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Studies in BANKING COMPETITION and THE BANKING STRUCTURE Articles Reprinted from THE NATIONAL BANKING REVIEW THE ADMINISTRATOR OF NATIONAL BANKS U N IT ED S T A T E S T R E A S U R Y Published January 1966 $1.50 for single copies; $1.25 a copy for orders of 10 or more. Orders should be addressed to: Editor, The National Banking Review, Office of the Comptroller of the Currency, United States Treasury De partment, Washington, D. C. 20220 FOREWORD We have gathered together in this volume the articles relating to banking competition and the banking structure that have appeared in T he National Banking Review. In addition, we have included in the Appendix an analysis of “The Banking Structure in Evolution,” which appeared in the I02nd Annual Report of the Comptroller of the Currency. During the past several years, there has been a greatly heightened interest in these problems in the Congress, the regulatory agencies, the academic community, and among banks throughout the country. It is our thought in arranging this compilation that more informed discussion will be stimulated, and that materials will be conveniently accessible for teaching purposes and for the encouragement of further research and writing on these significant issues of public policy. JAMES J. SAXON Comptroller of the C urrency The NATIONAL BANKING REVIEW A JOURNAL OF POLICY AND PRACTICE Edited by the Senior Staff of the Department of Banking and Economic Research, Office of the Comptroller of the Currency. Legal articles edited in the Law Department, Office of the Comptroller of the Currency Articles appearing in The National Banking Review reflect the authors views, and do not bear the endorsement of the Comptroller of the Currency. Manuscripts are judged solely on traditional standards of scholarship. JAMES J. SAXON Comptroller of the Currency Published September, December, March, and June. Subscription rate: $4.00 per year. Checks should be made payable to the Comptroller of the Currency. Subscriptions should be addressed to: Editor, The National Banking Review, Office of the Comptroller of the Currency, United States Treasury Department, Washington, D. C. 20220. Manuscripts should be addressed to: Editor, The National Banking Review, Office of the Comptroller of the Currency, United States Treasury Department, Washington, D. C. 20220. A style sheet will be submitted on request to the Editor. CONTENTS Page P a r t O ne: M erger Policy: The Philadelphia Case I. Comments on the Philadelphia-Girard Decision: Bank Mergers and Public Policy by David C. M otter............................. ............................................... Private Competition and Public Regulation by Victor Abramson ............................... ............................................. Concentration Ratios and Competition by Deane Carson and Paul M. H orvitz............................................ 3 15 19 (From the S eptem ber 1963 issue of The N ational B anking Review) II. III. The Philadelphia National Bank Case: A Rejoinder by Emanuel Celler ............................................................................... 25 The Philadelphia National Bank Case: A Reply by Victor Abramson............................................................................. 39 (From the Decem ber 1963 issue of The N ational B anking Review) IV. V. VI. The Philadelphia Bank Merger Decision and its Critics by Edward S. H e r m a n ................................................................................. 43 The Philadelphia-Girard Decision: Some Further Comments by Thomas Gale M o o r e .............................................................................. 59 The Philadelphia Case: Replies to the Rejoinders by Victor Abramson, Deane Carson, David C. M otter and Bernard Shull ................................................................................................. 69 (From the March 1964 issue of The N ational Banking Review) VII. Commercial Banking as a “Line of Commerce” by Bernard Shull................................................................................... 77 (From the Decem ber 1963 issue of The N ational Banking Review) Branch Banking P a rt Tw o: I. Branch Banking and the Structure of Competition by Bernard Shull and Paul H o r v itz .................. .................................... 99 (From the March 1964 issue of The N ational B anking Review) II. The Im pact of Branch Banking on Bank Performance by Paul M. Horvitz and Bernard Shull ............................................ 141 (From the D ecem ber 1964 issue of The N ational Banking Review) III. Bank Entry and the Public Interest: A Case Study by David C. M otter and Deane C a r s o n .............................................. 187 (From the June 1964 issue of The N ational B anking Review) P a r t T h ree: I. N ew Bank Entry Bank Form ation and the Public Interest by David C. M o t t e r ..................................................................................... (From the M arch 1965 issue of The N ational B anking Review) 233 Page II. Bank Entry Regulation: Its Impact and Purpose by Sam Peltzman................................................................................... 285 (From the D ecem ber 1965 issue of The N ational B anking Review) P a r t F o u r : Bank Competition and Bank Regulation I. The Banking Competition Controversy by Franklin R. Edwards....................................................................... 303 (From the S eptem b er 1965 issue of The N ational Banking Review) II. The Framework of Commercial Bank Regulation: An Appraisal by Donald Jacobs................................................................................... 337 v (From the March 1964 issue of The N ational Banking Review) P a r t F iv e : Bank Costs and the Banking Structure I. Economies of Scale and Marginal Costs in Banking Operations by George J. Benston........................................................................... 355 (From the June 1965 issue of The N ational Banking Review) ☆ ☆☆☆☆☆ Appendix: The Banking Structure in Evolution ................... (From the 102nd Annual Report of the C om ptroller of the Currency) 399 APPENDIX: The Banking Structure in Evolution (From the 102nd Annual Report of the Comptroller of the Currency) I A Statement of Policy T h e N a tio n ’s in d u stry and com m erce are alive with change. If the banking in dustry is to serve their needs most effec tively, it will have to m atch the initiative and imagination displayed elsewhere in the economy, The temper of the banking industry, and the energy with which new opportunities are created and pursued, will be critically affected by the attitudes of the public authorities. A negative or unreceptive outlook on the part of the regulator may dampen the initiative of banks and impede effective response to public demand for banking services and facilities. For nearly four years, we have been engaged in an effort to broaden the op portunity for private initiative in the Na tional Banking System, insofar as this could properly be done in the light of existing law and the public purpose to sustain and safeguard the viability of the banking system. In our 101st Annual R e port to the Congress, we reviewed the changes that were instituted and those advocated with respect to the operating powers of National Banks. In this 102nd Annual Report, we shall examine the changes of policy and practice relating to the structure of the National Banking System. The banking structure that is most ideal in terms of the public need will vary with the changing requirements for banking services and facilities. Like the operating powers of commercial banks, the struc ture of the banking industry must con tinuously be adapted to emerging de mands and opportunities. All of the forces of change which are at work throughout the economy, both domestic and international, influence the ideal banking structure tQ be sought. In our prosperous and vigorous society these changes are constant, far-reaching, and of compelling importance. Increases in personal income and population affect the volume of savings seeking productive uses. The growth of capital and advances in technology bring new products and new industries. These, in turn, often give rise to new communities and shifts of 401 population. Population movements are further accelerated as income levels rise and perm it the purchase of new homes. All of these factors have worked to pro duce demands for additional types of banking services and for banking facili ties at new locations. The response by the banks and the banking authorities to these new demands and opportunities have molded the evolution of the bank ing structure. “Structure” is a term generally used to describe the composition and dispersion of an industry, geographically, by size of unit, and by the range of products manu factured and distributed. The structure of an industry is also affected by the ease with which new firms may enter and existing firms may expand. In all indus tries, structure is influenced by such fac tors as the location' of the materials of production, the accessibility of markets, and production and demand conditions, as well as by unique factors such as the inventive process and entrepreneurial ini tiative. Banking, however, and the other regulated industries, differ fundamentally from the unregulated industries in one significant respect—the influence of gov ernment on structure. In the unregulated industries, the in fluence of government on structure is at a minimum. In these industries, the broadest scope is preserved for individual initiative; public controls are, for the most part, either indirect or peripheral. E x cept in unusual times such as war, it is rare in the unregulated industries to im pose precise and positive rules of con duct for the individual. He is forbidden to engage in certain practices, and certain governmental activities may indirectly af fect the choices he makes, but beyond these limiting factors he has a free choice of entry and free discretion to select his own investment, production, and market ing policies. For example, although the total supply of money and credit is regu lated, the government does not normally 402 allocate their uses nor fix the prices of goods and services produced and sold. Collective bargaining is required, but wage rates are not fixed. Anticompetitive accretions of market power and deceptive practices are controlled, but there is no effort through public authority to select and enforce any exact set of com petitive conditions. This is in clear contrast to the public policies followed in the regulated industry of banking. In virtually every significant aspect, the structure of the banking in dustry is directly controlled by govern ment. Entry into banking is restricted and the expansion of existing banks is closely regulated. No bank may be formed without a charter from the government. No bank may expand its size through the acquisition of new capital or the forma tion of new branches without the sanction of a public authority. No bank may ex pand through the acquisition of other banks without the prior approval of gov ernment. Underlying this intercession of govern ment in banking is a basic public policy that sets this industry clearly apart from others. The factor which distinguishes banking from other industries is the pub lic concern to safeguard the viability of the banking system. This concern is founded upon the central role which banking performs in the economy, and the critical significance of public confi dence in the banking system. The bank ing system provides the chief instrument of payment in the conduct of business and private transactions, and it represents one of the principal channels through which savings are directed to productive uses. In order that these functions may be performed effectively, there must be public confidence in the banking system. W ithout such confidence, funds would not be deposited in banks nor would checks be accepted in payment of transactions, and the performance of the entire econ omy would be greatly impaired. There are three basic forms of public control that affect the structure of the banking industry: ( 1 ) chartering controls; ( 2 ) branching controls; and (3 ) merger controls. A. C h a rterin g C on trols T h e im p o s itio n o f e n tr y c o n tr o ls througE^Jthe requirem ent of a public charter represents the most fundamental structural regulation of the banking in dustry. In the unregulated industries, freedom of entry is preserved as the es sential basis for the reliance placed on private initiative to exploit profitable opportunities for serving consumer de mands, and generally to make certain that productive resources move to their best uses throughout the economy. It is recognized that free entry may result in the elimination of inefficient competitors, but this is regarded as a small price to pay for the public benefits of private ini tiative and innovation. Failures in bank ing, however, are considered to be of greater public consequence than failures in other industries because of the broad effects on confidence in the banking sys tem and the severe incidence on individ uals and small business firms. Entry re strictions have thus been adopted as one of the measures for preserving the via bility of the banking system. Since the existence of entry restrictions deprives the public of the full benefits of competition in m eeting consumer de mands, it becomes the responsibility of the regulatory authorities to make certain that entry controls are not so severely administered as to inhibit the provision of needed banking services and facilities. If the public authorities are insufficiently alert or sluggishly responsive to emerg ing requirements, artificial shortages may appear. This is precisely the situation which prevailed several years ago as a result of postwar changes in the size and location of population and industry. Shortages of supply normally create mounting pressures for market entry in a capital-rich and dynamic economy such as our own. This poses administrative problems where there is public control of entry. As the saturation point is ap proached in a market under the pressure of new entry, it becomes increasingly dif ficult to make accurate estimates of need and potential profitability. Moreover, in order to sustain the viability of the bank ing system, it is desirable to preserve op portunities for new banks to grow to efficient size. For these reasons, a tem porary halt may occasionally be required in the chartering of new banks in some markets, as occurred under the more re sponsive chartering policies of the past several years. Some observers have been concerned lest the chartering of new banks should proceed so far as to increase the rate of bank failures, and it is worthwhile to consider how firm the safeguards against failure should be in the chartering of new banks. It must be remembered that bank entry is regulated not because there is a private right of existing banks to be protected against competition, but be cause there is a public concern to sustain the viability of the banking system. It can never be in the public interest to protect banks against competitors who are either more efficient or more respon sive to public demands. There are, more over, positive public benefits to be de rived through the periodic introduction into the banking industry of new com peti tive forces with fresh ideas and fresh talents. An absolute safeguard against bank failures resulting from new entry would require an absolute bar against entry, for any new competitor will have some effect on his rivals and will himself run the risk of failure. In order to reconcile the need to protect the viability of the banking system with the equally vital need to assure sufficient production of banking 403 services, a unique combination of public policies has been adopted. Applications for entry are carefully screened in terms of public demand, potential profitability, and effects upon competitors. In order to assure the capability of new banks to operate efficiently and effectively, certain minimum capital requirements are im posed, and the com petence of proposed management is appraised and approved by the regulatory authorities. The oper ating policies and practices of all banks are continuously supervised to sustain their solvency and liquidity. Finally, as an ultimate safeguard where failure does occur, a system of deposit insurance has been provided. Through these measures, confidence in the banking system is pre served without paralyzing the com peti tive forces. Thus, the banking industry is enabled to undertake the risks that are required in serving the demands of a thriving and flourishing economy. The chartering of new banks represents, in many respects, the most delicate task which confronts the bank regulatory au thorities. A new bank represents a new competitor, and a new competitor is rarely welcome in any industry. On the other hand, since bank charters are valuable because they are limited in supply, they are actively sought by competing appli cants. The public authorities are thus subjected to intensive pressures both from those who seek charters and those who oppose them. Moreover, in reaching de cisions on charter applications, there can be no absolute certainty of the fate that will befall new banks or their competitors. Despite these difficulties of administer ing entry controls, banking must not be treated as a “closed” industry. Each new generation produces a new group of men and women of skill and ability seeking outlets for the use of their talents, and in our prosperous society there is a constant accummulation of capital in search of profitable employment. In some measure, these new productive resources will find 404 their best uses in the banking industry, and the public will benefit by allowing them access to that industry. B. B ran ch in g C on trols The second principal form of structure control is the regulation of branching. A bank may expand internally through the formation of d e novo branches, or ex ternally through the absorption of other banks by means of merger. Merger con trols, however, raise a number of separate issues and will be discussed in the next section. The policy issues confronted in branch ing are in many respects similar to those which appear in the chartering of new banks. Since the formation of a d e novo branch introduces a new competitor into a market, the same questions arise of pub lic need or convenience, potential profit ability, and effects upon competitors. But inasmuch as branching increases the size of an individual bank, new issues also em erge co n ce rn in g th e p o te n tia l for greater operating efficiency and for en largement of the range of services offered to consumers. There will be some circumstances in which a new branch will be able to serve public demand to better advantage than a new bank. Some banking markets can profitably support a new branch where a new bank could not prosper. A new branch may be able to bring to a com munity a broader range of services than could be efficiently provided by a newly chartered bank. Moreover, the abandon ment of a branch will be less harmful— both to the parent bank and to the bank ing system—than the failure of a new bank; thus, where prospects are not im mediately certain, or where expansion is based partially on anticipated growth in demand, branching might be the pre ferred course. The choice of whether to provide for bank expansion through new charters or through new branches is also affected by other considerations which are discussed in the next two sections. Much of the recent demand for new branches, as has been true of that for new charters, stems from the growth and shifts of population and the creation and relocation of industries. Very commonly in recent years, for example, the move ment of population from urban to sub urban areas has deprived urban banks of customers and created new demands in suburban areas. Moreover, the growth of new industries often gives rise to new working and residential communities with new needs for banking services and facili ties. Through branching, a bank may “move with its customers” and retain its position in the industry. The broader the geographic dispersion of a bank’s offices, the more readily may the deposits from surplus areas be put to effective use in areas where loan demand exceeds the de posits generated. Further, by increasing its size, branching may enable a bank to produce some services at lower cost. It may also enable a bank to spread its risks more effectively and thus allow engage ment in lending activities that would not be feasible for a smaller bank. A larger bank, moreover, has a larger legal lending limit and so may serve certain classes of customers more effectively than smaller banks. In the unregulated industries, the econ omies of scale actually realized, and the variety of services actually performed, are determined competitively. In banking, however, the regulatory authorities have the ultimate responsibility to choose the means of bank expansion best calculated to serve the public interest. Their deci sions will inevitably affect the prices and range of products and services offered to consumers. The authority to permit the formation of branches is much more severely re stricted than the power of the regulatory authorities to allow the creation of new banks. These long-standing traditions with respect to branch banking have had a deep-seated and far-ranging effect upon the entire banking structure of the coun try, and upon the performance of the banking system. They have greatly en larged the number of banks, hampered the growth of banks to most efficient size, inhibited the development of specialized services by many banks, and diminished the effectiveness and efficiency of the banking system in the vital task of facili tating the movement of capital to its best uses throughout the Nation. In some de gree, these limitations have been overcome through the solicitation of loans and de posits in areas beyond the powers to branch, and through the establishment of affiliates, satellites, or holding companies. These, however, represent generally in ferior means for the expansion of bank ing operations. There is the mistaken belief that broader authority to permit branching would lead to harmful effects upon com petition in the banking industry. Greater power to allow the formation of branches, however, would merely add to the discre tionary authority of the regulatory agen cies. Equipped with a more extensive range of alternatives, the banking au thorities would be in a better position to choose the precise means of bank expan sion most suitable to serve the needs of individual banking markets, and most likely to provide the required services and facilities at the least cost. Indeed, the risk of monopoly power is greatest where the greatest reliance is placed on unit banking. Since new branches might be able to operate profitably in markets where new unit banks could not survive, the prohibition of branching would ex clude potential competitive forces from these markets. There is no consideration of the public interest which would justify an absolute withholding of the branching tool from the regulatory authorities. The only proper basis for the restriction of branch 405 ing is the suitability of this means of bank expansion to serve emerging public de mands in particular banking markets. Under this principle, the regulatory au thorities should have the full discretion to authorize the formation of branches wherever they can serve the public in terest to best advantage. C. M erger Controls The third means by which govern m ent influences the banking structure is through direct administrative control of mergers. In the unregulated industries mergers may be freely undertaken, sub ject only to prosecution under the anti trust laws. In banking, however, mergers require the prior administrative approval of a regulatory authority, and the regu latory agencies in reaching their decisions apply a variety of statutory criteria re lating to the banking and public conse quences of proposed mergers. The desire to merge is critically af fected by the power to branch. Merger applications rarely appear in no-branch States because a merger under those con ditions usually requires the closing of one of the merged banks. Thus, two tools of structure control are effectively lost where branching is prohibited, and needed bank expansion must take place almost en tirely through new charters. T he public benefits which may be de rived from mergers stem basically from the economies of large-scale enterprise, and the greater variety of services which larger firms may offer to consumers. These benefits will arise where increases in the scale of operations yield savings in costs, or where a broadening in the lines of pro duction or the extension of operations to new markets permit greater dispersion of risks and thus allow the undertaking of ventures unsuitable for smaller firms. A larger and more broadly based bank may also be able to offer specialized services which are not profitable for smaller insti 406 tutions, and should be able to move capi tal more efficiently from surplus to deficit areas. Moreover, the legal lending limits of banks require the presence of larger institutions to meet the needs of larger businesses most proficiently. In our public policy for the unregu lated industries, we have generally dis tinguished between the growth of firms through internal expansion and their growth through merger. Growth through merger has been viewed with greater public concern because it entails the elimination of competitors and, for this reason, merger limitations have been im posed through the antitrust laws. The direct administrative controls applied to bank mergers are also based in part upon the competitive effects of such mergers, but, as we shall see, the banking authori ties apply a variety of other public in terest criteria in deciding bank merger cases. These criteria are specifically re lated to the fact that the banking struc ture is under direct public control. There is some probability that growth through merger may have a more adverse effect on the liveliness of competition than growth through internal expansion. However, there are countervailing con siderations. A merger may enable a firm to acquire plant, personnel, and marketaccess not otherwise readily attainable, or attainable only at greater cost. More fundamentally, even though the intensity of competition may be adversely affected by growth through merger, merger may nevertheless produce benefits of largerscale production which are in some de gree passed on to consumers in the form of improved service or lower prices. The task of public policy is to allow those in creases in the size of firms that are, on the whole, beneficial to consumers, while restricting those that are, on balance, harmful. There are two reasons why merger may often be the preferred course of expan sion in banking, even though in compara ble circumstances reliance on internal growth may be more appropriate for the unregulated industries. First, the banking authorities have a positive responsibility to see that the pub lic convenience and need for banking services and facilities are met. In carry ing out this responsibility, they do not have the authority to require the provi sion of service such as is found in the fully regulated industries like the ‘ pub lic utilities”; their choices are limited to the private proposals for bank expansion presented for their approval. If they find that a proposed merger will yield public benefits and they see no superior means for achieving these benefits either at hand or in clear prospect, they have a strong positive reason for approving the merger. In the unregulated industries, there is no public responsibility to fashion industry expansion according to the public need; reliance is placed on private initiative and no public authority faces the problem of choosing the form or method of industry growth. Second, in choosing the best means to serve the public convenience and need for banking services, the banking authori ties must appraise the alternatives in terms of the effects on the solvency and liq u id ity of co m p etin g banks. Bank merger proposals are generally designed to provide new services to a community, to provide services at lower cost, or to en te r new m arkets. T h e a ltern a tiv e means of achieving these purposes are new charters and d e novo branching. If the existing banks in a market are poorly managed, financially weak, or unpro gressive, such added competition may threaten their solvency or liquidity and merger may constitute the only effective means of bringing improved service to a community without posing a threat to bank viability. In the unregulated industries, there is no public concern to safeguard individual firms against failure. Indeed, in these in dustries freedom to compete and to elimi nate less efficient rivals is essential to the reliance placed on private initiative to serve consumer demands. It is therefore appropriate in the freely competitive in dustries to impose more severe restrictions on growth through merger than are ap plied to banking. Bank mergers have sometimes been op posed on the ground that, although they may improve service for some classes of consumers, they may do so at the ex pense of others. Some classes of consum ers, however, have needs which only larger banks can serve efficiently. If other classes of consumers are disadvantaged by a merger, a new opportunity is presented to competing banks and the banking au thorities may respond by authorizing new charters or new branches. In this way, the needs of all classes of bank customers may be served most efficiently and most effectively. The Bank Merger Act of 1960 provided for direct administrative control of bank mergers by the banking authorities, and established broad public interest stand ards to guide the administration of these controls. In addition to the “effect of the transaction on competition ( including any tendency toward m onopoly),” the banking agencies are required to con sider the financial history and condition of each of the banks involved, the ade quacy of their capital structures, their future earnings prospects, the general character of their management and, most significantly, “the convenience and needs of the community to be served.” Mergers are to be approved only where, after con sidering all of these factors, the transac tion is found to be “in the public interest.” Since the passage of the Bank Merger Act, however, two Supreme Court de cisions have subjected bank mergers to the antitrust laws. This has given rise to ambiguities of policy and conflicts of purpose. The problems are both philosophic and 407 procedural. There is no serious dispute about the desirability of applying anti trust principles to the unregulated indus tries. Since in those industries primary reliance is placed on individual initiative and private enterprise to meet consumer demands, there are justifiable reasons for preserving freedom of entry and restrict ing the acquisition of market power in order to enable the competitive forces to function. In banking, however, entry and expansion are under direct public con trol. The competitive forces are purpose fully restricted in order to safeguard the viability of the banking system, and an effort to apply conventional antitrust principles in these circumstances is almost certain to conflict with bank regulatory objectives. This is well demonstrated by the diffi culties that have been encountered under the Bank Merger Act since the Philadel phia and Lexington decisions brought bank mergers under the antitrust laws. Although the banking agencies must con tinue to reach their decisions according to the broader public interest standards set forth in the Bank Merger Act, their de cisions are now subject to attack in the courts under the narrower standards of the antitrust laws. This impasse can be clearly resolved only by exempting bank mergers from the antitrust laws completely as has been done in other regulated industries, or by subjecting such mergers to the full appli cation of those laws. If this latter course is chosen, the Bank Merger Act should be repealed. There would seem to be no valid reason for subjecting banks to more onerous premerger requirements than ap ply in the unregulated industries if bank mergers are to be subject to attack under the antitrust laws. More fundamentally, if it is to be public policy to apply conven tional antitrust concepts to banking, it logically follows that bank entry and bank branching should also be free of direct public control. The least satisfactory 408 course is the present one of entrusting regulatory powers to the banking agen cies and judging the exercise of those powers on the assumption that the com petitive forces are to be fully preserved and fully operative. It should be observed, however, that a decision to move toward free bank entry and expansion raises ques tions which go beyond the problems of banking structure. It is highly doubtful that bank operating practices could be effectively supervised, and the viability of the banking system sustained, without some form of public control over the banking structure. There is one intermediate course through which a reconcilation might be achieved between the Bank Merger Act and the antitrust laws without a statutory change. The courts, in antitrust cases involving bank mergers, could take cog nizance of the fact that banking competi tion is restricted through public regula tion, and that bank mergers receive prior administrative approval from a public authority according to broad public in terest standards which transcend purely competitive considerations. This ap proach would not be as clear-cut as the other alternatives we have presented, and would undoubtedly leave large areas of uncertainty for long periods. Neverthe less, if in bank merger cases the courts considered the unique competitive con ditions which prevail in the regulated industry of banking, there would be a greater likelihood that the antitrust cri teria developed principally with the un regulated industries in mind could be adapted to banking without impairing the effectiveness of bank regulation. An effort to test this approach for accom modating these two basic strands of our public policy was recently undertaken by the Comptroller of the Currency as an intervening defendant in an antitrust ac tion relating to the merger of the Mercan tile Trust Company N.A. and the Se curity Trust Company, both of St. Louis. There is one administrative procedure under the Bank M erger Act which should be modified if that Act is to remain in force. At present, the banking agencies not directly involved in a merger decision are required to submit advisory opinions on the “competitive factor” to the respon sible agency. Since this factor comprises only one of the seven considerations re quired to be taken into account, the ad visory opinions do not represent a judg ment on the desirability of a merger. Nevertheless, differences between the ad visory opinions and the decisions on mergers have often been falsely cited as evidence of differences in merger policy among the banking agencies. Moreover, five years of experience under the Bank Merger Act have demonstrated that the advisory opinions of the banking agencies not faced with the responsibility of de cision are ordinarily routine and rarely present facts or ideas unknown to the responsible agency. There seems to be no proper reason for continuing this pro cedure. Retention of the Justice Department advisory opinions may appear to have greater justification. However, the role of the Justice Departm ent in bank merger cases will ultimately rest on the resolu tion of the more fundamental issue of the proper applicability of the antitrust laws to the regulated industry of banking. 409 II Evolution of the Banking Structure, 1900-1965 industry is a service industry th at has custom er rela tionships throughout the econom y. Con sequently, the evolution of the banking structure has been significantly condi T h k c o m m e r c ia l b a n k in g tioned by changes in general econom ic activity. The other principal influence on the banking structure has been the sys tem of public controls described in the preceding section. Among these controls, Chart 1 Commercial banks and commercial bank branches in the U. S., 1920-1964 Number of banking offices branching limitations have had the great est effect on the banking structure as evi denced by the disparate conditions found among unit and branch banking States. The evolution of the banking structure since 1900 may be sketched in broad terms by a comparatively few numbers. (See Chart 1 and Tables 1 and 2 .*) In 1900, there were approximately 13,000 commercial banks, and they operated only about 100 branches. Twenty years later, the number of banks had risen to 29,000, and the number of branches to 1,300. The Great Depression took a heavy toll and, by the end of 1934, the number of com mercial banks had dropped to about 15,400. Branches, on the other hand, had begun to assume greater importance as indicated by the nearly 3,000 in opera tion that year. During the next 30 years, there was a gradual decline in the number of banks which was reversed only in the 1963-1964 period. However, branch operations be came increasingly important during this period. Although in 1919, only 4 per cent of commercial banking offices were branches, by the end of 1964 the propor tion of branches had risen to 51 percent. We turn now to a brief examination of the evolution of the banking structure, with particular emphasis on the period 1961-1965. A. Rapid Expansion: 1900-1920 Although the statistics on banking structure before 1920 are relatively sparse, it would be misleading to use the 1920 banking structure as a benchmark against which to measure succeeding develop ments. Spurred by a period of economic expansion in both the industrial and agri cultural sectors, and uninhibited by sig nificant legal barriers to entry, an un precedented expansion of about 130 * The tables supporting this Section will be found in Section IV, The Data. 412 percent occurred in banking facilities dur ing the 1900-1920 period. This expansion was almost entirely in the form of new banks, and it was concentrated heavily in the agricultural States of the Midwest and Great Plains. Branch operations at that time were relatively insignificant. B. Sharp Retrenchment: 1921-1934 In the 13 years following 1921, the number of commercial banks declined by approximately half. The major part of this reduction took place during the depths of the depression, 1930-1933, when 9,000 banks failed and another 2,300, many of which were in financial difficul ties, were absorbed by other banks. Per haps of greater significance, however, were the more than 5,000 bank suspen sions which occurred during the 19211929 period while most sectors of the economy were prosperous. A number of factors contributed to the unstable condition of the banking system in the 1920’s. The great increase in the number of banks from 1900 to 1920 had raised the number of banking offices in relation to population to a historic high. Many banks were established in small, farm-oriented trading centers at a time when the agricultural sector was partici pating in the general prosperity; the pro nounced weakness in this sector during the 1920’s precipitated the failure of a number of these small, specialized insti tutions. The increased use of automobiles revolutionized shopping habits, and in so doing increased the competition among scattered banks. The growth of largescale industrial and commercial activity increased the demand for services which only large banks could offer, and thus led to the absorption of a number of smaller banks. The Midwestern and Plains States in which much of the bank expansion of the 1900-1920 period took place were mainly unit banking States, and those States also Chart 2 Commercial banks and branches, by State groups classified by branch law, selected years Number of banking offices 1919 1934 1946 1960 1964 1919 1934 accounted for a very sizeable proportion of the banks which failed in the 19211934 period. In this period of banking instability, the subsequent growth of branch banking was foreshadowed. By the end of 1934, branches represented 16 percent of all commercial banking offices, compared with 4 percent in 1919. (See Table 3.) C. Consolidation: 1935-1946 The reorganization of the banking structure forced by the depression was largely completed by the end of 1934. At that time, there were 15,353 commercial banks and 2,973 branch offices in opera tion. The next 12 years, including the period of World War II, were charac terized by relative stability in the bank ing structure. Principally as a result of mergers, the number of banks declined slowly to 14,044 at the end of 1946. Al though the number of branches increased by 1,008 during the period, to 3,981, this did not offset the decline in number of banks, so that the number of commercial banking offices fell from 18,326 to 18,025. 1946 1960 1964 1919 1934 1946 1960 1964 D. Postwar Adjustments: 1946-1960 The most striking feature of the bank ing structure in 1946 was the fact that fewer commercial banking offices were in operation than at the end of the period of drastic banking reorganization 12 years earlier. Yet, in the interim, wartime de mands had generated a high level of eco nomic activity, and income and popula tion had increased substantially. Gross National Product in 1954-dollars was $282.5 million in 1946, compared with $138.5 million in 1934, an increase of 104 percent. The population of the country increased by 11 percent in the same period. Further, the wartime shortages of many goods and the complete absence of others, coupled with the relatively high levels of wartime income, had created a backlog of demand which promised to spur postwar economic activity. It is plain that in 1946 the country as a whole required additional banking facili ties to allow the banking needs of the public to be met fully and effectively. This was especially true in those urban areas that had experienced the greatest 413 Chart 3 Newly-organized commercial banks in the U. S., by class of bank, 1958-1964 Number of banks 240 —- —---------------------------------------------------------- 1958 Source: 1959 1960 1962 1963 1964 Table 4 economic growth during the war, and in those rural areas where banking retrench ment in the 1920’s and 1930’s had been most extreme. In the 14 years from the end of 1946 to the end of 1960, the number of com mercial banking offices increased from 18,025 to 23,716. Although the number of banks declined from 14,044 to 13,473 during the period, as a result of merger absorptions in excess of new bank forma tions, there was a great increase in the number of de novo branches. Branch offices, including those resulting from mergers, increased from 3,981 at the end of 1946 to 10,243 at the end of 1960. There were, it should be noted, signifi cant variations among the States in the increase of commercial banking offices: 67 percent in statewide branching States, 35 percent in limited branching States, and 10 percent in unit banking States. (See Chart 2.) The overall increase of 32 percent in commercial banking offices from 1946 to 1960, although substantial, failed to keep pace with the growth of real Gross Na 414 1961 tional Product, which was 56 percent higher in 1960 than in 1946. There thus remained at the end of the period as great a need for additional banking facilities as prevailed at the beginning. E. Economic Growth and Bank Ex pansion: 1961-1965 1. N e w B anks and T otal N um ber of B anks During the period from 1961 to mid1965, the Nation enjoyed its longest peacetime expansion in history. Real Gross National Product was 17 percent higher in 1964 than in 1960. Population continued to grow at a much higher rate than during the economically depressed 1930’s. The number of commercial banking of fices increased by 18.5 percent during the years 1961-1964, compared with a 12.9 percent increase in 1957-1960, and an 8.7 percent increase in 1953-1956. The 19611964 expansion occurred in response not only to the banking needs generated by the economic growth of those years, but Chart 4 Newly-organized com m ercial banks, by class of bank Source: Table 4 also to the unfilled demands that existed at the beginning of the period. The number of commercial banks in creased slightly during the period 19611964, the first such increase over a fouryear span since 1945-1948, and only the second since 1920. Although new charters averaged only about 91 per year during the period 1947-1960, the average rose to about 235 in the years 1961-1964. ( See Chart 3.) Only 20 percent of the new commercial banks established in the 19471960 period were National Banks, but the proportion rose to 49 percent in 19611964. (See Chart 4 and Table 4.) The higher rate of chartering led to a 2.4 per cent net increase in the total number of National Banks in 1963 and a 3.4 percent increase in 1964; the comparable net in creases in State banks were .3 percent and .4 percent. (See Table 5.) The rate of chartering of National Banks declined, however, in the second half of 1964 and the first half of 1965. The volume of new chartering was strongly influenced by the prevailing branch laws. Of the 826 banks chartered in 1962-1964, 59 percent were in the 16 unit banking States, 22 percent in the 17 limited branching States, and 19 percent in the 17 statewide branching States and the District of Columbia. (See Table 6.) Although the majority of new banks were located in unit banking States, it is interesting to note that the ratio of new banks to total banks ixi existence was higher in statewide branching States than in unit banking States. This pattern is attributable mainly to the much larger number of existing banks in unit banking States; at the end of 1964, there were 7,173 banks in unit banking States and 1,087 in statewide branching States. In every year between 1952 and 1964, the number of commercial banks in creased in unit banking States, the total increase in the 12-year period being 13.1 percent. In limited branching States, a slight decrease occurred in the number of banks each year in the same period^, with a total decline of 13.6 percent. There were 19.0 percent fewer banks in s}£itewide branching States at the end of 1964 than at the end of 1952, though the num 415 Chart 5 Commercial banks and branches by class of bank, 1960-1964 Num ber of banking offices N - National Banks S State Banks Source: ber increased slightly in 1963 and 1964. These movements in the total number of banks are largely explained by the rela tively infrequent disappearance of banks through merger in unit banking States, and by the fact that the branching altern ative tended to hold down the number of new banks in branching States. 2. B ranch E N um ber of x p a n s io n and the T otal B a n k in g O f f i c e s Despite the increase in the number of new banks in recent years, most of the expansion in banking facilities has taken the form of de novo branching. The num ber of branches operated by National Banks rose from 5,325 at the end of 1960 to 7,957 at the end of 1964, a 49 per cent increase. During the same period, branches of State banks increased by 30 percent, from 4,918 to 6,381. (See Chart 5.) Continuing the long-term trend, branches represented 43 percent of total commercial banking offices at the be ginning of the period and 51 percent at the end. 416 Table 5 The rates of growth in population and income since 1950 for statewide branch ing States have outdistanced the com parable rates for the limited branching and unit banking States. (See Chart 6.) For example, in the statewide branching groups population increased by 16.6 per cent and 7.8 percent, respectively, for the periods 1956-1960 and 1961-1964. (See Table 7.) The comparable figures for the limited branching States were 6.9 and 5.0 percent, and for the unit banking States, 9.0 and 5.5 percent. Personal in come movements showed a similar spread for the same two periods; the percentage increases were 38.8 and 27.5 percent for the statewide branching group, 26.0 and 20.6 percent for the States with limited branching, and 31.0 and 20.6 percent for the unit banking group. These differential rates of economic growth were accompanied by marked dif ferences in the percentage increase of total commercial banking offices during 1961-1964. In the statewide branching States, the increase was 30.4 percent; in the limited branching States, the figure Chart 6 Percentage changes in real disposable income, population, and commercial banking offices for States grouped by branch law, 1951-1964 Percent 10 0 ]— Real disposable personal incom e1 ' 1951-1963 Source: Population Commercial banking offices Table 7 Chart 7 Classification of acquired banks by size in those mergers under the Bank Merger Act in which a National Bank resulted, through June 30, 1965 Assets $100 million or over— 8 banks (1.7 percent) Source: Table 8 417 was 18.4 percent; while the unit banking States experienced only a 9.9 percent in crease. 3. Structural C hange T hrough M erger The principal avenue for the exit of banks in recent years has been absorption through merger. Most mergers in the postwar period were not of an emergency character involving near-insolvency on the part of the acquired bank. This is in sharp contrast to the situation found in many mergers of the early 1930’s. From the date the Bank Merger Act went into effect in 1960, through June 30, 1965, 459 merger transactions took place in which the resulting bank was a Na tional Bank; these involved the absorption of 473 banks. The majority of the ac quired banks were small; 317, or 67 per cent, had assets of less than $10 million; 418 and 416, or 88 percent, had under $25 mil lion in assets. ( See Chart 7 and Table 8.) Only 8 of the 459 transactions, or less than 2 percent, involved the union of 2 banks each having more than $100 million in assets. Less than 8 percent took place in unit banking States where a merger would usually require the closing of one of the merged offices. 4. T h e In cid en ce of B an k F a ilu r e s As contrasted with earlier periods, the bank failure rate has been exceedingly small within recent years. In the period from 1952 to the middle of 1965, only 62 commercial banks failed. (See Table 9.) Of these, 9 were National Banks, 33 were insured State banks, and 20 were nonin sured State banks. These figures show that commercial bank failures have aver aged less than 5 per year out of a total bank population of 13,500 to 14,000. Ill The Future of the Banking Structure T h k m a rk e ts f o r banking services vary from those composed of small depositors who require only convenient access to savings accounts and checking facilities, to the largest business firms which have need for a great variety of banking serv ices throughout the country and even in ternationally. In this spectrum of mar kets, there is a role for banks of a diversity of sizes. Well-managed, efficient, small banks have a special appeal to certain classes of consumers and a unique compe tence to serve their needs. Equally, there are banking requirements that only large institutions can meet efficiently and effec tively. The task of structure policy is to seek that balance among banks of vari ous sizes which will accord proper recog nition to the production advantages of each, and to the specific capabilities each may possess for meeting the varied de mands of the consuming public. The record of structural change in recent years demonstrates distinct pro gress toward that goal. Yet there remains one obstacle which continues to hamper the attainment of an ideal banking struc ture, and which will deeply influence the future performance of the banking system. The industrial and business structure of the Nation, which has made possible the great achievements of the economy through the years, could not have been attained without the freedom of trade we have enjoyed within and among the States of the Union. The freedom of labor and capital to move throughout the coun try in response to anticipated public de mands, and the liberty to undertake creative new ventures, have been indis pensable elements in the lively and spirited economy which has characterized our history. Banking, along with certain of the other regulated industries, repre sents the one major segment of the econ omy in which this basic principle of free dom of trade has not been fully applied. As a result, many banks have been barred from the complete realization of produc tion economies, and many communities have been deprived of the broader range 419 of banking services which could have been provided to them. These limitations over branching may, in a sense,7 be attributed to the dualitv j of the banking system, but they are not in herent in that system. Properly con ceived, the dual banking system can be an effective instrument for perceptive adaptation of banking to the Nation’s needs. The dispersion of banking controls among the States and the Federal govern ment broadens the opportunity to develop new ideas and to test new approaches. It enables either segment of the dual bank ing system to supplement the other where deficiencies arise in service to the com munity. This is the great strength of the dual banking system. Some observers have equated the health of the dual banking system with uniformity and equality. They are con cerned lest either segment of the system gain an advantage over the other. There is, however, no risk that either part of the dual banking system will achieve a publicly harmful position of superiority. Competitive superiority can be attained only through more efficient and more ef fective service to the public, and it can never be in the public interest to restrict the initiative of one segment of the dual banking system for the purpose of pro tecting the competitive position of the 420 other. The best hope for the future lies in greater freedom for each of the sys tems to meet the ever-changing public demands for an ever-increasing variety of banking services and facilities. The Nation looks forward to a future of growing population, improved personal skills, rising incomes, increasing accumu lation of capital, advancing technologies, a broadening range of products and serv ices offered to consumers, and expanding interests throughout the world. To meet these needs and opportunities, a sensi tively responsive banking system, alert both to present and future requirements, is essential. No tool that is useful to improve the functioning of the banking system should arbitrarily be withheld, nor should any be applied except in further ance of that aim. The ultimate surpassing factor in the progress of the economy has been the spirit of initiative and innovation which abounds in our society. That spirit must be sustained and nourished in the bank ing industry if the promise of the future is to be fully realized. The continuing challenge is to devise new and better ways to serve the public demand. This calls for persistent questioning of present methods, ingenuity and inventiveness in the conception of improvements, and the enterprise to carry them out. IV The Data Table 1 Commercial banks and commercial bank branches in the U. S.,* 1920-1964 Year 1920 t 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 Number of banks Percent change in banks 29,086 28,185 24,968 17,802 15,120 14,344 13,992 14,164 14,049 13,642 13,473 13,760 - 3.10 - 1 1 .4 1 - 2 8 .7 0 - 1 5 .0 7 - 5.13 - 2.45 1.23 - 0.81 - 2.90 - 1.24 2.13 __ Number of branches Percent change in branches 1,281 2,297 3,138 3,195 3,270 3,525 3,924 4,349 5,274 7,360 10,243 14,338 79.31 36.61 1.82 2.35 7.80 11.32 10.83 21.27 39.55 39.17 39.98 _ Total commercial banking offices 30,367 30,482 28,106 20,997 18,390 17,869 17,916 18,513 19,323 21,002 23,716 28,098 Percent change in total offices _ 0.38 - 7.79 - 2 5 .2 9 - 1 2 .4 2 - 2.83 0.26 3.33 4.38 8.69 12.92 18.48 * D ata exclude banks and banking offices in territories. t The 1920 data are as of June 30. The rem aining data are as of year-end. Sources: Office of th e C om ptroller o f th e Currency, Annual Report, various years. Board of Governors of the Federal Reserve System , Federal Reserve B ulletin, various issues. Board of Governors of th e Federal Reserve System , B anking and M onetary S tatistics, 1943. The figures presented in the text and tables represent, insofar as possible, the total number of commercial banks and banking offices located within the various States of the United States. Sources which justified their total figures by a breakdown among States were used in preference to sources which did not. This procedure was adopted simply as an aid in evaluating the probable accuracy, especially for the earlier years, of the limited sources available. The second procedure applied involved the use, wherever available in the form indicated above, of reports of the Office of the Comptrol ler of the Currency for National Bank data, and reports of the Federal agencies having jurisdic tion over State banks for State bank data. These two procedures lead to slightly differ ent total bank and total banking office figures than have appeared in the reports of any one banking agency. 421 Table 2 Commercial banking offices, gross national product and population of the U. S., 1920-1964 Year Commercial banking offices* 1920 1924 1928 1932 1934 1936 1940 1944 1946 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 30,367 30,482 28,106 20,997 18,326 18,390 17,869 17,916 18,025 18,513 18,686 18,960 19,134 19,323 19,609 19,950 20,428 21,002 21,559 22,139 22,894 23,716 24,537 25,518 26,793 28,098 Percent change (4-year periods) — 0.4 - 7.8 - 2 5 .3 — - 1 2 .4 - 2.8 0.3 — 3.3 4.4 8.7 12.9 18.5 Gross national product (billions of 1954 dollars) Percent change (4-year periods) _ — 181.8 130.1 138.5 173.3 205.8 317.9 282.5 293.1 292.7 318.1 341.8 353.5 369.0 363.1 392.7 402.2 407.0 401.3 428.6 440.2 447.9 476.8 492.6 516.0 _ — — t - 2 8 .4 t — 33.2 18.8 54.5 — - 7.8 20.6 13.8 9.4 17.2 Population (millions) 106.5 114.1 120.5 124.8 126.4 128.1 132.5 133.9 139.9 146.7 149.3 151.9 154.0 156.4 159.0 161.9 165.1 168.1 171.2 174.1 177.1 180.0 183.1 185.9 188.1 191.3 Percent change (4-year periods) __ 7.1 5.6 3.6 — 2.6 3.4 1.1 — 9.6 6.6 7.5 7.1 6.3 * Excludes offices in territories, t 1929. $ 1929-1932. Sources: Banking offices— Office of tjhe Comptroller of the Currency, Annual Report, various years, and Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, various issues. Gross national product— Department of Commerce, Survey of Current Business, various issues. Population— Department of Commerce, Statistical Abstract of the United States, various years. 422 Table 3 Commercial banks and branches, by States grouped by branch law,4 selected years, 1919-1964 1934 1919 t 1946 1950 1960 1964 Banks Br’nch’s Total Banks Br’nch’s Total Banks Br’nch’s Total Banks Br’nch’s Total1Banks Br’nch’s Total Banks Br’nch’s Total Statewide Branching Alaska! 21 102 Arizona 81 California 704 179 883 134 0 134 Connecticut 39 55 Delaware 16 48 District of Columbia 44 4 — — — Hawaii} 208 208 0 Idaho 32 147 Maine 115 Maryland 234 59 293 33 Nevada 33 0 North Carolina 569 523 46 Oregon 265 1 266 33 14 47 Rhode Island South Carolina 421 15 436 Utah 0 125 125 Vermont 86 0 86 Washington 368 10 378 Total 3,413 397 3,810 Percent change for group from previous date Limited Branching Alabama 354 20 334 Georgia 720 25 745 Indiana 1,029 3 1,032 Kentucky 575 1 576 Louisiana 80 334 254 232 45 277 Massachusetts Michigan 633 218 851 Mississippi 303 24 327 21 New Jersey 360 381 5 New Mexico 113 118 New York 880 229 1,109 1,147 106 1,253 Ohio Pennsylvania 1,468 36 1,504 South Dakota 655 0 655 Tennessee 519 31 550 Virginia 448 20 468 Wisconsin 938 9 947 Total 10,608 873 11,481 Percent change for group from previous date Unit Banking: Arkansas 462 6 468 Colorado 371 0 371 Florida 2 253 255 Illinois 1,376 0 1,376 Iowa 1,676 0 1,676 Kansas 1,304 0 1,304 Minnesota 1,446 0 1,446 Missouri 1,546 0 1,546 0 418 Montana 418 Nebraska 1,146 2 1,148 New Hampshire 69 1 70 882 882 North Dakota 0 Oklahoma 925 0 925 0 1,450 Texas 1,450 335 0 335 West Virginia Wyoming 148 0 148 Total 13,807 11 13,818 Percent change for group from previous date Total U.S. 27,828 1,281 29,109 Percent change for group from previous date - 17 283 144 47 21 — 18 35 800 1,083 9 153 12 59 30 51 — — 10 207 123 39 20 — 45 35 880 1,087 143 20 53 14 35 55 — — 26 90 47 42 89 64 69 132 57 126 64 68 179 75 170 264 254 94 10 5 15 8 25 17 243 68 388 311 227 161 104 30 134 70 75 145 26 33 59 23 44 67 126 20 146 149 30 179 12 60 10 70 59 71 12 87 72 9 75 81 199 31 230 122 115 237 1,667 1,236 2,903 1,410 1,651 3,061 -51.2 211.3 -23.8 -15.4 33.6 5.4 217 16 233 219 23 242 322 25 347 316 30 346 515 39 489 572 554 83 444 25 469 390 34 424 147 53 62 200 155 217 216 105 321 187 143 330 435 134 569 434 198 632 35 216 251 203 52 255 511 348 133 481 398 113 43 0 43 44 6 50 797 616 1,413 672 694 1,366 685 166 851 674 176 850 1,105 91 1,196 1,016 124 1,140 212 1 213 169 44 213 329 46 375 294 68 362 69 328 86 401 397 315 636 94 730 554 145 699 7,045 1,628 8,673 6,479 2,101 8,580 -33.6 230 160 155 878 622 752 690 702 125 435 65 210 416 957 181 63 6,641 86.5 -24.5 -S.O 29.1 5 235 219 0 160 142 155 0 184 0 878 871 649 95 717 0 752 614 6 696 677 702 0 596 125 110 0 2 437 409 1 66 64 151 0 210 416 383 0 0 957 851 0 181 180 63 55 0 109 6,750 6,155 11 202 112 38 19 — 56 67 979 1,181 56 162 20 58 45 64 — — 43 55 98 63 71 134 164 119 283 8 19 27 225 218 443 70 102 172 16 60 76 148 49 197 55 24 79 70 11 81 118 144 262 1,362 2,022 3,384 -3.4 22.5 13 27 40 12 46 58 10 173 183 16 241 257 117 1,636 1,753 200 2,232 2,432 70 197 285 351 267 66 20 53 73 20 63 83 12 90 102 15 81 96 12 81 93 12 109 121 32 82 114 119 143 24 129 176 46 160 206 47 133 237 121 370 355 476 7 35 42 8 56 64 504 687 152 707 859 183 51 194 245 51 249 300 9 89 98 10 110 120 145 286 370 141 133 237 70 50 120 55 100 155 56 33 89 49 50 99 87 283 370 97 373 470 1,054 4,054 5,108 1,087 5,573 6,660 10.6 -22.6 100.5 50.9 3.1 37.5 30.4 225 26 251 82 252 135 387 238 320 42 439 421 97 431 159 590 397 518 487 109 596 443 307 750 868 431 437 385 44 429 355 144 499 214 562 348 165 77 242 173 190 363 209 231 440 182 177 359 171 370 541 159 682 523 442 239 681 380 575 955 361 804 1,165 269 132 201 68 193 325 196 188 384 324 165 489 253 430 683 236 621 857 15 66 52 143 55 107 63 80 51 629 786 1,415 402 1,368 1,770 354 1,802 2,156 659 226 885 635 1,220' 547 585 869 1,416 591 1,139 1,730 703 784 1,487 971 193 1,164 245 49 218 59 233 72 169 174 173 290 584 297 98 395 297 210 507 294 305 265 570 277 466 313 114 427 743 746 578 561 158 719 554 152 706 168 6,451 2,580 9,031 5,726 5,841 11,567 5,500 8,198 13,698 -1.1 -0.4 20 239 1 143 3 187 3 874 161 810 1 615 6 683 0 596 0 110 2 411 2 66 25 176 1 384 4 855 0 180 0 55 229 6,384 232 154 199 891 663 612 680 600 110 418 75 150 386 908 180 53 6,311 22.8. 5.3 -11.2 19 251 237 192 4 158 309 6 205 2 893 966 164 827 673 612 587 0 689 6 686 626 601 1 121 0 110 420 426 2 2 77 74 172 156 22 1 387 389 913 1,011 5 182 0 isa 53 55 0 234 6,545 6,693 126.4 28.1 -3.9 282 245 45 246 1 193 309 424 0 966 1,030 0 856 675 183 609 594 22 695 720 6 649 643 23 121 129 0 432 11 437 77 73 3 184 163 28 18 407 417 8 1,019 1,130 0 182 184 55 68 0 7,173 348 7,041 40.4 18.4 88 333 1 247 424 0 0 1,030 221 896 47 641 9 729 53 696 130 1 25 457 19 92 42 205 447 30 31 1,161 0 184 0 68 567 7,740 9.9 -51.9 890.9 -51.2 -7.3 110.1 -5.4 7.6 . 7.2 62.9 2.5 48.7 6.1 2.5 2.2 15,353 2,973 18,326 14,044 3,981 18,025 14,124 4,836 18,960 :13,473 10,243 23,716 13,760 14,338 28,098 -44.8 132.1 -37.0 -8.5 33.9 -1.6 0.6 21.5 5.2 -4.6 111.8 25.1 2.1 40.0 18.5 * Branch law classification used is that which appeared in The National Banking Review, 1, March, 1964, p. 341. The basis for classification was pragmatic, rather than statutory, t Branches are as of 1920. t Included after admission as States. Sources: Office of the Comptroller of the Currency, Annual Report, various years. Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1943. Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, various issues. 423 Table 4 Number of newly organized commercial banks in the U. S., by class of bank, 1947-1964 Year National State Total 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Total, 1947-1960 17 15 11 7 9 15 16 16 28 30 20 18 24 34 260 92 65 60 61 53 58 52 55 88 93 67 78 94 103 1,019 109 80 71 68 62 73 68 71 116 123 87 96 118 137 1,279 1961 1962 1963 1964 Total, 1961-1964 26 65 164 205 460 86 120 136 136 478 112 185 300 341 938 Total, 1 9 4 7-1964 720 1,497 2 ,2 1 7 Source: The N ational B anking Review, 2, M arch, 1965, p. 306. Table 5 Commercial banks and branches in the U. S.,* by class of bank, 1960-1964 National Banks Number Percent of Number change in hanks branches of tanks 1960 1961 1962 1963 1964 4,529 4,512 4,5 0 4 4 ,6 1 4 4 ,772 _ -0 .3 8 -0 .1 8 2.44 3.42 5,325 5,855 6,445 7,209 7,957 Total offices Total offices, National and State banks 13,862 14,170 14,569 14,970 15,369 23,7 16 24,537 25,518 26,793 28,098 State Banks Year Percent change in branches _ 9.95 10.08 11.85 10.38 Tetal offices 9 ,854 10,367 10,949 11,823 12,729 Number Percent Number change in of hanks of banks branches 8,944 8,920 8,924 8,954 8,988 _ - 0 .2 7 0.04 0.34 0.38 4 ,9 1 8 5,250 5,645 6,016 6,381 Percent change in branches __ 6.75 7.52 6.57 6.07 * Banks and banking offices in territo ries excluded. Sources: The N atio n al B anking Review, 2, M arch, 1965. Office o f th e C om ptroller of th e Currency, A nnual Report, various years, and Board of Governors o f th e Federal Reserve System , Federal Reserve B ulletin, various issues. 424 Table 6 Number of newly organized commercial banks and total commercial banks,* by State groups classified by branch law, 1952-1964 Statewide branch hanking Year 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 Tetal hanks New kanks New as percent of total 1,342 1,334 1,257 1,202 1,161 1,119 1,090 1,083 1,054 1,041 1,022 1,037 1,087 16 18 9 22 12 15 9 17 14 22 28 56 75 1.19 1.35 0.72 1.83 1.03 1.34 .83 1.57 1.33 2.12 2.74 5.40 6.90 Limited knnck kanking Tetal kanks 6,367 6,300 6,204 6,090 5,995 5,927 5,845 5,761 5,726 5,660 5,575 5,524 5,500 New kanks New as percent total 22 21 18 31 33 24 25 23 39 34 44 57 79 .35 .33 .29 .51 .55 .40 .43 .40 .68 .60 .79 1.03 1.44 Unit kanking Total kanks 6,340 6,350 6,378 6,423 6,486 6,521 6,567 6,632 6,693 6,731 6,831 7,007 7,173 All States New kanks New as percent total 35 29 44 63 78 48 62 78 84 56 113 187 187 .55 .46 .69 .98 1.20 .74 .94 1.18 1.26 .83 1.65 2.67 2.61 Tetal kanks New as percent total New kanks 14,049 13,984 13,839 13,715 13,642 13,567 13,502 13,476 13,473 13,432 13,428 13,568 13,760 73 68 71 116 123 87 96 118 137 112 185 300 341 .52 .49 .51 .85 .90 .64 .71 .88 1.02 .83 1.38 2.21 2.48 * Banks in territo ries are excluded. Sources: N ew bank data— The N ational B an king Review, 2 , M arch, 1965, p. 350. Total bank data— Office of the C om ptroller of the Currency, Annual Report, various years, and Board of Governors of th e Federal Reserve System , Federal Reserve Bulletin, various issues. Table 7 Commercial banking offices, population and personal income by State groups classified by branch law,* 1934-1964 Percent Item C om m ercial banking offices: Statew ide branch ba n k in g t Lim ited branch banking U n it banking All S ta te totals Population (thousands): Statew ide branch b a n k in g t Lim ited branch banking U n it banking All S tate totals 1934 2,903 8,673 6,750 18,326 1946 3,061 8,580 6,384 18,025 21,279 28,494 68,399 73,182 36,694 38.216 126,372 139,892 ‘SS* 1946 5.4 -1.1 -5.4 -1.6 1950 Percent change 1955 1950 1960 Percent ckange 1964 Percent ckange 1964 1960 6,660 13,698 7,740 28,098 30.4 18.4 9.9 18.5 6.9 34,811 14.3 40,596 16.6 43,771 8.1 84,686 7.1 90,566 6.9 95,101 9.0 44,810 7.5 48,824 9.0 51,490 8.1 164,307 8.6 179,986 9.5 190,362 7.8 5.0 5.5 5.8 43.7 95,441 38.8 121,644 34.7 200,679 26.0 242,051 32.4 102,944 31.0 124,150 36.0 399,064 30.1 487,845 27.5 20.6 20.6 22.2 24.3 72,991 21.0 84,208§ 17.6 158,886 13.4 174,989§ 16.0 82,485 18.2 91,994§ 18.6 314,362 16.4 351,191§ 15.4 A 10.1 A 11.5 A 11.7 A 3,384 10.6 9,031 5.3 6,545 2.5 18,960 5.2 33.9 30,466 7.0 79,108 4.1 41,668 10.7 151,242 Percent ckange 19511955 3,875 14.5 9,909 9.7 6,644 1.5 20,428 7.7 Personal incom e (m illions of current dollars): Statew ide branch b a n k in g t 9,970 Lim ited branch banking 30,885 U n it banking 12,627 All S ta te to ta ls 53,482 39,047 91,974 45,395 176,416 291.6 47,853 22.6 68,758 197.8 118,222 28.5 159,289 259.5 59,368 30.8 78,581 229.9 225,443 27.8 306,628 Real disposable personal income (m illions of 1954 dollars): Statew ide branch b a n k in g t — Lim ited branch banking — U n it banking — All S tate to ta ls — 44,589 106,346 54,298 205,233 48,520 8.8 60,321 119,074 12.0 140,069 60,136 10.8 69,769 227,730 11.0 270,159 5,108 31.8 11,567 16.7 7,041 6.0 23,716 16.1 * Branch law classification used is th a t which appeared in The N ational B anking Review, The basis fo r classification was pragm atic, rath er than statutory. t Alaska and H aw aii excluded until adm ission as states. t Alaska and H aw aii excluded. §1963 data. 1, M arch, 1964, p. 341. A 19601963. Sources: B anking office data— Office of th e C om ptroller of the Currency, Annual Report, various years. Board of Governors of the Federal Reserve System , Federal Reserve B ulletin, various issues. Board of Governors o f th e Federal Reserve System , B anking and M onetary S tatistics, 1943. Population and personal incom e data— D ep artm ent of Com m erce, S tatistical A bstract of th e U nited S tates, various years. Disposable personal incom e data— D ep artm ent of Com merce, Survey of C urrent Business, A pril, 1965. 425 Table 8 Mergers * under the Bank Merger Act, I960, in which the resulting institution was a National Bank, classified by size of acquiring and acquired banks, through June 30, 1965 Acquired Banks Acquiring Bankt Assets less than $10 million Assets $10 million to $24.9 million Assets $25 million to $49.9 million Assets $50 Assets $100 million or million to $99.9 million over Total Assets less than $ 1 0 million 49 Assets $ 1 0 million to $ 2 4 .9 million 63 6 Assets $ 2 5 million to $ 4 9 .9 million 52 14 4 Assets $ 5 0 million to $ 9 9 .9 million 54 19 7 1 Assets $ 1 0 0 million or over 99 60 24 13 8 204 317 99 35 14 8 473 t Total 49 69 70 81 * Includes all form s of acquisition. t For this classification, th e bank with the larger total assets in each transaction was considered to be the acquiring bank. t 459 tran sactio ns were included. Since six of these involved three banks and four involved fou r banks, 473 banks w ere absorbed in th e 459 transactions. Table 9 U. S. Commercial bank failures,* 1952-1965 Bank failure rate per 10,000 banks Number of bank failures Year National 1952 0 1953 0 1954 0 1955 2 1956 1 1957 0 1958 1 1959 0 1960 O 2 1961 1962 0 1963 0 1 1964 1965 (6 mo.) 2 Total 9 State insured 3 2 2 3 1 1 3 3 1 3 0 2 6 3 33 State Noninsured 1 1 2 0 1 1 5 O 1 4 2 0 1 1 20 Total 4 3 4 5 3 2 9 3 2 9 2 2 8 6 62 Natipnal State insured 0 O O 4.3 2.2 O 2.2 0 O 4.4 0 0 2.1 3.5 2.3 2.3 3.5 1.2 1.2 3.5 3.5 1.2 3.5 0 2.3 6.9 Business failure rate per 10,000 firms 28.7 33.2 42.0 41.6 48.0 51.7 55.9 51.8 57.0 64.4 60.8 56.3 53.2 * For insured banks, the figures show the num ber of cases requiring FDIC disbursem ents. For noninsured banks, th e figures show the num ber of cases described by the FDIC as “ noninsured bank failu res." Sources: Federal Deposit Insurance C orporation, Annual Report, 1952 through 1963, for bank data for those years. Bank data for 1964 and 1965 from FDIC, Report to the C om ptroller of the C urrency of Liquidation and Insurance Expenses, N ovem ber 30, 1964 and supplem ent. Business fa ilu re data from Economic Report of th e President, 1965. 426
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