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BRANCH BANKING IN THE UNITED STATES

Material prepared for the inforraation of the
Federal Reserve System "by the
Federal Reserve Committee on
Branch, Group, and Chain Banking

Members of the Committee

E. A, Goldenweiser, Director, Division of Research and Statistics,
Federal Reserve Board, Chairman
Ira Clerk, Depaty Governor, Federal Reserve Bank of San Francisco
M. J. Fleming, Deputy Governor, Federal Reserve Bank of Cleveland
L. R. Rotmds, Deputy Governor, Federal Reserve Bank of New York
E. L. Smead, Chief, Division of Bank Operations, Federal Reserve
Board

J. H. Riddle, Executive Secretary and Director of Research

The Committee was appointed February 2o, 1930> "°7 the
Federal Reserve Board

• . . to assemble and digest information on
branch banking as practiced in the United States,
group and chain hanking systems as developed in
the United States and elsewhere, the unit banking
system of the country, and the effect of ownership
of bank stocks "by investment trusts and holding
corporations J1

LETTER OF TRANSMITTAL

To the Federal Reserve Board:
The Committee on Branch, Group, and Chain Banking
transmits herewith a history and statistical analysis of
branch banking in the United States. The statistical series
in this volume in most instances end with the year 1931•

Respectfully,

E« A. Goldenweiser
Chairman

CONTENTS

Page
growth and Distribution of Branch Banking in the
United States
Branches of State and National Banks
Geographic Distribution of Branches
Distribution of Branches by Size of Town
Classification of Branches ^oj Size of Bank or

Branch System
Sianmary

1
4
7
19

22
27

Branch Banking before the Civil War
Early Branch Banking in New York and New England
First and Second Banks of the United States
State Bank Branch Systems
Branches in the Southern States

29
29
32
38
44

Branch Banking and the National Bank Act
Free Banking
Prohibition of Branch Banking
Provisions of the Act Prohibiting Branches
Amendment to Permit Branches of Converted
State Banks
No Mention of Branches in Congressional Debates
Effects of the National Bank Act
Stommary

47
49
52
53

Movement for Branch Banking, 1892-1902

61
65
67
68

Branch Banking among State Banks
Growth of City Branches
New York
Massachusetts
Ohio
Michigan
General Features of Urban Branch Banking
Intercity Branch Banking
Bearing of State Bank Branches on the Controversy

99
99
100
103
105
106
109
111
112

The McFadden Act
The Policy of the Federal Reserve Board
The policy of the Comptroller of the Currency
The St. Louis Case
The McFadden Bill
Effects of the Act

117
119
128
137
139
152

CONTENTS (Cont'd)
Page
The 01 ass Bill and Branch Banking
The House Hearings, 1930
Glass Bill, 1932
Opposition to the Glass Bill

155
156
164
170

State Laws
Scope of Survey and Sources of Information
Sources of Information
Terminology
Changes in Laws of Individual States
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio

176
181
182
182
184
184
185
186
186
186
186
187
187
187
188
188
189
189
190
191
191
192
192
192
193
193
193
194
194
195
195
196
196
197
197
197
198
198
199

CONTENTS (Cont'd)
Page
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Interstate Branches
Summary of State Laws
IX

Organization and Operation of Branch Systems
Relations to Communities Served
Credit Policies
Operating Economies
Branches and Capital

199
199
200
202
202
203
203
203
203
204204
205
205
206
207
20J
209
211
215
217
22U
225

Public Attitude toward Branches

22S

Suspensions of Banks with Branches

23O

Appendix

2U2

Bibliography

2^9

CHAPTER I
SROWTE AND DISTRIBUTION OF BRANCH BANKINS
IN THE UNITED STATES

Branch hanking was not uncommon in the United States prior to the
Civil War,

Following the passage of the National Bank Act in 1853, however,

public policy became committed to the unit banking system*

With banking

corporations limited in general to one office, the kind of concentration
which builds on branch offices was barred.

From the end of the Civil War

until around 1900 there was very little branch banking in the United States*
The majority of State banks and their branches in existence prior to the Civil
War -*M«H«MiMr converted into unit national banksj, «? failed as a result of
the conflict, or liquidated as a result of the tax imposed on their note issues
by the National Bank Act*

With the growth of deposit banking, however, which

gradually supplanted issue banking, the number of State banks began to increase
towards the end of the century, and the development of present day branch banking in the United States may be said to date from approximately that time.
In 1900, according to the best information available, there were
only about 119 branches in existence*

A gradual growth brought the number to

735 in 1915, after which the increase was accelerated so that by 1920 there
were 1,281 branches*

During the next ten years the number nearly trebled to

3,518 in 1930. In 1931 the suspensions resulted in a decrease in the number
of branches as well as of unit banks.

The thirty-one year movement is illus-

trated in Chart 1*
The greater part of the growth through 1930 was among branches located within the same city as the head office of the bank operating them;
at the end of that year roughly two-thirds of the branches in the country
were in the city of the head office.

- 2 -

CHART 1
NUMBER

BRANCHES Of BANKS IN THE UNITED STATES

3500

NUMBER
3500

3000

2500

2000

1500

1000

500

WOO

1905

1910

1915

1920

1925

1930

1935

Number of branches of State and national banks in the united
S t a t e s , 1900-1931. From 1900-1920 the figares are for five
year i n t e r v a l s , but from 1920-1931 they are annual*

- 3-

Table 1 - Number of Branch Systems and Somber of Branches
in the United States, 1900-1931

Year^ )

1900
1905
1910
1915
1920
1921
1922
1923
1924
1925
1926
1927
192S
1929 |
1930 !
June 1931 '
Dec. 1931 j

1 Number of
banks with
1
branches
87
196
292

397

530
5^7

610
671
706
719
743

73?
77*
763
750
722

677

Numbei• of branches
i
Outside
In
j head office i head o f f i c e !Total
city
city
[

25
135
271
435

91+
215
277
350
508
551

645

904
1,156
1,327
1,51^
1,724
1,877
1.958
2,140
2,273
2,387
2,299
2,176

727
783
800
824

95U
996

1,076
1,131
1,164
1,158

119
350
i 548
! 785
; 1,281
• 1.^55
1,801
2,054
2,297
2,524
2,701
2,912

3.136
3.3^9
3,518
3,463
3.334

(l)Por the years 1900 to 1923, inclusive, the figures are
not as of any uniform month. For 192*+ they are as of
June, for 1925 and 192$ as of December, and for 1927
to 1930» inclusive, they are as of June*
Note: This and following tables give revised figures for
the years 192U-1930f inclusive, on the basis of additional data received since the preparation of previous
summaries of branch banking by the Federal Reserve
Board, Furthermore, mutual savings banks and private
banks reported as operating branches have been omitted.
Mutual savings banks thus excluded numbered 72 at the
end of December, 1931, with 112 branches and loans and
investments of $4,090,606,000. Private banks excluded
numbered k on the same date, with 5 branches and loans
and investments of $2,859*000. Where comparisons in
these tables are made with all active banks, private
and mutual savings banks have likewise been eliminated
from the active bank figures.

The number of banks operating branches, as shown in Table 1,
increased from 87 in 1900 to 677 in December, I93I. Since the decline

- 4 -

in the number of banks operating branches from 1928 through the three
succeeding years was not accompanied by a corresponding decrease in the
number of branches, it is apparent that the movement does not indicate
an abandonment of branch banking, but rather a concentration of it in the
hands of fewer banks.
Branches of State and National Banks, - Prior to 1922 the development of branches was limited almost entirely to State banks, as shown by Chart
2.

Occasionally a State bank with branches was converted into a national bank

and retained its branches, or was absorbed with its branches by a national
bank.

The growth in the number of branches of national banks from this

source was slow, however, and in 1921 there were only 72 branches of national
banks compared with 1,383 branches of State banks. Beginning in 1922 the
branches of national banks increased much more rapidly, and on December 31,
1931, aggregated 1,274 compared with 2,060 for State banks. The growth of
national bank branches from 1922 to 1927 was due chiefly to the "additional
offices" authorized by the Comptroller of the Currency in cities where State
banks were permitted to have branches. At the same time there was an increasing number of conversions of State banks with branches into national banks and
of absorptions of such State banks by national banks.
ated

The growth was acceler-

by the passage of the McFadden Act on February 25, 1927, which, with

certain restrictions, expressly permitted national banks to establish branches
in cities where State banks may have them.

The passage of this act also

precipitated the conversion of certain State banks with numerous branches into
national banks and caused the number of State bank branches to decline temporarily.

- 5 -

CHART 2

NUMBER

BRANCHES OF NATIONAL AND STATE BANKS
IN THE UNITED STATES

NUMBER

2500

2000

BRANCHES OF
/
STATE BA*IKS /

1500

1000

S >

1 1000

i
BRANCHES OF
/
NATIONAL BANKS/

1 '
/

500

ot
1900

1905

1910

1915

1920. 1 . 1 . . .

L-±_J

1925

L 1

500

1 1_j

1930

1935

Number of branches of State and national banks in the United
States, 1900-1931. prom 1900-1920 the figures are for five
year intervals, but from 1920-1931 they are annual.

- 6The relative importance of State bank branches and of national
bank branches varies extremely in different cities; in New York, for instance, there are 3U9 branches of State banks against 192 branches of national banks, while in Detroit there are only 51 branches of State banks
against 218 branches of national banks.

But taking ten or fifteen of the

largest cities as a whole, branches of State banks and of national banks
are nearly equal in. number.

Among branches in smaller towns and outside

the city of the head office, however, State bank branches are much more
numerous than national bank branches.

Chart 2 illustrates the relative

growth of branches among State and national banks and Table 2 gives the
figures.

The decline in the number of branches of State banks between

June 30, 1930 a & & the end of 1931 was due mainly to the absorption by national banks of two State banks in California and in Michigan and to the
failure of a State bank in New York.
T&ble 2 - Number of State and National Banks with Branches and Number
of Branches in the United States, 1900-193 1

Year
•

State banks

|
National banks
1 Number
]Number
Number of branches
of
of
1
_.
. State
national
1 Outside
banks
head
banks
head
Total
with
with
office office
city
city
branches
branches

1900
1905
1910
1915
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929|
1930
June 1931 1
Dec. 1931

5
5
9
12
21
23

4l
50

55
91

112
110
148

1
1

11
11
22
22

118
181

22
23

233
296

23
22
37

384 J
433

595
650

290 i
339
345

166
164
157

714
885

339
396
3S9

153
171
%

5
5!

1
j

509
524
555
580

256

594

589

421
723
934
995
1,042
1,110
1,274

head
office
city
1

134

270 1
420

;

595
586
603
596
584
55S
520

Total

90
211

.114
31*5

266

®
529

536

759
1,218
854
1.383
1,661
623
1,03s
704
1,850
1,146
1,281
760 2,041
1,428
778 2,206
787 1 2,280
1,493i
664 i 2,189
1,525!
1,545
657 2,202
1,623
731 2,35^
792 2,476
1,684
768 2.353
1.585
2,060
1,291
769
_______i

732

See Note to Table 1.

1 Outside
head
office
city

82
283
385

? i

191

12
26

72
l4o
204

Number of branches

- 7Of the 3,33^ branches in operation on December 31, 1931t

the

number of branches of member banks of the Federal Reserve System, national and State, was 2,3^7, and of nonmember banks, 987*

The

number of

member banks with branches was 298, and the number of nonmember banks
with branches was 379* Member banks are of course larger on the average
than nonmember banks and have individually a larger number of branches.

Geographic Distribution of Branches
The geographic distribution of branches in the United States is
determined largely by the State laws regarding branches*

Nine States and

the District of Columbia permitted state-wide branch banking at the end
of 1931t and fifteen States permitted some form of branch banking restricted
as to area*

The other twenty-four States at that time either prohibited

branches or made no provision in law for them.

Chart 3 shows in general

the legal status of branch banking in each State on December $19 1931*

Tables I and II of the Appendix classify the States on the same basis* (1)
Simple classifications, such as are followed in Chart 3 and in Tables 3
and U, which show figures for States restricting branches as to location
and for States permitting state-wide branch banking, do not do justice to
all the legal differences and uncertainties that obtain*

Virginia, for

instance, is classified as permitting branch banking state-wide, though
in fact her law restricts branches to cities of 50,000 or more* Again,
Kentucky is classified as restricting branches as to location, though the
legal decision on which the Kentucky mile is based puts the restriction on
function.

The situation in each State is reviewed in a subsequent chapter.

(1) Wisconsin lias subsequently amended her law to permit a limited form
of branch banking*

CHART 3
STATUS OF STATE L A W S ON BRANCH BANKING
DECEMBER 31,1931

•

Branches unauthorized
or prohibitedfaylaw

^ ^

Branches restricted as to location

[ State-wide branch banking permitted

See vp 209, 210 for summary of State laws and appendix p
'_ for
digest of State laws. Wisconsin passed a law in 1932 permitting
a restricted form of branch banking

- 9 -

CHARt ^

BRANCHES OF BANKS IN STATES PERMITTING BRANCHES
NUMBER

2 5001

1—

NUMBER

I-'

2000
/

I 2500

A.
V

2000

/
INSTATES
REST RICTIN6 BRANCHES/
AS TO LOCATION /

1500

/
~~/

tooo

^ ./_

500

190O

1905

1500

1000

^>
^

X ^ IN STATES
X
PERMITTING
/STATE-WIDE
/
BRANCH BANKING_

500

. . - "

1910

1915

1920

1925

1930

Number of branches of State and national banks in those
States whioh on December 31, 1931, permitted the establishment of state-wide branch systems and branches restricted as to location

o
1935

- 10 Table 3 - Branch Systems in States Restricting Branches
As to Location'1)
Year

1900
1905
1910
1915
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
June 1931
Dec. 1931

Number of
tanks with
branches

53
127
175
227
319
3?1

Z
483
497
529
525
517
504
475

Number of "branches
Outside
In
head office head office
city
city
20
123
230

671
781
906
1,006
1,152
1,295
1,415

135
180
190
198
230
245
245
233

1,509
1,653
1,802
1,928
1,858
1,746

53
98

248
257
283
309

Total

73
221
3*1
504
851

971
1,104
1,236

i,32o

l|648
1.744
1.897

2,050
2,185
2,141
2,055

(1) Legal status as of December Jl, 193*» These States
aret
Georgia, Indiana, Iowa, Kentucky, Louisiana,
Maine, Massachusetts, Michigan, Mississippi, Montana,
New Jersey, New York, Ohio, Pennsylvania, Tennessee*
TablS U * Brandh Systems in States Permitting
State-wide Branch Banking(2)

Year
1900
1905
1910
1915
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
June 1931
Dec. 1931

! Number of
banks with
•branches

Number of branches
Outside
In
head office
head office
city
city

24
46
81
137
180
188
215

91
113
230

239
240

3p0
342

232
235
217
220
215
212
197
184

fr3

26
81
120
169
280
314
402
456
499

430
468

517
561
689
721

JJ52

846

422
411

854
825

kky

798

Total

?7
147
222
371
427

632

756

841

93P

1,004
1,119
1,189
1,250
1,286
1,276
1,236

(2) Legal status as of December 31, 1931« These .States are:
Arizona, California, Delaware, District of Columbia,
Maryland, North Carolina, Ehode Island, South Carolina,
Vermont, Virginia*

- 11 -

Over 60 per cent of the "branches in the country are in the
fifteen States restricting branches as to location, as illustrated in
Chart k and Table 3 #

These branches are mostly in the same city as the

head office of the bank operating them.

In fact the restriction which is

most comoion and most important in these States is that branches be kept
within the same city or county as the head office. Branch banking in restricted areas, therefore, is largely tantamount to branch banking inside
the city of the head office. The development of branches in these restricted
areas has been more rapid than in the States permitting state-wide branch
banking.

This is due largely to the fact that the States restricting branches

as to location include many populous and wealthy cities where there is actually more scope for branch banking than in the majority of States where it is
state-wide.

The States that permit restricted branch banking are listed in

Table 5 ia the order of the number of branches as of December 31* 1931*

Table 5 - Number of Branches in States Restricting
Branches As to Location

In
State

head office
1
city

New York
1
Michigan
Ohio
Pennsylvania
New Jersey
Massachusetts
Louisiana
Maine
Iowa
Tennessee
Georgia
Indiana
j
Kentucky
Mississippi
Montana
Total

Outside
head office
city

690

Total
!

385
183
122
115
110
51
7

6
^7
66
67
3*
16

ll6
9S
73
67
5S

k
9

2U
IS
19

690

3S5
213
126
12 k

2
20

27
23
21

—

1.7H6

309

2,055

- 12 -

Table 6 - Number of Branches in States Permitting
State-wide Branch Banking

i
State

California
Maryland
North Carolina
South Carolina
Virginia
Bhode Island
District of Columbia
Arizona
Delaware
Vermont
•

1 head office
city

Outside
head office
i
city

25S
59
12
9
29
16
26

5^3
49
72
62
28
20

25
10
10

2
••••

Total

4ii

«.

S25

Total

801
108
84
77
57
36
26
25
12
lp_
1.236

Consideration of the relative size and commercial importance
of the States listed in Tables 5 and 6 will make it obvious why branch
banking in States permitting it on a state-wide scale (Table 6) has developed more slowly than in States restricting branches as to location
(Table 5 ) # According to Tables 7 and 8, the States permitting statewide branch banking had a total of only 2,323 banking offices with loans
and investments of less than $5•300,000,000, while in the States where
branches are restricted as to location there were 9 #666 offices and
loans and investments of almost $25»000,000,000.

~ 13-

Table 7 - Number of Banks and Banking Offices in Branch Systems
Compared with All Banks, December 31, 1931

States classified
according to law
regarding branch
banking(l)

State-wide branch
banking permitted
Branches restricted
as to location
Establishment of
branches prohibited
No provision in State
law
Total

Eatio of
1 branch
1 systems
Total
to total
banking
number
offices
of
(banks and
banks
branches)
(per cent)

All active banks

Branch systems
Total
Number banking
of
offices
banks (banks and
branches)

Number
of
banks

Ratio of
banking
offices in
branch
systems to
total banking offices
(per cent)

1S4

1.420

It 587

2,823

11.6

50.3

>+75

2,530

7.611

9,666

6.2

26.2

8,790

8,832

•2

1.181

lilgg

677

If,Oil

19.169

22,503

3*5

17.8

(1) See Table I of the Appendix for figures by States in each class*

Table 8 - Loans and Investments of Branch Systems Compared with
Loans and Investments of All Banks, December 31. 1931
Loans and
investments of
all active
banks
(000 omitted)

States classified according to law
regarding branch banking(^)

Loans and
investments of
banks operate
ing branches
(000 omitted)

State-wide branch banking permitted
Branches restricted as to location
Establishment of branches prohibited
No provision in State law

$ 3.502,886
14,424,89^
Uo8,37i
610

$ 5.293.821
2U t 812*56U
8,866,187
5 9 ^ 752

66 # 2
58.1

$18,336,761

$39,567,324

46.3

Total

Per cent
of total in
branch systems

k.e

(2) See Table II of the Appendix for figures by States in each class.
The distribution of branch systems and branches by geographic
divisions is shown in Charts 5 and 6 and Tables 9 and 10 # Branches are

- Inmost numerous in the Middle Atlantic States, North Central States, and
Pacific Coast States* Most of the branches in the Middle Atlantic States
are in New York, and most of those in the North Central States are in
Michigan. In the Pacific Coast States they are nearly all in California.'1'
In fact 56 per cent of the branches in the country are located in these
three States, New York, Michigan, and California, as Table 11 shows. In
both New York and Michigan branches are confined to the city of the head
office.
The geographic distribution of branches located outside the city
of the head office is shown in Chart 7« According to this map there are
twenty-seven States in which branches are located outside the city of the
head office, but it should be noted that in only seventeen is the further
establishment of such branches permitted^

The twenty-seven States in which

branches operate outside the head office city are as follows, those in
italics being States where further extension of outside branches is pro*
hibited oithor by law.or by judicial or administrative ruling:
Alabama
Arizona
Arkansas
California
Delaware
Georgia
Indiana
Iowa
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Mississippi

New Hampshire
New Jersey
New Mexico
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Vermont
Virginia
Washington
Wisconsin

(1) There are five branches in Washington. The Bank of California N* A.
has two branches in Washington in addition to these and one in Oregon,
but these are counted in the California figures.

- 15 -

CHART 5

NUMBER

DISTRIBUTION OF BRANCH SYSTEMS
BY GEOGRAPHIC DIVISIONS-DEC 31, 1931

NUMBER

300

250

200

150

too

100

NEW
MIDDLE NORTH SOUTHERN SOUTH
SOUTH WESTERN ROCKY PACIFIC
ENGLAND ATLANTIC CENTRAL MOUNTAIN EASTERN WESTERN GRAIN MOUNTAIN

Number of State and national banks with branches arranged
according to the geographic divisions in whioh they are
situated

- 16 -

CHART 6

NUMBER

DISTRIBUTION OF BRANCHES
BY GEOGRAPHIC DIVISIONS - DEC. 31,1931

NUMBER

1200

1000

800

600

t*00

200

o i—HI—••_••—••—••—n—••

••—••—i o

NEW
HUDDLE
NORTH SOUTHERN SOUTH
SOUTH WESTERN ROCKY
PACIFIC
ENGLAND ATLANTIC CENTRAL MOUNTAIN EASTERN WESTERN GRAIN MOUNTAIN

Fumber of branches of State and national banks arranged according to the geographic divisions in which they are situated

- 1? -

BRANCHES OF NATIONAL AND STATE BANKS OUTSIDE THE CITY OF THE HEAD OFFICE
DECEMBER 31. 1931
u

)

— w _ _

w $ *

v^7"—--L_

T^s—--LT
V

» \

fes
\r

^Kf""

Y^^^^^^h

'-r-j^^l

7*
.. .

f^~T
!
||
|

NATIONAL BANKS
369
STATE-MEMBER BANKS---126
NONMEMBER BANKS
TOTAL

1156

\f •

** "*J

kA\' '<

\
^ \ / ~ ~ \

V * *V

°1
. .^« x

In California there are numerous branches in the metropolitan areas centering around San Francisco and Los Angeles,
but technically outside their city limits. On the map the
dots extend much beyond the territory in which the branches
are actually located around these cities.

~ is Montana now permits branches outside the head office city under
certain conditions, but none have been established there (June, 1932)•
It will be noted from the map that tlm-great majority of brohches
located outside the city of the head office are in California and in the
Eastern and Southern States^

It would not be practicable to make a similar

map showing the distribution of branches inside the city of the head office,
because these benches are so highly concentrated in a few large cities*

Table 9 - Branch Systems by Geographic Divisions

Geographic
division(l)

Number of banks
with branches

Number of
branches

June December June
19*51
1920
1920
New England
Middle Atlantic
North Central
Southern Mountain
Southeastern
Southwestern
Western Grain
Rocky Mountain
Pacific Coast
UNITED STATES

126

93
32
80

36
2

9
_£2
530

86
220
100
62

57
4o
51
8

-51
677

365
336
52

132
86
2
26
190
1,281

December
19?1
236
,086
63U
138
232
99
75
28
806

Loans and
investments
(000 omitted)
December
June
1931
1920
597, 531
,05^, 644
922,960
98,982
152,989
20U.157
10,480
15,624

$ l,56o,33S
10*918,789
2,367,3^
w6,755
338,0U2
191,3^1
187,781
17,215

8?9,U84

2 t-ft9,i6o

$18,336,761
$6,896,851
'*' New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island,
Connecticut.
Middle Atlantic: New York, New Jersey, Delaware, Pennsylvania, Maryland,
District of Columbia.
North Central: Michigan, Wisconsin, Illinois, Indiana, Ohio*
Southern Mountain: West Virginia, Virginia, Kentucky, Tennessee.
Southeastern: North Carolina, South Carolina, Georgia, Florida, Alabama,
Mississippi.
Southwestern: Louisiana, Texas, Arkansas, Oklahoma.
Western Grain: Minnesota, North Dakota, South Dakota, Iowa, Nebraska,
Missouri, Kansas.
Rocky Mountain: Montana, Idaho, Wyoming, Colorado, New Mexico, Arizona,
Utah, Nevada.
Pacific Coast: Washington, Oregon, California.

3.33^

- 19 Table 10 - Branches Inside and Outside the City of Head Office
by Geographic Divisions, December $1, 1931
1
Number of branches
1
Number of
Outside head ! Outside
In
county
banks with
office city
Total
of head
branches ! head office bat in same
|
city
office
county

Geographic
division

New England
Middle Atlantic
North Central
Southern Mountain
Southeastern
Southwestern
Western Grain
Eocky Mountain
Pacific Coast

86
220
100
62

i,oi4

595
74
4o

51
8

26l
UNITED STATES

677

41
25

62
47

2,176

236
1,086

634
138

160

232

5
7

99
75

60
11

-SI
4l0

28
806

Iks

3.33^

Table 11 - Branch Banking in Three States, New York, Michigan, and California
December 31, I93I
Number of branches
Number
Loans and
of banks
In
Outside
State
investments
with
head office head office Total
(000 omitted)
branches
city
city

7°
48

New York
Michigan
California
Total 3 States
Total all States
Per cent of 3 States
to all States

690
385

.50
168

1.333

677

2,176

24.8

543
543

690
3S5
801
1,876

1,158

3.33^

61.2

46.9

$ 8,053,264
967,122
2.279.871
$11,300,259
$18,336,761

56.2

61.6

Distribution of Branches by Size of Town
Over 62 per cent of the branches in the United States are in towns of
over 100,000 population.

On the other hand, only about 17 per cent of the

branches are in towns of 2,500 people or less. In other words, there are only
578 branches in towns of 2,500 population and less. Chart 8 and Table 12 illusstrate the extent to which branches are concentrated in the large cities.
About 39 per cent of the banks operating branches are in towns of over
100,000 population, but these banks have over 90 per cent of the loans and investments of all banks operating branches. This is illustrated in Table 13.

- 20 -

CHART ©

DISTRIBUTION OF BRANCHES
BY SIZE OF TOWN - DEC. 31, 1931

NUMBER

2200

2000

1800

1600

1400

1200

1000

800

600

400

200

POPULATIOH
GROUPS

NUMBER

2200

i^?IR
500

500

1,000

2,500

5,000

10.000

1,000

2,500

5.000

25,000 50,000 100,000
TO

1Q000 25,000 50,000 100.000

AND

OVER

Number of branches of State and national banks arranged according to the size of town in which they are situated

- 21 -

Table 12 - Branches by Size of Town, December 31, 1931
In head
Outside head
office city
office city
Per cent
Per cent
Number!
Number
of total
of total '

Population
of town

Under 500
2
500 - 1,000
0
1,000 - 2,500
7
2,500 - 5.000
7
5.000 - 10,000
9
10,000 - 25,000
27
25,000 - 50,000 !
63
50,000 - 100,000 1 132
100,000 and over 1.929

.1
0.0
•3

2.176

1 100.0

Total

1.2
2.9
6.1

189
173
207
134
107
91
46
60

4-^-1

lOvai

Number

I0.3
14.9
17.9
11.6

1
1.158

Per cent
of total

9.2
7.9
4.0
5.2

141
116
118
109
192

5.7
5.2
6.4
4.2
3.5
3*5
3.3
5.8

1^.0

2,080

62.4

100.0

3.334

100.0

191

214

Table 13 - Branch Systems by Size of Town of Head Office
December 31> ^931
Population

Number

town

banks

Under 500
500-- 1,000
1,000 - 2,500
2,500 - 5.000
5,000 - 10,000
10,000 - 25.000
25,000 - 50,000
50,000 - 100,000
100,000 and over

25
41
52
61
36
56
62
79
265

Total

J 677

Per cent
Per cent
Loans and
of
of
! investments
total
total
(000 omitted)

T?.i

90.6

100.0

$18,336,761

100.0

11.6

.1
.1
.3
.6
.4
1.0
2.1
4.8

13,480
21,584
51.403
107,492
79,571
183,905
392,796
875.625
.16,610,905

3.7
6.1
7.7
9.0
5.3
8.3
9.2

The extent of the concentration of branches in cities is also
indicated in Table lkt

which gives the number of branches in the thirteen

largest cities of the country, i.et, cities with a population of 500,000
or more each. Two of these cities, Chicago and St. Louis, have no branches,
yet the remaining eleven, in one of which, Milwaukee, further extension is

- 22 not allowed/ 1 ' have over ko per cent of all branches in the country*
Table lU - Number of Branch Systems and Branches in the Shirteen
Largest Cities of the United States/ 2 / December 311 !931

City

New York City
Chicago
Philadelphia
Detroit
Los Angeles
Cleveland
St; Louis
Baltimore
Boston
Pittsburgh
San Francisco
Milwaukee
Buffalo

Loans and Number of Number of
1 Number
Population i of banks ; investments •branches "branches i Total
1930
of banks
with
outside branches
within
i
with
branches
census
city
city
branches
(000 omitted)
6,930,^6 !
3»376tl+3S
1,950,961
1,568,662 !
1,238,OUS
900,H29
821,960
soH,87U
781,188
669,817
63H,394
578,21+9
57^5.076

k l

20
5
7
9
-

9
10
2
8
2
_3

$ 7,079,025
-

1,016,851
658,308
631,127(3)
694,376

77
269
148(3)
88

70
21

77
269
218
109

—

255.084
771,322
164,162
1,476,572
161,930
377,052

56
55
8
93
5

——

5S
55
8
518
5
_J6

518

1,93^

64o

l,4oo

1,158

3.33^

_Ii

Total 13 cities 20,828,5^2

116

$13,285,809(3) 1,416(3)

Remainder U. S. 101.9U6.500

561

, 5,050,952

Total U. 5.

677

$18,336,761(3) 2,176(3)

122,775,0^2

54l

_J60

425
-

(2)
Cities of 500,000 or more population.
(3) Exclusive of 79 branches belonging to banks outside of Los Angeles.
Classification of Branches by Size of Bank ox» Branch System
The majority of branches in existence are operated by large banks
as shown in Chart 9 and Table 15* Out of the total of 3*33^" branches, 1,837,
or 55*1 per cent, belong to banks with $50,000,000 or more of loans and investments. Moreover, the majority of large banks have branches, as shown
in Table l6. On June 30, 1930.70 out of the 101 banks with loans and investments of $50,000,000 and more were operating branches*
(1) December 31, 1931* The law as later changed in 1932 appears to permit
a limited extension of branches*

- 23 -

CHART 9

NUMBER

DISTRIBUTION OF BRANCHES Bt SIZE OF
BANKS TO WHICH THEY BELONG- DEC. 31, W31

NUMBER

2000

1800

1600
VtOO

woo

SIZE GROUPS
THOUSANDS
OF DOLLARS

UNDER

1,000

2.000

2,000

5.000

10,000

AND

50.000

OVER

5.000

10.000

50.000

Number of branches of State and national banks arranged a c cording to the amount of loans and investments of the branch
systems to which they belong

- 24Table 15 - Branch Systems Classified by Size of Loans
and Investments, December 31* !93*
Size group
loans and investments

Number
Number
of banks
of
with
•branches tranches

Under $150,000
150,000 - 250,000
250,000 - 500,000
500,000 - 750,000
750,000 - 1,000,000
1,000,000 - 2,000,000
2,000,000 - 5,000,000
5,000,000 - 10,000,000
10,000,000 - 50,000,000
50,000,000 and over
Total

21
13
48

21
16

.63

Aggregate
Per cent
loans and
of
investments
total
(000 omitted)
$

.48

.01
.01
.10
.14
.20

2,376
2,652
17,862
25,322

1*831

1.89
1.47
1.85
3.0b
7.11
6.81
21.60
55.10

100,522
392,148
742,512
3,3^3.128
13,673,483

74.57

3,334

100.00

$18,336,761

100,00

62
102
237
227
720

119
104

157
_I0
677

Per cent
of
total

36,756

-55

2.14
4.05
18.23

Table l6 - Ratio of Branch Systems to Active Banks
by Size of Loans and Investments, June 30» 1930
Size group
loans and investments

Number of
all banks
in the U. S.

Under $150,000
150,000 - 250,000
250,000 - 500,000
500,000 - 750,000
750,000 - 1,000,000
1,000,000 - 2,000,000
2,000,000 - 5.000,000
5,000,000 - 10,000,000
10,000,000 - 50,000,000
50,000,000 and over
Total

4,839

Number of
banks
with branches

Ratio of banks
operating branches
to all banks

.12
.23

8
4,966
2,362
1,552
2,600
1,887

595

454
101
22,866 0) !

.9?

!+9

41
22

Jig
124
199
70
750

1.74
1.42

20,84

&§
3.28

{*' In classifying active banks by size groups, whenever individual
reports for June 30 were not obtainable, figures for the nearest
available date were used. For this reason the total differs
somewhat from figures published in the comptrollers report.
-x»-ir-svsr*i woi/nooii BAztJ ana numoer 01 orancnes. or tne twenty-five largest oaacucs
in the country, four have no branches, and four have only two branches each,
one of these four being the third largest bank in the countryt

The fifth

largest bank has no branches at all. The majority of these banks were large
before they acquired branches, and their branches are responsible for only
a portion of their subsequent growth. It has rather been through consolidation that they have grown, consolidation having been more extensive and
having affected more banks than branch operation.

Only in certain States

and under certain circumstances has branch banking been able to follow consolidation.

- 25At the same time, the twenty-five largest banks listed in Table
17, by no means include all the largest branch systems, for the following
named banks, though smaller in size than the twenty-five named, have more
branches than the majority of them have:
Bank

Loans and
investments

Bank of America, Los iingofol do
California Bank, Los Angeles
Guardian National Bank of Commerce, Detroit
Citizens National Trust & Savings Bank, Los Angeles
Public National Bank & Trust Co., New York City

$49,842,000
72,827,000
152,987,000
92,535,000
82,452,000

Number of
branches

Table 17 - Twenty-five Largest Banks in the United States
and their Branches, December 31» 1931

Name
Chase National Bank, New York
National City Bank, New York
Guaranty Trust Co., New York
Bank of America N. T. & S. A., San Francisco
Continental Illinois Bk. & Tr. Co., Chicago
Central Hanover Bank & Tr. Co., New York
Bankers Trust Co., New York
FirstffayneNational Bank, Detroit
First National Bank, New York
Security-First Nat'l Bank, Los Angeles
Irving Trust Company, New York
First National Bank, Chicago
First National Bank, Boston
Bank of Manhattan Trust Co«, New York
Chemical Bank and Trust Co., New York
Manufacturers' Trust Co., New York
Cleveland Trust Co., Cleveland
Philadelphia National Bank, Philadelphia
New York Trust Co., New York
Union Trust Co., Cleveland
Penn. Co. for Insurance on Lives, etc., Phila.
Corn Exchange Bank Trust Co., New York
American Trust Co., San Francisco
Marine Trust Company, Buffalo
Mellon National Bank, Pittsburgh

Total twenty-five largest banks
All other banks in United'States
All banks in United States

Loans and
investments
(000 omitted)

$ 1,397,744
1,054,230
1,025,828
785.222
757,265
538,840
458,766
454,668
450,359
444,575
425,281
402,437
357,026
301,872
290,121
259 162
240 206

229,836
229,097
222,014
204,297
202,948
202,239
198,082
198,063
$11,330,178
27. «44 BZ\
28.237.146

Number
of
branches
44

79
2
344
15
2
179
125
27
22
79

11
57
2
2
22
12
71

93
35
1,279
2,055

3.331*

- 26 Table 18 shows a classification of branch systems by the number of
branches per system*

There are 355 banks with one branch each and at the

other extreme one bank with 3 ^ branches. The average size of the 355 banks
with one branch each is about $5i500,000 of loans and investments, and of the
110 banks with two branches each the average size is about $27tOOO,000#

The

banks with one and two branches obviously include some very large banks. Moreover, these banks with one or two branches account for only 575 branches, or
about a sixth of all the branches in the country.

There are only 17 systems

with more than 30 branches each.
Table 18 - Number of Branch Systems Classified by Number of Branches
in Each System, December Ji, 193^

Number of
branches
per bank

1
2

Number of
"banks with
"branches

Aggregate
number of
"branches

355

355
220

57
63
71
79
93
125
179
344

110
66
36
21
10
4
7
7
5
23
9
7
l
l
l
1
2
2
1
1
1
2
1
1
1
1

Total

677

3,334

I5
6
7
8
9
10
11-15
16-20
21-30
%

' g54

Aggregate loans
and investments
(000 omitted)
$ 1,952,845
2,948,959
972,266

198

gl+U,55M.
489,638
397,170
128,002
376,440
226,659

105
60

28
56

50
290
168
170

257,529
1,950,565
535,358
1,235,310
82,458
92,535
198,082
152,987
1,421,613
337,989
240,206
49,842
202,948
1,356,102
202,239
444,575
454,66s
785.222

S
35
39
88
108
57
63
71
158
93
125
179

$18,336,761
• M l •IIMi.

••

III, Will.

11 .1.11 lid

- 27 In Table 19 the distribution of the 677 banks with branches is
Bhown according to the number of towns in which the various branch offices
of such banks are situated. More than half the banks with branches, or 3^1
out of 6771 ^ v e all their branches in the same city or town as the head office, and 1#+ operate in only two towns*

Only one bank in the country has

offices in more than 100 towns.

Table 19 - Branch Systems Classified by Number of Towns
in Which Offices Are Situated
December 31» 1931
Number of towns
in which offices
are situated

Number

of
banks

1
2

381

ISU

63
172

9
5
3
2
2
3
3
3
1
1
1
1
1
1
1
1
1

Total

677

6
7
8
9
10
12

S
16
18
21
3*

U2
US

Summary
The salient descriptive facts about branch banking in the United
States may be summarized as follows:

- 28 -

1. Branch banking, which was fairly common before the Civil War,
disappeared almost entirely soon after the passage of the National Bank Act,
and the present development may be said to have began about 1900*
2.

State banks are responsible for most of the growth of branches*

3»

A few States permit state-wide branch banking, but outside of

these States branches are confined by prohibitions and restrictions chiefly
to certain large cities.
H. Branches in California, New York City, and Detroit constitute
over 56 per cent of all branches in the country*
5. Branches constitute less than IS per cent of the total number
of banking offices in the country, and banks with branches constitute less
than k per cent of the total number of banks.
6. Most branches are in large cities and belong to large banks,
but there is no close relationship betv/een the size of banks and the namber
of their branches.
7.

The majority of banks with branches have only one branch; the

majority of them also have all their branches, whether one or more, in the
same town as their head office.

CHAPTER II
BRANCH BANKING BEFORE THE CIVIL WAR

The status of branch banking in the United States is in striking contrast to the situation in Canada, England, and other important countries where
commercial banking is done chiefly by a small number of large branch systems.
The reasons for the predominance of unit banks in this country and the motives
back of the persistent opposition to branch banking can be adequately presented
only by a historical survey of the branch movement and the controversy which has
centered around that movement.
Early Branch Banking in New York and New England
In the last decade of the eighteenth century and the earlier years of
the nineteenth century it was not uncommon for banks in New York and New England
to have branches. All incorporated banks in those States at that time were
created by special charter and the number and location of their branches was
stipulated therein.

A bank seldom had more than one branch, and two or three

appear to have been the maximum.

There was apparently an irresistible tendency,

however, for branches to become independent, and by the end of the first twentyfive or thirty years of the century nearly all branches in these States had disappeared.

The Manhattan Company had at one time banking offices at Utica and

Poughkeepsie, but they were discontinued in 1819 in compliance with the following resolution of the company1s directors:^)
"Whereas the inducements which led to the establishment of the
two offices of the company at Utica and Poughkeepsie no longer exist,
in consequence of the multiplication of banks in the interior of the
state, and the depreciation of the paper of the said banks, which
have destroyed the usefulness of the said offices, be it therefore
"Resolved, That the offices of the Company at Utica and Poughkeepsie be withdrawn*,f
In a list of banks in the United States in the Bankers! Magazine of
(1) Piatt, Poughkeepsie's First Bank, Yearbook, Dutchess County Historical
Society, 1931, Vol. 16, p. 55.
(2) Bankers' Magazine, 184S, Vol. II, pp. Jfk, 776.
- 29 -

- 30 ~
branches are reported for any of the New England States, and only two are reported for New York (the branch of the Bank of Utica in Canandaigua, and the
branch of the Ontario Bank of Canandaigua in Utica).

In the report of the bank

commissioner of Connecticut, April, I8U9, two branches were mentioned as in existence in the State, though no particulars are given as to their ownership or
location.
In Massachusetts, Connecticut, and Ehode Island, on the other hand,
a practice is recorded which, though apparently never called branch banking,
bears a certain resemblance to it. This was a custom that arose among country
banks, apparently in the 1S50,S5 of sending officers to metropolitan centers for
the discount of paper offered there.

It is described as follows; ( i )

"Massachusetts Banks.—The Bank Commissioners of this State
have lately issued an order, which will probably have an important
bearing on the business of some of the banks. Within four or five
years past, charters have been granted for several banks to be located in towns in the vicinity of Boston, The local business of
these suburban towns has not been sufficient to give these banks a
run of custom of enough profit to answer their desires. To extend
their business, some of them have adopted an illegal course in order to obtain customers. Instead of confining their negotiations
and business to the town in which they are situated, as provided
in the Revised Statutes, offices have been opened in or near State
street, and at stated hours the cashiers have been in attendance
to receive deposits, pay checks, discount notes, and indeed to do
all the business of the bank—a Teller being left at home to perform what local work is to be done. To such an extent has this
been carried, that in the case of two or three banks, the business
done in the city has been greater than that performed at home,
"For years a few banks, situated remote from State street,
have been allowed to perform a very limited amount of business
away from their banking houses, to accommodate customers, and so
long as the innovation was kept within proper bounds, and was
not made a regular business, no complaint was made. Taking advantage of this leniency, two or three banks have carried the matter to extremes, and have so conducted their affairs that the Bank
Commissioners last week issued a positive prohibitory order that
no bank should do any business except at the banking house, and
threatening an injunction on one or two banks which were disposed
not to yield. Those who have only done a limited amount are not
much affected, while others suffer, Jn the end, however, the result will be most beneficial, and will conduce both to the interests
of the banks and their customers also,"
(1

) IMd., 1853, Vol. VIII (U.S. Ill), p, 1+37.

- 31

The Banking Commissioners of Massachusetts had already included
in thair report of the year "before an admonition against this practice.'1'
11

#... ^Banking institutions have a locality to which their operations are designed to he confined. It is a perversion of such
design, if the officers are sent into the money market in other
places in pursuit of paper which, under the form of exchange,
will give a higher rate of interest than it would he prudent for
them to exact of the "business community in their own neighborhood;
it is an interference with the rights and interests of other hanks,
and the practice is frequently attended with loss on account of
ignorance of the true character of the paper. The increased facilities of communication have a tendency to concentrate business in
the metropolis. Managers of hanks in the country, established for
local convenience, should be at all times aware that to discount
paper, receive checks, and exchange their bills through an agency
in the city, is an infringement upon the foregoing statute."

The Commissioners added that their remarks applied particularly
"to the operation of banks within the Commonwealth," but they proceeded
to condemn operations made outside the State.

"Paper thus inconsiderate-

ly taken, is frequently not paid at maturity; renewals are submittted
to; the object originally sought is defeated; and serious losses close
the operation." Furthermore, as to the circulation extended by these
foreign loans and discounts they said, H..it is not to be concealed that
Massachusetts can have no desire to establish banks to furnish a currency
for other states, especially if the policy has a tendency to weaken its
own."(2)
The same difficulties arose in Connecticut and Ehode Island and
those States also toofe steps to keep the banks from going away from home
for business. (3\

The problem was apparently not unknown elsewhere as

well; the Ohio Life and Trust Company, a Cincinnati bank, maintained a
large and prominent agency in New York till its failure in IS57. The

(^Massachusetts Bank Commissioner's Report. 1053, p. 8.
(2>Ibid** 1S53> P < 9 *
(3/Dewey, State Banking Before the Civil War, p. lUl.

-32-

movement, however, attracted most attention in New England.

Its charac-

teristic feature was eai invasion of the metropolitan centers by country
"banks in pursuit of discounts and investments. The offices established
in the centers were not called branches and the practice seems to have
grown up long after what had been previously laxown as branch banking
had disappeared.

First and Second Banks of the United States
The earliest banking systems comprising numerous branches in
this country were those set up by the Federal government. A few branches
were operated earlier by State banks with one or two branches each, but
none of these approached in extent the branch systems of the First and
Second Banks of the United States.
The First Bank of the United States was organized in 1792 and
eventually had nine offices in as many cities, including its head office
in Philadelphia.

The provision that it should have branches was at first

disapproved by Alexander Hamilton, then Secretary of the Treasury, because he doubted "the practicability of a safe and orderly administrartion" of them.

In his report to Congress on the project for a "national

bank," December lk9

1790, he said:^1)

"The situation of the United States naturally inspires
a wish that the foim of the institution could admit of a
plurality of branches. But various considerations discourage from pursuing this idea. The complexity of such a plan
would be apt to inspire doubts, viiich might deter from adventuring in it. And the practicability of a safe and orderly
administration, though not to be abandoned as desperate, cannot be made so manifest in perspective, as to promise the removal of those doubts, or to justify the Government in adopting the idea as an original experiment. The most that would

(1/Clarke, Legislative and Documentary History of the Bank of the United
States, pp. 2S, 29.

- 33 -

seem advisable, on this point, is to insert a provision which
may lead to it hereafter, if experience shall more clearly
demonstrate its utility, and satisfy those who may have the
direction, that it may bo adopted with safety. It is certain
that it would have some advantages, both peculiar and important* Besides more general accommodation, it would lesson the
danger of a run upon the bank*
"The argument against it is, that each branch must be
under a distinct, though subordinate direction, to which a
considerable latitude of discretion must of necessity bo entrusted. And as the property of the whole institution would
bo liable for the engagements of each part, that and its
credit would bo at stake, upon the prudence of the directors
of every part* The mismanagement of either branch might
hazard serious disorder in the whole*w
Nevertheless, the directors of the Bank proceeded to establish
branches at once, and Hamilton expressed his personal disapproval of the
action in a private letter in Novenfcery

1791$ ia which he said that "the

whole affair of Branches was begun, continued, and ended* not only without my participation, but against my judgnent.

No difficulties of

any moment appear to have arisen over the branches, however, and Hamilton^ doubt of their advisability disappeared.

The bank continued in

existence twenty years, but largely because of opposition on the part of
the States to a corporation with Federal powers, its charter, which then
expired, was not renewed*

The opposition to the Bank was not based on

the fact that it had branches.
The Second Bank of the United States was chartered in 18l6. It
had at the maximum about twenty-nine offices and agencies,^) including
the Philadelphia headquarters.

These extended from Mobile, New Orleans,

Natchez, and St* Louis, in the South and West, to Burlington and Portland, in the Northeast and to Charleston and Savannah, in the Southeast*

(^Hamilton, Works. 1851, Vol. V, p. 4g6*
(wCatterall, Second Bank of the United States, table and map opposite

P- 376.

- 3k There was a "branch in practically every important city within the ex**
is ting settled area of the United States. 9her experience with thooo
W a n oho o indicated that Hamilton1 s apprehensions in 179I had not "been
unjustified, for the "branches got out of hand and nearly wrecked the
Bank,,
Both Cheves and Biddle, successive presidents of the Bank,
complained of the difficulty of holding *ke» in check. The seriousness
of this difficulty is made apparent by two considerations: first, the
relative amount of business transacted by the offices, and second, the
great distances between branches and headquarters*

The following table

shows the distribution of the Bankfs business as measured by the loans
held by the various offices in the year 1S25: 0)
New York
Baltimore
Philadelphia
Hew Orleans
Charleston
Boston
Cincinnati
Washington
Hichmond'
Louisville
Lexington
Pittsburgh
Norfolk
Savannah
Middletown and Hartford
IFayetteville
Chillicothe
Providence
Portsmouth
Total

$M95,ooo
1+,031,000
3,723,000
2,455,000
2,1+28,000
1,790,000
1,329,000
1,291+, 000
1,226,000
1,069,000
1,002,000
730,000
696,000
626,000
536,000
$57,000

wo,000

iwo.ooo
**?7,ooo

$29,6ll+, 000

16.5!
13.6
12.6

8.3
8.2

6.0
If. 5
1+.1+
l+.l

3.6

2.5
2.1+

2.1
1.8
1.5
1.5
1.5

-JL£
100.0#£&

The he$d office at Philadelphia at this time stood third in point of
size. The three largest offices together had more than 1+2 per cent of
the business, New Orleans, the most remote, was the fourth in size,
but in a few years it moved up and became the largest office in the
(1^ yhe Second United States Bank. National Monetary Commission*
Vol. IV., p. 200.

~ 35 ~

whole system*

Branches of such relative size were naturally inclined to

independence of action.
This was the more serious in view of the great territory covered
by the Second Bank and the means of communication and transportation then
available.

It took weeks to communicate between New Orleans, the largest

office, and Philadelphia, the head office. To a less degree, the same
difficulties of communication, and consequently of control, held as between other offices. It would be impossible to find centers in the
United States at the present time as remote from one another in an
operating sense as were the cities in which, a hundred years ago, the
branches of the Second Bank were situated.
The loose control of the branches is emphasized by historians.
Catterall, in his exhaustive history of the Bank, says in his criticism
of the branch organization:
"The defects of the system were, however, great
and perilous. In the last analysis all resolved themselves into a failure to exercise an adequate control
over the offices."
Professor Davis E. Dewey, in his monograph on the Second Bank
published in the report of the National Monetary Commission, says that
"The losses due to the branches in proportion to their capital were ten
times greater than that of the mother bank"; and that "Although by its
fundamental regulations the bank apparently had the power to supervise
and restrict the branches in their operations, it did not effectually
exercise this right during its early management.
"(2)
t1'Catterall, Second Bank of the United States. p. 1*02.
WDeiray, The, Second Unitg4 States Bank. National Monetary Commission,
VoV-IV, pp, 196,203.

-j6-

This inadequacy of control, however, since it meant, among other
things, that the tranches made local extensions of credit "beyond the
limits prescribed for them hy the Philadelphia office, was not the kind
of thing that would arouse public hostility*

The real grounds of opposi-

tion to the Bank were complex; they involved a variety of political, economic, and social considerations. Politically the opposition hinged principally on the question whether it was constitutional for a Federal corporation to operate within the territory of a State without the latter*s
consent. This issue would not have arisen, to he sure, if the hank had
had no tranches,'•*-' hut nevertheless it did not touch on the merits of
branch hanking under circumstances where no conflict of Federal and State
sovereignty was involved.(2) The opposition was intensified economically
hy the competition which the Bank's branches offered to the banks chaa>tered by the States. Finally on social grounds there was opposition to
the Bank simply because of its size. Individual enterprise was the
ideal, and institutions of great size were considered undemocratic and
monopolistic.

Since branches contribute to size, this opposition to what

Jackson called the "mammoth" might be held to imply opposition to branch
banking even though no explicit charges against branch banking on those
grounds were made. jLn view of his silence on the subject it «ay be

vx;

Catterall, Second Bank of the United States, p. 376.
(2/This was also evident in the case of the attempt in 181+1 to organize a
third Bank, the "Fiscal Bank," for then the issue hinged distinctly on
the right of Congress to authorize branches in disregard of State laws.
The bill incorporating the bank affirmed the right to do so. It was
vetoed by President Tyler, who emphasized in his message his opposition "To any bank created by Congress with the power to establish
branches in the States independently of their consent." (Quoted from
Sumner, History of Banking, Vol. I, pp. 3*43, 3I+9. See also Knox,
History of Banking;, p. 89-)

- 37 inferred that branch "banking was not a very important aspect of the issue.
Certainly it would "be rash to construe that silence as approval of what
we know as branch banking, and it \70uld appear equally unsound in the
face of it to construe tho opposition to the lank as opposition to what
we know as branch banking. How general the grounds of opposition were
may be indicated by the following remark of Andrew Jackson in a letter he
wrote to Biddle:'1'
H

I do not 4islikB your Bank any more than all banks.
But ever since I read the history of the South Sea bubble I
have been afraid of banks."
Renewal of tho Bank's charter, which ran for twenty years, was
vetoed by Jackson, and the Bank discontinued as a Federal corporation. In
expectation of having to liquidate, it had sold the majority of its
branches. It changed its plans however, and in 1836 procured a charter
from the State of Pennsylvania, under which it continued to operate for
about five more years and then failed. At the time of failure it had
"eight agencies outside of Pennsylvania and three offices in that State,
"(2)
Failure was due to bad loans and investments. According to Khox, ,fIt
seemed impossible for the managers to say no to anyone. "(3)
f,

In ISlJO it was found that the assets of the institution
consisted chiefly of all kinds of internal improvement, and bank
and State stocks and bonds. There was hardly an enterprise, good,
bad or indifferent in the United States that was not represented
in the list."
It appears therefore that the Bank in these years exemplified
the complete opposite of those policies of credit restriction and denial

(l/Catterall, The Second Bank of the United States, p. ISU.
(2'S*umner, History of Banking, p. 3*+2.
(3)Khox, History of Banking, pp. 77, 78.

~ 38-

of enterprise that are most frequently alleged as the evils of branch
banking.

Nevertheless all the notes and deposits of the Bank were ulti-

mately paid in full, principal and interest/1)
Aside from the political opposition perhaps the principal
cause for the lack of success of the Bank lay in the fact that with the
imperfect means of transportation and communication then availahle it
was impossible to exercise prompt control over the branches.
State Bank Branch Systems(2)
That branches per se were not the object of disapproval is
apparent not only from contemporary discussion, but from the fact that
a large proportion of the States, especially in the South and West,
where opposition to the Second Bank had been most bitter, continued to
authorize branches for their own banks both before and after the end of
the Second Bank in 1837*

Jour of these branch organizations were out-

standing—the State Banks of Indiana, Missouri, Ohio, and Iowa.
The State Bank of Indiana, one of the most successful banks in
American history, was established in 183^ towards the end of the life of
the Second Bank of the United States. In the words of Hugh McCulloch,
the State Bank*s president, and later the first Comptroller of the Currency, the State Bank of Indiana, "...was not, like the Bank of the
United States, a bank with branches, but rather a bank of branches. It

(1>IbicU^p. 79.
v2'The chief references for the following discussion are McCulloch, Men
and Measures of Half a Century; Esarey, State Banking in Indiana,
lJflDj-1873; Knox, History of Banking; Sumner, History of Banking;
Cable, Bank of the State of Missouri; Preston, History of Banking in
Iowa; White, Money and Banking; and State laws*

- 39 -

was a hank in this respect only:

it had a president, a cashier, tod a

hoard of directors, hat as a hank it transacted no hanking business. "'*'
All banking was done at the offices.

It was a board of control, and •

its authority over the branches was arbitrary, almost unlimited."

was not a corporate entity which issued shares, but merely a supervisory
authority. All stock was issued by the individual branches.
Another great difference between the State Bank of Indiana and
the Second Bank of the United States lay in the area covered, for the
thirteen branches of the Indiana bank were all within the one State. Even
at that McCulloch, when he was manager at Port Wayne, was "three good
days1 ride from Indianapolis" by horseback, which for fifteen years he
had to make periodically to attend the managers1 meetings. The Indiana
bank was a monop$$y for about twenty years, with the State a stockholder.
It continued in business from 183*+ to 18571 when its charter expired. It
was then succeeded by a now corporation the Bank of the State of Indiana,
with the same management in general but with increased authorized capital
and certain other corporate changes. It had twenty branches instead of
thirteen, this increase being authorized by tho legislature.
monopoly, however, and other banks were permitted.

It had no

It continued operations

until shortly after the passage of the National Bank Act, when it liquidated, and most of its branches procured charters as individual national
banks.

The record of the organization for tho nearly thirty years of its

existence was highly successful; it was profitable to its owners and
there were no losses to the public through its operations.

-1+0-

The second prominent branch system was the Bank of the State of
Missouri, chartered in 18379 with five branches and a complete monopoly.
It was so conservatively managed that its notes came to circulate at a
premium over gold, even as far away as in California.

This very virtue

led to an insufficiency of its notes for local business, which was filled
by an influx of inferior issues from other States. In consequence there
was pressure on the bank to issue its notes more freely, and by 1859 i*
had been authorized to increase the number of branches to ten.

It had lost

its monopoly within the State, however, for seven new banks were chartered,
each of which "must have at least two branches."

Its organization appears

to have been more closely unified than that of the State Bank of Indiana,
and therefore more like a present day branch system.

The Bank of the

State of Missouri continued until 1866, when it liquidated,
The third prominent "branch" organization set up between the end
of the Second Bank of the United States and the passage of the National
Bank Act was the State Bank of Ohio, which was authorized in 18^5. In
IS63 ** ^a(i 36 branches. Opposition to the Second Bank of the United
States had been especially bitter in Ohio.

It was one of the States that

attempted to tax the Bank's branches out of existence, and the branch at
Chillicothe had been raided by State authorities, who entered the vault
forcibly and took the money they claimed due as taxes. Yet Ohio set up
a system with more "branches" than any other State. The branches as a
whole individually organized constituted the bank, which was administered
by a board of control.

Its organization was therefore similar to that of

the State Bank of Indiana, which at the time was about eleven years old.

~ in -

The State Bank of Ohio was not a complete monopoly however*

The number

of "banks in the State was limited, tranches "being counted as "banks. The
State Bank continued in operation till after the passage of the National
Bank Act, when some, if not most of its "branches, "became individual
national hanks. Its career was successful and there were no losses to
the public through its operations*
In 1857> however, its strength was severely tested by the
failure of the Ohio Life and Trust Company, a Cincinnati hank whose experience is pertinent to thie discussion since it maintained a "branch or
agency in New York City,

Its failure was due to the irregularities of

its New York agent, who speculated with its funds and ruined the hank,
notwithstanding its head office transactions had "been managed with probity
and conservatism*

Its experience illustrated, as did that of the Second

Bank of the United States, the difficulty of maintaining adequate control
of remote offices. The State Bank of Ohio, on the other hand, like the
State Bank of Indiana, extended its branches within a comparatively small
area*
The fourth branch organization in this same class was the State
Bank of Iowa, which was organized in ISJS. At that time the State Bank
of Indiana and its successor had been in existence twenty-four years;
the Bank of the State of Missouri, twenty-one years; and the State Bank
of Ohio, thirteen years. The organizers of the State Bank of Iowa therefore had the advantage of three successful and experienced organizations
to use as patterns.

For several years prior to this, banking had been a penal offense

- 1+2 -

in Iowaf prohibited by the State constitution.'1'

When this situation

became admittedly unsatisfactory, and the project for a bank came to be
considered, the comparative merits of branch banking as practiced in
Indiana, Missouri, and Ohio were weighed against the merits of "free banking" as developed in New York,

The result was that branch banking was

adopted in a form closely resembling that of the State Bank of Indiana. (2)
The branches, of which thirty were authorized, were managed by a board of
control which was purely an administrative body and perfoxmed no banking
functions itself*
dividual branches.

The only sfcoclsiiolders were the stockholders of the inThe Governor of the State, Ealph P. Lowe, in his mes-

sage to the legislature in I860, said that there were 12 branches 4f the
State Bank then in existence, and that it was expected that 8 more* would
be established shortly*

He went on:(3)

"If these branches have not accomplished all that the public
have expected of them, it is gratifying, at least, to know that
they have done a cautious and safe business, commanding the confidence of the people, whilst they have in no small degree subserved
the interest of the community at large in relieving the wants of
its business men."
The maxinum number of branches actually established appears to have been
fifteen.

The bank had been in business five years, when the National

Bank Act went into effect, and within two or three years more, some if
not all of its branches converted to, federal charter as individual national
banks.

Its operations, like those of the three other State banks after

Texas (18^5) and Arkansas (18^6) also banking was prohibited by the
State constitution* A similar prohibition in Illinois failed of enactment by one vote. These prohibitions did not affect private banks.
In Virginia, however, private banks were prohibited in 1816 in favor of
incorporated banks*
^2'Iowa adopted a free banking law at the same time it authorized its
State Bank, but the law was never put into effect.
'3^Bankers' Magazine. March, I860, p» 7U3.

- 1+3 -

which it was patterned, were very successful and were conducted without
loss to the public.
These organizations support the view that there was in the West
no opposition to "branches as such
unlike modern branch systems

hut they were*as a matter of fact

quite

execpt in the case of the Bank of Missouri*

Although they differed from one another in detail, it was in general typical of them that each "branch was locally organized, had its own capital,
its own stockholders, made its own earnings, and paid (with the permission of the hoard of control) its own dividends. The Ohio law declared
that "The "board of control,...shall he a body corporate,...and by the
name of the State Bank of Ohio," though it had no banking powers but onlysupervisory powers. A "banking company" might operate either as "a branch
of the State Bank" or as an independent hank.

The board of control was

chosen partly by the "branches" and partly by the State.

Substantially

the same was true in Indiana and Iowa. The States subscribed part of the
capital of their State Banto—i.e.-, part of the capital of the individual
branches—and~ the institution was partly a State government enterprise
and partly a private enterprise.

Obviously these "branches" and the

"State Banks" to which thoy belonged have little counterpart in modern
branch banking, where the branches are merely multiple offices of one undivided entity, owned by private capital. Nor are they like modern group
banking, where the individual banks are owned in whole or in part by a
purely private corporation.

On the other hand, these branch systems of

the State Banks of Indiana, Ohio, and Iowa bear close resemblance, in
structure, to the Federal Reserve System, which includes the reserve

-1&-

banks, organized, like the branches of the old State Banks, with their
own capital and their own stocldaolders, and also the Reserve Board, a
supervisory body like State Banks1 boards of control, and like **• without stock or stockholders. The boards of control, like the Federal
Reserve Board, did no banking, but merely supervised the operations of
the branches.

If the Federal Reserve System were known as ttthe Federal

Reserve Bank" and the twelve reserve banks were known as branches, the
essential analogy would bo obvious. The fu^ftions of the old State
Banks, however, were quite different from those of our reserve banks;
their dealings were direct with the public, and they were engaged in commercial banking, not in reserve banking.
It should also be mentioned that several other States-—Illinois,
Kentucky, Tennessee, Delaware, Vermont, for instance, and possibl^ Michigan-—had branch systems similar in a way to those described.

That is*

they were corporations in •which the State itself was frequently interested,
and they were partial or complete monopolies. They do not appear to have
been so successful or so extensive, however, as the branch systems of
Indiana, Missouri, Ohio, and Iowa.
Branches in the Southern States
Besides the branch systems that have been described, there were
others, mainly in tho Southern States, that in structure more nearly resembled modern branch organizations*

The branches had no independence,

and though capital might be assigned to them, they were nevertheless
merely offices of one single corporation.

The difference is usually

apparent in the name—the institutions that have been described having a

— U5 —

name like "State Bank of Indiana" to connote its official character,
while these others would have names like "Farmers1 Bank" or "Merchants1
Bank" connoting their private character.
variable distinction.

This, however, was not an in-

Some States had branch systems of both sorts, but

it was in the South that branches of the more modern type were chiefly
found.

This is apparent fpcm the table on page

of the Appendix.

No certain answer can be made as to why branch banking of the
modern type should have been comparatively common in the South, while it
was practically non-existent in the North, though it appears that in the
South the first branches were established in conscious emulation of
Scottish banking, \Thich, as described by Adam Smith, seems to have made
considerable impression there.'1' Their persistence may simply have to
be taken as one of the examples of economic differentiation between the
North and the South. None of the Southern banks had very many branches,
however. There were more branches in Virginia, which at that time ii>cluded West Virginia, than anywhere else in the South. The Farmers Bank
of Virginia, with twelve branches, appears to have been the largest branch
organization in the country at that time if we exclude the systems in the
four Western States as outlined above. Virginia banks had a high reputartion before the Civil War, and there is no record of failure or of currency
depreciation in the case of any of them.
Branches were also numerous in North Carolina, Kentucky, and
Tennessee.

Delaware should be mentioned also, because the Farmers1 Bank

^'Bryan, History o£ Banking in Maryland, 18991 P* 1^; and Starnes,
Sixty Years of Branch Banking in Virginia, pp. 27, 28.
2
^ 'Khox, History of Banking^ p. 5324 and Starnes, Sixty Years of Branch
Banking in Virginia, p. 129.

- itf-

of that State is apparently the only one of the old ante-bellum banks
with branches surviving to the present in its original form.

It was

chartered in 1807, and is still operating in three different cities three
of its four original offices.
The history of banks in the West and South prior to the Civil
War indicates that branches were taken as a matter of course. No record
has been found of contemporary dissatisfaction with them.

Some banks

had more successful careers than others, but branches appear to have had
little or nothing to do with that fact. Most banks with branches were
created by special charter, which stipulated the operation of branches
at designated points.

In Mississippi the Union Bank, chartered in 1S3S,

was criticized by the legislature for not establishing the branches
authorized, '*•' The purpose of branches in all these cases was evidently
to make adequate banking facilities accessible throughout the State, without, however, creating more banks than could be watched and controlled.
The Civil War destroyed most of the banks in the South, and the
larger ones set up after the war were national banks, since they alone had
the power of note issue. Branch banking, therefore, became almost negligible in the South from the time of the Civil War till after 19QO. During this period, however, there appears to have been nothing in the laws
to prevent the establishment of branches by State banks.

'^Dewey, State Banking Before the Civil War» p, 139.

CHAPTER III
BRANCH BAMING AND THE NATIONAL BAIJK ACT

When the national banking system was established in 1S63* ^

inten-

tion and expectation was that it would supersede State banks. There were two
primary reasons for the establishment of the national banking system.

The first

was that the Government, then engaged in the Civil War, needed a better market
for its bonds and better instrumentalities for its fiscal operations in general.
The second was that the country as well as the Government required a uniform
and sound currency.
That the attainment of this end involved the displacement of State
banks was due to the importance of the note issue function*

Some banks at that

time had no deposits at all, but were banks of circulation only.

In the Eastern

centers there were banks which were primarily banks of deposit, but taking the
country as a whole they were the exception.

The view then prevailing was ex-

pressed in the following words which Daniel Webster addressed to the Supreme
Court in 1S39:U)
"What is that, then, without which any institution is not a
bank and with which it is a bank? It is a power to issue promissory notes with a view to their circulation as money."
From I83U to 1SUU the circulation of the banks in the country, not
counting the Second Bank of the United States, was every year greater thsgi their
deposits.(2)

In ISkk

deposits were higher, but in ISU5 circulation regained the

lead and with the exception of 1S53 held it till 1S55*
have always exceeded circulation.

Since that time deposits

To trace the further decline in the relative

importance of circulation since that time is unnecessary; it is sufficient to
point out that at the present time bank deposits are nearly seventy times as
large as bank circulation, and that .the total deposits of all banks in the country are over ten times the total money in circulation.(3) The majority of banks
(1) Webster, Bank of the U. S. vs. Primrose, Works, edition, of 1851, Vol* VI,
p. 127.
(2) Annual Report of the Comptroller of the Currency, 1920, Vol. II, p. Zkf.
(3) June 30, 1931.

- 47-

- te today do not possess or exercise the privilege of issue at all, and have not for
forty years or more, while with those which do exercise it, it has "become a
function of comparatively slight moment*

At present the chief and essential

function of "banks is discount and deposit. Up to a short time "before the Civil
War it was discount and issue.
Accordingly the real purpose in superseding State "banks was to supersede their issues, upon which the country had depended for its paper currency
until that time.

It was a currency without uniformity, without known worth, and

in many instances v/ithout any worth.

The currency of national banks was uniform,

and its redemption was guaranteed by the Federal Government,
It was not the expectation however that the existing banks would be
replaced by entirely new organizations.

The intention was that the banks would

surrender their State charters and take out national charters instead.

Appar-

ently it was thought that the advantages which the banks would derive from being
under national charter and having their note issues redeemed by the Government
would alone compel them to convert.

It was soon found however that those advan-

tages were insufficient, or at any rate that they did not induce banks to enter
the national system fast enough to assist the Government in its emergency.

tax of 10 per cent was therefore levied upon all State bank notes paid out by
any bank.

In introducing the tax measure Senator Sherman said:

(i)
"The national banks were intended to supersede the State
banks. Both cannot exist together; . . .
"If the State ban3.cs have power enough in Congress to prolong their existence beyond the present year, we had better
suspend the organization of national banks,"
The tax put an immediate end to State bank issues. It also put an
end to State banks themselves—except those few which had developed a deposit

v 1 ) Congressional Globe, jStn Congress, 2d Session, February 27 > 1865, P« H39»

-U9-

business— and consequently to such branches as they had.

The law made

no discrimination, explicit or implicit, against branches however.

Instead,

Congress specifically authorized such banks as had branches to retain them.
This provision, while it indicates that branches were not objectionable, also indicates that they were not contemplated as a regular feature of
national banks. This was due to the fact that the National Bank Act was based
on the "free banking" laws already in force in numerous States—notably in
New York, where "free banking" originated.

The typical "free bank" was a

single office institution.

Free Banking
Free banking derived its name from the fact that it developed out of
dissatisfaction with the original practice of authorizing banks by special
charter only. This practice was universal, except where banks were prohibited,
until about 1837*

Its evil lay in the opportunity it gave for favoritism and

corruption in the granting of charters. The practice implied the idea of
monopoly, the benefits of which banks already chartered sought to retain and
those seeking new charters sought to share*
The New York legislature ended the issuance of special charters by
the adoption of the Act of April 18, 1838, which provided that "any person
or association of persons formed for the purpose of banking" should be
authorized "to establish offices of discount, deposit and circulation."
One important feature of this act was that it made the authorization of banks
a matter of administration rather than of legislation.

Another was that it

constituted a general banking law applicable to all banks established under

Still another was that it created these "associations" in contradistinction to "incorporated" banks, the latter being those organized under
special charter*

The most important feature of all though was the basic idea

of making banking free to anyone who had the capital to engage in it, instead
of leaving it a monopolistic or semimonopolistic privilege* Millard Fillmore,
v
in his report as Comptroller of New York in I8U9 described it as follows :(2)
'
"This is the free bank system, as it now stands, and it takes its
name from the fact that all are freely permitted to embark in it
who comply with the rules prescribed."
This idea of freedom in banking had a wide popular appeal, and the
New York legislation was copied by the majority of Eastern and Northern States
as well as by a number in the South. It had the obvious advantage of creating
plenty of banks and consequently plenty of "money," or circulating notes, which
was what a new and developing country seemed to need. The crucial provision
in all the free banking laws was that each association mast deposit bonds with
the State to protect its circulation. In the East, where there was a supply
of good securities, and a better discrimination by the authorities between
good and bad ones, free banking worked very well. It worked extremely well
in Louisiana. (3)

In the West the experience was generally disastrous, howevert

McOulloch, describing free banking in Indiana, said5 v '
"As the times were flush, and credit easily obtained, anybody
who could command two or three thousand dollars of money could buy
on a margin the bonds necessary to establish a bank, to be paid
for in its notes after its organization had been completed."
This was only a step from the special charters previously issued, since
they had "become uniform in wording and provisions.
^ Bankers' Magazine. Vol. Ill, May, I8U9, p. 679.
(3) Helderman, National and State Banks, p. 97*
McCulloch, Men and Measures of Half §. Century« p. 125#

Besides having insufficient capital, the banks would put up worthless securities behind their circulation, and the State banking authorities would
accept them.

Furthermore, too many banks of circulation only were set up in

the West and South, and to a lesser extent in the East. The result was a redundant and depreciated currency.
As already indicated, some of the States rejected free banking, and
tried either prohibition or monopoly.
banking was popular.

In the country as a whole however, free

It was considered democratic.

It gave full opportunity

to the vigorous spirit of individualistic enterprise that was characteristic
of the period.

This made it especially desirable as the basis of the national

system, for the more popular and the more numerous the national banks should
become, the better would they serve the purpose of providing an adequate and
uniform circulation and a wide market for government bonds. The popularity
that free banking would bring the national system was conceded by the latterfs
opponents. The Superintendent of the Banking Department of New York said that
"The first obvious effect of the national system mast be the inordinate multiplication of banks of small capital throughout the country.
B(i)

It is obvious that the principle of free banking was essentially
opposed to that of branch banking.

This does not mean, however, that it was

adopted as a reaction from branch banking.

It was rather a development from

social and economic conditions which were unfavorable to branch banking, for
in the Northern and Eastern States where free banking was strongest, the few
branches that once existed had already practically disappeared.
^

Bankers'Magazine, Vol. XVIII, April, 186U, p. 817.

Banks evinced

* 52no inclination to establish branches, and where they did it was generally at
the behest of the legislatures*

This was true of the South as well as of the

North. The difficulties in the way of extensive branch banking before the
Civil War are obvious*

The means of travel and communication made control of

remote branches almost impossible, as the experience of the Second Bank of
the United States demonstrated*. The same conditions forced communities to be
more nearly self-sufficient than they are now, and encouraged a spirit of localism*

At the same time they preserved rich opportunities for individual

enterprise in all kinds of economic activity. All these things considered,
it seems inevitable that branch banking should have been at a decided competitive disadvantage against free banking*

To have any kind of branch bank-

ing on an extensive scale it was necessary to create legislative discrimination in its favor, as was done in Indiana, and Iowa*

Free banking, on the

other hand, required no such protection.

Prohibition of Branch Banking
There is little evidence that the provisions of the National Bank
Act which have been interpreted as prohibiting branches were designed specifically for that purpose*

It is true, of course, that the language of the act,

read in the light of the fact that branch banking after the Civil War almost
wholly disappeared, seems to imply such an intention*

This was undoubtedly

the view in 1892, when special legislation was enacted by Congress to permit
a branch of a national bank to be set up on the grounds of the World's
Columbian Exposition in Chicago, and again in 1901 when permission was granted
to establish a branch on the grounds of the Louisiana Purchase Exposition in
St* Louis*

- 53 -

It was also the view in 1909 vhen the Comptroller of the Currency
held that "While the national "bank act does not in exoress terms prohibit the
establishment and maintenance of branch banks or agencies by associations of
primary organization, the implication to that effect is clear, ...J1*1'
Again in 1911 the Attorney General held thatj^2'
"First. Independently of section 5190, Revised Statutes, a
national bank is not, under its charter, authorized to establish a
branch or coordinate office for the purpose of carrying on a general
banking business in the place designated in its certificate of organization; and,
"Second. That section 5190, Revised Statutes, properly con*
strued, restricts the carrying on of the general banking business
by a national bank to one office or banking house in the place
designated in the association's certificate of organization."
Finally in 1924 in the St. Louis case, the Supreme Court affirmed
the foregoing opinion of the Attorney General in a decision that involved
primarily the jurisdiction of a State government over a national bank, but
incidentally the power of a national bank to establish branches, which was by
implication denied.(3) As to the effect to be given the law, therefore, there
was nothing more to be said.
Provisions of the Act Prohibiting Branches. - There were two provisions in the National Bank Act, which, without mentioning branches, nevertheless have been interpreted as precluding their establishment by national
banks.

The first, as it stood in the Act of June 3 f 1864, is as follows:

"Section 6. And be it further enacted, That the persons
uniting to form such an association shall, under their hands,
make an organization certificate, which shall specify—
"First. The name assumed by such association, which name
shall be subject to the approval of the Comptroller.
"Second. The place \?here its operations of discount and
deposit are to be carried on, designating the State, Territory,
or District, and also the particular county and city, town, or
village.
( i ) Instructions and Suggestions of the Comptroller of the Currency Relative
to the Organization, etc.. of National Banks, 1909, p. 42.
(2)
O'pinions of the Attorney General, Vol. 29, p. 98.
(3) "First National Bank in St, Louis vs. State of Missouri," January 28, 1924,
in the Federal Reserve Bulletin. Auril, 1924, pp. 281-286.

•* 5 ^ -

"Third. The amount of its capital stock, and the number of
shares into which the same shall be divided*
"Fourth. The names and places of residence of the shareholders, and the number of shares held by each of them,
"Fifth. A declaration," etc.
That part of the above specifications which relates to "the place"
where the bank's business is to be carried on clearly does not imply that it
may be carried on in more than one place.
These stipulations did not originate in the National Bank Act. They
were taken from a corresponding passage to be found in apparently all the free
banking laws of the States, the oldest of which was the New York free banking
act of April 18, 1838, which reads as follows:
"Section l6. Such persons, under their hands and seals,
shall make a certificate which shall specify:
"1. The name assumed to distinguish such association, and
to be used in its dealings;
"2. The place where the operations of discount and deposit
of such association are to be carried on, designating the particular city, town or village;
"3. The amount of the capital stock of such association,
and the number of shares into which the same shall be divided;
"4. The names and places of residence of the shareholders,
and the number of shares held by each of them respectively;
"5. The period," etc.
In the Ohio law of 18^5, which established free banking and at the
same time incorporated the State Bank with its branches, the corresponding
passage makes the same requirement as to the place of business apply to
"branches'1' of the State Bank" as to independent banks. The passage is as
follows:
"Sec. 7* Persons associating to form a banking company,
shall, under their hands and seals, make a certificate, which
shall specify:

V*' Italics ours.

* 35 "First—The name assumed by such company and by which it shall
be known in its dealings f in which name shall be included the name •
of the city, village, or town, in which its banking operations shall
be carried on;
"Second—The amount of the capital stock of such company and
the number of shares into which the same is divided;
"Third—The name and place of residence and the number of shares
held by each member of the company;"
The requirement that the place where the barikfs operations of discount and deposit were to be carried on bo specified, although originating in
form in the New York free banking act of 1833, did not originate there in substance, for the special charters by which all banks in New York had previously
been created were drawn uniformly, and specified the place of business* The
only exceptions were in the earliest charters drawn*

These, practically all

in the eighteenth century, were not uniform and did not say where the operations of discount and deposit were to be carried on*

The uniform requirement

once developed, however, was made in the case of banks with branches as well
as in the case of those without*

It therefore cannot be considered as evi-

dence of any intention to prohibit branch banking*
The second provision of the act interpreted as prohibiting branches
is the one which usually receives the greatest emphasis*

That is the last

clause of Section 8, Act of June 3> 186U, which reads as follows:^ '
"•••; and its usual business shall be transacted at an office or
banking house located in the place specified in its organization
certificate. "(2)

(1) Section 5190, Hevised Statutes, prior to Amendment of February 25, 1927•
(2) The original National Bank Act of February 25, I863, Section 11, provided
"••.and their usual business shall be transacted in banking
offices located at the places specified respectively in its
certificate of association, and not elsewhere," (Italics ours.)
This use of singular and plural pronouns with the same reference is one
of the numerous errata to be found in the original version of the National
Bank Act. Since "offices" and "places" follow the plural "their," these
terms probably were intended to apply to individual, independent units,
and there is no reason to suppose that they were inserted with any thought
of branch banking. This is substantiated by the revised wording of the
act, where the grammar is corrected and the discrepancy between this and
the first provision prohibiting branches is removed.

- 56 This passage is likewise derived from the New York law, where it appears in
an Act of April 12, 18U8, amending the free banking law, and reading in part
as follows:'1'
"All banking associations or individual bankers organized
under the (free banking act of April IS, 1838), or which shall
hereafter be organized, shall be banks of discount and deposit,
as well as of circulation; and the usual business of banking of
said association, or individual banker shall be transacted at
the place where such banking association or individual banker
shall be located, agreeably to the location specified in the
certificate directed to be made by the second clause of the
sixteenth section of the act passed April 18th, I838, hereinbefore mentioned, and not elsewhere;.••."
It is the clause following the semicolon, "and the usual business,"
etc*, that was incorporated in the National Bank Act #

On internal evidence

alone, it might be concluded that this was not originally aimed at branch banking, since it relates only to free banks, which had no branches,
(2)
There is evidence of a positive sort, however, as to what the amendment was aimed at. This is in the following official statement made at the
time by Millard Fillmore, the Comptroller of the State of New York: (3)
"It will be seen that the first and fourth sections of the act,
will, after the first day of June next, operate upon banks and
individual bankers now doing business under the general banking
law, and that every such bank is to be, and every such banker
is to keep a bank of discount and deposit, as well as of circulation and its usual business of banking is required to be transacted at the place where such banking association or individual
banker shall be located, as specified in the certificate required
by the second clause of the l6th section of the act of 1838* That
U) A previous amendment to the free banking law, passed May 6, ISHH, had
provided that it should not be lawful for an individual banker, i.e.,
not an association, to transact business in any other place than that
in which he resided.
(2) There appear to have been few branches of any sort left in New York at
the time of this amendment. See p. 29> Chapter II. However, in a law
dealing with safety fund banks passed the same day as the one quoted,
April 12, ISHS, there was a reference to "all cases where a bank has a
branch," which indicates that there were branches, and that there was
no intention of curtailing their operations.
(3) Bankers1 Magazine> Vol. II, May, 18^8, p. 7kk.

- 07 certificate is required only of associations and not of individual bankers, and the second clause of the act declares, that fthe
place where the operations of discount and deposit of such associations are to be carried on, designating the particular city,
town, or village,1 shall be specified in the certificate* In the
case of an individual banker, his place of residence is the place
where his banking business must be done*
"A practice had grown up under the general banking law, of
establishing banks in obscure places, in remote parts of the
state where little or no business was done, with a view of obtaining a circulation merely, and doing no other business* This
circulation was then redeemed in New York or Albany by the agents
of the bank, at one-half of one per cent* discount, and again
put in circulation without being returned to the bank, thereby
enabling the bank to redeem its own paper at a discount, and then
again put in circulation in the same place where it was redeemed*
The object of the present law appears to be to break up that practice, and to ensure obedience to its requirements, the legislature have enacted that the president and cashier shall in every
report made to this office, state that their business has been
transacted at the place required by that act, and that such report shall be verified by their oaths* A strict compliance with
this rule will hereafter be exacted from every bank and individual banker subject to its provisions.11
The two important provisions of the amendment, as the State Comptroller indicated by repeating and emphasizing them, were:, first, that every
bank of circulation must be a bank of deposit also; and, second, that every
bank must transact its business at the place specified*

Furthermore he ex-

plains that this requirement is intended to break up a practice which had developed under free banking of establishing in obscure and remote places banks
of issue only, the idea being to prolong the circulation of outstanding notes
by making it difficult for them to find their way back to the bank for retirement*
This was a practice peculiar to banks of issue only, and to realize
how general it had been, it is necessary to recall the fact, already emphasized by the quotation from Daniel Webster, that before the Civil War note
issue was the essential and sometimes the sole function of banks* At first

- 58 it seems to have "been considered sufficient if the notes were amply secured*

But

experience showed that security was not enough, for unless the note could return
readily to the "bank which issued it, the circulation became redundant and depreciated.

If the "banks were remote from the centers of commerce and obscure or

inaccessible, the notes could not return readily, which was a gain to the bank
and a loss to the note holder.

This was all tne more true if the bank did not

open its doors or had no known location at all, an anomaly that apparently was
not uncommon, as the following instances go to show.
In Florida in IS39 it was officially reported of the Bank of West
Florida, whose notes were still in circulation, that it appeared "to have no
fixed or permanent abiding place" and was "not to be found in the Territory,"'1'
In Ohio in 185^ tiie State auditor recommended a number of new rules
for banking, according to Sumner, "the purport of which was generally that the
banks should have a well-known and accessible domicile, and be open in banking
hours of every business day."^'
In New Jersey, a*D about the same time, the governor of the State said:^
"In many cases our banks, although ostensibly located in New Jersey, have their
whole business operations conducted by brokers in other States, The facility
with which they may be organized and located, without reference to the wants of
the community or the business of the place, is destructive to all the legitimate
ends of banking,"
In Indiana in 1855 the General Bank Act was thoroughly revised, and
a new section inserted which provided, in part, that all banks were to transact
their business "at a place designated in their issues, and where the directors,
or a majority of them, reside"; and that they were to have "painted above the
outside door of said bank, in large letters, the name of said bank or banking
association," and were to keep regular banking hours, ten to three each day.
Since several provisions of this act considerably restricted the operations
•of banks in obscure 'places, the latter were given an opportunity to re( i ) Sumner, History of Banking, p. 2U6.
(2) Ibid., p. UU5.
(3) Banker's Magazine, October, 1232, Vol. 17, p. 278..

* 59 move "to some other place of greater commercial importance" within six
months of the passage of the a c t # W
The requirement seems not to have been wholly effective, however,
for Hugh McCulloch, speaking of the situation a few years latert said that
"these free banks, organized as most of them were as banks of circulation
only, had nothing to do but to put out their notes and draw interest on
their bonds,"^2)
In Illinois, about 1858, according to Knox, the legislature passed
a bill which "prohibited the location of banks in inaccessible places."^
Massachusetts also had a statute similar to the one just described
in New York,

It read that "no loan or discount shall be made, nor shall any

bill or note be issued by any bank, or by any person on its account, in any
other place than at its banking house."

It also required that every bank

"be kept in the town in which it is established, and in such part of such
town as is prescribed by its charter."^
In Massachusetts in 1865t according to a statement in Congress by
a representative from that State, there was a bank organized under the National Bank Act, which put out its circulation and then never opened its
doors from one week!s end to the other, yet it paid its stockholders IS per
cent to 20 per cent dividends. (5)
It is evident therefore that the difficulty aimed at in the New
York amendment of 18U8 which required banks to transact business at the
(!) Indiana Laws, 1855* Chapter VII, Sections k09 k$.
(2) McCulloch, Men and Measures of Half a Century, p. 126.
(3) Knox, History of Banking, p. 725*
J|%s.§acjiasetts Bank Commissionerfs Beport, 18531 P» **!•
(5) Congressional Globe, Vol. XXXV, 38th Congress, 2d Session, I865, p# 833.

- 60 -

place specified in their organization certificate and not elsewhere was not
peculiar to that State, The situation had been bad in New York for a long
time and the amendment of 1SUS was adopted after several previous remedies
nad been attempted.

Tne statement of tne New York comptroller, therefore,

fully explains the amendment on quite different grounds from branch banking
and without any reference to it.
In the Sherman Act, or original National Bank Act of February 25,
1863, the concluding words of the New York law "and not elsewnere" were retained; wnereas in tne revised National Bank Act of June 3> 1S6U, they were
omitted.

Tneir omission makes the passage less positive then it was before,

which would appear to be a weakening of the provision. However tne point
was of importance, for during consideration of the bill Senator Howard of
Michigan argued that tne articles of association of each bank should be
published in the laws in order that "tne public should know, in every case,
wiiere an association has established itself, who its members are, etc,"^)
Senator Henderson of Missouri introduced an amendment to prevent txie locality
of tne banks from being "inaccessible," and said that one of the evils of the
State banks was that "we do not know where they are located."

His object he

said was "to avoid tne establishment of banks in those inaccessible places."^3)
The need for emphasis upon this requirement is indicated by the following excerpt from general regulations issued by the first Comptroller of
tne Currency in 1663:^ '
(i)
(2)
(3)
(*0

White, Money and Banking, 5*h Edition, pp. 313, 31H.
Congressional Globe, Vol. 33, Part 1, 1862-1863, 37th C 3rd, p. 8*+S.
Ibid., pp. 850, 851.
Bankers' Magazine, Vol. XVIII, July, I863, p. 9.

»eiu
"Before circulating notes ifrill be delivered to any bank organized under the national general banking law, the Comptroller
mast have satisfactory evidence t by the report of an examiner,
or otherwise,
"1st. That the bank is located in some city, town or village, which is easily accessible, and not in some out-of-the-way,
inaccessible place, selected for the purpose of making the return of its notes difficult or expensive."
Amendment to Permit Branches of Converted State Banks. - The supposition that the National Bank Act aimed to prevent branch banking implies
that there was in the legislators' minds when the act was being drafted
either a consciousness of some unhappy experience with branch banking or an
apprehension that such an experience might arise. No evidence has been
brought to light to indicate that this was the case. Certain proposals for
"a national bank" with branches were made before the present system of free
banks was adopted for the national system, but the feature of branches appears to have provoked no interest or attention one way or the other*
There is no mention of branches in the original act itself, either in the
form in which it was passed February 25* IS63, or in the revised and permanent form adopted June 3, 1S6U. The first and only mention of branch banking in early national bank legislation was in the Revenue Act of March 3,
I865, which put into effect the prohibitory 10 per cent tax on State bank
issues, and which also contained the section providing; first, that State
banks desiring to become national banks should be given preference over new
associations; and, second, that State banks with branches, "the capital being
joint and assigned to and used by the mother bank and branches in definite
proportions," might convert and retain their branches. The amendment embody-r
ing this provision was introduced by Senator Van Winkle of West Virginia,

(1) Bankers1 Magazine> Vol. XVI, January, 1862, p. 530; March, IS62, p. 663.

-62which had recently "been separated from Virginia.

His remarks are quoted from

the Congressional Globed '
"IffU VAN WINKLE. I have an amendment which I intended to
offer to the "banking system, I intended to offer it as a proviso to the fifth section, hut probably it would come in more
properly as a proviso to this amendment of the Senator from
Rhode Island. Its object is to enable the State banks of West
Virginia to avail themselves of the privileges of becoming national banks, though it is not confined to that State. I offer my amendment as a proviso to the amendment of the Senator
from Ehode Island, in this form;
Provided> That it shall be lawful for any bank
or banking association organized under State laws and
having branches, the capital being joint and assigned
to and used by the mother bank and branches in definite
proportions, to become a national banking association
in conformity with existing laws, and to retain and
keep in operation its branches or such one or more as
it may elect to retain, the amount of the circulation
redeemable at the mother bank and each branch to be
regulated by the amount of capital assigned to and used
by each*
"It may be perhaps that the law as it now stands would not
forbid banks of the character here described becoming national
banks and retaining their branches; but there has been some mis^conception in relation to the character of these branches. It
is not the system that prevails I believe in Indiana and Ohio
where there are in fact a number of affiliated banks regulated
by a central board of control, and the objection to their being
transferred in a bunch and made national banks is that there
cannot be two controlling powers. But the banks of the character described in the amendment that I have offered are found
in our State, in Missouri, in Pennsylvania, I believe, and in
some other States, and they amount simply to one bank having
two or more offices at which it transacts its business. In
the case of our banks the State owns about one half of the stock
and in granting an additional subscription of stock on the part
of the State—I will take a specific case with which I am more
familiar—in granting an additional subscription on the part of
the State they made it a condition that the Northwestern Bank
at Wheeling should establish a branch with a capital of $100,000
at Parkersburg. That branch was long since established, t?/enty
years ago, and has been in operation under a renewal of the
charter ever since, and is now in operation. The point that I
desire to accomplish here is to make it certain that these
banks retaining this organization with a branch, may become

(*' Congressional Globe» Vol. XXXV, 38th Congress, 2d Session, March 3, 1865,
p. 1281. The full discussion of the two amendments in, the Eevenue Act
of March 3i 1865 pertaining to national banks will be found in the Ap^
pendix, p.

-63national banks. They will be wholly under the national banking
law; they will be wholly under the control of the Comptroller
of the Currency as much as any other banks, and they will not
in fact differ from any other banks that are created by the national law except in the single fact that they will have two
or more offices where they transact business. The mother banks
generally have a large capital while the branches have a smaller
capital. In our case you could not withdrav/ those branches without withdrawing the benefaction, if you choose to call it so,
of the State to neighborhoods not so wealthy and not so well
able to have banks of their own.
"I understand that there is no objection to this amendment.
The objection of the Comptroller of the Currency, as I understood, only applied to the system of affiliated banks of which
I have spoken. Now you have determined, so far as you have
gone, to impose a tax of ten per cent, on the circulation of
these banks which have been desirous and are authorized by a
law passed at the present session of our Legislature to become national banks. I propose to let them do it without throwing off their branches, which perhaps they cannot do unless this
additional authority is afforded. I cannot see any objection
that can be made to it, and I trust that it will be adopted.n
The provision was adopted after conference in essentially the form
in which it was introduced, without any recorded objection or discussion beyond what is quoted.

The distinction which the Senator made between types

of branches will recall the explanation already given in Chapter II of the
difference between the branches of the State Banks of Indiana, Ohio, and
Iowa, and the branches of banks in most of the other States. The branch
systems to which his amendment applies, as ha says, "amount simply to one
bank having two or more offices"; while those to which it does not apply,
"in Indiana and Ohio • . . are in fact a number of affiliated banks regulated by a central board of control." His language implies that there was
no opposition to branches. If there had been any opposition, or any generally recognized experience on which to ground opposition, it is probable that
either he himself or some opponent would have mentioned it. The attitude
which he imputes to the Comptroller, Huoh McCulloch, cannot be interpreted

- 6U -

as one of hostility to branches. What McCulloch objected to was the conversion
as one unit of the kind of branch organization he knew, which was in part a State
government instrumentality and in part a private enterprise. This objection is
the more interesting since the entire previous experience of the comptroller had
been with the best known of these "branch" organizations, the State Bank of Indiana, of which he had been president. His reason for opposing such conversion
was tnat "there cannot be two controlling powers." By two controlling powers he
meant the State Bank's own board of control, which was virtually the State's
supervisory authority, and the comptroller himself, who was the Federal supervisory authority.
In his memoirs, written years later, KcCulloch describes the "branch"
system of the State Bank of Indiana with pride and satisfaction.^'

He speaks

with the same satisfaction of the national banking system. Yet nowhere does he
take cognizance of any opposition to branches on tne part of anyone, Finally the
fact that he owed his appointment by Lincoln and Chase as first Comptroller of
the Currency to his long official career with what was the best known "branch"
system in the country, would be difficult to explain if Chase and the other
sponsors of the National Bank Act had felt any antagonism to branch banking.
As it happened, tne amendment permitting conversion of banks with branches
proper was not used till more than forty years later, #hen in 1907» the first conversion
occurred of a State bank with its branch,^2'

The reason for this doubtless lios in

tne fact that in the period immediately following the passage of the provision the
( i ) Hugh McCulloch, Men and Measures of Half a Century.
^2) Tnis was the Pascagoula National Bank of Moss Point, Mississippi, having a
branch at Scranton, Mississippi* The date of tne conversion was Marcn lk,
1907-

number of banks with more than one office was comparatively small, the ma^
jority of them having been in the Southern States where banking was demoralized by the war and by reconstruction, and the number which could in
fact have applied for national charter was therefore negligible.

Moreover

there were probably few, if any, applicants with more than two or three
branches each, so that it was easy as an administrative measure to insist
upon their conversion as independent banks.
No Mention of Branches in Congressional Debates. - No mention of
"branch banking11 has been found in contemporary discussions of the National
Bank Act, either in the Congressional Globe, or in the files of the Bankersf
Magazine, with the exception of the comments on the above amendment and the
proposals for a national bank with branches, similar in a way to the First
and Second Banks of the United States,

In the accounts of the older his-

torians of banking,such as Knox and Sumner, although there is frequent mention of branches, there is no mention of them in connection with the National
Bank Act.

In Davis1 documentary study, The Origin of the National Banking

System, prepared for the National Monetary Commission in 1910f there is no
mention of branches.
Finally there mast be taken into account the fact that nothing
exists in the contemporary records of the number of banks and the number of
branches to suggest either that branches were numerous enough to excite continent or that they were inclined at any time to increase markedly in number.
Further research may discover something that will throw a different
light on this point, but the present state of the evidence indicates that the

Davis, Origin of the National Banking System, National Monetary Commission, Vol. V.

- 66 provisions which effectively prevented branch banking from developing under
the national bank legislation, till amended in 1927t had no connection with
branch banking. They originated as measures to control note issue, and were
intended, according to the explanation made at the time, to prevent the
practice under free banking "of establishing banks in obscure places, in remote parts of the state where little or no business was done, with a view
of obtaining a circulation merely, and doing no other business." That they
had the effect of almost completely suppressing such branch banking as then
existed is not to be denied. It may be pointed out, however, that the National Bank Act had also the effect of wholly suppressing the Suffolk Bank
system of New England, yet it has never been thought that it was the purpose
of the act to destroy that system.
The conclusions reached on this subject are, in general, consonant
with views expressed previously by Mr. Edmund Piatt, and Professor S, D.
Southworth. Professor Southworth wrote as follows in 1928, with respect to
the bearing of the National Bank Act on branch banking: ( i )
"Branch banking was not the issue involved. Secretary Chase
was endeavoring to bring about uniformity in the currency, with
incidental advantages to the government in a market for government bonds and safe depositories for government funds."
In an address before the Alabama Bankers Association, Birmingham,
May 20, 1927$ Mr. Edmund Piatt, then Vice-Governor of the Federal Reserve
Board, spoke as follows regarding the New York amendment of 1SUS which was
taken over in the National Bank Act;
(2)
"This New York amendment was, therefore, probably not intended to apply to genuine branch banking. As the New York
Free Banking Act became the model on which the National Banking Act was built during the Civil fer it would seem probable
that this New York Amendment of 1848 explains the origin of
Southworth, Branch Banking in the United States, p. 11.
(2) Piatt, Branch Banking for Country Banks, pp. 6-7»

- 67the provision in the National Banking Act of 1S6U that the principal business of each bank mist be transacted at 'an office1
in the place mentioned in its charter - a provision which Comptrollers later interpreted as prohibiting branches. It explains
also the apparent inconsistency of the Act of !So5 which provided that State banks with branches could convert into National
banks and retain their branches wherever located, thus providing
an indirect method of doing what another section of the law was
interpreted as prohibiting."
The evidence accumulated in the present study therefore confirms
and amplifies the ideas already advanced by the foregoing authorities.

Effects of the National Bank Act
The National Bank Act had first the effect of breaking up the State
"branch" systems in Indiana, Ohio, Missouri, and Iowa.

It did this because

note issue was an essential function of those systems. Their choice lay
therefore between conversion and liquidation. The third choice, of giving
up the issue function and becoming banks of deposit, appears to have been
considered out of the question. One reason for this was that the national
bank legislation in effect annulled such monopoly privileges as they had
under State law*

just as it annulled in effect the constitutional prohibi-

tion on banks that had been in force in Texas and Arkansas. On the other
hand, since the national banks were primarily banks of issue and since State
banks desiring to convert were given preference over new organizations, it
was natural that the Western banks should transfer to the new system and with
that change abandon the so-called "branch" arrangement that had characterized
them.
In the East the national bank legislation had little effect on
branch banking partly because there were scarcely any branches still in
operation there, and partly because deposit business was more developed and
issue had become of secondary importance to many banks

with the result that

w 6s Eastern banks were generally under less impulsion to convert.
In the South and in the border States, where branches in the sense
we recognize nowadays- were most common, the war between the States prevented
the national bank legislation from having any immediate effect one way or
the other.
Finally, for the country as a whole, the national bank legislation had the general effect of establishing free banking as the dominant
feature of the banking structure.
Summary
The facts presented in this and the preceding chapter indicate
that deductions-applicable to the present cannot be casually drawn from our
banking experience before the Civil War.
In the first place, banking functions were different. A primary
function of banks was note issue. Consequently branches were mainly engaged
in issuing and redeeming notes—or in avoiding their rejiamption; whereas
branches are chiefly important now for the receipt of deposits.
Moreover, branches before the Civil War, of whatever type, appear
to have had far more independence than branches have now. Evidence of this
lies in the fact that they were often enumerated as banks, that they frequently had their own presidents and directors, and their own capital, and
that they issued their own notes. There is also evidence of this greater
independence in the fact that the Second Bank of the United States, which
had the most extensive spread of branches of any bank ever set up in this
country, experienced the utmost danger from its inability to make its branches conform to general policy. This was due largely to the difficulties of
transportation and communication.

.69Branches operated before the Civil War were, without any known
exception, situated outside the town of their head offices; whereas the
great development of branches since 1900 has been within the cities of the
head offices.

This of itself would mean that modern branches are much more

directly subordinate to central control than the older ones..
Branch banking before the Civil War was almost wholly rural, in
the sense that no branch system operated in or was controlled from the larger
metropolitan centers; with the exception of the First and Second Banks of
the United States, whose headquarters were in Philadelphia. Branch systems
at that time existed only in the less populous States; by the time of the
Civil War there were apparently no branches at all in New York and New England. Modern branch banking on the contrary has been predominantly a metropolitan activity.

The largest and most important branch organizations be-

fore the Civil War had a large part of their stock subscribed by the States,
as was done by the Federal Government in the case of the Second Banksof the
United States, and the States participated in the management.
Finally, branches before the Civil War were not a matter of spoxvtaneous growth, in the sense that a bank would increase the number of its
branches indefinitely.

Instead the number and location of the branches of

each bank was customarily determined in its charter.
With these distinctions in mind, conclusions based on the survey
of branch banking history up through the establishment of the national bank
system, may be summarized as follows:
1*

The experience of the Second Bank of the United States did not

create any opposition to branch banking, as such, except as it represented
intrusion upon the States by a Federal corporation without their consent.

- 70 2.

The branch systems in Indiana, Ohio, and Iowa, and systems

like them in other States, seem to have been held in high repute, and converted to individual national banks under circumstances that in no way reflect on branch operations.
3»

There is no evidence of any experience with branch banking be-

fore the Civil War which might have led to widespread opposition, though there
were experiences which engendered distrust of banks in general*
k.

There is no evidence that up to and including the time of the

passage of the original National Bank Act there was any legislation specifically designed to prohibit banks from having more than one office, nor that
branch operation was recognized as an issue or as a form of banking requiring
restriction.
5«

The virtual disappearance of branch banking in the Northeastern

States many years before the Civil War was the natural result of economic and
social conditions which favored individual enterprise.
6.

The virtual disappearance of branch banking in the South after

the Civil War was due: first, to the destruction of practically all existing
banks by the war*, and, second, to the fact that banks there as in the North
had henceforth

to be under national charter in order to have the circula-

tion privilege.
7.

The provisions in the National Bank Act effeetively preventing

the establishment of branches by national banks were not adopted with that
intent, but were taken over from State laws where they originated in an effort to control abuses of the note issue privilege by banks of circulation
only.

CHAPTER IV
MOVBCEBE JQR BRANCH BANKING,

1892-1902

For ahout thirty years following the Civil War and the passage
of the original National Bank Act national hanks greatly surpassed State
hanks in "both number and importance.

During that period there was very

little "branch hanking in the country and apparently very little discussion of the subject•

In 1887 and 1888 the Comptroller of the Currency,

Mr. W. L# Trenholm, had recommended that national hanks he allowed to
estahlish offices with limited functions in the city of the head office, hut this recommendation received no important consideration.

Daring that period, however, State hanks hegan to grow in
numher and in the nineties "became more numerous than national hanks.
This increase in State hanks was due to two conditions;

first, the

development of deposit hanking to the point where it overshadowed issue
hanking; and second, the need for hanking services in rural communities
too small to have national hanks. At that time national hanks could
not he organized with less than $50,000 capital, a requirement which
was "beyond the resources of most small communities, especially in
agricultural regions. The need was therefore met hy the organization
under State charter of hanks with smaller capital.
At the very outset of this rapid increase in the numher of
hanks, however, the suggestion was made that the need of hanking ser-

'^Annual Reports of the Comptroller of the Currency. 1887, pp. U, 17,
26; and 1888, p7£.

- 71-

- 72 -

vices in such regions could be.more advantageously mot by branch banking.

In 1892 Professor Charles F. Dunbar of Harvard wrote as follows:^
"..••Moreover, the greatest possible diffusion of banking facilities, undor an admirably guarded system, might
be socurod if the establishment of branches were encouraged and facilitated by law. That, in the present
state of opinion, the branches of a central bank would
have to contend with somo local joalousios is probably;
but any real improvement in commerce or finance is tol~
ably suro to mato good its footing. It is obvious, also,
that, if tho multiplication of branches ware once fSirfy recognized again in tho United States as a natural method, as
it has boon in the past, it would be as available for central banks undor the State systems as for national banks.
For both alike it would have the convenience of making
it unnecessary to provide a full board of directors for
every establishment, large or small,--a necossity which is
often embarrassing in small places,—since a local manager
undor tho diroction and supervision of a central board
could often perform tho duties for which a local board now
has to bo made up. For both aliko it would tend to diffuse
business risks over some&hat larger areas than at present,
with a gain analogous to that which such diffusion brings
in insurance; and for both it would be possible to apply
banking capital at a given moment according to the unequal
and variable needs of tho different parts of any section
covered by a given institution and its agencies."
In 1893 a* *k° World1 s Congress of Bankers and Financiers ME,

Byron E. Walker

of tho Canadian Bank of Commerce delivered an address

entitled "Banking in Canada" in which the advantages of branch banking
for the United States were urged.
In IS9U

the Comptroller of the Currency, Mr. James H. Eckels,

in his annual report,'2' described the existing situation in the fol^MJfc*

"The Bank Note Question," Quarterly Journal of Economics, October,
1892* Bsprinted in Dunbar, Economic Essays. 190U, p. 188.
(2/Aannal Report of the Comptroller of the Currency. I89U, p. 10.

-73-

ing words:
"No one can deny that hanking has overreached itself in many connrunities. Profits are sought "by several
institutions when one strong hank only could he able to
make them, the others conducting their business at either
an actual loss, or at least without profit. The consolidation of rival concerns in such localities would
add quite largely to the available banking capital, and
at the same time escape a large proportion of expense.
It would also tend to check reckless basking springing
from an unwholesome competition to obtain business.
Such a course invites public confidence and goes to
justify it."
The Comptroller did not at the time speak of braach banking,
but the following year, 1S95#

published in his annual report the

results of an inquiry he had made into the banking systems of other
cotintries and of the various States. On yage 25 of his report he made
the following observation:
"It is notable that every country reporting allows
the banks to maintain branch offices or banks. This is
worthy of much consideration, as it appears that branches
are thought to be necessary adjuncts to the banks to enable them to exercise their function to the greatest
benefit of their governments and patrons. One country
even goes so far as to absolutely require that branch
banks must be established and operated for the convenience of the public. Our national banking act has been
construed as prohibiting all branches, except for converted State banks having them in operation at the time
of entering the national system. It is worthy of serious
consideration Aether many communities here would not be
better served with banking facilitios if branch banks,
limited to a deposit and commercial business, under the
national banking act, wore to be allowed."
At the same time

the Secretary of the Treasury, Mr. J. G.

Carlisle, discussed the subject:'1'

^'Report of the Secretary of the Treasury. I895, pp. LXXXIII-LXXXIV.

~ jk -

..*%One of the most serious objections heretofore urged
against the Rational ban$system as it now exists has been
thatf while it is well adapted to large commercial communities, where capital is easily concentrated, it has
not furnished the necessary hanking facilities to the
small centers of local trade where, especially at certain seasons of the year, such facilities are greatly
needed to assist in cultivating, gathering, and removing
our surplus agricultural products. All our trade in
these products, which constitute such a large and important part of our domestic and foreign commerce, "begins in the localities where they are grown, and it is
there that the means for their first movement must he
provided. It must he evident, therefore, that any system which will promote such a distribution of the loanable
capital of the country as will mato it easily accessible,
upon reasonable terms, to the producers and purchasers
of those products, must bo highly beneficial to both, and
I am satisfied that, under present conditions, the only
successful attempt that can be made to secure these benefits is so to amend the law as to porait national banking
associations to establish branches for the transaction of
all kinds of business now authorized, except the issue of
circulating notes. By receiving local deposits and discounting local bills and notes, these branches would not
only make the capital and resources of the parent institution available when needed in the localities where the
branches are established, but they would collect and
utilize in the business transactions of the people all
the surplus accumulations of their respective communities.
These accumulations, although small in detail, are quite
large in the aggregate in ovory industrious and thrifty
community, and if they could bo activoly employed, when
neodod in the circulation, they would materially aid in
relieving the stringency, which, notwithstanding the
abundance of currency in the financial centers, is sometimes severely felt in particular localities.11
The same year, 1895$ President Cleveland in his annual message
to Congress said:^ '

C1)sound Currency, 1895, Vol. I l l , Ho. 1, p. 6.

~ 75 -

It has always seomod to me that the provisions of
law regarding the capital of national hanks which operate
as a limitation to their location fails (sic) to make
proper compensation for the suppression of State banks,
which came near to the people in all sections of tlie
country and readily furnished them with banking accommodations and facilities* Any inconvenience or embarrassment
arising from these restrictions on the location of national
banks might well be remedied by better adapting the present
system to the creation of banks in smaller communities, or
by permitting banks of large capital to establish branches
in such localities as would serve the people—so regulated
and restrained as to secure their safe and conservative
control and management,"
In 1896, the year following, Comptroller Eckels in his annual
report made a specific recommendation in favor of branches for national
banks*

He supported his recommendation with a discussion from which the

following is taken:
"The very smallest of agricultural communities,
even though deprived of transport* ion facilities,
under a branch-bank system could still be given the
advantages of available capital, lower interest, and
lessened cost of exchange, privileges they can not
enjoy when dependent upon the banking methods employed
by the village or entirely isolated storekeeper. The
branches grafted upon a parent institution of strength
would introduce a capital into places unable to support
independent banks, which could successfully compete
with that of the local loaner of money at exorbitant
rates of interest, and make it possible to obtain
credit without endangering all property interests in
so doing,w
Slather on he said:
"It may be objected to the establishing of branch
banks that they would tend to create a monopoly. The

t1 ^Annual Report of the Comptroller of the. Currency, 1896, pp. IO3-IO5.

-76-

objection is hardly tenable; for there could not,
under the proposed amendment, he established a branch
in any cityf town, or village where a national bank
was in existence, and moreover the privilege of establishing a branch at a designated place would be
open to the competition of all banks already established outside of such place. Upon the other hand, they
would stand as an aid introduced from the outside,
which, while of profit to the nonresident shareholder, .
would in the end be of equal if not of greater benefit
to resident citizens. They could not weaken the parent
bank; for with the taking on of new responsibilities
additional capital could be required* They would place
the national banking system in this respect in line
with the systems maintained in other great commercial
nations and in accord with the provisions of some of the
banking systems of the States. Under the restrictions
adverted to, it is immaterial that the number of central banks in the United States would be so largely in
excess of those in England, Scotland, Ireland, Germany,
France, and Canada. If the principle is a correct one,
the administrative detail involved will not be difficult of solution.M
The same year Secretary Carlisle in his report said: ( i )
"For reasons which were submitted at some length in
my last annual report, and which it is unnecessary to
repeat, I recommended such amendments to the national
banking laws as would permit the issue of circulating
notes equal in amount to the face value of the bonds
deposited and reduce the tax on notes to one-fourth of
one per centum per annum, and that authority be given
to establish branch banks for the transaction of all
kinds of business now allowed, except the issue of circulating notes• These amendments would, in my opinion,
greatly improve the system, by increasing its efficiency
as a means of furnishing accommodations to the people in
times of need and in localities whore adequate banking
facilities do not now exist,"
The next year, though there was a shift of the party in power,
Mr. Eckels was still Comptroller. He made no recommendations on any
'•*• 'Report of the Secretary of the Treasury, IS96, p. LXXIX.

- 77 -

subject in his annual report "beyond reference to his previous recommends^*
tions, and did not discuss "branch "banking. He did appear "before the
House Committee on Banking and Currency in January, 1897$ however, and
in a general discussion of "bills then pending repeated his statement
of the desirability of "branches. There seems to have "been no opposition
from any members of the Committee to his suggestion.^1' The new Secretary of the Treasury, Mr. layman J. Gage, also made no mention of "branch
"banking in his annual report, "but he recommended, among other things
relating to currency and "banking, that Congress "Perait national "banks
to "be organized with a minimum capital of $25,000 in any place having
a population of 2,000 inhabitants or less.
"(2)
This change was intended
to remedy the condition for which "branch "banking had previously "been
recommended.
This question, whether it would "be advantageous to permit
national "banks with less than $50,000 capital to "be organized, had
already "been discussed that same year, 1897$ at the annual meeting of
the American Bankers Association "by two speakers. OfJe of them, Mr. G.
G. Jordan, President of the Third National Bank of Columbus, Georgia,
incidentally advocated what we should call chain or group "backing.
The other, Mr. W. C. Cornwoll, President of the City Bank, Buffalo,
advocated "branch "banking. There appears to have "boon no discussion in
(!/United States Congress, 5^+th, 1st and 2d Sessions, House Committee
on Banking and Currency, Hearings and Arguments on the Financial
and Banking Situation, 1896-1897.
22E2££ 2i **HL Secretary of, the. Treasury, 1897, p. LXXVI.

- 78 -

opposition to either* At the next year!s meeting of the association,
its president, Mr, J, C. Hendrix, president of the National Union Bank
of New York, expressed the opinion in his presidential address that
"branch hanking was desirable. At the same meeting, under discussion of
the subject "The Need of Banking Facilities in Rural Districts,* both
Mr # W # S# Woods, president of the National Bank of Commerce, Kansas City,
and Mr« John P # Branch, president of the Merchants1 National Bank of
Richmond, advocated branch banking and no opposition was expressed.
A bill was pending in Congress at that time designed to provide an asset currency and to permit the establishment of branches.
In a report on the proposed legislation dated May 11, 1898 the Banking
and Currency Committee of the House said in part: ( i )
"• . . There can be no question, in the opinion of your
committee, that the combination of the power to establish
branches with the power to issue a reasonable amount in
notes upon commercial assets would give a vigor to the
credit system of this country which has been lacking
under the present complicated and unscientific system
of fixed government issues, rigid security for bank

t 1 ' United States Congress, 55th, 2nd Session, H. R. Report 1575.
ordered to be printed June 15, 1898, p. 30.

- 79

notes, and the prohibition upon the power to establish
branches."
The House Committee also said:
"Ono of the most striking benefits of branch banking is that a branch may be creatod and maintained at
a profit in a community without sufficient business for
an independent bank* This would permit the extension
of credit into many localities in the thinly settled
portions of the country where it is now impossible.
Branch banking, moreover, permits the more ready flow
of capital from communities where it is not needed to
those where it is needed than does the operation of
independent banks.w
"Branch banking in connection with reasonable freedom of note issues has produced such favorable conditions
in Scotland and Canada that interest rates are almost
uniform throughout those countries, even in the most remote sections, and disclose none of the striking differences disclosed in this country between rates in the
money centers and in certain remote sections."
This last consideration became one of the principal points
urged in favor of branch banking.

It was contended that branch banking

would mak9 interest rates lower and more uniform, and thereby be of
special benefit to agricultural regions. Professor H# M. Breckenridge,
in a discussion entitled "Branch Banking and Discount Hates," tabulated
the diverse interest rates prevailing in different parts of the country,
compared American conditions with foreign, and contended that "The preeminent advantage of branch banking.... is its tendency to equalise domestic discount rates."^ '
The case for branch banking appears to have been advocated
along the lines indicated in the preceding quotations without much

Bankers1 Magazine, Vol. LVIII, January, 1S99;
No. lf January, 1399*

Sound Currency. Vol. VI,

~ go -

opposition until 1898.

Its advocates were in general those among hoth

Democrats and Republicans who opposed "free-silver" and defended the
gold standard in what was the main political issue of the period.** '
In the controversy which was raised "branch banking was secondary to
asset currency*
It was in 1898 that the proposals for branch banking and
asset currency met their first serious reverse*

The report of the House

Committee on Banking and Currency just quoted did not represent the
unanimous views of the committee; a minority report was rendered by
Mr. Walker of Massachusetts in which the committee bill was severely
criticized at all points and a substitute bill prepared by Mr. Walker
himself

was recommended.

With respect to the branch b anking provisions
(2)

of the committee bill, the minority report read as follows:s '
"The Hill-Jowler bill authorization of branch banks
is very bad economics as compared with encouraging the
local independent bank, and still worse statesmanship*
"It finds no justification in the policy of our
free banking system or in any amendment of it proposed in
this bill.
"It is unwise to permit powerful city banks to extablish branches in places of l+f000 inhabitants or less.
The putting its local agent in a place with no interest
in it other than the money he can make out of it for his

(1/The activities of the group of economists and bankers who advocated
the gold standard, asset currency, and branch banking are covered in
their publication Sound Currency^ Vols* 1-10* See especially discussions by Horace White. R. M. Brockenridge, H. Parker Willis.
A. Barton Hepburn, James B» Forgan, I#man J. Gage, L. Carroll Root.
(p)
v&

'United States Congress, 55*hf 2nd Session, H. R. Report 1575, Part 2,
ordered to be printed June 23, 1898, pp. U4, l+f.

- 81 -

nonresident employer, means that no independent local
bank, managed by its citizens, can be established in
the town, and if one is there it must go out of business."
"The agent of the city bank may for a time loan
money, in 'good times,1 at rates to drive out the country
bank, and in times of stringency the funds with this
country agent will be sure to be immediately returned
to support the city bank. The customers of the country
agency will be sacrificed to the necessities of the
parent bank.
"Generally there are two stores in a town* In
times of excitement each is the headquarters of one
political party. Tho agent of tho parent bank knows
tho politics of his city employer, and again the bestowal of his favors is liablo to bo influenced by
his own politics.
"But our choice mast b e made between one groat
'United States Bank1 with ten thousand branches, and
on the othor hand ten thousand independent local banks,
united together, that all in union may support each,
and thus all together mako each socuro in times of
stringency or in throatonod or actual panic, as in
tho Walker bill,"
"Under tho Walker bill independent banks will bo
formed in every considerable town by its leading citizens and in tho immediate future.
"Each bank will necessarily have in its direction
tho two storekeepers. It will necessarily have Republicans, Democrats, and Populists in its management.
Thoro are not enough men in either party alone so
situated as to maintain the bank."
A much moro serious rovorso for the proposed legislation occurred
a few months later when tho now Comptroller of tho Currency, Mr. Charles
G. Dawos, in his annual report for 1898, expressed vigorous opposition
to the proposals for asset currency and only a qualified approval of

- 82 -

branch banking.

Ho recommended, (1) "in accordance with former recommen-

dations of his predecessor, that domostic branch banking should be
legalized in communities of loss than 2,000 inhabitants, many of which
are now unable to support independent banks." This was followed, however, by an argument against branch banking on a larger scale.
"The main arguments which are advanced in favor
of the granting of more liberal privileges of branch
banking than this, are based largely upon the theory that
with branch banking allowed in all communities, irrespective of size, more uniform interest rates would prevail throughout the country, and the flow of capital to
points of scarcity would be facilitated."
"The facilities now afforded by the 3*600 national
banks of the country for the movement of capital toward
points of scarcity are such that any new system would
probably not result in great changes in the general rate
of interest. But when the economic tendencies adverse
to business individualism involved in unlimited domestic branch banking are considered, the question of
interest rates becomes secondary,"
The action of the Comptroller caused considerable surprise and
criticism, since in certain respects it was in apparent conflict with
the recommendations of the Secretary of the Treasury, Mr. Lyman J. Gage,
whose report was dated the day following.>3/

it was also in opposition

(1/Annual Report of the Comptroller of the Currency« 1898, p. xl.
(2'In view of the aggressiveness and prominence of the Cook County
Bankers1 Association in opposition to branch banking years later,
it is interesting to note that several of the porsons interested
in the movement for and against branch banking at the time of this
early movement were connected with Chicago banks. Mr. J. H.
IdkalsjWho appears to have been the first Comptroller to recommend
emphatically branch banking, became subsequently president of the
Commercial National Bank* Mr. Charles G. Dawes, whose opposition
to branch banking was of decisive importance, became president of
the Central Trust Company. Mr. layman J. Gage was president of the
First National Bank when appointed Secretary of the Treasury, and
Mr. James B. Forgan, one of the public advocates of branch banking,
succeeded him in the presidency of that bank.
(3)Report of. the. Secretary of, the Treasury. 1898, p. CIV; see also 1897,
pp. LXXVI-LXXXI.

- S3-

to the asset currency and "branch "banking provisions in the McCleary "bill
then pending "before Congress and favored "by the party in power*

Accord-

ing to the Bankers * Magazine the proposals attacked "by the Comptroller
were founded on the ""best features of plans proposed "by former Comptrollers of the Currency, "by the most experienced "bankers and financial
experts," and had !,a still more solid foundation in the history and
experience of practical "banking in this and other countries."

In a

note entitled "The Comptroller's Objections to Currency Reform" in the
Journal of Political Economy* March, 1899 > Professor Breckinridge made
the statement:

"Among other things, it has "been pointed out that the

comptroller is in opposition, on the question of "banking reform, not
only to his party and its pledges, hut to the weight of expert opinion
in the United States*"
Nevertheless the opposition checked immediate action and the
McCleary bill was withdrawn from the calendar.
In his following report, 1899t *^e Comptroller did not review
the recommendation that "branches "be authorized in towns of less than
2,000.

Instead there was the following:'*'
"In accordance with the recommendation of the President and the Secretary of the Treasury, and for the purpose of affording our smaller communities the "business
advantages incident to increased hanking facilities, the
Comptroller would urge the enactment of laws authorizing the
organization of national "banks with a capital of $25,000
in towns of 2,000 or less population."
A provision to this effect, the size of town "being changed to

3,000, was enacted three months later in the Currency Act of March lU,
1900; and at the end of the year the Comptroller reported that "In
-

•inn

illil

111 H I B — iiim iiwi.il

•

1 IIIII 1 1

v*'Annual''fierpprt of the Comfltirallor of the Currency, 1899*, p . XX.

- gij.~

anticipation of and as a result of the passage of the currency law
passed March lk,

1900, approximately one thousand informal applications

for authority to organize national hanks have "been filed,..."^ ' He
also reported that in the period of ahout seven months since the
passage of the act, 20S national banks with capital of $25,000 and kl
with capital "between $25,000 and $50,000 had been organized, most of
them being in the Middle West. About half of these were primary
organizations.
It should be noted that the great increase in the number of
banks, national and State, which ran through the two following decades,
began about this time.
Although the increase in the number of banks, as a consequence
of the new law, tended to relieve the dearth of banking facilities in
agricultural regions for which branch banking had been urged as a relief,
nevertheless, the advocacy of branch banking and asset currency continued. Bills covering these subjects remained before Congress. The
controversy became more vehement than before, though some of the proponents were already discouraged by the political opposition.

Thus

the Secretary of the Treasury, Mr. lyman J. Gage, describing the weaknesses of our banking system, which he said "is devised for fair weather,
not for storms," used the following words, having in mind the events
of 1 S 9 3 : ^

t 1 ^Annual Report of the Comptroller o£ the Currency, 1900, p. XXX.
(2'Report of the Secretary of the Treasury> 1901, pp. 76, 77- Reprinted in Sound Currency, December, 1901, p. .236.

-g

"....Many bank failures occurred and business bankruptcies were numerous; factories and work shops
were closed, and unemployed labor suffered the pains
of want. Nor could these evil consequences, under
the limitations of our banking system, have been
avoided. Unless modifications be made whereby the
strength of association can be secured, and the surplus power of the safe and strong extended in confidence to the support of the weak and exposed, a
repetition of the disastrous phenomena of 1893
awaits only the progress of time»
"Argument has been put forward for a system
which contemplates a large central bank with multiplied branches. That system does, indeed, afford the
elements which would give the highest assurance of
protection against the.prosont evil of individual
banks, each an independent unit, with no bond of
cohesion, no power of cooperative action, no ability
to coordinate for the general good or for mutual
defense. But the proposition for large central
banks, with broad powers for the establishing of
branches, offends the common instincts of our people,
and may fairly be looked upon as at present impossible of realization."
In May, 1902, Mr. Horace White, who had for some time been
one of the most active advocates of branch banking, made an address to
the Joint Convention of the Bankers1 Associations of Missouri, Kansas,
Oklahoma, and Indian Territory on "Branch Backing:

its Economies and

Advantages." The following is taken from his address:' '
"There is a wide diversity of opinion in this
country as to the advisability of branch banking, and
this diversity exists largely among bankers themselves.
The mass of the people know nothing about it, and few
of them care enough about it to study the question*
The doctrinaSifest the college professors, the economists,
are generally in favor of branch banking. They are not,
however, so far as I know, in favor of forcing that

fo'Sound Currency. Vol. IX, June, 1902, pp. 51, 52.

- S6 ~

system upon the national hankers against their will....
......I for one do not "believe that "branch "banking will
ever he adopted "by Congress until the majority of
"bankers acquiesce in it. Nevertheless, I "believe that
it will come, "because I "believe that it will "be economical and prof itahle to all hanks in both city and country,
and that it will extend and enlarge instead of crippling
their "business, and that after trying it they will wonder
why they were ever opposed to it.,!
According to the Commercial and Financial Chronicle, the hankers, after
listening to the address and discussing the subject, passed resolutions
condemning "branch hanking "in all its fo:nns as being unpatriotic, un.American, unbusinesslike and as tending to establish a monopoly of the
honored business of banking in the hands of a few millionaires to the
exclusion of the men of the West, old and young, who have labored so
faithfully and well to make our banking system what it is today, the
best in the known world,"
In that same year an even more decisive test of feeling on
the subject was made at the meeting of the .American Bankers Association in New Orleans, where the main topics of discussion were branch
banking and asset currency.

The address of the association^ president,

Mr. Myron T. Herrick, was largely occupied with it, and other principal
speakers on the subject were Mr. W. B. Ridgely, Comptroller of the Currency, Representative Charles N. Fowler of New Jersey, Mr. Charles G.
Dawes, President of the Central Trust Company of Chicago, and Mr* Horace
_
(1)
white.
These addresses are extremely illuminating records of prevailing
attitudes on the subject.

'*'Proceedings of the American Bankers

Association. 1902.

- 87 -

Mr. Herrick in discussing "branch hanking described the experience in Australia:'1'
"President Stickney, of the Chicago Great Western
Railway Company, urged with marked ability before this
Association last year, that the experience of Canada
proved the desirability of branch banks and note issues
secured by bank assets, and we wonder that anything
other than a Scotth banking system should be taught by
the experience of the great self-governing colonies of
England. The ordeal which Australia passed through
after the Baring failure is suggested in this connection. In that country of very large gold reserves and
exceptional per capita wealth, the multiplication of
branches of great banks established in Sidney^ Melbourne and other cities$ had been carried to the extreme limit of possible need, in the most active times.
When the crash came in land values, as an inevitable
result of overspeculationf and when general business
languished, the banks did not pay, and they could not
safely be closed ^toen the public was uneasy and apprehensive. The managers of branch banks had been far too
ready, in eager competition for patronage, to procure the
loaning of funds on security unfit to stand the test of
hard times. In the beginning of 1892 there were 28 banks
in the Australian colonies of Great Britain, with more
than 1,700 branches, which had gone through the first
crisis of I89I. But in the following year panic swept
the Antipodes. Immense banks, one after another, succumbed to ruin and losses. Some had deposits reaching
$50,000,000 apiece. Others owed their patrons from
$25,000,000 to $35,000,000. In several instances a
single big institution had over 100 branches. Several
banks went down in spite of capital paid in to the
amount of more than $5,000,000 apiece."
Mr., Dawes,, in more outspoken opposition to branch banking and
(2)
asset currency, said:v
"I want to speak now for a few moments about this
branch banking proposition. Those of us who oppose

U Proceedings of the American Bankers• Association. 1902, pp. 10, 11.
(2hbid%,pp. 119, 120.

- ss

"branch hanking have no quarrel with political economists as to the principles which are involved. We
know that a "branch hanking system would cost the community less in the amount of interest which must he
collected to pay the expenses and profits of a hanking system.
"We admit that there would he a less number of
hanks, a less number of clerks, a less amount of rent
to pay and greater facility in the movement of money
"between the different sections of our country, and
greater convenience to some lines of "business* Nor
do we take the ground that the small hanker, as a
small "banker, is entitled to any greater protection
than any other class of small "business men when the
interests of the public are at state, The position
we do take at this time is this: That to let the great
central hanks of our cities into competition with the
smaller hanks of the country "by taking down the restrictive legislation of present laws would so injure
the opportunities for credit of the present great class
of "borrowing customers of small hanks—those men who
are starting small enterprises, who are starting small
manufactories, who are developing the mineral and agricultural wealth of this magnificent country of ours,
which is as yet an undeveloped country— that we would
so injure them that as a national policy it would he
most unwise for us at this time to adopt."
In conclusion he answered the argument that the experience of
other countries with hranch hanking had proved its superiority to -American
practice, in the following words: CD
".•..And we have the greatest hanking system that the
world has ever known. Thank heaven this great system
has "been "built up under the American theory as distinguished from the monarchial theory—"by protecting
the opportunities of the small institution, hy protecting the right to exist and the right to grow of
fifteen thousand differentiated hanking units as distinguished from a great central hank protected hy
government and ramifying out in its commercial influence hy "branches which prevented the proper development of the country through small institutions fit to
cope with the conditions of their localities, huilt
Proceedings of the American Bankers Association 1902, p. 121.

- 89 -

up as we have "built up the great American nation--not
from the top down, hut from the "bottom up—"by protecting the rights of the individual, by fostering the
great American principle embodied in the American Constitution that the greatest national good comes from
the protection of the rights and opportunities of the
smallest and weakest as well as the greatest, "built up
until now in "banking, as in commerce, we are coming to
"be the great and dominant power in the "business of the
world.H
On this general point

Congressman Fowler of the Banking and

Currency Committee of the House*, in the course of his address advocating
branch hanking and asset currency, argued that there was extreme weakness in our "banking structure:^ '
"Hardly a single financial or currency law graces
our statute hooks that has "been the result of cool,
clear, dispassionate calculation and economic reasoning;
hut nearly all of them have sprung from the necessity of
war, political purpose, or the shock incident to some
commercial convulsion.
"The result is that the hanking "business of the
country is conducted in a most wasteful way, with
machinery utterly inadequate to provide far the business at hand, and wholly unsuited to successfully withstand the storms of expanded credits and keep the debtors
in safety wktile contraction rages and panics prey upon
prices.
"At the very time when banks should be of the greatest assistance our 12,000 integrated, so-called independent banks become the most dependent weaklings and
destructive forces in the business organization. Each
individual institution, conscious that all its creditors
know its weakness, begins the desperate struggle of selfpreservation and ruinous liquidation follows,"
The same speaker, in anawering Mr. Herrick!s criticism of
(p)

branch banking already quoted, said:K '

I1'Proceedings of the American Bankers
(2>Ibid,,p, 100 •

Association. 1902, p. 112,

~90~

Mr. Herrick alluded in his speech to the fact
that there had teen great failures in Australia, where
the hanking system was Scotch, hoth as to currency and
branches. That is true, "but it was because those banks
forgot that their business was a commercial business,
and went into the real estate business. The fact that
they failed only proves that no well-managed bank,
dealing with the commerce of a country, will engage in
the real estate business.ff
With reference to the principal argument in favor of branch
banking, that it would lower interest charges to country borrowers,
Congressman Fowler made the following remark:^'
"A banker said to me a short time ago: fDonft
you know, Mr. Fowler, that five thousand bankers are
against you?1 I replied: ! I do, but I kaow on the
other hand that there are five million borrowers for
me. 1 "
A contrary view of the practical aspects of the issue was
expressed by the Comptroller, Mr. Ridgely, in a stimmary of the situation:^
11

1 believe in branch making. Theoretically, it
is the best system, as it is more economical, more
efficient, will serve its customers better, and the
organization can be such as to secure in most respects
better management. Owing to co-operation between its
branches, it can be made safer than any system of independent banks. If I were outlining a new system for
a country in which there was none, I would adopt this
system; and I regret that it was not adopted or permitted in the beginning of the National banking system. I believe the National banks would be stronger
and better to-day if branches had been permitted and
the system had been developed with the branch feature
an essential part of it. If this had been done the
currency would doubtless have been made more elastic
before now. If it had not, it would be easier now to
do so with a system of large banks with numerous
branches. Our system, however, was started on the
other plan. All its growth has been in the other

C1/Proceedings of the American Bankers
( 2 >Ibii t p. 72.

Association, 1902, p. 110.

-91-

direction. Our people know the independent home tank
and banker. It is too radical a change for the hank,
the hanker and the customer, to introduce at this late
day. I do not think it would he wise to make such a change
now if it could he done. I most emphatically believe it
will not and cannot be done. The majority of bankers,
the majority of the people are against it, and they will
see that the majority of Congress are against it.11
This same obstacle in the way of branch banking legislation
was described by Mr. Dawes:*- '
"As bankers we do not need much education in the
theory of branch banking. We have read the text books.
But tell us something about the chance for the passage
of such a law at this time. Do you think that now,
when there seems to be a growing public apprehension as
to this great process of consolidation of business
interests which is, going on in other lines in this country; when the whole country is agitated concerning the
effects of the immense steps in the centralization of
industry which is accompanying the foimation of these
great industrial corporations; when there is an increasing and general apprehension that through that
process the scope of individual activity is being too
limited; when the Congress and the Executive and his
Cabinet are studying and discussing the question of
either regulation or additional restrictions in corporation law, do you tell us that there is any chance of
Congress taking down the restrictive provisions of the
law which prevents branch banking, and which prevents
the formation of great central banks and branches?"
At the same convention a resolution was later introduced by
Mr. A. J. Frame, President of the Waukesha National Bank^and though
it failed of adoption, it probably illustrates, as did the resolution
adopted at Kansas City six months before, the feeling of the average
unit banker. Mr. Frame's resolution was in part as follows:

^'Proceedings of the Aaerican Bankers
< 2 >IMd„pp. 132, 133.

Association. 1902, p. 120.

-92-

"Whereas, In the past forty years the United
States has forged ahead hy leaps and hounds in material prosperity until to-day it has distanced all
competitors, and we helieve the most potent factor in
producing this result, next to the intelligent energy
of our people, is the aid given hy the hanks; and,
"Whereas, While this great advance has heen in
progress the hanking system of this country—under
the fostering care of local ownership, coupled with
continual progress in conservatism and sounder hanking laws—has more than kept pace with the general
progress in other lines, until to-day her hanking
powervr. •exceeds 4U per cent, of the world1 s hanking
power;. •. •
"

therefore he it

"Resolved, That the .American Bankers1 Association
is opposed to the passage hy Congress of the so-called
Fowler hill, which undoubtedly would revolutionize the
present system of hanking, thus forcing the 500*000
stockholders to sell their vested rights or stand monopolistic competition, and substitute therefor a hrood of
two hundred or three hundred great central hanks, with
10,000 to 15*000 "branches in large cities as well as
small, and as such "branches would have no capital and
only figure-head management, individualism in management
would cease, local tax he evaded, no home distrihution
of profits, local progress retarded, in short, the
great central hanks would skim the cream from the whole
country to enrich the exchequers of the great central
hanks, further....
"Resolved, That as the quality of our money is undoubted and the quantity ample for all legitimate requirements—hut not for wild speculative purposes—we
are opposed to an asset currency that will further inflate credit, drive our gold ahroad under the Gresham
law and help us into a panic when we are out of one;..
• • # . . • . "

At this meeting in New Orleans in 1902

the early movement

for "branch hanking, which had run ahout ten years, may he said to have
spent itself. The hankers, realizing that the movement threatened
their independence, offered it their determined and vigorous opposition.

-93-

At the next year*s meeting of the association the subject was scarcely
mentioned*

Mr. Frame, in summing up progress in mrrency reform during

the year past, used these words:

"Branch hanking in the United States

has been relegated to the rear*"

"Asset currency with its first lien

to rob the depositor has not "been considered by the committee and is
doomed to certain defeat,"'**•'
The success of the hankers was indirectly acknowledged by
the currency reformers. Mr. H. Parker Willis, in discussing the situa^tion in 1902, said that "from a political standpoint," one of the greatest obstacles in the way of the desired reforms was "found in the selfishness of some of those who are at the head of national hanks of low capi(2)
talization." He continued:N
"•..•Country hankers foresee danger to themselves
in the possibility of inroads upon their fields of
effort, should the larger institutions of the cities
be permitted to establish branches and compete with
them in their home market on equal terms. They know
that such a policy would result in a reduction of
interest rates in their towns and that their chances
for the profitable use of their funds might thereby
be somewhat diminished unless they were prepared to
go as far as their new rivals in serving customers
cheaply. The usual complaint against such proposals
is that they would result in building up a money
power which would crush the small banks out of
existence. A more absurd reversal of the actual
facts in the case could scarcely be imagined. What
the establishment of branches w ould actually do would
be to destroy the local money power which now practically stifles many forms of legitimate industry by
the pressure of excessive interest rates, and by other
even less justifiable means."

Cl/Proceedings of the American Bankers Association, 1903, p. 162.
'2'Sound Currency. Vol. IX, March, 1902, pp. 23, 2*+.

-9*-

The next year, speaking with regard "both to "branch hanking and
asset currency, he said:^1'
"The most potent cause of difficulty is found
in the attitude of certain "banking interests, and
particularly of the country "banks, in the United
States J1
There still remained, however, a conviction that the theoretical advantages of branch "banking would prevail over the practical objections to it*

In the same year, 1903f Professor 0. M. W. Sprague

wrote:v '
"Upon few subjects has the consensus of opinion
of "both economists and financial writers "been more
general than upon the advantages of "branch "banking
over a system of separate local hanks. Its superiority
in respect to safety, economy, the equalization of
rates for loans, and the diffusion of "banking facilities, cannot "be questioned. The system is oommon to
all commercial countries, with the exception of the
United States; and it has been the settled conviction
of writers to whom experience and knowledge of banking
give authority that its prohibition in the national
banking law and in that of most of the States is a
serious defect, and that these advantages would follow
the adoption of the system in this country*....
"The advantages of branch banking are incontestable; and the arguments urged against the system
are after all, in large part, dependent upon temporary
conditions and feelings."
Yet as a matter of fact, so strong had been the reaction
against the proposal for branch banking that, except for occasional
academic mention, the subject was dead, and the controversy that was
active from about 1892 to 1902 was practically forgotten. Tor in-

C1 /Sound Currency. Vol. X, December, 1903, p. 136.
'2'"Branch Banking in the United States," Quarterly Journal of Economics.
Vol. 17, February, 1903, pp. 2^2, 259.

-95-

stance, Professor William A. Scott

of the University of Wisconsin

his hook, Money and Banking, published in 1903* gave a very judicious
discussion of "branch hanking, taking into account both what was said
for it and against it*
book

In 1910 he published a revised edition of his

in which he omitted this discussion.

Branch banking, Yfoich had

seemed timely and deserving of discussion in 1903* had evidently lost its
importance entirely by 1910.
At the convention of the American Bankers

Association at

Denver in 1908, where Woodrow Wilson in the course of an address spoke
favorably of branch banking, Mr* Byron E* Walksr, President of the
Canadian Bank of Commerce, whose address in Chicago in 1893 has already
been mentioned as one of the pioneer recommendations of branch banking
for this country, said that the purpose of his paper would be amply
served if he could "for one brief moment lay emphasis upon the disagreeable fact that while reform in the banking and currency systems of
the United States is absolutely necessary, there is no probability whatever that any substantial reform will take place at the moment •"
As the discussion has indicated, the two related aims of the
currency reformers were asset currency and branch banking*
two they had been working for almost twenty years*

For these

Their main interest

lay in asset currency, however, and their interest in branch banking
arose in large part, though not wholly, from the fact that it presented
itself as the obvious centralizing agency for the proposed currency*

- 96 -

It was still recognized that a centralizing agency wets essential, hut
since the door to centralization through hranch hanking was shut, other
angles of approach had to he attempted.

Consideration of currency re-

form went on, therefore, without "branch hanking, and the National Monetary Commission in 1911 mentioned "branch hanking only incidentally in
the descriptions of various hanking systems which it studied.

It was

not considered in thefioismission'srecommendation. Senator Aldrich,
however, the chairman of the Commission, mentioned the subject in
an address in the following words:^'
"Competent authorities hase the success of the
Canadian system upon their extensive use of "branches.
Of course, I realize that there are in this country
a great many intelligent men who think we ought to
have a system of "branch hanking like the Canadian;
hut unless I greatly mistake the character of the
American people that will not he possible. In my
judgnent any system which is to he adopted in this
country mast recognize the rights and the independence of the 25f000 separate hanks in the United
States."
Mention of hranch hanking was also made hy the Vice Chaiitnan
of the Commission, Representative E. B. Vreeland:v '
".•..No one will ever live to see the day when the
hranch hanking system...•will he tolerated hy the
people of the United States. It is un-Jimerican.
It is not in accord with the jftmerican character and
.American itteas."
Further on he said:
"The economies of the hranch hanking system are
such that no other system can live "beside it. It is
just as sure that as the sun will arise to-morrow that
the hranch hanking system, if taken up in the United
States, would in the end drive out of existence all the
hanks in every city and town in the country outside of
the great financial centers."
(l)National Monetary Commission Re-port, 1911, Vol.20, p. 2k.
(2)Address at New York State Bankers1 Association, July, 1910.

- 97 -

In reading these two statements it is well to hear in mind
how greatly the picture had changed in twenty years. At the time
Senator Aldrich spoke the number of banks had risen, since branch
banking was first suggested in 1892, from 10,000 to 25,000. Capital
and enterprise were going into the establishment of new banks every
day*

In 1910 and 1911 the number of banks increased almost 1,000 a

year. The small communities for which branches had been recommended
eighteen years before, so that they might not be without banking
facilities, were now presumably being supplied in abundance with independent banks of their own. So long as these independent banks prospered and performed their functions satisfactorily, there could be
little ground for aggressive advocacy of branch banking, even by those
who were still convinced on principle of its desirability. (1)
Three things stand out with respect to the movement for branch
banking whose course has been reviewed. The first is that it was coi>cerned exclusively with branches for rural communities; the second is
that it did not arouse great public interest, but remained an issue
among specialists; the third is that the opposition raised among bankers
was politically overwhelming.
The purpose of the movement, as avowed, had been to make the
flow of credit easier between the financial centers, where the supply of
money was greatest, and the farming regions, where the demand for it was
most acute. The rejection of the proposal meant postponement of a closer

is interesting to note, however, that what appears to be the first
book published in the United States on branch banking appeared in 1911*
It was entitled A Rational Banking System, and was by H. M. P. Eckardt.

~ 98 -

community of financial interest between country and city than already
existed*

Tor this decision it appeared on the surface that the country

bankers were mainly responsible, since the emphasis was placed on the
importance of this independence*
city banters

It is not improbable, however, that

with correspondent relationships which they preferred not

to disturb were just as influential in determining the decision against
branch banking as were the country banters in whose interest that decision appeared to have been made.
That the movement for branch banking should not have attracted
great public interest is to be expected, considering the technical nature
of the subject. Moreover, even to the extent that public interest was
aroused, the arguments for branch banking were chiefly economic, while
the arguments against it were chiefly political and social*

It was not

possible, therefore, to obtain a decision on purely economic grounds.
That the opposition of the banters should have been overwhelming,
in the absence of any real public interest in favor of branch banking, is
not strange. Nor is it strange that the banters, pursuing, as in the
main they were, a thriving and profitable business, should have been more
moved by the probability that branch banking would affect them individually
than by the possibility that the economic system as a whole would prof it*

CHAPTER V

BRANCH BAfflgTO AMONG- STATE BANKS

Although the movement described in the preceding chapters failed
to accomplish its aim and the establishment of branches remained illegal for
national banks, an increasing number of branches of State banks came into
operation.

This is apparent from Chart 2, Chapter I. That the growth in

branch banking should become noticeable just at the time the agitation for
it was dying out is an interesting fact. The growth occurred, however, in a
different quarter from that in which it had been advocated.

The advocates

had in mind rural and agricultural communities, but it was in large cities
that branch banking now began to show the most perceptible development•
In 1900 the number 6f branches outside the city of the head office
was 9^t while the number of branches inside was only 25«

In the years fol-

lowing the branches inside the head office city increased much more rapidly,
so that $& 1915 they were considerably in excess of the number of branches
outside.

In fact from 1900 to 1930 branches in large cities, which are ap-

proximately-identical with branches classified as inside the city of the
head office, increased much more rapidly in number than rural branches, which
are approximately identical with branches classified as outside the city of
the head office. Between June, 1930* &&& December, 1931, the number of city
branches has declined, but the number of rural branches has shown a further
increase.

growth of City Branches
The increase, in city branches since 1900 has occurred chiefly in a

- 99 -

- 100 few large cities—New York, Cleveland, Detroit, Philadelphia, and Boston*
The increase in rural branches in the same period was most notable in
California, though it was also important in Louisiana, South Carolina, Maine,
Maryland, North Carolina, Arizona, and Tennessee.
nia are described in a separate report.

Developments in Califor-

Developments in New York, Massa-

chusetts, Ohio, and Michigan are described in the following paragraphs.
New York. - Developments in New York began in 1398, when the law
was amended with a specific authorization of branches. Prior to that Section S9 of the Banking Law of 1292 had read:
"No bank in this state, nor any officer or director thereof, shall open or keep an office of deposit or discount other
than its usual place of business."
This prohibition appears to be a rewording of the gist of the Act of April
12, lSUS, which, as described in Chapter III, was designed to curb the wildcatting of bank notes.

There is no evidence that it was brought about by

any contemporary experience.

The evidence is rather to the contrary, for

in the same law in which the prohibition appears there is a restatement of
provisions for State bank note issues which the National Bank Act had made
obsolete twenty-seven years before. The change appears to have been merely
incidental, therefore, to a general codification of the banking law.
The Act of April 22, 1S9S, which amended the foregoing, provided
that banks in cities of over 1,000,000 inhabitants might have branches. The
act applied therefore to New York City alone. The law required that the
banks1 charters provide for branches, and therefore existing charters had
to be amended before branches could be established.
The pioneers in establishing branches in New York City appear to
have been the Corn Exchange Bank and the Colonial Bank.

The Corn Exchange

had five branches in 1900, and the Colonial Bank, three. Three banks, the
Astor Place Bank, the Hudson River Bank, and the Queens County Bank, are
also listed in old directories as "branches of the Corn Exchange Bank";

- 101 whether they were then affiliated banks subsequently absorbed, or were offices still continuing to bear the names of banks already absorbed, is not
clear. The Colonial Bank was apparently an affiliate of the Hanover National
Bank at that time/ 1 )

It was an up-town bank, its head offices and branches

being on the upper west side far from the financial section. The Corn Exchange Bank, though its head office was in the Wall Street, district, was
establishing its other offices in quite different parts of the city. Three
other banks had one branch each, the Nassau Trust, the New Amsterdam, and
the Union Bank. This made five banks operating eleven branches. In 1905
the number had increasedto 3^ ^an&s with S6 branches.
The 1898 law was interpreted as giving the superintendent of banks
no authority to keep a bank from establishing branches, and in his 1905 report he recommended that the law be changed to give him unquestioned authority to do s o / 2 '

In 1906 his recommendation was that he be given the same

control over the establishment of branches that he had over the establishment of banks. (3)
In the fourth week of October, 1907—the height of the panic of
that year—ten New York City banks suspended. Of these all but three had
branches, the total number being twenty-one; the Hamilton Bank had six; and
the Jenkins Trust Company, five. The superinten4ent of banks, in commenting
on the fact that seven of the ten suspended banks had branches, said:
".....In several cases the failure may be attributed in some
measure to this fact. As the company became weakened, the ad-

(!)
(2)
(3)
W

Sound Currency. 1902, Vol. IX, p. 100.
New York, Annual Report of Superintendent of Banks, 1905, PP# xxiv-xxv.
Ibid,, 1906, pp.. xxxi-xxxii.
Ibid%f 1907t H U xliv-xlv.

- 102 ditional exposure rendered possible by the existence of these
branches greatly increased the embarrassment.
"The maintenance of branches, in our judgment, requires
that the corporation have greater strength than would otherwise be necessary.
"The establishment of a branch of either a bank or trust
company is in effect the opening of another institution.
There should therefore be a statutory minimum requirement
as to capital in order properly to protect the corporation
in the extension of its business."
..•....•
"In my judgment the minimum amount of capital prescribed by statute for a bank or trust company should be increased for each branch by $100,000* As elsewhere stated,
I deem it wise that no branch of a bank or trust company
should be established without the consent of the Superintendent of Banks and his approval of the location of such
branch office•
"I therefore recommend:
"That no bank or trust company shall hereafter establish a branch without the written
consent of the Superintendent of Banks, nor unless its capital be equal to the amount required by statute for incorporation with an additional $100,000 of capital for each branch
established after incorporation.
"I further recommend:
"An enactment that every bank or trust company now having branches, whose capital stock
does not equal the amount above prescribed,
shall, within six months from the time the act
takes effect, either increase its capital stock
to the amount above required or reduce the number of its branches so as to comply with the
proposed limitation."
The legislature adopted these recommendations in an act of April
27, 190S, except that in the case of branches already established only
$50,000 additional capital for each branch was required. The act applied,
however, only to"banks"—not to trust companies. It restricted branches of
State banks to cities of over 1,000,000, and the branches were authorized
"for the receipt and payment of deposits and for making loans and discounts

- 103 to the customers of such branch offices only," a restriction that doubtless
betrays an intent to keep branches from competing with independent banks,
though it is not clear how it could be made effective. By an Act of March
7, 1919, the law was further amended to permit branches of State banks in
towns of more than 50#000 population, but trust companies in towns of any
size still have the right to establish branches, provided their capital is
adequate and the superintendent approves.
The more and more liberal legal provisions for branch banking
which have been enacted in New York in the past thirty-four years have been
adopted without evidence of controversy and have been attended by an active
increase in the number of branches in operation. There has not been any
disposition, however, to procure permission for out-of-town branches. So
far from seeking such permission, the Now York City banks have preferred
to confine their offices to the city—a preference that seems reasonable
in view of the abundance of business which comes to them without out-of-town
branches. Their present policy is consistent with their past, for the great
Wall Street banks took no important part in urban branch banking until after
1920, and even at present several of them have either no branches or so few
that they do not count as "systems,*1
The only marked tendency to intercity activity has developed in
Buffalo, where the Marine Midland group exercises control over nineteen
banks in nineteen different cities. In all the large cities in the State,
however, there are banks with home city branches. The majority of the banks
with branches are under State charter and the majority of branches belong
to such banks,
Massachusetts, - Branch banking began in Massachusetts about the
same time as in New York, Apparently there was no branch banking in the

- 10U State from the early 19th century until after 1900, though shortly before
the Civil far certain country banks established agencies in Boston*
practice is referred to in Chapter II*

This

In 1S95 it was reported in response

to the inquiry of the Comptroller of the Currency that none of the banks
were permitted to have branch offices*

In 1902 a law was passed permitting

any trust company (there are no State "banks" in Massachusetts) to have "a
branch office" in its home city, "for the sole purpose of receiving deposits,
paying checks, and transacting a safe deposit business*" A few branches
were established, but obviously the law was not encouraging*

In 190S it

was amended to permit lending at the branches, though the limitation of one
branch to eacn trust company remained in force. In 191*+ it was enacted that
a trust company might retain as a branch "any office" of another trust company that it had absorbed, provided it was in the same town*

This permitted

the addition of more than one branch, but only by a slow process. The following year*. 1915t there were 26 banks with 33 branches, and in the next
five years this was increased by only 10 banks and 12 branches * 7 of which
wore in the cities of ike head officos# ''When the McFadden Act was passed*
it became possible for national banks in Massachusetts to have branches in
their home cities since the State law permitted them, but without the narrow
restriction as to number that the State law imposed*

The State law was ac-

cordingly changed May g, 1928, to permit trust companies to have "one or
more" branches, a privilege that equalized conditions. The larger branch
systems and the majority of branches now belong to national banks, though
the majority of banks with branches are under State charter*
The gradual liberalisation of the laws on branch banking over the
past thirty years in Massachusetts has been attended by little or no con-

- 105 troversy apparently and the growth in the number of branches has been deliberate*

As in New York, there has been no marked interest in procuring

permission for intercity branch banking, but three leading groups have developed control of banks in various cities of the State. Two of these
groups have headquarters in Boston and one in Worcester.
Ohio. - As explained in Chapter II, there was an extensive system
of "branches" belonging to the State Bank of Ohio before the Civil War, although they were unlike modern branches of a single corporation. There may
have been a few branches of the modern type as well, but not many were in
existence in 1895 apparently, for it was then reported to the Comptroller
of the Currency as follows:

"There are some of the unincorporated banks or

partnerships that have branch offices, but there are no provisions of ISM
regulating branch offices of incorporated banks now in active operation."
In 1900, however, six banks with nine branches between them were reported,
all but one of the branches being outside the city of the head office.
Around 1902 urban branches of State banks began to be established, especially
in Cleveland, though as a common law right apparently rather than by special
authorization, since it was reported in the Comptroller*$ survey in 1902
that branches were not authorized.

In the National Monetary Commission's

Digest of State laws in 190S there is no mention of branches in the section
on Ohio laws.

The number of branches and the number of banks with branches

steadily increased, but chiefly as a home city activity.

Since 1923 the law

has limited branches to the home city and to contiguous communities; as
amended in 1931, ** allows them within "other parts of the county or counties
in which the municipality containing the main bank is located."

Branch banking still remains almost wholly a State bank activity in Ohio

- 106 and the majority of branches are in the home cities. The development has
been gradual and apparently has not been attended by controversy.
Michigan. ~ The fourth State in which branch banking has been an
important urban development since the beginning of the century is Michigan.
There appear to have been few or no branches in the State before the Civil
War, but by 1895 they wdre permitted and a few were in operation, though
evidently without specific statutory authorization. The same was true in
1902.

There is a provision in the State constitution giving the legisla-

ture authority to "create a single bank with branches," but it dates from
before the Civil War and refers to the type of State bank with branches
that Indiana and Iowa had, as described in Chapter II. There is also a
provision in Act 296 of the Public Acts of 1917 authorizing branches for
"industrial banks," which applies to Morris Plan banks and others of that
type. The real authority for branches, according to statements in the annual reports of the commissioners of banks, is an opinion of the AttorneyGreneral of the State rendered May 27$ 19091 in answer to the following question:

"Whether or not a State bank has authority to establish branches in

the city or village in which it is authorized by its articles of incorpora?to transact business." The relevant portions of the opinion follow: (1)
"For answer to your second question I would say that no
authority to establish branches is conferred upon banks by
any provision of the laws of this State. In the absence of
statute a bank has no authority to establish branches at
which a general banking business is conducted.
Magee on Banks and Banking, page Ul; Atty.
Gen. v. Oakland Co. Bank, Walk, page 90.
"While a bank has no authority to establish branches unless expressly authorized by statute so to do, it seems that
it may have an agency for the transaction of some parts of
( i ) Report of the Commissioner of Banking» Michigan, 1915> P# xxxi.

- 107 its business in the city or village designated in its charter
as the place where the bank is to be located and to conduct
its business-,
"In Magee on Banking, page Ul, are compiled the provisions
in force in the different states relating to this subject and
of this State it is said:
"'There is no law authorizing the establishment
of branches* Agencies are permitted which are restricted in their operations to receiving and paying
out of deposits and issuing exchange.Ifl
The Attorney-General also stated that several instances had been
noted of banks in Detroit and Lansing which had established agencies of this
character*

He continued as follows:

"The agencies established by the banks at the cities indicated have been conducted by the banks for some time and
the right of the banks to establish such agencies does not
appear to have been heretofore questioned by the banking department or any officer of the State* In view of the foregoing I am of opinion that a baak may establish agencies of
the character of those indicated herein within the limits of
the city or village in which the bank is located*"
Although this opinion would seem to make a distinction between
"branches" and "agencies," and to hold that only the latter were authorized,
it has evidently been taken as sanctioning branches as well*

It is reprinted

in fifteen or more successive annual reports under the heading:

^Branch

Banks Permitted in Certain Instances*" In the annual report for 1915 it

said that "state banks may operate agencies or branches within the corporate
limits of the city named in its Articles of Incorporation, under the construction of the banking law by the Attorney General."

In 19l6 the same

statement is repeated in substance.
It is probable that the Attorney-Generalfs opinion was taken as
sanctioning branches because of the impossibility of observing an actual

Report of the Commissioner of Banking, Michigan, 1915* P»

- 10S distinction between "branches" and "agencies." Legally, agencies are supposed to be limited to routine functions exclusive of lending, but the distinction is probably not followed in practice.
Meanwhile the number of banks with branches and the number of
branches was steadily increasing. In 1900 there is a record of 5 fcaataand 7 branches; in 1905 this had increased to 13 banks and 18 branches; and
in 1910, to 23 banks and 55 branches* In 1915 the number had grown to 35
banks and 117 branches and in that year the Commissioner of Banks adverted
to the development in the following words: (1)
"...It can nob be denied that up to the present time this privilege has extended banking facilities to many parts of larger
cities and has expedited and facilitated the business of
these particular communities. It has also been the means of
curtailing the organization of many banks, some of which
might not have inured to the credit of the fraternity at
large. Notwithstanding the benefits that have accrued on account of branch bank privileges in the larger cities, I am
of the opinion that some limitation should be placed on the
number of branches which can be established, based upon the
aggregate deposits, and the ratio of deposits to capital
stock. This is a matter I believe that is worthy of con^
.sideration by the next legislature."
The following year he repeated the comment and recommendation, but
no action was taken by the legislature and the commissioner still remains
without direct authority to control the number of branches established.
The development of branch banking in Michigant which is altogether
an urban activity and mostly confined to Detroit, has been rapid. Since
1926 when there were 66 banks, State and national, with branches, the number
has declined to kSt and there aze also slightly fewer branches.

This decline has

come about chiefly through bank consolidations. Until very recently the
great bulk of branches and of banks with branches were under State charter,
<*> Ibid.

-. 109 but in 1931 with the consolidation resulting in what is now the First Wayne
National Bank, the national system gained the majority of branches, althotigh
the banks with branches are still mostly State banks*
It is notable that the establishment of branches in Michigan has
gone on with apparently no direct supervisory control, and with very little
legal restriction, except that branches have had to be in the city of the
head office. Banks have established branches without having to procure the
commissioner's consent, and they have not been required by law to maintain
capital proportionate to the number of their offices.
Although there are no branches outside head office cities there
are two groups with headquarters in Detroit which control banks in

rmmrous

Michigan towns and among them, especially in Detroit, banks with numerous
branches.
general Features of Urban Branch Banking, - The foregoing description of recent branch banking developments in New York, Massachusetts, Ohio,
and Michigan brings out common features in all four States*

In each the de-

velopment began about 1900, has shown a steady subsequent growth without controversy, and has been almost exclusively urban. For the first twenty years
or more the establishment of branches was wholly a State bank activity. As
its competitive force began to be felt by national banks, however, it impelled them to acquire branches in the imp ways open to them:

i.e., either

directly, by the absorption of State banks with branches, or indirectly,
by affiliation with them.

Neither compensated for the lack of power to

establish branches on the same terms as the State banks, however, and the
inequality created problems for both the Comptroller of the Currency and
the Federal Reserve Board, which are discussed in the following chapter.

- 110 -

It was not necessarily the largest and most important banks that
were pioneers in the establishment of branches, though in different places
different types of banks took the leadership.

In Cleveland the Cleveland

Trust Company, which was a pioneer in branch operations, was among the three
or four largest banks in the city in 1901. The same was true in Detroit of
the Peoples Savings Bank.

In New York City, on the other hand, the large

Wall Street banks were very slow in establishing and acquiring branches.
The Corn Exchange Bank, which for years was the preeminent branch organization, and had ten branches in 1901, was surpassed in size by seventeen banks,
nine of which were national banks and eight

State banks. That these larger

banks should not have been interested in branches is natural. The purpose
of branches in the cities is to reach small customers, and these the banks
in the financial center did not want. They preferred the business of large
customers, few in numbers compared to the public as a whole; and such customers—large corporations and wealthy individuals—are not usually reached
''oy branches. Yet in New York as elsewhere it was proved by the banks possessing branches that the business of small customers was profitable, if properly
cultivated and handled, and eventually some of the typical Wall Street banks
decided also to go into this wider market which existed among the great mass
of individuals, employees, and tradesmen of small means. It is obvious, therefore, viewed in the large, that the urban growth of branches had analogies with
the development of mass distribution through chain stores of standard lowpriced merchandise, and also with the tendency of large industries—such as
General Motors, for instance—to specialize in several types of markets at
once.

- Ill -

Intercity Branch Banking
Meanwhile in certain other States a development was going on that
involved not merely urban branches but rural as well.

It occurred princi-

pally in California, as described in a special section of the report, and in
Maine, Maryland, Virginia, North Carolina, South Carolina, Georgia, Tennessee, and Louisiana.

In none of these States besides California has there

been a marked tendency towards the building up of extensive systems, unless
the Georgia State Bank with 20 branches which failed in 1926, and the
Peoples State Bank and Trust Company of South Carolina, y/hich had its whole
branch growth between 1929 and 1932> when it failed with kh branches, be
considered such. Most of the branches in these States belong to banks with
less than a half dozen branches each, the largest in point of number being
the Eastern Shore Trust Company of Cambridge, Maryland, with 2C branches.
The largest in point of assets is the Citizens and Southern National Bank
of Savannah-, which has 10 branches situated in five cities in Georgia, four
being in Atlanta.

Because the development in these States was quiet and

involved no such competitive issues as were caused by branch banking in
metropolitan centers and in California, it contributed but little to the
new controversy regarding branches for national banks that had arisen by
1920.

It has therefore seemed unnecessary at this point to review what

occurred in those States individually.
review of the development

In a succeeding chapter, however, a

and status of branch banking in each State is

presented.
That the growth of branches under State laws should have been so
much more pronounced in urban than in rural areas is natural, even though
laws permitted it in both. The areas reached by urban branches were more
compact, the banks undertaking branch extensions were usually larger to

- 112 ~
begin with, the competition between them was more aggressive, and less inertia stood in the way of change than in the country. Moreover, the prejudice

against "absenteeism" in management was less forceful in respect to

the branches of a bank in the same city than in the case of branches in a
different town.

This difference was especially emphasized by Mr. H. M.

Dawes, Comptroller of the Currency in 1923 and 192*4-, and an active opponent
of branch banking.
The explanation that the growing congestion of city traffic made
branches necessary was frequently offered, and no doubt was one of the influential conditions leading to their establishment.

Bearing of State Bank Branches on the Controversy
In States where branches were permitted the national banks never
offered any important opposition except in California, where both the small
State banks as well as national banks resisted the movement.

In some cases,

however, national banks either control other banks through group affiliations
or have State bank affiliates with branches.

In those cities where urban

branch banking has had its greatest development however—cities in States
like New York, Massachusetts, Ohio, Michigan, and others—as soon as the competitive advantage of branch banking was demonstrated the national banks
sought not to forbid it for their State competitors, but to secure the right
for themselves. Accordingly, the development of branch banking by State
banks contributed to an intense national controversy, the story of which
is continued in the next chapter.
The national controversy, being itself largely a reaction from
the situation in certain States where banks had branches, produced in turn
a reaction in States where branches did not exist.

It was obvious that

- 113 -

while a uniform authorization for members of the Federal Reserve System to
establish branches would permit members in New York City or Detroit to do
what their nonmember competitors could do, it would also permit members in
Illinois and Minnesota to do what their nonmember competitors could not do#
In the States where hanks did not have branches there was, therefore, a
strong counter movement to keep branch privileges out of the Federal laws.
This was directed not merely at keeping branches of national banks from being
permitted in States locally opposed to branch banking, but at keeping them from
being permitted anywhere, so far as possible*

The contention was that branch

banking was inherently vicious and should be prevented from gaining any more
foothold lest it spread uncontrollablyt

This extreme purpose was not at-

tained, however, so far as Federal legislation was concerned.

It expressed

itself more successfully in the enactment of State legislation between the
years 1919 a n & 1929* prohibiting branch banking in Arkansas, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Minnesota, Montana, Nebraska, Oregon, Washington, and West Virginia, and restricting it in Tennessee and Virginia. In
some of these States there were a few branches in existence at the time the
prohibitions were enacted, but in most States there was either no branch
banking at all, or it was on a very small scale.
In general, therefore, it may be said that the opposition to
branch banking was most successful in those States where there had been the
least experience with it. This is especially true of such Western States as

- 114. Illinois, Iowa, Wisconsin, Minnesota, Nebraska, and Kansas, where the opposition was intense. Since there was no controversy so far as the internal
policy of these States was concerned, the object of the opposition was of
course the proposed changes in the Federal law. The Cook County Bankers1
Association was as aggressive as the California independent bankers in leading the efforts to keep branch privileges from being given to national banks.
Meanwhile, bank failures were increasing in unprecedented volume,
and chain and group banking were spreading rapidly. These movements were
particularly notable in those States where the opposition to branch banking
was especially strong. The effect of the failures and the generally adverse
conditions suffered by all banks was to diminish the opposition to branch
banking on the part of many bankers whose independence was no longer profitable. An even more striking evidence of the reaction is that the tendency
to enact laws imposing restrictions and prohibitions on branches came to an
end; and since 1929 all changes have looked in the opposite direction.
In Vermont, whose statutes had been silent on the subject before,
a law was enacted in 1929 authorizing "agencies."

These are apparently the

same as branches and may be state-wide.
In Georgia, the prohibition adopted in 1927 was modified two years
later in 1929 to permit branches in the same city as the head office.
In Montana, a prohibition adopted in 1927 was modified i^y an act
of March 9, 1931* which authorizes banks in the same or adjoining counties
to consolidate and maintain "offices" at the original locations.

- 115-

In Indiana, a prohibition adopted in 1921 was modified by an act
of March 11, 1931, which authorizes banks to establish branches in the same
county, in a town or city in which no bank or trust company is located*
In Iowa, a prohibition adopted in 1927 was modified by an act of
March 13, 19311 authorizing banks to establish "offices" within the counties
in which they are situated and in contiguous counties. Such offices can be
established, however, only in towns or cities where no established banking
institution exists*
In Ohio, the law formerly permitted banks to establish branches
in the city of the head office and in contiguous cities and villages; on
August 27$ 1931i this power was broadened to permit branches "in other parts
of the county or counties in which the municipality containing the main bank
is located*"
In Wisconsin, a prohibition adopted in 1909 was modified by an
act of January 231 1932* which authorizes banks to have "receiving and disbursing stations" in small communities in the same county which have been
deprived of banking facilities*

It also authorizes banks under certain con-

ditions to operate at more than one location within tho city of the head office*
In most of these States the reversal of practice appears to have
come about as a result of bank failures,or throatoned failuros*
and Wisconsin this is especially evident«

In Iowa

!Ehe purpose in these two cases

appears to be in part to save weak banks by consolidating them with sound
banks and converting them into "offices" of the latter, and in part to supply banking facilities where they axe otherwise no longer available*

The

- 116 -

changes in these two States are especially striking since both States still
avow their opposition to branch banking.

In both of them branches are still

expressly prohibited, but at the same time they are in fact allowed under
other names—"offices,"'(receiving and disbursing stations," "locations"—
and v/ith restricted powers and functions*

When failures had gone so far as

to deprive communities of banking facilities, a noed was felt which in spite
of the hostility to branch banking could be supplied in no other way*

CHAPTER VI

THfi MCFADBBSH ACT

Three phases of the growth of "branch "banking among State banks
were mentioned in the preceding chapter. These were: first* the branch
banking developments in California, vihich involved both urban and rural
branches, and which aare described in full in another volume of the Report;
second, the purely urban developments in several of the large cities,
expecially in New York, Massachusetts, Ohio, and Michigan; and third,
state-wide branch banking in a miscellaneous group of States, chiefly in
the East and South, where branch banking was partly urban but mainly
rural.

It was pointed out that this third development was never ag-

gressive and contributed but little to the controversy over Federal legislation.

The developments in California and in the large Eastern cities,

however, forced the member banks of the Federal Reserve System, both
State and national, to seek the same powers that their nonmember competitors had.

Every member bank did not have the same interest, of course.

Some wanted the right to have branches state-wide, some wanted them only
for their home cities, some wanted to deprive their competitors of
branches, and some, wanting no branches themselves, were unconcerned as
to what their competitors had.
During the early period of development of branch banking by
State banks, as described in the preceding chapter, the only means by
which the national system could acquire branches was under the section

- 117 -

- US

of the National Bank Act which permitted State hanks to convert to national
charter and retain their branches. This section, for reasons suggested
in Chapter III, was inoperative from its passage in 1865 to the year 1907 >
when a charter was issued to the Pascagoula National Bank of Moss Point,
Mississippi, a converted State hank with a "branch at Scranton.

It seems

as if the existence of the section had been practically forgotten. This
is indicated by a letter written to the Commercial and Financial Chronicle
in 1900 by a correspondent who explains that"contrary to the general understanding, national "banks may, under certain conditions, maintain "branches
in their own domiciles."^ ' The writerfs inaccuracy in implying that
"branches were limited "by the law as to their location gives all the more
force to his own indication that the existence of the provision was
not common knowledge.

In 1910 the Bank of California, San Francisco,

was converted to the national system with its "branches in Virginia City,
Nevada; Portland, Oregon; and Seattle and Tacoma, Washington,
In these instances there was nothing involved "but simple conversion.

In 1915» however, occurred the first important instance in-

volving consolidation.

This was the transaction whereby the Chatham

Phoenix National Bank acquired twelve "branches in New York City "by absorption of the Century Bank.

Since there was then no authorized pro-

cedure in the national banking laws for consolidation either of national
banks or of national banks and State banks, the following roundabout
course was followed:

the Century Bank with its branches was converted to

v 1 /Commercial and Financial Chronicle. Vol. 71, November 10, 1900, p, 9^2.

- 119 -

the Century National Bank; simultaneously the Chatham Phoenix National
Bank went into voluntary liquidation and sold its assets to the Century
National Bank, transferring also its liabilities; the Century National
Bank then changed its name to Chatham Phoenix National Bank.
The Consolidation Act of November 7> l^S, provided a simpler
procedure for consolidating national banks by making it possible for two
corporate entities to continue legally in one, thus making the sale of
assets and voluntary liquidation unnecessary.

Although it did not pro-

vide for similar direct consolidation of a State bank with a national
bank without preliminary conversion of the State bank to national charter,
nevertheless it did to some extent facilitate the acquisition by national
banks of branches originally established under State charter, A State
bank with branches could then convert to a national charter and at once
consolidate with another national bank*

Accordingly, conversions and

consolidations increasing the number of branches of national banks became more common thereafter*

The Policy of the Federal Reserve Board
It has already been pointed out that the National Monetary Commission in its report in 1911 made no recommendations \7ith respect to
branch banking, but that its leaders were convinced that the operating
advantages of branches were so great that unit banks would be driven out
of business by them.

In one of the preliminary drafts of the Federal

Reserve bill there was a provision that would have permitted national

- 120

banks with a capital of not less than $1,000,000 to operate branches,KX!
but it does not appear in later drafts of the bill as introduced in
Congress.
In the annual report of the Federal Reserve Board for 1915t
the first report covering actual operations, there was a recommendation for branches which read:

"Permission should be granted to national

banks to establish branch offices within the city, or within the county,
in which they are located,,!^2'

Similar recommendations were made by the

Board in its reports for the years 19l6, 1917• 1918, and 1919f ^ ittl

tlle

reservation, however, that the branch privilege apply only in those
States whose laws permitted State banks to have branches. The recommendartions in 1915 &&& 19l6 were made without comment; in 1917 attention was
called to the fact that some member State banks and some national banks
which had absorbed State banks were legally operating branches, which
national banks under ordinary circumstances were not permitted to do.
"There seems to be no reason," the report says, "for such discrimination
between members of the Federal Reserve System, and with the view of
placing them more nearly upon terms of equality, besides affording in
many cases better service to the public, it is recommended that provision
be made for the establishment of branches by national banks, under yroper
limitations."^/

Willis, Federal Reserve System, p# 1537*
(2/Annual Report of the Federal Reserve Boards 1915, p. 22.

0>ibid., 1917, p.33*

- 121

This is possibly the earliest official comment on competitive
pressure due to branch banking.

It indicates that branch banking was now

becoming a practice of actual importance.

In the States where the ma-

jority of the country1s largest cities are situated—New York, Pennsylvania, California, Michigan, Ohio, Massachusetts, and Maryland—State
banks were permitted by the State laws to have home city branches and
they were actively availing themselves of the right. This was producing
an element of conrpetition between State and national banks that was comparatively new.

Later on as this tendency grew, it came to be recognized

that the inability of national banks to establish branches in important
cities where State banks could do so was one of the important causes of
the gains that State banks were making at the expense of national banks.
In 19171 of course, this tendency had not excited the attention that it
did later, but it had already shown itself• The year following, 1918,
the Board repeated its recommendation, and urged again the same argument
in favor of branch banking.

"As the law now stands," the 1918 annual

report read, "national banks are at a serious disadvantage in meeting the
competition of State banks with branches." This appears to have been the
case in New York, Michigan, California, and Ohiof the four States that in
order named had the greatest increase in the number of branches operated
between 1900 and 1920. The competition was therefore almost wholly within
the large cities, for California was the only State of the four with statewide branch banking.

In this fact that the growing acitivity in branch

banking was chiefly in the cities rather than in rural areas lay a marked

~ 122

contrast to branch hanking as it had hitherto been known and advocated.
Shortly before 1900 practically all the "branches in the country were
outside the town of the he$d office and belonged to small town banks.
Large metropolitan banks had no branches at all*

Branch banking was

thought of and advocated wholly as a rural measure. The current proposals, it will be recalled, were that branches be authorized in towns
of "less than 2,000 inhabitants." Yet now branch banking was growing
up in practice as mainly an urban activity, and the recommendations were
that branches be authorized in cities of "not less than 100,000 inhabitants." A bill which passed the Senate in 1919 "but never became law
makes the contrast even more striking by raising the minimum to 500,000.
In connection with this bill the Board made the following comment in its report for 1919"...•While the Board would prefer to have this privilege
extended to national banks in cities of not less than
100,000 inhabitants, or, faiiing that, have the population
limit raised to 200,000, it wishes to point out that the
limit fixed in the Senate bill does not affect the principle involved, and it therefore respectfully recommends once
more that national banks be permitted to establish branches
in the cities in which they are located under such limitations as in the wisdom of Congress may be deemed desirable."
Further evidence of the practical interest of the Board lies
in the action it took at this same time with respect to the admission of
certain California State banks to membership*

In 1917, after our entry

into the war, special efforts were made to get the larger State banks

^'Ibicfc.* 1919* p*-6§*

- 123 of the country to enter the Federal Reserve System, and an amendment was
adopted assuring them of their charter rights.

It read as follows:^ '

"....Subject to the provisions of this act and to the
regulations of the hoard made pursuant thereto, any "bank
"becoming a member of the Federal Reserve System shall retain its full charter and statutory rights as a State hank
or trust company, and may continue to exercise all corporate powers granted it "by the State in which it was created, and shall he entitled to all privileges of member
hanks:...."
This assurance, although qualified by being made, "subject to...
the regulations of the board," was taken to apply to the charter rights
of State banks to have branches outside the city of the head office as
much as to any other rights. Nevertheless in 1919 the Security Trust
and Savings Bank of Los Angeles asked for further assurances.

It de-

sired to have the specific approval of the Board for two branches it
was about to open and to "be advised if there will be any fundamental
objection to our acquiring other banks for the purpose of establishing
(o)

branches."v '
In reply it was informed by the Federal Reserve Agent at San
Francisco as follows:^'
r

!is to the board's attitude regarding the establishment of branches, I can say that its sole concern will be
to satisfy itself that any proposed extension will not
impair the general strength and safety of your institution.
In admitting State banks having branches the board has
taken the view that State banks are not to be restricted
in the exercise of their powers except where there is reason
to believe that the exercise of such powers will impair the
liquidity of the bank,
"As you no doubt are aware, the Federal reserve board
is not opposed to the principles of branch banking, so that
you need have no hesitation in bringing your bank into the
Federal reserve system through fear that difficulties will
be interposed to your maintaining branches or establishing
(1/Digest of Rulings of the Federal Reserve Board. I91I4-I927, inclusive, p>217.
(2)united States Congress, 68th, 1st Session, Hearings on H* R.* 6055r
Consolidation of National Banking Associations, etc., April, 1924, p. 5$.

(3)lbid., p. 59.

- 124 -

new ones. The hoard simply reserves the right to
approve the establishment of new branches in order
that it may be assured that the bank's general
strength and liquidity will not suffer.n
During the years indicated, in which the Board was reconmending
legislation to pemit branch banking, the Advisory Council was making
recommendations to the same effect, though the terms they used implied
less restrictive conditions than those implied in the Board's recommendations.
In 1920 and 1921 the Board appears to have made no recommendartions, but in 1921 the federal reserve Agents in their October conference
adopted a resolution favoring city branches in those places where State
laws permitted them.
In 1922, however, the Board renewed its recommendation, supporting it with comment in which there are new and significant notes. It
takes cognizance of the fact that it is in California, and in a few large
cities that branch banking is becoming a pressing problem. It speaks
also of the "additional offices" of national banks which the Comptroller
had been authorizing, takes account of branch banking as a matter of
rural finance, and mentions the development of "chains." Because of its
description of the situation at the moment when the problem was entering
a new administrative phase, it seems desirable to quote the passage in
its entirety: (1)
lt

Qm of the developments in banking which has attracted
considerable attention during the past year has been the
establishment of branches by some of the larger State
^'Annual Report of the Federal Reserve Board, 1922, pp. 5 f 6.

- 125-

banks. Attention was drawn to this development largely
"because it had gone so far in a few Statest notably California, and in a few large cities, including Hew York,
Cleveland, and Detroit, as to reduce greatly the number
of national banks. In view of this fact, and of the fact
that the national banking act does not prohibit the opening of additional offices of a national bank within the
limits of the city mentioned in its charter, the Comptroller of the Currency has been permitting such banks
to open additional offices in States where State banks
are given the privilege of establishing branches. This
does not meet the situation in California and does not
fully meet it in the cities mentioned, and an amendment
to the national banking act allowing national banks the
same privilege given State banks in States where branch
banking is peimitted is much to be desired. There has
been some discussion of branch banking in connection
with the discussion over rural credits legislation. The
Joint Commission of Agricultural Inquiry in Chapter VIII
of Part 2 of its report, entitled 'Credit,' published in
1922, recognizes the fact that our independent banking
system, with its 3°$°°0 units, 'makes impossible the full
utilization of the resources of some banks in the locality
to relieve a situation where other banks of the same
locality are extended to the full limit consistent with
safety to their depositors,1 and adds 'A system of limited
branch banking might furnish a possible solution of this
problem.! Such systems are in fact already established
in some sections of our country, notably in California,
and appear to hav$ gone far toward solving the problem.
Branch banking has lowered the rate of interest in some
of the leading agricultural sections of California and
at the same time has provided added security for the
deposits of the famers. There are interesting neighborhood branch banking groups in other States, which appear
to be serving their communities well. State-wide branch
banking is permitted in several southern States, but has
not yet been developed on an extensive scale. In the
absence of laws permitting branch banking, there has been
in certain sections a considerable development of socalled 'chain banks'—banks owned or controlled in groups
by individuals or by holding companies. The largest of
these systems includes some 175 small banks."
Up to this time, the Board's policy on branch banking had
followed two parallel lines with respect to the two typos of banks—

~ 126 ~

that is, national and Stato--that were within the system. With respect
to the national banks it had followed "a policy of recommending to
Congress amendatory legislation liberalizing national bank charters."
With respect to State member banks it had followed the policy ,fof permitting the States to determine what branch banking privileges should
be exercised by State institutions within the Federal reserve system—
in so far as the exercise of such privileges violated no principle of
sound banking*|f\l/
Branch bankingf particularly in the State of California, had
now reached a degree of extension, however, that made it necessary for
1$ie Board to be more active in determining just how it could feel satisfied that the principles of sound banldng were not being violated. Furthermore, the problems arising from "differences in the legislation of
the various States and the competitive disadvantages suffered by national
banks in States that permit branch banking,,!^2' were more pressing than
ever.
Resolutions adopted by the Board on November 7, 1923, laid it
down that "as a general principle," State banks should not be admitted
to membership unless they relinquished any branches established after
February 1, 192k, they might have outside the city of their main office,
and that after becoming members they might not establish branches, except

^'Federal Reserve Bulletin. December, 192*+, p. 928.
^2'Annual Report of the Federal Reserve Board, 1923, p. k8*

- 127

within the city.

The Federal Advisory Council on November 19

expressed

the opinion that this principle would have the effect of giving State
"banks that had already established branches prior to February lt 192*+,
"a position of monopoly." A little later, March 27, 192*1, the Board
issued new regulations amended April ~ff governing the admission of State
banks to membership.

In these regulations the principle was reiterated

of restricting member bank branches to the city of the main office and
contiguous territory.

It was also stated as a general principle that

applications to establish branches would not be considered unless the
State authorities "regularly make simultaneous examinations of the head
office and all branches." This stipulation was based on the fact that
some of the systems in California had already grown to such size that the
State authorities were finding simultaneous examination of all offices
impracticable.

This was a departure from the established technique of

examination that the Federal authorities were reluctant to sanction,
A further difficulty had arisen in the fact that indirect
methods of branch extension were being resorted to, the nature of which
is indicated by the following paragraph from Section IV of Regulation H,
as amended April 7> 192*4*:

"(5) Suck bank or trust company, except after
applying for and receiving the permission of the
Federal Reserve Board, shall not consolidate with or
absorb or purchase the assets of any other bank or
branch bank for the purpose of operating such bank
or branch bank as a branch of the applying bank; nor
directly or indirectly, through affiliated corporations or otherwise, acquire an interest in another
bank in excess of 20 per cent of the capital stock
of such other bank; nor directly or indirectly promote the establishment of any new bank for the pua>-

- 128 ~

pose of acquiring such an interest in it; nor make
any arrangement to acquire such an interest."
On February 11, 1924, the Mcladden bill, which covered the
points that had been the subject of the Board1 s previous recommendations,
was introduced in Congress.

It was framed to permit national banks to

establish branches in their own cities, and to restrict and equalize the
branch powers of State members of the Reserve System.

It was pending in

Congress for a little more than three years, however, and till the time
of its passage the policy of the Board continued as expressed in Regulation H, as amended April 7> 192^»

Before proceeding with discussion of

the McFadden Act however, it is necessary to describe the policy of the
Comptroller of the Currency in this earlier period.

Tha Policy of the Comptroller of the Currency
The Comptroller of the Currency likewise faced the problem of
competition growing out of the development of branch banking. No recomrmendations in favor of branch banking had been made by the Comptroller's
office since 1898.

In 1911 he had had occasion to refuse permission to

the Lowry National Bank of Atlanta to establish branches in that city,
and had referred the question to the Attorney-General for opinion.
Though the opinion was that it was illegal for national banks to establish
branches, the Comptroller recommended that the law be changed so as to
make the prohibition specific and remove all possible ambiguity. ( 1 )
1915» however, the Comptroller^ office, like the Board, recommended
branch banking and repeated the recommendation for several successive

'-Annual Report of the Comptroller of the Currency. 1911, f• 82.

- 129 -

years.

In the report for 1915, under the head of legislation recommended

"to prevent hank failures," twelve amendments to existing legislation
were suggested, one of which applied to "branch hanking*

It was suggested

that national hanks he allowed to establish branches "within certain
limits; for example, within city or county lines, but not without the
boundaries of the State" or of the Federal reserve district in which the
"parent bank" was situated; that no national bank should have more than
txvelve domestic branches; and that the capital of the bank should be increased in proportion to the number of branches * This recommendation,
which differed in details but not in substance from the Board1s reconn
mendation of that same year, was made again in 1916, along with others,
"for the protection and benefit of the depositors and stockholders of
national banks, as well as in the interest of the customers and the communities dependent upon these banks," It was repeated in 19171 191S,
1919, and 1920, Throughout these years Mr. J. S. Williams had held the
position of Comptroller. The next year, 1921, the new Comptroller, Mr.
D. R. Crissinger, noted in his annual report that the legislation previously recommended had been introduced in Congress, and indicated his
hope for a liberalization of the national Bank Act "so as to put national
banks on an equal footing with State institutions."^ ' The year following
he felt it necessary to authorize national banks to have "additional
offices" in cities where the State laws permitted State banks to have
them. His policy was announced in press dispatches June 29, 1922. In

- 130-

printing this news the Commercial and Financial Chronicle made the
following comment on the situation:^1'
"Considerable agitation has recently developed
anent the question of the establishment of National bank
branches. In a discussion in the House of Representatives of the bill providing for the continuance of National
bank charters for 99 years, Representative Wingo declared
on June 29 that there is a 'movement on foot to destroy
State banking systems in the United States and to turn
the National banking system into a branch bank system
and to give charters in perpetuity.! His comments were
referred to at length in our issue of July 2, pages 133
and Ijk*
Early in May it was announced by President
F. 0. Watts that the First National Bank of St» Louis
planned to open offices at various centres within the
city. The St. Louis ^lobe-Democrat1 of May 16 in reporting this said:
11f

Several months ago Watts ordered the
bank's attorneys to make a special study of the
Federal law with reference to this point, and
they rendered an opinion that the law permits
a National bank to establish additional places
of business within the city within which it is
located. This opinion was submitted to the
Comptroller of Currency, D. R. Crissinger, who
has concurred in this view. It is, therefore,
with full Joaowledgo of the Comptroller that the
First National Bank will act.1"
This last refers to the St. Louis case, which will bo described
a little later.
The immediate reaction to these announcements that the Comptroller was going to authorize "additional offices" and that he concurred in the view

that a national bank could establish them even in a

city whore, as in St. Louis, the State law forbade State banks to have

H7Conmercial

and Financial Chronicle, Vol. 115, July 15, 1922, p. 253,

- 131 -

branches, was one of great alarm among the State bankers who opposed
branch banking.

The Chicago and Cook County Bankers1 Association con-

vened in a special meeting June 29, the day of the press announcement,
and adopted resolutions of which the following is a part:'1'
"Whereas, The American Bankers1 Association and
various other banking associations throughout the
country have placed themselves on record, iimumerabl© times, as being strongly opposed to branch banking;
stating in their resolutions that branch banking is
detrimental to the best interests of the people and
contrary to the American system of banking; and
"Whereas, The attempt of the Comptroller to designate 'Place1 of business as different and distinct from
f
Branchf appears as an effort upon his part to promulgate an administrative action in terms and meaning entirely inappropriate to a matter of such grave importance
and thereby availing himself of a distinction without a
difference in order to find a basis for his ruling*
"Now, therefore, be it resolved. That this association of national and State banks of Chicago condemns the
recent ruling of the Comptroller as contrary to the
precedent established by his very able predecessors for
the past sixty years, and furthermore, believes the
Comptroller did wrong to sanction a change so radical
and without notice to the public that such an innovation was contemplated*"
On July 21, 1922, the Comptroller made public a letter which
lie had just sent to Senator McCormick of Illinois in reply to the latter!s
inquiry as to his policy.

He first noted the status of branch banking

under State laws:^2'

(Dlbid., July 29, 1922, p. ^95(2>Ibid., p. kSk.

- 132 -

"•..•There are twenty-two States in the Union that
authorize or permit State hanks to have "branches,
offices or agencies in addition to their main office
or hanking house* It has never occurred to State
hankers to become interested about this condition of
affairs until just recently."
He went on to explain:
"...•I have been permitting national banks in States
where State banks and trust companies have offices,
agencies or branch banks to establish additional
offices in some of the large cities where it is necessary to meet the competition of State banks that have
literally taken possession of cities with branch banks
or offices, and these facts are notorious and are well
known to all the State bankers of the country.
"Continued acquiescence in this condition is bound
to lead to the disintegration of the national banking
system."
In conclusion he said: CD
"Now I have not granted permission to any bank: to
have an agency, branch or office in any State that prohibits State banks and trust companies from having such
offices or places, although I am convinced that at common law these banks have a right to establish agencies
even in those States, but I am not giving any sanction
to it. Up to this time I have limited these additional
offices to the States where the State authorities or
the State law permits like facilities, and in this I am
quite sure that I am more than fair to your constituents
and State banking institutions, and I know that I am
within right and justice, as above stated, and such action
is neither revolutionary nor does it favor a few at the
expense of the many, and it is not un-American, but it
is the .American square deal for national banks that have
to meet the competition permitted by the legislation and
executive orders of 22 States of the Union."
The concern of the Cook County bankers in the first place
might have been explained on the ground that until the Comptroller had
mado this statement it was not clear that he was excepting from his policy
^Ibid.f p. 495.

- 133 -

those cities, of which Chicago was one, where branches were forbidden
for State banks. But as a matter of fact their interest in the subject
remained active and, as mentioned in the proceding chapter, they continued an aggressive opposition to branch banking in general.

It is of

interest to note that the principal speaker at their special meeting
held to protest at the original announcement of the Comptrollers policy
was Mr. A. J. Frame, Chainnan of the Board of the Waukesha National Banlq
Waukesha, Wisconsin, whoso resolution offered at the 1902 convention of
the American Bankers Association in New Orleans was quoted in Chapter IV.
Mr. Frame was. described in the Bulletin of tho Cook County Bankers1 Association in 1922 in the following wordsi^1'
"Mr. Framo is truly a pioneer in tho fight against
branch banking, for at an early age he foresaw the evils
that would result should our system of independent banks
be discarded. To-day, J8 years of age, he is more vigorous than ever in his efforts to save this country from
the fate of Canada. He painted a very vivid picture of
conditions that are inevitable when branch managers take
the place of presidents; bank earnings are sent out of
the localities whore made; loanable funds are not used
for local needs; and when the financial strength of the
country is centralized in tho hands of tho few. At the
close of Mr. Frame's speech several members voiced their
opinions on the subject and the calling of a spade by
its correct name was much in evidence. To put it mildly,
supporters of branch banking wore conspicuous by their
absence."
The Comptroller was not deterred by these protests from his
policy of authorizing additional offices. In his annual report for
that year, 1922, he stated with great urgency his conviction that the

- i34right to engage in branch banking gave the State banks so great competitive advantages that "we are in grave danger of losing our larger
national banks"(*) in States where branch banking was permitted to State
banks.

He said that in order to meet this condition he had "declined to

hold that a national bank may not open additional offices in the city in
which established,"

In spite of his personal conviction of the legality

of this action, he nevertheless "earnestly recommended" that Congress give
national banks "the privileges enjoyed in each State by its State banks,"
In 1923 Mr, H, M. Dawes succeeded Mr, Crissinger as Comptroller,
and continued the practice established by his predecessor of authorizing
"additional offices,"

Shortly after taking office, however, he asked the

opinion of the Attorney-General as to the practice. The opinion of the
Attorney-General, given on October 3, 1923* was that:
"National banking associations have the power to open
and operate offices at places other than their banking houses,
within the place specified in their organization certificate,
for the performance of such routine services as the receipt
of deposits and the cashing of checks for their customers,"
This opinion, though in its practical effects it permitted what
the opinion of the Attorney-General1s office in 1911 had denied, was
nevertheless consonant with the latter legally. The 1911 opinion had
been that a national bank is not, under its charter, authorized to estab-

Annual Report of the Comptroller of the Currency, 1922, p # U.

- 135-

lish a branch or coordinate office, "for the purpose of carrying on a
general banking business"; but it was also stated that there was recognized "a vital distinction between a mere agency for the transaction of
a particular business and a branch bank wherein is carried on a general
banking business."'1' Under stress of the same competitive conditions
that Mr. Crissinger had testified to and under the sanction of the jyttorney-General!s opinion, Mr. Dawes drew up regulations governing the
establishment and operation of these "additional offices." They were
described as "nothing more than tellers1 windows at which none of the
discretionary powers of the board of directors may be exercised, by delegation or otherwise."' ' Mr. Dawes did not feel however that these
"additional offices" enabled the national banks to meet competition fully,
and he recommended that Congress give them greater powers by authorizing
branches under close restrictions as to area. This recommendation was
made reluctantly, nevertheless, and purely under pressure of a condition
(1/This distinction between branches and agencies is indicated in Morse on
Banks and Banking, section kS9 as follows;
"....Agencies for specific purposes, as for the redemption
of bills or the dealing in bills of exchange may be established in other places. In these cases, it is for the convenience of the public that such should be the case. But
there is no case which holds that an agency for the exorcise
of the more important and valuable functions, such as issuing circulating papor or discounting notes, or an agency designed to carry on the general business of banking, would bo
regarded as legal. For such nominal establishment of agencies
might easily result in the practical establishment of a network of branch banks throughout the homo State or in other
States."
See also Morawetz on Corporations. Vol. I, section 3S7, to the same
effect.
(2)innual Report of the Comptroller of the Currency. 1923, p. 12.

-136-

created by the State laws; and Mr* Dawes, adopting a position substantially
the same as that his brother, Mr. C. G. Dawes, took as Comptroller in
1898, condemned branch banking in principle as monopolistic*

Its princi-

pal evil, in his eyes, was that it set up "absenteeism" in bank management, and made the interests of a community suffer by patting its banking
under the control of managers in remote places. Branches within the home
city of the bankfs main office did not, he felt, present this evil to so
objectionable a degree.
In October, 1923» hearings were held by the Joint Committee of
Inquiry on Membership in the Federal Reserve System, representing the
Banking and Currency Committees of the House and Senate, and in these
hearings considerable attention was given to branch banking. Both the
Governor of the Federal Reserve Board, Mr. D. R. Crissinger, and the
Comptroller, Mr. Dawes, testified to the difficulties raised by the fact
that State Ibanks might have branches, and national banks might not.
In the light of what has been described, the years 1922-1923
may be taken as marking one of the most important turning points in
branch banking history, for though the number of branches had been increasing steadily for years, it was not till around this time that they
came to present a serious administrative problem.

It was in 1922 that

the first "additioaal offices" were authorized and that the Board took
cognizance of new elements in the branch banking problem.

It was in 1923

that both the Board and the Comptroller found themselves under the necessity
of prescribing regulations, the one governing the branch operations of

- 137 ~

State "bank members of the Reserve System, and the othor governing nad*.
ditional offices."

It was in the same year that the Attorney-General

rendered his opinion that national "banks might have %ddit ional offices,"
and it was also in that year that the case of the First National Bank in
St. Louis was argued "before the Supreme Court, This case merits a "brief
review.
The St. Louis Case
In 1922 the First National Bank established a "Branch within the
city of St. Louis as the first step in a program of branch operations.
This action was taken in spite of the prevailing opinion that the National
Bank Act gave it no authority to do so, and in spite of a Missouri statute
specifically forbidding the maintenance of branches.
Supreme Court

In the Missouri

the bank defended its action on the ground that since its

charter was from the Federal Government it was not bound by the State's
law, and that moreover the establishment of branches was within its
charter powers. The bank lost, however, and the case was "brought to the
Supreme Court of the United States, where its hearing attracted widespread attention, the States of Illinois, Connecticut, North Dakota,
Washington, Wisconsin, Iowa, Arkansas, Minnesota, Indiana, and Kansas
participating with Missouri in its brief. The Supreme Court affilmed the
decision of the Missouri court, holding that the National Bank Act did
not empower national banks to establish branches, that the State law foav
bidding branches was therefore left in effect, and that the State was
within its rights in enforcing its law. The following gives the gist of

- 13*-

the Supreme Court's opinions
".••.The State is neither seeking to enforce a law of
the United States nor endeavoring to call the "bank to
account for an act in excess of its charter powers*
What the State is seeking to do is to vindicate and
enforce its own law, and the ultimate inquiry which it
propounds is whether the bank is violating that law,
not whether it is complying with the charter or law of
its creation. The latter inquiry is preliminary and
collateral, made only for the purpose of determining
whether the State law is free to act in the premises
or whether its operation is precluded in the particular case by paramount law* Having determined that the
power sought to be exercised by the bank finds no
justification in any law or authority of the United
States, the way is open for the enforcement of the
State statute. In other words, the national statutes
are interrogated for the sole purpose of ascertaining
whether anything they contain constitutes an impediment to the enforcement of the State statute, and the
answer being in the negative, they may be laid aside
as of no further concern."
The issue in the eyes of the court was whether the State had
jurisdiction, and on this ground Mr. Justice Van Devanter rendered a
dissenting opinion, concurred in by Chief Justice Taft and Mr. Justice
Butler, without suggesting, however, that a national bank had any right
under the law to establish a branch.

On that point

the prevailing

interpretation of the law was merely confirmed both by the majority and
the minority.

There was nothing either in the decision or the dissent,

however, that affected the Attorney-General^ opinion that "additional
offices" were permissible under the act.'2'

(^Federal Reserve Bulletin. Vol. 10, April, 192H, p. 283.
(2/The text of the decision, with the dissenting opinion and brief comment will be found in the Federal Reserve Bulletin. Vol. 10, April,
192U, pp. 281-286.

- 139 The McFadden Bill
Meanwnile branch banking had become a subject of active controversy centering around the provisions in the McFadden bill, which was introduced in Congress on February 11, 1924. It was a more intense controversy than the one of twenty-five years before, in the nineties. At that
time branch banking was virtually non-existent, and legislation to permit
it was advocated only by economists and Government officials, while among
the bankers with few exceptions it was overwhelmingly opposed.

During the

consideration of the LcFadden bill, however, branch banking had come extensively into practice, and the bankers were divided over it. There were
several different interests in the controversy;
1.

Small banks generally, both State and national, fearing the

competition of branch systems, were more vigorously opposed to branch banking than before.
2.

Some large banks, preferring correspondent relationsnips with

out-of-town banks to branch operation, wanted to prevent branch organizations
from absorbing their out-of-town correspondents.
3.

Some large national banks wanted the power to operate branches,

at least in their home cities, since their State bank competitors had it.
4.

State members of the Federal reserve system, in States where

branch banking was permitted, being restrained by Reserve Board regulations
from exercising tae power their nonmember competitors had, wished to be freed
from that restraint.
5. A very few banks wanted the power to establish branches across
State lines, but they made no serious attempt in that direction.

- lto -

While the "bankers themselves were divided, supervisory officials
also took different attitudes. The Comptroller, Mr. H. M. Dawes, was
vigorously opposed to "branch "banking in principle, yet at the same time
desirous of protecting the national hanking system from inequitable competitive conditions. The Federal Reserve Board was interested not only
in the national hanks, "but also in the State member banks, which, if they
were allowed to exercise the branch banking privileges the States gave
them, were at an advantage over national banks; and if they were forbidden to exeroise them were at a disadvantage as compared with nonmember
banks.

The State supervisors of banks were at the same time jealous of

attempts to restrain State banks from the exercise of privileges which
were legally theirs, and of attempts to give national banks greater powers
than State banks had.
The issue was not clear cut, nor a simple matter of yes or no#
It involved mainly two interests, viz., the interest of the large national
banks which desired permission to operate branches in their own cities,
especially where State banks could do so; and the interest of the small
banks, which were generally iadisposed to make any legislative concession
to branch banking, no matter how reasonable it might be per se» for fear
of the political advantage it might give the advocates of branch banking.
In Congress itself, although there was for the most part a
feeling of hostility to branch banking, the fact that State banks had
branches and thereby offered serious competition to national banks made
it impossible for its preferences to be followed.

Either the right of

- iin -

State banks to operate branches had to be overridden and destroyed or
else national banks had to be given compensatory privileges•

It appeared

as a choice between authorizing branch banking for member banks of the
Federal Reserve System or of having them withdraw from the system.

The

predicament was stated in the following words by Representative Strong of
Kansas, a member of the House Committee on Banking and Currency, in the
course of the Committee!s hearings in I92H:*1 '
tf

If any man on this committee can find any way
to absolutely stop branch banking in the United States,
I would like to join him. I have been fighting for
that for several years; and, to my mind, as long as
States allow State banks to have branch banks we
cannot stop it."
According to Mr. C. W. Collins, former Deputy Comptroller of
the Currency, f,It would have been conceivably possible to force both
national and State member banks to give up all branches, both homo-city
and extra-city, which they have at the present time and absolutely to
prohibit them from having any additional branches of any kind in the

(2>
future. , f V '

This r a d i c a l action seems never to have been considered,

however, and the opponents of branch banking, tolerating it as it was,
devoted their efforts to stopping its extension into larger territory.
At the outset the McFadden bill, although its provisions were
not radical in any direction, was a branch banking measure by virtue of

^'United States Congress, 6gth, 1st session, Hearings on H. R. 6855,
Consolidation of National Banking Associations. etc., House Committee
on Banking and Currency, April 9, 15, 16, and IS, 192^, p. 30.
^ 2 'C. W. Collins, The Branch Banking Question, p. 10S.

- ikz -

the fact that it gave national banks power to establish branches in their
home cities, provided the State laws permitted State banks to do so. In
other directions it restricted branch banking, ( i ) but not enough to make
it acceptable to the unit bankers. In order to make its restrictions more
severe, it was proposed that they be based on the status existing at the
time the law should go into effect. This would mean that though a State
at present prohibiting branches should alter its law subsequently in order
to permit them, the prohibition would still remain in force under the Federal law so far as all member banks were concerned, The bill would thus
forestall any attempt to secure State legislation permitting branches, by
making such legislation largely nugatory, except for banks which were not
members of the Federal reserve system. This proposal, which originated
with the Chicago and Cook County Bankers1 Association in May, 1924, was
approved by the American Bankers Association at its convention in Chicago
in October, 192*+# The proposal became embodied in what were known as the
Hull Amendments, so-called because they were introduced in the House
by Representative Morton D. Hull of Chicago, These amendments were
designed to prohibit forever the establishment of branches by any member of the Federal reserve system, State or national, in States which
at the time of the passage of the bill did not permit branch banking.
They were adopted in January, 1925 > by the fiouse. Since they attempted to put., a permanent barrier in the way of any further extensions

^ ' It forbade State member banks from establishing branches outside their
home cities, and it forbade State banks which might be entering the
Federal reserve system, or converting to national charter, or consolidating with national banks or with State member banks, from retaining
any branches outside their head office city which they had not been
in legal possession of at the date of approval of the act.

-1*3-

of "branch "banking territory, they more than counterbalanced the permissive clauses of the "bill in the minds of its opponents and made it
distinctly an anti-branch banking measure.
The bill with the amendments was passed by the House that same
month*

The Senate however refused to accept it, objecting to the Hull

Amendments, and it continued pending for two years longer*

During this

time it was a subject of continued controversy*
Associations for the defense of the unit bank were formed, the
chief of these being the Association Opposed to Branch Banking, which
was national in scope and had its headquarters in Chicago*

The American

Banters Association was by majority action opposed to branch banking,
though it had an important minority of Federal reserve member banks in
the large cities, who wanted right to have home city branches.
The majority attitude of the American Banters Association was
communicated to the Senate committee January 30, 1925* by Mr* Thomas B*
Paton, its counsel. He said in part :'**•'
"Now, a large majority of the membership of the
American Banters1 Association is opposed to branch banking* That is the condition* By resolution adopted at the
general convention in 1916, and a second resolution
adopted at the general convention in 1922, it was emphatic
cally stated that 'we oppose branch banking in every foim*f

* 'United States Congress, 68th, 2nd Session, Hearings on S. 3316 and
H* E. SS87, Consolidation of National Banking Associations, etc*,
Senate Committee on Banking and Currency, January 19* 26, 29, and
30, 1925, pp. 35, 86.

Ikk-

That is the general fundamental principle underlying
the association.
"Those resolutions grew out of the demand of the
national "banks to procure city "branches in order to
compete with the State banks having such branches, but
in every such case the association, when the matter
was brought to its vote, by an overwhelming vote refused to indorse any such proposition. Finally, after
the McFadden bill in its original form had been reported to the House by the House Committee on Banking
and Currency, and the companion bill in the Senate,
the Pepper bill, had been reported by this committee
to the Senate, various elements in the association got
together and agreed that if certain amendments were
put in the bill, known as the Hull amendments, drafted
by Representative Morton D. Hull, of Illinois, that
the association would indorse the McFadden bill as
thus amended.
"By resolution at the Chicago convention in October
of last year the McFadden bill, as modified, and only as
modified by the Hull amendments, was unanimously indorsed. There were representatives from California and
from every other State in the Union, delegates to that
convention. No voice was raised in opposition; it was
the unanimous indorsement of the McFadden bill with the
Hull amendments.....
"The general purpose and effect of the McFadden
bill, as modified by the Hull amendments, which has
passed the House by a large majority, is to atop statewide branch banking where it is now, and prevent its
further headway in the Federal reserve system and confine the State branch banks in the system to national
and State banks in those few States which now permit branch
banking, but only so long as such permission continues."
He said further on:'1'
"Of course this bill is based, so far as the .American
Bankers* Association is concerned, on the proposition to
down branch banking. That is a controverted proposition,

(^Ibid., p. 91.

- lM-5 -

of course; hut so far as the American Bankers1 Association is concerned, the natter has "boon argued and argued,
and tho general sentiment of the members is against
"branch hanking, and to do everything they can to eliminate it."
Congress adjourned March, 1925, with tho Senate still opposed
to the Hull Amendments*
of the hill was renewed*

When it convened again in Decemhor consideration
It again passed the House fohruary U, 1926, and

came hefore the Senate. At tho Senate committee hearings in that same
month, Mr* Paton reiterated tho opposition of tho .American Bankers Association, which he had expressed a year heforo and quoted the resolutions
then referred to*

He said in part:'1'

"Back in 1916 the question first arose in the
association with regard to "branch hanking in the
Kansas City convention, and after a dohate then held,
it went on record in the form of a motion, which was
adopted hy a large majority, that the association is
opposed to "branch hanking in any fom. Following that
the subject again came hefore the annual convention in
1922 in New York. The convention floor was thrown open
as a forum for the proponents of hoth sides of tho
question and this was the resolution adopted in Octoher,
1922:
"Resolved hy the American Bankers Association, That
we view with alam the estahlishmont of "branch hanking
in tho United States and thb attempt to permit and legalize hranch hanking; that we herehy express our disapproval
of and opposition to hranch hanking in any form hy State
or national hanks in our Nation*
"Resolved. That we regard hranch hanking or the e&~
tahlishment of additional offices hy hanks as detrimental
to the "best interests of the people of the United States.
Branch hanking is contrary to public policy, violates the
"basic principles of our Government, and concentrates the
credits of the Nation and the power of money in the hands
of a few."
(^United States Congress, 69th, 1st Session, Hearings on S. 1782 and
H. R. 2, Consolidation of National Banking Associations* etc*, Suh~
committee of the Senate Committee on Banking and Currency, Fehruary
16, 17, IS, and 2k% 1926, pp. I9U, 195.

- iU6 -

The McFadden "bill embodied banking legislation that was of
extreme importance on other points than branch banking and there was the
utmost desire that it be passed.

Its other provisions were not seriously

controversial, yet the whole measure continued to be held up by the deadlock over branch banking, and particularly over that portion of the
branch banking provisions known as the Hull .Amendments.

In May the bill

passed the Senate without the amendments and went to conference. The
conferees finally agreed on a substitute for the amendments but it was
rejected by the House, and the deadlock in the conference could not be
broken. As the time for adjournment was near, it was apparent that the
whole measure was again apt to fail of passage. Accordingly, the Compjferoller of the Currency, Mr. J. W. Mcintosh, in a letter to Chairman MoFadden of the House Committee on Banking and Currency, expressed his
urgent conviction that the amendments were not of essential importance
and should not be allowed to stand in the way of the bill*s immediate
passage. His letter was dated June 2, 1926, adjournment of Congress then
being imminent, and he said in part:^ '
"I should regard it no less than a calamity to our
banking system if this important bank bill is made to
suffer defeat on account of an insistance upon the enactment of the Hull amendments."
On the same date, June 2, 1926, Mr. H. M. Dawes, former Comptroller, also wrote to Chairman McFadden as follows:

(2)
wCommercial and Financial Chronicle. Vol. 123, July 3 , 1926, p . 37.
(2)Ibid.

- 1^7 ~

....I feel that the matter of the Hull amendment is
one which involves adjustments to future conditions,
whereas the substance of tho McFaddon hill is to meet
on imminent peril* If it is not possible at this
moment to agree as to how future developments should
he met, I see no roason why a vitally important piece
of legislation should ho killed,"
On Juno 3, 1926, Mr* Edmund Piatt, Vice Gtovornor of the Federal
Reserve Board, wrote to Chairman McFadden as follows:^
"In answer to your letter of June 1, asking for an
expression of opinion from the Federal Reserve Board on
the so-called Hull amendments to H. R. 2, the hoard has
directed me to say that it is of the opinion that the
Hull amendments should he eliminated*"
Congress adjourned however without passing the hill.

The

following comment on its failure to pass was made by Representative Hull
of Chicago/ 2 '
"Since my departure for Europe I have had called
to my attention a newspaper statement in which Senator
Glass attempted to put the responsibility on the House
for the failure to pass the McFaddon banking bill*
"The responsibility rests on tho Senator from
Virginia and on him alone. He hold the proxies of the
other Senate members of the Conference Committee. The
House Committee yielded on practically everything the
Senate demanded except on one point, that there should
be some safeguard against the extension of branch banking
in States not now infected. !f... ••
".•..The Senator of Virginia is not an heroic figure
when througjh his own individual perversity he defeats
the banking bill.
"He is fighting for something vftiich is distasteful
to the American spirit, nor can he defend himself behind
the vote of the Senate. The Senate would at any time have
accepted the bill with the House branch banking provision
had he been willing to approve it* It is my opinion that

(^Ibid*, p. 37.
(2)lbid., August 21, 1926, p. 939*

- iks -

the House will not yield the disputed point and should not
do so."
About the same timet August, 1926, a Committee of One Hundred
was formed by banters most actively opposed to branch banking and in favor
of the Hull Amendments, Their purpose was in part to present their case
as effectively as possible at the 1926 convention of the American Bankers
Association to be held in Los Angeles, which was recognized as branch
banking territory.

The committee in an announcement made in September

published some figures they had gathered as to increases in the number of
branches and commented on them as follows :'1'
"No independent banker can look at these facts
without realizing that an epidemic of branch banking
is spreading over the country. Unless he can stop the
spread of branch banking at the present State lines,
it will only be a question of a short time before he
will be called upon to defend himself from the branch
banking evil within his own territory
"The Hull amendments have been devised to offer
him this necessary protection. The fact that tremendous
pressure has been brought upon the Senate to omit this
protection from the McPadden bill is the best evidence
of the success with which the Hull amendments would defend antibranch banking territory from the inroads of
branch banking*"
In its Los Angeles convention that fall, however, the American
Banters Association reversed its action and refused to support the Hull
Amendments*

This represented a victory for the national banks 6$ the

association as against the State banks*

It also deprived the amendments

of their chief public support outside Congress*

Ibid., September IS, 1926, p. 1^58.

In an address before the

- aUg -

New York State Bankers1 AssQciation at Syracuse on November 20, 1926,
Deputy Comptroller of the Currency Collins said:^1'
"The Hall amendment owed its prestige and presence
in the bill very largely to tho active support of the
American Bankers Association, which had endorsed it by
resolution of the Chicago convention of I92U. Since
that time thore has been a long and intensive discussion
of this amendment by the banking fraternity, followed by
its reconsideration and decisive rejection by the American
Bankers Association at the 1926 convention at Los Angeles.
This action should augur well for tho early enactment of
the bill."
This expectation proved to be correct, for on January 2^, 1927f
the House accopted the bill without the Hull Amendments. Aftor conference
on other minor differences, the bill was passed and on February 25, 1927t
it was approved by the President.

With tho omission of the amendments

it had become again what it was at the time of its introduction three
years before—a mildly pro-branch banking measure.
Practically all the opposition to branch banking which was expressed while the McFadden Act was pending originated with the small
bankers.

They naturally desired to protect their competitive position,

and they were supported by their large city correspondents, who preferred
existing relationships to the responsibilities of branch operation.
There were two States where the opposition was peculiarly strong—
California, where branch banking was very active, and Illinois, where
there had not been any experience with branches for over eighty years*

(^Ibid., November 27, 1926, p. 2735*

~ 150 -

That the feeling should have been strong in California, where there was
actual and severe competition between unit hanks and "branch organizations,
is natural•

But that it should have "been so strong in Illinois is not so

easy to explain, since the law would not have had the effect of authorizing branch banking there*

Yet the Illinois banks and the Illinois dele-

gation in Congress took aggressive leadership against it.

The following

passage is taken from remarks of Senator G-lass during the Senate hearings
in January, 1925:^'
"••••I agree with Senator Pepper that we ought to give the
National banks the same branch banking privileges that the
State banks have. The Senate twice passed a bill to that
effect* The Banking and Currency Committee of the House
twice reported a bill of that sort, and strange to say—
now, mark the singularity of this fact—strange to say, those
bills were beaten each time in the House by Members accredited
to a State that does no branch banking at all, and the same
State which is the home of the Comptroller of the Currency—
Illinois* We simply propose to extend to the National banks
the same branch banking privileges that the State banks might
have under the laws of their respective States* Illinois
prohibited State branch banking, and yet both of these bills
were beaten by gentlemen from Illinois, and this bill was
written by a gentlemen from Illinois,.... .,f
With the exception of California most of the opposition of bankers
to branch banking came from regions where there had never been any branch
banking since the Civil War, or perhaps before.
On the other hand, there was no organized advocacy of branch
banking.

The majority of witnesses who appeared before the Congressional

Ibid*. p. 79.

- 151 ~

Committees were its opponents.

Its formal advocacy was mainly in the

hands of members of thefiommitteesof both Houses who seemed convinced
that the interests of the Federal Reserve System required that member
banks in large cities be permitted to have branches on the same conditions as nonmember banks. Statements on the subject by the Federal
Advisory Council, and by the governors of the Federal Reserve Banks of
San Francisco, Richmond, Chicago, Atlanta, New Y$rk, Minneapolis, and
Boston, the Federal 'reserve agent at Minneapolis, and the chairman of
the board of the Hew York Federal Reserve Bank were submitted to the
Senate committee in January, 1925* ^7 Senator Glass. Some of these
statements were positively in support of branch banking, but others were
limited to protests against the attempt implied in the Hull .Amendments
to shut off all future extensions of it.
Although the main subject of contention while the bill was
pending was the Hull Amendments, there had also been dissatisfaction over
those sections of the bill which would prevent any State bank from converting to national charter, or consolidating with a national bank, or
entering the Federal Reserve System, unless it relinquished all branches
outside the city of the head office which had been established after the
enactment of the act. Under this stipulation State member banks in certain
States would not be allowed to establish branches outside their home office
cities, although their nonmember competitors might do so. The State members
protested that this in effect abrogated their charter rights, which they
had been assured by the amendment of 1917 to the Federal Reserve Act,,

- 152-

would not be impaired by their being members of the Federal reserve system.
Apparently, however, they were either not numerous enough or not energetic
enough to secure modification of the bill in their favor.

Effects of the Act
The branch banking provisions of the McFadden Act, which had
been the subject of long controversy, embodied substantially the regulartion formulated in 1923 by the Federal Reserve Board and the Comptroller
of the Currency for administrative purposes. While specifically legalizing local branches, the act prohibits any further extension of rural
branches.

It not only restrained State members from establishing branches

outside the city of the head office—in this respect merely following previous regulations—but it also deprived the board of the power it had formerly exercised to make exceptions for such banks. Furthermore, in allowing
State banks to come under national charter either by conversion or consolidation with only sucn out-of-town brandies as had been in existence when the
act became effective, it tended to restrict branches for national banks
more than had been the case before.
That the law should have done little more than "freeze" brancn
banking in the status which then existed

is mainly the result of the

fact that the interests of different classes of banks stood in each
otxier's way.

Congress could neither disregard the claim of national

banks to the same powers that State banks had, nor the protests of the

- 153-

20,000 or more small banks against what they thought a threat to their
independence.
The branch banking provisions of the Federal law as they stand
in the McFadden Act may be summarized as follows:'*'
1. A national bank may retain branches which it had lawfully
on February 25, 1927.
2. A national bank which had operated only one branch more
than twenty-five years prior to February 25, 1927> may retain that branch.
3. A national bank formed by conversion of a State bank with
branches, or which has absorbed a State bank with branches, may retain
such of those branches as were in lawful operation February 25, 1927«
k,

A national bank may establish branches in its home city,

if branches are permitted there by State law, provided the city has a
population of at least 25,000; if more tnan 25,000 and less than 50,000,
one branch may be established; if more than 50,000 and less than 100,000,
two branches may be establisiied; in towns of more than 100,000 the number
of branches is left to the discretion of the Comptroller of the Currency*

\1) See Sections 7, S, and 9 of the McFadden Act, from which this summary
is paraphrased.

- 15U -

5«

No State bank with branches established outside its home

city after February 25, 19^7 > may be admitted to Federal reserve membership except upon relinquishment of such branches.
6.

No national or State member bank may establish a branch

outside of its home city,
7.

No brancn of a national bank may be established or moved

without the consent of trie Comptroller of the Currency.

CHAPTER VII

THE 5LASS BILL AMP BBAKOH BANKING

The McFadden Act did not settle the branch banking issue.
The alarming continuance of bank failures carried the suggestion that
our banking structure was inherently weak. At the same time group
and chain banking had become especially important in territory where
there had been no branch banking and where sentiment had seemed strongly
antagonistic to it.

Furthermore it was found possible, where state-

wide branch banking was permitted, as in California, for a member bank,
which itself could not establish branches outside its home city, to
control through affiliation a nonmember bank which could establish
them.
Under these circumstances dissatisfaction with the results of
the McFadden Act was not confined to those who believed that branch banking should be allowed on more liberal terms. Even those who favored its
restrictions were dissatisfied when it was apparent that by methods of

- 155 -

- 156 -

affiliation it was

possible to associate banks into groups which accom-

plished very much the same thing as branch banking itself; and that in
States where branch banking was peraittod it was possible for a bank to
have an affiliate establishing branches evon though forbidden by the
Federal law from establishing them in its own name.

The House Hearings, 1930
The increased importance of these two developments, rural bank
failures and affiliations, is manifest in the hearings on the subject of
branch, group, and chain banking which were hold by the House Commit too on
Banking and Currency in 1930*
lution l4l

These hearings were authorized by House Reso-

(Seventy-second Congress), "for the purpose of obtaining infor-

mation necessary as a basis for legislation."

In contrast to previous

hearings, the majority of the witnesses who appearod before the committee
wore in favor of branch banking in some form, and the case for branch banking was presented with more fullness than ever before. The Comptroller of
the Currency, Mr. J. W. Pole, and the Governor of the Federal Reserve
Board, Mr. Roy A. Young, were heard at greater length than other witnesses
and both recommended that the power of national banks to have branches be
extended.
The Comptroller, who was the first incumbent of his office in
thirty years or so to give emphatic endorsement to branch banking, embodied
in his testimony the recommendations he had already made to Congress in his

~ 157 -

annual report. The distinctive feature of his recommendations was that
"branches he authorized for national hanks "within the trade areas of the
cities in which such hanks may he situated. "^ '
"... .These trade areas may in some cases he coextensive with Federal reserve district lines;
in other cases they may he of a more limited extent, hut in my judgnent they should not extend
beyond Federal reserve district boundaries, except to take care of a few exceptional cases where
a trade area may extend from one Federal reserve
district into another, nor should a bank be permitted to establish a branch in another city in
which there is a Federal reserve bank or a branch
thereof.
"Under such a system of branches there would
gradually be extended to the agricultural communities from the large city banks a safe and sound
system of banking which would render remote the
possibility of bank failures. There would, however,
be no compulsion upon unit banks to enter a branch
organization. The two systems of banking—unit banking and branch banking—would no doubt operate side
by side for an indefinite length of time; that is to
say, there would be in every rural section some unit
banks well organized, competently managed, and held
in high esteem by the community which would continue to operate advantageously."
In its emphasis upon branches as a means of serving rural communities, the recommendation of the Comptroller took the issue back where
it had been thirty years before, when the earlier advocates of branch
banking had urged it for the same reason. Mr. Pole, however, emphasized

^'United States Congress, 71st, 2nd Session, Hearings under H. E. 1^1,
Branch» Chain, and Group Banking, House Committee on Banking and
Currency, 1930, Vol. I, pTSu

~ 15s -

more than those earlier advocates did that the branches were to belong to
large banks*

Of the latter he said:

"They are giving the general public a safer
and higher type of banking service than has
hitherto been known* Their stability rests upon
the great diversity of banking business to which
they have access and to the further fact that they
are able to secure the most highly trained and
experi enc ed talent."
The power to operate branches would, as the Comptroller proposed, make the
services of these "banks available to rural communities, so that the latter
would not be dependent exclusively upon banks of small size.
Hitherto the areas within ?/hich it was suggested to permit
branches had been political; i.e., within municipalities, co-unties or contiguous counties, or within States. Both the advantage and the disadvantage
of following political boundaries are obvious. The advantage is that such
boundaries are easy to prescribe; the disadvantage is that in many cases
they do not include sufficient banking business for competing branch systems of adequate size. These arbitrary limitations which political areas
involve are avoided in the Comptroller's concept of "trade areas," which
are economic and disregard political boundaries. The trade area would
have the advantage of being extensive enough to include banks of adequate
size, but it has also the disadvantage that its boundaries would not be
easy to prescribe.

0-) Ibid., p. 3.

~ 159 -

The extensiveness of the "trade area" would in part depend,
according to the Comptroller, upon the minimum size of bank to be permitted to have branches.

If, for instance, no bank with a capitalization

of less than $1,000,000 should be allowed to have branches, the trade area
would have to be large enough, at least, to support a bank of that size*** '
"As to the size of the parent bank, under such
a branch banking system as I have suggested, it seems
advisable to consider the question of a minimum capitalization as a condition precedent to the establishment
of branches in the rural districts in the trade area*
In this respect discretion should be allowed the Comptroller of the Currency to require a capitalization
higher than the minimum, as he nov/ does with unit banks*
Some trade areas are naturally more important and more
highly developed financially than others. A bank of
one million capitalization in some trade areas might
be considered a large enough bank to support a branch
system, whereas in other trade areas it might be small
by comparison. To support a system of branches within
a trade area the bank should be of undoubted strength
and prestige in order to discharge the responsibilities
which such an undertaking entails* This situation would
be met if Congress required a minimum capitalization for
a branch banking institution of $1,000,000. Such a provision would automatically determine, to some extent,
the size of the trade area for branch banking purposes.
They would have to be large enough, at least, to support
a bank of that size."
Although the Federal Reserve Board its$|f has expressed no opinion
on the subject since the McPadden Act, Mr. Roy A. Young, who was Governor
of the Board at the time, avowed his personal agreement with the Comptroller.
He stated that he thought "there should be a liberalization of the national
banking law in reference to the establishment of branches," and when he
was asked to what areas he would confine the branches of a given bank,

>Ibid., p. 106.

160 -

he replied:v '
"I havG-'given.a good ddal-. of .consideration to
that, I have thought of it from the county-wide
standpoint, and that does not permit proper diversification, in my opinion. I have considered it
from the standpoint of state-wide, and there have
"been some difficulties with that. I have considered
it from the standpoint of being district-wide, and
that would work out very nicely in some districts,
but in others it would not, I have considered it
from the standpoint of being state-wide or districtwide, together with a radius of 100 miles, and
there are some difficulties with that.
"So I have come down to the same conclusions
that the Comptroller of the Currency has, that a
trade area is the proper thing at the moment. To
describe a definite trade area is extremely difficult. If the Federal reserve act intended to have
the Federal reserve system do it, I might say that
they did it as well as they could with 12 regional
banks, and we have since extended that by the estabMiment of 25 branches, and even that is not 100
per cent perfect."
Another distinctive feature of the House committee^ hearings
was the discussion of branch banking by bankers engaged in group banking.
There was some difference of opinion among them as to the relative merits
of group

and branch systems.
Mr. John K. Ottley of the First National Associates of Atlanta

said that the formation of their group "was due to the lack of a national
law permitting the extension of branch banking within the Federal reserve
system outside of Atlanta," and that he and his "associates....in the
First National Bank of Atlanta would have preferred to engage directly in
branch banking rather than to resort to the more cumbersome method of

- 161 -

group banking as a means of furnishing adequate banking facilities to
our territory."

He affinned that he did not "regard group "banking in

its present form as the equal of "branch "banking either in its ability to
meet the needs of local communities with dispatch and precision, in the
flexibility and simplicity of its organization or in the economy of its
operation*"
Mr. Robert 0. Lord of the fuardian Detroit Union Group of
Detroit

said that "While undoubtedly economies of operation would result

from the conversion of some of the present group systems into branch systerns," he questioned whether the change should be forced by legislation.^ '
He nevertheless regarded group banking as a step toward branch banking.'3/
Mr. George P. R&nd

of the Marine Midland Corporation of Buffalo

said that "Obviously certain advantages of branch banking can not be realized fully by group banking,"

though he also felt that group banking had

its own merits. Even though group banking should be considered merely a
transitional step towards branch banking, "the retention of local interest
and contacts" seemed to him to be a very real advantage.
Mr. I. W. Deck3r of the Northwest Bancorporation of Minneapolis
appeared to be more positive of the independent advantages of group banking,
but believed that branches should be used to supplement it in communities
too small for independent banks. (5)
Mr. L. E. Wakefield*of the First Bank Stock Corporation of

(l)rbid., Vol. II, p. 1262.
(2)iMd.» Vol. II, p. IO57.
(3)lMd., p. 1122.
(1+)lMd., pp. 1182, 1183.
(5)Ibid., Vol. I, pp. 857-860.

- 162 ~

Minneapolis made the same contention, >1' He took cognizance of the allegations that group banking was "but an evasion of the ban on branch banking,"
and admitted that branch banking might be more economical in some instances.
The operations of his group had shown, he said, "that there is a size and
typo of community which is too small to justify the maintenance of a separately capitalized and corporately staffed bank of its own and which the
group can not enter with a unit bank*" But at the same time, he held
that group banking had its "distinct advantages" and that these "should
not be sacrif iced#"

"Group banking and branch banking could well go hand

in hand, supplementing each other."
Two years later, however, Mr* Wakefield, appearing before the
Senate committee, acknowledged that his views upon the relative advantages
of group banking and branch banking had changed*

Speaking of the suggestion

that the Federal law disregard the limitations on branch banking imposed
(2)

by State law, he said:v '
"••••If this limitation were removed, it is almost impossible to
exaggerate what it would accomplish in our territory* I recognize that in advocating state-wide branch banking at this time,
I am departing from opinions I expressed in my testimony before
the subcommittee a year ago* I admit that frankly* We have
learned by our experience of the last three years how much more
effective branch banking would be than group banking. I do not
think that a year ago the people in the country districts were
ready to accept branch banking, but this sentiment has undergone a great change, and I am certain that the majority of these
people are not only no longer opposed to branch banking but
anxiously hoping that it will be accomplished with least possible
delay."

(^Ibid., pp. 888, 889*
^ U n i t e d States Congress, 72nd, 1st Session, Hearings on S. 4ll5, Operation of the Hational and Federal Reserve Banking Systems, Senate Committee on Banking and Currency, March, 1932* P* 3^+l»

- 153 -

It is impossible to make reference to all of the witnesses who
appeared before the House Committee, but some of the more prominent among
them were Mr. A. P. Gianinni and Mr. James A. Bacigalupi of the Transamerica Corporation, whose discussions belong to the report on branch banking in California; Mr. A. H. Wiggin and Dr. Benjamin M. Anderson, Jr., of
the Chase National Bank; Mr. Charles E. Mitchell of the National City Bank;
Mr. George W. Davison, President of the Central Hanover Bank and Trust Con>~
pany of New York; and the Commissioners of Banking from Oklahoma, Michigan,
and Massachusetts. Mr. Wiggin, Dr* Anderson, Mr.Davison, and Commissioner
Shull of Oklahoma were opposed to branch banking. Mr. Davison introduced
into his testimony an address he had made before the American Bankers
Association at San Francisco, October, 1929> from which the following is
quoted: ( i )
"Branch banking, should it become legalized, may possibly give
us better mechanical banking. Nobody knows better than we do that
banking is not an enterprise of formulas and machinery. It is profoundly involved with the human side of life, with people engaged
in the business of making a living. Let us have all of the better
banking machinery that our ingenuity can devise and our judgment
approve, but let us not place out confidence in the perfection of
banking mechanism, for it we should our banking system would become increasingly rigid and lose the flexibility which is indispensable to the service that banks have to perform. For the
preservation of that essential flexibility I believe our corre~
spondent banking to be most admirably adapted."
Commissioner Reichert of Michigan said that his "State allows
branch banking in municipalities. This has worked out very satisfactorily.1

(1) House Hearings, op. cit., p. 1729*
(2) Ibid., p. l6lU.

- 164-

He reserved judgnent however as to the idea of branches outside home office
cities.
Mr* Mitchell made the following comment:^
"How far immediate legislation should go in advantageously
extending permissive powers for branch banking is a difficult
problem. The trade area suggestion appears to me at present
too broad in its scope. The suggestion of extension to county
or to State lines seems artificial* The expansion to Federal
reserve districts extends the territory to an unwarranted degree under existing circumstances and furthermore is filled with
impracticabilities owing to the fact that the districts themselves do not represent either trade areas or spheres of natural
banking relationships. My one suggestion would be that legislation should be such that under the carefully given peimits of the
comptrollerls office the limitations of branch banking be extended to a somewhat larger field in the immediate vicinity of
our cities, allowing the experience of this extension to be the
guide in future legislation."

Glass Bill, 1932
The hearings held by the House Committee which ended June 11,
193^1 &i& not result in the immediate introduction of a committee measure*
Congress adjourned less than a month later, July 3, 1930*

When it con-

vened again, December 1 of the same year, a subcommittee of the Senate
Banking and Currency Committee was sot up.

This subcommittee was under

the chaiimanship of Senator Glass, and had Dr. H. Parker Willis as its
expert.

It was authorized by Senate Resolution 71 (Seventy-first Con-

gress), and had a much wider commission than the House Committee, the
latter1 s hearing having been authorized with reference to branch, chain,
and group banking alone. The Senate subcommittee^ field of study was
the "operation of the national and Federal reserve banking systems," and

(^Ibid., p. 1959-

~ 165 -

branch banking was given much loss attention in its hearings than other
subjects.
Of the numerous witnesses who appeared before the subcommittee,
the Comptroller of the Currency, Mr* J. W. Polo, was the principal advocate of branch operations, and a largo part of his testimony was devoted
to a restatement of his previous recommendations for trade area branch
banking.

Other persons mentioned branch banking, but for the most part

incidentally*
Mr* Rome C. Stephenson, President of the American Bankers Association, also appeared before the subcommittee, bat beyond a brief statement that he did not consider branch banking necessary he did not discuss
the subject.
Mr. Melvin A* Traylor, Chairman of the Board, First National Bank
of Chicago, and Mr. Albert H. Wiggin, Chairman of the Governing Board,
Chase National Bank, were perhaps the most positive opponents of branch
banking. Mr. Traylor said:^ '
"I believe in the independent unit system of banking
which this country has always enjoyed. I believe the thing
we have to fear most of all is the extent to which, in supposed emergencies, we modify that system."
Mr. Wiggin said, in speaking for his bank:^2'
"Our own preference would be not to see any extension of
branch banking. If the branch banking were limited to trade
areas or to Federal reserve districts, it would cause, in the
New York district, a competition in the buying of other banks
in other cities, which we would dislike to see."

(*/United States Congress, 71st, 3rd Session, Hearings on S. R. 71, Operas
tion of the National and Federal Reserve Banking Systems. Subcommittee
of the Senate Committee on Banking and Currency, 1931, p. 397.
(2)Ibid., pp. 195, 196.

~ 166 -

He also said:
"fe act as the correspondent of banks from all over the
country and we lend those banks from all over the country and
if there was any suggestion of branch banking to the extent of
the whole country, we would consider it exceedingly inadvisable,
because of the difficulty and impossibility of running branches
at such a distance, in a satisfactory way.....
"So in the suggestion of branch banking, whether it be
country-wide or trade area or Federal reserve districts, I can
see nothing that is going to supply a community that will not
support a bank, with a bank, and that apparently is the one thing
they are striving for."
The Glass bill, which was finally reported by the subcommittee,
embodied provisions for branch banking on a more extensive scale than the
McPadden Act permits.

It proposed to give national banks state-wide branch

banking privileges wherever State banks have the same privileges. At
additional hearings held by the Senate Committee in March, 1932,

' a

number of witnesses criticized the bill because its provisions mado national
bank privileges dependent on State laws.

They said that state-wide branches

should be allowed for national bank, regardless of the State laws.

Two of

the group bankers who had testified in previous hearings, Mr. Robert 0.
Lord and Mr, L. E. Wakefield, made this suggestion. Mr. J. W. Pole, the
Comptroller of the Currency, again recommended trade area branch banking
and expressed dissatisfaction with the principle of making the privileges
of national banks depend

on the privileges of State banks. He said:
(2)
"....In my jud^nent, this section will accomplish little or
nothing in the way of branch banking, since only a few States
permit state-wide branch banking. The particular need for

v1/United States Congress, 72nd, 1st Session, Hearings on S. Ull5, Operaration of the National andffoderalReserve Banking Systems.
(2)lbid., p. U32.

- 167-

branch banking by national banks is in those States which do
not permit branch banking to the State banks* There is a
crying need for banking facilities which can be given by
strong city banks in the rural communities of the United
States* I know of no other sound solution of the rural
bank question*"
Following these hearings, in which other matters than branch
banking occupied most of the attention, the bill was altered in a number
of provisions.

Its branch banking provisions as reported from the Bank-

ing and Currency Committee to the Senate on April IS, 1932» authorized
state-wide branch banking for national banks regardless of State laws*
This draft of the bill also contained a provision authorizing branches
across State lines under certain circumstances. These provisions are
given in full as follows :'•**'
"(c) A national banking association may, with the
approval of the Federal Reserve Board, establish and operate
new branches within the limits of the city, town, or village,
or at any point within the State in which said association is
situated: Provided, That, if by reason of the proximity of
such an association to a State boundary line, the ordinary
and usual business of such association is found to extend
into an adjacent State, the Federal Reserve Board may permit
the establishment of a branch or branches by such association
in an adjacent State but not beyond a distance of fifty miles
from the place, where the parent bank is located* No such association shall establish a branch outside of the city, town, or
village in which it is situated unless it has a paid-in and
unimpaired capital stock of not less than $500,000."
"(d) The aggregate capital of every national banking associati o n and its branches shall at no time be less than the aggrogato
minimum capital required by law for the establishment of an equal
number of national banking associations situated in the various
places where such association and its branches are situated."
Paragraph (d) should bo interpreted in connection with another

t1'United States Congress, 72nd, 1st Session, S. 44l2, Section 19.

- 168 -

provision of the bill which raised the minimum capital requirements for
new national banks from $25,000 to $50,000, The change restored the minimom to what it had been before 1900, when, as described in Chapter IV,
the movement for branch banking in rural regions was met by reducing the
minimum capital required for new national banks to $25,000,
Between the first draft of the McFadden bill in 1924 and the
form the Glass bill bore in April, 1932, there was a marked shift of the
issue.

In 1932 it was no longer a question of merely permitting national

banks to have limited powers in certain States where State banks had equal
or greater powers—it was a question of giving national banks powers greater
than those of State banks.

The issue had moved to entirely new ground,

where deference to State law was not followed.

It is noteworthy that whereas

in 1924 and 1927 the proposal was to permit national banks to have branches
in cities where State banks were permitted to have them, in 1932 that point
had long been conceded and the far more radical proposal was being made that
national banks be remitted to have state-wide branches even where State banks
were forbidden to have them.
This shift of the issue reflects a very considerable shift of general

opinion, which may not support an extreme position but which is neverthe-

less more favorable to branch banking than the general body of opinion a few
years ago, No better evidence of this is to "be found than the official attitude of the American Bankers Association, whose opposition to branch banking
both at the time of the earlier movement at the turn of the century and more

- 169 -

recently while the McFadden hill was pending, has heen descrihed. At its
Cleveland convention in 1930* however, the association in response to the
recommendations of its Economic Policy Commission, relaxed from the stand
it had traditionally taken. Mr. E. S» Hecht, President of the Hihernia Bank
and Trust Company of New Orleans and Shairaian of the Economic Policy Commission, which had made a study of hanking trends for the association, expressed his opinion as follows:^ '
"It is not at all necessary to advocate any revolutionary
changes in our hanking system to adjust ourselves to the changed
conditions hut, on the other hand, we should admit that we cannot
adhere to the rigid policy the Association has adopted in the
past and should recognize that some extension of "branch hank
privileges within such restricted territorial limits as experience
has proved would he economically sound and will inevitahly cone."
A resolution agreed upon hy the commission was presented hy Mr. Hecht and
after considerable dehate was adopted hy the association.^)
"The American system of unit hanking, as contrasted with
the hanking systems of other countries, has heen peculiarly
adapted to the highly diversified community life of the United
States. The future demands the continued growth and service
of the unit hank in areas economically ahle to support sound,
independent hanking of this type, especially as a protection
against undue centralization of hanking power. Modern transportation and other economic changes, hoth in large centers
and country districts, make necessary some readjustment of
hanking facilities.
"In view of these facts this Association, while reaffirming its helief in the unit hank, recognizes that a modification
of its former resolutions condemning "branch hanking in any form
is advisahle. The Association "believes in the economic desirahility of community-wide "branch hanking in metropolitan areas
and county-wide "branch hanking in rural districts where economically justified.

(1/American Bankers
(2)lhid., p. 33S.

Association Journal« Vol. 23, Octoher, 1930, p. 37U.

- 170 -

"The Association supports in every respect the autonomy of
the laws of the separate states in respect to banking. No class
of banks in the several states should enjoy greater rights in
respect to the establishment of branches than banks chartered
under the state laws."
p-p-position to the Glass Bill. - While this formal pronouncement
of the .American Bankers Association expressed an altered attitude on branch
banking, it was far from being the unanimous opinion of bankers. Moreover,
it accepted branch banking under close restrictions, and was a long way
from endorsement of state-wide branch banking.

The report of the associa-

tion's Economic Policy Commission, May, 1932, as approved by the Executive
Council of the Association, contained the following statement:^ '
"The Glass Banking Bill as finally revised would in Section
19 create a revolutionary situation in respect to banking. It
would not only permit national banks with capital of not less
than $500*000 to establish branches locally or on a statewide*
basis regardless whether State banks in the jurisdiction were
granted branch privileges of any kind—but it would go much further
and set up in some places trade-area branch banking for national
banks by permitting them to spread out their branch systems across
State lines up to distances of fifty miles, if, by reason of their
proximity to a State boundary line their ordinary and usual business is found to extend into an adjacent State."
The report went on to make the following comment:
"(l) We believe the decision as to whether a State shall
have branch banking should be left to the States themselves,
and that it should not be imposed upon them by Federal Legislation.
"(2) We oppose inter-state branch banking.
"(3) Where communities have been deprived of banking facilities, by the failure either of unit, branch or group banks, or
where local conditions fail to offer support to existing facilities,
measures should be provided whereby banks in stronger centers within the State can extend adequate facilities."

The Commercial and jTinancial Chronicle, May 7, 1932, p. 3377.

- 171 -

The Glass hill itself did not have the unanimous support of the
Senate Committee.

It was opposed, so far as its branch hanking provisions

were concerned, by a minority led by Senator Norbeck, the chairman of the
committee, and on April 29, 1932, he submitted a minority report. This
report was submitted "in protest against the proposed extension of branch
banking, without taking issue with the distinguished author of the bill,
Senator Glass, on other matters in the bill...."
At the same time individual bankers, banking commissioners, and
State banking associations attacked the branch banking provisions of the
Glass bill with bitterness. The editor of the American Banker as "spokesman. ...for the welfare of the 19,000 smaller independent banks of the
nation" addressed a series of letters to Congress from which the following
excerpts are taken.
"In none of the preliminary hearings was serious consideration given to any State-wide branch banking proposal. THE PRACTICALLY UNANIMOUS VIEW OF AMERICAN BANKERS THAT STATEWIDE BRANCH
BANKING WAS A RADICAL EXPERIMENT WHICH OUGHT TO BE LEFT TO THE
STATES was too well known to pennit serious consideration of any
other attitude.
"You may not clearly realize it. But if you vote for the
Banking Act
Act of
of 193
19322tt with
with its
its degenerative
dege
Glass; Banking
branch banking
provisions, your local banks are doomed.
"Branch banking was inevitably a factor in the breaking of
the Bank of England. Mismanagement of British public finances
was paralleled by a banking system in utfiich deflation could not
be LOCALIZED as it has been in the United States. The pyramid of

(1)

Se^be
United States Congress, 72nd, 1st Session* %pQyt 5gUT Part I I , Minority
views to accompany S. ^+12, April 29, 1932.
2
' '.American Banker, May 12, 1932, p . 1.
( 3 ) r b i d . , May 9, 1932, p . 1.

- 172 ~

centralized banking and finance could only be readjusted by the
disaster of currency revaluation."^1'
"We see no need for Federal !trade area1 branch banking,
or any sort of branch banking, unless indeed as AH ALIBI FOR
THE FAILURE OF THE FEDERAL RESERVE BOARD ALID NATIONAL BANKING
DEPARTMENT TO MAINTAIN SUFFICIENTLY HIGH STMDARD5 for the
banks, under their supervision, prior to 1929*
"What need have we for !trade area1 or any other branch
banking when more than 19,000 unit banks have given their
depositors 100$ safety, whereas branch banking nations have
been forced off the gold standard or shot through with great
failures of their unwieldly chain store banks? We can do
better than imitate a discreditable Old World financial error*
"Why be tricked into doing so by a political maneuver?
Half a spoonful of branch bank poison is as bad medicine as
the whole spoonful.w'^/
In June, 1932, Mr. Peter J. Cameron, former banking commissioner
of Pennsylvania, began organizing the Association of Independent Unit Banks
of .America to fight the proposals for state-wide branch banking embodied
in the Glass bill.

Mr. Cameron, who was already well known for his oppo-

sition to the extension of branch banking,, made the following statement
explaining the purpose of the association?^/
"During the past six or more years, certain interests in
the larger cities of the country and certain Federal authorities
have been active in promoting the branch banking idea.
"Branch banking such as is provided for in Section 19 of
the Glass bill, new pending in the United States Senate, and
for which the interests above referred to are clamoring, is
objectionable to the vast majority of banks, both State and
national, whose management believe that the laws of the respective States should regulate branch banking within their
borders.

(^Ibid., p. 6.
<2>Ibid., May lh, nS'5-> P- 1.
(3)ibid,, June g, I932> p. 8.

- 173 -

"Nation-wide branch banking powers for national banks is
favored by many big bankers and officials of the Federal Government, If adopted, such a system would, in due time, wipe out
our present dual banking system, of which the thousands of independent unit banks foim an important part.
"Unit bankers in the various States, after careful consideration, have decided to organize the Association of Independent Unit
Banks of America, with headquarters in Harrisburg, Pa., whose
main purpose will be to uphold the autonomy of State laws as a
cardinal principle in Federal branch banking legislation."
It is important to observe the evidence in this statement that
the issue as to the conditions under which banks may be authorized to
establish branches relates not so much to the adequacy of the existing
banking structure as to the belief "that the laws of the respective
States should regulate branch banking within their borders"; that branch
banking threatens to "wipe out our present dual banking system"; and
that "the autonomy of Sfcate laws" should be a "cardinal principle in
Federal branch banking legislation." Since the majority of banks *hat
fear branch banking because of their size are State banks, it is natural
that this identification of their own interest with States1 rights should
be made.
Substantially the same point of view is expressed in the following resolutions of the Illinois Bankers1 Association, May, 1932:
"In certain legislation now pending in the United States
Senate, we see an attempt to give such competitive advantages
to national over State banks as to lead to the destruction of
our dual banking system. We emphatically reiterate our previous
declarations that Congress should grant no further branch banking privileges than to give national banks equal rights with
other banks in States where branch banking is permitted. We

(^Ibid., May 28, 1932, pp. 1, 2.

- rjh -

"believe the decision as to whether a State shall have "branch
"banking should be left to the State itself, and that this
should not "be imposed upon it "by Federal legislation* We
oppose inter-State "branch hanking* Where local conditions
in any community in the State fail to offer support to the
existence of a regularly chartered "bank, measures should "be
provided whereby adequate banking facilities may be extended."
It is obvious that this is a protest not so much against the
general proposition that banks should be permitted to have more than one
office, as against the alleged intent to override State banking laws in
giving them that permission*

In its last sentence the resolution expressly

recognizes the desirability of branches where adequate banking facilities
are not otherwise accessible*

In view of the former radical hostility

among Illinois bankers to branch banking under any circumstances, the
present attitude bespeaks a change of opinion* that is significant *
The history of branch banking in the United States from the
beginning has involved the conflicting relationships of banks under Federal
charter and of banks under State charter*

First the branches of the

Second Bank of the United States were resented by the States in which they
were situated*

Next the National Bank Act taxed away the circulation privi-

lege of State banks and thereby diminished the number both of State banks
and of their branches.

In 1900 out of deference to the numerous small

banks in the country, most of #iich were State banks, proposals to authorize
national banks to establish branches in rural communities were overridden
in favor of lower capitalization for rural national banks. In 192*1-, when
Mr* H. M* Dawes was Comptroller, the Federal authorities and Congress preferred not to authorize branches for national banks, but since the laws
in some States permitted branches, it was necessary in the McFadden bill

- 175 -

to give national banks similar privileges»

At present, in 1932$ the

proposal to give national "banks -uniform power in all States to have branches
is mainly opposed on the ground that it infringes on the rights of the States
and their chartered institutions.

CHAPTER VIII

STATE LAWS

The interaction of State and Federal banking legislation upon
each other was emphasized in the preceding chapter, and it was pointed out
that opposition to the branch banking provisions of the Glass bill centered
on the fact that they would override State laws by penaitting national
banks to have branches where State banks could not. This close relationship between State and Federal legislation requires that a description be
given of the situation in each State individually, with attention not only
to the present legal status, but to the historical background and developments as well.
In 1S95

tlle

Comptroller of the Currency made what appears to have

been the first survey of State laws on branch banking; it preceded the
recommendation for branch banking by his office discussed in Chapter IV.
It was a comprehensive survey of State banking laws in general, and was
based on twelve questions asked of each State, the seventh being, "Are any
of the banks permitted to conduct branch offices or banks?" The Comptroller
summarized the information received in answer to this question as follows:'-*•'
'Thirteen States do not allow branch banks. Ten States
report no law prohibiting them nor providing for their establishment. In twenty States branches are peimitted, and to some
extent encouraged by favorable legislation,"

(^/Annual Report of the Comptroller of the Currencyt 1S95» P* ^0*

-176-

- 177 -

This summary unfortunately does not always give clear evidence of
the legal status of branch banking, which might be a matter of specific
legislation, of judicial interpretation, of administrative interpretation
or ruling, or of precedent and custom only.
It is doubtful, however, if any State in 1895 k&cL a law specifically prohibiting branch banking by name. Nor where branches were permitted was it by express authorization of law, but merely by implication
and custom.

The laws in many States, and possibly in most of them, appear

to have said nothing at all on the subject. The replies to the Comptroller's
question, however, are generally so brief and ambiguous that it is impossible
to classify them with any assurance of accuracy.

In some States emphasis

seems to have been on the fact that branches were not forbidden.
it seems to have been on the fact that they were not permitted.

In others
In still

others it is simply reported that there was no provision in the law for
branches.

The evidence in the information itself as well as the relative

attention accorded it among the other subjects in the suxvey indicates both
that branches were not numerous and that the subject was not one in which
much interest was felt.
In August, 1902, a second survey of branch banking by State banks
was made by the Comptroller.

Information was requested as follows:

"First. Whether or not branches or agencies are authorized
by the banking laws of the State or the charter of the banks.
"Second. If authorized, the regulations and provisions of
law relative thereto.
"Third. The names and location of banks operating branches
and the number and location of the branches."

- 17S -

A summary of the information! State by State, appeared in the Comptroller's
report for that year.^1' The situation had changed very little since 1S95*
Missouri had enacted a specific prohibition and New York, Massachusetts,
and Louisiana had enacted specific authorizations. Most of the changes
indicated seem to arise from the fact that informal opinions of the law
were being given rather than formal or judicial interpretations of it.
In 1911 the National Monetary Commission made a digest of State
banking laws up through 1909* which was published in Volume III of its
report.

It includes information on branch banking, which is more precise

and satisfactory than the Comptrollers surveys already mentioned.

The

principal changes indicated between this digest and the Comptroller^ surveys are that Colorado, Mississippi, Nevada, Texas, and Wisconsin had enacted prohibitions on the establishment of branches and that California
had enacted a specific authorization for their establishment.
Between these early studies and the digests of branch banking
laws prepared by the Federal Reserve Board in 1925 and 1930, and published
in the Federal Reserve Bulletin, March, 1925f and April, 1930, the changes
are very great, for during the interval many States enacted prohibitions
on branch banking, and many others enacted provisions for its regulation.
It is impossible to classify these changes in simple form, for the reason
that the status of branch banking is not usually stated in simple terms.
Conditions vary as to the size of banks that may have branches, the size
of towns, the number of branches, the areas branches may cover, etc. In

v1/Annual Report of. the Comptroller of the Currency, 1902, pp. *+7-51.

- 179 -

many cases the actual status of branch banking depends more on tradition
and interpretation than on the letter of the law. Furthermore, the letter
of the law itself often requires interpretation,

Finally, it is often

difficult if not impossible, because of conflicting evidence or lack of
evidence, to tell what the status of branch banking was at a given time or
when it changed.

The classifications used in the following pages must

therefore in many instances be taken as tentative and flexible.
It is obvious both that the laws respecting branches in effect
in the various States vary extremely from one another and that the development of branch banking also varies. But the development does not vary
uniformly with the laws.

There are branches in States where branches

were

never specifically authorized and there is at least one State, Montana,
where branches are permissible, but none have been established.

And in

States, counties, and cities where branches are peimitted on the same terms
there will be found widely different degrees of development.
This is in part to be explained by the fact that aside from what
the laws may say, the attitude of the State supervisory authority is of
very great importance in determining branch banking developments in a given
State. A supervisor who wishes to have the powers granted by a law exercised, can encourage banks accordingly; or if he chooses otherwise, he
can discourage them.

This may explain in part why rural branches have been

actively established in Iowa, for instance, and why in Montana there have
been none.

In twenty-four of the States where prohibitory legislation has

- ISO -

been in effect at one time or another in recent years,v1) fourteen appear
to have had branches at the time the prohibition was enacted, though in
only three, Alabama, Mississippi, and Georgia, was branch banking represented by more than a dozen branches or so.
the prohibition has since been relaxed.

In Mississippi and Georgia

In twelve States the prohibition

seems to have originated since 1920, and in all but one, Missouri, it seems
to have originated since 1900.

In only one State where branch banking has

been prohibited since 1920, was there any branch banking of consequence,
and in five of those States, Illinois, Iowa, Kansas, Montana, and West Virginia, there were no branches at all. The one State, Georgia, where branch
banking was active has since relaxed the prohibition.

The Wyoming law,

which by implication formerly permitted "offices" at different "places,"
was amended in 1926 by changing these words to the singular. This may or
may not be considered a prohibition on branches, but at any

rate there

appear to have been no branches in the State at any time.
The conclusion therefore seems inescapable that the greater part
of the prohibitory legislation has not been adopted as the result of direct
experience.

Some part of it seems to have come about as a result of the

active controversy over branch banking which culminated in 1902, but a
greater part seems ascribable to the later controversy which began around
1920 and reflected first, the growth of branch banking in California, and

*•**'Arkansas, Georgia, Illinois, Indiana. Iowa, Kansas, Minnesota* Montana,
Nebraska, Oregon, West Virginia; Alabama, Colorado, Connecticut, florida,
Idaho, Mississippi, Missouri, Nevada, Hew Mexico, Texas, Utah, Washington, Wisconsin,
The first eleven enacted prohibitory legislation since 1920. The
fourteen underlined had branches at the time the prohibition was enacted.

- 181 -

second, its growth in the large cities*

There is evidence that in certain

cases prohibitions or restrictions came about through fear that the Oiannini
interests of California planned to enter the State, This is said authori
tatively to be true of Virginia, where after having been permitted statewide, branch banking was put under restrictions. But leaving that aside
it is natural that there should be a close connection, as stated in Chapter
V, between the intense controversy which preceded the passage of the McFadden Act, and the prohibitory legislation adopted by various States during
the same period. ^ '
Finally it should be noted that seven States'2' have since 1927
changed their branch banking laws in the direction of relaxing previously
existing prohibitions and restrictions, and Vermont has passed a law
authorizing agencies.

Scope of Survey and Sources of Information
In the following description of the status of branch banking in
individual States, no attempt is made to cover fully the conditions as to
the amount of capital required for each branch, the population of the towns
in which branches may be situated, and such details, for which the laws
themselves should be consulted, as presented in the March, 19301 Federal
Reserve Bulletin, with late changes in the July, 193 2f Bulletin. Whenever
it is said that the law authorizes branches whether state-wide or within

'^'When the St. Louis case (see Chapter VI) was argued before the Supreme
Court in 1922, ten other States were sufficiently interested in the
subject to join Missouri in its brief of the issue.
2
' 'Georgia, Indiana, Iowa, Massachusetts, Montana, Ohio, and Wisconsin.

- 182 ~

smaller restricted areas, it is to be understood that such authorization
depends upon compliance with numerous conditions and the approval of the
Skeins i°be

supervisory authority.

It 4& nowhere true that hanks are allowed to estab-

lish, move, or discontinue branches without administrative permission.
Sources of Information. - The material in this chapter is based
mainly on the five earlier surveys already mentioned.: those of the Comptroller of the Currency in 1S95 and 1902, the Digest of State Banking Laws
in 1909$ published as Volume III of the report of the National Monetary
Commission, and the two digests of State laws delating to branch Banking,
published in the Federal Reserve Bulletin. March, 1925, and April, 1930*
Other miscellaneous sources have been drawn on also. These include annual
reports of State banking superintendents, and legal digests such as those
of Morge and Magee on Banks and Banking, and Morawetz on Private Corporat ions.
Terminology. - In the following summaries it will be noted that
different terms are used in certain States in place of the term "branches."
These are "agencies," "offices," "branch banks," "stations," and ^locations."

There have also been used the terms "tellers1 windows" and Baddi-

tional offices," the latter particularly in connection with national banks,
as described in Chapter VI.
Most of these terms seem to have been adopted as euphemisms for
branches where prejudice or law stood in the way of branch operation. This
is the case with "offices," "additional offices," "tellers1 windows,"
"stations," and "locations." In general also these terms connote a limitation of function, as in Iowa and Wisconsin, where the purpose it

to restrain

- 183 -

branches from competing on equal terms with single office bariks*

In the

case of national banks it is doubtful if the limitation of "additional
offices" to merely routine paying and receiving functions was enforceable*,
for the reason that the negotiation of a loan, for instance, could be easily
arranged by telephone, or written application, or through other means that
made it unnecessary for the customer of the "additional office" to go to
the main office of the bank.
The term "branch bank" is an ambiguous one, sometimes used to
designate a branch and sometimes to designate the bank operating branches.
The term "agency," as noted in Chapter VI, has usually been
given a legal distinction from branch, though this distinction has not been
universally observed*

In Vermont the law which authorizes agencies appar-

ently follows established local usage, without however implying any distinction between branches and agencies in practice.
In general connection with the legal effort to limit functions
and to use special terms in distinction from the term branch, it is to be
pointed out that banks themselves limit the functions of their branches
according to circumstances, and that they also frequently use the teim
office in preference to branch.

In view of the fact that both laws and

banking customs assign several different

terms to the same thing and also

different things to the same term, it has been found impracticable to
observe all the distinctions in effect. Logically the term office appears
proforable to all otheret and there seems to be a disposition on the part
^

of banks to use it in place of the term branch, but the latter, together with
the expression branch banking, is still in such common use that it seems

- ish -

necessary in a discussion of this nature to adhere to it. The word branch
has been used, therefore, as the general synonym for all the special and
local tenns, such as "branch bank," "agency," "office,"
agency," "additional office," "station,"

"suboffice," "sub-

^substation," "teller's window,"

"location," etc., even where the latter is used in the State law.

Changes in Laws of Individual States
The following accounts give the changes in the State laws on
branch banking with brief reference to the situation at present.

In the

Appendix will be found a more detailed digest of the current State laws*
Alabama. - Ho returns from Alabama are in the Comptroller's survey for 1S95> "but

!902 it was reported that the code of IS96 permitted

banks to have branches "at pleasure in the State other than the principal
place of business." There'were a few branches in operation and the law
continued to permit their establishment till 1911* when a prohibition was
enacted.

At that time the Tennessee Valley Bank, with its sixteen offices,

had already been established.

This bank is one of the oldest branch sys-

tems in the country now operating.

Its headquarters are in Decatur and

its other offices are in fifteen other towns in northern Alabama.

It was

established in 1892* «&& built up its branches gradually, though no new ones
have been established since the law of 1911 forbidding further development
of branch banking.

The direct occasion of that law appears to have been

the experience of a bank established in Birmingham in 1910 with a capital
of $100,000, without any increase of which about txvelve branches were set
up in different towns within a few weeks of organization.

Shortly there-

- 185 -

after the bank failed, and its failure induced a strong reaction against
branch operation.

The Committee on Legislation of the Alabama Bankers1

Association reported in January, 1911$ that branch banking "is a favorite
method of the fakir who starts in to rob the depositors of the suburbs or
the small towns, ,f ^'

It is obvious that it was not necessary to prohibit

branch banking in order to prevent recurrence of such action, and the inference is that the Alabama bankers were opposed to branch banking on the
same general grounds that had already influenced the American Bankers Association, The legislative committee also reported that it had "so modified
the original sections of the bill.••••as to leave absolutely untouched the
branch banks already in existence, but providing that no more shall .be established."

"We believe," the report continued, tfthat all interests in the

association will be brought into hannony by that provision and the only
obstacle to a united front before the Legislature is thus removed." The
proposals of the bankers were enacted and while branches already established
were pennitted to continue, the establishment of more was forbidden.
Arizona* - The information as to Arizona in the Comptroller's survey of I895 is simply:

"Branch banks not provided for." By 1900, however,

there were three branches in existence in the State, and the Revised
Statutes of 1901 took cognizance of the fact that banks might maintain
them.

The laws of 1922 specifically authorize their establishment without

restriction as to location. The number has steadily increased, all the
branches being outside the city of the head office.

'Montgomery (Ala.) Advertiser, January 19, 1911*

- 186 -

Arkansas» - In 1S95 ^ n reply to the Comptroller^ question as to
whether banks were permitted to have branches, it was reported:

"Yes, if

they so desire, there being no restrictions," There is no record, hov/ever,
that any existed.

The status was still the same in 1902. A very few were

subsequently established, all outside the city of the head office. Under
the present law, in effect apparently since 1923, the establishment of
branches is not permitted. However, it is to be noted that the bank commissioner of the State has in the last year or so authorized a few temporary branches to be set up in towns deprived of other banking facilities,
these branches being called "tellers1 windows."
California. - The complete account of branch banking in California
is covered in a special report.

It may be noted here for convenience that

it was reported in the Comptroller's survey in 1895 that> "there are some
banks which have branch offices," but nothing was said as to the law. In
1902 it was reported:
"The right of a bank to establish agencies has never been
passed on by the State supreme court. It is stated that 'the
law may permit agencies to be established within the county by
the parent bank, but it certainly has no authority to conduct
a general banking business.1"
In 1909 the present law authorizing state-wide branches was enacted.
Colorado. - There is no record that there have ever been any
branches in Colorado; they have been under express prohibition since before
1909.

In I895 and 1902 they were not mentioned.
Connecticut. - It is not clear whether there ever were any regu-

larly authorized branches in Connecticut, but in I837 and later banks were

- 187-

establishing agencies, which were analogous to branches. This practice was
apparently the same as that described in the paragraphs on Massachusetts
in Chapter II, and the present specific law forbidding branches in Connecticut, which has been in effect since 1902, appears to be a modification of
an earlier law aimed at preventing that practice.
Delaware. - Branches are operated by banks in Delaware whose
special charters specify their right to do so. Other banks are not permitted to have them. The Farmers Bank of Delaware, already mentioned*has
operated at three or more offices since 1813. Nearly all the branches in
the State are outside the city of the head office.
District of Columbia. - Ho report for the District of Columbia
appears in the 1895 Comptroller's survey.

In 1902 it was stated that,

"there are....branches of savings banks doing business....without any special
grant of authority other than the payment of an annual license tax to the
District government."

Loan and trust companies and banks other than national

situated in the District in some cases have charters from the Federal Goverrvment and in some cases from various States, They are now expressly permitted to establish branches under authority of an act of April 26* 19.22
(Millspaugh Act), though a few branches had been in operation before that
for several years.
Florida. «*• Branches were formerly expressly permitted in Florida,
but a prohibitory law was enacted June 7> 1913t
action in Alabama,
branches

Apparently

there

existence, and under

were

pressure

two

years after similar

never

from

the

than
State

seven

- 188 -

comptroller these were all closed, the last two in 1925»
Georgia. - There was "branch hanking in Georgia "before the Civil
War, "but it is not clear what was true for several years thereafter*
Comptroller^ survey has no report from Georgia in 1895-

The

It w &s reported

in 1902 that "branches were authorized in the charters of three hanks only*
Although they were not generally authorized, others were in existence and
apparently the law took cognizance of them and required their examination.
In 1927, however, a prohibitory law was passed as a result of experience
with three chains previously operating in the State*

These were: the

Walker system, which flourished in the period from 1910 to 1920, approximately, comprised forty to fifty "banks, and at last failed after fraudulent
manipulations; the Benton system, which flourished and failed about the
same time as the former; and most important of all, the Witham-Manley system,
which was in operation from ahout 1890 to 1926, when it failed*

Although

one of the hanks involved had branches, the failures were of chain organizations, and the prohibitory law did not touch the principle on which they
were set up*

The foim of organization which was intended to he prohibited

is therefore still legal and in practice*

"By subsequent Acts of July 20,

1929, and August 17, 1929, provisions were adopted which in effect permit
banks in Savannah and Atlanta to establish branches within their city
limits*
Idaho. - According to the Comptroller's survey in 1895, "there
was nothing in the lav; to prevent" banks from having branches*

There is

evidence, however, in old directories that a few were in operation either
then or a little later*

In 1902 it was reported that there was no law on

- 189

the subject.

In I89S a "branch of the Spokane and Eastern Trust Company of

Spokane, Washington, was established in Moscow, Idaho, and the State law
took cognizance of the existence of such tranches of foreign hanks as late
as 1909. All "branches in the State, domestic as well as foreign, appear to
have "been discontinued by 1910, however*

The present prohibition, which

uses the same words as that enacted in Missouri in 1899> k&s been in effect
since 1919»
Illinois* - Apparently there have not been any branches in
Illinois since the failure in 18^3 of the State Bank of Illinois, which had
about a half dozen brsaiches. According to the Comptroller's survey in 1895t
the Illinois law at that time made no reference to branch banking, and that
silence was interpreted as not allowing it. In 1902 it was reported that
they were not authorized.

The present formal prohibition on branches has

been in effect since 1923»

It was strengthened by an amendment in 1929

making it more specific and forbidding banks even to establish branches in
other countries. This is an unusual prohibition; some States, for example
Missouri, specifically permit their banks to have foreign branches, while
forbidding domestic ones,
Indiana. - After the passage of the National Bank Act, under
which most of the so-called "branches" of the State Bank of Indiana became
separate national banks, there appear to have been no branches in the State
till after 1900.

In 1895 it was reported that there was "no provision in

the law authorizing" branches.
"not permit" branches.

In 1902 it was reported that the law did

In 1920-1921, the law not forbidding, a few were

established, mostly inside the city of the head office. On March 19, 1921,
a law was approved permitting branches already established to continue, but

- 190

prohibiting any more. On March 11, 1931»

a n e w i a w wa

s adopted, permitting

tranches to be established by banks in other towns, in the same county,
where no bank is already situated; and also permitting branches in countyseat cities of 50,000 population or more, in which the head office is situated.

The provision for branches in outside towns was occasioned by the

fact that because of failures many small towns were without banking offices*
Iowa. - After the Civil War, at which time most of the so-called
^teaches11 of the State Bank became separate national banks, there appear to
have been no branches in Iowa, nor any provision of law relating to them.
In IS95 it was reported that branches were "not permitted by law."

In 1902

they were reported as not authorized. On April IS, 1927, an act was approved
specifically prohibiting them.

This was amended March 13, 1931, "by a para-

graph reading as follows:
"925S~bl. No banking institution shall open or maintain
any branch bank. However, as may be authorized by and subject
to the jurisdiction of the banking department, any banking institution may establish an office for the sole and only purposes
of receiving deposits and paying checks and performing such other
clerical and routine duties not inconsistent with this act. No
banking institution may establish any office beyond those counties
contiguous to the county in which said banking institution is
located, nor in a city or town in which there is already an established banking institution. No office shall be continued at
any place after a banking institution has actually commenced business at that place. Nothing in this act shall prohibit national
banks the privileges of this section whenever they may be so
authorized by Federal law."
Under this law numerous offices have been set up*

It would seem,

however, that banks would be deterred from the attempt to cultivate much
business through such "offices," by the fact that their functions are
limited and their tenure impermanent.

It is striking that although circumstances have made it expedient

- 191 ~

to authorize these rural branches in Iowa, the prejudice against branch
"banking is so strong that the legislation gives them the loss inncouous
name of "offices," a term which as it happens is also used by many metropolitan banks in preference to the word "branchesJ1'1'
Kansas* - There has apparently never boon any branch banking in
Kansas, and no mention of the subject in the laws until recently.
the bank commissioner said in his report:

In 1922

"Bankers, both state and national,

are almost -unanimously opposed to branch banking, and feel that a law positively prohibiting the establishment of branch banks in Kansas should be
(2)
enacted at this time."v

The commissioner^ recommendation was not based

upon any branch banking experience within the State, but upon the feeling
of bankers towards it as a general issue. The present prohibitory law was
not enacted till 1929*
Kentucky. - There has apparently always been branch banking in
Kentucky, both before and after the Civil War, though there is no mention
of it in the law, and it has not in recent years been important.

In 1895

it was reported that there were seven branches in the State belonging to
five different banks, and that there were "no restrictions as to the number of branches a bank may have" so far as was known.

In 1902 it was re-

ported that the law did not authorize branches but was "not construed as
prohibitive."

The Court of Appeals held in 1909,^' however, that a bank

cannot establish a branch in the absence of statutory authority, but that
it may have additional offices or agencies to receive deposits and pay
(Dm
Hew York City the Bank of Manhattan Trust Company, the Central Hanover
Trust Company, the Irving Trust Company, the Manufacturers Trust Company,
and others designate their branches as Offices'!
(2>The Sixteenth Biennial Report of the Bank Commissioner. Kansas, 1922, p.10.
(3)Bruner vs. Citizens1 Bank, 120 S. W. 3^5.

- 192 ~

checks or transact other necessary duties1 not requiring special discretion
or business acumen.

It is not clear how this distinction is observed by

the banks—national and State—-that have branches.
Louisiana* - It was reported of Louisiana in 1S95 tha't "there is
no law forbidding banks from conducting branch offices," but it is not indicated how many branches there were. By 1902 the law expressly authorized
banks to have two branches provided they were in the same parish with the
head office. This limitation as to number seems to apply to "banks" only;
"trust and savings banks" are permitted to have "one or more" branches
according to capital. They must be in the same parish however. An exception is made in the case of "banks situated in parishes that represent a
division of previously existing parishes. This exception, for instance,
permitted the Calcasieu National Bank of Lake Charles to continue the maintenance of its branches after the single large parish they were situated
in had been divided into several parishes.
Maine. - Branches have been operated in Maine since before 1895*
The trust company law of 1907 expressly authorizes them, though before that
they had already been permitted in special charters. Branches are allowed
only in the same county with the head office and in contiguous counties.
Maryland. - Although there were some branches in Maryland before
and possibly after the Civil War, there appear to have been none in IS95,
at which time it was reported:

"no provision is made for the banks to have

any branch offices, nor is there any prohibition of it." No new information was reported in 1902. Branch banking seems to have developed without
specific authorization, for even the present laws only impliedly authorize
branches by making stipulations as to what the capital of banks with

- 193-

"branches mast "be. These stipulations recognizing "branches appear to date
from about 1910, At present Maryland is one of the few States in which
"branch "banking has- anything like extensive development.

It is interesting

to observe that there has "been no tendency for state-v/ide "branch systems
to center in Baltimore, the principal "banks with "branches outside the city
of the head office being in small towns.
Massachusetts. - The status of branch banking in this State has
been described in Chapter V.
here as follows.

lor convenience changes in the laws are noted

In 1S95 it w &s reported that "none of the institutions

are permitted to have branch offices." In 1902 "a branch" to a trust company in its home city was allowed.

In 191H other branches acquired by con-

solidation were authorized. By Act of May 8, 192S, "one or more" branches
to a trust company were authorized.
Michigan. - Since branch banking in Michigan is described in
Chapter yf it is sufficient here to note that it is not specifically
authorized by law and apparently never has been, though there has been
great activity in the establishment of branches, all within the city of
the head cffice.
Minnesota. - In 1S95 it was reported that "banks are not author*
ized to conduct branch offices," though what is meant apparently is that
the law was silent on the subject.
banking....can be permitted."

In 1902 it was reported that "no branch

In 1922 two national banks in the city of

Minneapolis had nine branches between them, six of which are now in operation, though they appear never to have been officially recognized.
1923 the State has had a law prohibiting branches.

Since

1 9 1+«

Mississippi* - There is no report from Mississippi in the Comptroller^ survey of 1895, but branches were undoubtedly then permitted, as
they had been since before the Civil War, and there' appear to have been
some in existence*

In 1902 it was reported that they were permitted by

special charters only.

In 1906 a law was passed forbidding the establish-

ment of any more. The indications are that this law was inspired by fear
on the part of other bankers of the state-wide growth of the Grenada Bank,
the sole branch organization in the State of any size, which had established twelve branches in as many different towns in the preceding eight
years. Under the law the operation of branches already in existence was
allowed to continue. The law was amended in 192^ to permit the establishment of branches within the city of the head office.
Missouri, - Branches were common in Missouri before the Civil
War, as described in Chapter II, but there is no record of any since then.
In 1S95 it was reported:

"branch banks are not authorized by the laws of

Missouri, and are not permitted to do business in the State," though this
does not mean they were under statutory prohibition*
them was enacted in 1899 however.

A law forbidding

It appears to be the oldest statute in

the country prohibiting them explicitly.

In its original form, since then

slightly changed, it was an amendment approved May 29, 18991 &&& read as
follows:

"Provided, however, that no such corporation shall maintain a

branch bank, receive deposits or pay checks except over the counter of and
in its own banking house." It is not clear* on what occasion this amendment was enacted.
at the time.

So far as is known there were no branches in the State

It seems not unlikely that the prohibition was a reaction

~ 195 -

from the movement then going on to authorize branches for national hanks,
described in Chapter IV. The President of the National Bank of Commerce of
Kansas City, Mr. W. S. Woods, was active in that movement, and his competitors may have "become alarmed.

The principal event in recent banking

history in Missouri relevant to branch banking is the St. Louis case^ which
involved the right of a national bank to establish branches regardless of
State prohibition.

This case is discussed in Chapter VI.

Montana. - There appears never to have been any branch banking
in Montana, nor any mention of the subject in the laws until 1927, when a
lav/ was enacted prohibiting it. The wording of this law was the same as
Idaho's law of 1919t which in turn was evidently derived from Missouri.
In 1931 a new law was adopted authorizing banks in the same or adjoining
counties to consolidate and "maintain and operate offices in the locations
of the consolidating banks." Its full text is as follows:
^Section 1. When any two or more banks located in the
same county or in adjoining counties shall consolidate in
accordance with the provisions of section 9^ of chapter S$9
Laws of 1927, as amended, the consolidated bank may, if it has
paid-up capital of $75,000 or more, upon the written consent of
the Superintendent of B&iks and under rules and regulations
promulgated by him, maintain and operate offices in the locations of the consolidating banks."
As yet no branches appear to have been set up under this lawA howovor.
Nebraska. - Although the Nebraska laws seem never to have authoiv
ized branches, and a recent law (about 1927) prohibits them, there have
been two branches of national banks in operation in Omaha for many years,
one of them for more than thirty.
Idaho's.

The Nebraska law is identical with

- 196 -

Nevada. - There is evidence that branches were in operation in
Nevada for many years before the existing prohibition went into effect.
In IS67 a branch of the Bank of California of San Francisco was established
at Virginia City and continued till 1918, when it was withdrawn for lack of
business.

The bank also had branches for a shorter period at Gold Hill,

Treasure City, and Hamilton, Nevada.

In 1395 i* w a s reported that branches

might be established "at option of the bank corporations."

In 1902 two

branches were reported, one of them the branch of the Bank of California just
mentioned.

In the year I9O5 there were eight branches in the State, which

was almost a fourth of the total number of banking offices. Two banks with
branches failed a few years later, and though the economic decline in Nevada
seems to have been mainly responsible for this, the State in 1909 forbade
any branch thereafter to be opened or maintained.

In 1932 the law was

changed to permit branches within county limits.
New Hampshire. - In 1895 i* w a s reported:

"No banks are permitted

to conduct branch offices or banks, although there is no statute on the subject."

In 1902 the commissioner said that though there was no law directly

authorizing branches and none in operation, he was "not aware of any law
which would prohibit such a practice within certain limits." The law is
still silent. However, one branch of a national bank has been in operation
there for many years. This branch was officially recognized by the comptroller March 27, 193° > under authority of that clause of the McFadden Act
which provides that any national bank "which has continuously maintained and
operated not more than one branch for a period of more than twenty-five years
immediately preceding the approval of this act may continue to maintain and
operate such branch."

- 197 -

Hew Jersey* - According to the Comptroller^

survey in 1902, an

act was passed in 1889 which provided that no bank should have a branch or
agency or more than one place of business without approval of the bank
commissioner.
but in 1895 a

This law is reported to have been repealed the same year,
law t0 the same

effect was reported in force, though only

one branch had been authorized under it. This law was later amended to
restrict the establishment of branches to the same town as the head office,
The general corporation act of I896 authorized any corporation to have
branches in any other State, a provision which presumably recognized the
legality of the branches of certain Camden banks in Philadelphia.

These

branches are discussed under Pennsylvania.
Hew Mexico. - In 1895 there was "no lawn bearing on branches. In
1902 it was reported that the law had been held to prohibit them. At
present the law, apparently in effect since 1915* forbids the establishment
of branches by banks, but permits "any mercantile corporation which maintains a banking department" to continue banking operations at its "branch
stores."

This in effect allows the Blossburg Mercantile Company of Eaton,

whose banking department is recognized officially as a State bank, to oper«*
ate branches, as it has done since about 1910.
Hew York, - Branch banking in Hew York is more fully described
in Chapter V, but the following references to legal status are given here
for convenience.

In the early years of the nineteenth century, several

banks operated branches in Hew York State, but the practice seems to have
died out almost entirely by the beginning of the Civil War*
quent interpretation

Under subse-

certain laws passed in 18kk and 18^8 had the effect

- 198 ~

of prohibiting branches, though the ISHU law, which applied merely to "individual bankers," and the lSHg law, which is explained in Chapter III,
were both aimed at wildcatting of bank notes and not at branch operation.
In 1892 the revised general banking law repeated in simpler terms the requirements of the older acts that each bank have one office.

In 1892 the

law was changed to permit branches to be established in New York City.
In 1908 the law was changed again, at the request of the superintendent of
banks, to raise the capital requirements of banks with branches and to give
the superintendent power to deny application for the establishment of new
banks and of new branches, which according to the Attorney-General the
existing law did not give him.

Since 1919 branches have been permitted

within cities of 50>0°0 or over.
North Carolina. - Branches have been a characteristic feature of
banking in North Carolina since long before the Civil War, and specific
sanction in the law appears to have been considered unnecessary.

It was

reported in 1895 ^kat "tlle banks conduct branch offices at their own discretion."

In 1902 it was reported that there was no general law author-

izing branches, though some banks had special charters permitting them.
Evidently the right was asstimed in time to be general.
cally authorized by a law of 1927*

It is new specifi-

Branches outside the city of the head

office are numerous, though there are no banks with a very large number of
branches.
North Dakota, - This State appears never to have had any branches
nor any law dealing with the subject.

In 1895 and 1902 it was simply re-

ported that they were "not provided for." At present this is undoubtedly
construed as not permitting thenu

- 199 -

Ohio, - Branch "banking in Ohio has "been described in Chapter V,
but it is desirable at this point to mention certain important changes in
its legal status. As was explained in Chapter II, there was an extensive
system of "branches" belonging to the State Bank of Ohio before the Civil
War, although they were unlike modern branches.

It appears also that

there may have been a few branches of the modern type as well.
was reported:

In 1895 i*

"There are some of the unincorporated banks or partnerships

that have branch offices, but there are no provisions of law regulating
branch offices of incorporated banks now in active operation."

Since 1923

the law has authorized branches in contiguous communities; the lav; as
amended in 1931 allows them within "other parts of the county or counties
in which the municipality containing the main bank is located."

The law

does not require capital to be proportionate to the number of branches•
Oklahoma. - There apparently have never been any branches in
Oklahoma except a branch of the Dallas Trust and Savings Bank, Dallas,
Texas, which was in business in Oklahoma City around 1910. There is no
specific provision regarding branch banking in the State laws.
Oregon. - There was no report for Oregon in the Comptrollers
survey of 1895-

I*1 1902 it was reported:

"There are no banking laws on the Oregon statute books,
and there are, consequently, no parent or branch banks as
recognized by the State in operation. The State issues no
charters to banks nor has it on its statute books any laws
pertaining to the operation of banks."
The first general banking law appears to have been enacted in 1907. At
that time branches were permitted, though there is no evidence that there
were more than a half dozen or so of them.

Since 1921 the law has for-

bidden the establishment of any more. At that time it was provided that

~ 200 -

State banks should have the po\7er to establish branches "whenever national
banks*•••are given the privilege or authority to open and maintain" branches
in the State*

This latter provision was repealed the same year. There is

now only one branch in Oregon,

It belongs to the Bank of California

National Association of San Francisco, which as a California State bank
established a branch in Portland in 1S83* &&& retained it, together with
two branches in Washington and one in Nevada, when it converted to national
charter in 1910*
Pennsylvania* - There were a few branches in Pennsylvania in the
early 19th century.

In 1S50 a 1& W w a s enacted forbidding banks to have

branches without express authority of an act of legislature, but since
banks were still created only by special charter the effect of the act was
to confine banks to their charter powers, not to prohibit branch banking.
Nevertheless, there were few if any branches for many years; in 1900 only
three are recorded*

The number from then on increased slightly, although

according to the Comptroller^ survey in 1902 branches were not authorized*
An act of July 28, 1917* permitted branches of limited functions—"suboffices or subagencies"—in the home city of the head office. By an act
of April 27, 19271 branch banking was put under a general prohibition
which forbids any bank to "establish, maintain, or operate, either directly
or indirectly, any branch bank, branch office, agency, suboffice, subagency, or branch place of business." The law however makes the important
exception that branches may be established and operated in those places
where there were branches of national banks on March 1L, 1927•

Since the

prohibition remains in force in all other places, the effect is, by virtue

- 201 -

of the terms of the McFadden Act, to confine branches of national banks
also to the same places and in general to "freeze" the status of branch
banking as of that date; "the intention being," in the words of the act
itself, "to limit to the respective corporate limits of such cities,
boroughs, or townships as they existed on March 1, 1927* the right to establish and maintain" branches.
For many years three banks in Camden, New Jersey, operated one
branch each in Philadelphia, the oldest having been established in 1812,
the other two many years later. With consolidations between the three
banks in 1922 and 1927 consolidation of the Philadelphia branches also
took place, so that now there is only the one belonging to the First Camden National Bank and Trust Company. The status of this branch was officially approved under authority of the clause of the McFadden Act applying to single branches in operation more than twenty-five years before the
date of the act.

The status of the branch under Pennsylvania law was

long a matter of contention, several efforts having been made to close it
by court action. Apparently it was at length accepted by the other Philadelphia banks, however, and it is now a member of the Philadelphia Clearing
House,

(x) H. S. Section 5155 (a).

~ 202 ~

Rhode Island. - It is not certain whether there were any "branches
in Rhode Island in the early 19th century, hut if there were they had disappeared long before the Civil War. Around I836 legislation Yfaich was enacted to meet conditions described in Chapter II forbade banks to have an
office or agency for discount in any place other than its regular office,
without express permission.

In 1S95

answer to the Comptroller's ques-

tion whether branches were permitted, it was reported that "they are not."
The law was changed apparently the following year, I896, and by 1900 there
were several branches in operation.

The general banking law of 1908,

which was based on a revision of earlier laws, contained a clause expressly authorizing branches. Their extension has been state-wide.
South Carolina. - There were branches in South Carolina before
the Civil far, but it is not clear that there were any thereafter till
after I89O.

It does not appear that the law expressly permitted them. In

1895 "the answer to the Comptroller1 s question whether banks were permitted
to have branches was "yes, as suits the management."

In I9O8 it was simply

reported that the laws contained no authority for branches, or no mention
was made of their being in existence.

In 1909 there was still no mention

of the subject in the law, but subsequent legislation impliedly authorizes
branches by stipulating capital requirements, etc. Branches

maintained

outside the city of the head office are numerous.
The failure of the Peoples State Bank, January, 1932, a bank with
l\h branches, is discussed in the chapter on suspensions of banks with
branches.

~ 203-

South Dakota. ~ Incorporated banks appear never to have had
branches in South Dakota, and the law is silent on the subject.

In 1895*

however, it was reported that private banks had branches.
Tennessee. - Branch banking was common in Tennessee before the
Civil War, but died out thereafter, so that there were almost no branches
in the State in 1900. This was not because of any prohibition, for the
Comptroller's survey of 1S95 reports that the law did not prohibit them.
The law appears to have alluded to branches, however, in a way that implied permission.

In 1902 the report indicates that they were permitted.

An act of April 6, 1925>

aineaded January, 1932, restricts the estab-

lishment of branches to the same county in which the head office is
situated,
Texas. -According to the Comptroller's survey, branches were
permitted in Texas in 1S95» "but since State banks were prohibited in Texas
at that time, the permission must have applied only to private banks,
which did indeed have branches. In 1905 when State banks were authorized,
an amendment to the Constitution was adopted forbidding them to have
branches, and this is still in effect. However, in 1910 there was a branch
of the Dallas Trust & Savings Bank of Dallas situated in Oklahoma City,
Oklahoma.
Utah. - In IS95 &ncL 1902 it was reported that there was no provision in the law relative to branches. Since 1917i apparently, the law
has forbidden them. The law also required those already in existence to
be closed.

This implies that there were branches, though they appear to

have been only two or three in number.

- 20i+ -

Vermont, - There were a few tranches in Vermont in the first
years of the 19th century, hut as in all New England and New York they
soon disappeared.
survey of IS95.
authorized."

No report for Vermont appears in the Comptroller^
In 1902 ""branches or agencies" were reported as "not

The first mention of anything like branches appears in the

Act of March 13, 1929* which permits "agencies," a few of which were already in existence. They are permitted state-wide, though a public hearing is required before any given branch may be established, and they seem
to have the functions of branches as ordinarily understood.

The law does not

prescribe capital proportionate to the number of branches.
Virginia. - Branch banking was common in Virginia before the
Civil far, but appears to have died out thereafter. The report to the
Comptroller in 1S95 ^ ^

follows:

"••..Under our general law governing chartered companies,
banks could have branches, but I know of none."
Within the next few years, however, a number were in operation; though as
a common law right apparently rather than as a specifically authorized
practice.

No farther information was reported in 1902. In 1922 they were

authorized, with the condition however that they "shall not be operated or
advertised under any other name than that of the identical name of the
home bank."

In 1928 an act was passed restricting the establishment of

branches to the city of the head office or to other cities of not less
than 50,000 inhabitants. It is stated on competent authority that this
change in the law was made because bankers feared that interests outside
the State were planning to enter it and build up a branch system.

The law

also permits, however, "the merger of two banks in the same or adjoining

- 205 -

counties and the operation "by the merged company of the two banks."
Washington. - According to the comptroller's survey in 1895
branches were not forbidden, but tnere were probably few, if any, in
operation.

In 1902 the law was silent. By 1907 it specifically au-

thorized them.

By 1920 there were ten branches of seven banks, not count-

ing the two branches in Seattle and Tacoma of the Bank of California of
San Francisco. About that time a law was passed prohibiting further
establishment.
Two branches of the Bank of California National Association are in
operation in Washington, one in Tacoma

and one in Seattle, both acquired

in 1905i the bank being tnen a California corporation.

These branches

originally belonged to the London-And San Francisco Bank of London, England,
which established them in 1SS9 and 1901 respectively.

From 1S98 the Spokane

and Eastern Trust Company of Spokane, Washington, had a branch at Moscow,
Idaho, which was discontinued between 1905 and 1910.
West Virginia. - Branch banking was common in West Virginia before the Civil War, when it was still a part of Virginia, and the original
clause in the national banking legislation permitting State banks to convert
to national and retain their branches was introduced with West Virginia
branch organizations in mind.
1900#

These apparently all discontinued before

By 1895i according to the comptroller's survey, brancnes were not per-

mitted, thougxi it is not clear that the law forbade them.

In 1902 it was

reported:
"Each bank must be operated under special charter in an independent way. State banks may hold stock in other banking corporations.ff
There is no indication that use was made of this power.

- 206 -

In 1909 the law still did not specifically forbid branches*

1925 it was reported that the corporation laws, which provided for the
organization of "banks, authorised corporations to have "branches, "but that
the commissioner of banks did not permit "banks to have them.

It was not

till 1929 apparently that the present prohibition was adopted.
Wisconsin. - According to the Comptrollers survey in 1895*
branches, although not mentioned in the law, were in operation in Wisconsin,
but there is no evidence that they were numerous.

In 1902 it was reported

that they were "possibly" permitted if they were in the same city "as the
parent bank." Two banks in Milwaukee \vere reported as operating branches.
In 1906 and 1909f however, legislation was enacted forbidding further establishment.

In 1932 new legislation (Act of January 23, 1932) authorized

the establishment of "receiving and disbursing stations," similar to
"offices" in Iowa, their functions being limited and permission to operate
them being given only for towns of less than 800 persons where no banks
exist.

"Stations" are limited to three to each bank, must be in the same

county with the head office, not less than three miles from the nearest
bank, and cannot accept more than $300,000 of deposits*

These restrictions

are obviously intended to prevent competition with unit banks, and do not
encourage the establishment of branches*
Another portion of the same act further provides that if:
"....after the closing of any bank....any other bank in the
same city is willing to purchase the assets of the closed
bank...., provided such bank is permitted to operate a bank
at two locations in the same city,.which are at least one
and one half miles apart, then the commissioner of banking
may issue a license to such bank to establish and operate its
banking business in any two such locations in the same city...."

- 207 The effect of the new Wisconsin law appears to he therefore to
authorize

tranches in the form of "stations" in adjacent towns, and to author-

ize them in the same town under permission to operate at "two locations." It
is interesting that, as in Iowa, though authorizing what are tranches in fact,
the law avoids calling them such, and thus apparently leaves in effect the
older law prohibiting tranches. The home-city tranches, it is to te noted,
seem to te under none of the restrictions as to size and function that are imposed on the out-of-home-city "stations."
Wyoming. - There apparently has never teen tranch tanking in Wyoming
and there is no mention of it in the law.
mitted and in 1902 as not contemplated.

In 1895 i* was reported as not per-

The tanking laws of 1921, ty requir-

ing that a tank's articles of incorporation state "the place or places where
its offices te located," implied that tanks might have tranches.

The Revised

Statutes of 1926, however, amended this passage ty making it read, "the place
where its office, etc."; the change suggests a prohibition was intended.
Interstate Branches
Several instances of interstate tranches have teen mentioned in the
preceding pages. For convenience they are grouped together here. Only four
are still in operation; the others are described as discontinued.

Some of

these, if more conclusive information were availatle, might te classified as
agencies rather than tranches.

Bank of California, San Francisco (formerly a State tank, tut
since 1910 a national association).
Branche s:
New York City, authorized July 12, 1S6U; discontinued
May 1, 1384
Virginia City, Nevada, authorized September 6, 1864;
discontinued July 95 1917
White Pine, Nevada, authorized February 9, 1869;
discontinued about IS73
Treasure City, Nevada, authorized February 9f 1869;
discontinued about 1873
Hamilton, Nevada, authorized February 9> 1869; discontinued January, I873

- 208 Portland, Oregon, established 1823 "by the London and
San Francisco Bank, London, England, and
purchased by the Bank of California, then
a State bank, in 1905
Tacoma, Washington, established in 1889 "by t*1© London
and San Francisco Bank, London, England, and
purchased by the Bank of California, then a
State bank, in 1905
Seattle, Washington, established in 1901 by the London
and San Francisco Bank, London, England, and
purchased by the Bank of California, then a
State bank, in 1905.
Wells F&rgo & Company Bank, San Francisco (consolidated with
Nevada National Bank of San Francisco in 1905 as Wells Fargo
Nevada National Bank, which in turn consolidated with Union
Trust Company of San Francisco in 1923 as Wells Fargo Bank &
Union Trust Company)
Branches:
New York City, opened in 1852; acquired by National
Park Bank, I905-I906
Carson City, Nevada, opened I860; discontinued 1891
Virginia City, Nevada, opened i860; discontinued 1891
Portland, Oregon, opened 1855; sold to United States
National Bank, 1905
Salt Lake City, Utah, opened 1860-1861; sold to Walter
Bros., 1905
In addition to the above, the company maintained what it called
agencies at from 15O to 200 mining towns in the Western
States during the period from 1852 till the eighties* It
also had what it called agents in the smaller mining
settlements.
First Camden National Bank (formerly National State Bank),
Camden, New Jersey
Branch:
Philadelphia, Pennsylvania, established 1812
First National Bank (discontinued by consolidation with National
State Bank, 1922), Camden, New Jersey
Branch:
Philadelphia, Pennsylvania, established before 1900;
discontinued 1922
Camden National Bank (discontinued by consolidation with National
State Bank, 1927), Camden, New Jersey
Branch:
Philadelphia, Pennsylvania, established before 1900;
discontinued 1927
Spokane and Eastern Trust Co., Spokane, Washington
Branch:
Moscow, Idaho, established I898; discontinued between
1905 and 1910

- 209 Dallas Trust and Savings Bank, Dallas, Texas
Branch:
Oklahoma City, Oklahoma, established 1908; discontinued about 1911
At the present time there are in the United States two banks with
branches outside the home State, both these banks being national. One has
three branches and the other has one. Around the year 1910 there were at
least nine branches so situated, maintained by six banks, and possibly more.
In early years both before and after the Civil Wax there is evidence that
interstate branches or agencies may have been more common than they have been
recently.

This is without counting, of course, the branches of the First and

Second Banks of the United States.

Summary of State Laws
Five things stand out in the foregoing review of recent changes in
status in branch banking in the individual States:
1.

The majority of States in 1895 k&& n ° mention of branches in
their laws.

In some States silence has been taken as permitting and in
others as forbidding branches.

3. Nearly half of the States which have subsequently prohibited
branch banking have done so since 1920.
km The majority of States which have prohibited branch banking
are States where there was little or no branch banking
experience.
5.

Since 1929 such changes as have occurred in State laws have
been in the direction of relaxing prohibitions and restrictions on branches.
The following summary taken from the Federal Reserve Bulletin,

July, 1932, p. ^55$
the appendix.

based on the digest of State laws which appears in

- 210 Revised Summary of State Laws
States permitting
state-wide "branch
banking

States permitting
branch banking
within limited
areas

Arizona
California
Delaware
Maryland
North Carolina
Bhode Island
South Carolina
Vermont'Hz
Virginia(IS)

Georgia'1)
Indiana'3)
Iowa'5)
Louisiana'6)
Maine'7)
Massachusetts (g)
Mississippi'9)
Montana' 10 ) .
Hew Jersey'*2'
New Tojrif'1-5)
Ohio' 14 '
Pennsylvania'^5/
Tennessee (16)
Wisconsin'17)

Total, 9

Total, Ik

States prohibiting branch
banking
Alabama
Arkansas
Colorado
Connecticut
Florida
Idaho
Illinois
Kansas
Minnesota
Missouri
Nebraska
Nevada
New Mexico
Oregon
Texas
Utah
Washington
West Virginia
Total, IS

States having no
legislation regarding branch
banking
Kentucky'2)
Michigan'^)
New Hampshire
North Dakota
Oklahoma
South Dakota
Wyoming

Total, 7

( l ) C i t y or municipality.
(2)No provisions regarding branches; but court decisions permit establishment
of additional offices or agencies to receive deposits and pay checks.
(3)same county.
"Industrial banks" may e s t a b l i s h branches in c i t y or v i l l a g e of head
office; but no provisions g o ^ n g ^ s t a ^ h m e g f
tfj>ffl&&tf>£l&8£9
however,
Daniang i n s t i t u t i o n s , ^ p ^ ^ g ^ e permitted in the head office city,
v5/"Office" to receive deposits and pay checks permitted in contiguous
counties if no bank is located in c i t y or town in which such office is
proposed to be located.
(o)same municipality or p a r i s h .
'7)same county or adjoining county.
Same town.
(9)Same c i t y .
(10)Consolidated bank may operate offices of consolidating banks if in
same or adjoining counties«
(11)10 provisions regarding branches, but state-wide establishment of
"agencies" permitted*
(12)same city, town, township, borough or village, and where institutions located in same county have merged, at the locations of the
offices of merged institutions in such county.
(l3)City limits.
(l^)Same city, or city or village contiguous thereto or county or counties
in which municipality containing main bank is located.
(l5)Corporate limits of same place.
(l6)County in which principal office is located and principal banking
business is carried on.
(l7)Same city, at location of closed bank; and "stations" with limited functions in places deprived of banking facilities in same county.
(ISjBanksniay estahlislx branches inm_their. borne city or in, other, cities of more
more than 50fUW InnabrCant^. They may^also acquire banks m the same or
adjoining counties through merger and convert them into branches.

CHATTER IX

ORGANIZATION ASP OPERATION OF BRANCH SYSTBIS

In preceding chapters a difference has been recognized between
branches inside the city of a bank's head office and branches outside.
It was observed in the statistical description that the principal
growth in the number of branches has occurred inside the head office
cities.

It was observed in the historical review that the first move-

ment to sanction branch banking—which failed—was concerned chiefly with
the establishment of branches in rural coT&iunities; and that the second
movement—which was relatively successful—was concerned chiefly with
the establishment by banks of branches within the large cities in which
they themselves were situated.

The consequence of the second movement is

that with two prominent exceptions—^Chicago and St. Lotus—branches may
be established in most of the large cities of the United States, provided
they belong to banks situated in the same city. The opposition to branches
of large city banks confined to the head office city was never so strong as
the opposition to the establishment of branches outside, and at the present
time the question of the desirability of the latter constitutes practically
the whole issue.

In other words, there is no great objection to the estab-

lishment of branches by banks in their own cities, but there is objection
to "absenteeism" or the establishment of branches in one community by banks
in another.

- 211 -

- 212 -

Wherever the tradition of highly centralized management is
strong, as it is in the typical American bank, there is a psychological
barrier to widespread branch operation. The more conservative the banker,
the less he is apt to desire responsibility for offices out of his reach.
This attitude may explain in part why many banks of large size have opposed branch banking, and why they have joined with small banks in opposition to it.
It is not from the point of view of operation, however, that
the strongest objection to branches in territory outside the city of the
head office has come. The strongest objection has come from the small
banks, which have desired not to have their established position disturbed.

They have been able to gain support for their opposition by urg-

ing that the branch organization with its headquarters in a large and remote city will not be as much interested in the credit needs of the local
community as the local bank.

~ 213-

American experience outside of California does not offer much
that is factual on this point. Leaving California aside, since it is discussed in a separate report, there is very little "branch "banking carried
on in this country outside the head office city*

Only twelve banks in

other States have as many as ten "branches each outside the head office
city. They are the following.

Table 20 - Banks, with the Exception of Those in California, Operating
10 or More Branches Outside the.Head Office City
December 31, 1931^1'

Name and location of bank

Eastern Shore Trust Co., Cambridge, Md.
South Carolina State Bk., Charleston, S. C.
Tennessee Valley Bank, Decatur, Ala.
Page Trust Co., Raleigh, N. C.
Cleveland Trust Co., Cleveland, 0.
North Carolina Bk. & Tr. Co., Greensboro, N. C.
Augusta Trust Co., Augusta, Me.
Grenada Bank, Grenada, Miss.
Merrill Trust Co., Bangor, Me.
Valley Bank & Tr. Co., Phoenix, Ariz.
Branch Banking & Tr. Co., Wilson, N. C.
Industrial Trust Co., Providence, R. I.

Branches
Populat ion
Loans and
head office investments outside head
city
Dec. 31, 1931 office city

8,544
62,265
15,593
37,379
900,429
53,569
17,19S
4,349
28,749
Us,lis
12,613
252,981

$ 15,660,000
6,200,000
3,800,000
3,900,000
240,200,000
26,600,000
17,400,000
5,500,000
23,000,000
8,500,000
4,900,000
129,400,000

20
17
15
13
12
12
12
12
11
11
11
10

(1'Peoples State Bank of South Carolina, with k2 branches, which suspended in
January, 1932» is omitted from this table.

Only two of these, the Cleveland Trust Company of Cleveland,
Ohio, and the Industrial Trust Company of Providence, Ehode Island, are
banks of very large size, or situated in large cities, and neither of
them exemplifies territorially extensive branch systems. The twelve
branches of the Cleveland Trust Company are all within thirty or forty
miles of Cleveland, and though they are outside the city limits they are
still within the metropolitan area and not essentially different from the

- 214 -

bank's forty-five other branches that are within the city limits. The
Industrial Trust Company, although its ten branches are in all parts of
Hhode Island, is necessarily not extensive territorially.

It also has

four branches inside the city of its main office. As members of the
Federal Reserve System, neither the Cleveland Trust nor the Industrial
Trust can establish more branches outside their city limits.
Most of the other ten banks have their main offices in small
places.

Only three or four of them have branches scattered in a very

large area, the Valley Bank and Trust Company, the South Carolina State
Bank, the North Carolina Bank and Trust Company covering the largest
territory. The Eastern Shore Trust Company, with the largest number of
branches, operates in a rather small area, almost wholly rural. Most of
these systems in fact are rural. At the same time they are among the
largest and most important banks in their States.

Seven of the twelve

have the right to establish more branches outside'their city limits. Five
of them, either because they are members of the Federal Reserve System or
because they are in States where further extension of branches is prohibited, may not establish additional branches outside the city limits.
Most of the ten banks have been in operation several years, some as much
as twenty to forty-five. All of them were built up gradually, partly by
the establishment of branches de. novo, and partly by consolidation.
In order to secure as much factual information as possible about
branch banking practice, a questionnaire was prepared and submitted to
28 banks, 'including those already named, maintaining offices in more than
one city.

Information was received from 20 of these banks, but in many

cases the replies were of negative value, for the reason that the branch

~ 215 -

operations were so small. The results of the questionnaire emphasized the
fact that except in California there are practically no "branch hanking
systems extensive enough and old enough to use as cxamplars of branch banking on the scale generally contemplated for it in legislative proposals*
The banks outside of California replying to the questionnaire
were maintaining at the close of 1930 branches in 1^3 communities exclusive
of their home office cities*

In $k of these communities there were no

local independent banks in existence.

In the remainder the number of inde-

pendent banks ranged from one to five.

In only 28 of them were there

branches of other banks. In 79* over half the total, there were no other
banking facilities whatsoever.

While there might have been independent

banks in some of these places had not branch systems entered them, it is
safe to assume that this would not have been true in all. The majority of
the towns served by branches outside the city of the head office are in
agricultural communities, although a relatively large proportion are basically industrial and commercial.

Some are primarily residential, frequently

being suburbs of large cities in which the head office is situated.

Relations to Communities Served
The stock of these branch banking systems is fairly widely held,
considering their size. They had from 102 to 2,316 stockholders, and the
average holding ranged between $700 and $6,000, approximately.

A large

proportion of the stock is held in the communities in which the banks
operate.

In about half of the cases

'-{JO, per cent or more of the stock

is owned by residents of the head office city, the proportion so held ranging from 28 per cent to 8k per cent of the total issue.

In addition a

- 2l6 -

large amount is held in the other communities served by branches amounting
to from 5 per cent to 70 per cent of the total•

In practically all cases

three-fourths or more of the stock is owned in communities served by the
bank.

In one case over half the stock is held by a group holding company.

It is a fixed policy of a number of the banks to keep their stock distributed in the communities in which their branches are located.
The leading consideration for the establishment of branches by
these banks, according to their own reports, has been the public demand
for banking facilities in communities with no banks or with inadequate
facilities*

A few systems were attracted by opportunities for profit in

other communities, and others acquired branches by taking over weak banks,
being attracted by the low price at which they could be acquired.
A substantial number of the banks reported that they have taken
over weak independent banks which have since been operated at a profit as
branches. Not only have these branch systems absorbed unprofitable independent banks, but most of them have established de novo branches in communities
which, they declare, could not support unit institutions. Practically all of
these branches have been profitable, principally because they can be operated
at less cost than a unit bank transacting a like amount of business.

In a few

cases branches appear to have been able to secure a greater volume of business
than a unit bank in the same locality. A few of the systems have operated
branches at a loss for a time hoping that the business of the communities in
which they were located would undergo sufficient development to assure a profit-

- 217 -

able volume of deposits and loans in the future.
Local advisory boards have been established at some or all of
the branches of nearly every system.

The members of each board are resi-

dents of the community, and in most cases they all own stock in the bank.
They are helpful to the bank in questions of local credit and in extending
local business. As a further means of assuring personal contact with the
communities served, officers of absorbed banks are usually retained as
managers of the resulting branches.

In about a third of the cases reported,

all, or almost all, of the branches acquired by merger were managed by men
who had been in charge of these offices as unit banks. Few of the systems
shift managers from branch to branch, and most of these shift only in exceptional cases.
The majority of the systems reported that their branch managers
have considerable discretion concerning the operation of their respective
offices. A few of them indicated that their branches are run almost as
independent banks, being required only to conform to the general policies
laid down by the head office.

In but one case was it reported that district

or zone offices had been established to supervise the branches in their
respective areas. This bank has since failed.

The others operate so few

branches, usually within a comparatively small region, that they are all
easily controlled from the head office.
Credit Policies
'•"

" * » • '

••

" f

•

•••••'••»

Most of the systems reported that each branch was permitted considerable autonomy in the granting of loans, but it is apparent that in
many cases this may be exercised only within rather narrow limits. In
about half of them all applications for large loans must be passed on by

- 218

the head office, although local managers are permitted practically complete authority concerning smaller loans. In a few additional cases it
was reported that all questionable applications are referred to the head
office*
The limitation upon the size of loans that may "be made by a
"branch office ordinarily varies with the customer, whose usual requirements
and line of credit are already determined, and with the nature of the loan,
whether secured or unsecured, and by the nature of the collateral*

Five

representative answers to the question on this point follow:

"There are no definite specific restrictions imposed upon
the Managers in making loans so far as total funds available are concerned, with the exception of mortgage loans.
But there are definite restrictions relative to the amounts
loanable in relation to the credit of the borrowers."

"Unsecured Discount Loans: Branch Managers have authority
within certain limits to make loans without reference to
the main office* These limits are specific and vary according to the ability and experience of each manager and range
from $500.00 to $5,000.00.
"Mortgage Loans: All branches makB mortgage loans subject
to approval of loaning committee upon which branches have
representation. Appraisals of properties are made by
branch appraisers, and bank attorneys pass upon all titles.
"Collateral Loans: Collateral loans are made by branches
without reference to main office when collateral is within
established loaning basis, otherwise managers communicate
with loaning officials at main office by telephone or
letter."

3»

We do not give our Units definite and specific restrictions within which to operate in the matter of making
loans. The individual Units pass upon credits, but whenever there .is anything unusual in regard to a credit or
any possible doubt as to whether or not a loan should be
made, the entire file is referred to the central office *
for decision. In other words, we depend upon the officers
in each Unit to refer any doubtful matters to the central
office and we are securing one hundred per cent cooperation
from our Units in this manner. We have, in our central
office, duplicate files on all of our borrowers of $1,000
and over, and we are advised daily as to new loans handled.

- 219 -

An extremely small proportion of the loans made by our
branches is passed upon by the central office before
same are made."
H.

"There are no definite specific restrictions upon the
power of the managers to make loans as to total funds
available and as to credit of individual borrower, as
each branch tries to take care of the legitimate demands
of its customers. The head office makes no attempt to
pass on out-of-town branch loans, but a complete list of
loans made by each branch office is furnished the head
office each week and these loans are closely checked by
the head office, and the branch so advised of any adverse
criticism regarding them* A complete credit file is kept
in the home office on each borrower*"

"Discretionary loan limits are given to each branch manager according to the needs of each community and the credit
experience of the manager. In seven branches the managers
have discretionary limits of $1,000 on unsecured loans and
$5,000 on listed stocks and bonds* In the other four
branches the discretionary limits are $500.00, and $2,500.00,
respectively. We attempt to anticipate the borrowing needs
of important customers by setting up lines of credit in advance. We have no figures on the proportion of the volume
of loans made by the branches on xvhich head office approval
is required before the loans are made, but would estimate
that 50$ of the branch loans in volume come under this classification."
In general it may be said that the lending policies of the branch

systems tend toward conservatism, although wide variations of practice are
observable from lank to bank. For example, loans to customers ranged from
32 per cent to 80 per cent of available funds'1' on June 30, 1930, with
the average at about 50 per cent. As a rule the systems located in predominantly rural regions put the greatest proportion of available funds
into local loans*

The four in which this ratio

was 70 per cent or more

were all located in Southern agricultural States. On the other hand, of
the three in which this ratio was below 35 P e ^ cent, two operate in and
around large industrial cities and the third chiefly in mining communities.

I.e., capital, surplus, undivided profits, deposits, borrowed money,
and notes in circulation*

- 220 ~

Naturally these three institutions had a large proportion of
their funds invested in securities—as much as 55 P e r

ceri

in one

instance•

A number of systems operating in agricultural regions, on the other hand,
had security investments of less than 10 per cent of available funds.
Half of those reporting had no funds invested in the Hew York money
market, and only two had 5 P e r

cent or more

of their available resources

so invested.
Deposits with other hanks ranged from nothing to 19 per cent of
available funds* and averaged about S per cent.

In this case the systems

serving agricultural regions generally had the highest ratios. The average
for all banks in the country, including deposits with reserve agents, was
about 10 per cent on the same date.
In spite of the fact that a number of the branch systems indicated that their branches which were formerly independent banks now make
loans on a more conservative basis than before their absorption, several
stated that their ratios of loans to deposits have increased.

It was ex-

plained that this was made possible by the ability to make more complete
use of available funds, inasmuch as they can be shifted from branches
where there is scant demand for loans to branches where demand is in excess of deposits.
The charge has often been made that branch systems refuse to
lend as great a proportion of deposits locally as independent banks do.
The branch systems, it is alleged, prefer to draw funds from the smaller
communities and invest them in the larger centers.
Data were secured in response to the questionnaires and from
other sources concerning the loans and deposits jpf 163 branches which are
£e., capital, surplus, undivided profits, borrowed money, notes in
circulation.

~ 221 ~

located outside the city of the head office*

All loans and discounts of

all banks in the United States on June 30, 19301 amounted to about S& per
cent of deposits*

Over half of the 163 branches had higher ratios of

local loans to deposits than this average figure*

Forty-one of them,

about a fourth, had more local loans than deposits, that is>, they had put
more funds into their community than they had taken ouW

It is true that

the loans of many other branches were an extremely small percentage of
their deposits, but it was apparent in a number of these cases that the
demand for loans was low. Branch banking as exemplified in these systems
has indubitably facilitated the direct transfer of funds from coSEfiunities
with little need for loans to those where the need exceeds local deposits*
The above figures do not substantiate the charge that the smaller towns
are drained of funds by branch systems.
They indicate moreover that the volume of loans that may be made
by a branch does not depend on the volume of deposit business originating
there, but on the funds of the bank as a whole, which may be used whereifer
there is demand for them.

In a given branch system some offices will be

constantly lending in excess of deposits and others will be constantly
unable to lend all they have; or there may be seasonal fluctuation, which
give some offices excess funds while others have excess demands*

A majority

of the branch organizations replying to the Committee's questionnaire reported that this process enabled the demands of all branches to be fully
met without recourse to borrowing.
Of twelve banks in different parts of the country nearly all reported that they allowed the needs of their branches to be adjusted automatically by debits and credits to the head office account. A few reported

- 222 -

that they were adjusted by loans and rediscounts arranged between branches
by the head office.

Some banks reported doing both, and one no borrowing

at all within the system.
Pour representative answers are quoted:
1.

"In most cases, demands for credit do not absorb all the
funds on deposit in our various branches, the surplus
being on deposit with the head office, upon which interest
at a nominal rate is credited to that particular branch.
Whenever deposits of the branch are not sufficient to meet
the local demand, such branch receives a credit from the
head office and interest charge at a nominal rate."

"Branches are allowed to draw on our main office, creating
a debit balance instead of a credit balance. A few of our
branches carry a perpetual debit balance—in other words,
are perpetually overdrawn because the credit demands of
their communities are greater than their local deposits.
Specifically this is the case at S of our branches."

"If the credit demands of a particular branch are in excess of the funds available, a sufficient amount of their
loans are purchased by another branch or by the main office,
having idle funds, until such time that the branch originally
making the loans can again care for them comfortably, when
the loans are repurchased by them."

"Each branch makes such loans as appear desirable according
to our general credit practice, and if its own funds are insufficient for its volume of loans, the excess is taksn care
of by an overdraft on the Head Office books. This is the
case with one branch at present."
Apparently branch operation has lowered interest rates in some

cases but not in all. The inquiries made for this study indicate that
as a rule the smaller branch organizations have left interest rates unchanged, and that the larger ones have lowered them.

The tendency also

appears to be for rates to be made more uniform.
The difference in credit policy between banks with branches and
banks without branches appears to be less clearly marked than the differ*ence between large banks and small banks. A large bank tends to be more

- 223 ~

conservative than a small bank, and more impersonal in its decisions. This
is the more apt to be true if besides being a large bank it has extensive
branches and adequate control over them. For adequate control entails at
least a minimum of reference to headquarters and of obedience to rules applicable over a region rather than to one community.

- 224 -

Operating Economies
The "branch systems cited a number of ways in which their operations are more economical than those of independent hanks*

The centralized

purchase of standardized forms and equipment is obviously less costly than
if each office should purchase independently.

A considerable saving has

been effected by several of the systems through consolidated advertising.
These economies, however, affect items of expense which do not represent
important proportions of the total costs of operation*

On the other hand,

appreciable reductions have been made in many cases in salaries and payrolls, which are important items of expense. These reductions are made
possible because complete staffs do not have to be maintained at each
branch*

The employees of the head office can perform certain functions

for all branches, and not only are they fewer in number, but each of them
is able to specialize and confine his attention to fewer operations than
would be the case if he were working for a small independent bank*
Two branch systems, however, stated that they had not effected
any economies as to personnel, for the close supervision and scientific
management they exercised over their branches required as many or more
high-salaried employees than their offices would have operating independently.

One system even went so far as to say that branch operation, on

account of this situation, was more expensive than unit operation. This
improved operation, however, should to some extent pay for itself by cutting
other costs and reducing losses.
Aside from these specific economies, many other advantages over
unit operation were listed.

The most frequently mentioned was the larger

loans which could be made to individuals, on account of the larger capital

- 225 -

of a branch system.

Other factors of importance which were mentioned

were the greater public confidence in large scale banking, the better service rendered, the more highly trained employee, and the more cautious
investment and credit policies.
A majority of the systems indicated that they feel that the
proper legal limits on branch operation are State boundaries. This mast
be considered in view of the fact that nearly all the systems answering
the questionnaire are State institutions, which would be restricted to
branch operation within their home States even if national banks were
allov/ed wider privileges. A few, however, indicated that a slow extension
of territorial limits would be desirable. For instance, after state-wide
branch banking had become well established, it might be possible to permit
its extension throughout trade areas of Federal reserve districts. One
suggested that it might eventually be made nation-wide.
Practically all the replies indicated that there appear to be no
economic, as distinguished from legal, barriers to the further development
of branch banking, but over a third stated that there might be the problem
of securing adequate administrative personnel. Only a few of the systems,
aowevert admitted having had any difficulties in developing a competent personnel.

Several of those which have had such difficulties feel that they

may be eliminated by proper training.

Branches and Capital
A substantial majority of the branch systems which replied to the
Committee's questionnaire definitely assign a certain amount of capital to

~ 226 -

each "branch. The chief purpose of this is to enable the profit
or loss of each "branch to be determined.

In over half of the

systems which thus assign capital a detailed system of cost
accounting has been worked out. The branches are credited with
interest for surplus balances turned over to the head office,
and with commissions on services sold; they are debited with
interest on funds drawn from the head office, and with propor**
tions of the overhead cost, and so on.

In other cases, however,

little more is done than to keep individual income and expense
accounts for each branch, or permit each branch to determine
its own profits.

- 227 -

Public Attitude Toward Branches
In answer to the question whether there was any
prejudice in their regions against either group banking or
branch banldng, twelve banks made the following replies:
1. "No."
2. "No."
3.

"We know of no prejudice within this State against
either group or branch banking."

"Judging by the growth of our branches we believe
the public is taking kindly to branch banking in
this territory. Here as elsewhere it is not the
public at large who are prejudiced against branch
banking but rather some of the independent bankers."

5. "No."
6.

"Apparently, there is no general prejudice in this
territory to branch banking. As a matter of fact,
sentiment seems to be in favor of that plan."

7. "No."

- 22S ~

8. "No."
9.

"There does not seem to be any general prejudice
against either group or branch banking as we have
been received most cordially by the public where
we have established branches and have been invited
to open branches in almost every part of the
state,"

10. "No."
11.

"Apparently there is more prejudice against branch
banking where there is an independent bank located
in the same community, due to the fact that the competitor at times endeavors to prejudice the minds
of the public by proclaiming that the branch !is a
foreign corporation.1"

12. "No."
The reports of six of these banks were corroborated by
the oral statements of a large number of independent bankers in
the same regions who were personally interviewed*

The majority

of them approved branch banking, though some qualified this by
saying that what they had in mind was the rural type of branch
banking that they were familiar with. Those who disapproved
of branch banking were in the main extremely conservative men

- 229 ~

who objected that it taxed their abilities to run one bank,
and that they could not see how anyone could safely run
several of them.

CHAPTER X

SUSPENSIONS OF BANKSfflTHBRANCHES

Branch banking on an important scale in the United States has
"been so recent in development that it does not furnish an adequate "body
of data for comparing the safety record of "branch systems with that of
unit banks. We mast rely upon the Canadian and English records for
such a comparison. However, the suspensions of banks with branches
during the period 1921-1931 h a v e been tabulated, and these figures are
presented in this chapter as a matter of record*

Of those suspensions

nearly 60 per cent were banks with only one branch each, and another
20 per cent were banks with only two branches each. There have been
very few failures of banks with numerous branches.
There were altogether 179 banks with branches which suspended during the eleven-year period, 1921-1931, as illustrated in
Table 21.

Three-fourths of these suspensions occurred in the last

two years of the period, that is in 1930 a^cL 1931* The suspensions
in those two years also accounted for over 81 per cent of the branches
involved in failures during the whole period and over 92 per cent of
the loans and investments.

• 230 -

- 231 -

Table 2 1 - Suspensions of Banks with Branches, 1921-1931

Year

1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
Total

iSfumber
of
suspensions
6
2
4
4
2
11

3
3
10
40
179

Per
cent
of
total

Number of branches .
Per
In
Outside
cent
head 1
head
Total
office
of
office
city
city
:total

3.4
1.1
2.2
2.2
1.1
6.1
1.7
1.7
5.6
22.4
52.5

109
166

100.0

286

6
5

Per
Loans and
; cent
investments
f
(000 omitted) ! °
! total
$

33
7
7

11
38

_Z5

18
147
241

1.3
1.0
.4
7.0
1.5
U5
3.8
31.0
50.8

188

474

100.0

33.9H
1.921
2,629
1.867
2,652
11,724
2,226
2,843
23,213
434,074

3.2
.2
.2
.2

.3
1.1
.2

2.2
41.1
51.0

538,9^7
$1,056,007

100.0

Table 22 shows that l6S of these suspensions were State banks
and only 11 national banks and that the national bank suspensions all
occurred in 1930-1931*

This may be explained by the fact that before

1930 the failures were mainly of small banks with one or two branches
each, and that the majority of such banks were State banks. In 1921
there were only 23 national banks with branches, but this number had
grown to 157 by the end of 1931* The increased failures in 1930 and
1931 reflect the business depression- and the general increase in the
number of bank failures*

- 232 Table 22 - Suspensions of State and national Banks with Branches, 1921-1931
State banks
1
National banks
dumber 1 Number of branches | Loans and Number Number of branches [ Loans and
investi n v e s t - | of
In I Outside
[ Outside
of
'In
Year s u s ments f susments
head
head T o t a l
head TY^fca"
head
I J. V U d i JL
XU vCU
pen- o f f i c e o f f i c e
(000
(000
1 pen- b f f i c e o f f i c e
s i o n s 1 city c i t y
1 omitted) 1 s i o n s c i t y
city
omitted)

6 !

1921
1922
1923
1924
1925
1926
1927
1928
1929 >
1930 i
1931

_S5

107
144 1

Total

168

262

2
4
4
2
11

3
3

10
3S

— !
«.
~

1
_
—
-.

6 i $ 33.911

6
5

33
7
7

11
3S

Jit
187

33
7
7

IS
145
218 |
449

1,921
2,629
1.867
2,652
11,724
2,226
2,843
23,213
383,407i
483.564

$949,957

«•
—
—
_
_
_
_
—
—

_
_
_
«.
_
«.
_
—

~.
—
«.

—
!

•»

—
mm

_
_
—
—

2
22

—

••*

_
«•

«M

—
—.

««,
—

$ 50,667

22j
25

55.383
$106,050

The 179 failures that occurred in the eleven-year period amounted
to 26mk per cent of the total number of banks with branches on December 31,
1931 (Tables 23 and 2k).

Comparison on the basis of size instead of

number, however, shows a very different result, for the loans and investments of the 179 failed banks aggregated only 5.8 per cent of loans and
investments of all banks with branches.

It is evident that the smaller

banks with branches suffered the most suspensions*
The distribution of failed banks with branches is given by
size of loans and investments in Table 23. Among banks with less
than $1,0001000 loans and investments the percentage that failed was
high, ranging from 1+0*0 per cent to 76*9 per cent. Among the larger
banks the proportion was much smaller.

- 233-

Table 23 - Suspensions of Banks with Branches, 1921-1931, Per 100
Active Banks with Branches December 31i 193^» *>y
Size of Loans and Investments

Suspensions of
Eatio of suspended
Active banks with
to active banks
banks with branches
branches
Size group
(per cent)
1921-1911
December 3 1 , 1931
loans and
Aggregate
Leans
Aggregate
investments Number Number loans and Number 1 Number loans and Number ! Number and
| of
of
(000 omitted)
investments of 1
inof
jinvestments of
i
branchbranchbanks
banks branch- vest(000
banks
(000
es
es
es ments
: omitted)
omitted)
o f

Under $150
150 - 250
250 - 500
500 - 750
750 - 1,000
1,000 - 2,000
2,000 - 5,000
5,000 - 10,000
10,000 - 50,00c
50,000 and over

71
119
io4
157
-ZO

62
102
237
227
720
1.817

Total

677

3>33*+ $18,336,761

21
13
48

4o
34

21 $
16

P49

2,376
2,652
17,862
25,322
36.756
100,522
392,148
742,512
3,343,128,
11,671.481!

9
10
28
16
16
24
27
25
23
1 j
179

$
917
9
11
1,983
10,695
32
9,587
23
14,110
25
37,302
51
85,608
59
178,329
77
129
504,073
_58 1
211.401
474

$1,056,007

42.9

42.9
68.8
50.8
4o.o 46.9
47.1 40.3
33.8 50.0
22.7 24.9
24.0 33.9
14.6 17.9
1.4
_2*2
26.4
14.2
76.9
58.3

The same distinction is "brought out in Table 2k, where failures
of banks with branches are classified according to the size of town in
which the head office is situated.

According to this table the ratio of

failures to active banks was lower in the large towns than in the small
towns*

Here it is also apparent that in towns of practically every size

it is the smaller banks with branches that show the greatest frequency
of failures; in towns of less than 1,000, for instance, the failures
were 37.9 per cent of the total number of banks with branches, but the
loans and investments involved in these failures were only 26.4 per cent
of the loans and investments of all active banks with branches.

38.6
74.8
59.9
37.9
38.4
37.1
21.8
24.0
15.1
1.6
5.8

- 23*+ Table 2k - Suspensions of Banks with Branches, 1921-193l# Per 100
Active Banks with Branches December 3^> 193^» "by Size of Town
Active banks with
Suspensions of
Ratio of suspended
branches
to active banks
banks with branches
(per cent)
December 31,1931
1921-19U
Aggregate
Aggregate
i Number
Number
Number
Loans and
loans and
loans and
of
of
of
investments
investments
investments
banks
banks
banks
(000 omitted)
(000 omitted)

Population
group

Under 1,000
1,000 - 5t000
5,000 - 10,000
10,000 - 25,000
25,000 - 100,000

66
113

100,000 and over

265

Total

%
56

677

35.06H
158,895
79,571
183,905
1,268,^21
16,610,905

9.2^8
32,138
16,280
58,813

26.U
20.2
20.5
32.0

37.9
42.5

33.3

12
ik
2k

119.750

25.0
17.0

_56

819.778

21.1

$18,336,761

5.8
179

$1,056,007

26.U

Table 25 gives a list of eight States in which a substantial
number of branches operate outside the city of the head office*

Iowa

is omitted because branches have been in operation there only a little
more than a year. The States are those, therefore, which have had the
most experience with rural branch banking* Although the number of failures of banks with branches in some of these States is very high as compared to the total number of active banks with branches, there are two
important qualifications to make*

The first is that the base is unsat-

isfactory because the number remaining after several years of failures
and consolidations is not representative of the period as a whole*

The

number at the beginning of the period is even less representative, however, and an average of the number in operation is no better*

The sec-

ond qualification and the more important one is that only a very few of
the suspended banks really exemplify branch banking*

This is apparent

from a glance at the two right hand columns which show the number of

- 235 -

suspended hanks and the number of their branches•

In five of the eight

States the average number of branches per failure is less than two and
in only one is it as much as four. As a matter of fact the largest number of branches of any bank in the list was eleven and there was only
one system of that size.

Table 25 - Suspensions of Banks with Branches, 1921-1931* and Active Banks
with Branches December 3l> 193*» * n Inrportant Branch Banking States

State^1)

California
Maryland
Louisiana
North Carolina
South Carolina
Maine
Virginia
Tennessee
Total

Active banks with
"branches
December 31. 1931
Number of Number of
banks
branches

Suspensions of
banks with branches
192L-19551
Number of Number of
banks
branches

50
27

801
108

5
k

98
84
77
73
57
52

23
11
19
30
22U

1,356

2k
9
3
6
_k
67

15
17
18
1+0

2k
5
7

131

t1' Only those States are given in which a substantial nun>ber of branches have been in operation outside the city
of the head office for several years, although the number of branches shown includes both those inside and outside the city of the head office of the bank.

In Table 2o both active

and suspended banks with branches are

classified in groups according to the number of their branches. The
highest proportion of failures was among the banks with fewest branches—
29«9 per cent of the banks with one and two branches each suspended as
compared with only 12*5 per cent of the banks with over ten branches
each.

Moreover, within each group the failures occurred chiefly among

the smaller banks of the group*

Thus although 29 »9 per cent of the

~ 236 banks with one and two branches failed, their loans and investments were
only 7.8 per cent of the total; among banks with from three to ten
branches failures were 21 per cent in number but only 8 per cent in
loans and investments; and among banks with ten or more branches they
were 12.5 P©** cent in number but only 3*7 per cent in size*

Table 26 - Suspensions of Banks with Branches, 1921-1931, Per 100 Active Banks
with Branches December $1, 1931* Grouped by Number of Branches
Active banks with
Suspensions of
branches
"banks with branches
December
31,
1931
1921-1911
Mumber of
Aggregate
Aggregate
branches
loans and Itfumber Aggregate loans and
p e r bank Number Aggregate
number of investments
number of investments
of
of
banks •branches
(000
(000
banks branches
omitted)
omitted)
1-2
3 - 10
Over 10

465
156

575
70^

2,055

677

3,33^

Total

$ 4,901,SOU
3,692,258
9,742,699

139
33
_ I

$lS,336,76l

179

173
155

Eatio of suspended to a c t i v e
banks (per cent)
Number Loans and
investof
ments
banks

3^2,503 29.9
309.227 21.2
164,277 12.5

s.k

26.4

5.8

$1,056,007

7.8
3.7

A noteworthy fact is brought out in Table 27 $ where the banks
are classified in greater detail as to the number of their branches.
Of the 179 banks with branches that suspended in the eleven^year period,
1921-1931* !05 had only one branch each and 3^ niore had only two branches
each.

Manifestly branch banking is not typified by banks with only one

or two branches each; nor is it typified by banks with only three branches.
Yet there were only ko suspensions of banks with three branches or more
in eleven years. As these Uo are still further divided in order to get
instances of what may justifiably be called "branch systems11 that have
failed 1 it is found that there have been only seven suspended banks with

- 237-

more than ten branches each*

Table 27 - Suspensions of Banks with Branches, 1921-1931* a n d Active
Banks with Branches December 31* 1931*
Grouped by Number of Branches
*Active

"bank s with
Suspensions of
tranche !S
banks with branches
December 31 . 1931
1921-1931
WnWl'kA..
*•£>
XJumoer 01
Aggregate
Aggregate
Number
Aggregate
loans
and
Number
Aggregate
loans and
per "bank
of
number of investments
of
number of investments
(000
(000
tanks
branches
i banks branches
omitted)
omitted)
1
2
5
6
7
8
9
10
11 - 15
16 - 20
Over 20

355
110
66
36
21
10
4
7
7
5
23
9
24

355
220
19S
l44
105
60
28
56
63
50
290
l6S
1,597

$ 1,952,s^5
2,948,959
972,266
844,554
439,638
397,170
128,002
376,41*0
226,659
257,529
1,950,565
535,358
7.256.776

105
3^
10
9
6
3
2
1
1
1
3
3
1

105
68
30
36
30
18
l4
8
9
10
33
55
_58

Total

677

3,33^

$18,336,761

179

474

265,179
117,324
34,264
90,361
73.552
62,043
16,998
7,023
1.^33
23,553
54,691
96,183
, 213,403

$1,056,007

The seven suspensions with more- than ten branches each, together with one additional bank which failed January 2, 1932, are
listed in Table 22. Only three of these banks had branches outside
the city of the head office.

The failure of the first, the Georgia

State Bank, was part of the general failure of the Witham-Manley chain,
which is described in the report on group and chain banking.

- 23S -

Table 28 - Suspensions of Banks with More than 10 Branches Each,
1921-1931(1)
Name and location of bank:

Loans and
I Year! Branches investments
Out (000 omitted)

3C
:

Georgia State Bank, Atlanta
Bank of United States, New York City
Bankers Trust Co., Philadelphia
Security Home Trust Co., Toledo
Commercial Savings Bank and Trust Co., Toledo
Ohio Savings Bank and Trust Co., Toledo
Central Trust Co., Frederick, Md.
Peoples State Bank, Charleston, S. C.
Total

1926
1930
1930
1931
1931
1931
1931 j
1932

20
58
19
11
11
16

—'
-:

—

11 :

3.990
213,U03
^7,932
25,1^8
1^,103
UU,26i

i5,UUo

JE:

23,869

117

$38S,iH6

(1) Including one in 1932, added because of its importance, but not included
in any of the previous tables.
She Bank of United States, which was the largest bank that
has ever failed in this country, had 5& branches, but they were all in the
one city. After its failure, indictments were brought charging the principal officials of the bank with abstracting and wilfully misapplying its
funds.
The Bankers Trust Company of Philadelphia, all the branches of
which were in the one city, was closed by action of the directors after
a long period of declining deposits.
The suspension of the three banks in Toledo was due to a local
crisis, in which four leading banks closed in one day, another having
closed two months earlier. One of the five banks had no branches, and
all the branches of the others were within the city of Toledo.
All of the foregoing were banks whose size and situation made
their branch operations of comparatively minor significance, the bulk

- 239 -

of their business belonging to their main office. They WetS city batiks
and their branches were confined to the city in every case, except the
Georgia State Bank*
The Central Trust Company of Maryland, however, was more distinctively a branch organization, Frederick, where its main office was
situated, is a town of about 15,000 people, and the bank^which had loans
and investments of more than $16,500,000 at the end of 1930, or U5 per
cent of the loans and investmentsrof all the banks in town^, appears to
have owed a substantial part of its business to its branches, which were
situated in eleven other towns. The bank was not a member of the Federal
Reserve System. According to the State bank commissioner of Maryland,
its difficulties arose mainly from "various large commitments accumulated
in real estate holdings....*•, a majority of which were located outside
the State, and of course, the conditions existing nationally at that time
contributed in no small degree to the shrinkage in the asset value of
this class of commitment.
Of all the banks with branches that have failed, the Peoples
State Bank of South Carolina was most distinctively a branch organization.
It had 45 offices in ^2 different cities, towns, and villages situated
in every part of the State. Its business was largely derived from its
branches, and externally it would appear to have been the chief exemplar
of state-wide branch banking in this country outside of California. It
was not a member of the Federal Reserve System, for its branch organization had been developed almost entirely after the passage of the McFadden
Act in 1927•

Twenty-gecond Annual Report of the Bank Commission of the State of
Maryland. February 1, 1932, p. 7.

- 2*40 Its failure, according to reports, "was caused by poor judgment,
poor management, and an excess of ambition.

The branches contributed to

the failure of course, but if the institution had possessed good ability
and good judgment it would not have failed just because it had a string
of branches." Before converting to State charter and beginning its career
as a branch organization it had already been "continuously subject to
criticism from national examiners•.... The part which the branches played
in the failure was played not because they were branches but because of
the manner in which they were established. A large proportion of the
branches were formed by taking over unit banks which were practically
'busted1 when they were taken over. These operations filled the group
with highly unliquidt and in many cases, worthless assets,, and when public
confidence began to weaken in South Carolina, the Peoples State Bank had
absolutely no margin of safety.... The whole thing was recklessly and
inexpertly done, and therein lies the real cause of the failure."
Another report listed the following as causes of the failure of
this bank:
"1.
2.
3«

H.
5«
6.
7«

Its capital structure was not sound from the beginning.
It expanded too fast.
Its operating personnel had neither the experience nor
capacity for the management of an institution of such
size or so many branches.
It absorbed too many busted banks.
It operated many small branches that were economic
impossibilities.
The credit set-up of local loan committees was unsound.
It was too big and too unwieldly to be saved by stockholders and directors."

Little if anything is divulged in the eight foregoing cases of
suspended banks with branches to indicate that the causes of failure of
banks with branches differ essentially from the causes of failure of

- zhi -

"banks without "branches.

-£.

APPENDIX

Table I - Number of Banks'•*•' and Branches by States
December 31* 193 1
Banks with branches
Number of branches
Total
States classified Total
T
number
according to law number
In head Oatside
City
j Other Total
of
of
regarding branch
office head ofbanks'2) branches bystems(3) j systems
fice city
banking
State-wide Branch Banking Permitted
Arizona
California
Delaware
Dist. of Columbia
Maryland
North Carolina
Rhode Island
South Carolina
Veraiont
Virginia
Total

32
390
3S
187
2SS3

25
goi
12
26
10g
Sk

36
77

J22
i,58t*

21
2
12
12

15
lg
3
7
5

7
50
6
12
27
23
11
11
7

JSL

1
1

7
29

5
g
k
2
11

-2
1,236

;

1 107

- 1

25g

2
26
59
12
16

ni
72
20

91
-

.a 1

isk

25
5U3

6g
10
2g
g25

Branches Restricted As to Location
Georgia
Indiana
Iowa
Kentucky
Louisiana
Maine
Massachusetts
Michigan
Mississippi
Montana
New Jersey
New York
Ohio
Pennsylvania
Tennessee
Total

321
651
935

ksm

200
gi
229
52^

225<i

5
6

3^
27
67
23
96
73
116
3S5
21

6
10

7
k

i ~I

lg .
19

13
13

^7
7
39
,x9
l+g

115
690

70
27
>+3

59
70
33
U6
-§5.

;

U75

1 1JU6

^55
g3U
772
1,266

12U
69O
213
126

_J2i

-1.

6
3
lg

2,055

327

1 li+S

U7
66
6

16
g

21
51
7
110
385
1

1
29
17
3

157

l«3
122

21
'

309

Establishment of Branches Prohibited by Law
Alabama
Arkansas
Colorado
Connecticut
Florida
Idaho
Illinois

256
276
233
1^3
187
122
1,2954-

16
1
~
-

1
~
_
-*
—
—
-

2
1
—
—
—
—
-

2
1

16
1

44
-215-

Table I - Number of Banks^l' and Branches by States
December 31. 1931 (Continued)
i

•

-i

• •

•*••

States classified
Total
Total
number
number
according to law
regarding branch
of 2
of
banks' ) branches
banking
Kansas
Minnesota
Missouri
Nebraska
Nevada
New Mexico
Oregon
Texas
Utah
Washington
West Virginia
Wisconsin
Total

923
886
992
633
32
50
199
1,102

88
286
218

Banks with branches
City
Other
systems(3) systems

m»

«.

~
-

3
-

Total

Number of branches
Outside
In head
office
head office city
city
—

«_
-

—
~
-

_s6a

-i

_S.

8,79©

A
7

_
-

No Provision in State Law Regarding Branch Banking

66.
524
263

_
-

__!£

-Z.

Total

i.iH

Total all States

19,167

3,33^

Nat ional
State member
State nonmembers

6,36s

1,27^
1,073

New Hampshire
North Dakota
Oklahoma
South Dakota
Wyoming

878
11,921

987

—

JZ.

4l4

263

677

2,176

1,15s

146
124
144

11
17
235

157

SS5

l4l
379

947
344

389
126

643

Mutual savings banks and private banks are excluded,
(2) Compiled from records of the Federal Reserve Board and reports of State banking
supervisors to the Committee on Branch, Group and Chain Banking.
(3) Includes banks operating branches in head office city and contiguous territoryonly.

- 27* -

Table II - loans and Investments of All Banks and of Banks (1)
Operating Branches by States
December 31, 1931
States classified
according to law
regarding branch
banking

(In thousands of dollars)
Banks operating branches
All active
Other
City
Total
banks'2)
systems O /
systems

State-wide Branch Banking Permitted
Arizona
California
Delaware
Dist. of Columbia
Maryland
North Carolina
Bhode I s l a n d
South Carolina
Vermont
Virginia

$
56,590
3,025,755
134,032
249,087
5^6,254
240,429
336,728
112,854
137,361
454,731

Total

$
560,520
45,161
153,732
259,599
18,963
50,788
12,939
3,137
130.619
$1,235,464

$
17,000
1,719,353
4l,3S5
44,332
81,958
253,606
59,022
22,588
2S,I7S

$5,293,821
$2,267,422
Branches Restricted As to Location
Georgia
Indiana
Iowa
Kentucky
Louisiana
Maine
Massachusetts
Michigan
Mississippi
Montana
New Jersey
New York
Ohio
Pennsylvania
Tennessee
Total

269,733
563,844
546,624
403,775
355,416
284,510
1,648,682
1,489,814
120,875
109,134
1,784,027
10,336,648
1,862,666
4,317,614
326,577
$24,419,939

$
17,000
2,279,S73
86,546
153J3S
303,931
100,921
304,394
71,961
25,725
158.797

92,186
105,963

51,874
7,074
28,817
2,595
38,455
131,827
34,458

89,980
152,078
4,333
1,058,991
967,122
5,810

11,228

$3,502,886

i44,o6o
113,037
28,817
92,575
190,533
136,160
1,093,449
967,122
17,038

904,675
8,053,264
798,636
1,327,350
130,193

313,510
18,940
25.190

975,020
8,053,264
1,112,146
1,346,290
i'?'?,383

^3,690,581

$734,313

$1.4,424,894

70,345

Establishment of Branches Prohibited by Law
Alabama
Arkansas
Colorado
Connecticut
Florida
Idaho
Illinois

207,177
106,670
226,110
554,581
179,622
60,331
2,712,360

4,062
808

Table II - Loans and Investments of All Banks and of Banks' 1 '
Operating Branches by States
December 31» 1931 (Continued)
States classified
according to law
regarding branch
banking
Kansas
Minnesota
Missouri
Nebraska
Nevada
New Mexico
Oregon
Texas
Utah
Washington
West Virginia
Wisconsin
Total

(In thousands of dollars)
Banks operating branches
All active
City
Other
Total
sys
tarns
O
)
systems
banks
(2)
$

310,060
709,373
996,103
245,1+93
33.SS5
30,839
211,137
781,289
133,936
331,050
25^,111
782.060

$8,866,187

—
-

152,393

215

—
~

_
-

~
-

66,371

2,916

69,287

ias9

175,035

$9,190

&H0Sf371

152,393
—

6,571
^
M)

$399,lSl

6,571
-

No Provision in State Law Regarding Branch Banking
New Hampshire
North Dakota
Oklahoma
South Dakota
Wyoming
Total

$ 96,665
7^,182
288,390
88,210
^7.305

•M

$59^,752

$610

Total all States

$39,17^,699

$L5,325,226

$3,011,535

$18,336,761

Nat ional
State members
State nonmembers

$19,093,615
11,^81,510
S,599,57^

$6,5^2,917
7,365,523

$1,1+33,311
88^,827
693,397

$7,976,228
8,250,350
2,110,183

i,ta6,786

(1) Mutual savings banks and private banks are excluded*
(2)
Compiled from abstracts of condition of State banks and national banks*
(3) Includes banks operating branches in head office city and contiguous
territory only.

- 2*6 -

Table III
Table III will show for each State the number
of banks with branches and the number of branches from
1900 to 1931* This is the same as the data shown for
the United States in Table 2, page 6. This will occupy
about twenty-four printed pages.
The material is available for national banks
and State banks separately, but it is thought unnecessary
to print it in that detail unless the members of the Committee think it advisable*

Digest of State Laws Relating to
Branch Banking
At this point in the appendix it is proposed to add
a digest of State laws relating to branch banking, which will
be substantially the same as the digest printed in the Federal
Reserve Bulletin of April, 193°> stacL revised in the July, 1932,
Bulletin. This digest, which was prepared by the Counsel of
the Federal Reserve Board, is referred to in Chapter VIII. The
material will occupy about twenty-five printed pages*

- & -

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Full text of Branch Banking in the United States

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