking standards, (2) an effective operation of the Federal Reserve
System, and (3) a sound national monetary policy.
Yet these three improvements over the existing "system" must be
rendered possible if we are to have safe banks and sound money and
thereby attain a secure foundation on which to rebuild the superstructure
of business. We need to recognize frankly that we have done more to make
money unsound, and business or agriculture unsafe, in each year of our
bank-failure epidemic than we should probably do in the next ten years
if we resorted to the fiat-money inflation of such a scheme as the bonus
bill that was sensibly rejected last summer. And we need also to recognize
frankly that we should put an end to bank failures, and to the disastrous
deflation that results from thent, not hy the negative palliative of a
overnmental guaranty of deposits, but b: the positive remedy of putting
the aggregate strength of all our commercial banks--the banks that issue
most of our national currency--into a uniform system that shall be powerful
enough to render a governmental guaranty superfluous, and that shall itself
establish either an efficient guaranty or its practical equivalent.
* * ** * * * *
The historic characteristics that differentiate our system of commercial
banking from the system of countries in which bunk failures are rare are the
multifarious and mutually competitive systems of State and Federal charter,
the State and Federal restrictions on branch banking, and the legalized
practice of carrying real-estA4)mortgagcs, bonds, stocks, and other long
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194
Harper's Magazine---Feb. 1933
J. M. Daiger
Pages 290-291 (contd.)
term investments as security for demand and short-term commercial deposits.
It has been demonstrated to us all, not during the last three yeRrs only,
but during the last thirteen yearr 'unless we rashly exclude the farmer
from our social and economic reckoning), that these three survivals of
our
frontier economy are dangerous and even fatal under the conditions of
modern inter-related business.
The first and second we can eliminate by requiring all commercial
banks that are not members of the Federal Reserve System to become members,
if they are strong enough to meet the requirements of membership; or, if
they are not eligible, either to become branches of member banks, or to
liquidate while the aid of the Reconstruction Finance Corporation is still
available to them, or to discontinue the interstate circulation of bank-check
currency. This is the substance of the unification and branch-banking
proposals that during the last few years have been urged by practical-minded
leaders of banking thought, and that will be more widely discussed when banking legislation, under Senator Glass's leadership, again occupies the center
of the banking stage in Washington. The third serious defect of our present
system, the long-term-investment accumulations of commercial banks,
cannot
of course be drastically eliminated without making the cure worse than the
disease; it will have to,be remedied gradually by such means as Senator
Glass
and the Federal Reserve board advocated last year, when the effort towards
permanent banking reform was suspended to make way for the revenue, unemployment-relief, and construction measures.
* * *Two-thirds of the country's commercial banks—which hold, however,
only one-third the total deposits in all commercial banks--have remained outside the Federal Reserve System because they are either unable or unwilling
to qualify for membership under the system's standards; standards that, to
good advantage, could be stricter than the:/ are, if the "liberal" banking laws
of many States were not a competitive drag on our Federal banking laws.
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Editorial Comment - The March of Evente
Journal of tne Canadian Bankerst Asso., April 19Z15
***
* * *'* *
Tne Ua“ed States 13ankine,Criais
President Roosevelt nimself hae alreeay made clear teet 4e will call
for funda_entel chaages in the United States banking system. It has been
aiyarent for zany years that there existed definite structural weakneeees
welch eave resulted in inordinate nunbers of bank failures wnenever tae
country tas subjected to economic pressure. The Federal Reserve Syaten
itself conotituted a greht step forward but that alone could not remedy
the weaknesses of national bank legislation and particularly of the State
banking syetems chartered under the most varied lees. Colonel Ayres of the
Cleveland Trust Company has pointed out tnree important weaknesses in the
United States banking systeos In the first place, loans on real estate have
proved the undoing of very many banks, anu such loans ought to be curbed,
if not prohioited, as they are in Canadian banking lat. In Lae second
place, the ttelve kederal Reeerve banee loosely joined together by a Federal
Reserve board, have not provea capable of presenting a united front to tee
forces of panic and depression. Soeething rill probably neve to be uone tAD
give aore unity to the Federal Reserve byetem, making each Federal Reeerve
Bane ereeething close to a branch of a single central bank. In the third place,
tnere ifet need for more unity in the entire banking structure. Colonel Ayres
aoes not go so far as to suggest epecifically branch banking, but there is no
uoubt that tae United States eill have to teke a lont step toward branch
banking if it Le ee strengthen its badly veakened eyetem. One must renember,
of course, that to convert a united banking syetem into a branch banking
system in a short space of time is an exceedingly difficult process and one
fraught with the greateat danger; mere aaendment of the banking law, permitting
widespread branch banking, would probably unloose en orgy of competitive
speculation in bank eurchases which 'would further teaken the system. Probably
a system of branch beeking within each Federal heserve district, rith authority
given eo some public body to approve not only all bank amalgamationa, but also
the terms on eftich banks eight be ;iurceased and abaorbed. by others, rili be
necessary.
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* * * *
* * * * ** -
4IP
•
SOURCE: BANKING LEGISLATION-Committee Report--Chamber of Commerce of the U.S.
Washington, D.C.--March 1933
Pages 3-4-5-6
1. A Single Unified Commercial Banking System With
Centralized Control and Regulation
This subject in its various phases has been before successive banking committees of the Chamber for some years. Emphasis has been placed
heretofore by the Chamber upon the necessity of developing the strength
and influence of the iiederal Reserve System through such changes in law
and procedure cs would attract into its membership all eligible institutions engaged in commercial banking, without lowering the System's
standards of operation. There is not recorded, however, a specific Chamber
commitment urging that all commercial deposit banking be a part of the
Federal Reserve System and thus brought under regulation of the federal
government.
By commercial deposit banking, as thus used, is meant the operations
possessing deposits subject to withdrawal by check. Ordinarily
banks
of
cent
of business payments are made by bank check, which, as a form
0 per
of fiduciary currency, is the principal circulating medium of the country.
Because of its necessary use of bank checks, as well as of loan facilities,
business is thus dependent upon commercial banks. Recent events have
demonstrated so conclusively this nation-wide dependence of business that
it is essential, in our judgment, for such banks now to be grouped into a
single system.
Stricter standards of bank operation, self-imposed by those engaged
in the business; some statutory definition of the limits of permitted
powers; and improvements in public supervision and examination are necessary under any system. Without them, structural changes may be largely
negatived. But all of these methods can be made more effective under a
uniform law and a unified supervision awl control.
It is only through a single control, moreover, that there can be
effective protection of the principal circulating medium of the country,
the bank check. As long as the circulation and collection of bank checks
can be hampered, or even thrown into confusion and chaos, by the action of
a state official, the duty imposed upon Congress by the Constitution of
regulating the currency cannot be properly exercised, and business will be
subjected to the hazards and inconveniences of being conducted on a cash
basis or with unsatisfactory substitutes for cash.
Bringing all commercial bank deposits into a single unified system
under federal regulation will result in (1) effective control over the
principal circulating medium of the country; (2) effective influence upon
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Federal Reserve Bank of St. Louis
--3-42
g1","
-2-
the volume and, to some extent, upon the directions of use of bank
credit; (3) more uniformity of commercial banking policy and practice;
and (4) an opportunity to concentrate effort on measures to secure the
safer operation of banks.
In advancing this proposal we recognize there are many collateral
questions to be considered. First and foremost, should the powers of the
federal government be exercised to reouire all banks with commercial deposits to submit to federal regulation? If so, should this be done by
requiring state chartered banks with commercial deposits to convert into
national banks, or to become members of the Federal Reserve System, retaining their state charters? If, however, this should not be the method adopted,
should persuasive means be employed to bring all banks under federal control?
In that case, should state chartered commLxcial banks be continued as voluntary
members of the ederal Reserve System, retaining the right to withdraw?
It was estimated prior to the recent bank holidays that about two
billions of demand deposits, which were subject to check, were in banks
that were not under national supervision or in the membership of the Federal
Reserve System. Many of these banks were unable tp meet the requirements of
membership in the Federal Reserve System. On the other hand, non-member banks,
possessing a high percentage of the total of these commercial deposits, were
eligible. There also is today the possibility that a large volume of commercial deposits in banks now in the Federal Reserve System, but which are
not being permitted to operate, may be removed from the System as a result
of the reorganizations and refinancing in contemplation. It is true that
some state chartered banks are now being drawn into the Reserve System, but
any state bank member is able to withdraw from membership upon short notice.
National banks which are compulsory members of the System may convert into
state banks and continue outside of the System's membership. It is clear
that there is no certainty under present laws that commercial deposit banking
can be kept within a single system even to the extent that it was prior to
the bank holidays.
Admitting that many banks have demonstrated usefulness and strength
outside the membership of the Federal Reserve System, the fact that their
commercial loans and their depositors' checks have such important bearing
upon interstate commerce and upon the principal circulating medium of the
country, in our judgment, preEents a superior reason for placing and keeping
all such commercial deposit banking under a single regulating authority.
With this in mind we are not concerned primarily as to whether the result
is accomplished by invitation or by compulsion.
Other collateral questions are of considerable importance. Among
them are the extent to which banks in a single unified commercial banking
system shall be permitted to engage in savings or trust functions with or
without segregation of assets or shall have power to establish and operate
branches, or shall have power to deal directly or through affiliated
institutions in investment securities, or shall meet requirements as to
minimum capital, or shall have limitations upon their lendinE and investment
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powers, or shall be restricted in their relationships to group banking
systems. Lome of these auestions are dealt with below.
The application
of the central principle, however, that commercial deposit banking in the
United States should be unified through association in a singlt federal
system is of paramount importance.
We are not unaware of the points of view which reflect reluctance to
see an overriding of traditional practice of states exercising the power
of chartering commercial banks; fear of bureaucratic centralization and
overstandardization of banking; objection to concentration of banking
power and authority; and a relinauishment of local autonomy, independence
and self-reliance. The considerations of currency control and continuous
business operation, weighed against those points of view, are sufficient in
our opinion to shift the balance in favor of a single unified system of commercial banking within the Federal Reserve System.
The Committee recommends that:
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Every bank doing a commercial banking business should
ultimately be made a part of the Federal Reserve System.
•
SOURCE:
THE CHANGING STRUCTURE OF AMERICAN BANKING--R. W. Goldschmidt
1933
Some
CHAPTER XI
Suggestions
for
Reform
Pages 251-52
It is, therefore, proposed that, as an essential step in any
thorough plan of banking reform, all commercial banks in the United
States be forced by law to take out national charters within a period
of, say, three years.1,2 Since all National Banks have to be members
of the Federal Reserve System, no commercial bank will then be left
outside its orbit. The Federal Reserve Board will thus automatically
become the one and only centre of American banking policy and the National
Bank Act (in revised and enlarged form) the only statutory basis of commercial banking.
1
It has sometimes been contended that such a law would be against
the constitution. An elaborate opinion of the General Counsel of the
Federal Reserve Board seems to have established, however, that this is
not the case. (Eee Federal Reserve Bulletin, March, 1933.)
2The Banking Act of 1933 tries to achieve this end in an indirect way,
which may well prove ineffective: it admits non-member banks to participation in the deposit-insurance scheme (see sub 8), but only until let
July,1936. Non-member banks have then either to join the Federal Reserve
System or to renounce the deposit guarantee.
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Federal Reserve Bank of St. Louis
-*r
•
Proceedings of 32nd Annual Convention
National Asso. of Supervisors of State Banks
Chicago, September 1935
*** *** * *
President Clark (Vermont): They had an informal meeting at which
they expressed the idea they would not go into it, but I don't know
just how binding that will prove to be. We are rather unusual, I
think, we have no state member banks in the system. The reserve requirements have always been an effective bar toward membership. No
state bank is a member of the Reserve System, so I haven't much
experience to go on in relation to contact of the banks under my
supervision with the system. The necessity of keeping a 3% reserve
on deposit in the Federal Reserve doesn't appeal to our banks very
much just now.
****** **
R. E. Gormley (Georgia):
*** ** ***
While I am on my feet, I would like to present Georgia's problem.
We have approximately 220 state banks in Georgia, 35 of which are
Federal Reserve members. I made a statement yesterday that conditions
are good in Georgia, that is: good so far as natural and economic conditions go. It is also true the bankers are disturbed over the
possible effect of this Federal insurance. I feel I can safely say
50% at least of the non-member state banks have signified to me their
intention to continue to operate without seeking insurance in the
Corporation. I think I may further safely add
believe if the charity
of spirit which we hope this board of the Federal Deposit Guarantee is
going to exercise becomes a fact, that a large majority of our nonmember st4e banks in Georgia could qualify for membership in the corporation...1The disturbing feature in Georgia among the non-member state
banks is the possibility that eventually they will force all other
banks into the Federal Reserve System. Without going into the merits
or demerits, it is true a large majority of the non-member state banks
prefer to operate outside the Federal Reserve System for, I think, a
very good reason. I see no considerable advantage in the Federal Reserve for the small bank in the outlying district. Secondly, there is
a loss of revenue that the average small bank can't stand. Membership
in the Federal Reserve would mean a loss of approximately two-thirds
of the revenue now derived from exchange, and that makes considerable
revenue and it is a loss they can hardly withstand under present conditions, and for that reason our non-member state banks are very much
disturbed about getting over the feature of this section of the bill
which provides for eventual membership in the Federal Reserve Bank of
all banks retaining membership in the Insurance Corporation. If that
particular section of the bill was amended to provide permanent
membership in the Insurance Corporation without becoming Federal Reserve members, I don't think we would have a great deal of trouble in
securing admission of a large percentage of Georgia non-member banks,
and that is the question they have in mind and that is the counsel and
advice they are seeking from me, as to whether it is better to go ahead
now and apply for membership with a possibility that after the two-
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•
- 2year period is over and it becomes necessary for them to then become
: Federal Reserve members, it may prove inadvisable for them to seek
Federal Reserve membership and therefore lose their insurance of deposits and the possible effect of discontinuance afterwards, once they
are insured, will be more drastic than if they never had derosit insurance.
_____
\
********
R. E. Gormley (Georgia): I haven't in any instance advised any
non-member state bank to seek membership in the system. I have had
possibly twenty or twenty-five banks come in and discuss the advisability of seeking membership. Their idea of course is: will they
eventually be forced into the system anyway; and they would just as
soon go ahead and get on the ground floor. I have told them to
withhold their application pending further information.
M. E. Bristow (Virginia): Our disposition is to urge the state
banks to get into the system. We believe the Federal Reserve is a
good thing, but don't believe too much in the centers of authority at
Washington, but I believe under existing conditions we should go with
them and so are urging the state banks to get into the system. Of
course, on the other hand, we are asking the Federal Reserve System to
be fair and just topard us and treat us with the same consideration
they do the national banks, and that advice is going to be followed by
a great many state institutions. We are not like our friends in
Georgia, not getting special revenue by not being members of the
Federal Reserve, and the Glass-Steagall Bill has at least adopted
four things in force in Virginia: raised the minimum capital to $50,000;
we never had the double liability; re have had a very drastic limitation on the amount invested in bank building, furniture and fixtures-they adopted something not as strong as our state has at the present
time; we had preferred stock and they followed us on that. We believe
that an amount of unity is desirable and believe having as many institutions as possible in the Federal Reserve System, but we ask them to be
fair to us.
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*********
•
Proceedings of :52nd Annual Convention
National Asso. of Supervisors of State Banks
Chicago, September 1933
********
M. E. Bristow (Virginia): What Mr. Fulton said a moment ago
might be valuable. If we don't let our state banks into the Federal
Reserve my guess is a great many will nationalize and generally, the
Federal Reserve would probably suit them better than go into the
national; and we need to go this far toward centralization and stabilize
it there and maintain the state system better. I disapprove of centralization in Washington. I think it has been shown it is not to our advantage to have things run from Washington. The Virginia banks suffered
in their effort to reorganize because if they were borrowing from the
R. F. C. they usually have three sets of authorities to consult: the
Federal Reserve, Comptroller's office and R. F. C. I am not on the
inside, I am talking as an outsider, and I believe if those organizations
were decentralized and left the state and national banks to the Federal
Reserve authorities, each district might have made better headway, so
I am suggesting the banks go into the Federal Reserve System and I feel
if they go that far and find it is a mistake, and haven't gone into the
national system, they still have a step in reserve. On the other hand,
if they go into the national system they have to stay there because
very few will change back to state non-member banks. I believe therefore, we are not making a mistake to let them into the Federal Reserve
System and try to retain as much of the state-rights as we can under
the existing economic conditions. I present that suggestion to you
gentlemen--rather than join the national system to have the banks go
into the Federal Reserve System they still have one more method in
reserve if they need to take advantage of it.
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Federal Reserve Bank of St. Louis
**** *****
•
Remarks of Secretary R. N. Sims,
32nd Annual Convention,
National Asso. of Supervisors of State Banks
Chicago, September 1933
There is so much talk about the Unit System of banking in this
believe a word of warning is necessary here. The total
country that
resources of state banks have been materially decreased by the conversion of state banks to the National system, but the preponderating
volume of state bank resources as late as June 30, 1933, must warn our
national authorities that banking legislation should be cautiously
pursued to guard against injury to this great element of our financial
structure, and a possible grave disruption of our business affairs.
In that connection, I call your attention to the fact that in the
Federal Reserve System there are $34,530,000,000 of this; 322,301,000,000
is the whole strength of the National system; and then, voluntary membership of State banks, $12,229,000,000. But the thing I particularlycall
attention to is that there is still outside of the breastworks so to
speak, within a few thousand dollars of $20,000,000,000 in State banks,
or 320,000,000,000 out of the ft54,000,00,000, end it seems to me, and
we have been discussing things along that line now, that anything that
may be done which may be not entirely natural, may be not entirely fair,
may be not entirely just, may develop a situation in the financial
structure as bad if not worse than anything we have seen so far. I
merely Fubmit the figures to you for your consideration.
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148
•
Proceedings of 52nd Annual Convention
National Asso. of Supervisors of State Banks
Chicago, September 1955
** * * * * * * **
H. W. Koeneke (Kansas):
**** ** ** * *
We called a meeting of the Bank Commissioners in Kansas City last
December. We had an all-day session and various topics were discussed
along the lines Dr. Gordon told you, and we thought to have a meeting
early this year but it so happened that the Glass-Steagall Bill became
rather prominent in that session of Congress and it looked like perhaps
the bill miFht become a law. Personally, I became very much exercised
over the provisions of this bill, thinking that it meant unification
of the banking system and meant the elimination of state banks and
various state banking systems, bringing about a bureau in Washington
telling us in Kansas what we should do with financial institutions,
in fact, taking away from us our state rights. I rather resented that
personally, and after considerable thought and study I proceeded to
call to my office a group of state bankers from Kansas to find out
whether I was wrong or right, or what. Bankers, some thirty-five of
them, heartily agreed with my line of reasoning and felt national
legislation was vicious and meant the ruination of various lines of
endeavor and thouRht it was quite essential that an effort be made to
have the law passed in such a form that the small rural banks could
live. The result of this conference was that we took into our confidence and solicited through the support of the Kansas Bankers Association, made up of both state and national bank members--we have 580
state banks and about 230 national banks. The executive counsel of
the Kansas Bankers Association was in accord with our beliefs and
delegated their officers to take an active part in this move. Then a
meeting was called for the agricultural states of the mid-west, central
states as they call them, consisting of fourteen states, the meeting
to be held at Des Moines.
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Federal Reserve Bank of St. Louis
* * * *** * ***
90
•
Proceedings of 32nd Annual Convention
National Asso. of Supervisors of State Banks
Chicago, September 1955
***** * * ** *
D. W. Bates (Iowa): Mr. Jesse Jones made the statement at the
American Bankers Convention that in any banks in which he furnished
preferred stock, it must become a member of the Federal Reserve not
later than 1957.
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Federal Reserve Bank of St. Louis
**********
9.1.
•
SOURCE:
THE CALIFORNIA BANKER—JUNE 1933
ADDRESS OF THE PRESIDENT--J. F. Sullivan, Jr.
Pages 183-164
** *******
Extendiqg dembership in the Federal Reserve
Membership privilrge in the Federal Reserve System has been
availed of by a relatively small number of State chartered banks,
anC this fact has operated against the fullest development of the
system and the complete utilization of its potentialities. There
is a growing insistence that the provisions of the Federal Reserve
Act should be broadened so 85 to allow for admission to membership
of a large number of State banks not now members of the system.
(Situations that arose during the banking holidays showed the great
!undeveloped possibilities of the Federal Reserve System.
Action of the iederal Government tends more and more toward
unified banking in some workable form. Last year, in his noLable
address as President of this Association, Mr. Herbert H. Smock called
attention to the antiquated banking systems of our country, and placed
,strong emphasis upon the desirability of bringing all banks of the
'country under uniform supervisory powers. Our dual, subdivided banking
systems are, doubtless, a serious shortcoming in the banking structure.
Undoubtedly the present systems came into existence coincident
with the growtn of our country and have been responsible in large
measure for the unequaled development of the United States as the
premier economic power in the world. In the early stages of America's
history, any single system of banking probably would have considerably
retarded its growth. Today the situation is vastly different than that
which prevailed fifty years ago, from a banking standpoint. Modern
inventions have speeded up our lines of commur4 cation beyond the
farthest dream of our grandfathers. In the pioneer days an isolated
community, regardless of size, was forced to initiate and maintain its
own economic structure. Its importance was supreme within its own
confines. Faster trains, super-highways, swift automobiles and the rocketlike airplanes have widened our horizons, given us thousand-league boots,
and demolished old economic fences.
Systems that admirably served the needs of a past generation need
remodeling to today's requirements. Forty-nine different sets of banking
laws served well in the days of the Pony Express, but result in confusion
in the swift movements of 1933. We need unified and simplified banking
laws in the several States of the Union. To say that this can be
accomplished only by banks chartered by the Federal Government, and that all
State chartered banks must be converted into national banks, is going rather
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Federal Reserve Bank of St. Louis
144
1
J. F.Sullivan, Jr.
Pages 185-184 (contd.)
far, and beyond the immediate necessities of the occasion; but you who
read know that there are many who advocate exactly that procedure.
Whether any State should or would surrender its sovereign r4,ht to
license a form of corporate body operating within its jurisdiction
is a serious question that will instantly arise. I am convinced that
some central control for issuing bank charters is neceFsary. The Federal
Reserve Board is the logical body in which to repose such authority, and
it would seem to be entirely practical and desirable that in the near
future all bank charters, both State and national, ehould be granted
only by and with the approval of the Federal Reserve Board, which would
constitute the court of final authority in such applications. Both
classes of banks now are members of the Federal Reserve System and joint
supervisory powers already exist between the banking authorities in every
State and the district Federal Reserve Banks. To invest the Federal
Reserve Board with the final authority to charter any bank hereafter
organized would be a long step ahead towards n sounder and more
responsive banking system.
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Federal Reserve Bank of St. Louis
The California Banker--June 1933
COMPETITION, COOPERATION OR CONTROL--address by Paul F. Cadman,'
Associate Prof. of Economics, U. of Gal.
Page 209
****** ***
Federal Control is Threat
There is not time in this short session nor is there need to
rehearse the competitive practices which are steadily driving otherwi
se
solvent banks into the zone of deficits. The three instances suffice
.
The crux of the present argument is that the increased supervision
strongly suggested by the Federal Government opens the way to new
control. There are good arguments for and against a unification
of
banking laws, Federal supervision, and deposit guaranty. Chief
among
the objections, and perhaps the most valid, is the statement that
any
such extension of Federal powers over banking opens wide the way
to control and invites all of the cumbersome and costly machinery of
regulation.
The trend of our times is toward a managed economy. As an emergency
measure we will acquiesce and cooperate in a program for the rallyin
g of
our routed forces, but a managed economy as a permanent system
means a
Bureaucracy, which form of government is not consonant with our American
temperament or tradition. The story of the American railroads
under the
Intersti„te Commerce Commission is not a happy one. The public utiliti
es
of this country could go the same way under excessive regulation.
Thus
far we have successfully resisted government ownerships and
its two handmaidens--patronage and subsidy. The Federal Governmt-nt has embarke
d on a
far too extensive program of business enterprise to warrant its permanent adoption: It is in the banking, the insurance, and the transport
business. * * *
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Federal Reserve Bank of St. Louis
*********
The California Banker--June 1933
CAUSES OF THE RECENT BANKING CRISIS AND SUGGESTIONS FOE
THEIR AVOIDANCE/.
IN THE FUTURE--address by Alden Anderson, Pres., Capital
Nat. Bank, Sacramento
Pue 258
We must unify our banking practices and elimlnate competition
in banking principles between the national system and the
forty-eight
state systems. Our Federal Reserve System is the best in the world
today. It is so constituted that there has not been and cannot
be
concentration of control by or for special interests or geograp
hical
sections. We must further strengthen it to the end that it can
still
better serve. The law does not say so, but national banks could
not
operate unless they belonged to the Federal Reserve System. I
believe
that all State banks, competing with national banks, should
be compelled
to belong to the Federal Reserve System and should be compell
ed to abide
by their rules, regulations and examinations if such were
ueemed necesdary. All comAlercial or demand deposit banks should be
forbidden to loan
on real estt.te, and all affiliates should be divorced from all
banks to
the end that they do not do indirectly things they should
not do or that
the law says they may not do directly.
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The California Banker--June 1933
BANKING ON THE GOVERNMENT—address by Lane D. Webber, Vice Pres.
First Nat. Tr. & Svgs. Bk., San Diego
Page 261
*** ****
IS FEDERAL CONTROL JUSTIFIED?
In an able and interesting opinian (published in the March, 1933,
issue of the Federal Reserve Bulletin) Mr. Walter tyatt, General Counsel
of the Federal Reserve Board, undertakes to establish the right of the
Federal Government to exercise complete control over all commercial
banking. His opinion is loEicall convincing and well supported by
respected authority.
Banking is practically a function of national government, which
fact alone should justify some measure of national control. However,
our Federal Government has been compelled to come to the rescue of all
banks, regardless of individual strength and standing, to protect hysterical
people from their own foolish acts and to preserve the credit of the Nation.
It is being urged, if indeed not forced, to assume more and greater
resdonsibility for the operation of the banks of the country. This saving
service and assumption of increased responsibility justify more government
control over that for which it is to be responsible.
The American banking structure was not conceived as a cohesive unit
to serve a great federation of sovereign States. Each of the original
States undertook to provide and supervise banking facilities for its
citizens, and national banking developed only with the proved necessity
therefor. Many years of our national life passed before federal banking
was definitely fixed in the scheme of things, in 1864, and it was not
until 1914 that this plan was made really comprehensive, through the
passage of legislation creating the Federal Reserve System. Even thereafter the government has had this somewhat restricted central authority
only over national banks and but voluntary support from the great body of
State banks. No other country has a banking situation identical to ours.
It is truly American and glorifies the individual and his enterprise,
consistent with the Anglo Saxon idea that government exists for the
benefit and protection of the individual instead of vice versa, as has
been otherwise traditionally conteaded. Altnough having to comply with
certain regulatory requirements concerning organization and operation, our
system is largely private banking.
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Federal Reserve Bank of St. Louis
***** ** *
The California Banker—June 19.73
RESOLUTIONS COMMITTEE REPORT
Page 268
9.--Unification of Banking
Being firmly of the conviction that a large part
of our
banking difficulties has been due to the extreme multi
plicity of
banking systems in this country, the Association favor
s the
establishment of a single, unified system and voices
its approval
of measures leading towards ultimate membership of all
banks in
the Federal Reserve System.
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Federal Reserve Bank of St. Louis
•
SOURCE:
THE CALIFORNIA BANKER--JUNE 1933
CAUSES OF THE RECENT BANKING CRISIS AND SUGGESTIONS FOR THEIR AVOIDANCE
IN THE FUTURE--by Alden Anderson, Pres., Capital Nat. Bank, Sacramento
Page 259
In the past, when the question of guaranty of deposits was broeched,
good bankers were unanimously opposed, as the principle of its application
was wrong, that is, of having good banks guarantee the deposits of poor
banks without any limitation as to the interest rates that the weaker,
less experienced and less capable bankers could pay to attract deposits_
In the several States where such laws were enacted, the better bankers
went out of the State system 8nd the result was that when the poorly
managed banks failed they could not zaise the funds necessary under their
proposed plan to pay the deposits Bnd all such laws went off the statute
books, and properly so.
The idea now is different. It is one of having the Government,
through the earnings of the Federal Reserve Bank, participate in raising
the funds to guarantee depositors of closed banks, and if such a sum is
not aufficient there will be levied a small tax on the deposits of all
banks to increase the fund to an estimated proper amount. I can see no
impropriety whatsoever in this idea. * * *
I place the present proposed guaranty or insurance of deposits in
the same category. It will work out to the benefit of thebanks as well
as to the depositors in the banks, and as lone 8S it affects everybody
alike, and a limit is placed upon the amount of interest that can be paid
to attract deposits, that it will be economically sound.
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Federal Reserve Bank of St. Louis
i41
•
:',OURCE:
THE CALIFORNIA BANKER—JUNE 1953
BANKING ON THE COVERNMENT--address by Lane D. Webber, Vice-Pres.
First Nat. Trust & Svgs. Bank, San Diego
Page 261
It seems to be almost universally conceded that we should not
have as many kinds of banks, banking laws and supervision as there
are States in the Union, in addition to the federal system. If each
State is to retain jurisdiction over the function of banking, it is
said it should be only over certain types, or else all State banks should
be subjected to federal superintendence. National control over commercial
banking is urged with more insistence and, perhaps, greater logic. To
whatever extent the several States retain their rights in this regard,
they should enact and rigidly enforce a uniform banking law, based upon
and harmonized perfectly with national banking legislation. That would
ue an improvement at least to the point that there would be but as many
kinds of banking regulations as there are kinds of banks--two, National
and State. All these banks should be under some federal supervision
(certainly in so far as commercial trans8ctiom- Lre cpricara.i,C;, either
throlgh compulsory iaembership in the Federal Reserve System or immediate
responsibility to the Comptroller of the Currency, or both. Joint supervision by the Federal and State governments might be a possible but
doubtful substitute. This concurrent jurisdiction should result in a wise
restraint upon the chartering of new banks, which is admittedly necessary.
Those States refusing to submit to some plan of unified banking may bring
practichl business impotence to their banks.
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142
•
SOURCE:
THE CALIFORNIA BANKER—JUNE 1933
SOME THOUGHTS ON THE FUTURE OF AMERICAN BANKING--by Albert C. Agnew,
Legal Adviser, Fed. Res. Bank, San Francisco
Page 194
***** **
Federal Reserve Weakness
Since the lowering of capital requirements for national_ banks in
1900, we have witnessed a constant race between the State systems and the
national system for liberalization. Each lowering of standards on the one
hand has been met with a similar effort on the other. Nor have the
privileges of voluntary membership in the Federal Reserve System served to
unify banking control, for only about 7 per cent of the State institutions
have availed themselves of membership. National banks are free to leave
the system at any time by converting to State charters, and State banks
which are members may leave on six months' notice. All Federal Reserve
membership is thus voluntary and the authority of the Federal Reserve aystem is weakened by the fact that its members are in a position to escape
restrictions or supervision by leaving the system.
I submit to you that this "hodgepodge" of bankingis the root of our
difficulty and that in order to eliminate it, all commercial banks must be
brought under unified control, either through compulsory operation under
national charter or through obli,otorl membership in the Federal Reserve
p)ystem._
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1143
•
SOURCE:
PROCEEDINGS MISSOURI BANKERS ASSOCIATION--MAY 17-18-19-, 1953
ANNUAL ADDRESS OF THE PRES.-M. E. Holderness
PaRe 28-29
Frankly, I see no ultimate alternative for banking but the
adoption of a unifiAd system, and I speak as an advocate of states'
rights and state autonomy. Such a system as commends itself to my
thinking embodies nothing at variance or in conflict with the interests of independent banking, and contemplates no abandonment of the
state banking system. Indeed, a unified systea should help eliminate
the hazards which undesirable competition between the two systems
introduces, and forever bridge the chasm that has too long existed
between state and national financial institutions.
This new banking system should be made strong by federal laws
which would place a restraint on speculative real estate loans,
prohibit speculation in commodities and securities, forbid the payment
of interest on commercial accounts, make savings accounts time deposits
in fact as well as in name, remove public funds as deposits from the
preferred class by disallowing special and additional security for
them, and by requiring the publication of much more comprehensive bank
statements.
When these things are accomplished, government competition with
banks should be abolished and particularly by the elimLnation of the
postal savings banks except in those far-outlying communities without
banking facilities of any other kind.
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In my opinion, the new system should also permit branch banking
within metropolitan areas, and again in this I see no threat nor
danger to the so-called country bank, nor even the suburban bank, for
branches would only be permitted where there was a logical community
need for a bank.
There are a few of the perfectly obvious and reasonable changes
that should be made in our banking system, and my prediction is that
most of them will.
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Proceedings Missouri Bankers Association—May 1933
REPORT OF THE COMMITTEE ON RESOLUTIONS--Tom K. Smith, Chairman
Page 105
VII
PRESERVATION OF STATE BANKS
Much has been said, especially during the recent difficult
period, regarding the necessity of a unified system of banking.
We believe that a unified system of banking throughout the nation
is imperative for the strengthening of the banking structure. We
do not believe, however, that in order to have such a unified system it is necessary for all banks to operate under federal charters;
we are convinced that centralization of control can be effected
through membership of all banks in the Federal Reserve System, with
continuance of the present syetem of State and Federal charter
s.
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Proceedings Missouri Bankers Association—May 1935
CONCERT OF ACTION BY COUNTR/ BANKS FOR SAFETY AND PROFIT—Haynes McFadden
Page 110
I do not believe it is necessary to unify the banking system to the extent of chloroforming every bank in the United States,
every bank in the country that is ineligible for the Federal Reserve
System or unable to fortify its credit structure so that it will be
eligible. * * *
*
**
•
SOURCE: PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION--May 17-18-19, 1935
THE WAY IN AND OUT--addresE by Max B. Nahm
FI KP 89
Once again you are knocking at the portals of history. Out
of the wreckage of the banking business of the past there has to
be an ideal system in which we can all have confidence in the future.
That is that going to be? We do not know but there are distinct
trends of thought that are crystallizing in this country. What of
it? Probably there is going to be one kind of bank deposit instead
of three or four, some national form of banking more or less akin
to the national banking system. ijrobably in the end all banks are
going to be members of the Federal Reserve bystem. Probably you are
going to have some form of branch banking, state-wide, or less in
those states that allow branches for their own banks, but with the
definite insurance that the only principal branch is the main branch
and th+ther branches must pay; if they do not pay they must simply
degenerate into offices for the convenience of the neighborhood.
There is beginning to dawn in the minds of bankers that they
can run their banks in such a way that every note they take is
subject to a loan at the Federal Reserve Bank, and at any time they
can say, "I am liquid all the time." It is probable that all of the
forms of banking, other than deposit banking and trust banking and
savings banking, will he set off to themselves as an entirely separate
institution. It is probable that supervision of banks will be stricter
and that in the end there will be just one kind instead of three, as
you have them now, and that the officials of banks must be beyond suspicion in the future.
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Federal Reserve Bank of St. Louis
st12
•
SOURCE:
PROCEEDINGS MISSOURI BANKERS ASSOCIATION-MAY 17-18-19, 1933
CONCERT OF ACTION BY COUNTRY BANKS FOR SAFETY AND PROFIT--address by
Haynes McFadden
PaKe 111
The next step in the evolution of country banking came the
very next year, with the creation of the Federal Reserve System
in 1914. After first according to this magnificent system its
just deserts, which cannot be gainsaid, there is yet no denying
its disastrous effects on the earning power of country banks. The
loss of exchange by country banks has never been offset or replaced.
The float which in olden days ran in their favor has been reversed
and now runs against them. The daily debits against them must now
be settled in cash at twelve arbitrary centers, which contrasts with
the old-fashion settlement by offsets at the natural destination of
the merchandise or commodities financed. Still not content, it has
recently been enacted that Federal Reserve Banks may lend to individuals, firms and corporations and at lower rates than commercial
banks can meet in competition.
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Federal Reserve Bank of St. Louis
(13
•
"The Banks, the States and the Federal Government"
by Bray Hammond /
Economic
"The American
Review" - December, 1933
The assertion is frequently made that the federal government has no constitutional right to interfere with state banks and end the present rivalry of
jurisdictions by assuming exclusive control of all banking. Contrary to this
assertion, the terms of the Constitution require such an assumption; for exclusive control of the monetary functions has been bestowed upon Congress and
banking is a monetary function. Before the Civil War, when note issue abuses
by the state banks frustrated federal control of the monetary system and made
a chaos of the currency, it was commonly held by authorities that state banks
were unconstitutional. The same practical, economic, and constitutional considerations that were involved in the question of state and federal banking
control at that time, when bank liabilities were represented chiefly by
circulating notes, are involved now when bank liabilities are represented
chiefly by demand deposits.
At the convention of the American Bankers' Association in Los Angeles in
October, 1952, the state bankers declared themselves "unalterably opposed to
the so-called unification of all banking under federal control in place of the
present dual system of state and national banks." Mr. Felix McWhirter, retiring president of the State Bank Division, said in his address: "'You have
no doubt been astonished, as have I, to observe the thought seriously presented
that CongreFs has the constitutional power to prohibit state chartered
financial institutions from operating at all. ... The thaught, of caurse, is
so grotesque as to be little short of amusing."
***** ***
* * * * * * National charters had to be decorated with new powers in
order to make them attractive. In 1900 the minimum capital requirements for
national banks were lowered to $25,000. In 1913 lower reserves were allowed
for savings deposits, permission was given to make real estate loans, and
fiduciary powers were authorized. Disturbed especially by the latter invasion
of their field, the state banks struck back with persistent litigation
purposed to break up the exercise of fiduciary powers under national charter.
They yielded only grudgingly from their boycott of the federal reserve system
after the President of the United States had appealed to them to support it as
a gesture of wartime loyalty, and after the pressure of war conditions had
made it apparent that the system might prove of benefit to them. And they
resisted the effort to procure for national banks the power to establish
branch offices, although in many of the states they had that power themselves.
* *******
To suppose that if there had been no rivalry between the states and the
federal government, there would have been no impairment of bank deposits, is
probably too naive; but it is undubitable that specific changes in our banking
standards favorable to such impairment have been the direct outgrowth of the
effort to make national charters more attractive to bankers than state charters.
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Federal Reserve Bank of St. Louis
4
•
- 2For every practice that experience has shown to have been bad, legislative
encouragement is found. Moreover the effort to keep even with the states
still persists; and the deposit insurance provision of the Banking act approved
June 16, 1935, was justified in the mind of Senator Glass, according to the
press, only because he felt it would give the national system a decisive
competitive advantage over the state systems. The same Act exempts from
personal liability the stockholders of national banks organized thereafter.
But it is doubtful if the rivalry between jurisdictions will ever be
satisfactorily solved by enticements. This is a game two can play. In 1929
the superintendent of banks in Massachusetts, where banking practice and
supervision have been of no low order, acknowledged the care that was taken
to avoid legislation that should bear too heavily on state banks. For, he
said, "if they find that the state legislature is inclined to be a little
harsh on them, it will be very simple for them to convert into a national
bank and be received with open arms.
** ***** *
But of course the point of constitutionality or unconstitutionality is
in the final analysis an argument rather than a reason. The question is not
an abstract one of jurisprudence. It is in its practical aspect a question
of the political resistance to a change which so far as commercial banks are
concerned would mean the establishment of a single inescapable iurisdiction over
them, and so far as the states are concerned the surrender of what they have
alrays considered an important element of their sovereignty.
In all likelihood the change would seem unwelcome to both, at least in
prospect—though the banks are now on record as finding modification of the
present irresponsible control "essential no matter at what cost of impairment
of state sovereignty." As for the states, the change should seem reasonable
to them if viewed as a division of functions. For while demand deposits come
under the federal government on grounds of expediency and constitutionality,
because their use in monetary payments makes them a concern of the nation as a
whole, the same is not true of fiduciary business and savings banking. In the
case of fiduciary powers, indeed, there are now no federal lars to be followed;
state laws and administrative authorities govern the exercise of such powers
even by banks which belong to the federal jurisdiction. But even assuming
that there is inconvenience and loss in the administration of these functions
by the several forty-eight states, the need for unity is less imperiaus with
them than with the monetary function.
Accordingly, if the federal government monopolized control of commercial
banking as a monetary function, and left trust business and savings banking
to the states, it would merely be conrorming to the Constitution and justifying
the sagacity of the Federal Convention. The present conflict of jurisdictions
would be avoided and the country would gain at last a homogeneous and unified
monetary system. To be sure, in the light of the errors and omissions that
have been made in the past, we can have no confidence that when such a division
is made all difficulties will have been solved; there is for instance the
possibility of legal subterfuges with savings deposits, to say nothing of
other problems to arise fr.= the evolution of economic practices in general.
But that is no reason for allowing the present misarrangement to continue.
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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
*** *** **
Exchange char4es are an important factor in the earnings of nonmember banks and several member banks stated that they were in favor of
being members of the Federal Reserve System with the single exception of
their loss of revenue from this source. There was only one non-member
bank, outside of towns where member banks are located, which I visited
that was on the par list. This bank can hardly be called a typical
situation, for the bank is run largely as an office from which to carry
on large-scale farming operations. The President of the bank and his
older son own and operate a number of farms in the community with 2300
acres of wheat, 700 acres of cora, and other activities in proportion.
The Cashier of the bank stated that they only expected to "break even"
on running expenses of the bank and they planned to give the community
the benefit of cheaper service wherever possible without causing the bank
to operate at a deficit.
** * * ****
Page 4
FEDERAL RESERVE RELATIONSHIPS
Federal heserve service is appreciated by all member banks. There were
no criticisms, but there were a number of inquiries about various phases
of our service such as collections and safekeeping and about several regulations such as interest on past due C/D's. Several banks mentioned the
advantage of belonging to the Federal Reserve System as a source of emergency
funds. One banker stated that he did not see how any banker in the livestock
country could afford to run a bank without belonging to the Federal Reserve
System.
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Federal Reserve Bank of St. Louis
153
1
•
Address by S. L. Cantley, Missouri Commissioner of Finance
36th Annual Convention, Indiana Bankers Asso., May, 1952
(The Hoosier Banker, June, 1932)
********
* * * * * * We are at the cross-roads and some radical changes and
readjustments are necessary, if unit bankincr is to be preserved and I
believe it should remain. Making it possible for a half dozen institutions to control the banking resources of this country I believe will
be extremely hazardous. It will either close or convert thousands of
rural banks into mere milk receiving stations, with orders and prices
in the morning and shipments with reports at night. Due largely to unit
financing, this country rapidly passed all other countries of the
world in material and commercial development. Banking is about the
only business still beckoning to individual ambition and ability, for
the reason that most everything else is chainized and monopolized until
there is little opportunity for successful individual ownership and
control of a business enterprise. To me this alone offers material
for most serious thought but something must be done to strengthen our
present dual and unit system. The public demands and will not soon respond to anything that does not offer the utmost by way of protection.
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Federal Reserve Bank of St. Louis
* ** *****
10
•
Resolutions Committee Report
36th Annual Convention, Indiana Bankers Asso., May 1932
(The Hoosier Banker, June 1932)
*** ***** **
Dual Banking System
WHEREAS, There is apparently increasing insistence on the part of
certain members of Congress that our entire banking machinery be
brought under Federal supervision; and,
WHEREAS, This is not in our judgment representative of the best
banking thought of our country; and,
WHEREAS, It is in direct conflict with one of the fundamental
principles upon which our government was founded, that of preserving a
proper balance of power between our Federal authority and our State
authority; and,
WHEREAS, Such a change would only further intrench the system of
Federal bureaucracy; and,
WHEREAS, In view of the stress to which all our industries and
institutions have recently been aubjected, the present is a particularly
undesirable time to make radical changes;
NOW, THEREFORE, BE IT RESOLVED, That the enactment of any Federal
legislation contemplating the abolition of our dual banking system be
opposed as being consistent neither with public policy nor the spirit
of our institutions;
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Federal Reserve Bank of St. Louis
*********
.4
4-
SOURCE:
NEW YORK STATE BANKERS ASSOCIATION - 1932
EXTENSION OF THE CLEARING HOUSE PRINCIPLE - Address by W. A.
McDonnell, Executive Vice Pres., Bankers Trust Co.,
Little Rock, Ark.
Pages 142-43-44
It takes no student of government or political science to
observe that ever since this country was organized, there has
been an ever-increasing tendency to centralize power and more
power in Washington. The authority which has been lodged in
Washington as a result of a broad interpretation by our courts
of the implied powers conferred by the Constitution is enough
to amaze Alexander Hamilton and his associates, staunch Federalists
though they were, and it would be enough to cause the former
advocates of states' rights to shift uneasily in their graves.
This trend first touched banking in 1914 in a major way Icith
the organization of the Federal Reserve System. Of course that
much federal influence has proven to be highly beneficial.
Possibly we could stand some more of it, but, gentlemen, do we
want Congress to go the whole route ouch as they have with the
railroads? How would we like to have an Interstate Banking
Commission as well as an Interstate Commerce Commission? You
know banking institutions have always been considered quasipublic corporations. The transactions of most of them cross
state lines and as Felix McWhirter recently pointed out, it
has been seriously stated in Washint:ton recently that, because
people in the states give the federal government the right to
coin money and to control interstate commerce and because the
federal government requires the assistance of banks in fiscal
affairs, it has the implied power to close the entire field of
banking activity to other than federal institutions.
Pages 145-46-47
In its present form it contains some sections that are enough
to give you and me some concern. Among other things, it still
has Section 19 in it, and if you are in the banking business
operating under a state charter, that section is enough to make
you sit up at night, if you believe that the dual system of
banking provides a system of checks and balances and a division
of authority which prevent government from becoming dangerously
powerful and autocratic.
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Federal Reserve Bank of St. Louis
-2-
iiew York State Bankers Association - 193
Pages 145-46-47 (contd.)
What has all this to do with the regional clearing house?
You didn't invite me here to discuss legislative problems. It
has simply this to do with it. In my opinion the bankers of
this nation are today on the spot, to use the gangvernacular.
If we cannot develop voluntarily from within our own ranks
that degree of co-operation which will prevent bad banking
practices and bank failures in wholesale quantities, it is
going to be imposed upon us from without by legislation.
Mr. Owen Young is reported to have said before the graduating
class of Notre Dame University recently that what this country
needed was a Mussolini. He is reported to have intimated that
what banking needed was a Mussolini.
It has been said end justly so that the American system of
banking is no system at all, that it is just a hetero-geneous
collection of units, widely scattered, operating under diverse
laws, without cohesion or central authority, just a haphazard
system which has grown up with little improvement in the
structure. You know, there is a lot of truth in that. I believe
that if we are to continue in the banking business, working for
ourselves, we must provide an adequate substitute for the age-old
cry of "Deposit Guarantee". It is not enough for us to point
out that banking during this depression compares not unfavorably
with other business, that after all only two or three per cent
or whatever it is of the total deposits of this country were
involved in banking failures, and that a large part of them will
be returned by way of liquidating dividends. Some very interesting figures have been prepared on that and it makes good reading
for bankers.
*
OUR PROBLEMS - Address by Harry J.
Page 168-69
State Chartered Banks:
1188S,
Pres., ABA.
Te strongly recommend the elimination of all the provisions in
the bill which deprive state institutions of their full charter
and statutory rights which, under the existing Federal Reserve
Act they are permitted to retain. In June, 1917, as an inducement to such banks to enter the Federal Reserve Lystem there was
incorporated in Section 9 of the Federal Reserve Act the following:
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Federal Reserve Bank of St. Louis
7
-0-
New York State Bankers Association - 193
fages 168-69 (contd.)
"Any bank becoming a member of the Iederal heserve bystem shall
retain its full charter and statutory rights as a state bank or
trust company and may continue to exercise all corporate powers
granted to it in the state in which it was created." We believe
the framers of the bill have not taken into consideration the
fact that there are provisions in the present bill, which, if
enacted into law, would constitute a direct breach of the
guaranty of Congress under which many state institutions joined
the Federal Reserve System.
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Federal Reserve Bank of St. Louis
•
SOURCE:
Report of Banks of Deposit & Discount, etc., N.Y. 1932
Page 6
The following are proposals for legislation which we believe have
a direct bearing on any effective proErem of reconstruction:
1. The law be amended to permit a bank or trust company to
establish branches wlsewhere in the county in which its pincipal office is located, and/or in an adjoining county; provided,
however, that no such branch office may be established except
through the process of taking aver some existing institution,
or an institution that may hereefter be closed, or except that
branches may be opened in towns or locelities not presently
served by existing banking institutions; no such branch to be
established except with the consent of the Superintendent of
Banks and the Banking Board of the State of New York.
(It is intended that the above power shall be in addition
to the present branch powers now granted by the lEws of this
State.)
2. That banks and trust companis having cepital and surplus
of twenty-five million dollars or more be permitted to establist a branch or branches in any city or town in this State;
provided, however, that no such branch may be established
except through the process of merging with or purchesing
the assets of an existing institution or the assets of an institution that may hereafter be closed, or in a city or town not
then served by existing 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 York.
Page 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 continuous part of our
banking system. The recommendation as toitranch banks
is made solely because of our belief that/is an economic
necessity and it may provide a means in some 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 aree, or restrictinE
such facilities in such stetes as permit state-wide branch
banking of state institutions, will give added importance to
this question. In the past the competitive establishment of
National and State banks has brouEht many banking abuses
and some means must be found in the event of the establishment of a branch banking system, to prevent destructive
competition.
In our opinion, neither State nor National branch banks
should be established except on the concurrence of the State,
National and Federal Reserve authorities with the view of
strengthening the banking system of the respective states.
Vok
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Federal Reserve Bank of St. Louis
-2-
2. (Contd.)
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Federal Reserve Bank of St. Louis
In this State, new charters cannot be granted to State
institutions except with the approval of the Superintendent
of Banks and a two-thirds vote of the Banking Board composed of nine members. At the Niresent time all branch
applications are also submitted to the Banking Board for
its approval, and we propose that in the event a branch
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
is now required in connection with the charter of new
institutions.
SOURCE:
THE TARHEEL BANKER--JUNF 1932 (Proceedings N.C. Bankers
Association)
BANK MANAGEMENT--by Word H. Wood, Pres., American Trust Company, Charlotte
Pages 81-82-83
MR. J. A. MORGAN (Greensboro): Appreciating the force of Mr.
Wood's remarks about the desirabilit of a unification of the supervision of all of our banks, I wonder if he would elaborate a little
as to his ideas of how we can bring about that unification, overcoming the very vigorous opposition which of course will be met.
PRESIDENT HANES:
Mr. Wood, did you hear the question?
MR. WOOD: As I understand the question, it was &long the line of
how we could bring &bout a uniform banking system, all under one supervision.
PRESIDENT HANES:
Yes, sir.
MR. WOOD: Well, as I understand it, the opinion of the best legal
authorities is that if Congress wanted to do it, the:1 could put us all
under Federal control but, naturally, a lot of us might not like that,
there might be opposition to it--there probably woulo be--on the pErt
of some of our state institutions. But I feel that it is bad for the
banking business as a whole to have two separate banking systems in
the country in competition with each other, whose rights under their
charters and whose policies vary, and it seems to me we would all be
better off, the whole banking situation and the whole country, if we
were all under one uniform banking supervision.
It could be accomplished, of course, if it were possible to do it, by
all the banks being brought into the Iederal Reserve Eystem and under
the supervision of the Federal Reserve System.
That question has been up before the Banking and Currency Committee
in Weshington in recent months by a number of people who have testified
there, 'including, I think, the Governor of the Iederal Reserve Bot,rd,
Mr. Meyer.
I understand from good authorities on the subject that it coule be
accomplished all right, if Congresb would take hold of it and be willing
to put it through.
I suppose that above answeis the ouestion as far as I am able to
answer it. I think the question was as to how it could be accompltshed.
I think state supervision of banks in North Carolina--I am not speaking
for any other state--has been just about as good as national bank super-
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Federal Reserve Bank of St. Louis
r- 3
- •,:
-2The Tarheel Banker - June 1932
Tord H. Wood
Pages 81-82-53 (contd.)
vision, just about as competent, and I don't think the Comptroller
of the Currency has had any more success in supervising the banks
than the state bank supervisor, and I think our present state banking
supervision is fundamentally better than the national bank supervision,
although our State Bank Commissioner of course came in with a
tremendously hard problem already built up for him to work out.
I didn't throw out this idea with any thought in mind that our state
banking supervision today was inferior to any banking supervision
with which I am acquainted.
JUDGE J. G. ADAMS (First National Bank and Trust Company, Asheville):
I didn't intend to get up here and talk any more at this meeting but
there is one thing I have resolved to do the balance of my life and
that is thet whenever I hear a suggestion for the further invasion of
state rights in this country coming from the pulpit I am going to get
up and voice my opposition. (Applause.)
I am not speaking as a so-called Jeffersonian Democrat because I
don't know what that is any more. (Laughter.) I am speaking as a
citizen, registering my protest against this terrible grasping octopus
that we call government in Aashington, and unless representative bodies
of men such as this take some definite stand, I say to you that, in
my opinion, with the present trend of things, it doesn't matter what
sort of bank supervision we have, there will be no more banks left in
this country.
********
For my part, I don't want to speak to the ouestion except to say
that I am not in favor of putting any more power of further centralizing
any activity in Washington, regardless of what it is. (Applause.)
MR. T. J. BYERLY (Elkin): I have been listening closely to the
remarks that have been put before tnis convention tnis morning, and I
feel highly encouraged by the piece that A!r. Zood read to us, especially
that part about the Reconstruction Finance Corporation being able to
stabilize our situation to a great extent.
This gentleman over here asked 8 cuestion about unification of bank
management. You will recall that way back in 1912, I believe it was,
when the regional Federal Reserve Banks were organized, we sent a committee over the world to investigate the monetary systems of the
different nations, and we arrtved at thia conclusion, if I understand
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Federal Reserve Bank of St. Louis
-3-
The Tarheel Banker - June 1932
Word H. Wood
Pages 81-82-83 (contd.)
the system correctly: that there should be twelve regional -Danks,
and instead of having branch banks like they have in Canada, that
we would have the individual banks federalized by a member of the
Federal Reserve System.
From what little I have seen of this Glass-Steagall Bill, it
looks like they now are trying to federalize the unit system of
banks, that is, make every bank in the country a member of the
Federal Reserve System which, I think, wouldn't be a bad thing,
and if it weren't for the.azge feature, the discolInt and
checks, I don't believe there would be any objection to it. I
believe that what the Government is aiming at now, if I understand
it rightly, is to get every bank under the Federal Reserve System,
and federalized to the extent of being a member of that System.
(
'
X
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,
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Federal Reserve Bank of St. Louis
v
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SOURCE:
MID-CONTINENT BANKER—FEB. 1932 (Folder 3260)
WHERE DO WE GO FROM HERE? -- by S. J. Anderson
Page 10
We have the unfortunate situation in thie country of having
forty-nine banking systems, consisting of the banking laws of each
of the forty-eight states, the National Bank Act, all with more or
less unity of purpose, and superimposed upon the whole, the Federal
Reserve Act, trying to coordinate it into a workable system. Unfortunately, while the stte banking codes were doubtless intended to
conform to the general trend of banking practice, the diversity of
conditions, as well as the different viewpoints of those writing the
codes, have contributed somewhat to the varying results.
The weak point in the whole situation seems to be the numerous state
banking codes. The state banks have made a sorry showing in most states,
and particularly so in some. The outcome of this may be that the next
meetings of the assemblies in those states will attempt to amend the banking
laws. They probably need amending, no law or code is perfect, but with all
due regard for the averEtge legislator, I fear we are in for a serifs of the
most wild-eyed proposals we have ever seen. If we could bury the old
doctrine of states' rights, perhaps a single system of banks under national
control would help to solve the problem. The advocates of that system say
that since banking business has become interstate rather than intra-state,
a national system is the obvious solution,
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Federal Reserve Bank of St. Louis
125
•
SOURCE:
MINUTES OF THE FED. RES. AGENTS' CONFERENCE-Wash. Nov. 1932 (Confidential)
Page 13 (?)---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.)
(35)
Topic 5-A. Desirability of a unified banking system and what
might be done toward working for such a system. Possibility
of working away from the idea of the forty-eight different
varieties of State banking institutions, operEting under various
State laws, and having all commercial banks consist of one type
and come under one classification, namely, that of the National
banking system. - Ir. Case.
In the discussion of this topic there were pointed out the competition between the State and national banks, the increase in their number
and the enlargement of their powers, and the experiences of the recent past.
Mr. Case expressed the opinion that these developments clearly indicated the
desirability of a unified banking system. He suggested that if it is impossible to secure legislation which would eliminate at one time the dual
system, indirect methods might be used, such as the securing of legislation
extending branch banking, etc.
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Federal Reserve Bank of St. Louis
192
•
SOURCE: MINUTES OF FED.
S. AGENTS' CONFERENCE-Wash. Nov. 1932 (Confidentiql)
Exhibit C See(14)
REPORT OF THE COMMITTEE ON BANK AND PUBLIC RELATIONS TO
THE AGENTS' CONFERENCE - 1932
4
ages 5-6 (?)--Pages not numbered
* * *******
Future Opportunities in l'ank Relations Work
It is probably true that the problems facing member banks are more
numerous and more acute Lnan ever before and it is the opinion of your committee that real assistance can be rendered tqem by the right type of bank
relations men. Furthermore, nonmember banks are being brought to a realizati
on
of the advantages of membership and there is an unusual opportlnity to
strengthen the membership of the System by developing and keeping alive their
interest in membership through periodic visits of representatives from the
iederal reserve banks. Your committee therefore suggests the desirability of
giving greater attention to bank relations work from now on and the exercise of
unusual care in the selection of men for this service. (J. Herbert Case,
George
DeCamp, Oscar Newton, Chairman.)
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•
Federal Reserve Bank of St. Louis
A Review of the Proceedines of the Williamstown
Institute of Politics; 1932 Sessions
(Journal of Canadian Bankers' Asso., Oct., 1932)
* ** **** * *
American Banking
It was not only in its international field of action that American
finance was weighed in the balance and found wanting. Both American and
foreign speakers repeatedly referred to the inadequate banking 5ystem with
which the United States is burdened. Professor Gregory outlined some possible measmres of reform. Although the security-issuing subsidiaries of
the big American basks might have fulfilled a very valuable function, if
they ha4 beem mmmaged differently, nevertheless experience had convinced
him that these subsidiaries aught to be abolished. He also hoped that, in
the future, the bankers would regard themselves as professional men rather
than highly compPtitive business MR. Regarding the structure of American
banking, the two most necessary &sages appeared to Professor Gregory to be,
first, the unification of the system by means of the States revising their
banking legislation in line with the National Bank 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 imposed upon the nationally Chartered hanks and members, of the
Federal Reserve System which keep many banks with State charters from joiniag
the system. The second general line of reform which was recommended was the
extension of branch banking. This type of banking not only spreads risks, but
also attracts a better type of man into the field than cares to take part in
*unit banking* ventures whose capital may be only a few thousand dollars and
whose loans may all be tied up in a one-horse town. Unfortunately these
improvements depend upon legislation by the forty-eight states. It is not
likely, therefore, that they will be fltroduced with a rush. In the meanwhile the American banking system will remain as unco-ordinated and as
difficult to regulate as it stands today.
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Federal Reserve Bank of St. Louis
** * * * * * * * *
0 "IC
•
Proceedings of 31st Annual Convention
National Asso. of Supervisors of State Banks
Philadelphia, July 1932
* ********
Oscar Nelson (Illinois): *
*******
I feel this subject of branch banking and the dual system of
banking is a large subject and ;Aarge question. It may be that we have
reached the point where a single system of banking, so far as com—
mercial banking is concerned, might be in order. It may be that we
have built up these communities sufficiently at this time--I know
that is whatts the matter with a great many unit banks in the small
communities around Chicago as well as the outlying districts where
they have p:one the limit in financing local projects. It is just
possible that we have built up these various communities to an extent
where the system of banks, as bank members of the Federal Reserve
system, might be the order of the day.
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Federal Reserve Bank of St. Louis
**** * * * **
)
•
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 movement inaugurated in Congress to force Tnified Banking^
upon us by Federal legislative fiat, whether by the method contemplated
in Section 19 of the Glass Bill or in some other way, will if success—
ful destroy our American dual system of unit banks, state and national;
and take away the only remaining chance we have for rebuilding along
sound lines, the future economic life and commercial advancement of
this nation. Those who view the outlook as I do, are therefore called
upon personally to do their utmost not only to oppose such unwarranted
radicalism but also to interpret to others the groundwork on which our
opposition is based.
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Federal Reserve Bank of St. Louis
** ******
R
,
*
•
Proceedings of 31st Annual Convention
National Asso. of Supervisors of State Banks
Philadelphia, July 1932
********
L. A. Andrew (Iowa):
*** *****
We are particularly interested, as believers in the unit banking
system should be, in the effort now being made to destroy the dual banking system in this country and I hope you men appreciate, as I know you
do, the real danger that confronts unit banks in this country at the
present time. There is a determined offense against dual banking--a
determined line of attack to destroy this great system. The dual system
of banks built up in this country, but in its place a nationwide branch
banking system is to be developed, first: by compulsory branch banking
in all states whether the states allow branch banks or not, and then
the so-called "trade area" or "branch banking area", and gradually
nationwide branch banking. This is the real objective they are working
for in connection with that system. I don't know whether or not it
has been touched upon today, but the ones who propose the proposition
would be glad to see destruction of the state bank system and so-called
unification of our banking system. It is a live issue and topic to
which you men here present can give careftl consideration because you
understand the problem. I can't see how a man of broad experience, who
stands high in so-called national financial circles, could in any way
sponsor such a proposition. It is a selfish and destructive attack,
uncalled for under present conditions. * * * * * * *
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Federal Reserve Bank of St. Louis
*** *** ***
It00
•
Address by J. S. Love, Superintendent of Banks, Miss.
31st Annual Convention of
National Asso. of Supervisors of State Banks
Philadelphia, July 1932
** * **** **
Unit Banking vs. Dual Banking System
There is no justification in the proposed unit banking system.
There can be no real fault with our dual banking system. The larger
National banks have their field in international banking and in the
financing of large business interests, and in making the Federal Reserve banks possible.
State banks can better serve the smaller local communities and
agricultural sections; can be better supervised by competent supervision nearer home, and can well carry out the theory of the founders
of our Government that the National Government should only exercise
control over those matters which cannot be controlled by States and
smaller public units.
The Bank Commissioners have always taken the position we do not
care whether a bank has a State or National charter. We are interested
only that the banks are safe and properly conducted. Undoubtedly the
two banking systems are here to stay, and the best good can be accomplished by competent co-operation of the two systems in strengthening
banking conditions of the country.
Much has been said toward permitting the concentration of financial
power of our country in the hands of a few. Much more is being said
and is now in the making along that line. There appears to be two
distinct schools of banking which have come to sharply conflicting conclusions on this subject. For the past six or eight years, branch
banking has been discussed repeatedly at all conventions, both of the
Supervisors and of the American Bankers Association.
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Federal Reserve Bank of St. Louis
* * ********
_Mt
SOURCE:
THE MISSISSIPPI BANKER—June 1952
SEES BANKING UNIFICATION AS THREAT TO ECONOMIC FREEDOM--by Rudolf S. Hecht
Page 23
He was opposed, he said, to giving banks under national
charter, such vital advantages over state banks, as proposed in the
Glass Bill, as to lead to the destruction of the present dual system
of local independent unit banks. He, and bankers generally, he
said, were heartily in favor of legislation or changes that are
"truly constructive and helpful to banking as well as to the public."
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Federal Reserve Bank of St. Louis
q2
-= =
•
Proceedings of 31st Annual Convention
National Asso. of Supervisors of State Banks
Philadelphia, July 1932
**** *****
Secretary Sims: To the credit of Texas, it is always doing things
up to the length it starts out to do them. Texas had one guarantee deposit law that was a guarantee deposit law--the bank commissioner had
the right to assess and the sky almost was the limit. I remember Mr.
Chapman, when he was commissioner, telling me that he had assessed a
full two per cent and the result of it was he was driving them fast out
of the State system--they went over to the National system. That, to my
mind, is an additional argument for the dual banking system, when you
have a situation ihhere things become too onerous you can seek refuge in
a fairer system. It means a lot to the financial situation in this
country.
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Federal Reserve Bank of St. Louis
*********
dThe "*.•
•
SOURCE:
THE CALIFORNIA BANKER--JUNE 1952
ADDRESS OF THE PRESIDENT--Herbert H. Smock
Page 218
*******
PROBLEMS MUST BE MET OUTSPOKENLY
There are two parts to the problem, one relating to the form
and structure of banks and the other having to do with their management and operation. The first element of the problem relates to
our system of banking in this country, or rather our lack of a
uniform system. It is difficult for one in my position to be
specific either in criticism or approbation. We have several kinds
of banks represented in our Association, and it might be considered
unbecoming for the President, who is selected to represent them all,
to make any expressions of discrimination as between different forms
of structure. One of the greatest obstacles, however, in the way of
improving our banking structure has been, and is, the reluctance on
the part of leading bankers, for policy reasons, to express themselves
frankly. How are these problems to be solved unless we have the guidance of those in high authority? While I shall not attempt to suggest
a remedy for all of the problems confronting us, I should feel romiss
in fulfilling my responsibilities if I refrained from expressing some
of my own convictions.
NEED FOR UNIFIED BANKING SYSTEM
I am firmly convinced that a large part of our difficulties, from
the point of view of structure, comes from the lack of a unified system of banking. We have, in effect, forty-nine different banking
systems in the United States, embracing the national banking system
and the banking systems of the forty-eight individual states. It is
bad enough in any event to have this sort of diversity, but when it is
realized that the systems differ in each of the forty-eight states and
that it is possible in some states for a small group of men, whatever
their qualifications or lack of them, to organize a bank in normal times
with small capital and operate it under practically no adequate regulation,
it is not necessary to go much further to find the reason for banking
difficulties and failures in times of business adversity. It is no doubt
true that many suspensions were caused by the action of an unreasonably
frightened public whose peremptory demands it was not possible for even
well-managed institutions to withstand. But it is impossible to contemplate the number of bank suspensions in the United Status during the past
ten years without coming to the conclusion that something requires correction in our banking structure. We may differ as to the specific remedy
for such a condition but we must all give thought to the necessity of finding
some remedy, no matter what may be the obstacles, constitutional or otherwise. The attempts to bring about uniformity in banking organization and
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Federal Reserve Bank of St. Louis
,-•
Herbert H. Smock
Page 218 (contd.)
functions have largely been made in relationship to our national
currency system, but it must speedily be recognized that the banking
and commercial credit of the United States transgresses all State lines
and is nation-wide in scope; that the banking structure of the country
must be related not only to the requirements of a sound and adequate
currency but also to the commercial credit needs of the nation, and that
it will not be satisfactory until in its form it parallels the scope and
character of the nation's credit.
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Federal Reserve Bank of St. Louis
We must face the question of unified banking. * * *
Hearings before the Subcommittee of the Committee
on Banking and Currency of the House on H.R. (10241) 1136:_
March and April 1932
SAatement of Robert L. Owen, Muskogee, Okla.
-A- 'A fc
*
-X- 'A-
Mr. Owen. I think the Ltate banks have been a weak spot in the credit
system of the United States, for the reason they have permitted these very
small banks to exist. I think those who are interested in stabilizing the
credit of all of the country ought to call attention to this fact, and the
attention of these States principally. The report of the Comptroller of the
Currency, which shows that nearly all of the failures have been the little
State banks. Very few of the laree banks have failed. There is one in New
York that 1.ent under, but it was a case of a bank which had for yeErs failed
to carry out the advice and instructions of the supervising examiners, and
its failure was for that reason anticipated.
The effect on the State banks ought to be beneficial. The State banks
have, in a large measure, declined to bear any part of the expenses of the
Federal reserve system and have been Letting the benefits of the Federal reserve system through their member bank correspondents. It has saved them
some little money. I think it would be better for the smaller State banks,
when they are not strong enough to stand alone, that they merge toEether, so
us to have sufficient capital to safeguard them. 'Olen you are dealing with
the l'ederal reserve system you are dealing with a nntional banking- system.
Yon can not aeal with the btate banks beyond opening a door by which they
can of their own free will enter the reserve system or become national banks.
It would be well to make the national banking system so attractive as to induce them to enter.
dr. stevenson. If they are in the proper condition, they can come in
the Federal reserve system and get under the same umbrella.
Mr. Owen.
You may offer them the opportunity.
The uhairmen. They can join it. State banks can join tomorrow, and
come in and get the benefit of the Federal reserve system, get the benofit
the Federal reserve system has built up in 15 years, without any contribution.
Mr. Stevenson. lind if they are not in such condition they can become
members of the Federal reserve banks; they are not in such condition that
the Congress of the United States should refrain from something that will
safeguard the aepositors and stop them from accepting deposits. If they are
not in condition to come into the -kederal reserve banks, they have got no
business receiving deposits.
A- 34- -*
*
* :'c
Mr. Owen. I think that is very easily done, because this fund ouEht
to be handled by the reserve banks. I think it ought to Lo into the reserve
banks and be handled by them; I believe they would have the funds invested
in United States Government securities, and that would be building up the
power of the reserve banks themselves, and would be earning money. We need
not ')e bothered about the Question of its being too bit , because its bigness
will not hurt.
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Federal Reserve Bank of St. Louis
*
k
A. A- A- A-
112
•
- 2Statement of Ronald Ransom, President of the Georgia Bankers Asso.,_ Atlanta
* ********
Mr. Ransom. I would rather discuss it in an informal sort of way, and
bring out one thought if we can. It seells to me if we adopt the present
bill we are going to run into this dilemma upon it: i)assage; as soon as it
becomes a law there is going to be a feeling on the part of depositors in the
nonmember banks that they are not as safe and not as secure as they would be
if their deposits were in the member banks under the guaranty. That, it
seems to me will be the first effect which will result from its passage. It
would penalize at once those nonmember banks and be a very severe blow for
our dual system of banking. Whether the dual system is the right or the
wrong one, I personally approve it, and I like it; and I think we ought to
retain it.
The Chairman.
Mr. Ransom.
Did you read the morning papers for to-day?
No; I have not.
The Chairman. Did you see where the Federal Reserve Board is preparing a bill now to unify the banking systems of the United States?
Mr. Ransom. I am going to ask you not to draw me into a discussion
of that at this time.
The Chairman. I merely call your attention to the fact that from
authority so high as that there seems to be a sentiment ripening into preparation of a bill to unify the banking systems.
Mr. Ransom. If we are going to unify the system let us do it directly
by some such system as that--if it i8 inevitable that it shall be done and
not indirectly by a guarantee law.
The Chairman.
Do you know what the proposed method is?
Mr. Ransom. I do aot know. Apparently it is by force of arms; whereas,
this is by suspicion, to be aroused in the public mind by guaranteeing deposits in member banks and the nonmember banks are going to suffer at once from
this guarantee bill.
The Chairman. It is your judgment that this bill is workable and will
result in protection of the depositors?
Mr. Ransom.
This particular bill?
The Chairman. Yes.
Mr. Ransom. No, sir; I do not.
The Chairman. I mean as to such banks as it will embrace?
Mr. Ranson. No, sir; I do not.
The Chairman.
in?
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Federal Reserve Bank of St. Louis
Then it would not prejudice the banks that did not come
•
3
Statement of Ronald Ransom (Cont'd)
Mr. Ransom. I said the first effect would be a psychological effect
on the public mind, a temporary effect; but as to the nonmember banks which
would be closed and put out of the picture forever, if their derositors do
not think they are as safe as the other banks and removes his deposit from
the nonmember bank to the member bank. That will be the first effect of
the passage of the bill.
What will be the next effect? The stronger, better-managed member
banks that will come under the terms of the bill are slowly going to wake
up to a realization that their resources, their earning capacity, their
strength is being used to protect the weaker members who are being driven
in by the bill, or who are already in the system; and therefore, there will
be a withdrawal by member banks unless they are forced to stay in it. If
this bill will have the results I anticipate and banks can withdraw they
will withdraw, leaving in the system only the weaker members.
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Federal Reserve Bank of St. Louis
********
•
- 4Statement of William S. Elliott, Vice President of The Bank of Canton, Canton,Ga.
****** ** ***
We feel, like the dual system of banking, some banks in communities
where it is best suited to have State charters and othcr banks where Nation9.1
charters are preferable for certain reasons, is a good system; and we feel
like it would be a mistake to abolish the dual system of banking in this
country.
Without having read the bill at all to which the chairman referred, I
do not agree to the idea of forcibly unifying the banking system of the
country, because I believe that the little fellow out in the "sticks" as they
call the country man frequently, living in the rural districts, should have
the benefit of banking regulations that will enable him to operate and carry
on his business in a safe and reasonable way. You would say to him: wYou
must come into the national system or go out of business." It would seriously
hamper business in many of the rural districts of our own State and I am sure
in other States. That is one of the greatest dangers, in my opinion, of the
bill that is now under consideration.
******** **
The Chairman. You would not have any trouble in joining the Federal
reserve system if you so desired, would you? Any bank that is properly managed
and in sound condition can get into the Federal reserve system, can it not?
Mr. Elliott. Yes, sir; they can get in by complyinE with the regulations.
The Chairman.
And they do not surrender their State charters?
Mr. Elliott. No; but they surrender certain rights, which are very
valuable, when they go into the Federal reserve system. A borrowing bank can do
better in the Federal reserve system than a bank which does not borrow money, and
a good many of our banks in Georgia do not borrow money. They do not extend them
selves to the point where they have to borrow money, and it is the pyramiding of
bank credits that is largely responsible for the terrible banking depression we
have had and the failures, because they have been just pyramiding one on top of
the other until the house began to tumble down.
****
**** *
Mr. Elliott. I would have held it as a kind of reserve. I want to tell
you, Judge Brand, that in my candid opinion the Federal reserve system has seen
times when it would practically have gone out of business if certain fortuitous
circumstances had not happened to keep it going. I want to tell you I have
always felt that those surplus earnings should be put aside somewhere and not
put in the Treasury where they would be available for any purpose later that
they might be required for. The Federal reserve system, as you know, would
probably have gone under in its early days if it had not been for the outbreak of the war, because many of the banks were operating in the early days at
a loss, and they were under great criticism as you know. You know how the
system was criticised, and I believe it would have probably gone under if it
had not been for the fortuitous circumstance of the war coming on and the consequent big earnings they were able to make. I think it was a mistake, because
if a big surplus is a good thing for a small unit bank it is certainly a good
thipg fQr.a big.system that maintains the reserves of all Federal reserve members
tna
n-namPs_
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•
-5Statement of Gordon L. Groover Vice Pres. Citizens Southern National Bank,
Savannak, Ga. and Past Pres. Geouia Bankers' Association.
The Chairman. Of course, under this bill, as you have just pointed out,
we attempt to enable the banks to set up a plan by which the banks can charge
for their service in remitting checks and accumulate considerable earnings.
Mr. Groover. I understand that. I think the Federal reserve bank went
entirely too far in forcing people to collect checks upon exchange--without
exchange, I mean. I think the banks are entitled to it. A great deal of the
profit of banks has been taken away by the Federal reserve; yet I am a strong
believer in the Federal reserve system.
**********
Statement of A. L. M. Wiggins, Hartsville, S. C., Pres., South Carolina
Bankers Association
Mr. Wiggins. I would like to make this further statement, that I am
not making any statement in opposition to or favoring any of the provisions
of the Glass bill. However, I am pointing out that I look with a great
deal of apprehension toward the trend of banking legislation which is accomrlithing, whether intended or not, a concentration of the entire bank
management and direction of all the banks throughout the United States into
the hands of the Federal Reserve Board, which I consider a very unwise trend
if carried to the extent that it seems to be going.
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Federal Reserve Bank of St. Louis
** ** * * *****
•
-6Statement of William Gibbs McAdoo, ex-Secretau of the Treasury - (Inserted
for the record b the Chairman
*********
It was a mistake, I thought,to eliminate the deposit insurance feature.
While the Senate provision was immature and inadequate, it might have been
reshaped in conference with the House committee; and, at any rate, it was a
definite step towa-d the protection of bank depositors from the calamitous
losses which they always suffer fro,. bank failures.
The frequency of such failures is a severe indictment of our banking
system. So lon6 as each of the 48 States charters and supervises a banking
system of its own, we shall continue to have scattered throughout the country
many weak units, inefficiently supervised. In periods of business depression
and public apprehension they fall like houses of cards.
*********
Letter to CouTessman Steagall from Angus V. McLean, Lumberton, N. C.,
March 294 1932 - (Tncluded in Repord)
*** ******
I believe our whole banking system should be unified and that we should
have either insurance of deposits or a guarantee of deposits covering all
banks--both members and nonmembers. The Federal reserve system should be
broadened so as to permit a larger number of banks who are not now members
of the system to become members.
* ** * * * * **
Letter to Harry Haas First Nat. Bk., Philadelphia, from D. F. Guinan,
Pres., Merchants Banking Trust Co., Mahanoy City, Pa., April 4 1932.
* * * * * * But I have seen no good come from State or national organization, and I see only the failure to assert leadership in financial matters.
They seem to lack initiative, and in very few lines of activity have I seen
merit in their line of action. Their gatherings are primarily pleasure, with
occasional incidental fault finding.
I recall offering a resolution to the State convention held in May, 1929,
to urge legislation against "selling short" and also a resolution to increase
tax exemption on corporations to :!15,000 for the purpose of encouraging small
corporations and diverting the burden of taxation to chains, mergers, consolidations, and big business. Tax reduction was in the air then. The secretary wrote me after the convention adjourned that the resolutions were brought
before the resolution committee and were favorably considered, but it was the
judgment of the committee to avoid controversial subjects. The resolutions
were not brought before the convention. The inference would be that food for
thought was out of place at bankers gatherings, but such gatherings should be
in the nature of outings and feed the banking men with golf, vaudeville,
smokers, dancing, banquets, and such subjects that did not necessitate thought.
I have not been at a State or national convention since.
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•
Letter to Harry Haas First Nat. Bk., Philadelphiaj from D. F. Guinan Pres.,
Merchants Banking Trust Co. Mahanoy City.
, Pa., April 4, 1932 - cont di-I recall the waste of time at conventions in criticizing and opposing
the Federal reserve because of collections at par, loss of exchange, loss
of interest on deposits, end trifles, losing sight of reciprocal advantages
and benefits nation-wide, resulting from the Federal reserve system.
***** ** **
I believe the time has come when there should be two distinct classes
of banks:
Private, the investment banker, without Government interference.
Federal, national, and State having membership in the Federal reserve,
and the deposits in Federal banks should be guaranteed by Government without assessment on associate banks. The restrictions and regulations by the
Federal reserve should insure the investments and loans to minimize risk.
* * * **** **
Letter to Senator Blaine from Pres. Kiel and Cashier Johnson of the Bank of
SherINood, Sherwoodj_ Wisconsin, April 15, 1932.
* * * * * we suggest that deposits in all banks in the United States
be guaranteed by the Federd Government under one of two ways:
1. The Government guarantee deposits 100 per cent--if liquidation of a
bank becomes necessary, then the Federal Government to take over the total
assets of the bank.
2. That the Government guarantee deposits up to 50 per cent--assuming
that in case of liquidation, banks would realize at least 50 per cent of
its assets under present conditions. This in turn would assure depositors
100 per cent protection.
To make one of these two ways feasible from the standpoint of the
Government and for future protection of our banks in times of stress, the
following legislation would be necessary:
1. That all banks, whether National, State, or private, be compelled
to join the Federal Reserve System.
2. That all banks conform with requirements and regulations of the
Federal reserve system--as regards future transactions.
5. That banks be strictly limited as to the amount they loan to any
one industry or corporation, or investments baught.
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******* ** *
•
-8Letter to Conglmssman Steagall from S. A. Carson, Pres., State Bank of
Monticello, Monticello, Indiana, March 17j 1932.
*********
At this time most of the shaky banks have collapsed and it is a good
time to start it. The wheels would start moving at once. All the banks
in this county (White) are State banks, none of us are in the Federal reserve. Every bank would be compelled to go into it to get deposits and
the Federal reserve instead of being supported by 7 000 or 8 000 banks
would have about 28,000 banks, all examined by Government examiners and
this would probably make State examiners unnecessary. The objections to
the bill which were made by the bank cmmissioner of PennsylvaniaEre not
of sufficient importance to offset the advantages of the bill.
*********
Letter to Congressman Steagall from L. R. Brady of the Fruit Growers State
Bank, Saugatuck, Mich., March 9, 1932.
******* **
The reserve system should be broadened so that any bank that has a
chance to work out of its present financial difficulties should be admitted
to the system provided its capital structure is a reasmataeproportion of
the deposits of the institution. All banks of the Nation should be members
of the reserve system. Guaranty of deposits will gradually force them into
the system where they belong. This will make a greater banking system for
our Nation.
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**********
•
SOURCE:
PROCEEDINGS OF MISSOURI BANKERS ASSOCIATION-May 16-17-18, 1932
ANNUAL ADDRESS OF THE PRESIDENT--Charles B. Mudd
Pages 19-20
It is true, I admit, that there are things here and there that
need revieion or elimination, but I believe the proper procedure to
accomplish this reform is chiefly through better management and not
through excessive legislation. Legislation cannot make a good banker
any more than it can make a good doctor or lawyer. Just now we are
witnessing an attempt in Congress to impose upon the banking world
through the Glass Bill further restrictions and regulations, and still
another plan is being evolved for nationalization. I want to state
in no uncertain terms that I am opposed to nationalization. I believe
now, as I always have, in the dual system of banking which our nation
has always enjoyed. A nationalization of our system, in my opinion,
would lead to but one thing--an extension of branch banking with a
concentration of the control of national credit in a few enters (sic)
and in the hands of a few men with dangerous possibilities to our
nation as a whole.
Permit me to remind you of the resolution adopted by the State
Bank Division of the American Bankers Associetion in Clevela
nd in 1930,
which exactly expresses my views. That resolution said:
"Whereas, the prevailing dual system of banking has contributed
substantially to the remArkable economic development of our
country,
therefore be it resolved that we believe our present state and nationa
l
systems should continue working in cooperation, thus assuring the enduran
ce
and permanency of individual initiative and the free play of personalized
enterprise which history has proved so desirable."
The question at issue is simply whether banking and the related
finances of the nation are to be left to state autonomy or are to be
concentrated in one large national organization of standardized units.
I favor state regulation but would not be opposed to placing national
banks on a par with state banks by giving national banks such branch
privileges as state banks enjoy in any given commonwealth. In this
way branch banking would remain a controllable factor within each state.
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Federal Reserve Bank of St. Louis
Proceedings of Missouri Bankers Association—May 16-17-18, 1952
PRESIDENT-ELECT HOLDERNESS:
Page 137
********
Perhaps you expect me to say something on a moot question, and
I have the courage to say it. I have never been in favor of group or
chain banking. I have never been in favor of state-wide branch banking.
I should be very regretfUl if anything ever happened in this state to
stifle personal initiative or hamper independent banking. By the same
token I should be most regretful if any misguided conception of
compatabilities should ever blind us to the desirability of ares while
wholly unsuitable and undesirable in others. * * *
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Federal Reserve Bank of St. Louis
* *** * ***
•
Committee on Banking
Chamber of Commerce of the United States
Preliminary Material - Meeting in Chicago
October 31, 1931
**** ****
The Development of Smaller Banks, 1900 to 1915
As we have seen, immediately following the panic of 1893, the number of
national banks decreased. Whether or not this resulted entirely from the
panic is open to question. It may well be that the development of state banks
and trust companies, having as they did the privilege of organizing with a
lower capital, and having developed as they did various types of banking service, many of which were not commercial in character, such as trust functions,
savings departments, dealing in investment securities and loaning money on
real estate, operated to make the organization of a state bank and trust
company more attractive in many places than the organization of a national
bank. There was felt at this time the necessity of permitting national banks
to organize in cities and towns at a capitalization less than the previous
$60,000 minimum requirement. In 1900, an act was passed by Congress permitting the organization in towns of less than 3,000 population of national
banks capitalized at $25,000. There was an almost instantaneous response in
the growth of national banks in the less populous and less wealthy portions
of the country. Whereas during the five years preceding 1900 there 11.,(1 been
a net yearly decrease of 28 in the number of national banks in operation,
there was during the five years, 1900 to 1904, an average net yearly increase
of 390 national banks. Indeed, the period from 1900 to 1913 has been referred
to as the "golden age" of national bank organization. No oth3r period has
been so prolific in the organization of national banks. But state banks and
trust companies were making even more rapid strides during this period. The
relative numbers of trust companies, state banks and national banks in the
years 1900 and 1913 are shown below:
Trust Companies
Number
1900
1913
290
1,515
State Banks
Resources
(in millions)
Number
Resources
(in millions)
$1,330
5,123
4,369
14,011
$1,759
4,143
pational Banks
Number
3,732
7,473
Resources
(in millions)
$4,944
11,036
It was during this period that national and state banks came into direct
competition with each other in practically all sections of the country, and
that the more liberal powers and privileges of state banks began to react in
a definitely unfavorable way upon the national banks. Yet, the above Chart
shows that the relative position of the two classes of banks as regards their
control of the banking resources was not materially altered in the thirteenyear period.
Under the Federal Reserve System - The development of Branch Banking
When the bknking system of the cauntry was reorganized in 1913 by the
passage of the 7ederal Reserve Act, it was recognized that state banks and
trust companies, especially the latter, had developed a field of banking
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Federal Reserve Bank of St. Louis
- 241/
activity which was not open to national banks, and in order to enable the latter
more successfully to compete with the former, certain additional powers were
given natioaal banks. By the act and amendments thereto, national banks are
now permitted, upon approval of the Federal Reserve Board, to serve in the
capacity of trustee, executor, administrator, registrar of stocks and bonds,
guardian of assets, assignee, receiver, committee of estates of lunatics, and
in any other fiduciary capacity which by state law is permitted to state institutions in the same place. Further, in the small cities national banks are
permitted to act as insurance agent and as real estate loan broker. State
banks had enjoyed an advantage in their power to loan on real estate security,
and had developed in some of the agricultural regions at the expense of national
banks. This advantage was partly dissipated by the Federal Reserve Act which
permitted such loans within restricted limits. These added trust and fiduciary
functions were a recognition of the competition of state banks. There is at
no place in the National Bank Act or the Federal Reserve Act any express
authority for the operation of a savings department in a national bank.
Prior to 1913, such departments could not be operated except through an
affiliated savings bank organized under state law, but the distinction made
in the Federal Reserve Act between demand and time deposits and the requirement of a specified reserve to be maintained against time deposits has been
interpreted as permitting the direct operation of savings departments by
national banks. Their only savings function, however, is the payment of
interest on such savings deposits.
National banks were made compulsory members of the federal reserve
system from the outset and state banks and trust companies permitted to
join under certain conditions. There has been a gradual liberalization of
the terms of admission for state banks to membership and there was until
1922 a steady increase in the number of such banks which entered the system.
On June 30, 1924, there were 1,570 state bank members of the system with
$13,221,983,000 in resources. Seven years later, on June 30, 1931 the
number of state bank members had decreased by 588 to 982, but their resources
had increased by $4,468,005,000 to $17,689,988,000, while the number of
national banks had decreased by 1,280 to 6,800 and their resaurces had increased by $5,043,327,000 to $27,598,600,000. * * * * *
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Federal Reserve Bank of St. Louis
***** * **
TYMITTg_211_23NKING
'Inrr- A. Wheelr, Room 612, First National Bank Bldg., Chictgo, I
. 01 Connor, Manl.ger, Finance Department, Chamber of Comore.:
of the United States, Washington, D. O.
Jur_Ker
NatihAl Shaamut Bank,
'1,.,7ton, Mass,
Walton L. Crocker, Pres.,
Zohn Hancock Mut. Life Ins. Co.,
Boeton, Masa.
1-):.ul U. Warburg, Chrm. of Board,
Internationia Acceptance Bank,
40 Wall St., New York, N. Y.
David M. Goodrich, Ohm. of Bo
The B. r. Goodrich 00.,
250 Park Ave., New York, N. T.
Howard A Loeb, Chairman,
Tradesmen's National Bank &
Pf,.
(Trust Co.
Alba B. Johnson,
1521 Packard Building,
Philadelphia, Pa.
W. M. Baldwin, Pres.,
The Unlon Trust Co.,
Cleveland, Ohio.
George T. Ladd, Pres.,
United Inglimering & Foundry Co.,
PittsbureA, Pa.
JIhn M. Miller, Jr., Pres.,
!First & Merchhnta Natl. Bank,
Richmond, Va
Junius P. Fishburn, Pres.,
Times-World Corporation,
r- gmoke, Va.
Oliver G. Lacas, Pros.,
Canal Bank & Trast Co.,
New Orleans, La.
P. G. 8hook,
Shook Fletcher Supply Co.,
Birmingham, Ala.
Felix M. McWhirter, Pres.,
The Peoples State Bank,
Indianapolis, 'End.
J. Paul Clayton, Vice Pres.,
Central Illinois Public Service
Springfield, Ill.
;ro-.
Lonsdale, Pres.,
4ercantile-Commerce Bank &
A. Lou!s Mo.
(Trust Co.
Paul Dillard, Pre3.p
& Coffin Qo.)
Memphis, Tenn.
Z. W. Decker, Pres.,
nrthwestern Bancorporation,
Minneapolis, Minn.
nilliam J. Dean, Pres.,
Nichols, Dean & Gregg)
St, Paul, Minn.
W. S. McLucas, Chrm. of Board,
Commerce Trust Co.,
Kansas City, Mo.
W. L. Pistrikin Chairman,
The Great Western Sugar Co.,
Denver, Colo.
Nathan Adams, Pres.,
American Exchange 11,,,t1. Bank,
DR1 7s.e,
J. J. Culbertson, Vice Prei.
Southland Cotton Oil Co.,
Paris. Texas,
gem/ M. RobInson, Chairmftn,
Security-First Natl. Bank)
Los Angele2, Callr.
J. B. Levison, Prfas.,
lirements litnd Insurence Co.
San INstnciseo, Calif.
oLokLin, Pr9S.,
4
Alelphia
7V
“1.1
Atlanta
VII
7hicago
,
Louis
MinneakUis
,trisas aty
Pra.ncisco
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Federal Reserve Bank of St. Louis
Non-Bankor
•
SOURCE:
REPORT OF HARRY I. ZIEMER, V.P. AND CASHIER--June 18, to
June 25--Wisc. and Mich.—submitted with Mr. Peyton's
letter of 7-10-36, to Bd.
Pa_ge 4
I found that all the non-member banks visited were more or
less interested in membership. The exchange factor, so prevalent in
other parts of our district, is not a contentious factor in this
section (northern Wisc. and Upper Peninsula of Mich.) of the country. One
of the reasons advanced as to the reluctance of non-member banks to apply
for membership, is that they have had a waiver of deposits, and would
prefer making application for membership after the repayment of such
waived deposits. Some of the banks are burdened with "Other Real Estate,"
and state they would like to eliminate such assets before making application.
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Federal Reserve Bank of St. Louis
„if%
•
Committee on Banking
Chamber of Commerce of the United States
Preliminary Material - Meeting in Chicago
October 31, 1951
•
* * ** * * **
Concentration - Changes in the banking structure have been no less
important than those occurring in other fields of business, and there has
been a tendency towards the concentration of banking resources in line with
credit requirements of commerce and industry. During the five years preceding June 30, 1930, bank growth, mergers and suspensions brought about an
increase in the average size per bank from $2,152,000 to $3,074,000 in aggregate resources.
Contrasting the average number of banks per 10,000 of population
throughout the United States, there was a decrease from 2.46 to 1.98 between June 30, 1919, and the corresponding date in 1929. The lowest number
of banks per 10,000 of population for both periods was in Rhode Island,
being 0.74 in 1919 and 0.48 in 1929. The highest, 10.69 in 1219 and 7.01
in 1929, occurred in North Dakota. * * * * * * *
********
Studies have been made of the concentration of banking in selected
cities. These will be available for Committee scrutiny. In the first
quarter of 1929, 42 of the bank mergers involved more than one-sixth of the
total banking assets of the United States. In conseouence of mergers and
the increasing capitalization of the banks, 1? cities (New York, Chicago,
Philadelphia, Boston, San Francisco, Cleveland, Pittsburgh, Los Angeles,
Detroit, St. Louis, Buffalo and Baltimore) are the centers of banks having
approximately 47 per cent of the total bank deposits of the entire country.
In the few instances where any of the above cities contain the head
offices of banks with extra-city branches, the deposits of the branches
have been ascribed to the head office, but if any of these same cities
should be the center of group banking systems, only the deposits of the
group components actually located in those cities have been included.
********
Multi-Function Banks - Ihereas a few decades ago the banks of the
country typically were divided into commercial banks as banks of deposit,
savings banks and trust companies, it is a characteristic of the present
situation and a developing trend for the larger bank to include all of
these services and in addition to maintain auch other services as investment security and mortgage bank functions. The charter powers of national
and state banks have been greatly broadened to permit to commercial banks
as well as to trust companies these and other forms of banking operations
until there is difficulty in distinguishing the old lines of demarcation of
commercial banks, savings banks and trust companies.
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Federal Reserve Bank of St. Louis
*********
-
•
- 2Segregation of Commercial Banking_under the National Banking System
CYoung Proposal) - Compulsory Membership of All Banks in the Federal Reserve
System. Mr. Owen D. Young, appearing before the Sub-committee of the Banking
and Currency Committee of the Senate, February 4, 1931, proposed that all
commercial deposit banking in the United States should be carried on under
one law, that examination of such banks and their regulation should be under
one authority. Their reserves should be mobilized in the Federal Reserve
system. It is his suggestion that all banks of deposit, as distinguished
from savings, should be national banks at least, they should be required to
be members of the Federal Reserve System.
Believing that the investment of savings det.osits which are withdrawable
only after specified notice is given, is a different kind of business from
the handling of demand deposit assets and that the administration of trusts
involves features different from those of commercial banking, Mr. Young
proposed that banks for savings and for the administration of trusts and
other special time funds should be state banks and that these powers should
not be included in national banking charters.
The Federal Reserve Committee of the National Chamber has recommended
that the Governor of the Board be made its chairman. The Chamber Committee
stressed as a factor of utmost importance the necessity for capable management throughout the System. It reviewed the responsibility of the Federal
Reserve Board emphasizing the importance of a strong and able personnel. It
made a number of recommendations in the belief that if they could be made
effective, "it will become evident that no public service is of greater
importance to the whole country than the Board's close contact with and
understanding of all the currents of domestic and international credit and
finance; that this function supported by the powers now reposed in the Board
by the Federal Reserve Act will attract the services of a group of men willing
to devote their experience end ripe judgment to all of those intricate and
important relations which exist in this field." The Committee believed it
necessary to make every effort to develop the dignity and independence of
the Board and improve its working conditions in order to encourage able men
to accept the sacrifice 1Nhich Board membership involves. It stated that "to
increase the strength of the Board we believe that the prestige of the
position of its Governor should be enhanced. We are convinced that the
Board can not possibly be expected to meet the anticipations of the framers
of the Reserve Act, while it continues to include the Secretary of the
Treasury as its Chairman, over-shadowing the Governor. Indeed, your committee is convinced of the inadvisability of including the Secretary of the
Treasury as a member of the Board." It concluded as follows:
"Provision should be made to increase the attractiveness of
Board membership and develop the influence and independence of
the Board by:
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Federal Reserve Bank of St. Louis
a. Enhancing the importance of the position of
Governor of the Board by making him Chairman.
-z-
•
b. Housing the Board in a building of its own.
c. Increasing the salaries of the Governor and
members of the Federal Reserve Board to compare more
favorably with the salaries paid the principal administrative officers of the reserve banks.
"Thoroughgoing consideration should be given to the relations of the Treasury to the Federal Reserve Board, especially
with respect to discontinuing the membership of the Secretary on
the Board, as well as to the desirability of a change in the
status of the office of the Comptroller of the Currency to bring
that office more directly under the purview of the Board."
****** **
A referendum was held just a year ago upon these Committee reports with
the result that the Chamber was committed to propositions which may be
summarized as follows:
"Maintenance of the principle of regional banks with autonomous powers - in contrast to a central bank."
"The Federal Reserve Board should not initiate changes in
the rediscount rate unless a plain national emergency exists and
then not without conference with the directorates of the regional
banks and full consideration of the resulting influence of its
act upon the commerce and industry of the area involved."
"A policy favoring a uniform rate of rediscount for all reserve banks is unsuited to our regional system and to the diversity
of business conditions."
********
"The development of increased skill in management of the
system of regional banks in preference to changes in the structure or credit powers of the system constitute the best public
safeguard."
"No limiting policy such as one of maintenance of price
stability should be imposed by legislation as a definite duty
upon the Reserve Board and the reserve banks."
********
"The Governor of the Federal Reserve Board should be made
its Chairman."
"The Federal Reserve Board should be housed in a building
of its own."
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Federal Reserve Bank of St. Louis
Wt.
•
1
4
"The salaries of the Governor and members of the Federal
Reserve Board should compare more favorably with the salaries
paid the principal administrative officers of the reserve banks."
"ThorouFtgoing consideration should be given to the relations of the Treasury to the Federal Reserve Board."
"The management of the System should provide the public
with such an ample amount of information as to operations and
policies as will permit the formation of sound public opinion."
,
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Federal Reserve Bank of St. Louis
COMMITTEE ON BANKING
Harry A. Wheeler, Eoom 612, First National Bank Bldg., Chictgo, I
rohn J. O'Connor, Manlger, Finance Department, Chamber of Commerce
of the United Stat::
:
::ashi
e:gton, D. 0.
3anker
salter S. Bucklin, Pres.,
The National Shaismut Bank,
Boston, Mass,
Walton L. Crocker, Pres.,
:ohn Hancock Mut. Life Ins. Co.,
Boston, Mass.
Paul M. Warburg, Chrm. of Board,
International Acceptance Bank,
40 Wall St., New York, N. T.
David N. Goodrich, Ohrm. of Bob.rd,
The B. F. Goodrich Co.,
°Z50 Park kra., New York, N. Y.
Howard A. Loeb, Chairman,
Tradesmen's National Bank &
Philadelphia, P6.
(Trust Co.
Alba B. Johnson,
1521 Packard Building,
Philadelphia, Pa.
IV
‘neveland
W. K. Baldwin, Pres.,
The Union Trust Co.,
Cleveland, Ohio.
George T. Ladd, Pres.,
United Engineering & ?bun
PittshurC4, Pa.
V
Richmoad
Jqhn M. Miller, Jr., Pres.,
?fret & Merchants Natl. Bank,
Richmond, Va
Junius P. Fishburn, Pres.,
Times-World Corporation,
Roanoke, Va.
Oliver G. Lucas, Pres.,
Canal Bank & Trust Co.,
New Orleans, La.
P. O. Shook,
Shook Fletcher Supply
Birmingham, Ala.
VII
'hIcago
Felix M. McWhirter, Pres.,
The Peoples State Bank,
:ndianapolis, Ind.
J. Paul Clayton, Vice Pres.,
Central Illinois Public Service Co.,
Springfield, ril.
VIII
St. Louis
John G. Lonsdale, Pres.,
Mercantile—Commerce Bank &
3t. Louis, Mo.
(Trust Co.
Paul Dillard, Prea.,
Dillard & Coffin Co.,
liemphis, Tenn.
IX
Minneapolis
Z. W. Decker, Pres.,
Northwestern Bancorporation,
Minneapolis, Minn.
William J. Dean, Pres.,
Nichols, Dean & Gregg,
St. Paul, Minn.
W. S. McLucas, Chrm. of Board,
Commerce Trust Co.,
Kansas Citr, Mo.
IL L. Petrikin. Chairsima,
The Great Western Sugar Co.,
Denver, Colo.
Nathan Adams, Pres.,
American Exchange Natl. Bank,
Dallas, Texas.
J. J. Culbertson, Vice Pres.,
Southland Cotton Oil Co.,
Paris. Texas.
Vi
Atlanta
Kansas City
Pelihs
1
tienli M. P.:1!,
13on, Chairmqn,
X'
An Frileidc,:, Security-First Natl. Bank,
LOS Angele?,
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Federal Reserve Bank of St. Louis
co.,
J. B. Lavison,
firemen's Fund Insurance Co.
San Francisco, Calif.
4 v..
0
SOURCE:
241.4 - EXAMINATION, STATE MEMBER BANKS (1931 - date) Div. of Exam.
(Following letter tranemitted with
Feb. 6, 196i)
hep. Richerd B. Wigglesworth's let. of
"December 22, 1950
Hon. Richard B. Wigglesworth
305 Adams Street
44assaanusetts.
Dear Mr. Wiggleseorthi
Knowing the interest you mast be taking in the extraordinary
economic crisis that afflicts the world, I as submitting sone amateur
ideas to you that for the most part were approved of lay some prominent
financiers in 1907. IA thet tiee the so-callod Moomoi4lt panic locked up
funds of mine in tee Knickerbocker Trust Company, which gave me reason for
serious reflection, and these ideas were tee result of that experience.
As you are aware, I know nothing of bankimg„ bat I have a belowledge
of scientific organization gained in the General Chemical Company whieh might
qualify me 8 little bit. And I am of the opinion. that Government Bank
Examiners, possibly thc choice of politiciane and in charge of the detailed
examination of bank accounts, can not 1)( sufficiently versed in the intizate
affairs of local current banking to really qualif far so important a job
and the banks therefore sheel select and control in6a.
I therefore euggeeted in 1907 that the country be divided into
Federal Bank inepcction districts similar to that subs,quently adopted by
the *Federal Reserve", and that all banks receiving depositors' mese, and
doine a general businese for the public conveniFnce, shoult by law be district
ambers and entitled to one or more votes in the selection of the neceesary Bad*
e thoroughly
Examiners required by such a law for toeir district. In thet
and
district,
bank
each
representative body of Fxaminers would be elected for
the
by
determined
the inspection would =form to uniform reguletione to be
Federal or Central Beek Inspection Bureau.
The summarized reports of these Examinero would go to every bank
within eaen district, and thi comprehensive report of examination would go
to the Central Federal Examiners Bureau, lea) would be resnomsible for linking
the district tureens with the Treasur, Depertment, and for defining the system
of inspection adopted by the Central Bureau for all districts.
Laraturn for this privilege I would require member banke to guarantee
all depositors within their district. The examimation would be vere teorough
with such a penalty /*posed.
Ar. Vanderlip, formerly of tilie National Cite Bank, wan opposed to
this provleion in 1907, but heartily agreed to the other suggestions of this
scheme, but I think might now view the matter differently, for the New York
beaky have found it to their intermit and perhaps also thcir safet,> is effect to
guarantee 50% of the depositors' money in the Bank of the U.S. Currency has
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Federal Reserve Bank of St. Louis
1 13
-2Hon. Richard B. ligglesworth
December fa.„ 1950
increasingly become a basis and vital part of qux' constitution both
nationally and individually, and aa7 intErruption to its flow threatens
every one of ue wilo is not living on the soil with appalling dietriss,
and no one bat suffers seriously when vach situations develop, as now
confront millions of our people. The great cities sad even other nations
are disturbed with such a failure as that of the Bank of the U.S., althouih sa you know it is more devastating ',ten a country bank goes under,
leaving ES it dOti6 th entire comillunit without the flow of an essential
fluid. for the financizA body.
It seems entirely unreasonable that state banks like the Bank of
the U.S. should be permitted to do a geueral bhlakinc buoines and use tile
deposits of their community for their own ends with state protection. when
these deposits are actually U.5. currency controllable only by the Federal
Government. State banks should not be ziermitter_ to work with the deposits
of a communit:,e but 6,.t tbe most with trust funds and seeuxities not to be oonfounded with U.S.A. currency.
The Federal Reserve with the system suggested would have available
a aumahrizec picture el tat baaks ita eac district, and tfle policies of the
member banks would automatically improve, and the neverity of competition be
tempered until all were on h phr with our most eonservatively and ethically
managed institutions.
The Federal Inspection Bureau would of courae exercive r proper
control and regb1crly survey the work of the district inspectors so that
irregularities in any bank of any district would be the subject of a fell
investicption by the Federal Inspectors.
I vas very sorry to hear of the death of your tether, and hope
accept
this tardy expression of my sincere sympathy.
you will
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Federal Reserve Bank of St. Louis
With kindest regards, I am
Yours sincerely,
"Henry Wiggleeworth"
•
SOURCE:
241.4 - EXAMINATION, STATF MEMBER BANKS (1930) Div. of Exam.
Copy of letter dated March 14, 1930 to Mr. Isaac B. Newton, FRA, San Francisco
"Dear Mr. i\iewton:
Receipt is acknowledged of your letter of March 10th,
transmitting copy of circular issued by the Burley National Bank,
Burley, Idaho, incident to its proposed conversion into a state
institution. It is regrettable that indications point to the Idaho
Bank Commissioner as the party responsible for feeling of the kind
disclosed by the circular, but I do not know of anything that can
be done either by you or by the Board to offset Mr. Porter's unfavorable influence.
In general, it may be said that membership in the Federal
heserve System is of little tangible value to the small country
bank which has no occasion to borrow from the Federal Reserve System
and which does not use the iederal reserve check collection system,
unless its reserve requirements as a member bank are materially less
than they would be were it a non member bank. In the case of Idaho,
the reserve requirement of 15 per cent of aggregate deposits is, of
cource, nominally higher than requirements for member banks, but it is
likely that most small member banks in the State normally carr:, a sufficient balance with other banks to meet the State requirement for
non members.
Very truly yours,
(signed) R. A. Young
R. A. Young,
Governor "
Mr. Isaac B. Newton,
Federal Reserve Agent,
San rancisco, Calif.
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Federal Reserve Bank of St. Louis
2,7
SOURCE:
RURAL CREDITS--Hearings--5. 4280 (H.R.13058) Oommittee on Banking *nd
Ourrency
19215
lltss56 (Ir. Eugene Meyer, Jr., Aanaging Director War Finance Corp.)
*
*
*
There are nccessari4 :.- .sny difficulties involved in our dual eystem
of banking. We have a Etate banking system, a national banking system, and
a Federal reserve system, the latter having a membership derived from both
the State and the national systemr. The State banking departments supervise
the State bEmks,
thi. Comptroller of the Currunc3. supervisor the national
banks, while the Federe.1 reetrve ustem hco
supervision of itr own for the
member banks, .el thert
been nt times some disposition to competitim
between the E.tat,:, mid the nationf.1 bcnkinE systems.
The State banking laws frequently permit practices Which netionpl banks
can not lc.i,q1ly engau in. This is crezAing competition be:tween the twc sys—
tem& which ean not be regarded to wholesome and may lend to the gradual
weakening of both. Th7, question of branch banking is one that is caurinf
considerable discussion at the present time. Some of the States permit branch
banking on an unlimited scale. Ar a rc:sult, i.:itation is now going on for an
amendment to the national banking act to put national banks on a par with State
banks in that respect. I do not propose to discuss the subject of branch
banking here. Branch banking may be good or it ma:i be bad. It may be good if
carried on in a limited. way and bad if permitted on
extensive scale. But
whether it is good or whether it is bad, branch btnking should be considered
on its merits and should not be the ,roduct of competition in the endeavor to
expand either the State or the national banking organizations. The competition
that exists at the present time between State and netionz-1 banks cannot fail
to remind one of the competition thht prevailed a generation ago among the
various States seekinE. to bec(me domiciles for corporations--a competition that
was based upon the la.xity of the laws governing incorporation. Nothine could
be more disastrous than competition between the Stste and national bankinE Eroupg,
based upon competition in lbxity.
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Federal Reserve Bank of St. Louis
*** **** **
P
(f I
(-\
(
SOURCE:
241.414 - ASSESSMENT (1933-1934) State Member Bank Examination
(General Files)
Excerpt from copy of letter to Mr. John S. Wood, St. Louis, from mr.
Wm. W. Hoxton, Richmond, under date of June 14, 1934
Page_ 2
I do not be deve the better State banks in this District, with a
few exceptions, would feel the need of membership strongly enough to pay
for our examinations, in addition to the regular fee charged by the States.
Of course one may argue that we have them in the System, and they will be
afraid to get out, so we might as well tax them because we can, or, it may
be argued that sooner or later the State banks will be compelled to come into
the System and our charge for examinations will hrve no effect upon the
question of membership. Personally I do not agree with this line of argument.
Ae should encourage good Stete banks, already members, to continue their
membership, and all good non-members to join the System, and view the matter
in a large way, contributing all we can to improving their condition and
thereby strengthening the Federal Reserve System. Banks are not making
money, and we should not add to their burdens by charging for examinations
so long as we are able to bear the expenses necessary.
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Federal Reserve Bank of St. Louis
140
SOURCE:
241.414 - ASSESSMENT (1933 - 1934) State idember Bank Examination
(General Files)
iaemorandum to the 3oard from Div. of Exam., dated July 14, 1934, re
Report of the Federal Reserve Agents' Committee on
Uniform Examination Charges. - R. F. Leonard
Page 6
In view of the comparatively small number of State member banks
charges for traveling expenses on the above basis in some cases would
be unduly heavy and inequalities would arise in the assessment of costs.
In some cases the charges would be larger than those made by the State
authorities and, in some instances also, charges would be in eircess of
the costs of examinations of national banks of similar size, due partly
to the fact that State examiners and national examiners have smaller
territories to cover, thus lowering the cost of traveling. * * *
Page 9
It is believed that the inauguration at this time of charges for
all examinations of member banks made by the Reserve Banks would be considered in many cases as a duplication, added burden, and a discrimination
against State member banks as compared with national banks. It is believed
also that thoroukja examinations conducted in a constructive manner for the
Reserve Banks could be considered as a valuable part of bank relations work
and that from that angle the absorption by the Reserve Banks of part or all
of the cost of examinations might be justified. In expressing the belief
that the inauguration of charges of the cost of all aaminations of member
banks be deferred, it is not believed that the matter should be dropped, but
that a study be made of the manner in which the cost of examinations to State
member banks could be minimized. * * *
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Federal Reserve Bank of St. Louis
SOURCE: 241.414 - ASSESSMENT (1933-1934) State "lember Bank Examination
(General Files)
Letter to Board from R. L. Austin, Chmn of the Board and FRA at Philadelphia,
dated July 23, 1934
********
Page 3
* * * The banking departments of Pennsylvani& and New Jersey
employ relatively large examining forces, use more comprehensive forms
of examination reports than the National examiner's form, and spend more
time on the examinations than do the National examiners, with the
consequence that their bills are larger for each examination than the
Comptroller's bill, on a fee basis, for the examination of National banks
of similar size. In addition, as our examiners participate in the
examinations of all State member banks and we render a bill covering the
cost (salaries and travelling expenses only) of that portion of our work
not related to the subject of credits, the State member banks in these
two states already are subjected to charges which in most instances are
equal to or exceed the cost of two examinations on a fee basis under the
Comptroller's system. * * *
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Federal Reserve Bank of St. Louis
** * ** * ** * *
-137
%,-
SOURCE:
241.414 - ASSESSMENT (1929 - 1932) State "'ember Bank Examination
(General Files)
* ***** *** *
0
FEDERAL RESERVE BANK OF CHICAGO
230 South 1,aSalle Street
May 13, 1929.
SUBJECT:
Examination of Member Banks.
Federal Reserve Board
Washington, D. C.
Gentlemen:
Reference is made to the Board's letter of January 26, 1929,
X-6223, on the above subject.
In endeavoring to follow up our understanding of the Board's
views, as expressed in the letter above referred to, we have within the
past few months made a number of examinations for which we have charged,
and I beg leave to report some of the reactions which we have received
from member banks, as follows:
First:
Peoples Trust and Savings Bank, Clinton, Iowa:
"We have your letter of May 6, referring to bill
from your bank to us in connection with the examination made by
your representative in February. We are enclosing our draft on
your bank for $122.10 in payment of the bill, which we do under
protest. We feel that under this regulation state banks are being
discriminated against inasmuch as we are reouired to pay for a
duplication of work."
Second:
State Savings Bank, Missouri Valley, Iowa:
"I have had a report from the btate Savings Bank,
missouri Valley, Iowa, that they have been charged an examination fee
for examination made by a representative of the Federal Reserve
Bank with the State Bank Examiner. Wish you would let me know if
it is the intention of the department to make a charge for assisting
-the State Department in examinations. As a matter of fact, I do
not see the need of a Federal Examiner at all unless the member
bank is 8 borrower from the Federal Reserve. Kindly write me about
this in detail and oblige.
Very truly yours,
(Signed) W. T. McEvoy, President."
It appears that Mr. McEvoy, although writing on the stationery
of the likondamin Savings Bank, is interested also in the State Savings
Bank of Missouri Valley, Iowa.
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Federal Reserve Bank of St. Louis
Federal heserve Board.
May 13, 1929
Third:
Mondamin Savings Bank, Mondamin, Iowa
"We feel that even the examination is an unnecessary
act when the member bank is not borrowing and has no intention of
borrowing, and we will refuse to bear any additional expense. We take
this position on the grounds that we are receiving no benefits to be
compared in any way with the loss to our profits through a connection
with the Federal Reserve System.
"Would you kindly give us the information as to the
proper procedure to withdraw from the System. You no doubt require
a special form of resolution by the board of directors for such action.
Your promptness will be appreciated, as we do not wish to be embarrassed
by having an examiner call when it is our intention to refrain from
Paying the unnecessary expense of his examination.
Sincerely yours,
(Signed) P. J. Morrow, uashier."
The Peoples Trust and Savings Bank, Clinton, Iowa, has for
some time been rated by us "D", or fourth class. it was not borrowi
ng
of us at the time of examination. Our analysis of the report of
examination
was recently forwarded to the Board, together with our recap
showing in
detail the results of the examination.
The State Savings Bank, Missouri Valley, Iowa, has for a long
time been rated by us as an "A", or third class bank.
Although it was not
borrowing of us at the time of last examination and
had not been a frequent
borrower, we believed that the results of the last
previous examination
justified our going into the institution. At that
time, on October 27, 1928,
the showing was - losses $9,000, doubtful $12,000, slow
$142,0031 while
the bank had a capital of $50,000, and surplus and
profits of $14,400. That
report of examination also showed real estate owned $51,400
, with prior
encumbrance of $25,400, with $55,000 additional carried
in loans which had
the appearance of eventually becoming "other real estate"
. It had also real
estate loans of $76,300, of which $51,300 were junior liens
subject to
prior liens of $127,000, and concurrent liens of $19,000,
with the comment
made that lines in general are frozen and over-extended. It appeare
d also
that the President of the bank had an excessive loan, his paper being
criticised and classified as slow.
Very truly yours,
WAHHH
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Federal Reserve Bank of St. Louis
(S) W. A. Heath
Federal Reserve hgent
e/
_
July 1, 1936
Studies Nos. 3 and 8
Under date of June 5, President Leach of the Federal Reserve Bank of
Richmond transmitted to the Board a copy of a report prepared as a result of
a study of nonmember banks in the fifth district as of April 1, 1936. The
report classifies the nonmember banks in a number of different ways with respect to eligibility and acceptability for membership. The classifications
are contained in a number of exhibits some of which merely give summary
figures for each State or part of State in the district, while others give
a list of the banks included in each category. Each exhibit shows the number
of banks, capital, surplus, undivided profits, deposits and total resources of
the banks in each group. The attached table, which shows the figures merely
for the district as a whole, was made up by us from the more detailed exhibits
and indicates the nature of the material. I have returned the detailed report to Mr. Leonard.
At the end of the report, there is an analysis by Mr. Garrett, Manager
of the Bank Relations Department, of the reasons which he believes restrain
nonmember banks from becoming members of the Federal Reserve System. Following is a copy of that analysis:
"In connection with our study of non-member banking institutions in
the Fifth Federal Reserve District, and designation, based upon statutory capital requirements, of those banks which are eligible for membership in the Federal Reserve System, there follows a brief analysis of
reasons which have been advanced to us in actual cases and which, from
our contact with banks throughout the district, lead us to believe are
uppermost in the minds of the non-member bankers in restraining them
from becoming members of the Federal Reserve System.
"It is admittedly difficult to assign definite reasons for the failure of non-member banks to join the Federal Reserve System. Objections
which non-member banks had a few years ago do not apply today, or apply
in modified form. Generally speaking, however, it is our opinion that
the reasons which follow represent the principal objections to State
bank membership on the part of non-member banks in this district.
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Federal Reserve Bank of St. Louis
"(a) Loss of revenue through payment of their own checks at par.
"(b)
Dislike of what non-member banks term 'Governmental supervision.1
"(c) The operation of the Federal Deposit Insurance Corporation
which insures individual deposit accounts of its member
banks up to $5,000, thereby giving a sense of security and
making membership in the Federal Reserve System unnecessary.
"(d) Lack of encouragement on the part of large banking institutions which have a number of accounts of other banks.
"(e)
A prevalent idea that membership in the Federal Reserve
System is valuable only in times of financial distress and
in emergencies, and is designed primarily for large banks
anyhow.
2
"We will discuss these reasons in the order named above for the purpose of bringing out certain thoughts which have been forming in our
minds for a long time due to our contact with banks in this district.
"With respect to the fear of loss of revenue, this reason no longer
applies with regard to the payment of interest on reserve deposits,
since by statutory requirements member banks are prohibited from paying
interest on demand deposits anyhow. The losa of revenue formerly derived from exchange charges does not apply with respect to non-member
par banks, but is, as we believe, an important item with non-member nonpar banks. It is almost invariably the rule that non-member non-par
banks are the smaller institutions located in most instances in communities which find it difficult to support a bank through adequate
earnings without chargind exchange for the payment of its own checks.
In individual cases we believe it may be effectively demonstrated that
a non-member bank may establish its reserve account as a member and
remit for its checks at par without serious effect upon its earning
capacity. Of course this thought takes into account other features
of State bank membership which compensate for what appears to be an
actual loss in dollars and cents through par remittance of checks.
As a general question, however, we still find that non-member banks
have fixed in their minds the thought that membership in the Federal
Reserve System is expensive.
"We find that nearly all non-member banks have in their minds a fear
of what they term 'Governmental supervision.' This term is inclusive
and is interpreted generally to mean that relationship with us as members of the System would involve undue supervision of their affairs and
the imposition of technical restrictions commonly known as 'red tape.'
We must remember that State banks in this district as a rule have not
always had the benefit of careful supervision through examinations and
application of the respective statutes. We have had State member banks
tell us that the thorough examination of their affairs by examiners
from the Federal Reserve Bank and the resultant compilation of accurate
information for the use of officers and directors of the bank is in
itself a sufficient offset to other inconveniences and objections. Not
all banks feel this way, however, and a careful examination and the
application of various regulations of the Board of Governors seem to be
regarded by many banks as an unwarranted intrusion and an assumption
of functions which directors and officers of the indivienal bank should
exercise under the statutory powers granted in the charter. Many banks
object to the complicated reports requested and the information compiled
from time to time, some of which is burdensome to prepare. Many member
banks share these views also.
"It has been interesting to observe the awakened interest in State
bank membership whenever periods of general banking disturbance exist.
During such periods, as for instance, the national banking moratorium
in 1933, a number of non-member State banks which prior to that time
had exhibited no interest whatever in State bank membership made every
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Federal Reserve Bank of St. Louis
3
effort to join the System immediately. It is also interesting to observe
that as the general situation improved the enthusiasm of applicants for
membership in the Systea declined in like degree. The Federal Deposit
Insurance Corporation, which insures individual deposits of its member
banks up to $5,000, has removed from the minds of the public and the nonmember banks the fear of sudden panic; and since the cash position of
most banks today is relatively easy and no assistance appears to be necessary in the near future, non-member banks in large numbers see no real
need for membership in the System today. It is a disappointing fact that
very few banking institutions accept the responsibility imposed upon them
for their part in making the entire banking structure as safe and as well
balanced as possible. Many banks feel that the Federal Reserve System was
designed essentially for large banks and that small banks have no effective need for the System.
"It is unfortunately true that large banking institutions which have
a number of bank accounts do not encourage their non-member bank correspondents to apply for membership. The large banks represent to the
correspondent banks that they can do practically everything for the
correspondent that the Federal Reserve Bank can, and, in addition, perform certain services which we cannot undertake, such as investment advice and consultation about the purchase of securities. In some cases
we definitely know that the large banks have discouraged thoughts of
membership on the part of non-member bank correspondents. The relationship between the bank correspondent and his city bank is on a far more
intimate basis than the relationship of the average member bank to its
Federal Reserve bank. This should not be so, but the situation exists.
No doubt non-member banks thinking of membership discuss the situation
with their city correspondents, and it is not believed that they find
encouragement for the idea. In some few cases a city bank has taken a
position definitely opposed to State bank membership, particularly if
it appears that the non-member banks are being forced into membership.
It is our belief that if we have the full cooperation of the larger
banks the majority of eligible non-member banks will join the System in
an orderly manner.
"We have already discussed briefly the prevailing idea in many quarters that membership in the Federal Reserve System is valuable only in
times of financial disturbance, and we have expressed regret that so few
banks recognize their responsibility for the banking system and the
banking structure as a whole. Notwithstanding efforts which have been
made and are being made to inform banks about the Federal Reserve System,
and regardless of the wealth of information readily available concerning
the System, and, further, notwithstanding the fact that the Federal Reserve System has been the most important single factor in the financial
structure of this country for the last twenty years, there is an apathy
on the part of non-nomber banks concerning membership which it is difficult
to understand or explain. The simple fact is that the majority of nonmember banks in this district are not interested in the Federal Reserve
System, and this lack of interest may arise from one, or all, or a
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Federal Reserve Bank of St. Louis
4
combination of the factors we have discussed in this memorandum.
"We have not, of course, covered all of the reasons why non-member
banks are not interested in the System but we believe that we have
enumerated and commented upon the most outstanding reasons. Perhaps
the most disappointing feature in this discussion is the failure of
the average bank to accept responsibility for the banking system as a
whole and to give recognition to the indirect benefits and advantages
which it has obtained through the operation of the Federal Reserve
System."
ON,
Attachment.
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Federal Reserve Bank of St. Louis
NONMEMBER BANKS IN THE RICHMOND FEDERAL RESERVE DISTRICT, APRIL 1, 1936
(Source: "Study of Nonmember Banks", sent to Board
by President Leach under date of June 5, 1936)
1.
All nonmember commercial banks:
Eligible
Not eligible
Total
(Figures as of December 31, 1935
Amounts in thousands of dollars)
Number
-fof banks' Capital I Surplus
Undivided
profits
Deposits 1:esources
439
194
45,903
_1(4412
17,105
4,020
6,668
1,7_12
369,297 451,211
136'604 _ 156,137
633
56,188
21,625
82423
505,901
607,348
72
*22,583
4,872
11,634
247,173
292,009
14
29
43
2,700
290
2,990
973
1.74
1,147
544
-2?
576
34,737
42,829
4.474_
391211
50.008
470837
**19
xxx5p
****69
5,560
6,536
12,096
1,502
2,337
3,839
711
1,047
1,758
259
61
37,846
4,612
14,400
2.077
320
42,45a
16,477
5,486
865
6,351
180
10
313
8,057
5.673
1,182
890
2,072
••••1*-
2.
Nonmember non-commercial banks
3. Uninsured nonmember commercial banks:
Eligible
Not eligible
Total
4. Banks operating out-of-town branches:
Eligible
Not eligible
Total
30,018
2111155
38,774
102,680
120,573
141,454
300,861
3572713
369,419
65,204_
435,123
68,436
79,72
148,188
81,792
90.433
172,225
5. Par nonmember banks:
Eligible
Not eligible
Total
56,_852
6. Non-par nonmember banks:
Eligible
Not eligible
Total
*Capital or guaranty fund.
**45 Out-of-town branches.
***103 Out-of-town branches.
****148 Out-of-town branches.
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Federal Reserve Bank of St. Louis
13,730
2,705
2.40_
5,148
NONMEMBER BANKS IN THE RICHMOND FEDERAL RESERVE DISTRICT, APRIL 1, 1936 (Continued)
Number
of banks Cardtal
7. Ptr nonmember eligible commercial banks, grouped
according to acceptability:
Group 1
Group 2
Group 3
Uninsured
Total
8.
9.
Non-par nonmember eligible commercial banks,
grouped according to acceptability:
Group 1
Group 2
Group 3
Uninsured
Total
Nonmember commercial banks having deposits of
t1,000,000 or over, classified as to eligibility.
Grouped according to acceptability for membership:
Eligible:
Group 1
Group 2
Group 3
Uninsured
Total
Not eligible:
Group 1
Group 2
Group 3
Uninsured
Total
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Federal Reserve Bank of St. Louis
Surplus
Undivided
profits
Deposits
Resources
3,079
1,491
151,955
76,238
114
88
18,127
11,177
8,836
3,173
48
6,292
1,526
461
41,803
____9
2,25o_
865
455
30/865
184,769
94,892
51,471
38.287
259
37,846
14,400
5,486
300,861
369,419
111
45
19
5
180
4,518
2,092
997
450
8,057
1,898
546
153
108
2,705
703
316
74
89
1,182
44,678
13,904
5,982
3_1872
68,436
52,672
17,207
7,371
41542
81,792
40
20
15
14,809
7,606
3,817
7,514
1,958
882
2,600
1,076
181
135,705
51,693
26,711
4
2,25o
685
426
3o,7o4
79
28,482
11,039
4,283
244,813
162,985
64,087
32,365
37,902
297,339
17
4,153
742
480
50
1,971
359
33
100
2,463
867
113
15
2
76,362
8,452
3,032
2,288
997
90,134
5
2
1
25
5,425
84,970
9,872
3,594
2,440
100,876
Kettig's (Atlanta) Answer, 3-9-35, to X-9115
In File 327.-3
*********
3. Matters affecting admission of nonmember banks to Federal Reserve
System.
(a) Earnings of nonmember banks from exchange collection charge.
This is a question of considerable importance in the Sixth Federal
Reserve District. A number of nonmember banks, in making inquiries concerning membershin in the Federal Reserve System, have stated that they
feel that they could not forego the exacting of charges for the payment
and remission of checks drawn on themselves. This applies peculiarly to
banks located in the smaller communities. While member banks may, of
course, make charges within the limits prescribed by law for collecting
items placed with them on deposit (and city banks customarily make such
charges), member banks located in smaller communities would be unable to
receive any considerable amount of revenue from this source, even if a
long established custom of not making collection charges did not militate
against their doing so.
It has been stated by the officers of some of these institutions
that the revenue from exchange (and by this we mean charges for the payment and remission of checks as distinguished from collection charges)
will average in a bank with a capital as small as $15,000 from t1500 to
$1800 per annum. If deprived of this revenue auch banks of necessity
would be compelled to liquidate. Revenue from this source, according to
reliable information obtained from nonmember banks, in most instances is
sufficient to cover the salary of the executive officer in charge of the
bank.
We believe that a large percentage of nonmember banks in the district
would apply for membership if they felt that they might retain the eouivalent
of a aubstantial portion of the exchange charges which are now being made.
*********
9.
Criticisms of existing regulations or rulings or procedure of
the Federal Reserve Board, with specific recommendations as to
changes which would correct any unsatisfactory features of
relations between the Board or its staff and Federal Reserve
banks or member banks.
The officers and directors of this bank do not recommend the discontinuance of any reports now required nor the elimination of information
sought to be elicited thereby. We believe that the Federal Reserve Board
and the office of the Comptroller of the Currency have from time to time
been advised of the viewpoint of the member banks on this subject and are
endeavoring to comply with the wishes of the banks to the full extent consistent with the gathering of necessary or important statistical or other
data. We do say, however, that any progress in the direction of the
lightening of what the member banks regard as a burden would be welcomed
and annreciated.
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Federal Reserve Bank of St. Louis
- 2*********
In your letter you make reference to the possibility that to some
of the member banks the actions of the Board or its staff may seem
"bureaucratic or impractical or unduly rigid." It is undoubtedly true
that a number of the member banks may have regarded some of the rulings,
decisions and reQuirements of the Board as being somewhat harsh and
burdensome. We think that we should say, however, that in many instances
this point of view was the result of a failure to unierstand that the
Board's actions were required by the Banking Act of 1933 and were not the
result of some arbitrary action taken by the Board itself. In all such
cases we have endeavored to make plain to the banks that the particular
ruling of the Board or some specified requirement was made or imposed
because of provisions of law and not as a regulation originating in the
Board.
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Federal Reserve Bank of St. Louis
** * * * *****
Chicago Bank's Answer, 2-25-35, to X-9115
In File 327.-3
44- 44-
*****
3. Matters affecting admission of nonmember banks to Federal reserve
system.
(a) Earnings of nonmember banks from exchange collection charges
"The matter of exchange collection charges by banks not on
the par list will be a negligible factor in deterring banks
from taking membership in the System. In the approximate
1871 nonmember banks in this district, 218 are not on the
par list and 5 are private banks. That there is a profit accruing to these banks from charges which they make on items
drawn upon themselves, there is no question; how much, we
cannot determine. These banks are generally situated in
places where they have complete control of the local exchange situation. They knog and can control the amount of
revenue they can get from this source within reasonable
limits, and, of course, they also know how much it costs
them to collect items which they have payable out of town.
In normal times Reserve City banks generally are out after
balances and so long as the balances of these non-par banks
are compensating they will render a great deal of service
without direct charge. These non-par banks have never made
the profit they thought they were making because it was
largely offset by either direct charge on the part of their
correspondent or by a compensating balance, but that there
is some profit to them is beyond question.
"However, membership and the prevailing free services here,
and, in normal times, the reduction in legal reserve requirements, would largely, if not entirely, offset this. The
check collection system is economically sound, and a complete
par list would result in a very short time if we had the full
cooperation of all Reserve City banks. This we have never
had. In fact, all along during the controversy, these Reserve City bankers sympathized with these banks who were
willing to remain off the par list.
"I have mentioned only exchange charges by banks on items
drawn on themselves. There would be no difference--membership vs. nonmembership--in the matter of other collection
charges."
(Comment of C. S. Young, Asst. Agent)
(b) Present conditions of membershiP
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Federal Reserve Bank of St. Louis
**** * ** **
"Condition No. 15. Such bank shall maintain an amount of
paid-up and unimpaired capital and unimpaired surplus which,
in the judgment of the Federal Reserve Board, will be adequate
in relation to its total deposit liabilities, having due
- 2regard to the general principle that a bank's capital and
surplus ordinarily should not be less than one-tenth of
the average amount of its aggregate deposit liabilities,
and, in some circumstances, should be more than one-tenth
of such amount.
"This condition is a wise one and is in conformity with
past and present bank administration work, but not quite
elastic enough to allow for discretionary action by the
Board. The language is somewhat harsh and in some cases
has frightened prospective members."
(Comment of C. S. Young, Asst. Agent)
9.
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Federal Reserve Bank of St. Louis
Criticisms of existing regulations or rulipgs or procedure of
the Federal Reserve Boardt with specific recommendations as to
chanzes which would correct any unsatisfactory features of the
relations between the Board or its staff and the Federal reserve
banks or member banks.
1. Too many reports.
2. Lack of agreement between our salary committee and Board
prior to action of Board of Directors of tl,is bank.
3. Too much detail of management and supervision of member
banks handled by Federal Reserve Board. Better service
would be rendered member banks if Federal reserve banks
were given authority to supervise and make decisions on
matters of rolicy and operation of member banks in their
district, the Federal Reserve Board acting as an appeal
board in the event of disagreement.
"Under the present system of the review of the minutest details
of each examination of member banks by the staff of the Federal
Reserve Board, there appears to be a duplication of the work
performed by the Federal Reserve Agent's department. This also
applies to the close study and search which is given by the
Agent in formulating recommendations for trust powers, applications for membership, directors and voting permits, and other
similar matters of administration, and from this dual review of
detail, there arises much correspondence and delay and some inconvenience to member banks in matters which are more technical
than important.
"It is perhaps unfortunate that the members of the Federal Reserve Board cannot find it possible to devote more time to visits
to the various districts, to acquaint themselves with the directors and officers of the banks and their operations, and also
to acquire at first hand, some knowledge of the local conditions."
(Comment of E. M. Stevens, Agent)
"I think it advisable to suggest that Federal reserve banks avoid
wherever possible the statement that the Federal Reserve Board
imposes this or that restriction or insists that certain things
•
- 3be accomplished. I suggest this procedure because the thing
that the average banker hates is to feel that he is subject
to the will of a governmental agency so far removed.
"The banker feels that he has, in the officials of the Federal
reserve banks, an authority in closer touch with his own
problems and more sympathetic in the imposition of rules and
regulations. This policy should in no sense minimize the
very desirable and necessary features of centralized authority
in the formulation of policy, the uniformity of rulings and
the co-ordination of efforts of the twelve regional banks."
(Comment of C. S. Young, Asst. Agent)
**** *** *****
9.
Criticisms of Existing Regulations, etc.
•
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Federal Reserve Bank of St. Louis
Commercial banks generally have some complaint as to the
existing regulations or rulings of the Federal Reserve Board.
A major case in point is that of Regulation Q, the interpretation of the Board being far more conflicting and less enlightening than the regulation itself. Most commercial
bankers want to follow the rules of the game, provided they
can learn definitely what the rules are.
It is not known just to what extent this same exception might
be applied as between the various Federal reserve banks and
the Board.
(Comment of Ben Young, V. Fres.,
National Bank of Detroit)
Answer of Birmingham Branch (Atlanta Bank), 2-19-35,
to X-9115 - In File 327.-3
**********
3. Matters affecting admission of nonmember banks to Federal Reserve
System.
(a) Earnings of nonmember banks from exchange collection charges.
(b) Present conditions of membership
(c) Advisability of extension of membership to banks outside the
States and the District of Columbia.
3. (a) Collection charges undoubtedly play a part in keeping nonmember
banks out of the Federal reserve system.
(b) We do not believe the conditions are burdensome but we wonder
if there is not a lack of conviction as to the advantages of
membership to small nonmember banks.
(c) See no reason for doing so.
********** *
There is a feeling among many bankers that the Federal Reserve Bank
has become bureaucratic in dealing with its members. It is probably due to
the necessity of departmentalizing the work of these institutions, but it
would seem to us that even that should not prevent the free exercise of
sound judgment in discussing and determining credit policies or analyzing
credit risks. Our view is that the relations should be as far as possible
on the same Plane as those which ordinarily exist between a bank and its
correspondent. The same discretion and good sense should characterize the
classification of notes for rediscount at a Federal Reserve Bank as is employed
by the officers of a large commercial banking institution. The directing head
should be a man of broad banking experience, capable of using wisely and with
discretion the latitude vouchsafed to him by a board of directors made up of
bankers and business men. As far as is practicable to do so, he should be
given a staff of well equipped and well trained men. The difficulty seems
that so often those in subordinated rositions are drawn from the lower ranks
in the Federal Reserve Bank, or from clerical or accounting jobs in other
banks and hence with a limited experience in dealing with the customer,
which, of course, is the member bank. They do not always give a practical
treatment of the transaction involved. They seem to be rule-bound and
hence contribute to the impression that after all the Federal Reserve Bank
has become bureaucratic. In making this comment we realize that it is much
easier to point out difficulties of this nature than it is to recitfy them,
but our opinion has been requested and we do believe that much cauld be done
if an effort were made to substitute a more practical handling of many of
the transactions Nhich member banks have with the Federal Reserve Banks.
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Federal Reserve Bank of St. Louis
Answer of Nashville Branch (Atlanta Bank), 2-21-55,
to X-9115 - In File 327.-5
***** *****
3. Matters affecting admission of nonmember banks to the Federal Reserve
System
(a) Earnings of nonmember banks from exchange collection charges.
These earnings are of minor importance at the present time.
(b) Present conditions of membership.
Membership condition would be greatly improved if all of
the member banks had a better conception of the purposes
of the Federal Reserve Bank and if a continuity of purpose
prevailed rather than changing so rapidly.
(c)
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Federal Reserve Bank of St. Louis
Advisability of extension of membership to banks outside
the States and the District of Columbia.
No opinion expressed.
** ******* **
('
San Francisco Bank's Answer, 3-27-35, to X-9115
in File 327.-3
* *** *****
5. Matters affecting admission of nonmember banks to Federal Reserve
System.
(a) Earnings of nonmember banks from exchange collection charges.
There are 34 nonpar state banks in the Twelfth District, having
average resources of t165,000; the largest bank has t528,000 and the
smallest, 152,000.
It is very doubtful whether many of these banks would make
desirable members of the Federal Reserve System.
Possibly most of them could not or would not accept membership,
even though permitted to dharge exchange on items forwarded by the Federal
Reserve Bank for collection.
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Federal Reserve Bank of St. Louis
*********
•
SOURCE:
Report of H. C. Core covering his trip through northeastern
Minn. July 20 to 251 1936, sub. with air. Peyton's letter of
7-29-36
With but few exceptions, the banks visited are members of the
Federal Deposit Insurance Corporation, and are very favorably inclined
toward it.
Some of these banks serve quite an extensive territory.
One
banker remarked to me that (quoting verbatim) - "We have a trade area
that is larger than some countries in Europe."
Page 2.
The bankers in this territory quite generally are collecting
exchanee and service charges and are satisfied with the results obtained.
Gapital requirements and the loss of exchange are the principal objections
to membership by the average non-member bank.
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Federal Reserve Bank of St. Louis
111
Curtiss' Answer, 3-23-35, to X-9115
In File 327.-5
**** *****
3. Matters affecting admission of non member banks to
Federal Reserve System.
(a) Earnings of nonmember banks from exchange collection charges.
The problem of exchange collection charges is not one that
arises in this district, as all banks pay their checks at par.
(b) Present conditions of membership.
Every nonmember bank in this district has been called upon
during past years, and has been advised regardine the Federal Reserve
System and the provisions of conditions of membership. So far as we have
been able to learn the conditions of membership have never been a deterrent
to nonmember banks that have felt it was to their advantage to join the
Federal Reserve System.
**********
In several instances conditions have been imposed in connection with the
admission of State banks to membership or technical difficulties have been
raised which have seemed to the applying banks to go beyond the requirements of law or to deal with matters which have been free from criticism
in particular cases or to be unnecessarily burdensome. It is true that in
some instances the conditions have been modified or withdrawn, but in some
cases they seem to have left an unfavorable impression. Our suggestion is,
that before unusual conditions, that is conditions not required by law or
which may be a serious burden to an applying bank, are imposed we be given
an opportunity to review them and if necessary or desirable, to discuss
them in an informal way with the applying bank.
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Federal Reserve Bank of St. Louis
**********
110
McAdams'Answer, 3-19-35, to X-911.5
In File 327.-3
*** ******
3.
Matters affecting admission of nonmember banks to Federal reserve
system.
(a) Earnings of nonmember banks from exchange collection charges
.
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Federal Reserve Bank of St. Louis
The exchange charge encourages indirect routing of items, and
therefore hinders commercial transactions. It would be a
backward step to permit members of the Federal reserve system
to charge exchange, even though the prohibition on such charges
is doubtless an important factor in keeping many banks out of
the system. Nebraska is the only State in this district in
which this matter is important, since all but a few nonmemb
er
banks in the other States are voluntarily remitting at par.
In Nebraska, as of February 1, 1935, 149 of the 295 nonmemb
er
banks were not on the par list.
** * * ******
Wood's Answer, 2-21-35, to X-9115
In File 327.-5
************
3.
Matters affectinz admission of nonmember banks to Federal Reserve
System.
(a) Earnings of nonmember banks from exchange collection charges.
Apparently only a few banks in this district are not members of
the Federal Reserve System on account of their unwillingness to forego exchange charges on checks sent to them for collection. More than 70% of
the nonmember banks are now on the par list, and of those not on the par
list 27% are in a State that has legislation preventing the parring of
checks by nonmember banks. Moreover, most of the banks not on the par
list are small institutions. Of the 377 non-par banks, 179 have deposits of
$100,000 or less each, 117 not exceeding t250,000, 49 not more than $500,000,
and only 32 over the latter amount. In other words, 78% of the non-par banks
have deposits of less than $250,001, and 47% have less than $100,001 each.
Many of the nonmember banks feel that they do not need membership particularly
since the insurance of their deposits. To place all insured banks on a more
equitable basis, the Federal Deposit Insurance Corporation might give consideration to requiring nonmember banks to par checks the same as member
banks are required to do if given authority.
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Federal Reserve Bank of St. Louis
**************
•
•
Peyton's Answer, 2-26-35, to X-9115
In File 327.-3
************
3. (a) The necessity for non-member banks to maintain their earrr:ngs
by some form of exchange charge is the primary reason why non-member banks
do not join the Federal Reserve System. The tendency et the present time
is for member banks to withdraw from the Federal Reserve System so that
they may collect these exchange charges, and this movement would be more
pronounced if member banks did not believe that they rould be forced to
reenter the Federal Reserve System in 1937 to retain their deposit insurance.
As a practical matter, the law should be amended at once to permit all banks
to levy exchange charges at the rate of 1/10th of 1 per cent of the face
amount of the checks which they are paying. The Federal Reserve Board miOit
well conduct 8n educational campaign leading to the establishment of the
better practice of making these exchange charges against the drawer of the
check rather than against the payee.
(b) The present conditions of membership are so voluminous and
involved that they frighten the prospective member. We recommend that the
general conditions of membership be reduced to the following simple form,
to be passed by the bank's board of directors: "This bank agrees to abide
by the present and future rules and regulations prescribed by the Federal
Reserve Board and to conduct its business according to sound banking
principles." The other matters incorporated in the present conditions of
membership should be incorporated in the rules and regulations of the
Federal Reserve Board or should be specified as special conditions of
membership in certain cases.
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Federal Reserve Bank of St. Louis
** ********* ***
•
Walsh's Answer, 3-18-35, to X-9115
In File 3P7.-3
*********
3. Matters affecting admission of nonmember banks
to Federal Reserve System.
(a) Earnings of nonmember banks from exchange
collection charges.
It is our belief that although approximately 180 nonmember banks
district are not on our par list, the loss of revenue from this
this
in
source, when a State bank joins the Federal Reserve System, is not, in this
district, an important factor among the reasons why State banks do not join
the System in larger numbers. The imortance of this factor has been greatly
diminished, in our opinion, by a steady growth in the practice, on the part
of banks, of making "service charges" to their austomers, and also by the
increasing resistance, on the part of both the payees and drawers of checks,
to the deduction of exchange charges by the remitting banks. This resistance,
together with the influence of our par collection system, has gradually
eliminated exchange charges in practically all of the larger towns and the
practice is now confined almost entirely to banks in very small communities.
In our opinion the fact that we have on our par list 336 nonmember banks,
including practically all of the larger nonmembers, as contrasted with only
180 banks not on aur par list, warrants the conclusion that so far as the
group as a whole is concerned, the matter of exchange charges is not an
important factor in their attitude toward membership.
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Federal Reserve Bank of St. Louis
**********
•
SOURCE:
Report of Wm. E. Peterson, sub. with Mr. Peyton's letter
to Bd. dated 7-7-56
,Page
Banks generally have a rather complete schedule of service
charges and charge float. The schedules, however, are not uniform and
generally are as the banks consider advisable for their particular
district. I found, as previously, that the non-member banks not on our
par list charge exchange, except that in certain instances they have
clearing arrangements with other banks in their particular neighborhood
and that exchange is undoubtedly the important question as between membership and non-membership in the Federal Reserve System. A number of the
bankers mentioned the matter of thiE bank or that lviving converted from
a national bank to a state bank, apparently feeling that the reason for
such conversion was that of exchange.
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Federal Reserve Bank of St. Louis
LOURCE: Report of H.C. Timberlake, covertly parts of Minnesota anC,
North Dakota, during June 5-18, 19Z6 (Sub. with Mr. Peyton's
letter to Bd. 7-7-56)
PaRes 5-4
Many bankers axe deeply concerned over the future of banking.
&ome fear the increased Federal domination, some are afraid that their
section of the country will be deserted after another drouth year, 4-,nd
others feel that the lack of cooperation aaong thp bankers themselves
all41 the return to cut-throat competition will reou't in tkw destruction
of the present banking aystem by the bankers. The items that seem to
create more animosity among neighboring and competitive bankers are the
volume of free services offered and misrepreventation of exchenge chnrged.
Sone bankers are gouging the public on "float ckvrges" smd telling their
customers that it is becauce of unusually high "exchange chtirges" made by the
paying bank. The lack of uniformity of exchenge charges ie one of the
biggest banking problems in north Dakota. The euccestim Aas az.de eeveral
times that it would be within the province of the FDIC to prohibit the
performance of too many free services, und that at the same time it could
recommend a *reasonable" scale of chLrges (float and exchange) thvt tfte
immured banks should cherge. Mr. Gandrud's plan of having the drawer of
the cheek pay for the service which is performed for him - the tranefer
of memey for the payment of the drawer's obligation - was disaussed many
times Sod in a majority of imatances„ bankers appocred willing to go on
that basis if all banks would do the 6Staft, bet they felt thrt the prevent way
was "the meet painless way" to get the Inaelie and consequently were not
interested in developing Gandruells piano
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Federal Reserve Bank of St. Louis
,//
SOURCE:
Report of H. C. Timberlake, covering ix-trtp of MinnesotEl 6.nd
North Dakota, during June 5-18, 1956. (Ea. with dr. Peyton's
1,!".tix to Bd. of 7-7-36)
A majority of the non-member banks visited were very small
institutions and few oF them were conducting
normal banking business
but rather were functioning as "exchange offices" and were existing an
the income derived from float end exchange and some insurance commissiGns.
As might be expected from the above, very few banks were interested in
discussing membership. Two bankers, however, nere definitely interested,
Timm at Balaton, Minnesota and Stewart at Willitton, North Dakota. In
both instanceo the dcciding factor was again "prr collection". The benkers
were often outspoken in their appreciution of our calls. Kumla of Velva
said that since he nat alonc in the bank, he never hed an opportunity to
go to any meetings and consequently the only time he could *swap ideas"
wr_s when zome one dropped in for a visit. He Wt., very aporecietive end
hoped that wt would find it possible to continue the practise.
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Federal Reserve Bank of St. Louis
Fleming's Answer, 3-11-35, to X-9115
In File 327.-3
*********
5. Matters affecting admission of non-member banks to Federal
reserve system:
**** *****
(a) Earnings from exchange collection charges are not a factor in
this district, especially since in a great many instances exchange charges
have perhaps been superseded by service dharges inaugurated by the banks.
These service charges are paid by the depositors and it would seem should
compensate the banks for the relinquishment of exchange charges.
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Federal Reserve Bank of St. Louis
* * *******
•
Answer of New Orleans Branch (Atlanta Bank), 2-21-35,
to X-9115 - In File 327.-3
3. Matters affecting admission of nonmember banks to Federal Reserve
System
(a) In view of legislation already on the statute books, compelling
(b) membership in 1957, and in view of other legislation on this
(c) subject now pending, it is difficult to give specific answers
to Questions a, b and c.
However, if the large number of nonmember banks are to be
forced into the System, serious thought needs be given to
allow them a reasonable exchange charge for their collection
service.
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Federal Reserve Bank of St. Louis
********
Answer of JacksonTtlle Branch (Atlanta Bank), to
X-9115 - In File 327.-3
**** * ***
3. Matters affecting admission of nonmember banks to Federal reserve
system.
(a) We are opposed to nonmember banks being permitted to charge
exchange after they become member banks.
(b) Nonmember banks becoming members should comply with the
present rules, regulations and conditions now applying
to member banks; or, in other words, they should not be
given any special privileges.
(c) Extension of membership to banks located in insular
possessions only should be permitted. Banks in foreign
countries should not be allowed membership.
*** * * * **
We recommend that the Federal Reserve Board cause a Call Loan
Department to be established in New York that would permit member banks to
make loans in New York through said agency, and require every member
placing call loans in New York to make them through the Federal reserve
agency. This in our opinion would give the Federal Reserve Board a better
knowledge of and control over the securities market and afford members
this service at a minimum risk and expense.
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Federal Reserve Bank of St. Louis
**** ** **
110
Hoxton's Answer, 3-15-35, to X-9115
In File 327.-3
** * * ****
3. Matters affecting admission of nonmember banks to Federal
Reserve System.
(a) Earnings of nonmember banks from exchange collection charges.
In the Fifth Federal Reserve District 80% of the nonmember non-par
banks are in the states of North Carolina and South Carolina. This distinction is made by reason of the fact that nonmember banks on the par list
are not concerned with exchange collection charges to anything like the extent to which nonmember non-par banks are interested in the subject.
A brief answer to the question propounded would be that in all states
in the Fifth Federal Reserve District, except the two Carolinas, it is not
believed that earnings from exchange collection charges seriously deter nonmember banks from applying for membership in the System. As evidence of this
statement we quote from the Commissioner of Insurance and Banking in the
State of Virginia;
"Giving you my personal opinion, I do not believe that
the revenue from exchange bulks very large in the earnings of
our nonmember state banks. There may be a few where it is
gufficient to -cay the salary of an employee or officer of the
bank, but I believe more of our banks are remitting at par."
A very brief survey of the background involved in an answer to the
current question may be desirable at this point. Some years ago state banks
were permitted to organize and were granted charters with paid-in capital
stock for less than the present requirements. It is also true that the
restrictions surrounding the organization of a state bank were not numerous
in former years and, as a result of these tendencies, small state banks were
chartered, not only in the Fifth Federal Reserve District but elsewhere,
under conditions which mature thought and observance of economic necessities
would have prevented.
In the southern part of our district, which comprises the two states
referred to, the above remarks apply with particular force. In aggravated
cases there were state banks organized in isolated sections solely for the
purpose of charging exchange, and they established their own rates. There
were other state banks organi7ed with small capital for the purpose of
financing local business in season but which depended for a steady revenue
largely upon exchange charges.
There appear to be two reasons, among others, why banIcs in the section referred to depend upon exchange charges to a marked degree; First, as
we have previously said, many of these small state banks were organized with
the full intention of charging exchange and with the realization that exchange collection charges as revenue would be necessary to keep them alive;
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Federal Reserve Bank of St. Louis
-2 -
secondly, in the section to which we refer, business generally speaking is
highly seasonal, certainly in the smaller communities in which banks of the
type to which we refer would be organized. Therefore, in order to supplement their seasonal earnings, the banks have depended upon exchange
collection charges.
Therefore, we repeat the statement contained in the beginning of
this memorandum that, in the two Carolinas in this district, we believe
that earninvs of nonmember non-par banks from exchange collection charges
restrain many of these institutions, which might otherwise be eligible for
membership in the System, from making application. There are, no doubt,
many small banks of the class concerning which we write which would find
it extremely difficult to make a living if deprived of exchange collection
charges. In fact, there are undoubtedly cases, probably few in number, in
which small state banks could not survive without this source of revenue.
It is a question whether these small banks are more than a convenience to
their localities.
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Federal Reserve Bank of St. Louis
Austints Answer, 3-20-35, to
X-9115
In File 327.-5
•
********
3. Matters affectinF admission of nonmember banks to Federal Reserve System
(a) Earnings of nonmember banks from exchange collection charges
Earnings of nonmember banks from exchange and collection charges are
a negligible factor in this district. All nonmember banks are on the par
list, and hence exchange charges arise only from transactions with correspondent banks.
(b) Present conditions of membership
From a strictly System point of view, present conditions of membernot considered too severe, although the requirements with respect
are
ship
have made it impossible for the majority of the non-member
charge-offs
to
banks in this district to qualify. Many nonmember institutions have substantial investments in stocks on which the depreciation is heavy. The
state laws still permit banks and trust companies to invest in stocks, subject to certain limitations.
Present banking laws of Pennsylvania, which only recognize common
stock as capital for state institutions, have prevented them from eliminating
losses and depreciation through the usual method of reducing common capital,
and then rehabilitating the capital structure by the sale of preferred
stock. The new Secretary of Banking of Pennsylvania recently announced that
legislation now is being drafted which will overcome this handicap by giving
preferred stock the same status as common stock.
Nonmember state banks generally are aware of the closer supervision and more stringent requirements imposed upon member state banks than
those to which they are subjected by the state supervisory authorities. In
most cases the bankers are willing to admit the desirability of the more
rigid regulation, but they believe that by postponing applying for membership until it is required of them to retain the benefits of deposit
insurance, concessions will be made which will not demand such drastic
action in the matter of charge-offs and other corrective measures.
Uniform condition numbered 17 which prohibits the pooling of trust
investments, we believe, has deterred a number of Pennsylvania banks from
applying for membership.
The State Banking Code of 1933 prohibits the
pooling of investments and the sale of participations to the public with
or without the bankts guarantee, although pools still are permitted for
the collective investment of trust funds, bywhich means these funds may be
invested almost up to the last dollar, thereby prolucing a maximum of
income for the beneficiaries. In most prosperous times the pooling practice
involved a minimum of risk. The dangers and difficulties now, however, are
apparent to the managements of most of the trust companies. The provision
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Federal Reserve Bank of St. Louis
- 2in condition numbered 17 which prohibits a bank from owning an interest in
a trust pool created for the investment of small balances deprives the pool
of the flexibility which is necessary for its successful operation. If
some modification of condition numbered 17 were possible to permit the bank's
participation in pools created for the collective investment of small
balances which cannot be invested separately to advantage, it would have
the effect of making membership more attractive to the smaller trust
companies.
The power to issue title insurance is the birthright of practically
all trust companies in Pennsylvania. The majority of the nonmember banks
are trust companies, but apparently only approximately 16 per cent of them
have exercised their title powers. Under the provisions of a late Act, it
is believed that some of the companies which heretofore engaged in the
issuance of title policies have since lost the right to do so. It is
recognized that title business is not a proper function for a commercial
bank to engage in, but in certain instances it would impose a real hardshin upon banks for them to be forced to abandon their title business.
It is recommended that in such cases some modification of the Board's
usual policy be permitted, in order that these banks may qualify for membership, provided their conditions are otherwise satisfactory.
Because of the dual supervision by State and Federal authorities
to which state member banks are subject, a number of the nonmember banks
have expressed a preference to convert into national banks, rather than to
seek membership under their present charters. It is believed that if the
Comptroller is given the discretionary authority provided for in the new
banking bill to nermit converting state banks to carry over sound but nonconforming assets into national banks, a large number of state banks will
seek national charters in preference to membership under their present
state charters.
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Federal Reserve Bank of St. Louis
***** ***
110
Case's Answer, 3-15-35, to X-9115
In File 327.-3
********
3. Matters Affecting Admission of Nonmember Banks to Federal Reserve System
(a) Earnings of nonmember banks from exchange collection charges.
The nonmember banks of this district are not deriving income
from exchange collection charges on checks, and in this respect
there is no obstacle to their becoming members.
********
For some time it has been the policy to admit, as State bank
members of the Federal Reserve System, only banks which can and will eliminate from their balance sheets all estimated losses, and all depreciation
in market value of securities held, other than those of the first four
grades. These requirements for elimination of losses and depreciation have
been much more severe than any requirements which it has been possible to
apply to banks which are already members of the Federal Reserve System.
There is reason to believe that this has had the effect of preventing the
entrance of a number of banks into the System, whose condition and management compare favorably with the condition and management of many banks
already members of the System. In view of the desirability of promoting
unification of the banking system, which is recognized in existing and
contemplated provisions of Section 12b of the Federal Reserve Act, it
would seem desirable that this phase of System policy, as to the admission
of nonmember State banks, should be liberalized. Such relaxation of requirements as would permit the entrance into the System of banks in distinctly
unsatisfactory or dangerous conditions, of course, is not suggested.
*********
9. Criticisms of Existing Regulations or Rulings or Procedure of the Federal
Reserve Board, with Specific Recommendations as to Changes which would
correct any Unsatisfactory Features of the Relations between the Board
or its Staff and the Federal Reserve Banks or Member Banks.
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Federal Reserve Bank of St. Louis
Bank Membership
In the admission of State banks to membership in the Federal
Reserve System, there have developed most exacting requirements
as to material to be furnished in connection with the application
and as to conditions to be met by banks prior to admission. This
has reached the point where it constitutes a distinct obstacle to
bringing many State banks of average or better than average
quality into the Federal Reserve System. * * *
**** *****
jiational Stock Yards National Bank,± National City, Ill.
Visited this bank about 11:30 a.m., Friday, October 30, 1936.
Talked with Mr. Sullivan, President, Mr. Kramer, Mr. Law and Mr. Minton,
Vice President, Mr. Garvin, Cashier, and met a number of the employees.
Thile discussing things in general, 'Ir. Sullivan said that he
wished Regulation Q would be put into effect as originally set out.
He said that he did not think the Federal Reserve Board should wait
for the FDIC in a matt(x of this kind. This openPd up the question,
and I askPd him why he thought it desirable that this portponed portion of the Regulation should be put into effect. He said that it
would be beneficia] to the whole banking situation; that last month
he had hnd to collect charges from Missouri banks amounting to
00.
Later vhen Mr. Minton was called into the discussion, he said it was
nearer P1,000. They said they were running against competition from
St. Louis banks, who, in spite of clearing house rules, were absorbing all costs. He mentioned the Mercantile-Comm-rce Bank & Trust
Company and the First National Bank. He said that the Nntional Stock
Yards Bank was recovering in all instances out-of-pocket expenses,
but that he did not see anything in a pPr item charge. He said that
they had lost the account of the State Bank of Poplar Bluff because
a St. Louis correspondent would absorg more charges than they. He
mentioned one or two other banks in SoutYern Missouri they had lost
for the same reason. He evidently suspected that Sam Trimble had
talked to me and in course of the conversation said that Mr. Trimble
had lost the account of Ir. Green at Cabool bv putting on his metered
charge. Mr. Trimble, he said, was inclined to be censorious because
the National Stock Yards Bank treated the matter on an out-of-pockPt
expense basis and would not act on the metered charge.
He also said he was being criticised by St. Louis banks for not
charging a high enough rate of interest, but he showed me a statement
indicating that his rates run from 3% to
He said he was making
money on 3% and thought it was a reasonable charge. He further said
that the country banks were sticking to him becnuse in 1931, 19FP,
and 1933 they sent men out to try to be helpful and that they did
extend aid which St. Louis banks would not give.
He further said that they were going out after business and
making good profits. He said he had made a number of good loans in
Tennessee and other States and had made some good loans in the City
of St. Louis.
According to the statement he showed me, the National Stock Yards
Bank has 576 bank accounts with deposits of approximately 5'22,000,000.
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Federal Reserve Bank of St. Louis
(SIGNED)
McC. Martin
40
(copy)
FEDERAL RESERVE BANK OF
ST. LOUIS
June 20, 1936
Honorable Marriner S. Eccles,
Chairman, Board of Governors of the
Federal Reserve System,
Tashington, D. C.
Dear Governor Eccles:
You may rec-_11 that when I -as in Washington, we discussed the possibility of obtaining new menbers of the Federal Reserve System. In the
discussion you expressed the opinion that the greatest handicap to our
efforts to obtain new members lies in the matter of ez_gbp_Gf_2n_checks
ent to the_bankg .for_collection. In confirmation of your opinion, will
state that this week one or our examiners had a very pleasant conference
v,ith
Brett, State Comptroller of Banks in Mississippi. 'Ir. Brett
expressed the opinion that all of the nonmember bani:s in Mississippi
rho are eligible in respect to capitalization and condizion for membershin in the System 1.ould apply for membership if it were not for the
reTairements of the Federal Reserve System relative to par clearance
of checks sent by reserve banks to member banks for collection.
Mr. Brett stated that he had recently completed a survey of Mssissippi State banks. The survey disclosed the fact that a large percentage
of the banks were able to show an operatinc;. profit only by reason of the
income derived from exchange charges on checks sent to them for collection.
He expressed the opinion that exchange charges are so vital to lassis,ippi
State banks that a number of them would operate at a lose i' deprived of
this source of revenue.
Y'e have discussed here many times the question of exchange as
barrier to membership in the System, and have been unable thus far
arrive at any solution of the matter. The matter of par clearance
checks is- so vital to the System that we feel it cannot be aived,
it does make it very difficult to obtain new members in Arkansas,
Mississippi and parts of Tennessee.
a
to
of
but
In vier of our discussion in the matter, I thought you miczht be
interested in knowing of the conference with Comptroller Brett.
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Federal Reserve Bank of St. Louis
Very truly yours,
(SIGNED) John S. Tood,
Presiden
4 •
SOURCE:
(
i
REPORT OF F. C. Dunlop, lolditor, covering visits to 47 banks
in So. Dak. during week of June 8, 1936—Submitted by
Minneapolis office of Res. Bank under date of June 19.
Page
* ** *** * ****
In quite a number of the small banks visited, the officers
expressed doubt as to the future of the institution. Deposits are
showing little, if any change. What small income the farmer obtains
from creemery deliveries or other products sold is needed for
necessities or to retire seed or feed loans with Government Agencies.
There is also little borrowing, although some farmers obtained funds
for purchasing brood sows. The_fander hss had hie fill of borrowing
for non-essentials in advance of expected crops. The banks are mighty
careful also about making loans. In many Minnesota banks visited, real
estate paper found favor, but it was a rarity to find the small bank in
South Dakota with more than one or two of such loans. I should judge
there were very few loans being made under Title II of the National
Housing Act. It was also noticeable that the k,roup bank members had a
much lower ratiO-Of local loans to deposits than the individual btinks.
The same lack of aggressiveness was apparent in the group members located
in Southern Minnesota.
* * ** * ******
It is quite evident that talking membership to the small South
Dakota banks at this time wouldnot produce results. Earnings are so poor
that none would consider giving up exchange. Some of the small member banks
would welcome the opportunity to add a little exchsnge to their income.
Formerly land sale commissions and insurance helped out materially, but
there is little profit from this source at the present time.
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Federal Reserve Bank of St. Louis
* * * * * -* * * * * *
,
SOURCE:
REPORT OF H. C. Core, Asst. Cashier, aiinneapolis Res. Bk.-period from
June 8 to 17, 1936—submitted with letter from Fed. Res. Bk.
of Minn. dated 6-23-36
Page 3
It is the general practice of the bankers in this territory to
collect exchange and service charges, and they are apparently well
pleased with the results obtained. The loss of exchange is the
greatest objection to membership from the viewpoint of the average
non-member bank, although several of the smaller banks presented the
question of capital requirements. Two member banks indicated they
were giving serious consideration to withdrawing from membership in the
System. The loss of exchange, which ranged frail t8.00 to $10.00 a day,
was the reason given in one instance. In the other case, the bank officers
felt thare was insufficient volume of business to justify a member bank in
their town under present capital recuirements.
Page 4
* * * Some bankers have expressed themselves to the effect also that
national banks desiring to convert into state banks would at least defer
action until after the State election to ascertain who is made governor. If
gr. Langer is elected, they may even wait a longer period until his attitude
toward state banks is definitely known. In the face of Lir. Langer's speeches,
poor crop prospects this year, and financial difficulties experienced in
recent years, the bankers generally are exceedingly cautious in making loans.
Several banks resented competition from the Postal Savings System.
The retiring president of the North Dakota Bankers' Association (on whom I
called) suggested that the t'ostal Savings System be authorized to pay a rate
about i% less than that approved by the Vederal Deposit Insurance Corporation.
Mutual insurance companies are furnishing strong competition for the banks in
writing insurance, and many banks reported a decline in their revenue from
this source.
Page 5
A ver, few banks have ceased to pay interest on C/D's and savings
accounts. One such bank at its peak had approximately one-half million dollars on deposit, and now has about $170,000. This bank has about $10,000. in
C/D's and $50,000. in savings accounts, which the custamers continue to carry
with the hope that the bank will eventually resume payment of interest. In
the county in which this bank is situated, no one is on relief. No cattle
have been sold here except in the normal course of business. The bank in
question is situated in one of the richest farming sections of North Dakota,
and crop conditions here were much better than in other sections visited.
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Federal Reserve Bank of St. Louis
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 1935
Address of the Pres., James C. Bolton, VP Rapides Bank & Trust Co.,
Alexandria, La.--(State Bank Div.)
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Federal Reserve Bank of St. Louis
I think it safe to say, in summing up the work of the State Bank Division
during the past year, that it has continued to be directed toward its fundamental aim, to improve and preserve the State banking sYstern. We have
realized, perhaps more clearly than ever before, that if the State banks are
to be preserved, it will not be solely because they have existed for many
years, but because there is an intrinsic merit and strength in the system
of individual independent banks. Accordingly, we have used every agency
at our command to strengthen State banks and State banking.
1
i
It is in such measures as these
that the State Bank
Division looks to you
to contribute to its future throug
h
For there is yet much work ahead improving the status of State banking.
of the Division, if it
established policy, recently set forth
is to continue its'
as follows:
"It has long been a policy of the
State Bank Division to
interests of the State unit
stand primarily for the
bank
banking. The members of the as opposed to trade area or nationwide branch
Executi
ve Committee and the
sion have felt that they had a
officers of the Divimost of the time, have no otherresponsibility to the thousands of small banks
which,
or In National political controv representation either In the affairs of the
ersies.
Association
"The DivLsion has consistently
maintained its position in
Of banking, as opposed to any
favor of the dual systern
unification.
"Finally, the State Bank Divisio
n has always worked
ment and closed co-operation
for better bank manage
betwee
n
the
Divisio
n
Supervisors."
and the various State
13an
L. A. Andrew, Past President of
our Division, is the
statement of our fundamentals
author of that brief.
.
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 1935
Through the Bankers' Eyes--address of the Pres. of the ABA, E. S. Hecht
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a
Federal Reserve Bank of St. Louis
Most of the Iaws of selfgoverning people are the results of compromise, and that is true of the
Banking Act of 1935, but none will deny that it is a forward step in
constructive banking legislation and a decided improvement on the existing
status.
It is interesting to note in this connection that those elements in our
present Government who are constantly striving to exert an ever-increasing
public control over the private business and finance of the nation, and
to bring about a more direct public managernent of its economic processes,
were quite active in pressing certain provisions in the new Banking Act
which would have strongly supported their views. These provisions raised
the question as to whether the banking business of the
United States
should be subject to some form of unification or control, and, if
so, whether
this control should be under the political Government's
domination, or
, whether it should be set up on a basis maintaining the
I
complete inde1 pendence of the nation's banking mechanism from the political
influences
1 of whatever party might be in power now or in the future.
g
This was an issue in which your representatives felt that
bankers had
to take an active part and fearlessly speak their mind.
Fortunately, we
found bankers in universal agreement on unequivocal
opposition to any
, political control of banking, whatever their political leanings.
Our objecI tions to the proposed concentration of power in the Government
sprang from
considerations of sound banking. policies for the common good,
and from
1 the firm conviction that banking is simply not the field
for politics of
any denomination. We made our position in this respect
frankly apparent
to the administrative and legislative leaders at
Washington, and were
candid in expressing the opinion that no banking system
would in the
long run be sound if it were to be dominated by any of the
ever-changing
political administrations.
IIappily, too, we found in Senator Glass a most powerful
defender of the
very principles for which we were fighting, and to him
more than to any
\,,
other one man in the country belongs the credit for the
victory that was
on for the Federal Reserve System, and for independent and
conservative
anking over the apostles of absolute Government control.
I
I
1
THE COMMERCIAL & FINANCIAL CHRONICLE—ABA Convention—Nov. 1935
Business, .41dustry and Taxation--by Lewis H. Brown, Pres. Johns"Linville Corp., NYC
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
\ Business men generally are not opposed to the Government providing regulations to safeguard the organizatio
and the current operations of banks. For, in principle, bank
are operating with other people's money and it is the function
of Government to protect the general welfare just as it does
in the issuing of licenses to operate automobiles upon the
public highways or in the passing and enforcement of traffic
laws. But business is opposed to the centralized political
control of the Federal Reserve Board and to political pressure
being exercised to force the banks to invest the people'.1
money in unlimited quantities of Government obligation
to support the unlimited spending of governmental bureau
cracy.
SOURCE:
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention
Nov. 17, 1934
A Look Ahead--by David Lawrence, Editor, "U.S. News"
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Federal Reserve Bank of St. Louis
P. 25
We should fight against any effort to standardize
or make uniform the things which cannot be standardized. Woodrow Wilson once said:
Uniform regulation of the economic conditions
of a vast territory and a various people like the
United States would be mischievous if not impossible. The stetesmanship which attempts it is
premature and unwise. The United States are not a single
homogeneous community. In spite of a certain superficial sameness which seems to impart to Americans
a common type and point of view, they still contain
communities at almost every state of development,
illustrating in their social and economic structure
almost every modern variety of interest and prejudice,
following occupations of every kind, in climate of
every sort that the temperate zone affords. This
variety of fact and condition, these economic and
sociel contrasts, do not in all cases follow State
lines. They are often contrasts between region and region,
•
rather than between State and State. But they are none the less real, and
and
ineradicable. The division of powers
permanent
instances
many
are in
between the States and the Federal Government wait the normal and natural
division for this purpose.
How true and prophetic were those words! The American
dual system was established to make sure that in a territory
3,000 miles wide and 2,000 miles deep, and with a diversity
of races and peoples, local self-government should be the only
principle of uniformity we should apply. And with that
theory of self-government went the idea that the people must
be protected against the encroachments of government and
work out in each community and in each State the best possible solution for the local conditions that exist there.
THE COMMERCIAL & FINANCIAL CHRONICLE---ABA Convention-Sept. 23, 1935
The Need for Revision of the Glass-Steagall Act and a Sane
Legislative Program for Banking--Geo. V. McLaughlin, Pres.
Bklyn. Tr. Co., Brooklyn, N.Y.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Eventually, I believe we shou
ld have a unified
banking system under a single
supervision, but RS an
immediate proposition it Is not prac
ticable and something
will
have to be done in the meantime
. I realize, of course,
that
there are few who want to go into
the banking business
at
the present time, and there are
plenty of reasons for
that,
but there is also a very urgent need
for new banking facil
ities in many parts of the country
--particularly here in
the
Seventh Federal Reserve Dist
rict—and sooner or
later ther
will be another era of expansion
in banking. We
must
sure that it will be an adequately
controlled expansion.
•
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Sept. 23, 1953
Annual address of Pres. Francis H. Sisson, VP., Guaranty Trust Co., NYC
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Federal Reserve Bank of St. Louis
To return to the Banking Act of 1933--there
is another feature that calls for special
comment and that is the indiscriminate hardship with which it threatens to bear down on
country banks. The terms of thd section of
the bill creating the Federal corporation for
insuring deposits would in effect force many
banks now under State jurisdiction either to
submit to Federal controlled regulations by
becoming National banks or members of the
(
1
Federal Reserve System or else retire from business. The latter alter at iv(
would be virtually compulsory upon many State banks whose siz and
nature of their business would preclude them from following the f rmer
course. The result of this would be to replace many good indepe dent
unit banks, that could not qualify under the law, with branches of batiks
operating under central government auspices.
Through these various changes, we can discern
a gradual and irregular
trend toward better banking methods. There
have been setbacks and
failures, but the story as a whole is one of progress.
Whatever may be
otir individual views regarding the relative
merits of a unified or a d 1
banking system, most of us will agree that the
national banking Act est
lished a standard of procedure that exercised a
wholesome influence
American banking vractice in general. Similarly,
the Federal Reserve
System, with all its limitations, has unquestionably
tended to strengthen
the banking structure of the country.
THE COMMERCIAL & FINANCIAL CHRONICLE—ABA Convention--Sept. 23, 1933
The Need for hevision of the Glass-Steagall Act and a Sane Legislative
Program for Banking--by Geo. V. McLaughlin, Pres., Brooklyn
Tr. Co., Brooklyn, NY
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t
I am not very optimistic over the prospects tor Governmen
regulation of the total volume of bank credit. The Federal
Reserve Board seemed unable to control the expansion prior
has been ento 1929, and since that time little success
countered in the various efforts to expand credit in the
l. ,...
absence of legitimate demand. Moreover, even if it were
it (t)
credit,
bank
of
volume
aggregate
the
control
to
possible
would not be possible to control its velocity, or rate of turnover, which is just as important. Therefore, I do not believe that any form of public control over bank loans and
investments should be included in a sane banking legislative
/
t
program.
•
THE COMMERCIAL & FINANCIAL CHRONCILE--ABA Convention--Sept. 23, 1933
Forum of DiSCUSSiOn led by J. W. Brislawn, Secy. Wash. BA, Seattle, Wash.-"Insurance Provisions of Banking Act---Resolution Adopted"
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Even those bankers who believ
e that all banks should be
members of
the Federal Reserve System and
who recognize the deposit
insurance plan
as a long step in that direction
are doubtful of the wisdom
of thus forcing
some 8,000 or more banks all
at once into the Federal Reser
ve System.
They are none the less convi
nced of the desirability of
all banks being
members of the Federal Reserve
System, but they would like
to see it
brought about in a more conservative
manner, and possibly the
accomplished without the contro
transition
versy than will ensue or
than has already
been provoked by the proposal.
Their desire to see all banks
members of
the Federal Reserve System is
not sufficiently strong to
overcome their
reluctance to approve fully the
insurance of deposits because
belief in the soundness of the
of their displan.
_
I
Ir
THE COMMERCIAL & FINANCIAL CHRONICLE,-ABA Convention--Oct. 22, 1932
Address of Pres. of State Bank Div.--Felix M. McWhirter, Pres. Peoples
State Bank, Indianapolis.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Prom all the loose conversation in our Nation's capital. and propaganda
emanating from holding company bank operators, one might feel ju.stifi
in wondering if State chartered financial institutions and their owne
have ceased to constitute a part of the structure making up the commo
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 Congress has the constitutional power to prohibit State chartered financial institutions from operating
at all.
It has been seriou.sly stated that because the States and the people of
the States gave to the Federal Government the right to coin money and
control inter-state comtnerce 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 su
evidence of utter lack of sober thought and consideration in the responsib
elements of bank holding company operators to advocate or propose su
ill-advised and discriminatory legislation, the only possible effect of whi
is to promote skepticism of banks generally if not to cause inquiry into
holding company banking concentration itself.
r
6
THE COMMERCIAL & FINANCIAL CHRONICLE---ABA Convention--Oct. 1932
Remarks of President Haas of A. B. A.
Before State
Bank Division—Comments on Unified
Banking
Comparison of U. S. and Foreign Banking
System
Unified Banking System.
I went up to Montreal on a business trip and stayed long
enough to g
the information I want to give to you.
We hear references now and then in regard to a Unified Banking System.
It came up most prominently this year when the A. B. A;
were testifying
before the Banking and Currency Committee. One prominent v,ittiess
(not a representative of the A. B. A.) made the suggestion and
I believe
two Senators responded immediately and with much enthusiasm
asked
how it could be done. The witness replied that he did
not know. The
thought ran through my mind that it might be done by a decision that all
banks do an inter-State business and should therefore be under Federal
control.
But is this desirable? As I see it the regulating body would
know the laws of 49 States if the banks were to operate under Sta t
and that would be most difficult. They could of course set up a department
in each state to handle all matters within the State but this would only
59
lesult in replacing
one duly
, ssvItrance
ed st-stem with
have we that it
another and what
would°rmgaeaninz anY:real
advant,age.
Uniform Stale Laws.
You. gentlemen, no doubt realize and appreciate the need for and the
reat advantages which result from the ttniformity of laws in the different
tates governing the business transactions of banks.
The American Bankers Association ha.s for many years been working in
co-operation with State organizations to promote uniform State laws.
The need for such uniform laws throughout the United States is selfevident. While our country is commercially one, the inter-State transactions of banks involve dealings in negotiable paper and documentary
evidences of title to property which are governed I, t he laws of one or
more of the 48 separate States.
I
P.60
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
Much progress has already been made but there is
still much to be done. Take the Negotiable Instruments
Law now in force in all our States. How many of you can
remember that prior to 1897 there was no uniform code of
rules boverning bills, notes and checks and bankers in one
State could not be expected to know the laws in 47 other
States.
Take commercial documents which, unlike negotiable
instruments, do not call for payment in money but represent title to commodities in transit or in storage and upon
the security of which the banks of the country make advances,
only one half of the States have passed the Uniform Bills of
Lading Act, while all but four States have enacted the Uniform
Warehouse Receipts Act, both of which protect the banks.
Less than half the States have passed the Uniform Stock
Transfer Act while 28 States have not passed the Uniform
kiduciaries Act.
Thirty States have not yet passed the Uniform Bank
Collection Code, which would bring about uniformity relating
to bank collections.
* ** * * * * * *
7".4
w
*
THU COMMERCIAL Re FINANCIAL
Oct. nF'
Ec,..
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Convcmtion
Commision--by
72c.
Ti. Cc.,
Througla Fr-d'.3r,
,1 Reserve System"
L
.1—Proposals For a Unified System.
Another line of thought argues that the great
reform in banking by means
of w that is needed is in the direction of
a single. unified system for the
cou ry as a whole under Federal Government
supervision. It is the theory
in
is proposal that this plan would make for better
supervision, a more
co pact and better co-ordinated banking structure
, a nationally higher
standard of management for all banks and a credit
mechanism that would be
subject to greater control in the National interest.
While we are wholly in sumpathy with the basic
purposes envisioned in
this argument, we believe, as we have brought
out in previous reports and
will not repeat in detail here, that they can
be attained under the present
dual system of State and National charters,
that this dual system has
additional virtues in itself, particularly along the
lines of maintaining local
financial independence and credit sympathies free from
the domination of
over-centralized Federal Government, and that the
dual system should be
strengthened rather than destroyed.
Specifically, we have in mind the material enlargem
ent of the sphere of
•nfluence of the Federal Reserve System in the present
dual banking strucire. which is particularly favored by the reduction of the
banking picture
o its present dimensions and character. The changes
this has involved
ave promoted unity in the operating aspects of our
commercial banking
system embracing both State and National banks.
without abrogating
their respective charter rights or nullifying the
advantages of our dual
system.
1
I
Purely as a t,chnical fact, a large number of the commercial banks that
lare not in the system could make little or no use of its facilities and would
not receive benefits justifying their costs or membership due to their character, size or the nature of their operations. Conversely, also, banks of this
class technically would not contribute strength to the system or materially
add to its practical scope of influence in the Nation's banking structure.
These statements apply not only to banks unable to qualify for membership
but as well to many voluntary outsiders which are eligible. It was among
banks of these kinds that the heaviest mortality has occurred in the period
from 1921 to 1931, raising the relative scope of influence of the Federal
Reserve System in the present banking structure and creating conditions
particularly favorable to a further extension of its influence.
With these favorable developments pointing the way, it seems to us
that the end to be sought is not the destruction of the dual banking system,
but the promotion to the utmost of further developments in banking along
the lines indicated in the foregoing. As the Nation developed a condition
in which the greater portion of its commercial banks were of a size and of
character to qualify them for membership in the Federal Reserve Syatem,
and as the system by force of its demmustrated practical advantages of
membership extended its scope over the greater portion of them, we would
approach nearer to putting into effect in the dual system itself, without
sacrificing its own peculiar virtues, all the virtues claimed for a unified
system.
lt is quite true that the Federal Reserve System's record in the past has
in no sense shown it to be a panacea for banking difficulties or an impregnable defense against depression. Many banks have failed within the system
as well as outside. However, the record for the banks in the system was
materially better than for those outside. Nloreover, although the facts
•
t
:34
indicate that greater strength
is to be desired for
banks both inside and
outside, it is our conviction
that the Federal Reserve
the most promising instrumen
System constitutes
tality for building
uP the kind of a banking
structure for .he Nation that is to
be desired.
We are in favor, therefore.
of a broadening unity in
our commercial banks both
the fluictioning of
•
State and National, along
sound, co-ordinated
lirws under thi• leadership of an
ever-improving Federal
We do not bi•lieve that it
Reserve System.
is necessary to sacrifice
to this end the
banking system of optional State
dual
and National charters
banking field stands as just as
which in the
great a defense against
undue central government control over the financial
liberties of our people as
the dual system of
State and Feleral governme
ntal jurisdictions represent
in respect to their
,00 I t lea 1 liberties.
•
THE COMMERCIAL & FINANCIAL CHEONICLE--ABA Convention
'ct. 19Z2
StrIte Banks and Their Important Iield of Service--by L.L. Andrew,
VP, First Bank & Truet Co., Ctturna, low&
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The development of thousands of communities throu
ghout the United States has depended almost entire upon
ly
the
efficient service rendered by the banks under State
super
vision. This country has grown and prospered
because
this efficient service given day after day and year
after yea .
Nearly all of the State bank sue of the strong
unit type,
owned by the people of their local community,
directed by
the promin.ent investors in their territory and
with local
exceutive officers and employees.
The 48 States in the Union, having prospered and
developed with such a banking system, are naturally jealou
s of
their rights. They have given them special privileges
in a
large number of cases and have provided for their efficie
nt
supervision. The banks have prospered as their commu
nities have prospered, and suffered as their communities have
suffered. It is no more fair to say that the unit banki
ng
system in the United States has proved a failure than it is to
say that business has proved a failure. However, it is undoubtedly true, in a great many cases, that the loyal service
rendered by the bank was not reciprocated by the peoph
of the community.
panks under State supervision have been working side
b34iside with banks under National supervision and the dual
system of banking has proved a success. Each system has
prospered in an equal measure and each has been a check
on
the other. This check has been a competitive one, in
a
measure, but for the good of both. The fact that the State
banking system has grown more rapidly than the National
system is due, perhaps, to the greater field for service given
the State banking institutions by the laws of the different
States. This growth may also have been caused by
the
closer, more sympathetic and more constructive supervision
that the State banks have received. Many times the supervising authority hundreds of miles away, with the counsel
of a shifting force of examiners, has not proved so constructive and helpful as a supervising authority closer to the bank
and with an intelligent appreciation of the clifficulties under
which the banking institution was working.
In so far as the State institutions are concerned, the dual
system of banking has been recognized as a competitive one,
each side having many good points. Both branches of
this
dual system have definite work to do and they have
done it
ell. Those of us who have worked for a number
of yea
t
e
rtui
such a system and have tried
t,o be close students of
the
ts obtained, have perhaps too
little patience with the
element not trying t,o put
forward the so-called
"unified
system" and do away entirely
with the State supervised
institutions. Having recognized
the value of both State
and
National banks for so many years
and believing that each is
a. constructive check on the
other, it is hard to follow
the
reasoning of those who would
take the radical step of
de- ,
stroying the greater branch of
this dual system, so mil,'
greater in number, so much
greater in area of service, aii
incidentally, so rniieb vreator
in total rc.,:ourvo,
A
V'
-2-
L. A.Andrew
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
bnad
Ineidentadly, it is rather &Liaising that propositions are
e with the idea of having the smaller branch of this dual
system swallow the larger. If there were any particular
value in such a plan, it would have worked out during the
-past years from the natural development of the dual sysem.
The progress, however, has been in the other direction. It
is difficult to conceive of legislation overcoming the natural
economic development of the past 50 years. The more
carefully this bank unification subject is studied, the more it ,
will have to be recognized that it is one of the radical, destructive ideas promulgated as a so-called "cure-all" for
the depression and for the distressed banking condition, resulting almost entirely from the economic depression.
The forcing together of all banking institutions in this
country into one bureau in Washington would be adding so
immeasurably to bureaucratic control that it would be unsound and unsafe for a continued successful development.
The fact that a bank is a National or a State bank does not
make it exempt from failure. There has been just as good
supervision in the State banking system as in the National
department. In a great many of our States the percentage
of failures has been in proportion to the number of banks in
each system.
It is unfortunate that during every time of stress which
this Nation experiences we have a number of unsound theories
advanced which the exponents thereof seem to think would
be a solution of our problem. Those who believe in a still
greater centralization of power in Washington and those who,
mainly for selfish reasons, wish to see the destruction of our
great system of state banks, seem now to have united on a
.program of what they call the "Unification of our Banking
Systems."
.
_ _
•
Governme
controlled
unifies,
nt
Those who insist upon a
tion of our banking systems should be practical and buil
such a system around the Postal Savings Bank. That'
a Government bank for sure, running behind in earn
every year, all of which is made good by taxpayers, including
our banks which have in it their meanest competition.
Postal Savings Banks have accumulated nearly a billion
dollars in deposits, all at the expense of our present banking
systems and have been the direct cause of the scores of fail,'ures of National and State banks. However, it would make
an ideal set up for an extension of the Government controlled
unification of banking idea.
.
1
i
Any so-called "unification" of our banking
systems which
would destroy our successful dual system
of National and \ 1
17Ntate control and put up in its place a
centralization of power
41 the hands of a Government bureau,
would certainly be very
unwise. Any proposition that would pla,ce
all of the banking
resources under bureaucratic control in
Washington, where
it would be subject to changes in administra
tion and to the
pull and avarice of politicians, would be
against the tenets
of good banking and good public policy.
One of the greatest
safety features, particularly for the national
banks, has been
the check which the State Banking Departmen
ts have been
able to give to unwise policies proposed
during the many
years of their joint existence. Those in favor
of such a move
inust, of course, advance some arguments
in its favor; however, I have been unable to find any which
would withstand
the light of careful reasoning. Naturally
the principal reason
should be that of safety and the yardstick
used in det,ermining
-3uch advantage must, of course, be the
i
experiences of the
msi.
.
1
•
•
-3--
L. A. Andrew
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'"I'he independent unit bank, however, Wa.S by no means the only sufferer .
1 fact every type of banking organization was represented in the situation
1 sinall banks in the country failed, so did sizable unit banics and larg,,.
I nch bank organizations in the cities fail. And if unit and branch bank
ganizations failed so did members of chain and group banking organiza, tions and likewise so did entire chains or groups go under. Without making
: any statistical comparisons, for we do not believe the data of this type is ---1. •
, sufficient to indicate the respective merits of these various types of banking
organizations, we would mention that during the first half of 1930 there
were 12 instances of branch 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 organization as such
was entirely immune from the plague of failure. The determining factor
was universally the type of management, not type of organization. Good
management kept unit, chain group or branch banking sound; it kept small
banks sound as well as large banks, country as well as city banks, National,
14tate, Federal Reserve member or non-member banks—in brief, good man- 1
Lgernent kept all classes of banks sound."
I
The proposed unification of our
banking system means,
f course, the destruction of the
banking systems under the
ontrol of our 48 States. It is an
effort to destroy the sovereignty of our States and to force
upon the people one of
the final steps in Federal Governmenta
l control which has,
in the majority of cases, proved
disastrous to American business. To centralize the control of all
banking resources in
t Lie hands of one or two men, subject to
the changes in political administration will receive little
defense from the
thoughtful man or woman.
,
We dislike to look at this question, or to study it, with
any prejudice either for or against National control or Stat
control. The fact of the matter is that this country ha.
been brought up to its present standing by a wonderful
dual system of banking, each of which has performed an
equally important service and has an equally important
place in the financial development of this country. Undoubtedly it does pique those in favor of Federal control of
banks to see the continued growth and prosperity of our
Stale banking institutions. When over two-thirds of our
banking institutions are outside of the Federal Reserve System and. when, notwithstanding this fact, 40% of all of our
Federal Reserve resources are contributed by State banks
and trust companies, and their membership is voluntarY,
WO have an indication of just how the people regard this idea
of the "unification" of our banking systems.
This state of affairs doesn't just happen, it is the natural
outgrowth of advantages enjoyed by State banks ancl trust
companies. We believe in the Federal Reserve System, but
we also believe that it is a human institution, depending upon
its management for the fulfillment of its purpose. It certainly has not been conducted, ma,ny times in the past,
either to the advantage of the country which gave it birth
or to its member banks. We believe that all large commercial banks with a million or more capital should belong to
the system. We do not believe, however, that several
thousands of our smaller banks, both National and State,
have any place in the Federal Reserve System. They are
able to function successfully outside and to better advantage,
using the facilities of their bank correspondents, and shoul
not encumber the system with the million and one deta,ils
which add in volume but not in efficiency.
•
0
—4—
L. A. Andrew
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
_
nyone who talks of the "unification" of our banking syss and deliberately plans the destruction of a large numb(r
o unit banks in this country is takinga stand which is indefensible. Such a selfish view of a serious financial situation
should not be tolerated nor encouraged, particularly when
it probably involves a further plan of country-wide branch
banking. The State banks have built up our communities
a over the United States and, if given a fair chance, will
tinue to serve the people in their communities for years
come.
•
•
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Sept. 23, 1933
Address of the Pres. L.A. Andrew, VP., iirst Bank & Trust Co., Ottumwa, Ia.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Members of the State Bank Division assembled here to-day are entitled
to know the progress of this Division during the past year.1 At the Exective Council meeting held in Augusta last spring, your President made,
'n part, the following report:
"The State Bank Dhision has had a good year. It has been a year of
ard work for its members, who constitute over half the membership of
the American Bankers Association. When I say that the State Bank
Division has had a good year, I mean, of course, that Frank Simmonds
has had a good year. We think we have the best Deputy Manager in the
business, and he has done a wonderful work during the past year since our
last meeting.
"It has been a year of trial and sacrifice for all banks, national and
State, a year of false and misleading propaganda against the banker and
his business. That tne bank is an integral part of the community and
reflects primarily the condition of the community is a fact many times
overlooked. The unit bank, both national and State, particularly the
large majority of all banks known as country banks, have been fighting
for their very existence.
"The State Bank Division is regarded throughout the country by all
such bankers as their representative in the affairs of the American Bankers
Association. We have accepted that responsibility and, mindful of the
obligation, have consecrateu our efforts to the preservation of the dual
system of banking in this country. We are fighting
for the continuation
of the American form of banking which has built up this country from the
first. The fight has only commenced. This unfortunate crisis is
being
taken advantage of by the proponents of the foreign system of banking,
to do away with the American system and to destroy the dual banking
system for a so-called unification of banking idea. Those in favor of
°reign banking principles wish to destroy two-thirds of our banks. They
ant to take advantage of conditions brought on by tne universal collapse
of credit and banking, to destroy instead of to construct. They want to
do this without proper study of the situation and without weighing properly
11 of the conditions pro and con. They want to rush this revolution in
banking through without hearing from the millions of our people who would
be affected by this overthrow of banking and finance. We are unalterably
opposed to any unification of banking idea which will destroy the American
dual system. We demand a careful study of the situation before any action
is taken. The patrons and supporters of the country banks are the millions
of people back home who have sacrificed with their banks; who have seen
their banks prosper with the community; and who have seen tneir banks
in trouble because the people of the community could not pay their notes
because of the universal economic condition beyond the control of the
banker or the borrower.
"The State system of banking has not been a failure any more than the
national and Federal Reserve. The recent acute period of our banking
trouble was brought on mainly by the failure of several of otu' largest
banks, not in the State system, and two large groups of national banks.
The suspension of the fiscal agents of our Government, tne Federal Reserve
banks, followed on account of the almost total loss of confidence by the
people in member banks. We are sorry this is so and this phase of the
depression is mentioned only to keep history straight. We wish to emphasize, however, the fact that any plan for the unification of banking idea
on that basis is unsound. We bailey() in the Federal Reserve System. It
is a part of the American system of banking. It is not and was not con. ceived with the idea of being all of the American banking system. Some
of the men connected with the Federal Reserve System have been anything
but fair in their presentation of the proposal for the 'unification of our
banking systems.' Walter Wyatt, General Counsel for the Federal Reserve
Board at Washington, in the March issue of the Federal Reserve Bulletin,
proposes new law to force all of the State banks into one system, naturally
controlled, ruled, and dominated from Washington, and he would do this,
as he says, by:
"'Forbidding the receipt of deposits subject to check to withdrawal by
check by any individual, partnership or corporation other than a bank
organized under the laws of the United States and provide suitable penalties
for violations of this prohibition.'
"Only one-third of the banks of the country are member banks. The
people have had little more confidence in member banks than in nonmember banks. ln 19:32. 1,125 non-member banks closed and 331 member
banks, nearly the same proportion as they are in number, while the deposits
of member banks which closed were over one-half the deposits of nonmember closed banks, the figures being $269,000,000 for member banks
and $446,000,000 for non-member banks. The deposits of member banks
declined from 37 billion dollars to 30 billion dollars in 1931, and from
:30 billion dollars to 28 billion dollars in 19:32. And during the year 19:32
when the deposits in member banks were decreasing two billions of dollars,
the loans to member banks actually decreased over 40() million dollars.
These figures are not given to disparage the Federal Reserve System in
any way but to get the official records before you for a study of the subject
and to show that the people had no more confidence in member banks than
in non-member banks during this crisis. A large number of banks have no
place in the Federal Reserve System and this applies particularly to the
many savings banks and the sivaller commercial banks in country places.
Another point is that one who wishes to be fair should not take advantage
of a crisis to overthrow the American system of banking.
t
f
1
1
At this meeting of the Executive Committee the Economic Policy Co mission presented a report, the first section of which proposed that all
banks in the United States should become members of the Federal Reserve
System. The Executive Committee of the State Bank System would
not agree to accept that platform and your President opposed that section
of the report of the Commission in open session. A vote was taken and
It was decided to eliminate that section of the report. Afterwards a
compromise of this section was approved. which, in brief. stated th
the requirements for admission t,o the Federal Reserve System should b
so amended that State banks could be admitted without discriminatio
The officers of your Division have looked after the interests of the State
banks to the best of their ability at all times.
-2The Commercial & Financial Chronicle--Sept. 23, 1933
L. A. Andrew (Contd.)
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Federal Reserve Bank of St. Louis
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again in the City of Chicago, after
hear a
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State Bank Division of the America
11
the dual system of banking.
good deal of discussion these days about
a
Nation
activities. The
an
Americ
our
in
place
no
has
It
is out of date.
en
ess. It seems to me, gentlem
usefuln
its
d
outlive
has
System
g
Bankin
country would be to have uniforn
that the ideal banking condition for this
seem impossible, but you will
banking laws for each State. That may
eneous negotiable instrurecall the fact that at one time we had a heterog
got at it and had a uniform
we
finally
that
and
State,
every
for
act
ment
of the States.
negotiable instruments act passed by all
discussion here--that if
My thought is—in order to bring up a little
was approved,requiri
we had a uniform banking law for each State which
Reserve System and the
every bank to become a member of the Federal
authority and power of th
have the Federal Reserve System under the
at the banking situatio
banks that own it—instead of the politicians—th
_ in this country would be solved.
i,/
0
THE COMERCIAL & FINANCIAL CHRONCILE---ABA Convention--Oct. 1932
Report of Committee on Resolutions, by Chmn. L. A. Andrew--Opposed
to Broadening of Branch Banking Powers of National Banks as
Proposed in Glass Bill.
p. 60
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Federal Reserve Bank of St. Louis
Resolved, That the State Bank Division, in
annual convention assembled, hereby expresses its
determined opposition to Section 19 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. 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 aystem of JAation-wide branch banking.
Further, be it resolved, That we are unalterably
opposed to the so-called unification of all banking
under Federal control in place of the present dual
system of State and National banks which is being
promulgated for the purpose of destroying the State
supervised banking systems. It is almost unbelievable that such a movement could attain success, but it is
being supported by such powerful interests that desire to bring the entire
banking business of this country under the control of a single Washington
bureau as to constitute a serious menace to our State banks.
Such a plan aiming at the extinction of all State banks and the setting
up of bureaucratic domination of the entire banking system of this country
threatens to cause a dangerous centralization of Government authority
over the financial and business interests of the National, and we urge
every banker in the IJI,Ited States to take an active part in opposing this
plan which is in direct violation of the basic principles that have characterized this Nation from its inception and have been an essential factor In
its development and progress.
/ L. A. Andrew, Vice-President First Bank & Trust Co., Ottumwa,
Iowa. Chpir man.
...„,i 17 TIrariV. Vice-President Commerce Trust Co.,
Kansas City, Mo.
—
)
s„•
THE COMMERCIAL & FINANCIAL CHRONICLE--ABA Convention--Nov. 1935
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Federal Reserve Bank of St. Louis
Report of Resolutions Commit
tee
State Unit Banks—Preservat Re-affirms Stand for
ion of Rights of State
Banks in Administration
of FDIC
)
The report of the Resoluti
as follows by L. A. Andrew, on.s Committee was presentedl
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-wid
e branch banking.
We realize our responsibi
lity to the thousands of smal
l banks which have
no other representation in
the affairs of the Associatio
n. 'We wish to again
maintain our position in favo
r of the American dual syst
em of banking as
opposed to any unification
idea. We are in favor of
better bank management 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 degre
e,of the deposits
of the people. We wish to comm
end the regulations in so
far as they have
been put into effect that have
helped in the operation of
banking institutions. We
better and safer
urge that the rights of
State banks be fully
preserved in the administra
tion of this most impo
rtant Government
department of banking.
The National Government
has within recent years
broa
cipation of the Government
in the loaning activities whic dened the partih rightfully belong
to the banks. In several
cases these loaning activ
ities were proposed as
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 exte
nd their loaning activities
so that in the near
future they can take over the
better grade of loans now
)
overnment agencies of all
handled by the
kinds. We further
urge that the loaning
tivities of the different Governme
nt agencies be gradually
t ey can safely be taken over by
reduced until
banking institutions and
be terminated
ithin a reasonable time.
We again urge that the rate
of interest on Postal
Savings depositswbe
reduced so as to do away with
the unfair competition
that this agency now
practices in opposition to bank
ing institutions.
We ask for reduction in the rate
paid on RFC preferred
stock notes.
stock and capital
We wish to commend in the
highest terms the good
work
officers and committees during
done by our
the past year and parti
cularly the efficient
help that our Deputy Manager,
Frank Simmonds, has
been to this Division
and its thousands of members.
I
IThe report was duly adopted.]
L. A. Andrew,
Chairman
F. B. Brady
R. NI. Hanes
REPORT or STUDY COUMISC-FOR INDIANA TTNANCIAL INSTITUTIONS (1952)
1
1
135
record of such banks Nmpared with the other state institutions which
were not members of the system. It is recognized that only a study of
this type would measure e influence of the Federal Reserve System
itself in the prevention of fa:lures.
For many years past the state banks and the Federal Reserve Board
have disagreed over the terms upon which state banks may be admitted
to the system as voluntary members. To this controversy can be charged
a great part of the responsibility for the failur of state banks to join
the Federal Reserve System in large numbers,' gpace does not permit
a review of this controversy, but impartial observers agree that the
attitude of both parties has been responsible in part for the many misunderstandings that have arisen. It is felt by the members of the Study
Commission that recommendations for the adjustment of these differences lie without the scope of their recommendations. It is their unanimous opinion, however, that increased membership in the Federal Reserve System on the part of Indiana banks would be a stabilizing influence for the banking industry, and in addition would bring to a larger
number of communities the benefits of the system's credit reservoir.
The members of the Study Commission believe that a larger membership in the Federal Reserve System is desirable for the country as
a whole if such defects of the old system as decentralization of control
and lack of power to mobilize reserves are to be eradicated. Should the
Department of Financial Institutions be organized as proposed, it is
hoped that it will attempt to solve the problem of increasing the number
of Federal Reserve .members among the banks under its supervision.
GUARA,NTY OF BANK DEPOSITS
1
Among the many suggestions received by the Study Commission for
the solution of Indiana's bank failure problem was the suggestion that a
bank-guaranty system be created. A careful study was made, therefore,
of the bank guaranty plans used by other states and of their success.
It was found that the first bank guaranty law in the United States
was the Bank Guaranty Law of New York in 1829. The fund created
in this law became bankrupt in 1837 and the law was abolished in 1842.
In the last twenty-five years, however, eight other states have enacted
guaranty laws. These states and the year of passage of the guaranty
act in each are as follows:
1908 Mississippi
Oklahoma
1914
1909 South Dakota
Kansas
1915
1909 North Dakota
Texas
1917
1909 Washington .
Nebraska
1917
'In 1924 there were 268 Indiana banks that were members of the Federal Reserve
System. This number included 247 national banks, 12 state banks, and 9 trust companies.
By June of 1931 the number of Federal Reserve members in Indiana had declined to 196,
of which.187 were national banks, and the remaining nine were voluntary state and trust
company members.
The resources in these member banks, however, did not show a corresponding decline.
In 1924 member banks had resources totaling $451,734,000. This was 45 per cent of the
total banking resources of the state. By 1930 the resources of member banks had only
dropped to $435,177,064, or 41 per cent of all banking resources of the state.
These fig-urea were obtained him the statistical division of the Federal Reserve Bank
of Chicago.
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Federal Reserve Bank of St. Louis
No. 8
136
Every one of these states has had a disastrous experience with its
laws. In operation they have tended to demoralize sound banking and
to increase bank-failure loss rather than prevent it. As a consequence
every one of these laws has either been repealed or so modified that
the system is no longer operative. The present status of these laws is
as follows:
Oklahoma—Law repealed March 31, 1923.
Kansas—Law repealed March 14, 1929.
Nebraska—Law declared unconstitutional by the state's supreme
court, 1932.
Texas—Law repealed February 11, 1927.
Mississippi—Law not repealed but inoperative. At a special session
of the legislature in 1931 it was necessary to pass a law to allow the
issuance of bonds to raise funds for the payment of the outstanding obligations of the fund.
South Dakota—Law not repealed but modified greatly. Notwithstanding this modification the law is adjudged a complete failure and
the guaranty fund has a hopeless deficit which is constantly growing
larger.
North Dakota—Law not repealed but inoperative.
Washington—Law repealed June 11, 1929.
The Oklahoma law may be used as a typical illustration of these
various systems. The operation of the guaranty system was placed
under the control of a special supervisory board. This board also had
charge of the liquidation of all failed banks. All state-chartered banks
and the banking departments of trust companies were compelled to become members of the system. Unsecured deposits in banks were to be
guaranteed by the system. A fund for the payment of the depositors of
failed banks was to be collected by levying an annual assessment against
each state bank and trust company equal to one per cent of its average
daily deposits. If depleted by the payment of claims, the fund was to
be replaced by special assessments against the banks. After the levying of special assessments, should the fund still be insufficient to pay
all claims, certificates of indebtedness were to be issued claimants. These
certificates were to be retired when assessments against the banks
brought in sufficient funds.
The experience of every state has been the same. Staggering deficits were accumulated rapidly in the guaranty funds. The continued
operation of the system in most of these states would have brought bankruptcy to all solvent banks.
Experience has proved that unscrupulous wildcat bankers have
flourished best in states with guaranty systems. Depositors, feeling
that their deposits were secure, flocked to the banks where exorbitant
rates of interest were paid on deposits and where free services were
offered without stint. It made no difference how reckless the loan policy
or management policy of such institutions might be, the public was not
afraid to deposit in them, and as a consequence the recklessly managed
banks grew at the expense of the well-managed banks, thereby weakening the entire banking structure. As losses began to accumulate and
assessments against operating banks grew larger and larger, even the
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Federal Reserve Bank of St. Louis
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ea.J6-7
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Leo. T. Crowley, Chairman, and L. E. Birdzell, General
Counsel, Federal Deposit Insurance Corporation
Hearings — H. R. 5357
,21,6 /9,
”
WILLIAms. I am very much concerned myself about the 8,500
banks, because they are scattered from one end of the country to the
other, especially in the southern part of the country, and the rural
se-tions and small communities, and I, for.one, have not reached the
conc!usion yet that there is not a place in our system for a local
independent, unit bank. I do not believe that they ought to be required, if they do not see fit to do so, to come into the Federal Reserve
System. You have means provided in this very act by N,N hich you
could supervise them rather strictly, by which you can examine them,
and you have a provision by which you can put them out of the
System if they engage in any unfair or unsound banking practices of
any kind or character, but it does seem to me that we ought not to
place in this bill a provision requiring them against their wishes to
come into the Federal Reserve System in order to get the benefit of
the insurance feature.
Mr. GOLDSBOROUGH. Mr. Cavicchia.
Mr. CAVICCHIA. Pursuing the line of thought that Mr. Williams has
been following, I would like to ask this: Why force these 8.500 banks
z
into the Federal Reserve System if they do not wish to join? Is it not
prote. tion enough to the stockholders and to the depositors that they
are members of the insurance funds?
Mr. CROWLEY. I think the thought is, Mr. Congressman, that it
brings about a greater unification of banking, and perhaps better
control of your monetary system, if you have them all in the Federa
Reserve System.
Mr. CAVICCHIA. Will it cost these banks any more to become mem
bers of the Federal Reserve System than if they had stayed out?
Mr. CROWLEY. They will have to pay for their stock, but it will not
N be a great burden.
Mr. CROSS. Now, Mr. Crowley, going back to the questions put to
you by Mr. Williams, you said that the bank crash was started
in
the Western States. That was caused by falling prices of the commodities of the people who did business with those banks, was it not.
and that caused falling prices in lands, did it not, and that reflected
finally on the eastern sections and caused a decline in the prices of
/j
stocks, and that destroyed the purchasing power of the country and
brought on your bank crash?
Air. CROWLEY. I think that is correct.
Mr. Cnoss. Now, under title II you say that you can get a sound
banking situation, that tile II see_ms to be the .key to the situation.
The question is to keep up your prices, and in order to control prices
that you should have a unified banking system. In other words, if
vou have a whole bunch of banks that are uncontrolled in the
credits
that they handle, if there are too many of them, they. affect
the
structure,
whole
and if they do not come into the system where they
can be regulated as to their credits, it directly affects price levels.
Do you see the point?
Mr. CROWLEY. I agree with you that your bank failures
largely due to your economic collapse starting back in 1921. were
Mr. CROSS. Surely.
'Mr.
Mr. CROWLEY. However, there
were other factors such as overbanking conditions, poor judgment,
or not being able to foresee that
land values were too high, and things
that.
Mr. CROSS. Was not the overbankinlike
g situation brought, about b
inflated credit, by abnormally hi h
the things that securities were b 4,1edprices at that time of lands a
on, and the banks figured that
they could all make money, an everybody
was taken into the banking business ?
Leo. T. Crowley and L. E. Birdzell
Page 2
•
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The CHAIRMAN. Let me say this, please; in this connection, and
I do not want to prolong this discussion unnece.ssarily, that the Delp
osit Insurance Corporation was never established, nor was the
plan of insurance deposits designed, nor in my judgment should it
be used, for the purpose of settling any quarrel between the nonmember bani(s and the member banks. Some believe that we should have
a unified banking system, and if that view has enough support to
express itself in legislation, let those who believe in a unified banking
system in this country devote their efforts to that purpose, but let
it be fought out on its own merits; and if we are not to go the whole
way and adopt a unified system, let us leave the matter of membership in the Federal Reserve System for State nonmember banks
to be determined by the nonmember banks themselves, as provided in
the Federal Reserve Act. If a State bank wants to join the Federal
Reserve System and finds it desirable, if the inducements are such
that the State bank wants to come in let it come, but with all of its
rights under its charter issued by the 'State in which it does business.
This question of insurance on bank deposits ought not to become
involved in any way with the permanent policy respecting a unified
or dual banking system. I have my views about that, but I do not
think that they have any proper place in legislation affecting bank
depsits.
What we are trying to do here is to protect the public against
bank failures and against the horrors that have attended bank
failures heretofore, and let that legislation be dealt with on its own
merits, and leave this question of membership and nonmembership
in the Federal Reserve System to be fought out in a normal way,
on its own merits.
I believe in membership in the Federal Reserve System, but undoubtedly there are banks that do not want to join the Federal
Reserve System, and certainly, as I see it, it is not necessary, and
surely not indispensable, that every bank in the country should be-.
long to it or be members on a definite date.
)
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Federal Reserve Bank of St. Louis
1
Marriner S. Eccles, Governor Federal Reserve Board
•
R. 5357
Hearings 717a4.e4 /9.35'
- Emergency Banking Act of 1933, as
./ The CHAIRMAN. Under the
orioinally passed, we provided for the issuance of Federal Reserve
banl notes to member banks, but nonmember banks were not permitted to have that privilege under that act.
Under that legislation, a town of 10,000 or 20,000 population might
have two banks, half of the business activity and life of the community being centered in one bank on one corner and the other half
in the other bank.
With this situation, affecting the Nation under that bill we provided. relief for half of that community and its interest and its
.deposits in the member banks of the Federal Reserve System. And
we said to the member bank, "Here is the way you may print
money or get currency to take care of your deposits ; and we said
to the people of the community interested in nonmember banks,
-" You take care of yourselves." Of course, that was finally corrected, but it took a struggle to do it.
They have that recollection before them; and there are a. lot of
just such experiences, not just exactly like that but experiences of
that kind that influenced the nonmember bankers; and if we attempt
to set up arbitrary standards to force them into the Federal Reserve
System, I am not sure that we will not get into difficulties.
Governor ECCLES. If we had a unified banking system at the time
you refer to, the question as to whether or not a bank could get the
benefits of advances from the Federal Reserve bank and receiving
therefor Federal Reserve bank notes would not have come up.
The question came up, because here was a system set up for member banks, and all banks had been invited to join the Reserve Sys.tem from its very beginning. An emergency developed after a
period of 20 years, and those banks that had not taken advantage
of the opportunity to join wanted in the emergency, the benefits of
a, system of which they were not members.
I recognize that it was in the public interest to do just what was
done.
The CHAIRMAN. What was finally done, but not what was done \
so long as we were moving under the counsel of one class of bankers.1
Governor ECCLES. But I do think that the possibility of the re-1
currence of such a condition should be prevented by getting a unification of the banking system. I believe you will never have in
this country a banking system that can withstand the pressure
periods of financial distress, and we will never have a sound, of
dependable banking system until we get a unified banking
systemAnd neither do I think it will be possible to exercise
monetary policy the same control over the money systemthrough
when
a.
substantial number of banks which create money just the
member banks are subject in no way to the regulation same as the
the authority that is responsible for monetary aet-itm: or control of
•
banktnrbu-Siness for a period since 1913, a
period of 22 years, up until the time I came over here
a little more
than a year ago.
My first banking connection was with about a million
-dollar bank
which joined the Federal Reserve System shortly
after
Reserve System was organized. It is a State bank. the Federal
From that
period a banking organization of over $55,000,000 was built
up, operating over 25 banks, national and State, member and
nonmembe
I found, as the result of experience, that it is in the interest r.
bank to be a member of the Federal Reserve System, whether of a
it be a
small country bank or a substantial sized city bank;
and
I am
stating here my honest conviction of what, as a result of
and as a result. of study for a period of years, I feel is in experience
the public
interest and in the bankers' interest.
And I believe that the great majority of the nonmembe
r State
banks, if they understood this problem, could be induced, in
own interest, to become members. I have found in talking, their
have upon many occasions, to nonmember State bankers, that as I
invariably they can be sold upon the idea, and the difficulty today
with
very many of them is a lack of understanding and lack of information with reference to the problem.
1
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Federal Reserve Bank of St. Louis
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Marriner S. Eccles - Page 2
Mr. UAVICCHIA. The other day, Uovernor, I asked you if this bill
aimed at a centralized banking system, or whether it was merely
regulatory.
I notice this morning you used the word "unification." As I
understand it, this bill aims at unifying the National and State
banking systems under the Federal Reserve System; am I correct?
Governor ECCLES. No; this bill does not deal with that problem
at all. That matter was covered by the legislation which was passed
in 1933.
Mr. CAVICCHIA. In what sense did you use the word unification ?
Governor ECCLES. I was simply stating that I thought a unification of the banking system was necessary, and according to the legislation that Congress passed in 1933 unification will be brought
about by 1937, when the nonmember State banks will be required to
-become members of the Federal Reserve System in order to get
i deposit insurance.
Mr. CAVICCHIA. And your program is to unify the banking sys-
' tons?
•
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Federal Reserve Bank of St. Louis
Governor ECCLES. No; that is the program which was passed, and
which I am favorable to.
Governor EdmEs. Yes.
Mr. WILLIAMS. I want to ask whether or not you think that Sta
legislation authorizing the creation of State banks ought to be en-i
tirely abolished, making it one system, sure enough.
Governor ECCLES. It is my personal belief that that may be
(lesirable, but it is impracticable at the present time.
In practically every other country in the world they have one
banking system; and, as the result of that, they have, I believe,
avoided many of the banking troubles which we have had. But
we are young, and I do not believe that we can make changes in
our methods and habits too rapidly. We cannot go faster than the i
people of the countrylue-willing to have us go.
-7—Ifrr-Wilifiarg:-IT seems to me we are inevitably going to that, and
have the view in reference to the general philosophy of the legis4tion that we are certainly going in that direction.
1 If it is desirable, as you think—and I am not controverting that
here--to have the entire system under a central control, so far as
the monetary policy is cohcerned—
Governor ECCLES. That is what this would do, without eliminating
the State banking departments.
Mr. WILLIAMS. Undoubtedly; but it brings them into the picture,
subject to that policy.
Governor ECCLES. Not so far as the examination of banks is concerned, and not so far as the chartering of banks is concerned; but
it does unify the System by pla,cing State banks under the influence
of inonetary policy of changes in Reserve requirements and changes
in discount rates.
Mr. WILLIAMS. If we are going to bring them into one system, I
can see no reason at all for the further existence of State banks. I
cannot see the necessity of having a separate examination of them.
Governor ECCLES. There is not any question but what there are
many improvements that can be made in the banking system that the
proposed legislation has not provided for. But I believe that banking legislation must be evolutionary and not revolutionary. We cannot expect in one session of Congress to get all the banking legislation we want, when we take into account the size, of the country
and the habits of the country, the adverse and diverse opinions.
Therefore, what has been proposed here, it seems to me, is about
as far as we could expect to go at this time with reference to banking legislation, and the question of other problems of banking legislation which have been discussed from time to time, such as the
matter of unification, the examining problem which you raised, Mr.
Williams, and the question of branch banking has come up a. good
many times here and it has come up in many State legislatures. All
of those problems are problems which will come up from time to
time for
_ consideration. There is not any question about
. that.
Robert H. Hemphill, Washington, D. C., Representing
the National Monetary Conference
Hearings - H. R. 5357
74-(4.4-/1.3,5---,
- \7 - - ome
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Federal Reserve Bank of St. Louis
time ago there was a call issued by one of the
and
some men who are devoting their lives to a study of thisSenators
question
a conference here in Washington of the representatives of a for
large
number of independent organizations, all of whom have made
their
own independent study and concluded that our present
situation is
purely a monetary phenomenon. They met here in Washing
ton, and
it was called the National Monetarv Conference.
I was present at that conference as an independent monetary student, representing nobody but myself. Men were called upon to express their views as I was, and I expressed my views there, and at
the conclusion of the meeting certain resolutions were drawn up.
I was appoint,ed chairman of the committee to draft the legislation
contemplated by those resolutions.
On that committee is also former Senator Robert L. Owen, who
designed the Federal Reserve law and, as you all know, is one of
the profound monetary students of the country, and who has devoted
the major part of a lifetime to this study.
On this committee is also Prof. Irving Fisher, who, I will say-, is
unquestionably the outstanding monetary authority in this country,
and who has devoted at least 20 years to intensive monetary study
under circumstances which have given him the opportunity, the
extraordinary opportunity, for arriving at correct conclusions. As
I say, he was on that committee.
Mr. Robert Bruce Brougham, who has also--in recent years at
least--devoted considerable time to this study; Mr. Ward, who is
an attorney associated with Father Coughlin, and who. was quite
prominent in this discussion, and myself were on the committee.
The conclusions of this committee do not represent any personal
idea's that these men have. Three of these men are students, real
students, not for the purpose of promoting some pet idea but for
the purpose of assembling and digesting all of the knowledge that
is reliable and available anywhere in the world, and all of the conclusions of all other outstanding men who have studied this monetary
question extensively and concentrating for their own guidance, as
clearly as possible a summary of the most enlightened thought and
investigation and conclusion upon this monetary question, in addition to their own extensive experience and knowledge.
Those men also know this Nation; they know the United States,
and I believe are able to distinguish between the necessities of this
country and that of other countries in so important a movement as
improving our monetary system.
Some things which we need would not fit Europe at all. Some
things which they require would not fit us at all.
So we cannot simply take the English banking system or the
French banking system, or some other foreign system, and apply it
here, because it would not work, for a great many very simple reasons. But some of the foreign systems do have some good features
which are abundantly proven by long satisfactory use.
We have drawn up a bill and intended to attempt to interest some
of the Members of Congress.here who have made a particular study
of this question, when this bill which you are now considering came
n from the Treasury Department. This bill, which was drawn by
r. Eccles and by Mr. Morgenthau, or perhaps Mr. Coolidge, the
nder Secretary of the Treasury, and the man who is at the head
of the Federal.Deposit.Insurance Corporation, Mr. Crowley. They
were the principal parties, as I understand it, in drawing the administration bill. How much advice they took from other people, or
how much study they made of the question, I do not know.
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Robert H..Hamphill- Page 2
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494
BANKING ACT OF 1935
I do not think the bill is very adroitly drawn. In some respeicts
it seems to me to be very amateurish.
I perhaps ought not to say that, but it does not'seem to me like a
fininshed bill, even for what they want to accomplish. However, it
is what it is.
We decided—and I am speaking now not as an independent monetary student, but as the representative of the monetary conference-we decided that the cause would be more swiftly advanced if we
joined in with the progressive sentiment in Congress which was
unquestionably for monetary reform, to see if we could not get
all of our ideas together and amend this bill, instead of promoting
the measure we had prepared.
I prepared a little statement, which I have here, which presents
the concensus of our opinion as to the amendments necessary to make
the administration bill constructive, practical, and safe.
I would like to say in reference to these suggestions that there
are three proposals here, and they are to a large extent already
anticipated, perhaps in other proposed legislation, which has been
discussed for the past 3 or 4 years.
The most important proposal, it seems to me, is to create a Federal Monetary Authority. This proposal was first advocated by
Mr. Frank Vanderlip, who is perhaps our ablest commercial banker
with a full and useful lifetime of experience, and Mr. Goldsborough
of your committee, who is regarded as one of your outstanding
monetary students.
Mr. Sissorr. Do you expect to answer questions asked by members of the committee at some point in your statements?
Mr. HEMPHILL. Yes.
Mr. Sissorr. Would it interrupt you now if I asked you one or
two questions V
Mr. HEMPHILL. May I read this recommendation first, and then
we will have it on the fire.
Mr. Sissorr. Yes.
Mr. HEMPHILL. It is recommended that the bill now being considered be amended by striking out title II and substituting therefor three paragraphs in appropriate language which will, first,
establish the Treasury of the United States and its branches as the
sole depository for all bank reserve funds.
Second, require all banking institutions in the United States and
the Territories—and the United States post offices in certain rural
districts—to carry checking-account deposits as trust funds in cash
in their vaults or deposited in the United States Treasury, or invested in United States Government bonds; and all banks to maintain a 5-percent cash reserve against all time, savings, or other than
checking-account deposits.
Third, create a politically independent Federal monetary authority which would exercise, under definite congressional mandates,
the constitutional monetary powers of Congress.
As to the last provision I want to say that owing to Congressman Goldsborough's activities you have had before you for 2 years,
I think, a monetary bill, or a bill to establish a monetary commission, which is what we have in mind here.
Robert H. Hemphill - PaF,e 3
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Mr. HEMPHILL. Now, this recommendation further suggests that
the mandates should require (a) that the Federal Montary Authority
purchase for cash or credit upon the books of the Treasury of the
United States all United States bonds not held by banks as of some
past date, preferably June 30, 1934, or so many of same as may be
necessary to restore full employment at a satisfactory price level,
and thereafter to keep the price level stable by, first, the purchase or
sale of United States bonds; and, second, the issue of currency or
assessment of taxes.
(b) That the Federal Montary Authority liquidate all Government fmancing organizations as rapidly as possible by transfer of
their business and assets to commercial and savings banks of the
Nation.
In other words, let us take the Federal Government out of banking business entirely.
These additional recommendations are suggested: Repeal the Federal Reserve Act, as amended ; repeal the National Bank Act, as
amended ; and let our banks go back to the supervision of the States,
all of them.
The program I have read, which is suggested, would put in circulation approximately 15 billions of additional currency and would
restore full employment in the Nation, and elevate prices, wages,
and property vaues to about the 1928-29 level. It would increase
the national income by 45 billions. Thereafter, the payment of
normal Federal Government expenses would be substantially the
correct amount to preserve full employment without elevation of the
price level.
Thereafter the wealth of the Ntition would increase as fast as our
productive
.
_increased.
. capacity
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Federal Reserve Bank of St. Louis
Frank A. Vanderlip, New York, N.Y.
_
Hbarings — Et. R. 5357
„_
price level?
Mr. REILLY. hat is your Objective--the 1926The
1926 level is not
level.
price
a
is
advice
My
RLIP.
VANDE
Mr.
it is of justhink
to
ed
inclin
am
I
sacrosanct in my mind, at all.
level into
price
1926
tice to the creditor, but you are not putting the
to the
thing
rous
disast
a
be
would
it
effect. In respect to the debtor,
at which
point
the
but
level;
price
t
presen
the
at
ize
debtor to stabil
philosophy of
you put the price level has nothing to do with the
cy.
managing the'curren
be the price
Mr. REILLY. Well, 1 put 1926 because that seems to , want.
money
h
enoug
not
have
we
claim
level that people who
tage to the
Mr. WiLLiAms. Do you think that would be any advan
m?
Syste
ve
Reser
al
Feder
Government, itself, or the
m should be
Mr. VANDERLIP. I .think the Federal Reserve Syste
t I think
rs—bu
banke
by
run
be
d
the bankers' banks—that it shoul
ng privilege.
-issui
ncy
curre
the
it
from
away
taken
have
d
it shoul
banks that are
The currency-issuing privilege should not be given tothe Government
of
hands
the
in
be
d
shoul
it
but
profit,
operated for
itself.
openI would also take away from the Federal Reserve System Real
Feder
the
by
cted
market operations. They should be condu
hands of the
serve Board, if you are putting this authority into the
all of the
with
Board
that
Federal Reserve Board. I would clothe
have it
not
would
I
but
cy,
curren
the
of
ement
powers for the manag
d not get into
exercise powers over individual credits, which shoul
socialized banking.
to be the bank of
I should leave the Federal Reserve Boardthese privileges away.
take
would
I
but
s,
bankers, and run,by banker
them that do not believe
I would take these privileges away from
they should have.
m could be run just as
Mr. WILLIAMS. Do you not think the Syste
ownership as it
nment
Gover
under
economically and efficiently
ship?
owner
e,
privat
could under
Mr. VANDERLIP. No, sir.
be done?
Mr. WILLIAMS. YOU do not think that could
sir.
No,
RLIP.
VANDE
Mr.
to the Government if that
Mr. WiLmAms. There would be a saving
could be done.
Mr. VANDERLIP. Why ?
to the member banks.
Mr. WILLI4.318. In ,the .ipterest that is paid profit in the operatiV
that
of
Mr. VANDERLIP. They would get all
curre
,. ement. •
. ncy •manag
of the Federal Reserve Board in _their .
to tell this comMr. CAVICCHIA. Mr. Vanderlip, would you care of the bill which
part
that
mittee what your ideas are concerning
n originally, it called
goes to the real-estate loans? As it was writte percent of the ap75
to
up
ages
mortg
state
real-e
on
for lending
or will be made, by
praised value, and the suggestion has been made,
Do you think that
t.
percen
60
to
down
it
cut
to
Governor Eccles
e mortgage field,
privat
the
in
e
engag
eommercial banks ought to
ages?
mortg
ize
amort
or
ages
mortg
term
whether on shortwere
not to be redisThey
t.
Mr. CROSS. Let us get that correc
and borrow on
eral
collat
as
up
them
put
counted, but they could
f-ir from Ole Federa! Reserve bank.
Mr. CAVICCHIA. Yes.
Mr.
NDERLIP. It gives permission to banks to take real-estate
mortgages and, in turn, to rediscount them; and, in turn,e.to put
them under note issues as collateral by the Federal Reserv
r
If I know anything about banking. at all, I know that neithe
are
ts
term
deposi
all
ts--and
deposi
term
shortdemand deposits nor
uses.
short-term deposits—should be frozen up in long-time capital the
for
hina
d
do
sornet
shoul
you
that
Now, it is highly desirable
real-estate mortgage situation. That is frozen, I suspect'', beyond
your conception. But you cannot relieve the mortgatve situation
\ and keep the money that goes into it perfectly liquid. "'That is not
in the nature of the thing.
Mr. Eccles has testified that there is no more objection to real. I
estate mortgages than to corporation bonds and foreign bonds
wolild (lobate that a little.
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Frank A.. Vanderlip — Page 2
A real-estate mortgage has a very narrow limit. Very few peoplc
can know what the value of it is; and therefore there can be but
a narrow market for it; whereas a bond issue has the wider ticquaintance of financial people, of investors, and therefore a widel
market.
!
But neither of them should be in a bank against demand oil
short-term deposits. We have tried to give liquidity altogether too
much and that is not in that range, and you cannot do it.
We need, the worst way, a proper mortgage bank or banking system, but the money that goes into it would not be liquid, it cannot
be liquid, in the very nature of things. But we need it.
Of course, this takes me into the banking question.
believe the
banks of this country have tried to do a department-store business,
do everything, and they- have tied up their deposits in capital purposes that are not liquid, and that was very largely the cause of
our trouble.
This is getting into the banking situation, and again it is a council
of perfection, but I would segreo-ate the banks by functions.
There should be commercial anks that receive demand deposits,
that pay no interest on them, and that make only self-liquidating
commercial loans.
There should be investment banks that receive deposits. upon
which generous interest is paid, and their deposits are not absolutely
liquid—that can be no more liquid than the purpose to which
those deposits are put.
If you put them into bonds, or if you put them into stocks and
bonds, the only liquidity is in finding another investor for those
stocks and bonds. There is no self-liquidation quality in that loan.
So the money that goes into it ought to be paid for at an interest
rate that is higher, or the interest rate of the people who borrow
on them ought to be higher. Loans on stocks and bonds have been
1
at the lowest rate of all, but it is the commercial loans that ought
to be at the lowest; and the loan for capital purposes. which is beingloaned on stocks or bonds or the thing that has no self-liquidating
quality—that loan ought to carry a higher rate of interest than a
commercial loan.
Mr. CROSS. Mr. Vanderlip, as I understand you, you believe in the
separation of commercial and investment banking business. What
disturbs me most is this: 1Vhat are we going to do with what I
conceive to be thousands of communities in this country. as a practical proposition, where it seems that they cannot maintain two
banking systems of any kind, in the small communities?
Mr. VANDERLIP. If you do this, you are g,oing to do something
that you are objecting- to: You are goincr to permit braneb banking
within a restricted territory—not a Ntition-wide branch banking.
I never would think of that. But branch banks can run more
cheaply and, on the whole, probably be better run than the small
bank, that is, the banks of $10,000 and $25,000 capital. They
cannot be properly run.
Mr. CROSS. You mean,then. that you think the time has come when
they will have to get out of business entirely?
Mr. VANDERLIP. Yes.
Mr. CROSS. For instance, there are 8,500—they are not all of the
little kind—but there are 8,500 of them now out of the Federal
Reserve System; and their day is past?
Mr. VANDERLIP. In the decade following 1920, in a period of great
1
prosperity, thousands of banks failed regularly.
Mr. CROSS. Yes; and there are half as many now as there were in
1921.
Mr. VANDERLIP. That was because we had a bad banking system._
In some measure it was because of bad barik management, but on
the whole it was the system and not the bankers.
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Mr. CROSS. Do you not think we have corrected that now ?
Mr. VANDERLIP. NO, sir.
Mr. CROSS. YOU still think the system is wrong?
Mr. VANDERLIP. It will be wrong until we segregate those functions
of banking and do not tie up the demand deposits in long-term
\capital nurnoses.
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John A. Broderick, Supt. of Banks, State of N. Y.
Hearings — S. Res. 71
/ 3/
__Mr. BRODERICK. Yes; I would go higher, 75 to 80 per cent..
Senator TOWNSEND. Have you any suggestion to make whereby
banks not in the system might be induced to come into it?
Mr. BRODERICK. I think it could only be done, Senator, through
missionary work. I think there is great room to "sell" the Federal
reserve system from the standpoint of insurance. It can be done.
They think they are losing money by not belonging to the system.
Senator TOWNSEND. They .think they are losing money by not
belonging to it?
Mr. BRODERICK. By belonging to it. Pardon me.
Senator TOWNSEND. Yes; I find that sentiment.
The CHAIRMAN. How do they imagine they are losing money?
Simply by failure to get interest on their reserve deposits?
Mr. BRODERICK. Yes; which is quite a big item to the small banks.
The CHAIRMAN. But is it a bigger item to the small bank than the
prospect of a collapse of the money market and an occurrence of
famine, such as we had before the establishment of the Federal
reserve system?
Mr. BRODERICK. No; it is not, but they can not see that. They
say,"We will be pretty well taken care of by the New York correspondents."
fT13
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Henry Y. Robinson, Chairman, Security—First Nat. Bk. of Los Angeles
Hearings — S. Res. 71
, /9 3 /
Senator WALcorr. Would you try to equalize the State and national bank requirements so there would be every inducement to
bring the banks, as far as possible all of them, under the Federal
reserve act ?
Mr. RoniNsoN. I would. I believe the Federal reserve act is a
very great benefit, and I believe that its maintenance depends, of
\ course, upon the certainty that it will have membership. And I
) believe the tendency in the country generally has been to change to
State charters, and I think it has a bad effect upon the whole system.
\ Senator WALCOTT. It is because the State charter is a little more
liberal, or the State laws, rather, are a little more liberal?
Mr. ROBINSON. Yes; I should think so.
Senator WALcorr. Consepiently competition of State banks is 1
,p_retty keen with the national?
Mr. ROBINSON. Yes.
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•
AMr. WiLus. I have just one question, Mr. Robinson, before' you
leave this general subject. A number of witnesses have spoken .
before you about this same question as to the competition between
the National and State systems. Would you favor any kind of
legislation, if such could be found, which was compulsory, designed
to bring about a single, uniform chartered system for the whole
country and to abolish the distinction between State and National
banks?
Mr. RomNsorr. Yes; I think that anything that reduced what
seems to me a serious competition between State and National
authorities would be good, anything that would modify that.
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Federal Reserve Bank of St. Louis
NATIONAL AND
FEDERAL RESERVE
BANKING
P,
SYSTEMS
Mr. WiLlas. Is not that the only way that you
will end it—that is,
by getting a uniform system ?
, Mr. ROBINSON. It is the most comprehensi
ve way you can bringI
, it out.
Melvin W. Traylor, Chairman, First National Bk. of Chicago
Hearings - S. Fes. 71
, /93/
•
I have read with interest suggestions that have been made as to
methods of strengthening our banking structure, perh s in
regret
physical make-up, its administration and management.
that earr not---agre:e With -S-ome-of my very-goucl-ftten s who have
suggested a national system of banks, one system, for the banking
facilities of the country. I believe that such a proposal is fraught
with more hazard to our political and economic life than any suggestion seriously proposed in my lifetime.
I recognize the tendency of much modern thinking to-day is toward consolidation and federalization of niany of our activities. In
certain directions that may be excusable. The public good may be
best served in that way,for certain activities, but I can not subscribe
to the theory that to put the credit facilities of this country completely under the domination and supervision of the Federal Government would,first of all, effect the cure desired, or, secondly, would
not lead us into political and economic difficulties which we would
have great difficulty in surmounting.
1
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
•
The CHAIRMAN. If you compelled one bank to remain in the system under penalty of forfeiture of charter and permitted another
bank to come into the system and not be a. member of the Federal
reserve system—another bank to be chartered as a national bank
and yet remain outside of the Federal reserve—that would be practically a dual system as far as it applied—
Mr. TRAYLOR. To the national banks, yes; and as a practical matter
it might not work. The theory I have is that the interest of the
small country bank is primarily, and I think inevitably, in the character of practical bank management. A Federal reserve bank or any
bank, semigovernmentally controlled—and it ought to be, because
any bank of issue should be responsible to the Government and no
government could think for a moment of granting such privileges as
our Federal banks hold, without holding a hand over their operations—must follow pretty definite, inflexible rules and regulations,
and they can not meet the exigencies of a situation as a correspondent
bank meets them. We can sit with the board of directors and lend
them lots of money,and do many times that which no central banking
system could do. It could not afford to do it. Therefore I think the
small banks really have no business in the Federal reserve system.
The CHAIRMAN. Could not that be better managed by very materially raising the minimum capital requirement of a national bank ?
Mr. TRAYLOR. I was going to come to that.
The CHAIRMAN. And leave the field otherwise to State banks?
Mr. TRAYLOR. I was coming to that in my day dream of an ideal
banking structure in view of conditions as they have developed and
the trend of the public mind as I think I see it.
I should like to see a system of uniform State banking laws. I am
of what
of what
not
__ is going
_..happen. I am thinking
. _to
...,.•thinking
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399
Melvin W. Traylor — Page 2
/93/
The UHAIRMAN. Y ou would like to see ?
Mr. TRAYLOR. Yes; what I would like to see--uniform State banking laws, which would provide, first of all, a minimum capitalization of substantial size, that would grant, at the moment, statewide branch banking privileges within that territory, but limited
for the first five years, or some reasonable period, to the county in
which the bank is located, because I do not think, as a practical
matter, we know branch banking in this country. I think most of U3
have as difficult a job as we need at the moment to handle our present
;business, and I am not willing to spread out too rapidly into the
branch banking field. But I would give branch banking facilities
(
within the county in which a bank is domiciled.
i/
The CHAIRMAN. To be ultimately extended to the State '?
a
of
matter
more
practically
is
Mr. TRAYLOR. Yes. I think that
i
development than of prime importance.
bank
any
I should then hope to see an absolute inhibition against
operating in the State whose capital was foreign owned, or the operation of a branch of any such foreign-owned bank.
Senator NORBECK. Just what was that last remark, please ?
Mr. TRAYLOR. I should also like to see this uniform system of laws
, provide that no bank could operate in the State if the capital were
owned outside of the State and no outside bank could operate a
branch in that State; in other words, I would preserve to my State
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Federal Reserve Bank of St. Louis
I
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
institutions., the sole right to conduct branch banking, save on the
part of national banks, in my State.
The CHAIRMAN. That would apply also as to group and chain
banks?
Mr. TRAYLOR. Yes; if it extended beyond the State in which it was
chartered. I think there can be no greater danger in this country
than to permit the credit facilities of the country to be controlled,
Nation-wide, by any agency, corporation, or individual.
The CHAIRMAN. We have a provision in this bill, Mr. Traylor, intended to remedy what some people regard as that evil, in that we
do not permit holders of bank stocks in those circumstances, to vote
the stock.
Mr. TRAYLOR. The States can reach it more directly by providing
that they can not operate a bank whose stock is owned 25 per cent, at
least, outside of the State.
The CHAIRMAN. If they reach it at all.
Mr. TRAYLOR. It is about time that the States assert some of their
protective sovereign rights in this banking situation. I would provide immediately that national banks should enjoy such branchbanking privileges as are enjoyed by the State banks.
The CHAIRMAN. But you are estopped right there, are you not,
by the almost insuperable difficulty of a dual banking system? Could
any State constitution prohibit a national bank in one Stat,e from
controlling another national bank in another State ?
Mr. TRAYLOR. I think so. That is a layman's opinion, but I believe they could, but I should hope that there would be some practical sense used in the operation of our banking system and that no
ownership of a national bank would want to go into another State
and own and organize a bank in opposition to that State's laws. I
think there must be some assumption of respect for ethical conduct
in banking management.
1
Melvin T. Traylor — Page 3
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Carrying that thought further, I am not prepared to sav what the
minimum capitalization of a banking institution should be under
such conditions.
Let us assume that the State of Illinois had such a bill to-day ; I
am not sure that we could put the minimum capital of a bank in
Illinois to-day at $250,000. Practically any county-seat bank could
support a capital structure of $250,000, and two of them in the county
could bank the county thoroughly. Little banks did not just spring
up by accident. They met what the citizenship of the county believed, and had a right to believe, was an absolute economic necessity.
However, that condition has changed materially and, in the change,
lies the answer to the total collapse of real estate values. Community
life has shifted and the people are going to the county seats.
Still, there are requirements for banking facilities in places not
large enough to support a banking structure with the capital it
should have to protect its integrity. I believe if the State banks in
Illinois had authority to operate branch banks in their respective
counties, we could take care of the banks in Cook County with
larger banks. In the down-State counties we might have a minimum
capitalization of $250,000, but you might'have to drop it to $100,000.
That, in my opinion, would be the most practical and effective remedy to the one human element in the equation which is difficult to
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
401
handle, namely, manageinent, because inanagement, after all, in the
banking business is no different than management in corporate business or any other. It goes without saying that the larger salaries
you can pay in the banking management the greater degree of intelligence you can get. That would be one of the strongest feature€
in such a plan, in iny opinion.
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Prof. ,glarcus Nadler, of N.Y. Univ.
Hearings — S. Res. 71
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Mr. ILLIs. Is that all you have to say on the bill?
Professor NADLER. I did not have a copy of the bill at my disposal
to read it over carefully.
Mr. Wm.'s. I thought we had sent you one.
Professor NADLER. No, sir. What I saw was in the newspapers.
The CHAIRMAN. We are very much indebted to you, professor__
Mr. Willis offered the following statement, presented by the Superintendent of Banking of Iowa, which is printed in full as follows:
Would like to respectfully submit to your committee that it apparently has
not been made plain the relative size of our two banking systems and the great
part they each play in the financial life of the country.
As of March 27, 1930, the latest available combined statement, there were
17,298 State banks and 7,316 national banks. State banks had capital funds of
$6,164,000,000, deposits of $35,800,000,000, and total resources of $44,690,000,000,
as compared with capital funds of $3,700,000.000, deposits of $21,600,000,000, and
total resources of $27,300,000,000 in the national banks. In brief, State institutions have 62 per cent more capital funds and 65 per cent larger deposits than
national banks. It may also be of interest for your committee to remember
that the resources of State banks have increased in the past 10 years from
$29,100,000,000 to $44,600,000.000, while the resources of national banks have
increased from $22,100,000,000 to $27,300,000,000. Total resources of all members of the Federal reserve system on March 27, 1930, amounted to $45.900,000,000, of which the State member banks contributed $18,500,000,000, or 40.42
per cent of the total.
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These figures make very plain the important part which State banking institutions play in our Federal reserve system through their voluntary membership.
Both classes of banks perform equally useful and necessary functions, and these
comparisons are not made with any purpose of disparagement but to make
correct statements which were necessary in their reflections on the comparative size, importance, and growth of our two great banking systems. Attention should also be directed to the need of both in the development of handling
of our country's business.
The failure of several thousand small State banks has been caused more by
severe economic depression of farm land and the prices of farm products than
by mismanagement, errors in supervision, or other banking causes. However,
better bank management would have provided for at least part of this depression. Mismanagement has not been entirely in banks in rural sections and in
totals of resources the failures in cities of over 200,000 population exceeded the
rest of the country combined in 1930.
L. A. ANDREW,
Superintendent of Banking of Iowa,
President National Association of Bank Supervisors.
Pope, Executive Vice Pres. of
Col. Allan
First National Old Colony Corporation
Hearings - S. Res. 71
'Ie..-a-e-,--<-A--•.-y', /93/
/--•\ ""1".„.
.
been \
The ACTING CHAIRMAN. The failures, as you know, have capi,
1
insufficient
from
partly
entirely,
almost
banks
State
among the
there 1 ''''
tal and partly from bad banking. It is a question whether State
)
i
all
that
said
here
witness
One
them.
reaching
is any way of
Federa
the
into
forced
banks should be given up gradually and
reserve. What do you think of that?
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
Colonel POPE. Well, I think it is always wise to have as many
banks in the Federal reserve system as possible. I am unable to
give you much assistance as to how to force banks to join the Federal
reserve system, as I am not familiar enough with that subject.
The ACTING CHAIRMAN. The tendency of your replies seems to be
that you are well satisfied with the Federal reserve system and not
very well satisfied with the State system of banks. Of course, there
is a tremendous competition between the two systems, the State system being a little more lenient and perhaps egging the national
system on in connection with loose methods of competition.
Colonel POPE. I have observed, with considerable admiration, the
operation of the Federal reserve system and I think the uniformity
which I think is shown to exist in the Federal reserve system is
preferable in many cases, certainly to large banking institutions,than
a system which differs from State to State. I would not say that I
oppose the State banks in any sense. There are many, of course,
that are admirably run, and many that are admirably examined.
1
L. F. Wakefield, V.
P., First Bank Stock Corp., Minneapolis
Hearings — S. Fes. 71
717...,,-4 /13/
Mr. ADAMS. Senator Glass, I wish you would bring out, while we
are here, the advantages of a dual system—State and National.
The CHAIRMAN. I do not know of any. I should like to see a unified
banking system in the country because whenever we have a proposis tion to do anythina to strengthen the national banking system we are
confronted with trie complaint that certain privileges—some totally'
itnsound in my opinion—prevail in the State banking system so,
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
619
instead of having the national bank system upon a high standard for
the emulation of the State banks, we have been engaged in the process
of reducing the national banking system to the level of the worstmanaged State banks in some respects.
Mr. ADAMS. I can not see any reason--and I am president of both
national and State banks--of having State charters except we have
an easier and
softer condition
in State banks.
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Hearings - S. Fes. 71
Appendix
Letter to Senator Glass from Fredk. C. Trimble, May 14, 1921.
f.
y• )
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,
, .
Of course, I understand that what I am saying applies, so far as you and
I are interested, to the national banking system, but I think some effort should
be made to get the various States throughout the country to cooperate with
Congress in devising a uniform banking system, so as to eliminate, as far as
possible, the differences between the National and the State systems of banking, and where one has an outstanding feature it should be incorporated in the
other.
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THE CONSTITUTIONAL POWER OF CONGRESS To ENFORCE A SINGLE SYSTEM
OF
COMMERCIAL BANKING
I. GENERAL PRINCIPLES
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Congress derives no power over banking from the specific
Constitution. A discussion therefore of this question involves language of the
not an interpretation or construction of words and phrases in the Constitution
but
broad consideration of the nature of the Federal Government and rather a
of Congress to realize the ends for which that Government was the power
There are certain fundamental constitutional principles which established.
have become
so thoroughly established that they require no further discussion:
(1) The Government of the United States is a government of
enumerated
powers. It is limited in scope to those powers delegated to it by the
tion in contrast to the State governments which possess all powers ofConstitument which have not been conferred by the Constitution upon the governGeneral
Government.
(2) Although limited as to the number and character of its powers the
Government of the United States is, within its sphere of action with respect
to any given power, supreme over all State and local governments.
(3) Congress possesses the incidental power to enact legislation necessary
and proper to give effect to the powers specifically conferred by the Constitution upon the Federal Government.
(4) While Congress may by inaction suffer the States to exercise jurisdiction with reference to subjects delegated under the Constitution to the Federal
Government, Congress may whenever it sees fit enter those fields completely
with an authority that is exclusive and paramount.
(5) In making effective its constitutional powers the choice of means and
instrumentalities is a matter of congressional discretion. Congress may if it
sees fit utilize agencies created by the State governments; it may create its own
agencies and at the same time permit State agencies to continue to exist pari
passu ; or it may dominate the entire field with instrumentalities of its own
creation to the exclusion and the prohibition of any similar State agencies or
instrumentalities.
It has been thoroughly established by repeated opinions of the Supreme
Court of the United States from the earliest times that Congress may under
its incidental powers create an instrumentality of finance in the form of
banking corporations; that Congress is the sole judge of the nature and extent
of the charter powers which such banking corporations may exercise; and that
no State government without the express or tacit consent of Congress may
limit the powers or impede the usefulness of such corporations. (McCulloch v.
Maryland, 4 Wheat. 425; Osborn v. Bank of United States, 9 Wheat. 738;
Farmers and Merchants National Bank v. Dearing', 91 U. S. 29; Davis v. Elmira
Savings Bank, 161 U. S. 275; Easton v. Iowa, 188 U. S. 229. 1903; First National
Bank of Bay City v. Fellows, 244 U. S. 426. 1917.)
The first Bank of the United States, the second Bank of the United States,
the national banking system, and the Federal reserve system were established
under this constitutional authority.
No particular constitutional provision can be detached and labelled as the
specific constitutional power under which Congress established the system of
national banks and later the Federal reserve system. These instrumentalities
are not exclusively related by any manner of means to the fiscal operations
of the Federal Treasury, although there appears to be no doubt that Congress
could create a banking instrumentality solely by reason of its power and
responsibility to provide for the management of the public finances of the
Nation.
In discussing the basis of the power of Congress to establish the Bank of
the United States by the act of 1816, the Supreme Court held that the General
•
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is closed. In the event the comptroller is authorized to act thus, he can clear
the records of the warrant of distraint by securing a court order of cancellation without publicity. Any publicity with respect to these two clubs should
be very severely dealt with unless such publicity is authorized by the comptroller. This in no wise restricts the freedom of the press. This plan is
devised to protect the depositors, the stockholders in the bank, whose interest
should be paramount.
With reference to bank loans to brokers on securities, would suggest that
a normal loan base be determined as follows: Take the average price over the
last 10 years between the high and the low market prices, then the average of
the high during the same period—the normal loan base should be some figure
between these two averages, which might be fixed for securities against which
banks might loan up to 50 per cent thereon. As the market price goes up
or down from this normal loan base, the loan margin should be moved accordingly by some percentage rate that would keep any loan in proper relation to
the normal loan base, i. e., if the normal loan base be taken at $100, then
a bank could loan up to $50; if the price of the security held as collateral went
up to $120, then the loan\ should not be over $52, or, say, 10 per cent of the
increase above the normal loan base. Some plan along this line could, I believe,
be worked out to handle this class of business and endeavor to keep the
brokerage loan business in the banks, so as to prevent, as far as possible, another run-away bull market. This is a desirable class of business and should
not be taken away from the banks. Every effort should be made to keep credit
facilities in the control of the banks and Federal reserve system.
Loans to brokers for the distribution of new securities underwritten by them
should be exempt from the provisions suggested in the preceding paragraph,
which are made with an idea of controlling market trading.
Capital going into brokers' loans direct, and not through the banks, should
be taxed the same as banks are taxed and penalized with a profit tax of 50
per cent in addition. If something of this kind is not done, then we are
going to have "bootlegging" in handling market trading.
I think the Federal income tax law might be changed with respect to the
capital gains and loss provisions, so that the tax on capital gains would be
materially reduced to, say, about 3 per cent, and no deductions allowed for
losses, unless the property has been held for a period of, say, 3 or 4 years.
I feel reasonably sure that under the present law, taxpayers have been able
to either materially reduce or dodge the payment of taxes, by deducting losses,
as now provided for under the captain gain tax provision.
Referring to Part IV of the proceedings, page 603, last paragraph, where
reference is made to the poor borrowers of country banks, would say that it
seems to me that the borrowers of these country banks might be grouped in,
say, several counties, if not a Federal reserve district, so that the banks could
be permitted to carry group insurance at their own expense to protect themselves against the losses bound to arise through the deaths of these small borrowers.
Of course, I understand that what I am saying applies, so far as you and
are interested, to the national banking system, but I think some effort should
be made to get the various States throughout the country to cooperate with
Congress in devising a uniform banking system, so as to eliminate, as far as
possible, the differences between the National and the State systems of bankin the
t
ing, and where one has an outstanding feature it should be incorporated
other.
I think we should realize the importance of not having too much government
in business, but more business in government, and I think the laws should
endeavor to be constructive rather than restrictive, allowing the largest freedom of action, for the vast majority of our bankers are both honest and capable.
Legislation will not keep the banking system wholly free from incompetent
individuals, and so-called bad boys. I think our best course of procedure Is
intelligent and well directed supervision and swift and sure punishment to
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Government might require such a fiscal instrumentality as an incident to
its
power to raise and support armies, to provide and maintain a navy, to regulate
commerce between the States and with foreign countries, to collect taxes
and customs duties, to borrow money and to make disbursements and transfers
of funds. (McCulloch v. Maryland, 4 Wheat. 325 ; Osborn v. Bank of United
States, 9 Wheat. 738.) The same constitutional sanction lay behind the creation
of the national banking system and the Federal reserve system.
H. RELATIONSHIP OF THE C704,IMERCE CLAUSE TO FEDERAL FISCAL
INSTRUMENTALUTES
The power of Congress to regulate commerce between the States was
doubt one of the principal constitutional powers brought into play in no
enactment of the national bank act through which fiscal instrumentality the
there
was set up a system of operating banks under Federal charter and supervision.
The establishment of a system of currency which was uniform, national,
and
sound through the means of notes issued by these banks had for one
of its
primary objects the relief of interstate commerce from the mass of heterogeneous and inferior local bank-note currencies issued under State authority.
The following extract from the report of the first Comptroller of the Currency
in 1863 reflects in part some of these conditions:
"The amount of losses which the people have sustained by insolvent State
banks, and by the high rate of exchange--the result of a depreciated currency—
can hardly be estimated. That some of the new States have prospered, notwithstanding the vicious and ruinous banking systems with which they have
been scourged, is evidence of the greatness of their resources and the energy
of their people. The idea has at last become quite general among the people
that the whole system of State banking, as far as circulation is regarded, is
unfitted for a commercial country like ours. The United States is a Nation
as well as a union of States. Its vast railroad system extends from Mhine
to Kansas, and will soon be extended to the Pacific Ocean. Its immense trade
is not circumscribed by State lines, nor subject to State laws. Its internal
commerce is national, and so should be its currency. At present some 1,500
State banks furnish the people with a bank-note circulation. This circulation is
not confined to the States by which it is authorized, but is carired by trade
or is forced by the banks all over the Union. People receive it and pay It
out, scarcely knowing from whence it comes or in what manner it is secured.
Banks have been organized in some States with a view to lending their circulation to the people of others. Probably not one quarter of the circulation of the
New England banks is needed or used in New England—the balance being
practically loaned to other States. The national currency system is intended
to change this state of things, not by a war upon the State banks, but by
providing a means by which the circulation which is intended for national
use shall be based upon national securities through associations organized
under a national law. The United States notes, the issue of which was
rendered necessary by the exigencies of the Government, and which it is
presumed will be withdrawn whenever this exigency ceases, have taught the
people the superiority of a national circulation over that to which they have
been accustomed. In many sections the produce of the country can not be
purchased with bank notes, and people find it difficult traveling from State
to State without legal tenders. Everywhere the opinion is prevailing that the
circulation of local banks has about had its day, and must yield to the demands
of the people for a circulation of which the Government is the guarantor."
Although the power of Congress to establish a uniform system of currency
exists independently of its power to regulate commerce, nevertheless, in the
establishment of the new national currency through the national bank act
these two powers were combined in a joint purpose.
Independently, however, of the question of a uniform national currency, the
power of Congress to regulate commerce was directly involved in the creation
of the national banks as instrumentalities to facilitate commerce between the
States and with foreign countries. It was the purpose of Congress that the
national banks supersede the existing State institutions engaged in commercial
banking. It provided the means in the Act whereby the transition could be
made voluntarily and without any disturbance of operations. In 1866, two
years after the final revision of the national bank act, the national banks had
in fact displaced the State co
.mmercial banking corporations. Thus there
came into effect a uniform system of commercial banking operating in every
part of the national domain under the general supervision of the Comptroller
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
of the Currency. There was provided for those engaged in the purchase and
sale of goods and commodities moving in interstate and foreign commerce a
single type of banking facilities under the kame regulations throughout the
entire country.
This result was, however, not accomplished until after Congress had exercised its power of penalty and prohibition against State institutions which
impeded at its inception the progress of the new banking system.
It may be said that the Federal reserve system is even more clearly related
to the commerce clause of the Constitution than any of the preceding Federal
fiscal instrumentalities. While it serves as an aid to the Federal Government
in many capacities in the exercise of the specific powers conferred upon that
Government by the Constitution, the Federal reserve system was designed
and has become in fact the cornerstone of our business structure. It is most
intimately related to the processes and facilities of interstate and foreign
commerce. The system of currency made possible through it has contributed
to the circulating medium the final element of value, namely, that of elasticity.
This feature of elasticity arises out of the direct relationship between the
volume of currency at any given time and the current demands of commerce
for it. Apart from the question of currency the Federal reserve system,
through its system of reserves and its operations in the field of commercial
credit, provides a fundamental security for commercial banking and for commerce itself in all parts of the country.
While an analysis of all of the constitutional powers of Congress to establish the Federal reserve system is not necessary to support the legal sanction
for that instrumentality, since Congress could proceed under any one of those
powers if it deemed it appropriate, it would seem fair to say that if any one
clause of the Constitution was relied upon to a greater extent than any other
in the establishment of the Federal reserve system it was that empowering
Congress to regulate commerce between the States and with foreign countries.
III. THE POWER OF CONGRESS TO PROCEED UNDER THE COMMERCE CLAUSE ALONE
Digressing for a moment, however, upon the theory that the commerce clause
must be relied upon in any attempt by Congress to create a single standard
of commercial banking, let us examine into the nature of commercial banking.
Modern commerce is carried on largely upon the basis of credit. Goods are
bought, sold, and transported not through the delivery of cash or specie by the
buyer to the seller but payment is made by means of certain paper facilities
evidencing the transaction and the obligation, such as drafts, checks, acceptances,
and promissory notes. Through these means funds situated at the place of the
buyer are made avalable at the place of the seller. That is to say, there is a
transfer of funds or a transfer of credit.
Banking institutions are essential to the operation of this commercial procedure. It is through the medium of a bank that these transfers are made. The
field of commercial banking is fraught with many complications and technicalities of interrelation between banks and banks, between banks and customers,
and between buyers, sellers, shippers, and carriers, but reduced to its simplest
terms commercial banking is the instrumentality through which funds are transferred from buyer to seller in the purchase, sale and transportation of goods
and commodities.
Commerce in the United States is almost entirely interstate and foreign and
all commercial banks, whether State or National, are now engaged in furnishing
facilities for the movement of interstate commerce. The Comptroller of the
Currency has in fact several times pointed out that conunercial banking is now
predominantly in the hands of State chartered banks and trust companies. It
is significant that there are six trust companies, five in New York and one in
Chiacgo, with aggregate loans and discounts of approximately $3,400,000,000.
The third largest commercial bunk in the country is operating under a State
charter. In all of the great commercial centers in the United States a large
share, if not a, preponderant share, of interstate and foreign commerce is transacted through State-chartered institutions.
Congress could, in order to control this situation, proceed in two directions
under the commerce clause, one positive and the other negative:
(1) It could treat commercial banking as a facility of interstate and foreign
commerce and regulate it, or
(2)It could deny the facilities of interstate and foreign commerce to state
banks and trust companies.
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The constitutional power of Congress over interstate and foreign commerce is
extremely broad. It extends to the articles which move in such commerce and
over the facilities furnished in aid of such commerce. The citation of a few
general principles laid down from time to time by the Supreme Court of the
United States will serve to illustrate the extent of this power.
(1) Commerce among the States is not a technical legal conception but a,
practical one drawn from the course of business. (Swift & Co. v. U. S., 196
U. S. 375.)
(2)"Commerce" as used,in the United States Constitution, Article I, paragraph 8, clause 3, includes the fact of intercourse and of traffic and the subject
matter of intercourse and traffic. The fact of intercourse and traffic embraces
all the means, instruments, and places by and in which intercourse and traffic
are carried on, and comprehends the act of carrying them on at these places
by and with these means. The subject matter of intercourse or traffic may be
either things, goods, chattels, merchandise, or persons. (McCall v. California,
136 U. S. 104.)
(3) Commerce is a term of the largest import. It comprehends intercourse
for the purpose of trade in any and all of its terms, including the transportation, purchase, sale, and interchange of commodities between the citizens of
oUr country and the citizens or subjects of other countries and between the
citizens of different States. (Welton v. Missouri, 91 U. S. 275 ; Hopkins v.
United States, 171 U. S. 578.)
(4) Interstate commerce is not confined to transportation but comprehends
all commercial intercourse between different States and all component parts
of. such intercourse, including the buying and selling of commodities for shipment from one State to another. (Federal Trade Commission v. Pacific States
Paper Trade Association, 273 U. S. 52.)
Under its authority thus to regulate Congress could require all corporations
which supply banking facilities for interstate or foreign commercial transactions to operate under a uniform national standard under the national charter.
Congresss, in its regulation of commerce between the States, may penalize
and prohibit the movement of articles in interstate commerce. Such a prohibition may be made within the discretion of Congress such as in the WebbKenyon Act as to alcoholic beverages, the white slave traffic act, the pure
f000d and drugs act, the cattle inspection act, anti the like. Similar prohibitions could be iniposed upon drafts, checks, acceptances, commercial paper, and
securities passing in interstate commerce to or from State banks.
In concluding this phase of the discussion of the question reference should
be made to the doctrine of congressional inaction. A review of some of the
leading cases is given below:
(1) The power of Congress to regulate commerce is not exclusive where not
exercised and does not prohibit the States from legislating on subjects relating to commerce provided their statutes do not conflict with those already
enacted by Congress. (Thurlow v. Mass., 5 How. 504.)
(2) Congress by refraining from action in matters affecting interstate commerce permits common or civil law or State statutes to that extent to control.
(Hall v. De Cuir, 95 U. S. 485.)
(3) The State, in the absence of express action by Congress, may regulate
many matters which indirectly affect interstate commerce. (Missouri P. R.
Co. v. Larrabee Flour Mills Co., 211 U. S. 612.)
(4) Any power which a State may have over interstate commerce because
of congressional inaction ceases to exist from the moment that Congress exerts
its paramount authority over the subject. .(Chicago, R. I. Si; P. R. Co. v. Hardwick Farmers Elevator Co., 226 U. S. 426.)
In reliance, therefore, solely upon its power to regulate commerce, it would
seeem clear that Congress may completely dominate the field of commercial
banking.
IV THE POWER OF CONGRESS IN GENERAL TO REGULATE ALL COMMERCIAL BANKING
The power of Congress over banking, however, rests upon broader and more
comprehensive grounds. It embraces the question of the power of Congress
to preserve the fiscal instrumentalities set up by it from the encroachment of
State institutions operating competitively in the same field. This phase of
the question we shall now proceed to examine.
(A) The practical oonditions.—The occasion for this discussion arises out of
the fact that there have been brought to the attention of Congress reports
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upon the banking systems which have a serious bearing upon the effectiveness
of the national banks and the Federal reserve system.
In his annual report to Congress for 1924 the Comptroller of the Currency
directed attention to the fact that in the 40-year period from 1884 to 1924
the percentage of commercial banking resources controlled by national banks
had declined from 75 to 47 per cent. That is to say, the aggregate of commercial banking resources in the hands of the State banks had increased by
the same proportions and controlled in 1924 more than one-half of the volume
of commercial banking facilities, namely, 53 per cent. He cited figures to show
the decided trend of national banks toward the relinquishment of the national
charters in favor of State charters. He called the attention of Congress to the
danger of the ultimate loss of its control over commercial banking through
this movement toward State charters. (Report of the Comptroller of the Currency, pp. 12 to 16.)
In his report for 1925 the Comptroller of the Currency again directs the attention of Cdngress to this situation. He cited cases of important withdrawals
from the national system. He said:
"The number of losses of national banks to the various State systems within
the past two years is formidable enough to arouse the serious attention of the
Government of the United States. Many of these banks had been in the
national system for more than 50 years * * *.
"These facts present a serious situation for the consideration of the Congress * * *. The national banking system is a time-honored Government
instrumentality. The charter powers of the individual national banks are
derived solely from Congress. Twice in the history of the United States,
namely, immediately after the Civil War and immediately preceding the World
War, the Federal Government was able to enforce a banking policy at a time
of great financial stress through its authority to use the national banking
system as an instrument for the public benefit. The individual national bank
is always ultimately able to take care of itself in meeting the competitive conditions due to more favorable State laws by giving up its national charter aud
going into the State system. But the gradual loss of national banks and the
consequent decrease in relative resources of the national banking system is of
primary concern to the National Government, not only because the national
banks form the logical and permanent basis of the Federal reserve system but
also because only through the national banking system can there be maintained
throughout the United States a standardized system of banking subject to the
visitorial powers of the Federal Government and subservient at all times to
the will of Congress." (Report of the Comptroller of the Currency, 1925,
pp. 3 and 4.)
Turning to the report of the Comptroller of the Currency for 1926 we find him
laying before Congress additional figures showing important new withdrawals
from the national banking system.
"Each withdrawal constitutes the loss of a unit in the basic membership
of the Federal reserve system. These widespread desertions from the national
system are clearly indicative of the difficulty which national banks find in
operating under their present charter powers. The fact that a greater or less
number of State banks for one reason or another take out national charters
in no way compensates for the loss of national banks. The national banking
system should be adequate to meet all of the requirements foe modern banking,
and no national bank dught to be put in the position of being forced to yield
its charter in order to carry on legitimate and necessary banking operations.
"My predecessor in his statement before the House Committee on Banking
and Currency, April 9, 1924, showed that in the five decades preceding 1924, the
aggregate resources of the national banks had drdpped from a predominating
control over commercial banking resources to only about 48 per cent thereof.
This rate of decline has been accelerated during the past two years, the
national banks to-day holding only about 46 per cent of the total commercial
banking resources in the United States. This is true notwithstanding the fact
that there has been year by year an actual increase in the aggregate resources
of the national banks, the figure standing at the present time around
$25,000,000,000.
"The steady decline in the relative strength of the national banking system
is accounted for by the mdre rapid growth of commercial banking under State
charter, the total resources of the State commercial banks being at the present
time about $29,000,000,000. This rapid increase of State banking resources is
due primarily to the operation of State laws more favorable tO modern banking
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than is the national bank act. It arises in
part from accretions from the
national system but more largely from the norma
l banking operations. * * *
•
•
•
•
•
•
•
"The above statements of fact show that the Feder
ually losing its positive and immediate control over al Government is gradcdmmercial credit and over the membership in the Federthe instrumentalities of
al reserve system. The
greater volume of commercial banking has alrea
dy passed under the policy
control of the State legislatures." (Report of the Compt
roller of the Currency,
pp. 2 and 3, 1926.)
In none of the above-mentio'ned reports did the
Compt
recommend setting up a national standard of banking roller of the Currency
under a national system
of banking which would embrace exclusively
the fleld of commercial banking.
On the contrary, the remedy proposed was an
approach as far as pdssible to
parity between the National and State systems
of banks by permitting national
banks to engage in the various types
of banking permitted under State
charters. In other words, it was recommende
d that there be brought into the
natidnal charter those features of the
State charters which were causing
boards of directors and stockholders
of national banks to relinquish national
charters in favor of those of the State.
The so-called McFadden Act (act of
February 25, 1927) was the dutcome
of these recommendations.
It appears from the comptroller'
s reports of 1927 and 1928 that the McFadden
Act for a time led to
a relative increase of resources of the national banks
over that of the State banks
was caused almost solely . But not to any cdnsiderable extent. This increase
by
banking systems into national the conversicin of several large State branch
banks. We find the Comptroller of the Currency,
in his annual report fdr
1929, again directing the attention of Congr
ess to the
exodus of national banks from
the national charter. In this respect he
abandons the theory of parity
of powers between State and National banks
advocates legislation for
and
State charters. He said the natidnal banks without reference to powers under
:
"Under the existing trend,
with the operating advantage
State banks, the devel
in favor of the
opmen
systems of commercial bankit is in the direction of 48 separate and distinct
ng
each
under
the supervision, control, and direction of a separate State
the national banks from government with a correspondent disappearance of
the flield * * *.
"The announced legisl
ative
February 25, 1927, was parity policy of the so-called McFadden bank act of
between the National and State systems. The
purpose of the bill was to
make the charter powers of national banks appro
ximately equal in operating
years of operation under advantage to those of the State banks. Nearly three
that act has demonstrated that it has failed of its
purpose in this respect.
"The theory of parity
between the two systems of banks is, in my opinio
n,
economically unsound. Comme
stitution of the United States rce is interstate and is recognized by the Conas being fundamentally a national question. One
of the primary purposes of
the nation
sound and uniform system of comme al bank act of 1863 was to establish a
rcial banking throughout the country in
order that commercial transactions growi
ng out of the production, the manufacture, and the transportation of goods
and commodities from one section of
the country to the other might not be hampe
red by local
should have access to a system of banks operating under banking legislation but
supervision under a single set of rules and regulationsFederal authority and
ments in order that the free flow of commerce should not and statutory enactbe embarrassed by a
multiplicity of restrictions having their origin in local politi
(Report of the Comptroller of the Currency, 1929, pp. 5-9.) cal conditions."
A year later, in his report for 1930, the Comptroller of the
Currency in
advocating new legislation for national banks said:
"State legislatures have conferred upon State chartered
ticularly upon trust companies, banking powers which nationinstitutions, paral
did not
at the time enjoy. As a consequence, the national-banking systebanks
recent years, declined in size, importance, and influence and has m has, within
relatively less effective as an instrumentality of the Feder become thereby
al
Through the diversion of commercial banking from the National Government.
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
of several larger State branch banking institutions and the national banks
several State banks with national banks under the nation consolidation of
al charter gave
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
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 oil
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." (Report of the Comptroller of the Currency, 1930, pp. 4, 5.)
The investigation instituted in both Houses of the Seventh-first Congress
through the respective Committees on Banking and Currency, and particularly
through the Senate committee, have brought out much additional information
with respect to the effect of the existence of the State systems of commercial
banks upon the national-banking system and the Federal reserve system. The
question has definitely been raised of the desirability of the establishment of a
single system of commercial banking under the national charter in order that
Congress may set up adequate standards of banking which can not be avoided
through an exit into a State system of competing banks. In this connection it
becomes necessary to consider the constitutional power of Congress to effect
such a purpose.
(B) The power of penalty and prohibtition.—The situation now presented
to Congress with respect to the fiscal instrumentalities set up by it is strikingly similar to that which followed the establishment of the national banking system. Hugh McCulloch, the first Comptroller of the Currency, in his
second annual report to Congress, November 25, 1864, called the attention of
Congress to the fact that although the national currency and the national
banking system had been inaugurated, relatively a small number of State
banks had taken advantage of the opportunity to convert into national banks,
but that the bulk of State banks continued to use their own circulating notes
under State authority. At this time out of 1,500 State banks only 168 voluntarily became national banks. The Comptroller of the Currency, regarding
as detrimental to the public interest the failure of the national system to supplant through voluntary action that of the State systems of banks because it
made the progress of the new banking system difficult, if not impossible,
recommended to Congress the enactment of legislation which would impose a
discriminating tax upon State bank currency for the purpose of driving it out
of existence and thereby forcing all banks of circulation to operate under
the national charter.
Following this recommendation Congress enacted the following provision
which put a tax upon State bank currency:
"Every national banking association, State bank, or State banking association, shall pay a tax of ten per centum of the amount of notes of any
person, State bank, or State banking association used for circulation, and paid
tax shall be assessed
out by them after the first day of August, 1866, and such
and paid in such manner as shall be prescribed by the Commissioner of
Internal Revenue. (July 13, 1866. 14 Stat. L. 146.)
The constitutionality of this act was brought squarely before the Supreme
Court of the United States and upheld in the case of Veasie v. Fenno (8 Wall.
533). Chief Justice Chase, in delivering the opinion, said in part.
"The power to tax may be exercised oppresively upon persons, but the responsibility of the legislature is not to the courts but to the people by whom
its members are elected. So if a particular tax bears heavily on a corporation,
or a class of corporations, it can not for that reason only be pronounced
contrary to the Constitution.
"But there is another answer which vindicates equally the wisdom and
power of Congress.
"It can not be doubted that under the Constitution the power to provide
a circulation of coin is given to Congress. Then it is settled by the uniform
practice of the Government and by repeated decisions that Congress may constitutionally authorize the emission of bills of credit. * * * There can be
no question of the power of the Government to emit them; to make them
responsible in payment of debts to itself ; to fit them for use to those who see
fit to use them in all the transactions of commerce ; to provide for their redemption ; to make them a currency, uniform in value and description, and
convenient and useful for circulation. These powers, until recently, were
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NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
653
only partially and occasionally exercised. Lately, however, they have been
called into full activity, and Congress has undertaken to supply a currency
for the entire countrty. * * * Having thus in the exercise of undisputed
constitutional powers, undertaken to provide a currency for the whole countrty, it can not be questioned that Congress may, constitutionally, secure the
benefit of it to the people by appropriate legislation. To this end, Congress
has denied the quality of legal tender to foreign coins, and has provided by
law against the importation of counterfeit and base coin on the community.
To the same end, Congress may restrain, by suitable enactments, the circulation
as money of any notes not issued under its own authority. Without this
power, indeed, its attempts to secure a sound and uniform currency for the
country must be futile."
It should be observed that the tax imposed by Congress upon the State bank
circulation was not for the purpose of raising revenue for the support of the
Federal Government but was clearly in the nature of a prohibition to prevent
the encroachment of State chartered institutions upon a Federal instrumentality. The purpose of the tax was to destroy State systems of currency and
thereby in effect to put out of commission the State commercial banks. The
report of the Comptroller of the Currency to the next session of Congress, in
1866, stated that the national system of banks had indeed supplanted the State
banks and that all of the State banks of circulation had availed themselves
of the privilege under the national bank act of converting into national banks,
thus indicating the effectiveness of the tax.
This case serves to illustrate an important constitutional principle which has
a direct bearing upon the present discussion. The constitutional powers of
Congress are not divided into separate compartments each independent of the
other. The Federal Government is a political organism and niay rely upon a
number of its constitutional powers in the performance of a single act. Its
vitality depends upon its ability to use any and all of its powers to accomplish
the ends necessary and proper to its existence. Consequently, Congress may
proceed under one specific constitutional power by way of penalty and prohibition to make more effective another constitutional power. The two most
convenient forms of penalty which have heretofore been employed by Congress
have been imposed through its power to tax and through its power over articles
moving in interstate commerce.
(e) Responsibility of Con,gress for its own flseo,l agencies.—As a background
to the power and the responsibility of Congress for the creation and the maintenance of the national banks and the Federal reserve system citations from
a few of the leading cases before the Supreme Court of the United States may
be of interest.
In Easton v. Iowa (188 U. S. 229, 1903) the court, in reversing the Supreme
Court of Iowa, directly adopted and applied the constitutional principles
enunciated in McCulloch v. Maryland (4 Wheat. 425) and in Osborn v. Bank
of United States (9 Wheat. 738). It said that the national bank act "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."
The court further said,"On the immediate subject of control over national
banks it was said in Farmers and Merchants, National Bank v. Dearing (91
U. S. 29) the States can exercise no control over them (national banks), nor
in anywise affect their operations, except in so far as Congress may see proper
to permit. * * * The States have no power by taxation or otherwise to
* * * burden or in any manner control, the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the general
Government.'"
The court in this case also cited with approval the principles laid down in
the case of Davis v. Elmira Savings Bank (161 U. S. 375) in which the court
had 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 enacted. These principles
are axiomatic, and are sustained by repeated adjudications of this court '."
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654
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
The court further said: "Our conclusions, upon principle and authority, are
that Congress having power to create a system of national banks, is the judge
as to the extent of the powers which should be conferred upon such banks, and
has the sole power to regulate and control the exercise of their operations."
Are not these principles directly applicable to a situation in which the State
governments may have set up agencies or instrumentalities rival to and in competition with those set up by the Federal Government with the effect that the
Federal instrumentalities be reduced to a state of impairment in the accomplishment of their purposes?
In First National Bank of Bay City v. Fellows (244 U. S. 426, 1917) Chief
Justice White, in delivering the opinion of the court, confirmed all of the previous leading cases from the McCulloch case in 1819 down to 1917 upholding
the constitutional power of Congress to create and maintain fiscal instrumentalities in the form of national banks, exclusive of State control or interference. This case involved the power of Congress to permit national banks to
exercise trust powers. The court said:
"That even though a business be of such a character that it is not inherently
considered susceptible of being included by Congress in the powers conferred on
national banks, that rule would cease to apply. if, by State law, State banking
corporations, trust companies, or others which, by reason of their business, are rivals or quasi rivals of national banks, are perraitted to
carry on such business. This must be, since the State may not by legislation create a condition as to a particular business which would bring
about actual or potential competition with the business of national banks, and at
the same time deny the power of Congress to meet such created condition by
legislation appropriate to avoid the injury which otherwise would be suffered
by the national agency."
In the more recent past Congress has pursued the policy of permitting the
State legislatures to take the initiative in banking legislation and from time
to time have attempted to enlarge the powers of the national banks in order
to meet the State competition.
The desirability of the establishment of a single national standard of banking has led to two principal recommendations, one, to grant to the national
banks charter powers of greater scope than can be attained by State banks in
the expectation that those engaged in banking under State charters will seek
the national charter ; and the other, the complete and exclusive entry of the
Federal fiscal agencies into the field of commercial banking through the removal
of State commercial banking from the field.
The first of the above remedies has been recommended principally by the
Comptroller of the Currency and the immediate weapon he would use is the
extension of branch banking by national banks in disregard of State boundary
lines.
The second remedy, that of the enforcement of a single standard of banking
through congressional action, has several times been presented in the form of a
question at the current investigation by Senator Glass and has specifically been
advocated by Mr. Owen D. Young. It is on this question that doubt has been
expressed as to the constitutional power of Congress to proceed.
V. CONCLUSION
In view of the foregoing considerations I am of the opinion that Congress
clearly is possessed of the constitutional power, supported by legislative and
judicial procedents firmly established, to proceed by direct action to remove the
State banks from the field of commercial banking. This power is inherent in
the power to establish and maintain the national-banking system and the Federal reserve system. The question of law does not present an obstacle. What
remedy to adopt is a practical question of congressional policy.
If congress sees fit it may lawfully use one or more of the following methods
of producing a single standard of commercial banking under Federal control:
1. It may place a prohibitive tax upon (a) checks drawn in one State upon
a State bank in another State. That is to say, State bank checks moving in
interstate commerce ; (b) other means of the transfer of funds through State
banks from one State to another.
2. The denial of the facilities of interstate and foreign commerce to State
banks and trust companies, such as (a) telephone, (b) telegraph, (c) railroads,
(d) aeroplanes, (e) steamships.
3. The denial of the use of the mails in connection with transactions in
interstate commerce.
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NATIONAL AND FEDERAL RESERVE •BANKING
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The fact that the above procedure
be drastic is of no consequence since
its purpose would be to transfer a would
system
banking which has come into
harmful competition with the banking instruof
mental
Such a policy by Congress would be nothing more ities created by Congress.
in principle than a repetition
of the tax act of 1866 and for the same purpos
e.
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CHARLES W. COLLINS.
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1
Leo T. Crowley, Chairman of the Board, Federal Deposit Insurance Corporation
Hearings — S. 1715 and H. R. 7617
April, 1955.
on now
Mr. CROWLEY. Reports of condition: Reports of conditi
acy
inadequ
their
of
because
ng
confusi
are
being issued to the public
ed in
expend
been
has
effort
rable
Conside
ity.
uniform
of
lack
and
the State
a study of this question. Conferences have been held with standard
develop
to
effort
an
in
s
agencie
sory
supervi
and Federal
public may be
and uniform reports of condition. In order that thewhich
they do
with
ions
institut
the
of
status
the
to
informed as
d of
require
be
should
on
business, periodical statements of conditi
all banks.
1
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Federal Reserve Bank of St. Louis
James P. iNarburg, Vice Chairman Bank of The Manhattan Co., New York
Hearings — S. 1715 and H. R. 7617
April, 1955.
•
Senator GLASS. Well, you say that we have no banking system.
I assume that you say that in view of the fact that we have a multiple
banking system rather than a unified banking system ; that we have
48 States with difFerent banking laws.
Mr. WARBURG. Yes. In fact, my next sentence is this:
Underneath the Federal Reserve System we have 49 different banking systems, each with its own ideas of law and supervision.
We have some State,s in which it is possible to start a bank with
a capital of $10,000.
We have many States in which there are no savings banks whatsoever.
It is possible in most States for anyone, irrespective of training
or qualification, to start a bank and become a bank officer.
These are only some of the"deficiencies"that I see in our presentday banking and currency system. So far as I can see, they are
not even recognized by the present proposal which is "designed to
remedy the deficiencies now inherent in the banking structure."
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If we want a money and credit structure such as will insure thesafety and flexibility to which our people are entitled, we must
rebuild it from the bottom and not content ourselves with anything
so superficially conceived as the proposed legislation.
In view of the vast complexity of the problem, in view of the fact
that there is no present emergency which makes necessary the adoption of the drastic and fundamental changes advocated by Governor
Eccles, I therefore urge this committee to consider whether it would
not be far wiser to appoint a commission to study the entire banking and currency problem thoroughly and at leisure before any
basic legislation is attempted.
This is not a suggestion born of fear of what the present proposal
contains. It is a suggestion which I have been urging for over a
year and which is contained in considerable detail in a book published last September.
In conclusion, title II is a proposal (1) to make a centralized
system out of a regional reserve s3Tstem; (2) to brim). the system so
created under political domination and control; ancr(3) to remove
almost entirely the automatic controls inherent in the existing law.
As to these three proposals:
A. Much can be said for a stronger centralized control of the Reserve System, but I believe that much can also be said in favor of
greater decentralization and greater responsibility on the part of each
regional reserve bank for the soundness of the member banks within
its region. One does not necessarily preclude the other, if the
measures of reform are properly worked out.
B. I am unalterably opposed to political control of either a central
bank system or regional reserve system for three reasons: (1) Because I do not agree with the underlying theory upon which the
proposal rests; (2) because as a practical matter, I believe that
political control will result in more violent business cycles than we
have ever had before, for the simple reason that a political government will neither recognize an incipient boom nor have the courage
to counteract it ; and (3) because the proposal for political control
of the banking and credit machinery is in effect a proposal to take
a step defined by the Communists as the most essential step toward
communism.
James P. Warburg — Page 2.
April, 1935.
C. As to the elimination of automatic controls, I believe that thisproposal rests upon a fundamental misapprehension as to what are
the real deficiencies of our present banking system. The Banking
Act of 1933 proceeded on the theory—which I think was correct—
that our commercial banking system must be purified; that demand
deposits should not be loaned out to finance speculative loans nor
capital expenditures, and should be loaned out to finance self-liquidating commercial transactions. In proceeding along these lines, the
authors of the Banking Act of 1933 were following principles arrived at by generations of study and experience.
The present proposal contemplates a complete reversal of these
principles and proceeds on the assumtion that what is wrong with
our banking system is the existence of precisely the type of limitation that the act of 1933 sought to impose.
If we are to fly in the face of all past experience—if we are to
reverse the course in which both Congress and the administration
•
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81
believed when the law of 1933 was enacted, then I think, we should
do so only after far more thoughtful consideration than has been
given to the matter so far in the preparation of the proposal now
before you.
__ _
.
Senator COUZENS. May I ask Mr. Warburg, if we had the British
or Canadian systems during those periods we would have gotten
„away with less distress?
--MrliratBuit'Ci cannot answer that, sir. I think ye,s, but I would
have to see the British system in operation here. But I go further
than Senator Glass in that I think much is to be done toward centralization, and I think you will agree that there is merit in a centralization, that our system would not have leaked as badly if we
had one system, instead of all the State authoritie,s.
Senator GLASS. I have said that a thousand times. You said you
wanted to confine yourself to title II. Right on that point, I understand that this bank bill has been reported from the committee on
the other side of the Capitol with the elimination of that provision
which requires all insured banks, by 1937, to become members of
the Federal Reserve Bank System. Do you think that should be
done?
Mr. WARBURG. No, sir; I think the only possible excuse for the
whole insurance business is that it produces a unified system.
Senator GLASS. Well, that is what I thought, and that the President thought, and that the then Secretary of the Treasury, Mr.
Woodin, thought, and they were brought to agreement with the
insurance of bank deposits only upon that theory, that it might
result, and in all probability would result, in a unified banking
system.
J. F. T. O'Connor, Comptroller of the Currency
Hearings — S. 1715 and H. R. 7617
April, 1935.
Senatbr- GLAss.-Mr.-Comptroller, conceding that that is very im- t
portant, do you think it more important than the provision in the
existing law requiring all insured banks after July 1, 1937, to bnome
members of the Federal Reserve System and comply with the law
that applies to member banks and which appears to have been
stricken out by the House bill? Do you think that is of any less
importance? What do you think would happen to the insurance ,
fund if that requirement should be expunged from the law ? You \
.are a member of the Insurance Deposit Board, are you not?
•
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146
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Mr. O'CoNNoR. Yes, Senator; I am. My view is this. • The ultimate aim of the legislation of 1933 was to establish one system in
this country. The framers of the act had no objection to postponing the date of qualification to a future date when recovery was
reached in the country, as well as giving an opportunity to banks
to qualify for membership in the Federal Reserve System. That is
a cormimmation devoutly to be wished. We cannot be unfair to these
banks, and we must permit a reasonable time to elapse for the banks
to be able to so rearranffe their internal affairs, their capital structure, if they can, so ast'to qualify for membership in the Federal
Reserve System. I believe we have made a step toward that, Senator,
in title I, if it is adoped, permitting the Federal Insurance Corporation to purchase the assets of going banks, so that we can
create mergers or bring about mergers all over the country, getting
these banks in shape to qualify for membership in the Federal
Reserve System. I think that was a wise provision of Congress,
because I believe it would have been manifestly unfair on the part
of Congress with respect to small banks to practically sign their
death warrant because they could not qualify for membership in
the Federal Reserve System; and in view of that, Congress wisely
provided that it would give them an opportunity, a certain length
of time in which to qualify for membership. It is the policy of the
Federal Government as expressed in that law that at some future
date all banks in the 'United States must become members of the Federal Reserve System.
Senator GLASS. As a matter of fact, in your capital fund there is
$150,000,000 contributed by the Federal Government and also a
fund contributed from the surplus funds of the Federal Reserve
banks. Is there any reason why the Federal Reserve banks should
contribute $150,000,000 toward insuring deposits of nonmember
banks which refuse, after a period of 4 years, to become members
of the Federal Reserve System ?
Mr. O'CorrNoa. My understanding is that the banks that are members of the insurance fund will all pay their proportionate share of
the levy that is made by the Board.
Se,na tor GLASS. But nonmember banks do not pay any part of the
$150,000,000 taken from the surplus of the Reserve banks, do they ?
Page ff2
J. F. T. O'Connor, Comptroller of the Currency
Hearings — S. 1715 and H. R. 7617
•
April, 1955.
Mr. O'CONNOR. No; but that is in lieu of their assessment, Senator.
I- not that in lieu of their first assessment?
Senator TOWNSEND. You mean out of the $150,000,000?
Mr. O'Co-Nisroa. Yes.
Senator TOWNSEND. I did not understand that.
Senator BULKLEY. They have to pay their assessment besides that,
do they not?
Mr. O'CoNNoa. But that was not out of the banks. That was
taken out of the surplus of the Federal Reserve, was it not?
Senator GLASS. That is what I am saying. It was taken out of
the surplus of the Federal Reserve, and it was put in the surplus of
the Federal Reserve by member banks.
Mr. O'Corricoa. That is true.
Senator GLASS. That is what I am talking about.
Mr. O'CoNNoR. I suggested some time ago that that be repaid.
I
t
BANKING ACT OF 1935
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Federal Reserve Bank of St. Louis
147
not
Senator GLASS. I do not think it ought to be repaid. I do
ought
never
which
Treasury,
the
of
out
think the $150,000,000 taken
to have been in the Treasury, mulcted by law—there is such a thing
as legal robbery, you know—ought to be repaid.
Mr. O'CONNOR. There is a very simple way to do it.
of
Senator GLASS. I jUSt wanted to know what your opinion was
distinctly
very
I
because
banks,
these
relieve
the proposition to
the Presirecall—and I do not disclose any secret in saying so--that.Treasury,
the
of
Secretary
then
the
dent of the United States and
of the
Mr. Woodin, brought acquiescence in the insurance provisionin what
about
bring
to
seem
would
bill only upon the ground that it
/
,
tely
most people regarded as a constitutional way an approxima
unified banking system.
• •
.
James H. Perkins, Member,
Federal Advisory Council, Representing Second Federal Reserve District,
And Chairman, National City Bank, Nevi York, N. Y.
Hearings — S. 1715 and H. R. 7617
May, 1935.
Mr. PERKINS. Not in principle, but I think the approach is quite
different, Senator. My statement will be short.
I approve the enactment of title I and title III of the proposed
banking bill. Such slight modifications as are suggested in the report
of the Federal Advisory Council are technical in character and in no
way affect the purposes of these two sections which greatly improve
and simplify the present law.
I have never been a believer in deposit insurance, but I have felt
that at least one good might result if it could be made the instrument
for unifying the banking system. For this reason I wish particularly
to endorse the provision requiring all members of the Federal Deposit
Insurance Corporation to become members of the Federal Reserve
System by 1937. I believe our dual system of National and State
banking, operating under 49 different controls, is one of the worst
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Federal Reserve Bank of St. Louis
1
545
features of our banking structure, and I do not think that we shall
ever have an effective supervision of banking until this dual system
is unified. In setting up the deposit insurance law, Congress very
wisely recognized that banks participating in insurance protection
ought to conform to uniform standards of soundness and liquidity.
The provision requiring all insured banks to join the Reserve System
has had the double good effect of both strengthening the basis of the
insurance fund and of paving the way for the unification of banking
control so badly needed.
Now, however, the lower House of Congress has seen fit to delete
from the bill the provision requiring insured banks to be members
of the Federal Reserve System. I believe this is a serious mistake,
and I wish to add my voice to that of Governor Eccles and others in
urging that this provision be retained, with such modification as may
be deemed desirable in order to aid banks in qualifying for membership.
_
Charles F. Zimmerman, President First National Bank, Huntingdon, Pa.
Hearings — S. 1715 and H. R. 7617
•
May, 1935.
Senator GLAss.. What particular advantage has your bank over Ft\
____--competing State bank because of your national charter?
Mr. ZIMMERMAN. From the standpoint of earnings, perhaps none;
and I am rather disposed to feel that for the sake of uniform practices in banking we do not deserve any.
Senator GLASS. What I have in mind is this. If, as is proposed,
thousands of nonmember State banks are to be permitted to enjoy
the privilege of the insurance of deposit provisions of the law, without subjecting themselves to the restrictions and supervision of the
Federal Reserve authorities and the Comptroller of the Currency,
what particular inducement is there to a national bank to remain in
the system and subject itself to such supervision and, as under this
bill, subservience to a Washington board?
Mr. ZIMMERMAN. I think that all bank directors feel that for their
particular institution there is a very splendid anchor to windward in
the F. D. I. C. I believe that experience will guide the State-chartered institution within a reasonable time to accept membership in
the Federal Reserve System when they can feel that these various
supervisory agencies have been coordinated and their activities regulated by law so that they do not have to come on the business end
of difficulty from which they would naturally recoil.
There are, for instance, duplicate examinations. I cannot see how
a State-chartered bank would voluntarily wish to subject itself to
duplicate examinations. and I think there is no practical reason why
methods might not be devised whereby a uniform single examination could be set up for direct State-chartered institutions.
Senator GLASS. That has been proposed, but that is one of the
many activities of the controlling authority, the question of examinations. I just do not understand why a national bank in the circumstances should care to rematin a national bank if it may operate
under a State charter and avail itself of all of the privileges and
facilities that are afforded a State bank greater than those of a na,
tional bank in many respects. Why should a bank want to remain
a national bank?
Mr. ZIMMERMAN. Senator, I think that all bankers realize that
there is a tendency which is likely to be a growing tendency toward
uniformity, at least, in banking practices in this country. I think
that every national bank officer and every national bank director
today would hestitate, except under convictions of extreme danger,
to leave the.national banking system—I mean, danger in respect to
the undermining of its earning power through an inordinate levy
for F. D. I. C. or the requirement of setting up excessive reserves as
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740
BANKING ACT OF 1935
, how would be possible under title II as proposed. I believe there
has never been a time in my career when there was as much general
alleffiance felt toward the national banking system as there is at
Senator GLASS. And do not want to see that impaired.
Mr. ZIMMERMAN. I think you will not have to impair it if these
questions that are now pressing for attention are not resolved too
\much to the disadvantage of the national banks.
Adolph C. Miller, Member of the Federal Reserve Board,
Washington, D. C.
Hearings — S. 1715 and H. E. 7617
May, 1935.
Mr. MILLER. I wanted to add this with respect to the Comptroller
of the Currency, if I can do it without diverting our attention. I
do not doubt—in fact, I expect that it is only a question of time when !
there will be a consolidation under some organization here in Washington, either the Federal Reserve Board or, if the Federal Reserve
Board is put out of business, a successor organization under its general administration. That means particularly the office of the Comptroller of the Currency and, possibly, the F. D. I. C. I think it is
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BANKING ACT OF 1935
/doubtful and idle and premature to talk of unification of banking in
this country until we have unified the agencies of administration that
relate to banking, here in the Federal Government. I have become so
thoroughly convinced of that that I know it must come. It is merely a
question of time when it does come ; and as chairman of the ground
or site committee of the Federal Reserve Board I have tried to look
ahead as well as I could and get ample space so that when that took
place an additional building could be built near the Federal Reserve
I3oard building
_ . in which these affiliated departments could be housed.
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LOUIS B. WARD- Detroit, Mich.
Hearings - S. 1715 and H.R. 7617
•
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Federal Reserve Bank of St. Louis
a year. We have
Mr. WARD. To one-twelfth or one-eighteenth for the Federal land
have
we
and
n,
ratio
the Home Owners' Loan Corpo
ions. Over in the
banks and endless governmental banking funct
s, and we still have
stock
tary
mone
Treasury we have nine billion in
coining and reguress
Cong
of
r
powe
the
have
we
and
the Constitution
world why we
the
in
n
reaso
no
is
lating the value of money. There
.
bank
al
centr
a
into
that
cannot combine all of
to discuss the NyeWith those rather extended remarks I want now
Sweeney bill.
Bank of the United
The bill create,s a central bank, known as the the agency of Conbank
this
s
make
2
States of America ". Section
ion of controlling the
gress, with the function of issue and the funct
as is directly outlined
ys,
mone
gn
value of money and the value of forei
in section 1, article
ress
Cong
of
r
powe
a
as
under the Constitution
VIII, clause 5.
monetary stocks and
The bill places the sole jurisdiction over the
s in the hands of
State
ed
moneys and the public credit of the Unit central depository of all
the
bank
this
this bank. The bill makes
diction of the United States.
reserve funds of all banks under the jurisagen
t of the United States
fiscal
The bill makes the bank the
bill the circulating-note
Government, and since the drafting of the
led, the sentence may
repea
been
privilege of national banks having
2.
on
secti
in
nce
sente
now be omitted—the last
Board of Governors for
Section 3 attempts to set up an independent
e has heard the testiitte
comm
The
s.
State
the Bank of the United
ure from two sources
mony of Dr. Adolph Miller to the effect that press
Federal Reserve
the
of
nt
geme
mana
is continuously evident in the
System.
part of the senior
In response to the request for information on the
tive session of
execu
an
sted
sugge
r
Mille
Dr.
,
Senator from Michigan
the pressure
cting
respe
the committee so that he might reveal the facts the Treasury in times
from
and
tion,
from New York in times of infla
of deflation.
comes from New
The public may well understand pressure that
ulation of the
manip
the
in
red
obscu
are
ls
York, though the detai
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Louis B. Ward — 2
BANKING ACT OF 1935
809
money and credit of this country by the New York bankers and the
members of the Federal Reserve Board, but political pressure from
the Treasury of the United States on a Federal Reserve bank, generally in times of deflation, is little understood by the people. The
fact that it exists along with the pre,ssure from private banking
interests makes one thing obvious—there is needed an indep
enden
board of directors of the Central Bank of the United States, freet
alike from the pressure of political influence and free from
the
domination of the New York bankers.
May I say here that I have no sympathy with the philosophy
so
current in the press of the Nation nor in the philosophy
Manufacturers Association or the United States Chamber ofof the
Commerce or the American Liberty League or the American Banke
rs
Association, that Government should keep its hand out of
busine
ss.
The sovereign power to tax puts the Government into every
business in the Nation. Business has come to Washington since
the
year
1818 at least, and from 1832 continuously, in behalf of
protec
tive
tariffs for business.
The greatest banker in America was interested in gover
secured our entrance into the World War for the protecnment, as he
tion of the
credit of Great Britain whose fiscal agent he was.
The building industry wanted a housing act; the
desires to shut out Japanese goods; the American textile industry
match industry
wants to compete with both Europe and Japan. Not
only business
but labor wants the Government to step in, and
agricu
lture wants
the Government to step in or out. The point is
that
this special
please against Government activity is always on the
profit most if left unregulated and to their own part of those who
devices, and this is
the case with the private banking interest of Ameri
ca who only exist
because there is an R. F. C., the Government
Centr
al Bank today,
which has bailed them out of difficulty.
The Nye-Sweeney bill attempts to set up
and for independence this board is modeled an independent board,
the Senate of the
United States, with equal representation fromafter
each
State. The true
wealth of this Nation is distributed over 48
States
,
but the concentration of money and credit is in the great
banking c,enters of the
colintry.
If the Congress of the United States truly seeks
to divorce the
power of money and credit from the great financ
ial
center
s of this
country, which have brought us where we are, one
recognizing that banking is a service, and money key is found in
wealth distribution, and money under our present is a method of
e reserve
system becomes the basis of credit, and the allocationprivat
of this credit
follows the money reserves.
It is well to have on the board of directors of this Central
Bank
of the United States men who know the economic resources,
the
industrial situation. the labor situation, and the agricu
ltural situation in every one of the 48 States. and we have suggested a
board
of 48, one from e,ach State, elected for a period of 12 years,
upon election to be divided into classes so that one-sixth retire and
every
2 years. We have taken our languwe directly from the Constitution
of the United States, as that Constitution originally set up the
Senate of the United States. This is a board of directors electe
d
Louis B. Vlard — 3
810
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BANKING ACT OF 1935
by the people. It is this method of choosing the electors that will
undoubtedly come wider the attack of the enemies of this bill, or
perhaps friends of the bill.
You will hear immediately that it is unconstitutional. You will
hear that Congress cannot delegate any power to an elective board.
You will hear that the President alone has the appointive power, by
and with the advice and consent of the Senate.
You will hear immediately these criticisms, that the Senate is well
supplied with great constitutional lawyers. The opinions of two of
them were solicited, and they both suggested that they thought the
plar, was constitutional. It is merely, however, an attempt to secure
independence; and perhaps a more certain way is to provide for the
appointment by the President, by and with the advice and consent
of the Senate, of one member from each State, trusting that only onethird will serve during any one administration. A board of 48 is
not a large board. There .a.re over 100 directors of the 12 Federal
Reserve banks today. There are .531 Members of Congress theoretically legislating on banking, and over and above these regulations the
Federal Reserve I3oard ; and then there are 2,500 members of 48
State legislatures with authority over State-chartered banks; and
the commercial State bank is just as much a party to check-book
counterfeit currency as the national bank is.
In other words, gentlemen, we have over 3,000 minds with authority over banking in this country, and this bill aims at reducing that
number to 48 directors of the central operating bank.
I will not pause at the details of salary, except to say that if the
Board is to be independent its personnel must be rewarded; and, as
Dr. Miller says, the career of banking must be the aim.
The Nye-Sweeney bill provides for the divorcement of the directors frona all industry and financing, and, the bill provides a liberal
pension after 70 of $1,000 a year for each year of service as a director,
up to a maximum of $12,000.
The board of directors under the Nye-Sweeney bill elects an executive committee of 7 to an executive board of the bank, and then the
entire board of 48 appoints a president and vice president and other
executive officers, examiners, economists, and banking experts as may
be needed. The principal office of the bank would naturally be Washin on, D. C., with branches in each of the several States.
ection 5 of the bill provides that all the currency of the United
States shall be the issue of this central bank.
The senior Senator from Ohio asked Dr. Miller repeatedly for an
expression of his opinion why the Government of the United States
should not own the Federal Reserve Banking System. This question had been asked before of others by the committee. The question
has been repeatedly dodged by such answers as:"Ownership is not
important; -it is the control, the administration, the men, that are
important."
Certainly there is a profit in the Federal Reserve System. Originally Congress provided that 6 percent be paid and that a dividend
be cumulative with all excess profit split 50-50 between the Government and the surplus of the Federal Reserve banks. The Government's share was in lieu of franchise tax. The act of 1933 amended
this provision and put all profit over and above 6-percent cumulative
into a surplus fund for the private bankers.
Louis B. 'hard — 4
BANKING ACT OF 1935
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811
There is a hidden profit that goes with every right of issue to any
bank.
When France called her currency in to revalue it, out of 81,000,000,000 francs, 20,000,000,000 had been lost.
What happens when a Lusitania sinks or a Titanic goes down at
sea ?
What happens when Chicago burns or San Francisco has an earthquake?
What happens when the Dillingers hide their loot and then are
shot down?
Or the feeble-minded throw hoarded currency into the stove?
The hidden profit from lost money was approximately 20,000,000,000 francs in France or one-fourth of the total currency issue.
With $5,400,000,000 in currency supposedly "in circulation" in
this country, the lost item alone would more than pay for the Federal Reserve bank stock, and if the truth were known the banks that
own the stock—those of them that are now in receivership—may be
found to be owing Jesse Jones far more than its face value today.
Section 8 provides for the purchase of the capital stock of the 12
Reserve banks and branches and agencies at the paid-in value of stock
and. 6 percent per annum interest from last dividend period. The
section further provides the full and complete and absolute and
unconditional ownership of the Federal Reserve banks in the hands
of the people of the United States.
In answer to the question asked previous witnesses, may I call to
the attention of the committee that the witnesses have merely emphasized that the important thing was the Board and not the ownership, and if the ownership is deemed not important, why then there
is no reason whatever not to vest it in the hands of the people of
the United States.
Section 10 declares that all banks doing a commercial banking
business within the United States all banks which have demand deposits to be engaged in interstate commerce and subject to Federal
jurisdiction; and section 10 bring these banks within the central
banking rules and regulations.
There are many very thoughtful men who sincerely believe that
the banker of this country cannot absorb many more billions in Government securities. They- foresee proximate catastrophe in a 5- or
10-point drop in Government bonds.
They realiw that such a 10-point drop in bond prices would bankrupt every bank in the United States should not the R. F. C. come to
their rescue with a billion or more in additional loans.
Thoughtful men realize that further Government aid of this kind
will destroy private. banking in this country.
So the central banking principle and the issuance of currency to
retire the Government debt take on a different aspect in the light of
the present crisis. Central banking and expa,nsion of the currency
in the minds of many thinking men provide the only salvation for
private enterprise in our capitalistic nation.
In this light, too, the interstate commerce clause, which by inference in recent Supreme Court decisions has been made to appear
as a menace to free individual enterprise, appears as the one avenue
to setting up a national control of banking which well may become
the sole safeguard of private enterprise in the field of banking.
Louis B. Ward — 5
812
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BANKING ACT OF 1935
Clause b of section 10 writes into the bill the 100-perc,ent reserve
principle. In other words, it provides that every bank shall ke,ep on
deposit in the bank of the U. S. A. notes to the full 100 percent of
demand deposits. It is this provision alone which builds the competitive monetary system to that of the United States of America.
It is this provision that is just as important at this time as it was in
1862 to tax out of existence the circulating privilege of the State
chartered banks.
It is this provision that requires that demand deposits shall be
held in trust for the benefit of the depositors and not merged with or
or
become a part of the assets of the bank, thus leaving the deposit
that
on
provisi
this
is
It
today.
him
leaves
law
the
as
r,
a credito
and
reverses the whole theory of modern demand-deposit bankingthink
people
the
what
s
become
g
bankin
where
day,
permits a new
it is, namely, a place to deposit your money and to withdraw it when
one wants to; a place where money may be deposited and the title
to it transferred, by order, not merely the creation the lawful money
reserve required against credit money.
Clause c of section 10 provides that the Central Bank shall purchase part of the debt of the United States and other public debt,
and against it issue currency to the amount of the demand deposits
of the country. The public debt at the end of this fiscal year will be
approximately 34 billion dollars; the State debt is approximately
two billion and one-half; the municipal and local Government debt
is t!pproximately 20 billion dollars.
Congress has lately. authorized' the United States debt to go as
high as 45 billion. One of the greatest questions facing this Nation
is, Who owns the debt?
The individual and the corporation are most solicitious about their
creditors.
The committee knows that the banks of the country own 60 percent
of the present United States Government debt. We know that insurance companies,endowment funds,schools, and universities own other
billions, but a great question facmg the country is, Who owts the
remaining billions of United States Government bonds that are tax
exempt, the ownership of which must be the source of opposition to
many of our legislative policies--for example, the bonus. It must
be the source of opposition to any expansion of the currency; of opposition to any central-bank idea or other so-called"inflationary meas"• orues the opposition to the use of silver• or lower interest rates
on farm mortgages; or any monetary or banking reform whatsoever.
This bill provides a use for Government bonds and a market for the
Government bond, and permits the central bank to own a large percent of the United States debt and against it issue currency, not for
circulation but to be placed in the vaults of the member banks, dollar
for dollar behind every dollar of demand deposits.
With regard to the regulation of the value of money, section 11 of
gold.
the bill permits the Bank of the United States to buy or sellUnited
the
of
s
market
silver, and foreign exchange in the financial
States, and this power is granted to the central bank, as the agency of
uthe Congress of the United Stat,es, in order to carry out the constit
coin
to
"
5,
clause
8,
I,
section
article
in
on
rated
tional provisi incorpo
money and regulate the value thereof and of foreign coins."
1
Louis B. Ward — 6
BANKING ACT OF 1935
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Federal Reserve Bank of St. Louis
813,,
Section 12 puts supervision under the control of the central banit
and puts the Comptroller of the Currency under the authority of the
central bank.
Section 13 provides that the central bank shall have the full statistical data essential for a sound monetary system.
How do we find the cost of living today? We go to the Bureau of
Labor Statistics. What do they know about it? Why, in 1918 they
blade a study, and the 1918 study is corrected from year to year by
use of index numbers. It is passed on to every governinental department, it is used by the American Federation of Labor.
The basic statistical information was gathered 17 years ago, in
the interval we have had 2 panics and 4 administrations. It is
rumored they use over 700 commodities in establishing the price level,
and the American people are so impoverished that the 96 percent of
them who average $1,000 of wealth per family don't participate in
70 commodities, much less 700.
The central bank should have all the facilities for obtaining and
compiling authentic data without depending upon politically appointed department heads for such vital information. If there were
an independently controlled central bank today, free from political
interference on the one hand,free from the private banking influence
on the other, and a Senator or a private citizen.wanted to know what
was contained in the Dr. Beckman report, paid for by the people's
money that Senator could have access to that report before it was
politically doctored and then even suppressed to deny to Congress
the truth.
Section 14 provides a mandate on the central bank to secure stable
purchasing power of money on an equitable price level. The Republicans in 1920 placed in their platform the pledge to reduce the
cost of living. They did it—they fulfilled their pledge; they withdrew from the circulating medium of the United States $1,900,000,000 in the 18 months that followed the inauguration of Mr.
Harding, but they were not content with this. From February 1,
1921 to April 1, 1921, the demand deposits of the banks of the
country were reduced $627,934,000.
The committee heard the testimony of Dr. Miller. And by 1923,
when conditions had been built up considerably after 1921, the Federal Reserve feared prosperity and its open market depressed things
for 1924, and that is reflected in that automotive.industry study.
In 1927 it was time to rig the great bull market. The farm had
been depressed since 1920; the building industry was shot from 1926
on but with great production, together with modern efficiency, the
price level could be kept low and the huge profits were directed not
to the payment of a just and living wage for labor, not to the return of cost of production to the American farmer. They were poured
into a speculative market and we boasted of bank deposits of 58
billion by 1929.
The banker was controlling the Federal Reserve Board in that
period of inflation and it was left to the Treasury to influence that
Federal Reserve policy in the period that followed. Why, the Government itself was induced to borrow itself out of trouble by
the issuance of tax-exenipt bonds, so that a debt which after the war
had been reduced to 16 billion, which during the war was never over
Louis B. Ward — 7
814
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BANKING ACT OF 1935
26 billion, is now, at the end of the fiscal year, 34 billion, and permitted to"run to 45 billion.
Section 14 provides suitable purchasing power of money by permitting the central bank to purchase the debt of the United States
until there are 100-percent reserves behind demand deposits; and lest
our fiscal policy be predicated upon debt: the central bank may control the price level, if necessary, by paying extraordinary and then
the ordinary expenses of Government by currency issue until the
average commodity price level reaches the index of the Bureau of
Labor Statistics for 1926. Then the board of directors is charged
with determining a true and equitable commodity price level and to
regulate the volume of the currency so as to maintain such a level.
In the present Federal Reserve Act there is provision for the
issuance of currency 2I/2 times the gold reserve. The United States
Treasury has 9,000,000,000 of .monetary metal in its vault. This
can support, unchallenged by any modern banker who has supported
the privately-owned Federal Reserve System—this 9,000,000,000 can
support the currency issue of $23,000,000,000.
This is not fiat money; this is not an irredeemable paper money;
this is not any more printing-press money than is any Federal Reserve note ever issued mere printing-press money.
„
1
Louis B. Ward — 8
818
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BANKING ACT OF 1935
The United States Treasury has nine billions of monetary metal
in its vault. This can support--unchallenged by any modern banker
who has supported the privately owned Federal Reserve System—
this nine billion can support the currency issue of $23,000,000,000.
This would not be fiat money. It would not be irredeemable
paper money, nor printing-press money, to any greater extent than
the Federal Reserve notes issued today.
Senator BITLKLEY. What would it be redeemable in?
Mr. WARD. Senator, this 2/
1
2 to 1 should be used with the full
recognition of its historic significance. The goldsmiths of Europe
learned that their customers did not come back the same day, and
they were smart individuals. They figured out a percentage, and if
they had enough to meet those that did come in for their gold. with
the gold receipts, that was sufficient.
Senator BULKLEY. That is very familiar to all of us, but what I
am trying to get at is what you are proposing in this bill. You
just said it would not be irredeemable paper; and I am asking you,
if it is not irredeemable, what would it be redeemable
Mr. WARD. I did not say it would. not be irredeemable, Senator.
Senator BULKLEY. I misunderstood you, then.
Mr. WARD. I said it would not be any more irredeemable than
the present Federal Reserve notes.
Senator BULKLEY. It could not be any more irredeemable than
the present Federal Reserve notes.
Mr. WARD. I was just comparing them. I will stop there.
Senator GLASS. It could not be any more irredeemable. and the
probability is that they would not finally put you in jail if you
were caught with any of it. But if you are caught with any
gold
now, they would fine you and put you in jail.
Mr. WARD. This merely means giving the sovereign power of
the United States the same prerogative that the L nited States
gave the private banke'r in 1913. But lest the purchase of the
debt
of the United States and the issuance of currency to equal demand
deposits provide some physiological reaction in anticipation
higher prices, though such action puts not one penny of money of
in
circulation, and lest further issues of currency raise the price
level
above that prescribed in section 14, then Congress can retire
all
excesses of currency through taxation.
Mr. Warburg came before the committee to testifv
government would have the courage to stop a boom. But that no
Mr. Warburg didn't complete the most important thought for the people
the United States, and that thought is this: That no governm of
ent
would have the courage to start a depression.
I am not here for or against the Eccles bill. I do not
that the committee invited a hearing on this bill at this believe
time, as
a means of killing the Eccles bill.
You have here the testimony of the Secretary of the
Treasury
that he is of that school which believes in a central bank. You
have Mr. Eccles himself, presenting a bill to Congress
he
needed confirmation as Governor of the present Federal while
Reserve
Board.
In the consideration of the Nye-Sweeney bill, naturally we can't
oet the bankers of the country to come here and testify in favor of
Louis B. hard — 9
BANKING ACT OF 1935
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Federal Reserve Bank of St. Louis
819
it. It will be universally ridiculed, and, as it gains public respect,
the attitude will change and it will be tolerated, and then there will
occur that third phase, which Woodrow Wilson said was the fate of
every reform measure. It would be embraced with a view of so
manipulating it that there would be no reform possible.
I would as soon ask the Egyptians to go easy on the slaves in the
matter of making bricks as I would ask the bankers of America to
endorse this bill. I would as soon ask Caesar to emancipate the
galley slaves as I would ask the modern banker to give up the privilege of counterfeiting money.
I would as soon ask a feudal baron to permit his serfs to transfer
land in fee simple as I would ask Wall Street for an objective consideration of this bill. The bill is drafted, and it will follow the course
of all legislation which passes, and that is modification.
This Nation has waited upon Congress since 1789 to use the power
given it under the Constitution to coin money and regulate the value
thereof and of foreign coins.
Through the medium of the radio and through great public mass
meetings, the people are beina•informed, and the people ultimately
win every battle they set out tP"'o win.
It took 6,000 years before human slavery, man's ownership of his
fellow man, disappeared.
It took 9 centuries at least of recorded history before the Constitution of the State of New York finally abolished the feudal tenures
which had lasted down from the old Dutch patroon of the rent wars
of 1842.
It took from 1765, with the Stamp Act, to 1781 at Yorktown to
give us political independence, but they didn't have the radio in those
days, and they didn't have the telegraph.
We ask that this subcommittee, which is being pushed to bring
out a banking bill, substitute the Nye-Sweeney bill for the Eccles
bill, and you will need no deposit insurance; you will need no political control over banking, and you will have no private banker control over money.
I ask the sincere and honest deliberations of this committee, according to its intellectual lights. before the four billion eight hundred million is added to the national debt; before there is a possibility of the Government bond market breaking and the banks forced
to run again to Jesse Jones to bail them out.
Owen D. Young, Chairman, General Electric
Co., New York, N.Y.
Hearings — S. 1715 and H. R. 7617
Senator COUZRNS. May I point out, Mr. Young, that on page 3 of
your memorandum you say this [reading]:
so I have had the opportunity at least to observe the personnel and the
organization of the central banks of the principal financial and commercial
countries of the world.
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Yo11 did not say whether you had any opportunity to study, the
operations of these central banks. I think there is quite a distinction
between the organization of the personnel and the operation of the
central banks,and I was wondering whether you had any opportunity
to observe the operations of the central banks and could give us any
advice in connection therewith.
Mr. YOUNG. Of course, I have watched their operations with considerable interest during these last years in all the countries.
Senator COUZENS. Have they operated well?
Mr. YOUNG. Yes. I think, on the whole, very well, considering the
difficult conditions which exist in the world. The currencies of the
whole world, unfortunately, are on a managed basis, not particularly
because the financial people wanted them there, or the political people
wanted them there, but because we have had such dislocations, economic dislocations, and then political dislocations in the effort to correct the economic ones, that the old international functioning of the
gold standard did not work any more. I think it is unfortunate.
SeIltitOr GLASS. Do you know of any central bank, Mr. Young. that
is permitted to inanare the property and the deposits of all the other
bulks in the country ?
Mr. YOUNG. No, sir.
Senator COUZENS. From your observation of all the personnel and
the organization of these central banks, has any one of them stood
out as more effective and efficient than any other ?
Mr. YouNa. It is very difficult to make the compari,,on, because
they function under such different conditions. The Reichsbank, for
example, since its restoration, has had exceedingly difficult problems.
It is directed by a very able man in Doctor Schacht. The Bank of
England has had its own peculiar conditions, and the Bank of France
has had them and is having them.
Senator GLASS. There had to be a restoration of the Reichsbank.
Mr. YouNo. A complete restoration, Senator. The nations of the
world had to raise $200,000,000 in gold in order to reestablish the
Reichsbank. We established a new reichsmark and provided for the
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Federal Reserve Bank of St. Louis
Owen D. Young — 2
844
f
BANKING ACT OF 1935
0 of the
exchange of the old reichsmarks at the rate of 1,000,000,00
ncy
the
curre
which
to
extent
the
see
can
you
So
old for 1 of the new.
depreciation had gone in Germany.
Senator GLASS. The Reichsbank was wrecked.
Mr. YOUNG. Completely wrecked.
Senator GLASS. Upon the issuance of its notes upon Government
bonded indebtedness.
why I am
Mr. YouNo. Quite true. That is one of the reasons the
central
t
permi
to
not
ought
here
bill
any
think
I
saying that
.
direct
nment
bank to take obligations of the Gover
?
Senator McADoo. You mean long-time obligations, must be made.
course
of
ces,
Mr. YOUNG. Yes. Temporary advan
it should take
Such Government obligations as the central bank holds
the Govthat
was
ny
Germa
in the open market. What happened in
sbank
issued
Reich
the
and
,
sbank
Reich
the
ernment put its bonds into
doing in a roundjust
only
was
it
and
,
bonds
those
t
agains
its notes
done direct, by
about way what the Government might as well have
press.
the printing
c obiective ?
Senator McADoo. Was not that done for a specifi
g inflation.
seekin
were
They
ive.
object
ic
specif
very
A
Mr. YOUNG.
se of
purpo
the
for
ion
inflat
g
Senator McADoo. They were seekin
?
re
measu
large
in
not,
they
were
destroying all debts,
the purpose of
Mr. YOUNG. They were seeking inflation partly for Senator, after
y,
largel
more
think
I
but
reducing the burden of debt,
base for their
the end of the war, for the sake of getting a better
exports.
just for no
Senator McADoo. Whatever it was, it was not done
purpose. There was a definite objective.
Mr. YOUNG. Oh, yes.
d employed,
Senator McADoo. In other words, that was the metho
means by
the
was
it
e
becaus
,
but
ionary
not because it was inflat
which they could accomplish the results.
Mr. YOUNG. Quite true.
Senator McADoo. And no other was available.
the progress
Mr. Yourro. I was in Germany several times during of business.
ation
stimul
a
was
ning
begin
the
at
of that. The result
it would be wise
Business itself felt that under those circumstancesthat
that inflation,
ent
confid
was
body
Every
ion.
to have some inflat
be stopped.
could
t,
amoun
after having proceeded just to the right
when you
that
,
before
out
d
turne
s
alway
It turned out, as it has
it, and so they rode
stop
to
power
no
is
there
d
starte
thing
that
get
to ruin.
heads off those
Senator GLASS. They did not happen to cut the
did they ?
days,
y
tionar
revolu
the
fellows as they did in France in
heads.
their
saved
They
No.
Mr. YOUNG.
follows that an
Senator McADoo. I do not think it necessarily
wise at the
seem
that
ions
condit
under
ncy
expansion of curre
d, results
uarde
ly
safeg
proper
and
inoment, if it is rationally done
going to
is
e
diseas
nant
malig
and
fatal
a
in such an infection that
the
upon
ly
ds
entire
pursue you to the death. I think it depen is exercised.
this
power
which
in
r
conditions and the manne
historiSenator GLASS. It does not necessarily follow, but it has
cally followed.
Mr. Yourrn. It has historically followed.
George L. Le Blanc — New York, N.Y.
Hearings — S. 1715
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Federal Reserve Bank of St. Louis
and H.R. 7617
On my part, I would much prefer to have a bill such as the NyeSweeney bill, because it has the essence necessary to create a sound
and practical national banking system, as free as possible from
selfish motives, while benefiting and protecting our economic existence, including our banking system. It has also much more potency
in regulating bulges, which have in the past been seriously detrimental to our economic life.
The Nye-Sweeney bill is the base of what should be enacted by
this Congress. It must follow the course of all legislation with
minor correction of detail in this committee and on the floor of the
House of Congress. It should not be left to the selfish interest of
bankers or politicians to remodel. It should have the aid of impartial, honest critics to refine it.
Robert Harriss, N.Y. Cotton Exchange
New York, N. Y.
ilearings - S. 1715 and H.R. 7617
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Federal Reserve Bank of St. Louis
1
with the fundamentals of the NyeI am substantially in-agreement
and currency
r
(
bill. The present banking
' Sweeney central banking the control of those self-interested, or the
i system is too much under our country it is not advisable that the
of
e hands.
! bankers. In the welfarecurre
ncy rest in bankers or privat
and
ng
banki
credit
control of
and
cy
curren
contraction of the
This because the expansion or directly or indirectly by prejudice or
may often be influenced either interest of the Nation. At times, as
banks
selfish reasons instead of in the
fear. Today, although our
at present, it may be influenced by they have been in years and there
than
, are in a more liquid conditioninterest rate,s are low, yet, as we know,
unless
i is much idle money and the
1
loans or credit with the banks
or
stocks
t
1 it is almost impossible to obtain
agains
or
bonds
nment
Gover
t
the loans are made agains iately liquidable.
commodities that are immed
- ,76
As mentioned, I favor the fundament-als of th Nye-S_weeney14
- ,
on.
banking bill. I am opposed to any central bank theat jannistbreatcio
trolled or dominated by the politicians or by any admc
\
It is only natural that if a central bank can be dominated o coni
t
‘
l
ra
on,
Democ
any
strati
by
or
cians
admini
trolled by the politi
f
Republican, it may be run for party or selfish interests insteacd °r
as
for the welfare of our country. This of course, would be just °
serious a mistake as leaving the banki4 and currency under private
control.
b h
I believe the Nye-Sweeney banking bill would overco
f
these grave dangers—either private or political controle,• that(it
of
the
in
the
bank
hands
l
the
of
centra
l
the
contro
would leave
people so that it could function for the national welfare and in the
interest of the people.
I do not believe that it is fair to brand as radicals, inflationists,
or visionary, men those who favor a Government central bank. I
believe the real or dangerous inflationists are those who have inflated or acquiesced in the further inflation of the Government debt.
As we know, many countries in Europe have central banks. As
a matter of fact, the Bank of England is construed by many as a
.894
BANKING AZT OF 1935
oned that England, with
form of central bank. It might be menti
on of the great resources
fracti
a
only a small part of the gold and
ng and currency so well
of our country, has managed her banki
prosperous as compared
are
e
that conditions in the British Empir
y.
with the conditions existing in our countrcount
ry bordering on our
the
that
oned
menti
be
also
could
It
been functioning so
has
which
bank
l
south—Mexico--has a centra
sion in Mexico-depres
no
well that there is little unemployment andgreat Nation.
our
to
red
a country that has little compa
Government central
Some will try to frighten us regarding a ce of "greenbacks."
issuan
the
to
bank by saying that it will lead
ln had no gold or silver
They will not tell you that Abraham Linco
will not tell you that
They
against which to issue his greenbacks.
enabled Abraham
They
.
money
good
be
to
d
those greenbacks prove
also saved the
have
backs
Lincoln to save the Union. These green ns of dollars, calculated
billio
12
than
more
taxpayers of our country
ation today
at 5 per cent compound interest. There are still in circulid work.
splend
doing
are
that
.346 millions of these greenbacks
Edward E. Kennedy, Secy. Nat. Farmers
Union, Kankakee, Ill.
Hearings — S. 1715 and H.R. 7617
--It is the belief of the Farmers Union that the principles of the NyeSweeney bill should be enacted into law to place the ownership of
the central banks and the control of the currency and credit of the
United States that is used as the economic lifeblood of the Nation
out of the hands of those who use it for profit and put it into the
hands of the Government, where it can be used for service to maintain equitable and just price levels; price levels that are not fluctuating from year to year and from month to month to increase and
multiply the debts of the farmers who are unable to pay their obligations on the basis that they contract them. It is for that reason
that the National Farmers Union, not only at its last convention but
at previous conventions, has endorsed whole-heartedly and unanimously the principle of a central bank owned by the Government
the United States. We are supporting the Nye-Sweeney bill. of
We believe, and I think it is generally accepted, that deflation or
contraction of credit, the withdrawal of currency—particularly
I credit money which is being used as a medium of exchange—has been
taken down from around $22,000,000,000 to around $15,000,000,000.
That is a loss of $7,000,000,000 in the means by which wealth circulates and the exchange of goods is carried on and commodities
are
distributed. We believe that that power has been so great in the
hands of private bankers or Federal Reserve banks to have
destroyed
agriculture and employment by destroying money, and everyone
also agrees that if we were to expand the currency sufficiently to
do
the money business of the Nation, we would again bring
price levels
back so that the American farmer would have an income
products of his farm enough higher and far above his debt from the
level and
the level of his fixed charges so that he could go into
the
market
and
buy the products of the now idle labor; the power
of the Federal
Reserve banks is too great a power to rest in the hands
of private
individuals or private corporations, because the welfare and
the
OF,
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BANKING ACT OF 1935
899
security of 126 million people depend on having a sufficient medium
of exchange to distribute the goods and services that the American
people produce.
I want to say just one thing more in connection with this matter,
and that is that if the situation that has obtained here for the last
5 or 6 years particularly continues,if the situation is that the Federal
Reserve banks and our present banking system cannot expand the
credit and make it available to agriculture, make it available to small
businesses, make it available to the people who must depend upon
production, must depend upon their labor for a living—if they .cannot under the present system expand the credit, expand the currency, i
then the system has failed.
On the other hand, if it is because they do not want to do it, I
because they are afraid that they cannot make loans to the farmer—
which they cannot, because the farmer is not receiving a price that
covers his cost of production and he is not getting enough above the
debt level to make him a good credit risk—if that is the situation,
either that they cannot or they will not provide -a medium of
exchange, and they have a monopoly on the control of the volume
of currency and controlling the volume of credit--if they cannot or
if they will not do this, then the Government ought to take over the
Federal Reserve System and operate it under the provisions and
under the principles of the Nve-Sweepev bill.
George R. James, Member FRB
Hearings — S. 1715 and H.R. 7617
Mr. JAMES. Not of necessity or urgency; no.
Senator COUZENS. Do you think that there is or is going to be any
general public sentiment for a central bank?
Mr. JAMES. I do not just get your question, Senator.
Senator COUZENS. I say, do you understand that there is any sentiment or do you know of any sentiment anywhere generally throughout
the country for the establishment of a central bank?
Mr. JAMES. Why, yes.
Senator GLASS. Among intelligent people?
Mr. JAMES. Well, now, Senator
Senator GLASS. When I say "intelligent people", I mean people
who are acquainted with the philosophy and technique of banking.
Mr. JAMES. I can see no justification for a central bank—if I may
be regarded as reasonably intelligent. I think we have got the facilities here, if we merely exercise them within the realm of common
sense. There is no trouble about getting along with them.
Senator GLASS. I take it from your testimony, Mr. James—and if
I am mistaken, I would like you to point it out—that you advocate
a measure of local self-government that now is possessed by the
regional Reserve anks?
Mr. J-Amks. Yes:" %
.
,
.
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Howard Bruce, Chairman, Baltimore Trust Co., Baltimore
Hearings — S. 4115
March 1932
1
1
1
•
Mr. BRUCE. It seems to me a lot of your objectives throughout this
bill might become more practical if you had control of all the banks,
of all the banking facilities. I3ut you have such a large amount of
banks outside of your system that you do not control, and if you
restrict too much the member band and not those outside credit
just runs around the corner to find its level. If there is cheap
money anywhere on any collateral it will find its own level, no
matter what you say to the member banks about special collateral
loans.
Senator BARKLEY. Haven't you put your finger on one of the
fundamental difficulties in our banking system ?
Mr. BRUCE. I think so. You control only a part of the banking
system.
Senator BARKLEY. What can we do about it?
Senator GLAss. We thoroughly realize that. Can you suggest
to us what we can do?
Mr. BRUCE. NO, sir. That is why I asked your permission to
make that observation.
Senator WArroTT. You have made a study of unified banking?
Mr. BRUCE. Yes; I would like to see them all in the same boat.
You have restriction here that I mentioned, such as the restriction
on interest. Right across the street is a bank that pays 31/2 per
cent. You restrict me to 3 per cent. Who is going to get the deposits?
Senator GLASS. There are innumerable statutory restrictions on
interest, are there not? Does not the State of Maryland put a limitation upon your charges for discounting ?
Mr. BRUCE. I am talking about interest on deposits.
Senator GLASS. I know you are talking about your restraining
power and you are talking about the other.
Mr. BRUCE. I know, but I am talking about the one that hurts.
I am not talking about the other. I am saying that this would
hmit us to 3 per cent, and I think up to just a few months ago we
were paying 3/
2, everybody was paying 3y2.
1
Senator GLASS. Ought you to?
Mr. BRUCE. Now, if you would stop the savings banks and stop
the State banks, I am all for it, yes,'surely.
Senator WALCOTT. You are giving us arguments for a unified
banking law, which, of course, we need very badly.
Senator BARKLEY. But how are we going to get it?
Senator Townsend. Mr. Bruce, what effect do you think this bill
would have one the national bank system, the Federal system?
Mr. BRUCE. There is no use of saying you are going to break up
the system, because you are not. I know of one right large trust
company that was seriously considering, and even I might say negotiating, to come into the system, and since this bill has been introduced it certainly has backed away. Now that is just an illustration.
I think that some situations will be such that some banks will have
'NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
1
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Federal Reserve Bank of St. Louis
1
1
469
to get out of the systein. There is no doubt about it. There is a
handicap if this bill does stand as drawn. It seems to me there is a
handicap to the free conipetition with a nonmember bank. That
means, I think, you will stop accretions to the system and you will
have some leakage from it and you will have to stop those leakages,
and you will right the ship by repeal of legislation and you will
bring it back again to the present equilibrium. It certainly is not
going to make membership more desirable.
1
W. R. McQuaid, Pres., Barnett Nat. Bk., Jacksonville, Fla.
Hearings — S. 4115
March 1932
1
•
Mr. MCQUAID. Understand, I am heartily in accord with constructive legislation, but I do not, like to see something done that is
going to hamper the operation of a bank in a local community, that
is going to make the Federal reserve system less attractive to the
banks, because I think one of the things that you ought to try to do
is to make it more attractive and get more banks into it.
Senator GLASS. Well, so do we.
Mr. McQuAth. Part of our troubles is very largely because there
are 48 system outside of the Federal reserve system, different kinds
of regulation. The failure of those smaller banks surrounding the
national banks have had the effect upon all of us.
Senator GLASS. If you can devise a provision of this bill or devise
a bill that will enable the constitution of it t,o create a uniform
system of deposit banking, we will be obliged to you. We find that
the Attorney General of the United States can not do it.
1
NATIONAL AND FEDERAL RESERVE BANKING SYSTEMS
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Federal Reserve Bank of St. Louis
293
Mr. McQuArn. Do you think, Senator, that the Congress can not
pass a provision in there that you can provide for state-wide banking irrespective of State laws?
Senator Gr.Ass. Oh, that has been determined by the courts; yes,
we can do that. But I am talking about a uniform system of
banking.
Mr. 11,1cQuAm. Well, I think the other will come.
Senator GLASS. Maybe so.
Mr. McQuAm. By a process of elimination.
Senator GLASS. We have not ingenuity enough to
vision that would be considered constitutional.
Mr. McQuAm. Make it attractive t,o the banks that do come into
the system.
Senator GLASS. I mean it would make it so attractive that there
would not be any State banks left, provided we let them in the
system, if we could do that.
Mr. McQuAin. The small, independent State bank is going to have
a hard .time, then.
Alr-
1
William K. Payne, Chairman, Auburn—Cayuga Nat. Bk. & Tr. Co., Auburn, N.Y.
Hearings — S. 4115
March 1952
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Federal Reserve Bank of St. Louis
Senator BROOKHART. You are not familiar with cooperative
banking?
Mr: PAYNE. Only by some reading on the subject. That is a
very interesting experimentation. It might possibly be the ultimate
solution of the thing.
Senator BROOKHART. It is not an experiment any more in the
countries that have tried it. It is the oldest and best established
system, the cooperative.
Mr. PAYNE. Of course, opinions may differ on that. I think it
is going through some experimentation yet. I may be wrong.
Senator BROOKHART. That is in countries that have not tried it
or are just beginning.
Mr. PAYNE. I do not think any form of business machinery is
static.
Senator FLETCHER. Do you mean to .say that the present banking
laws as they stand now are satisfactory and ought to be let alone,
or do you feel that--Mr. PAYNE. Not entirely, Senator.
Senator FLETCHER. Or do you think there ought to be some changes
and improvements on the present banking laws?
Mr. PAYNE. I think we can always improve our machinery.
Senator FLETCHER. Then why not do it ?
Mr. PAYNE. But I do not think at a time when our Nation is
so sick—and it has affected a great many towns, and whether a certain town is going to have a bank failure is a serious question from
week to week—I do not think that is the time to do it. That is the
one time when we should have a rest. _ That is_ my general attitude.
1
8
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MISC ELLANEOUS
EMPIREfOLDER
Better folders for better files
306S
Send your Order to the nearest "11 and E"
Representatives or to our Home Office
-YAWMAN FRBE MFG.0.
AND
Main Factories and Executive Offices
ROCHESTER, N. Y.
Branches and A;ents in all rrincipal Citia
(1.92_11)
FEDERAL RESERVE BANK OF MINNEAPOLIS
May 22, 1936
Board of Governors of the
Federal Reserve System,
Washington, D. C.
Gentlemen:
Enclosed find copies of three letters
received from the Comptroller's office this
morning, which I am afraid are merely the beginning of a series of such liquidations as I
know of three or four other banks which are discussing exactly the same action, the purpose in
\\I
each case being to enable them to charge exchange on all checks presented through the mail.
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Federal Reserve Bank of St. Louis
Yours very truly,
(Signed)
W. B. Geery
W. B. Geery,
Chairman of the Board.
WBG J
Enc.
Note: Letters are mere notices that the national banks
"contemplate" going into voluntary liquidation,
to be succeeded by new State banks.
J.E.Horbett.
•rin3w
CITIZENS
BANK
STATE
Marianna, Florida.
November 17, 1956.
Mr. Oscar Newton
Pres. Federal Reserve Bank
Atlanta, Ga.
Dear Mr. Newton:It has been a more or less open secret in this territory for some months that the First National Bank of Marianna,
Fla. were surrendering their National Charter and their membership
in the Federal Reserve Bank. I understand the State Examiners
have been working there for the past two days and I am just wondering what effect, if any, their applying for a State Charter would
have on us?
It is my impression that they are joining the State
forces for the purpose of collecting exchange on their items and
I believe under the State law any foreign item we present to them
are payable less 1/8 of 1%.
We have been members of the Federal Reserve System for
about fifteen years. We do not want to uarrender our membership.
I will be glad to have you write me as fully as you feel like and
as confidentially as you can regarding the situation with any
suggestions you have to make.
With personal regards amd best wishes I beg to remain,
Yours truly,
(Signed)
W. H. Nobles
President.
WHN:DO
COPY
(A copy of this letter submitted to Bd. with letter from Robt. S. Parker,
First Vice-Pres. & General Counsel, Federal Reserve Bank of Atlantai
dated 11-19-36)
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(copy)
FEDERAL RESERVE BANK OF CHICAGO
October 13, 1936
Mr. Leo H. Paulger
Chief, Division of Examinations
Board of Governors of the Federal Reserve System
rashington, D. C.
Dear Mr. Paulger:
There is enclosed copy of letter received today from the
Banking Commissioner of thr State of Wisconsin referring to that
feature of the statute which now deprives numerous banks of membership in the Federal Reserve System. I thought perhaps this
would be of interest to you.
Numerous member banks in Wisconsin and Iowa have inquired
recently as to whether they could open a branch office in order
to render banking service to communities where no bank exists.
This would be the means or preventing a bank being chartered.
I feel that if the branch office craze continues to grow
many eligible banks will not apply for membership.
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Federal Reserve Bank of St. Louis
Yours very truly,
(SIGNED)
C. S. Young
C. S. Young
Vice President
(con)
BANKING COMMISSION
Madison, Wisconsin
October 10, 1936
Mr. C. S. Young, Vice President
Federal Reserve Bank
Chicago, Illinois
Dear Mr. Young:
You will recall that on various occasions when I have been
in your bank we have discussed the desirability of having the
statute changed which would permit state banks which operate
stations to become merbers of the Federal Reserve System without
a capital to $500,000.00.
By way of illustration, the President of the Peonles Bank
of Coloma was in my office yesterday and indicated that he was
interested in joining the Federal Reserve System. When I told
him that his two statjons at Oxford and Endeavor would have to
be closed because his capital was not sufficient, he immediately
dropped the matter and said he preferred to operate the stations
rather than to join the System. You will recall that the Port Washington State Bank is in the same predicament.
I think that that feature of the statute is depriving
numerous banks of membership in the Federal Reserve System, and
I would like to see a movement started toward repealing that
statute.
I am enclosing herewith a condensed report of the condition of the Coloma Bank in order that you may see that it
is an average country bank which we feel would gain some advantage by joining the Federal Reserve System.
Very truly yours,
(SIGNED)
S. N. Schafer
Commissioner
SNS:GF
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•
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Federal Reserve Bank of St. Louis
FEDERAL RESERVE BANK OF KANSAS CITY
July 8, 1936
Board of Governors,
Federal Reserve System,
Washington, D. G.
Gentlemen:
The Farmers State Bank of Fort Morgan, Colorado,
indicated recently to our examiners that they were interested
in applying for membership in the Federal heserve System, and
a copy of Regulation H, together with application blanks for
membership, were forwarded with our letter of July 1 to this
bank. The available information indicated the bank was in
good condition, in an excellent location, and would make a
good State bank member for the System.
There is enclosed a copy of a letter from the President of this bank dated July 6, stating that the Board of
Directors of the bank had concluded to defer making application
at this time and indicating that its board reached this conclusion largely on the basis that membership in the System
would require the publication of too many reports of condition
for those calls issued by the Board of Governors and those
issued by the Bank Commissioner of Colorado. 4e are enclosing
a copy of our letter to this bank relative to this matter.
Very truly yours,
(Zigned:
J. J. Thomas
Federal Reserve Agent
(c
P Y)
FEDERAL RESERVE BANK OF KANSAS CITY
July 8, 1936
Mr. J. H. Bloedorn,
President, The Farmers State Bank,
Fort Morgan, Colorado.
Dear Mr. Bloedorn:
We have your letter of July 6 in reply to our letter of
July 1 in regard to membership in the Federal Reserve System, and
note that your Board of Directors, after giving consideration to
the matter, concluded not to make application for membership at
this time.
It is noted that one of the principal factors that led
your Board to defer applicttion for membership at this time was
the fact that it would mean the publication of so many reports
of condition at time of calls issued by the Board of Governors
of the Federal Reserve System and the State Bank Commissioner of
Colorado. The bank commissioner of Colorado, as well as the bank
commissioners of the other six States that comprise the Tenth
Federal Reserve District, has agreed to accept the publication of
the condition report issued pursuant to a call made by the board '
of Governors Ahen the bank commissioner issues a call for condition reports coincident with the date of the Board's call.
we realize that at times the bank commissioners of some of the
States request reports of condition for dates other than those
requested by the board of Governors, cooperation of the bank
commissioners in accepting the publication of the Board's call
for condition reports at the time of coincident calls by the bank
comnissioners is very much appreciated, and has greatly reduced the
objection to which you refer in your letter, and we are of the
opinion that it will not be a matter of serious nature for State
member banks in the future.
ove regret that you have decided to defer application, but
assure you that at any time you wish to reconsider the matter of
membership in the Federal Reserve System, we shall be very glad to
hear from you.
DWW:R
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Federal Reserve Bank of St. Louis
Very truly yours,
/s/ D. W. Woolley
Acting Assistant Federal Reserve Agent
(C 0 P Y
COPY
THE FARMERS STATE BANK
Fort Morgan, Colo.
July 6, 1936
Mr. D. W. Woolley, Acting Assistant
Federal Reserve Agent
Federal Reserve Bank
Kansas City, Missouri
Dear Mr. Woolley:
Thank you for your letter
application forms for membership
together with copy of Regulation
of State banking institutions in
of the 1st in which you enclose
in the Federal Reserve System,
H. governing the membership
the Federal Reserve System.
Our Board of Directors, after giving the matter thoughtful
consideration concluded not to make application for membership
at this time.
The one thing that led the Board to this conclusion, more
than anything else, was the fact that it would mean we would have
to publish at least six, different calls for statement of condition during the year, and seven, in the event that the Commissioner
did not make at least one call simultaneously with the call from
the Federal Reserve Board. The Board concluded that the expense
and bother of making out so many reports more than offset the advantages of membership to be gained.
We appreciate, very much, the visit of examiners C. W. Trost
and C. L. Bolinger, and, also, your cooperation. Eventually, of
course, we will have to join and the decision of the Board at the
present time is simply to postpone the application.
I am sending a copy of this letter to Mr. G. F. Roetzel,
so that he will know he need not delay his examination.
Very truly yours,
/s/
JHB/FA
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Federal Reserve Bank of St. Louis
(C 0 P Y)
J. H. Bloedorn,
President.
MEMORANDUM
A great number of words have been spoken and written to the
effect that banks should not be permitted to organize or operate
with less than $50,000 capital.
Such requirement would mean the
liquidation or branching of a great number of small banks.
Since
it would be only theoretical to expect a large number of small
institutions to be absorbed by branch banking outfits, the only
alternative would be to liquidate them.
A great number of communities would be greatly inconvenienced
and set back without banking facilities. Politicians would never
stop yapping at any attempt at forced liquidations of those banks
which would not be swallowed up by branch outfits.
Therefore it appears that any feasible solution would have to
give consideration to the continuation of small banks until such time
as the:' could be gradually absorbed or dried up.
lany persons offer as an answer to the auestion of the minimum
capital requirement, that the difference between the present existin6
capital and the proposed minimum of, let us say, $50,000 or $100,000,
could be raised either locally or by the RFC, most of such persons
admitting that in a large majority of the cases the RFC would have to
be called upon for the increase.
An additional important question is raised by asking, "What
would be done with the additional capital, inasmuch as a large number
of the small banks cannot now earn anything like a reasonable rate
on the present small capital?"
It is highly theoretical and impractical
to expect a bank in a small community to earn a reasonable rate on a
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Federal Reserve Bank of St. Louis
r;113
-2-
relatively large capital, out of which earnings provision must first
be made for inevitable losses.
It is well known to persons with
practical banking experience that when banks actively solicit loan
business, particularly that bearing high rates, increased losses
inevitably result.
Thus it might be said that increased minimum
capital requirements instead of improving the situation might
materially weaken it from the standpoint of credit losses and ultimate
net earnings.
In this connection, the principal source to which com-
mercial banks would have to turn in order to increase their loans would
be capital loans, consisting principally of real estate as collateral
either at the present or ultimately (because of the character of such
loans).
Practically all writers on banking subjectsand a great number
of bankers and bank supervisors, including those in the Federal Government, have stated, and will most probably continue to state, that one
of the principal causes of our frozen condition leading to bank suspensions
was excess amount of loans on real estate, directly or indirectly.
6-22-36
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Federal Reserve Bank of St. Louis
COPY
Gx-.5
CONFIDENTIAL
MINUTES OF MEETING OF THE CONFERENCE OF PRESIrE"TS
HELD IN WASHINGTON ON TUESDAY, MAY 26, 1936.
Present:
G. L. Harrison, New York, Chairman
R. A. Young, Boston
J. S. Sinclair, Philadelphia
M. J. Fleming, Cleveland
Hugh Leach, Richmond
Oscar Newton, Atlanta
Geo. J. Schaller, Chicago
McC. Martin, St. Louis
G. H. Hamilton, Kansas City
B. A. McKinney, Dallas
W. A. Day, San Francisco
H. I. Ziemer, Vice Pres., Minneapolis,
*
H. F. Strater, Cleveland, Secretary.
I?
14' IV '
24"
NONMEMBER BANKS
The chairman referred to the informal discussion which took
place during the last Conference of Presidents, of the reasons why nonmember banks do not join the Federal Reserve System, and the understanding
that each member of the conference would submit, at this meeting, a report
on the steps being taken to increase membership in their respective districts.
There followed a discussion in which each member of the conference
reviewed the work of his bank and the attitude of eligible nonmember banks
towards membership. This report developed the fact that each Reserve bank
is regularly contacting nonmember banks in its district with a view to
encouraging membership.
The following were cited as some of the reasons
why more nonmember banks do not apply for membership:
1.
The feeling that nonmember banks can naw obtain most of the
benefits of membership through their correspondent banks, being themselves
in ultra liquid condition, and seeing no immediate need for rediscount
accommodations or the necessity for borrowing.
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Federal Reserve Bank of St. Louis
2.
Reluctance to forego the income from exchange charges upon
which some of them depend very largely at this time.
3.
Appr,)hension that if they become members, reserve require-
ments, if increased by the Board of Governors may adversely affect them.
4.
Complexity of examinations, reports, regulations and red
tape incident to membership.
5.
Fear of political domination of Reserve System.
6.
Belief that Federal Deposit Insurance Corporation gives
adequate protection without membership in the System.
7.
Reluctance to take steps as to their own condition which
are necessary to meet requirements of membership.
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Federal Reserve Bank of St. Louis
* * * * * * * * *
Study +8.
OBJECTIONS TO FEDERAL RESERVE MEKBERSHIP
•••••••
Reports of the officers of the Federal Reserve Bank of
Minneapolis regarding their visits to banks in that district
between March 6, 1935 and October 8, 1935 (file No. 327.(9)
general files) have been reviewed for discussions of banks'
objections to membership in the Federal Reserve System.
The outstanding and continually recurring Objection is
'
6171
directed against the compulsory par remittance *A-checks. Since
the elimination of interest on reserve balances with city
correspondents, the prohibition agairst exchange seems to be
much the most import single objection to membership, at least
among the banks visited.
In many, perhaps most, cases, it
seems to be the determining factor.
rhe officers of the Minne-
apolis Reserve bank also indicsted that they do not think the
attitude of the banks is entirely arbitrary in this matter.
There are statements, such as that in the !Tay 3, 1935 report of
F. C. Dunlop, Reserve bank Controller, that many of the banks
simPly could not exist under present conditions without exchange.
The second most important objeetion appears to be the
present capital requirements for membership.
Here, also, the
officers of the Minneapolis Reserve bank do not tl,ink the attitude
of the banks entirely unreasonable, as indicated in the June 4,
1935 report of F. C. Dunlop.
The objections on this score are
usually that it would be difficult to raise the capitsl, that the
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Federal Reserve Bank of St. Louis
Study 0
- 2
capital could not be utilized profitably, and that it would unnecessarily increase the taxes of the bank.
The point is not stressed in the reports, but there is soma
evidence of objection to naying the F.D.I.C. assessments, although
the situation might now be altered since the Bsnking Act of 1935
has changed the provisions regarding the liabilities and assessments
of insured banIK:s.
There is also some evidence of a fear of "distant ccntrol" of
the banks, i.e. of too much authority being exercised unsympathetically,
or even politically, in Washington.
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Federal Reserve Bank of St. Louis
Ftudy 4
CT1 4S TO U%I;ICtTION.
Every restriction whioh would apply to
bank as a result
of unification nay be thought of as a potential objection to unifioation4 but only those restrictions which seem likely to arouse a
fairly substantial amount of orTosition need be oonsidered to be
aotual objections.
A survey of statutory provisions may suprly a convenient c'
list of potential objections.
Powever, it becomes a queation of
fact as to which of these restrictions are likely to be opposed by
a substantial number of banks. For instenoe, althnugh sompulsory
membership in the Federal Reserve 4sten would subject certain banks
to many new restriotions which would be potential objections& it is
understood that the chief actual objections probably would be the
restriotion upon charJng exchange and the increased oapital require'.
manta.
The compilation previously rrepared on ""Tivided and Overlapping Federal
Regulation& :)camination and Supervision of Commercial Banks"
attempts to indioate most of the statutory as vrell as regulatory
restriotiont on noninsured banks& insured nonmember banks& State
member banks and& to a less extent. national banks.
The purpose there
vas to indicate the possibilities of conflioting or overlarping regu•
lations or constructions of statutes.
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Federal Reserve Bank of St. Louis
ilowevers this compilation
should offer a fairly good check list of potential objeetions
to unification. ylth the possible exoeption of objections to
r"cmpulsory Federal oharters. For example. the restrictions
speeified under insured nonmember banks but not under nonins---'
banks indicate possible objections to unifioation through eoapul•
sory participation in Federal Deposit Insurance.
Similerly.
restrictions indicated under State menber banks but not under
insured nonmember banks or noninsured banks indicate potential
objectiol.s to unifioation through compulsory Federal Reserve
ship, and restrictions listed under national banks but not under
the other columns indicate potential objeotions to unifisatioa
through oompulsory Federal oharters.
It may be noted. however. that eortain items. though menti. .ose
in the oompilation. are not brought out as clearly as might be
desired in oonneetion with the present question.
Itea 1(e), for
examile. refers to oapital and sertain other requirements for the
establishment of branehee kr national and State member banks.
However. this may not olearly indicate the substantial restriction
reeulting from the rather heavy oapital requirements and from the
fact that branehes are defined more broadly in the 'Federal statutes
than in the State statutes. Thus. nonmember banks in some States
may with little restriction establish additional offices for oertain
purposes under the name et "soma's"; but such offioes are defined
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Federal Reserve Bank of St. Louis
as "branohes" for national banks and State member banks and as
such ere subject to the capital requirements for branches.
Another instance is item 4(e)(1) Whieh refers to the mere's.
of trust powers by national banks. ?his does not bri-Ig out tbs
faot that under Ex Fart, ftretteter Countx Ittional Bask
a
Worsester -
(1929) 279 U.S. 347, the conversion of a State bank to a national
bank in some States terminates appointments of the bank as fidw.
ciary and requires the obtaininr of new appointments.
Obviously. t
might Gauge difficulty in samo &tato' in connection with compulsory
Federal oharters.
Item 6(a), whieh refers to the payment of assessments to the
Federal ,eposit Ineuranse Corporation, is another such item. Any
such expense is, of oourso, a potential objoetion. but there is
ta additional possibility of dissatisfaction due to ths faot that
assessments are lAsed u-on total deposits although insuranee is
limited to
Et,000 for each depositor.
It is understood that meet
of the banks with large depositors are already iasured banks, oz
eves member banks. but Viers is a possibility of this diffsrenee
between the insure's** and the amsesement base eausing objestion te
compulsory insurance.
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Federal Reserve Bank of St. Louis
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Letter of
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THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
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Clipping- frost N. Y.- Tines, September 161 195E entitlth
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THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
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Clipped pages 47-14 frau Rural Ficg. leform by Collins
SEE
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Letter of
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II
a aovaankirNT paraTrao orncr
1933
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
w r=own rim aura ikik aeons tir wins (ch.
Subject ouggi
SEE
File No. nu
Letter of
Dated _
Remarks
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001
,ZRNIENT
earmiwo orner
1933
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Su
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Clipping from Rand McNally Bankers Monthly, duly 1936_, on
"New Security Records to Fit the New Rulings?' by George D.
Bushnell
SEE
File No.
110A
Letter of
Dated
Remarks
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8
v. e. 00•1114M11.7 revvrrno orrice: loss
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
8
Subject cop, of a memorandum dated May 44 1956 to the Organization Division
in re: LiAuidation of "The National Bank of Benson, Benson,
Minnesota, (Member First Bank Stock Corporation Group) from
C. F. Wilson, Ass't. Chief Nat. Bk. Examiner
SEE
File No. #5D
Letter o
Dated _
Remarks
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u. s. novas/m.7 rserrrso °Frier: 1933
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
Remarks of Pres.Haas of ABA before State Bank Div. Comments on
Unified bankina systems October 22, 1932
SEE
File No.
Study # 4
Letter of
Dated
Remarks
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V. R. 00TiRNMENT
mrdo orricr. 1933
178151
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No. 8
Subject
The National Banking System, A brief review of its history,
written by J.F.T.O'Connor, Comptroller of the Currency
American Banker, Centennial Edition, Tune 15, 1936
SEE
File No.
Study # 10 ^
Letter of
-----------------------
Dated _
Remarks
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U
00VICIRNIIENT
ritr,errwa orricr. 1913
178151
--
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject att../ *Limon imata_awas law
stostgotima
sessor lifek
SEE
File No.__ ist.'17 ler
Letter of
Dated
Remarks
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v. e.
ritrsTrwo orricr: 1933
178151
wt_
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5-22-36
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
3
7xoerptp from the Annual Ze_pQrt Qf the L_upt. of BanIsa _ of the
19:54 Statement of Edward Rainey,
State of Calif. - June
retiring Supt. of Banks
SEE
File No.
tacky
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
GOVICIINMENT
rarsTrNo OrnCR: IOU
178151
C413
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
8
Exceut from "Seea_Banking Unification-as—Threat-te-Eeollemte
Freedom" by Rudolf S. Hecht, The Mississimi Banker--June 1932
SEE
File No.
Stu_dy_
Letter of
Dated _
Remarks
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Federal Reserve Bank of St. Louis
e. 00.931111113717 911131119/0 orrIce. 1933
178151
“n1
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
*The Dual Banking Systen*
Subject
Now York Yourna/ of Catamarca Nov. 1, 1932
SEE
File No.
Study # 7
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
-
O.
ElOYIRMEINT
mamma orricr 1.32
178151
605
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No. _
Subject
"Calls on Bankers to Awaken the People"
by OrvaI -Adams
C
=MEW=
SEE
File No.
# 7 for Excerpts pilblished in American Banker, May
1936
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
_
S. GOVZRNIIENT rRnrma
1913
178151
An6
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
File No.
Subject
"Unified Bank Plan Exp.-sed in Bill Debate"
N.Y.Herald-Tribune
SEE
May 19, 1935
Study # 7
File No.
Letter of
Dated
Remarks
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Federal Reserve Bank of St. Louis
8
U. a. 00VZIIIIIIENT
OMC9: 1913
178151
by Ge . -6. Anders-n
8
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