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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

T NATIONAL BANKING REVIEW
he
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

2 0 —- —---------------------------------------------------------4

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 of
j
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

N ber of
um
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

__

N ber of
um
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
com ercial
m
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

Com ercial
m
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

G
ross
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
(m
illions)
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
1
15,353 2,973 18,326 14,044 3,981 18,025 14,124 4,836 18,960 : 3,473 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

N
ational

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
Tetal
hanks

1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964

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

Year

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

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

New as
percent
total

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
A
cquired Banks
A
cquiring Bankt

Assets less
than $10
m
illion

Assets $10
m
illion to
$24.9 m
illion

Assets $25
m
illion to
$49.9 m
illion

Assets $50 Assets $100
m
illion or
m
illion to
$99.9 m
illion
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

N ber of bank failures
um
Year
N
ational
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
N
oninsured
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

N
atipnal

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 firm
s
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





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102