The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Branch, Chain, and Group Banking
HEARINGS
BEFORE TH E
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
SEVENTY-FIRST CONGKESS
SECOND SESSION
UNDER
H. Res. 141
A U T H O R IZ IN G T H E B A N K IN G A N D C U R R E N C Y C O M M IT T E E
TO S T U D Y A N D IN V E S T IG A T E G R O U P, C H A IN
A N D B R A N C H B A N K IN G
M A R C H 4, 5, A N D 6 1930
VO LU M E 1
Part 2
U N IT E D
GOVERNMENT
100136
STATES
P R IN T IN G
O F F IC E
W A S H IN G T O N : 1930
C O M M IT T E E ON B A N K IN G A N D C U R R E N C Y
L O U I S T . M c F A D D E N , Pennsylvania, Cnairman
J A M E S G . S T R O N G , Kansas.
R O B E R T L U C E , Massachusetts.
O T IS W I N G O , Arkansas.
H E N R Y B . S T E A G A L L , Alabam a.
E . H A R T F E N N , Connecticut.
C H A R L E S H . B R A N D , Georgia.
G U Y E . C A M P B E L L , Pennsylvania.
C A R R O L L L . B E E D Y , Maine.
W . F. S T E V E N S O N , South Carolina.
J O S E P H L . H O O P E R , M ichigan.
G O D F R E Y G . G O O D W I N , Minnesota.
A N N I N G S. P R A L L , N ew York.
T . A L A N G O L D S B G R O U G H , Maryland.
J E F F B U S B Y , Mississippi.
F . D I C K I N S O N L E T T S , Iowa.
F R A N K L I N W . F O R T , N ew Jersey.
B E N J A M I N M . G O L D E R , Pennsylvania.
F R A N C I S S E I B E R L I N G , Ohio.
M R S . R U T H P R A T T , N ew Y ork.
J A M E S W . D U N B A R , Indiana.
P h i l i p G . T h o m p s o n , Clerk,
II
CONTENTS
Page
Pole, Hon. John W ., Comptroller of the Currency, questioning of______
m
97
BRANCH, CHAIN, ANI) GROUP BANKING
,
H o u s e of R e p r e s e n t a t iv e s ,
C o m m it t e e on B a n k in g a n d C u r r e n c y ,
Tuesday March 4, 1980.
The committee met in the committee room, Capitol Building, at
10.30 o’clock a. m., Hon. Louis T. McFadden (chairman) presiding*.
The C h a irm a n . The committee will come to order.
Mr. Strong moved that, until further change, the hearings on
House Resolution 141, beginning March 11,1930, be held on Tuesdays,
Wednesdays, and Fridays instead of on Tuesdays, Wednesdays, and
Thursdays as previously provided for, and the motion was agreed to.
Mr. G o o d w in . I make the motion that hearings on H. R. 7752
commence next Monday, when the proponents of the bill may be
heard, and that the hearing be continued on the following Monday,
when the opponents of the bill may be heard.
The C h a irm a n . This is a bill proposing to amend section 5219
of the Revised Statutes, which is the statute that permits the taxa
tion of national banks by States.
(The motion was agreed to.)
The C h a irm a n . We will now resume the hearings on the matter
of branch, chain, and group banking. Mr. Pole is here before us
this morning.
Mr. S t e a g a l l . Mr. Pole, I want to ask one or two questions
just to complete some things I had in mind and to finish some figures
I had asked you to give. I took so much time the other day that
I do not intend to prolong the discussion this morning.
The C h a irm a n . All right.
STATEM ENT
OF HON. JOHN W. POLE, COMPTROLLER OF THE
CURRENCY— Resum ed
Mr. S t e a g a l l . Y o u gave the percentages in connection with the
liquidation of banks where liquidation had been completed, giving the
amounts realized by creditors, in our discussion at the last session.
I want to ask you to give the total amount, in figures, covering the
losses sustained by depositors in banks as to which liquidations had
been completed. Will you let that appear with your other figures?
Mr. P o l e . I have already included that in the record.
Mr. S t e a g a l l . Very well; I did not know you had.
Then I want to ask you, if you have it convenient, for the same
figures with reference to State banks that are members of the Federal
reserve system and that have been liquidated.
M r. P o l e . It m ight be difficult to obtain those figures.
the best I can.
I will do
97
98
BRANCH, CH AIN, AND GROUP BANKING
Mr. Steagall. I do not want to put any undue burden on you,
but I imagine the Federal reserve banks could have that easily
accessible.
Mr. P o l e . But such information with reference to the State nonmember banks are not collected by the Federal reserve.
Mr. S t e a g a l l . I did not make myself understood.
Mr. P o l e . That information would have to be obtained from the
State superintendents.
Mr. S t e a g a l l . I see that I did not make myself understood. The
State banks I referred to are those which are members of the Federal
reserve system and which have been liquidated.
Mr. P o l e . Including national banks?
Mr. S t e a g a l l . Of course, you have the national banks, but you
know that there are many liquidations of State banks that are mem
bers of the Federal reserve system. Those liquidations are not
handled by your department, but by the State machinery, and it
occurred to me that if you do not have it the Federal reserve banks
would have the figures showing what had occurred in connection
with the discharge of the liabilities, or the amounts realized, in these
banks that are members of the Federal reserve system.
Mr. P o l e . I will endeavor to obtain that.
Mr. S t e a g a l l . If it is convenient. I think it would fit very well
into the information we now have. The truth is that the figures
that we have would not be complete without this information. To
illustrate, I imagine that the collections in insolvent State banks are
about on a level with those realized in national banks, but I do not
know.
(The figures referred to are not available.)
Mr. S t e a g a l l . I wanted to ask you one other question in con
nection with our little banks, which of course I am peculiarly interested
question they often raise is in connection with their remittances
to the Federal reserve banks and the manner in which remittances
are placed to their credit at the Federal reserve banks. What I refer
to is this: In my district, for instance, a farming district, where there
is an accentuated demand for loans and where the banks are always
loaning to the limit as a rule when crop-moving time comes, they find
it difficult to keep sufficient balances to meet the demands and they
are forever complaining, many of them, that the Federal reserve
banks do not give them immediate credit for remittances as was the
custom on the part of correspondent banks prior to the inauguration
of the Federal reserve system. As I said, they complain a great deal
about that. It has been discussed here, but I am wondering if you
have any suggestion that you could make about that that would be
helpful in that situation.
Mr. P o l e . I think the plan that has been worked out by the
Federal reserve bank is in crediting to the reserve account of a member
bank only collected funds is sound. Formerly banks were usually
given credit for checks and drafts immediately upon receipt.
Mr. S t e a g a l l . That is right.
Mr. P o l e . Those drafts, however, were frequently drawn on other
cities, and very likely were collected through a circuitous method, and
it was very likely days before the funds were actually placed to the
credit of the Federal reserve bank there, and therefore I can not
BRANCH, CHAIN,
and
group
b a n k in g
99
help but feel that the present system of giving credit only as funds
are collected is a sound one.
Mr. S t e a g a l l . D o the Federal reserve banks apply that same
rule when the operation is reversed? Is not that out of harmony
with their rule requiring member banks to remit without charge and
thereby of course giving immediate credit to them?
Mr. P o l e . Their reserve account is not charged with those items
until the bank has had time to remit for them, so that it is properly
balanced in that respect. There is no advantage taken by the
Federal reserve bank.
Mr. S t e a g a l l . It is a technical matter, and I do not attempt to
say that I should sit in judgment, but I have always sympathized
with these little banks in that connection.
The C h a irm a n . Will you yield to me?
Mr. S t e a g a l l . Yes.
The C h a irm a n . Apropos of this question, my attention was called
the other day to a practice in the third Federal reserve district, which
seems rather arbitrary in this respect, where I understand that the
Federal reserve bank is insisting that all member banks shall give
them an order which permits them to charge against their account
any items at any time that they see fit so to charge.
Mr. S t e a g a l l . I am com ing to th at very situation.
The C h a irm a n . I was wondering if you were going to cover it,
and that is the reason I raised that question.
Mr. S t e a g a l l . Of course, as I look at the matter, it seems to
me that it creates a situation more or less confused. Take a small
town bank that sends a check to the Federal reserve bank. They
have got to keep books of some kind, but I do not see how they
can keep their books straight with the Federal reserve bank if the
payment of those checks is to be deferred indefinitely.
Mr. P o l e . They are not deferred indefinitely. They are deferred
in accordance with a schedule which is laid down by the Federal
reserve banks, and when checks are sent to the Federal reserve bank
from a member bank, the account of the Federal reserve bank is
charged in a deferred account. When the date arrived for the
transfer from the deferred account to the reserve account, such
entry is made and the account closed. It is not complicated.
Mr. S t e a g a l l . Maybe that is a technical matter that is plain to
the people who understand the technicalities of banking, but I had
thought it was more or less confusing for a bank to have a check
placed in its Federal reserve bank and not get credit for it then.
I have understood that the Federal reserve bank fixes an arbitrary—
and by arbitrary I do not mean that is is unfair; I am not passing
on that—standard of dates for different distances as to which these
checks are deferred.
Mr. P o l e . That is correct. Their plan is to ascertain the exact
time which it takes to reach any particular point and the remittance
returned to the bank. Pending that time, which is two days, three
days or four days, as the case may be, that item is in “ float,” so
that the Federal reserve bank does not take credit when it sends an
item to a bank, nor does it give credit when it receives an item from
a bank unless it is on the Federal reserve bank itself. In other
words, what is known as the “ float” is eliminated, and it is a system
100
BRANCH, CHAIN, AND GROUP BANKING
which is working all over the United States, and, as far as I know,
there is no objection to it.
Mr. W in g o . No objection to it?
Mr. P o l e . N o serious objection to it.
Mr. W in g o . N o objection to the member banks carrying the
“ float” instead of the Federal reserve banks?
Mr. S t e a g a l l . There is a great deal of objection.
Mr. W in g o . I have a whole file on it that I will send down to you.
Mr. P o l e . The Federal reserve bank carries just as much “ float”
as the member banks do in the deferred account.
Mr. W in g o . That is one of the things they are objecting to, that
it works altogether the other wav, that the burden is on the small
banks in the small towns. In the cities where the Federal reserve
banks and their branches are located, they can step across the street
and get immediate credit, and they can clear nearly every day on
most of their items—not all, but most of them.
But take a member bank out in a small town. They are protesting
all the time that they are discriminated against, for the reason that
the percentage of reserve works out heavier on them than it does in
a town like, say, Little Rock. Take the banks in my district; the
reserve requirement there is heavier on them than it is in a city like
Little Rock, because across the street from the bank in Little Rock is
a Federal reserve branch bank.
Upon the proposition of carrying the “ float,” they claim that as a
matter of fact the reciprocal burden is such that they carry the load,
and I have two letters to-day in my mail on that.
Mr. P o l e . I did not wish to be understood as saying that there was
no objection to it on the part of the banks. I meant that there is no
objection to it as being a scientific method of collection of checks, that
the “ float” should not be counted as reserve.
Mr. W^ingo. Yes; measured by the standard in the Federal reserve
system, and that is that the country banks render all the free service to
the Federal reserve banks and to manufacturers and wholesalers in
the large cities, and they are not even given credit for postage in
collecting drafts on bills of lading. Measured by that standard, of
course it is scientific. I know a bank that pays one man $1,200
and he does not do a thing on earth except just run around and perform
this free service, and Brother Strong’s constituents are kicking
because we do not make them preferred creditors. They want to be
made preferred creditors if the bank fails.
That is one thing that is putting the country banks out of business,
the free service that they have to render to the city banks and to the
wholesalers and manufacturers getting the benefit of that, whereas
they used to pay for it.
Mr. S t e a g a l l . It virtually took away what might be termed a
vested right when they proceeded to require the small banks to remit
their checks and incur the expense of making those remittances
and making no charge for it. I never could see that it was fair or
morally justified. I have introduced bills here requiring the Federal
reserve banks to give immediate credit and permitting them to charge a
current rate to cover the time between the receipt of checks and their
final payment, which would still relieve the burden on little banks in
the matter of balances in times of crop marketing, and so forth.
BRANCH, CHAIN, AND GROUP BANKING
101
What would you think of that? There could not be any injustice,
in that, could there?
Mr. P o l e . I would have to think that over.
Mr. S t e a g a l l . Mr. Pole, I had my attention called several times
lately to this kind of a stiuation, and this follows what Mr. McFadden
suggested just now. There was a little bank in my district that was
closed. There has been a great deal said about the merits of that
situation, but I have no personal knowledge of it and no desire to
attempt to inject an opinion into that matter. It was a State bank
that was a member of the Federal reserve system. I have been in
formed, on what seems to be reliable authority that that bank, with
$50,000 capital and $30,000 surplus, owed only $38,000 to the Federal
reserve bank. The bank is situated in a community that suffered
very severely last year through floods, which were absolutely unpre
cedented in that county and in that section of the country. This
bank had, of course, in the main, farm paper. It owed the Federal
reserve bank maturities due some time around December 1. Some
weeks prior to the maturity of the paper, the bank was closed.
A customer of that bank would give a check, or give checks, which
would be cashed by the payee through another bank in this county.
The bank that cashed the check would send it to its correspondent,
and the correspondent send it to the Federal reserve bank, and the
Federal reserve bank would send it directly to the bank upon which
it was drawn. This bank would charge the checks to the accounts
of their customers, and surrender the checks to the customers, and
remit by cashier’s check to the Federal reserve bank. In the mean
time the bank upon which the checks were drawn was closed. The
Federal reserve bank took the balances maintained by this little
bank and applied them to their notes, which it is claimed were not
due. The Federal reserve bank then charged the checks back to the
next bank, and that bank to the original bank that paid them, and
that bank charged them back to the payees. The payees have sur
rendered their checks; they have been marked paid; they are in
the hands of the makers and those checks are charged to them in
their accounts at the bank that failed. So the payee of the check
has not got any check, nor any credit from the bank; he is left in
mid-air.
There are several cases exactly like that. I have an editorial from
a paper published in that county, and, by the way, the editor of that
paper is an unusual man in point of ability, and a very conservative
man. I think he could write editorials creditable to any paper in
the country. I have not that editorial with me; it is in my office,
but with the permission of the committee, I will insert it in these
hearings in connection with what I am saying right now.
(The editorial referred to is as follows:)
[From the Samson Ledger]
HEADS
I W IN ,
T A IL S
YOU
LO SE
(Whatever you may think of the following thoughts, do not attribute them to
a sore editorial toe. We have not been tramped upon beyond having some
money tied up in the banks under liquidation.— Editor.)
Some things have been brought home to us with much severity as a sequence
of the recent closing of the two old Samson banks. One of them is the apparent
fact that the laws or regulations governing banks treat the individual depositor
as having no rights whatever, while banks, especially the Federal reserve system,
102
BRANCH, CH AIN, AND GROUP BANKING
are given every consideration. In fact, consideration of certain incidents would
in our judgment lead to a conclusion that all laws had broken down and it was
a case of might making right.
Each bank affiliated with the Federal reserve system is compelled to keep
on deposit with that institution 7 per cent of its demand deposits and 3 per cent
of its time deposits. This is entirely separate and apart from collateral for any
loans the member banks may obtain from the reserve system. Of course, it is
understood that any loans granted a member bank must be secured by approxi
mately 200 per cent face value of security.
The purpose of this reserve is supposed by laymen to be to take care of the
balances against the member bank which arise through the collection of checks
on it. Heavy interest penalties are imposed upon any bank failing to keep its
reserve up to the mark.
One would naturally conclude that when a member bank is compelled to close
its doors, that items passing through the Federal reserve bank and which have
been charged by the failing bank to its depositors’ accounts would be paid by the
Federal reserve bank from the member bank's reserve so far as the latter would
permit.
However, it doesn’t work that way. If there is the slightest reason to believe
that a member bank is shaky, it is alleged that the Federal reserve bank at once
begins charging back checks on that shaky bank to the banks depositing them for
collection. It does not use the shaky bank’s reserve fund, but seizes this fund as
additional protection for the loans it has made the shaky bank.
It is alleged that this has been done in the case of at least one bank for more
than a week before the tottering institution actually had to shut up. This course
meant that checks which had been drawn by Mr. A and sent to other places
might have come back, been charged to his account and a warrant drawn on the
bank’s reserve fund, eight days before the bank closed up and yet the money
would not be transmitted to Mr. A’s creditor.
It is well settled law, it is alleged, that in a case like this the creditor has a legal
claim against the closed bank and that he has no claim against Mr. A. But here
comes in another quirk. Mr. A wanted to transfer some funds from a bank in one
city to a bank in another city. He drew a check on a bank we will call X and de
posited it with bank Y . Y sent it through the Federal reserve system for collec
tion. Bank X received the check charged it to A’ s account and sent a remittance
order. Due to the belief that bank X was shaky, the Federal reserve charged the
check back to bank Y. Bank Y charged Mr. A’s account with it with the amount
of the check.
Now you see A’s predicament. He can’t file a claim against bank X , because
X has deducted the check from his account. He can’t file a claim against bank
Y, because that institution simply says it has not received the money. Th^'way
A looks at it (and this is an actual case), he has simply been held up and robbed
of that much money with absolutely no redress from anyone.
(Next week we Will take up another phase of “ Heads I win, tails you lose,”
provided we are not in jail for this one.)
Mr. S t e a g a l l . N o w , Mr. Pole, how does that come about? I am
reasonably sure that I have painted this picture correctly, and you
can understand how that sort of thing will beget irritation, resentment,
and an unhealthy state of mind toward the Federal reserve banks
and toward the whole banking world, and I do not think it ought to
happen. I think something ought to be done about it.
Mr. P o l e . On this state of facts, it would seem that it might be a
little unfair to the customer. At the same time, I think those settle
ments are usually made in accordance with court decisions.
Mr. S t e a g a l l . Let me ask you this: Would the courts uphold the
right of the Federal reserve bank to send these checks directly to this
bank that had failed for collection and, when the banks have balances
there to take care of the checks, to take those balances and apply
them to the payment of paper not due, and then charge those checks
back finally to the payee and make him lose that money? I do not
think the courts would uphold that. They may have some kind of a
contract covering such cases. Is it not regarded as negligence on the
BRANCH, CHAIN, AND GROUP BANKING
103
part of the Federal Reserve bank to send checks directly back to the
bank on which they are drawn?
Mr. P o l e . Y o u are asking legal questions based upon certain sets
of fact, which I am not prepared to answer.
Mr. S t e a g a l l . Maybe I should not have asked you that.
Mr. W in g o . M ay I interrupt there? There has been a group of
complaints based upon the illustration that the gentleman from
Alabama (Mr. Steagall) has used. I think it would be helpful to
the committee if the comptroller would have his counsel insert
in the record at this point any court decision that holds that after
the drawer of a check has received it back and it has been cancelled,
that then the Federal reserve bank can go back on the indorsers and
make them liable. Of course, you can not make the drawer liable.
I would like to find some decision of some court that will hold that
what the Federal reserve bank has done in at least one instance was
legal. Of course, it was not tested in court, because the bank was
afraid to. You take the average country bank; it has no more
idea of bucking the Federal reserve bank— why, some of them are
even afraid to talk. They will talk to you confidentially, but they
are “ buffaloed” ; they are scared to death, most of them, and when
one case was brought to my attention I asked them, “ Why do you
not sue?” The attorney said to me, “ I suggested that to the board
of directors and they abhorred the very idea of getting into litigation
with the Federal reserve bank.” They are in a precarious condition
now and they are afraid to protest.
Your counsel is familiar with this type of cases, and I would
like to have any court decision, either State or Federal, that has
sustained the Federal reserve bank in a proposition of this kind.
Mr. A w a l t . On the basis of the facts stated by Mr. Steagall?
Mr. W in g o . You know the case I am talking about, where a
check was cleared through and subsequently the bank failed and the
Federal reserve bank realized on the remittance. There has been
at least one case that I know of where the Federal reserve bank went
back on the indorsers of that check, and when the first indorser went
back to the drawer, he said, “ M y money has been taken away from
ilie,” and, of course, you could not bring suit against him.
The C h a irm a n . Have you further questions?
Mr. W in g o . And I would like to have the court decisions on that
point.
Mr. P o l o . I think I understand what you want.
Mr. S t e a g a l l . That is the case I have in mind, and there are
numbers of those cases in this particular bank that I mentioned,
which have been called to my attention.
The Federal reserve banks perform an enormous free service in the collection
of checks and naturally do not assume any liability except for their own negligence
and their guaranty of prior indorsements. Each year they collect nearly
900,000,000 checks amounting to approximately $300,000,000,000; and it would
be an intolerable burden to require them to guarantee the collection of all these
checks or to absorb any loss which might be incurred without any negligence on
their part. They, therefore, act only as agents in the collection of such checks
and expressly reserve the right to send them directly to the banks on which they
are drawn and to receive remittance drafts in payment. They also reserve the
right to charge back to the account of the sending bank the amount of any check
for which payment in actually and finally collected funds is not received. Their
right to do so has been upheld in the following cases:
104
BRANCH, CH AIN, AND GROUP BANKING
Craven Chemical Co. v. Federal Reserve Bank of Richmond (C. C. A., 18 F.
(2d) 711).
Fergus County v. Federal Reserve Bank of Minneapolis (244 Pacific, 833).
Chicago, Milwaukee & St. Paul Railway Co. v. Federal Reserve Bank of San
Francisco (260 Pacific, 262).
Transcontinental Oil Co. v. Federal Reserve Bank of Minneapolis (214 N. W.
918).
The trouble with the present system is a fictitious ruling of law which is very
well established but which results in injustice. I refer to the rule, when a check
has been charged to the drawer’s account, it is deemed to have been paid and the
drawer is released, even though the bank on which it is drawn fails without
actually paying anybody. This results in a loss to the innocent holder of the
check and results in the drawer of the check having his deposit in the failed
bank paid in full to the extent of such check, while other depositors have to
share the loss ratably.
Where a bank fails without remitting for checks drawn upon it the situation
necessarily results in a loss to some innocent party. In such a case the rule
of equity should apply, that, where one of two innocent parties must suffer, the
one who made the loss possible is the one to suffer. In a case such as this, the
drawer of the check made the loss possible by selecting that particular bank to
do business with; and he should suffer rather than the man who did not select
that bank as his depository. Certainly, neither the Federal reserve bank nor
any cominercial bank through which the check was sent for collection should
have to suffer the loss, unless the loss resulted from its negligence.
Under modern conditions, it is a physical impossibility for all out-of-town
checks to be presented across the counter and collected in cash in accordance
with the old common law rules, and the present method of sending checks through
the mails to the banks on which they are drawn and accepting drafts on other
banks in payment is the only way that I know of in which the great volume of
checks now used in the United States can be collected.
For the further information of the committee, I desire to call your attention
to the fact that the practice of the Federal reserve banks in giving member
banks deferred credit for checks which can not be collected on the day they are
received by the Federal reserve banks has been upheld by the courts in the case
of Pascagoula National Bank v. Federal Reserve Bank of Atlanta, 3 Fed. (2d)
465, 269 U. S. 537, 11 Fed. (2d) 866, certiorari denied, 271 U. S. 685.
The C h a irm a n . Mr. Seiberling.
Mr. W i n g o . Before you commence, may I ask Mr. Pole one ques
tion, because I have a letter from a bank to-day that I want to answer?
What is your definition, or what would be your definition under
your proposal of a trade area for a bank? I will tell you what I have
in mind. In our country, Memphis, Kansas City, and St. Louis all
contend that Oklahoma, Arkansas, and Texas are their trade area.
Evidently you do not concur in that broad area?
M r . P o l e . N o.
Mr. W in g o . What would be your definition of a trade area?
In
what trade area would Arkansas be included?
Mr. P o l e . The trade areas in my report to Congress were left to
the determination of Congress, as to what it considered to be the
proper trade area, upon the basis of the natural flow of business tq
any metropolitan center.
Mr. W in g o . That would make Arkansas in the trade area of both
St. Louis and Kansas City.
JMr. P o l e . A s to how far that should reach out is a question for
consideration.
Mr. W in g o . Suppose it were left to you?
The C h a irm a n . The thought occurs to me; might not Little Rock
be considered the center of the trade area for Arkansas?
Mr. P o l e . Little Rock would naturally be the center to which
trade flowed. There would in each trade area be a point to which it
would flow naturally, a metropolitan center.
BRANCH, CHAIN, AND GROUP BANKING
105
Mr. W in g o . D o you know that from some points in my district you
can go to Kansas City or St. Louis quicker than to Little Rock, and
most of our wholesale trading and large banking is done with those
two cities. Since we are putting in the highways, we have relieved
that to a great extent, but until we developed our highway system,
Kansas City and St. Louis were nearer to us than Little Rock for
business purposes. Little Rock is growing rapidly as a trade area,
but as a matter of fact it is not a metropolitan center. Take the
wholesale trade; take the purchasers of shoes, hats, clothing, and the
marketing of hogs and cattle and cotton and things like that— they
do not go to Little Rock from my district.
Mr. P o l e . Of course, Little Rock has a very definite trade area.
Mr. W in g o . Yes; Little Rock, a splendid city, has a very definite
trade area, and so has De Queen, and each town has a definite trade
area.
The C h a irm a n . Mr. Pole, in view of the importance of this as an
integral part of your recommendation, I believe the committee would
appreciate it if you would briefly elucidate your thoughts as regards
trade areas. If you will do that I will ask that it be put into the
record at this point.
Mr. W in g o . The reason I asked you the question is that I have a
letter from a banker who states: “ I am interested in knowing what
trade area my city would be put in. Would it be put in the Kansas
City or St. Louis trade area, and would my bank be taken over by a
bank in Kansas City or St. Louis?” He is figuring on the future.
I have written him what I thought was going to happen to him.
M r. P ole . That is a very complex question, but I will be glad to
submit something to the committee on it.
(The memorandum on the subject submitted by the comptroller
is as follows:)
FURTHER
D ISC U SSIO N
OF T H E
TE R M
“ TRADE
AREA”
In the written statement which I read before the committee I devoted five
paragraphs to the discussion of the question of the trade area to which I had
previously referred in my annual report to Congress. Without repeating the
previous discussion I may say that it covered the following points:
(1) The trade area of a given city is that geographical territory which embraces
its flow of trade.
(2) Every city, no matter how small, has a trade area.
(3) A trade area sufficient to support a sound system of branch banking by a
given bank must be of sufficient area or of sufficient economic development to
permit of the acquisition of a diversified banking business.
(4) No legislative formula has been prepared which would in itself delimit all
of such trade areas in the United States.
(5) A suggestion was made that Congress might find it advisable in determining
the actual physical limits of the trade areas to follow a procedure similar to that
laid down in the Federal reserve act for the delimitation of the Federal reserve
districts.
I have therefore in my previous statement to the committee covered this sub
ject so far as the general principles are concerned. It is recognized that their
detailed application may present a multitude of practical questions many of which
we can not now foresee; that is to say, questions of boundary limits and adjust
ments of the boundary lines between trade areas. The fundamental principle,
however, s§ems to me to be absolutely sound that city banks of sufficient ability
be permitted in a more convenient manner than is now possible to serve the people
in the trade area tributary to the city in which the bank is situated. Mr. Wingo
has raised the question of the overlapping of trade areas; that is to say, a small city
may be situated within more than one trade area. It seems to me that this does
not present a serious difficulty. It would simply mean that in such a city there
106
BRANCH, 0 H A IN , AND GROUP BANKING
might be branches of banks with head offices in different trade areas. This
might prove to be an advantage to such a city through increased banking compe
tition.
As to the size of the parent bank, under such a branch banking system as I haVte
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 now
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 sup
port 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 mini
mum capitalization for a branch banking institution of $1,0Q0,000. Such a pro
vision 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.
In the exercise of his discretionary power to require a greater capital than the
minimum, the situatioi* presented to the comptroller would be relatively the same
as it is now. Two hundred thousand dollars is the minimum capital for national
banks in large cities, but the actual capital required in some important cities is in
excess of that amount. Trade areas would vary in their financial importance in
the same manner.
Mr. Wingo, in referring to the city of Little Rock in his State, has brought out
two very important considerations bearing upon he question of the extent of
trade areas. One was that by reason of the lack of arterial highways the metro
politan centers of Kansas City and St. Louis were more available to many por
tions of Arkansas than Little Rock, from the standpoint of the flow of trade, but
that under a system of modem highways leading from Little Rock that city
would become a metropolitan center. This is a clear illustration that what
constitutes a given trade area is a question of fact and while it is simple enough
to define the term “ trade area” by statute, it is an entirely different thing to
make a practical application of that definition. It took only a few words to
define the principle upon which the Federal reserve districts were laid out, but
it took many months of careful study and investigation by executive officials to
lay out those districts.
The following is the language from the Federal reserve act:
“ The districts shall be apportioned with due regard to the convenience and
customary course of business and shall not necessarily be coterminous with any
State or States. The districts thus created may be readjusted and new districts
may from time to time be created by the Federal Reserve Board, not to exceed
12 in all. Such districts shall be known as Fedreal reserve districts and may be
designated by number.”
We may, for example, say that a trade area is that geographical area which
embraces the natural flow of trade from an outlying geographical territory to
and from a metropolitan center. The term “ trade,” it seems to me, as Mr.
Wingo has already suggested, must embrace the wholesale as well as the retail
purchase and distribution of goods and commodities. That is to say, the trade
area must have a rather definite economic autonomy.
Having, however, arrived at this definition it seems to me that Congress could
not go much further by way of legislative enactment lest too many conditions in
the law create a system of trade areas which would lack flexibility. Some
executive agency or some agency created by Congress should actually lay out the
trade areas.
Again it seems to me that it would not be wise to attempt to use the population
figures as a basis for determining the principle of the selection of the metropolitan
centers of trade areas. The size of a city may be no indication of its relative
economic importance to the surrounding community. Bridgeport, Conn., with
a population of 160,000 could not be considered an independent metropolitan
center but is tributary to New York City and is within the New York City
trade area, whereas Shreveport, La., with a population of 81,300 might be found
to be the center of a trade area of the scope above discussed.
In the discussion of the question of the term “ trade area” I have several times
used the expression that in my opinion the trade area should not be in any case
greater or more extensive than the present Federal reserve districts. In saying
BRANCH, CHAIN, AND GROUP BANKING
107
this I was attempting to lay down a general rule, the Federal reserve districts
being the largest possible regional economic areas which we have established by
law. I have no doubt it is a fact that there are many trade areas of less extent
than the Federal reserve districts. That is to say, metropolitan centers with a
definite area of wholesale and retail trade in the surrounding country but within
a Federal reserve district. I realize, however, that there are metropolitan
centers situated so near Federal reserve district lines that the surrounding trade
area embraces territory in more than one Federal reserve district. In such a
case the trade area rather than the Federal reserve district lines should govern.
Kansas City is such an example.
Again it seems to me it must be recognized that trade areas and the develop
ment of metropolitan centers within them have come about without reference to
State lines. Very often the shape of a State may be a great influence in this
connection. For example, the State of Tennessee is long and narrow and its
three principal cities, namely, Memphis, Nashville, and Chattanooga, all have
trade areas extending into other States. The trade area of Spokane, Wash.,
extends into Idaho and Montana; of Omaha, Nebr., into Iowa and Missouri; of
Cincinnati, Ohio, into Kentucky; of Los Angeles into Arizona and Nevada; of
Pittsburgh into Ohio and West Virginia.
I wish again to emphasize the consideration that in mentioning the term “ trade
area” I am not presenting a new idea, but am suggesting that Congress avail
itself of an existing condition. The trade areas are already here. They have
grown up through years of development but are being more clearly defined under
modern conditions of communication and transportation. Metropolitan bank
ing as it exists to-day reckons with the trade area. Rural banks in a trade area
are correspondents of the large city banks in the metropolitan center of that area.
Residents in the outlying rural communities, both business men and farmers,
transact business with such metropolitan banks. Many such inhabitants in the
outlying sections of the trade area carry their large deposit accounts with the
metropolitan bank and maintain only small balances with the small local bank.
The prosperous farmer or country merchant or manufacturer, even under present
conditions, deals directly with a metropolitan bank in his trade area with respect
to his most important financial transactions. In many cases the loaning limit of
the local bank is too small to meet his requirements, and recourse must be had to
the stronger city banks. This is particularly true as to corporations dealing in
farm commodities, lumber, mining, and the like.
Again, when an individual or a corporation in the rural districts wishes to
purchase securities for investment recourse is had to the securities department of
the large city bank rather than to the local bank. Also, if he wishes to establish
a trust fulnd of any kind or to leave his estate in trust for his heirs he goes to the
trust department of the metropolitan bank of the trade area and appoints that
bank as his trustee or executor rather than the small local bank in his particular
community. These two great fields of banking, namely, investment securities
and fiduciary business, are under our present banking conditions carried on almost
exclusively by the large banks in the metropolitan centers, in which respect they
serve the entire trade area. The local country bank is not in a position to offer
to its community adequate facilities as to these two types of business. Similar
examples might be mentioned as to other departments of large city banks which
also serve the entire trade area, such as the foreign department dealing in foreign
exchange and information about foreign business. It is apparent, therefore, that
the existing banking conditions in trade areas, even where no branch banking
and no group banking is in operation, are causing the cream of the banking busi
ness to go from all points in the trade area to the central metropolitan banks,
leaving the small local bank with the smaller, less profitable, and more restricted
type of business. The small bank is not acquiring a sound diversification of
business even in its own small trade area. Here, in my opinion, is the real cause
for the failure of small banks in the rural communities, and every other local,
immediate, proximate cause which may be assigned for a given failure must be
simply regarded as a secondary cause.
It seems quite clear, therefore, that there is no hostility among the people in
the rural communities toward the large city banks in the metropolitan centers
of their respective trade areas. On the contrary, the average citizen seems,
regardless of the question of the maintenance of a local independent bank, to
prefer to do his most responsible banking business with a distant bank of the
metropolitan type rather than with the more conveniently situated local com
munity bank. If all of this banking business which now goes from the outlying
districts of the trade area to the naetropolitan centers could be forced back into
108
BRANCH, CH AIN, AND GROUP BANKING
the local independent country banks the country banker might look to the future
with complacency. But that is an economic impossibility. It is the local com
munity itself which is expressing a preference for the type of banking which the
large city bank can give.
Under thebranch banking plan which I have suggested the same metropolitan
banks would take their services to these communities through a system of branches
and would afford to the entire community adequate banking facilities. In other
words the big loans as well as the small loans and the big deposits as well as the
little deposits would be made directly in the local rural community. Such a
community would also have immediate access to the securities department of the
large bank and to its trust and foreign departments in all of their ramifications.
I have therefore attempted to lay before your committee a suggestion which
would fit into the present economic trend and which would at the same time
preserve the outlying communities in the trade areas from the calamitous effect
of local bank failures.
The question has been asked by several members of this committee as to what
recommendations for legislation I would make with respedt to restrictions upon
the consolidation of branch banking systems in order to avoid the danger of
monopolistic control of banking within a trade area. In answer to this question
I wish to call attention to the statement I made to the committee that the natural
economic development would ordinarily continue to create a competitive banking
situation within a given trade area. A banking institution must have the support
of local public opinion in order to succeed and it would seem natural that under
our system of issuing bank charters there would always spring up within a trade
area new banking institutions if there be enough business to support more than
one bank, such as certainly would be the case in any trade area large enough to
give a diversity of business sufficient to support the type of branch banking I
have suggested.
We are of course considering a possible future condition and the discussion of
the question of undue concentration of banking resources in a given trade area
under the plan of branch banking which I have suggested is necessarily academic.
However, the theoretical possibility of undue concentration must be admitted.
In the event of such branch banking legislation, how far Congress should go or
could go in attempting to guard against the possibility of a monopolistic control
of Ranking resources within the trade area I am not prepared definitely to recom
mend. I shall however, attempt to discuss several aspects of this situation.
The authority which Congress has already exercised over the consolidation of a
national bank with another national bank or a national bank with a State bank
under national charter would cover only one phase of the question. If the
Comptroller (of the Currency denied the application of such banks to consolidate
under national charter upon the grounds of public policy they could forthwith
consolidate or merge under State charter and Congress would thereby be deprived
of all supervision and control over the institution so far as the office of the Comp
troller of the Currency is concerned. If the State law gave to State banks branch
banking privileges in the trade area equivalent to those granted by Congress to
the national banks the concentration of banking resources to an undue extent,
if such a thing did take place, could be had under the State law if the State as a
matter of policy permitted it. If the State bank were a member of the Federal
reserve system and if it be true that Congress has the power to impose on State
member banks of the Federal reserve system the same restrictions as to con
solidations or mergers which may be imposed upon national banks— and I am
not prepared to offer an opinion on this legal question but leave that to the
Federal reserve authorities— there would still remain the possibility of the con
solidation of branch systems outside of the Federal reserve system. In other
words, would not such legislation have a tendency to drive the branch banking
institutions outside of the Federal reserve system where Congress would have no
control over them?
This brings up another important question and that is the desirability of
establishing a system of branch banks which would operate solely under the
national bank law and which could not escape Federal jurisdiction and the effect
of a Federal policy by switching over to State charters. What I have in mind is
that if the trade areas were based solely upon economic considerations— such
as was done in laying out the Federal reserve districts— and State lines disre
garded, would not that be one way of holding branch banking institutions under
Federal authority and subject to Federal control. They would remain National
banks in order to gain the benefits of operating across State lines. There may,
however, be other means of meeting this situation which do not occur to me.
BRANCH, CH AIN, AND GROUP BANKING
109
Under any reasonable system, however, it may be found that there will be trade
areas entirely within the boundaries of a single State and it is not clear to me
how Congress could control consolidations in those areas where the State law had
given equal or greater branch banking powers to the State banks. In other
words, how could Congress prevent a nonmember State branch banking institu
tion from consolidating with another nonmember State branch banking institu
tion under the authority of the State law?
There have already been mentioned at these hearings three other means by
which it might be possible for banking institutions to amalgamate their interests
or otherwise attempt to eliminate competition within a trade area.
(1) The purchase of assets and the assumption of liabilities by one bank of
another;
(2) The purchase of the control through acquisition of stock by a holding
corporation; and
(3) An agreement between banks not to compete within the trade area.
I shall take these up in order. In the matter of the purchase of the assets of
a national bank or a State bank by another national bank or the purchase of
the assets of a national bank by a State bank the Comptroller of the Currency
has nothing to say. It is a matter of contract between the institutions over
which no power of control has been conferred upon the comptroller. Under
the present state of the law the comptroller would have no way of preventing
one branch banking institution from purchasing the assets and assuming the
liabilities of another such institution within the same trade area. That con
trol could be given by Congress and that is a matter to which I invite your
consideration.
In the matter of the acquisition of control by holding companies a much more
difficult situation is presented. It is obvious that in the absence of restrictions
to the contrary it might be within the realm of possibility for a holding com
pany to acquire stock control over more than one branch banking system within
the same trade area. From a practical standpoint there would, of course, be
many factors to be considered, such as whether it would be good business for
the holding company to attempt such control; whether the local branch system
would be willing to enter into such an arrangement and other such questions,
growing out of the local situation. In other words, the local conditions may
not favor such a purchase by an outside holding company. Nevertheless, the
possibility of such control must be admitted.
This is one of the questions before this committee. It is not a situation created
by any position I have taken. It is not a future condition contingent upon the
possible enactment of branch banking legislation. It is a present condition and
is involved in the present group banking movement. Your committee will no
doubt have before it spokesmen from the leading group bank holding companies
and will obtain from them first-hand information and views which naturally I
am not in a position to give. I am not now prepared to make recommendations
to Corgress with respect to the ownership of national-bank stock or State member
bank stock by holding companies. When the committee has gotten along further
in these hearings and there has been developed more complete information with
respect to group banking I shall be glad to offer my further services to the
committee.
As to the third question, that of a gentlemen’s agreement to eliminate competi
tion within the trade area, such as has been mentioned by the gentleman from
South Carolina (Mr. Stevenson), I should not anticipate a general resort to any
such plan. The natural desire to build up a banking business within the trade
area would have the strongest tendency to lead all of the branch banking institu
tions to compete for business all over the trade area. It must also be borne in
mind that under any such national banking plan of branches within a trade area
the Comptroler of the Currency would have the discretionary power to permit
the establishment of a branch, and I can not think that he would cooperate
with any bank in eliminating competition. But assuming the possibility of such
a scheme, it might be advisable to consider the application of the antitrust
laws in the premises. On this point, however, I am not prepared to make recom
mendations. The subject is new and largely hypothetical in its application to
the plan I have suggested. It might be time enough to dealjwith such a situation
after it may have arisen in any one particular trade area. It^would always be
within the power of Congress to deal with that situation.
T h e C h a ir m a n . N ow ,
Mr. Seiberling.
100136— 30— vol 1 pt 2------ 2
110
BRANCH, CH AIN , AND GROUP BANKING
Mr. S e ib e r l in g . Mr. Pole, in view of the fact that section 8 of
the Constitution of the United States provides that the Congress
shall have power—
To coin money, regulate the value thereof, and of foreign coin, and fix the
standard of weights and measures:
To provide for the punishment of counterfeiting the securities and current
coin of the United States.
And further, in section 10, that—
No State shall * * * coin money; emit bills of credit; make anything but
gold and silver coin a tender in payment of debts.
In view of this, do you think it was intended by the founders of our
Government that the National Government should have an absolute
monopoly in so far as providing a free circulating medium of the
money system of the country is concerned?
Mr. P o l e . I understand the courts have so held.
Mr. S e ib e r l i n g . Now, the importance of banking and its relation
to the happiness and contentment of the people in general is of greater
importance, is it not, than that of any other business of the country?
Mr. P o l e . It is extremely important.
Mr. S e ib e r l i n g . A s a matter of fact, you can not buy milk for
your babies unless you have money or credit, can you?
Mr. P o l e . Obviously.
Mr. S e i b e r l i n g . Can you give me the total deposits in the banks
of the country at the present time?
Mr. P o l e . May I set that out in the record?
Mr. S e ib e r l in g . Yes.
Mr. P o l e . It is about $58,000,000,000. I will correct that for the
record.
Mr. S e ib e r l i n g . Can yo u tell me what part of these deposits are
savings deposits and what part postal savings deposits and what *
part commercial deposits?
Mr. P o l e . M ay I insert those in the record also?
Mr. S e ib e r l in g . Yes.
(The information referred to is incorporated below:)
Due to banks (demand balances)___________________________________ $3, 629, 197
Certified and cashiers’ checks (including dividend checks), and cash
letters of credit and travelers’ checks outstanding________________
837, 430
Demand deposits (other than bank and United States):
Individual deposits subject to check_____________ $21, 427, 747
State, county, and municipal deposits___________
1, 960, 543
Certificates of deposit (other than for money
borrowed)_______________________ ______________
412, 593
Other demand deposits__________________________
549, 281
Total________________________________________________________ 24,350,164
Time deposits (including postal savings):
State, county, and municipal deposits___________
418, 383
Deposits of other banks__________________________
133, 085
Other time deposits—•
Deposits evidenced by savings pass books___ 24, 029, 247
Certificates of deposit (other than for money
borrowed)________________ - _______________
3, 169, 073
Time deposits, open accounts; Christmas sav
ings accounts, etc_________________________
919, 877
Postal savings deposits__________________________
117, 952
Total________________________________________________________
28,787,617
BRANCH, CHAIN, AND GROUP BANKING
United States deposits (exclusive of postal savings)_______________
Deposits not classified______________________________________________
111
286, 112
20, 121
Total deposits_______________ _______________________________ 57,910,641
Mr. S e i b e r l i n g . N o w , in a general way, to what class of people do
these savings deposits in the banks belong?
Mr. P o l e . Usually to the less affluent members of society.
Mr. S e ib e r l in g . They are the clerks, the workingmen, and the
farmers who have put their money in the banks, saved it for a future
emergency if it should arise?
Mr. P o l e . That is right.
Mr. S e i b e r l i n g . N o w , the banking system in reality provides a
great reservoir in which those who have surplus funds deposit them
for a rate of interest which the bank is willing to pay, which gives the
bank an opportunity to lend these funds to those who have insufficient
funds for a rate of interest which the bank is willing to take, is not
that right?
Mr. P o l e . Yes; subject to the limit of State law.
Mr. S e ib e r l i n g . The banking system, therefore, in a general way
fixes the rate of interest to be paid on deposits and also, subject to
the usury laws of the various States, fixes the rate which the borrower
has to pay?
Mr. P o l e . That is true, except that the interest which may be
paid on time deposits is frequently fixed by statute.
Mr. S e i b e r l i n g . In some States.
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . There are States where the banks pay no interest
on deposits at all?
Mr. P o l e . I know of none.
Mr. S e ib e r l in g . I think there are still such banks as that.
Mr. P o l e . There may be banks, but they are not all the banks of a
State.
Mr. S e ib e r l in g . I know, but some banks.
Mr. P o l e . Possibly some banks which do not take savings.
Mr. S e i b e r l i n g . That depends on competition, does it not^ in
their localities?
Mr. P o l e . Yes, there might be some few banks.
Mr. S e ib e r l in g . If there is only one bank in a locality, it can
decline to pay any interest to the depositors, can it not?
Mr. P o l e . They would have the right to do so.
M r. S e i b e r l in g . D o you look upon deposits as the raw material
of the banking system?
Mr. P o l e . Yes, to an extent, if you put it that way; but the
deposits are not the property of the bank.
Mr. S e i b e r l i n g . I s there any other business that you know of
where the managers of the business subject to local competition pay
the prices they wish to pay for the raw material, and sell the use of
it at the price they wish to charge to the one that wants it?
Mr. P o l e . Banks receive deposits and loan them under highly
competitive conditions.
Mr. S e i b e r l i n g . I want to go into the functions which the Gov
ernment performs in connection with national banks. Will you tell
me some of those functions?
I have some of them here, if you want me to assist you?
112
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e , Yes, thank you.
Mr. S e ib e r lin g . Well, the granting of charters is one, is it not?
Mr. P o l e . Yes.
Mr. S e ib e r l i n g . And the coining and printing of money is another?
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . And that is done without charge, I understand.
Mr. P o l e . Yes.
Mr. S e ib e r l in g . Who pays for the examination of banks?
Mr. P o l e . The banks themselves.
Mr. S e ib e r l in g . N o w , as to the passing of necessary laws for the
protection of the banking system, that, of course, is a matter that
the Government has to do. The Government has also provided a
Federal reserve system for the general benefit of all member banksr
whether national or State, has it not?
Mr. P o l e . Yes.
Mr. S e ib e r l in g . And it has to maintain the gold standard so as
to secure the stability of money for the benefit of the banks, does
it not?
Mr. P o l e . That is a governmental function.
Mr. S e ib e r l in g . In view of all these facts, will you say that banks
can properly be classified as quasi-public corporations?
Mr. P o l e . I would.
Mr. S e ib e r l in g . Are they not more so than any other quasi
public corporations that you know anything about?
Mr. P o l e . In m y opinion; yes.
Mr. S e i b e r l i n g . Then proper facilities for banking are of more
importance to the people as a whole than transportation of persons
and freight or the proper means of communication— for instance,
railroads, express companies, and telegraph and telephone companies?
Mr. P o l e . Banks are a most important factor in our economic life.
Mr. S e i b e r l i n g . And, while banks are privately owned the same
as other public utilities, is not the nature of their business and the
relationship of their business to the Government such that they owe
a greater duty to the people at large in the matter of service than any
class of corporations which have been mentioned, and is not this
especially true since the people themselves, by their deposits, to a
large extent furnish the money which is reloaned by the banks to
borrowers?
Mr. P o l e . That is correct.
Mr. S e i b e r l i n g . N o w , the proper and regular supply of money
at reasonable rates is necessary to keep industry going and labor
employed, and to purchase the products of the farm?
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . I want to ask you a question which is somewhat
academic, but I am interested in knowing what your judgment is
about it, and that is, what percentage of the bank’s objective, in
your judgment, should be service to the public and what percentage
should be profit to stockholders?
Mr. P o l e . That is academic, indeed.
Mr. S e i b e r l i n g . Should it all be for the stockholders?
Mr. P o l e . No, I think that the one is necessary to the other, that
the bank which gives no service probably makes very little profit for
the stockholders, because its business is built up on service in large
part. The profit to stockholders is so important that if the return
BRANCH, CHAIN, AND GROUP BANKING
113
were diminished to any very extraordinary extent, the chances are
that the bank stocks would not sell, people would not invest money
In bank stocks. In order to build a bank up to a point where it
becomes profitable and is able to make a return on its shares it is
necessary that that bank extend its facilities and offer every banking
service to the public.
Mr. S e i b e r l i n g . I want to make it perfectly plain that I am a
director in the largest bank in my city, and have been for many years,
and that I am interested in the proper return for capital.
Mr. P o l e . Naturally.
Mr. S e ib e r lin g . And I am here at all times to protect that, but I
would like to get your judgment as to what percentage the objective
•of a banker should be with respect to service to his community, and
what the percentage should be with respect to profit gained for
stockholders.
Mr. P o l e . Each is equally important.
Mr. S e i b e r lin g . N o w , as to the attitude of banks and bankers to
ward a community, they can either develop a community or can
greatly restrict it by their policy, can they not?
Mr. P o l e . It is to their interest to develop the community.
Mr. S e ib e r l in g . D o you think it is possible for this committee or
'Congress to legislate properly upon the banking system unless it has
the whole picture?
Mr. P o l e . I think that it is very necessary.
Mr. S e i b e r l i n g . Y o u have painted a very disastrous picture as to
the small banks in the South, Southwest, and Northwest, but you
omitted to paint the rosy picture in connection with the banking
business in the metropolitan centers, especially in the East, and in
order that we may have the entire picture, I desire to insert in the
record portions of a statement which I have here, but it will be in the
form of testimony.
Do you know" who Ralph B. Leonard & Co. are, of New York?
Mr. P o l e . I understand they are dealers in bank stocks.
Mr. F e n n . May I ask what that paper is that Mr. Seiberling has?
Mr. S e ib e r l i n g . I am going to state what it is.
Ralph R. Leonard & Co. are very responsible brokers, are they
mot, in bank stocks?
Mr. P o l e . I do not krtow as to their standing in New York.
Mr. S e ib e r li n g . Y o u have^ heard of them, have you?
Mr. P o l e . Yes.
»
Mr. S e ib e r l in g . They have a good reputation?
Mr. P o l e . A s far as I know.
Mr. S e ib e r l in g . I want to put into your hands here a statement
put out by Ralph R. Leonard & Co. dated in January, 1930, called,
“ A 5-year analysis of New York City bank stocks.”
Is it not a fact that this statement shows that the 25 national
banks in New York City, in the last five years prior to December
31, 1929, paid dividends to stocksholder at an average rate for all
banks of 70 per cent for the period upon their stock?
Mr. G o ld s b o r o u g h . On the par value?
Mr. S e ib e r l in g . Yes.
Mr. P o l e . I am not informed.
Mr. S e i b e r l i n g . I will show it to you right here.
average for all of the 25 national banks.
This is the
114
b r a n c h , c h a in , a n d group b a n k in g
Mr. G o o d w in . For a 5-year period?
Mr. S e i b e r l i n g . Yes.
Mr. P o l e . According to this statement, those figures seem to be
correct.
Mr. S t e a g a l l . May I interrupt?
Mr. S e ib e r l in g . N o ; I do not want an interruption, because I
have listened patiently to everybody.
Mr. S t e a g a l l . I just wanted to ask what date that was.
Mr. S e ib e r l in g . I gave the date; January, 1930.
Mr. S t e a g a l l . That covers last year?
Mr. S e ib e r l i n g . Yes.
Mr. S t e a g a l l . That is what I wanted to get. They are very
interesting figures, and I wanted to get them in my mind.
Mr. P o l e . The percentage paid in dividends------Mr. S e ib e r l in g . The statement gives you the average, at the
bottom of it.
Mr. P o l e . Average, 70 per cent.
Mr. S e ib e r l in g . That is for the 5-year period. If you want to get
the average paid per year, you divide that average by five.
Mr. P o l e . Where does it say it is for the 5-year period?
Mr. S e i b e r l i n g . On the front.
Mr. P o l e . I see. Of course, I am n ot familiar with this.
Mr. S e ib e r l i n g . Y o u have your detailed earnings there for five
years.
Mr. P o l e . Yes.
Mr. S e ib e r l in g . But before that you have the average dividend
for the period.
Mr. P o l e . I see.
Mr. S e i b e r l i n g . N o w during the year 1929— and I am speaking
now of just the year 1929— these 25 national banks increased their
surplus and undivided profits account to the extent of $139,005,500,
in addition to an average dividend of $16 per share on the capital stock.
That is in the column marked “ Average.”
Air. P o l e . Yes, the average current rate of dividend was $16.
Mr. S e i b e r l i n g . That does not take into account any stock
dividends declared during the entire period of five years and charged
against surplus acconut. There were some, but I can not pick out
the banks now. That does not take that into account.
Mr. P o l e . In a good many instances.
Mr. S ie b e r l i n g . N o w , during the same five years ended Decem
ber 31, 1929, the 34 trust companies paid an average dividend for the
period of 61 per cent of the par value of their capital stock, did they
not?
Mr. P o l e . According to this statement; yes.
Mr. S e i b e r l i n g . During the year 1929— and I am speaking now
only of the year 1929— the same trust companies increased their
surplus and undivided profit account to the extent of $587,966,300,
did they not?
Mr. P o l e . I do not know exactly where you get that, but I assume
that is correct.
Mr. S e ib e r l in g . You have in the one column the surplus and
undivided profits of the banks for December 31, 1928, and also in the
other column for December 31, 1929, and I have had these figures
added up on the adding machine.
BRANCH, CH AIN, AND GROUP BANKING
115
Mr. P o l e . H o w m uch did yo u say?
Mr. S e i b e r l i n g . They have increased their surplus and undivided
profit account to the extent of $587,966,300.
Mr. P o l e . I do not know that I understand this statement.
Mr. S e i b e r l i n g . It would take you too long to add those columns.
Mr. P o l e . Well, I was going by the averages, that the difference
between the surplus and undivided profits on December 31, 1928,
and those for 1929 was about $10,000,000, and that, multiplied by
34------Mr. S ie b e r l in g . Would be $340,000,000.
Mr. P o l e . $340,000,000.
Mr. S e ib e r l i n g . That is the computation I made in the beginning,
but after adding them up on the adding machine, my secretary tells
me that the amount arrived at is the amount I reached.
Mr. P o l e . That should be more nearly correct, of course.
Mr. S e ib e r l in g . This increase in surplus and undivided profits
was in addition to the average dividends for the year 1929 of $13.40
per share on the par value of the trust company stock, and this does
not include or take into account any stock dividends during the
period charged against the surplus account, does it?
Mr. P o l e . I accept your statement as to that.
Mr. S e i b e r l i n g . N o w , taking that statement, can you give me
the capital stock of the National City Bank of New York City, and
the par value of its shares?
Mr. P o l e . $ 1 1 0 ,0 0 0 ,0 0 0 capital; $20 par.
Mr. S e ib e r l i n g . Y o u divide $ 1 1 0 ,0 0 0 ,0 0 0 capital by $20 par,
and you get 5,500,000 shares, do you not?
Mr. P o l e . Yes.
Mr. S e i b e r l in g . Can you tell me what the highest price was that
that stock sold for on the stock exchange during the peak of prices?
Mr. P o l e . M y recollection is something over $500.
Mr. S e ib e r l i n g . It was $575 a share, was it not?
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . Now, if you multiply the number of shares by
$575, you get a selling price of that stock— aggregate selling price— of
$3,162,500,000.
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . Now, let us take the statement of the National
City Bank of 1929. Take its capital stock of $110,000,000 and sur
plus of $129,650,200 and add to that the deposits, $1,649,544,300.
You get an aggregate total of capital, surplus, and undivided profits
and all deposits of $1,889,194,500, so that it appears that, while you
were enforcing the double liability against stockholders in many
banks of other sections of the country, the capital stock of this large
metropolitan bank was selling at an aggregate price equal to almost
twice the aggregate amount of its capital, surplus, and deposits.
That is correct, is it not?
Mr. P o l e . Correct.
Mr. S e i b e r l in g . For the moment the country forgot the deposits
were liabilities of the bank instead of assets, apparently?
Mr. P o l e . I did n ot get that.
Mr. S e i b e r l i n g . For the moment the country must have for
gotten that the deposits of banks were liabilities instead of assets?
Mr. P o l e . I think that is the case.
116
BRANCH, CH AIN, AND GROUP BANKING
Mr. F o r t . I wonder if Mr. Seiberling will permit just one statement
in the record at this point?
Mr. S e ib e r l in g . Yes.
Mr. F o r t . I think he wants properly to convey the picture. In the
market price of the National City Bank stock is included in the market
value placed on the National City Bank’s companies?
Mr. S e ib e r l in g . I am going to get to that. These earnings are
also------Mr. F o r t . The earnings of the two------Mr. S e ib e r l i n g . I will get to that a little later. I desire to
take up now the individual cases of only three banks— the Chase
National Bank, the City National Bank, and the Guaranty Trust
Co.
The Chase National Bank has a capital stock, at par, of $20, I
believe.
Mr. P o l e . According to this statement; yes.
Mr. S e ib e r l i n g . And it had a capital stock on December 3 1,
1928, of $60,000,000; on December 31, 1929, of $105,000,000------Mr. P o l e . According to this statement.
Mr. S e i b e r l in g . And it had a surplus and undivided profits
as of December 31, 1928, of $77,498,400, and, on December 31, 1929,
of $136,364,100.
Mr. P o l e . That is in accordance with the statement.
Mr. S e ib e r l i n g . I guess there are 77 cents to be added on there.
Mr. P o l e . Yes.
Mr. S e ib e r l i n g . N ow, the deposits of the Chase National Bank
as of December 31, 1928, were $1,126,781,600, and the deposits as
of December 31, 1929, were $1,248,219,400.
They paid, during that year, 1929, $4 dividends. I say the
dividend rate is fixed at $4. They are paid in quarterly periods,
and I assume that is $4 a year.
Mr. P o l e . Yes, sir.
Mr. S e i b e r l i n g . Y o u will note that the deposits of the bank
increased only about $126,000,000 and the earnings of the bank,
according to the surplus and undivided profits, increased in the
neighborhood of $60,000,000. Now, how do you account for such
earnings as that, when the increase in deposits was so small?
Mr. P o l e . I would not attempt to account for it, Mr. Seiberling.
Mr. W in g o . Possibly through consolidations, Mr. Seiberling.
Mr, S e i b e r l in g . This statement figures the average on— —
Mr. F o r t . And the call money.
Mr. S e i b e r l i n g . I will get to the call money pretty soon. This is
figured on the average for the banks, whether consolidated or not.
Mr. W in g o . I think a consolidation might account for that change.
Mr. S e i b e r l i n g . Some bank had to make the money, you know.
They consolidated their deposits as well as their earnings. Now,
you speak of the National City Bank. The capital stock is $20, par?
Mr. P o l e . Yes, sir.
Mr. S e i b e r l i n g . Their capital stock as of December 31, 1928
was $90,000,000 and $110,000,000 December 31, 1929. The surplus
and undivided profits as of December 31, 1928, were $76,992,900,
and on December 31, 1929, were $129,650,200. Its deposits, De
cember 31, 1928, were $1,349,024,400 and on December 31, 1929,
BRANCH, CH AIN , AND GROUP BANKING
117
$1,649,554,300. They also paid $4, a share on their 5,500,000 shares
of capital stock, which means a dividend of $22,000,000.
They increased their deposits $300,000,000, but increased their
surplus and undivided profits—29 plus 24,000,000 would be—
$53,000,000 for the year You can not account for their earnings
by the small increase of deposits, can you?
Mr. P o l e I would not attempt to do that except to say that in
both of the instances which you mentioned, are included the earnings
of their affiliated corporations.
Mr. S e i b e r l i n g What is that9
Mr P o l e Included m those earnings are the earnings of the
affiliated corporations
Mr S e i b e r l i n g Yes
Mr P o l e And, of course, we ha\ e no means of k n o w i n g what they
are They are certainly very material
Mr S e i b e r l i n g Well, now7, we t a k e the Guaranty Trust, that has
a par value of its stock of $100
Mr P o l e Yes, according to this statement
Mr S e i b e r l i n g And they had a capital of $40,000,000 at the end
of 1928 and $90,000,000 at the end of 1929. Their surplus and
undivided profits, at the end of 1928, wrere $03,307,000. At the end
of 1929 they were $202,636,000
Their deposits at the end of 1928 were $842,358,200 at the end of
1929 were $1,309,289,600 They increased their deposits very much
more than the other banks did proportionately, but their increase in
surplus and undivided profits was approximately $140,000,000 for the
year. Is not that correct9
Mr P o l e That seems to be correct
Mr S e i b e r l i n g What would you say as to whether or not the
earnings of the banks in other Federal reserve centers of the country
were comparable with the earnings shown by the New York banks9
Mr P o l e Included in the earnings of the Guaranty Trust Co
are also the earnings, I believe, of the Guaranty Co
Mr. S e i b e r l i n g This securities company9
Mr P o l e Yes
Mr S e i b e r l i n g What do you think of the w isdom of having large
banking corporations owning securities companies where a great deal
of their attention is given to speculation in stocks where they have a
great interest m sho\ing stocks up on the market instead of attending
to legitimate banking business?
Mr P o l e I think it would be desirable that some supervision over
the securities c o m p a n i e s should be had m order that we mi^ht ascer
tain the nature of their business by reason of the fact they are so closely
* allied with the banks
Mr S e i b e r l i n g I want to go to the subject of call money rates.
I would like to ask you, if you know, who fixes the call money rate,
and how it is determined from day to day?
Mr P o l e . I have very little information on that, Mr. Seiberling.
I w^ould not attempt to answer that question
Mr. S e i b e r l i n g Do you know that in p a s t p a n i c s , the c a ll money
rate h a s gone as high as 1 per cent a day?
Mr P o l e I recall that it has gone to some fabulous figure
Mr S e i b e r l i n g And in another panic, it went to as high as 150
per cent?
118
BRANCH, CHAIN, AND GROUP BANKING
Mr. P o l e . Yes.
Mr. S e i b e r l i n g . Y o u do not know who fixes the call money rate?
Mr. P o l e . Specifically I would say I do not.
Mr. S e i b e r l i n g . I am very sorry because I wanted to find out.
Do you know, as a matter of fact, that New York does not have any
usury laws in connection with the call money rate?
Mr. P o l e . I do.
Mr. S e ib e r l i n g . The call money rate can go just as high as any
body who has the fixing of it wants to put it?
Mr. P o l e . On loans of $5,000 or over.
Mr. S e ib e r l in g . New York does not have any usury laws in
connection with loans to corporations either, does it?
Mr. P o l e . I am not familiar with the usury laws of New York,
Congressman.
Mr. S e ib e r l i n g . I think their usury law in connection with cor
porations is the same as the law in Ohio, and that was put through
for the purpose of negotiating some loans out there and that is if the
directors authorize the loan, the corporation can not, thereafter, set
up, as a defense, usury for the benefit of the stockholders. I think
that is the New York law. Now, as to whether they have no usury
laws in connection with collateral loans as-Mr. Fort suggests, I do not
know.
Mr. F o r t . I know that the lowest rate on even time loans is fre
quently 9, 10, and 11 per cent—not frequently, but occasionally.
Mr. S e ib e r l in g . D o you know of many other States that do not
have usury laws that cover all kinds of loans?
Mr. P o l e . I think recent laws have been passed in Pennsylvania
and possibly in Illinois with respect to call rates.
Mr. S e i b e r l i n g . Taking off the usury from call rates?
Mr. P o l e . I am under that impression.
Mr. S e ib e r l i n g . Repealing the law so that there is no usury law
on call money?
Mr. P o l e . There has been some change in the law in that respect.
Mr. S e i b e r l in g . N o w , how high did the call money rate go in
New York during the recent stock escapade?
Mr. P o l e . I think about 12 per cent, as far as my recollection goes.
Mrs. P r a t t . I think it w ent as high as 15.
Mr. F o r t . It was higher before the panic. It was about 15 or 16.
Mr. S e ib e r l in g . It did not reach its high point until after the
stocks commenced to decline, did it?
Mrs. P r a t t . I think it was in August or September it was as high
as that.
Mr. S e i b e r l in g . If you know, I should like to have it in the record.
Mrs. P r a t t . I will have to check that up.
Mr. S e i b e r l i n g . I thought the call money went to as high as 20
per cent.
Mr. P o l e . I do not recall.
The C h a irm a n . It did go to 22 per cent last spring.
Mr. S e i b e r l i n g . Don't you know, Mr. Pole, that this call money
rate affected every man, woman, and child in the United States that
had stocks on margin with the brokers, and that there were thousands
and hundreds of thousands of them?
Mr. P o l e . I would say so.
BRANCH, CH AIN, AND GROUP BANKING
119
Mr. S e i b e r l i n g . This call money rate was charged back on these
marginal accounts irrespective of the usury laws of the various States?
Mr. P o l e . I am not informed as to that, Mr. Seiberling.
Mr. S e i b e r l i n g . A s a matter of fact, I will state that they were
charged back on the marginal accounts and if you did not like to pay
the rate of interest, you could let them sell your stock, but if you
wanted to carry it with the broker, you had to pay substantially the
call money rate, which varied from day to day—pay the call money
rate of New York.
That is, Mr. Pole, they charged you for the month for the average
of the call-money rate, whatever it might average. Do you know,
from your personal knowledge, whether that is true?
Mr. P o l e . I have no knowledge of that.
Mr. S e ib e r l in g . There are probably others around here who could
tell us. That was my experience. How about you, Mr. Fort?
Mr. F o r t . I did not have any accounts at the time, but I under
stand the practice in most legitimate brokers’ offices is that they
charged the cost of the money to them, plus the commission. That
does not necessarily mean the call rate. They took their time money
and call money and merged it and fixed the rates that way. Most
brokers did that.
Mr. S e ib e r l i n g . The effect of the high call-money rate in New
York was to draw immense sums of money out of all banks of the
country and transfer them to New York, such withdrawals being
made by people who had large sums of money on deposit and corpora
tions'with large sums on deposit with banks paying only 2 or 3 per
cent on daily balances—they took their money out and withdrew it
and sent it to New York to get the call-money rate.
Mr. P o l e . I think large amounts were invested that way.
Mr. S e ib e r l in g . D o you think, out of a city like Cleveland, as
much as $100,000,000 would be withdrawn and sent to New York?
Mr. P o l e . I have no idea.
Mr. S e ib e r l in g . The effect of the withdrawal of money from the
local banks and sending it to New York to get the high call money
rate was to compel all the local banks to go to the Federal reserve
to get monev, was it not?
Mr. P o l e It had that effect
Mr. S e i b e r l i n g . And that is what they did to an enormous
extent, did they not?
M r. P o l e . T o some extent.
Mr. S e i b e r l i n g . Well, then, we have this situation, that the callmoney rate caused an influx of tremendous amounts of money into
New York to be invested in the New York Stock Exchange at high
rates and withdrew it from local banks and the local banks had to
go to the Federal reserve to borrow money. What rate did they
pay?
Mr. P o l e . Money was ranging over last year from 4 to 6 per cent.
Mr. S e ib e r l in g . But a great part of the- time was below 6 per cent?
Mr. P o l e . A considerable part of the time.
Mr. S e ib e r l in g . Is it also true that some banks borrowed money
from the Federal reserve, at the low rate of interest and sent it to
New York to be used at the call-money rate?
Mr. P o l e . I thought that was your question
120
BEANCH, CHAIN, AND GROUP BANKING
Mr. S e i b e r l i n g . No; I was not talking- about banks but i n d i v i d
uals and corporations
Mr. P o l e . They do not go to the Federal reserve banks.
Mr. S e i b e r l i n g Not the individuals, but the point I make is
this: When the individuals withdrew their money and sent it t o
New York, then the bank had to g o to the Federal reserve in o r d e r
to get money to run its business?
Mr. P o l e . I think that is true in many cases
Mr. S e i b e r l i n g . Is it not also true that the banks themselves
borrowed at the low rate from the Federal reserve and sent to Xew
York and got the high call money rate?
Mr. P o l e I think that also might have been true
Mr. S e i b e r l i n g The effect of all that was to take this money out
of the legitimate channels of business and many people who needed
money for their business needs were refused this money by the
banks; because they could not, in good morals and under the usury
laws of the States, charge them more than a limited amount when
they could take the money and send to New York and get more?
Mr. P o l e . There were undoubtedly illustrations of that kind
Mr. S e i b e r l i n g . You say that even though your the Comp
troller of the Currency of the United States, you do not know who
fixes the call money rate?
Mr. P o l e . I do not know the technical operation of the fixing of
the call rate
Mr. S e i b e r l i n g . Do you know how we could find out who fixes
it?
Mr. P o l e . Yes
Mr. S e i b e r l i n g . Where?
Mr. P o l e From any banks that make loans on call in Xew
York
Mr. S e i b e r l i n g . After it is fixed from day to day that the call
money rate was so much, and so forth, who fixes it?
Mr. P o l e . I think that is said to be fixed under supply and demand
by a committee of the stock exchange
Mr. S e i b e r l i n g . With the Federal reserve system, there is not
any question about the supply of money m this country an\ more,
is there?
Mr. P o l e . There is, for speculative purposes
Mr. S e i b e r l i n g . Well, but you can not safeguard that where indi
viduals and corporations and banks withdraw' their money from banks
and send it to New York and the banks themselves borrow from the
Federal reserve—you can not question a bank when they come to
the Federal reserve as to whether they want this for speculative
purposes?
Mr. P o l e . You can not question the individuals
Mr. S e i b e r l i n g Or the banks either9
Mr. P o l e . Yes
Mr. S e i b e r l i n g If they come to you and give you the proper
kind of paper-----Mr P o l e . It is not incumbent upon the Federal reserve bank to
make loans if the bank is, at the same time, sending money on call
to New York. The Federal reserve bank would inquire into it
Mr. S e i b e r l i n g . If the bank went to the Federal reserve with good
rediscountable paper, they have the right to inquire why they wanted
the money?
BRANCH, CHAIN, AND GROUP BANKING
121
Mr P o l e . Yes.
Mr S e ib e r l in g . You do not think they did inquire?
Mr P o l e I think they did inquire
Mr S e i b e r l i n g Then you have agreed with me that the banking
business is much more of a quasi-public nature than the business of
other quasi-public corporations, whose rates are fixed by the public
service commissions—whose rates to the public are fixed by the public
utility commissions and the Interstate Commerce Commission, then
why should not Congress, by the enactment of a Federal usury law,
fix the limit which could be charged for the use of money?
Mr. P o l e Congress could do that probably and in respect to national
banks certainly.
Mr S e ib e r l in g Can not they also, in respect to member banks,
if they want to be members of the Federal Reserve system?
Mr. P o l e . Probably that is correct.
Mr. S e ib e r lin g . And States that do not have such laws could be
controlled by the Federal usury lews?
Mr. P o l e . I presume so.
Mr. W in g o . You gentlemen are both lawyers, I assume?
Mr. S e ib e r lin g . Somebody said I was a lawyer once, but I do not
know whether I am or not.
Mr. F o r t . Mr. Chairman, may I ask a question? Mr. Seiberling
says he has no objection.
The C h a irm a n . Yes
Mr F o r t . Mr. Pole, is it not a fact that a large part of the funds
in the call loan market, which along in October exceeded the total
loans of ail banks for their own accoimt, was money of so-called out
siders ; that is, of corporations and foreign lenders and others, rather
than the money of the banks themselves?
Mr. P o l e . I think that is correct.
Mr F o r t . And a large part—the very large part of the money—
that went at the high rates of interest was not banking money?
Mr P o l e . I think the statements usually show that loans for others
exceeded the loans of which you speak.
Mr. S e i b e r lin g . And the result of the high rate is that the deposi
tor who has a large balance, instead of letting the bank lend it and
getting the profit, draws out that balance and becomes, himself, a
lender of money?
Mr. P o l e . That is correct.
Mr. S e ib e r l i n g . I think this should be made plain, that when the
private party or the corporation that lends through private bankers
in New York, they have to withdraw that money from some bank in
order to send it to a private bank.
Mr. P o l e . I think the custom is for the New York banker to
place the money for its customer, charging a small commission.
Mr. S e ib e r l in g . But they have to furnish the money to do that.
They have to furnish the money from some place.
Mr. P o l e . The customer does.
Mr. S e ib e r l i n g . And he has to take it from the local bank.
He does not carry thousands of dollars around in his stocking.
Mr. P o l e . He has to take it from wherever it is deposited. The
local bank might be in New York.
Mr. S e ib e r l in g . We know, as a matter of fact, that hundreds of
millions of dollars were sent from other parts of the country to New
York for the high-money rate.
122
BRANCH, CHAIN, AND GROUP BANKING
Mr. P o l e . I am sure of that.
Mr. S e i b e r l i n g . What effect, do you think, that had on the legiti
mate business of the country which is in the shape it is in?
Mr. P o l e . I think the effect was bad.
Mr. S e i b e r l i n g . Don’t you think it would greatly stimulate
business if borrowers could know what the limited interest they would
have to pay under any circumstances would be?
Mr. P o l e . I think that might be desirable.
Mr. S e ib e r l i n g . Of course the interest rate would always have to
be as high as the interest rate of the Bank of England, for instance;
in other words, you could not let the foreign banks put the rates so
high as to draw money from this country. There is an element there
that would have to be protected, is there not?
Mr. P o l e . Well, I suppose there naturally would have to be some
adjustment between the foreign banks—the central-bank rates and
our own Federal reserve rates.
Mr. S e ib e r l in g . N o w , in speaking of the branches— of extending
branch banking— there is not any objection to-day to the consolida
tion of vast public utilities because the rates which they can charge
the public are fixed by commissions, are they not?
Mr. P o l e . Yes, sir; I understand the rates are so fixed.
Mr. S e ib e r l in g . And it would not make so very much difference
in reference to the form of the bank if we had a limit on what they
could charge for the use of the money?
Mr. P o l e . I think not.
Mr. S e ib e r l in g . That is, after all, the protection to the people,
and it is vital that those who are entitled to it, either on account of
their moral responsibility or financial responsibility, should have
money as the necessities demand?
Mr. P o l e . Are you referring to the usury laws of the States which
fix the maximum amount that it is permissible to charge?
Mr. S e ib e r l i n g . It is very vital, is it not, that those who are
entitled to money should have the right and opportunity of getting
it at a reasonable rate of interest?
Mr. P o l e . Yes, sir.
Mr. S e i b e r l i n g . In reference to this question of extension of
branch banking, your proposal would have a tendency, unless there
was some regulation as to what banks could do, to greatly increase
their domination and control, would it not?
Mr. P o l e . There would, in my opinion, always be ample banking
competition which would regulate that.
Mr. S e i b e r l i n g . Well, now, the law preventing interlocking
directors does not protect the situation at all?
Mr. P o l e . I would say not.
Mr. S e i b e r l i n g . It is a question of who the stockholders are, is
it not?
Mr. P o l e . I do not quite understand the question.
Mr. S e i b e r l i n g . I s it not a fact after all a question of who the
stockholders are?
Mr. P o l e . I still do not understand the question. In respect to
what?
Mr. S e i b e r l i n g . In respect to the control of the stock?
Mr. P o l e . A s far as monopolies are concerned?
BRANCH, CH AIN, AND GROUP BANKING
123
Mr. S e i b e r l i n g . Control clear down the line. The stockholder
can put in a dummy director and tell him what to do. The stock
holders control the banks?
Mr. P o l e . They could in any individual bank; yes.
Mr. S e i b e r l i n g . Assuming that we adopted your suggestion, there
would be nothing to prevent a Cleveland bank— and I am taldng a
Cleveland bank because you were an examiner out there—there would
be nothing to prevent a Cleveland bank from making a branch of the
Akron bank?
Mr. P o l e . That would depend upon what Congress fixed as the
Cleveland area.
Mr. S e ib e r lin g . That is in the Federal reserve district. We
are all in that district.
Mr. P o l e . I know, but I have not made any suggestion that the
whole district should be included. I stated that in no event should
it go beyond the district lines.
Mr. S e ib e r li n g . Here is a city within 35 miles of Cleveland.
It would certainly be within the trade area.
Mr. P o l e . Yes, sir
Mr. S e ib e r lin g . Canton and Massillon would be within the
trade area of Akron?
Mr. P o l e . It might be said that they would be.
Mr. S e ib e r l in g . And the Akron bank could make branches of
the Canton and Massillon banks?
Mr. P o l e . Yes.
Mr. S e ib e r lin g . If New York banks owned all the stock of the
Cleveland bank, they would have branches, then, in Cleveland,
Canton, Akron, Massillon, and possibly Warren?
Mr. P o le . If the New York banks could keep on reaching and
acquiring the stock, they might obtain control.
Mr. S e ib e r l in g . And you can not prevent that?
Mr. P o l e . I think that Congress might adopt some legislation
which would prevent it.
Mr. S e ib e r li n g . There is another thing: You know the banks and
the trust companies have trust departments and vast amounts of
stock are willed to them in trust and put in living trusts which the
banks vote and control? That is correct, is it not?
Mr. P o l e . I think that is correct.
Mr. S e ib e r lin g . So that, in the course of time, these banks that
belong to the parent bank and its branches, might even control large
industries in their sections, might they not?
Mr. P o l e . They might.
Mr. S e ib e r lin g . They might say to an industry that was about
to start, “ If you locate up here in my city” —I am talking about
the head bank— “ if you locate up in my city, we will lend you the
money to start with, but if you do not do that, we do not have
enough confidence in your business. We want to have it here to
oversee you.” They could do that, could they not?
Mr. P o l e . Under some circumstances, I imagine that might be
possible.
Mr. S e ib e r l i n g . They could also have great political control,
could they not?
Mr. P o l e . If there were a system of banking through stock owner
ship, such as you suggest, I think it could have this influence.
124
BRANCH, CHAIN, AND GROUP BANKING
M r. S e i b e r l i n g D o you know of any more potent influence than
a banker has when he says to his borrower that he would like to
have some one elected to office?
Mr.
P o le .
I would call that a rather potent influence.
M r. S e i b e r l i n g . D o you know that there is great danger of banks
and trust companies having so much of their own stock deposited
with them by wills and living trusts, that the trust department
would finally control and own the bank?
Mr. P o l e . I could not conceive of a condition of that kind—not to
the point where they would actually control it.
Mr. S e i b e r lin g . They could easily have a majority of the stock,
could they not?
Mr. P o l e . It would be possible
Mr. S e i b e r lin g . How many shares of stock does a director have
to have?
Mr P o l e . In a national bank he has to have $1,000 worth at
par value
Mr. S e ib e r l in g . A thousand dollars’ worth?
Mr. P o l e . Yes.
Mr. S e ib e r l in g . Well, it would be very easy to have 10 or 15 men
own sufficient stock to qualify them as directors and have the rest
of the stock in the trust department of the bank?
Mr. P o l e . Of course it would be much easier in a small bank than
in a larger bank.
Mr. S e ib e r l in g . I am talking about the course of time. It seems
to me that you have to look a long ways ahead and we are not only
protecting the interests of the people now, but we are protecting them
for years to come. Is not that correct?
Mr. P o l e . Yes.
Mr. A w a l t . Speaking of voting trusts?
Mr. S e ib e r l i n g . I am speaking of stock actually trusteed in the
banks under trusts and living wills and banks transferring that
stock to them and they vote it. Is not that right?
Mr. P o l e . I should think that would be looking some way ahead.
Mr. S e ib e r l i n g . It is the natural thing for a director or a stock
holder of a bank to make his own bank his trustee under his will,
is it not?
Mr. P o l e . Yes.
M r. S e ib e r l i n g . D o you think it would be wise to permit an
extension of the branch privileges to banks unless some restrictions
can be formulated, which will obviate these difficulties?
Mr. P o l e . I think that question might well be given consideration.
Mr. S e ib e r l i n g . Well, now, I have just one more line that I want
to ask you about and this is maybe a rather foolish suggestion, and I
want to say it is not original with me, because I read a book on bank
ing that gave the cue.
You are very much interested, I take it, in getting banking facilities
to the outlying districts at points where—which would permit the
establishment of an individual or unit bank and where there is not
sufficient business and yet where the people should have some banking
facilities?
Mr. P o l e . That is among my suggestions.
Mr. S e i b e r l i n g . Y o u are greatty interested in that?
Mr. P o l e . Yes.
BRANCH, CHAIN, AND GROUP BANKING
125
Mr. S e i b e r l i n g . There seems to be a great deal of interest around
here in reference to guaranteeing deposits also, which I understand
you are against?
Mr. P o l e . Yes.
Mr. S e ib e r l i n g . And on which point I agree with you absolutely.
Now, since we have the Joint Stock Land Bank and the Federal
Farm Board to loan money on farms, on real estate, and since we
have the Federal Farm Board to which we have appropriated
$500,000,000 to lend on grain and intermediate credit banks, and
since just the other day we appropriated another $7,000,000 for the
Secretary of Agriculture to loan to farmers— a bill that provides
specially for loans to buy fertilizers, and for which he will take a lien
on the crops—since we have all those instrumentalities, these rural
districts would not need a bank for borrowing purposes to any great
extent, would they?
Mr. P o l e . Oh, I should say so. Customers of banks do not go
directly to these corporations that you speak of. They have to
form associations, which associations in turn borrow from these cor
porations except in the case of the Fedral land bank.
Mr. S e ib e r l in g . The farmer gets the money?
Mr. P o l e . Yes; eventually. There are numerous small merchants
and small operators that necessarily have to transact banking business
outside of type of business which might to go these corporations.
I would say that the banking facilities in a small community could
not be eliminated without very great inconvenience to that com
munity.
Mr. S e ib e r l i n g . A small community with two or three hundred
people who had opportunities to borrow, as I have said, from these
various sources, really needs a place to deposit their money and a place
to check out more than anything else?
Mr. P o l e . That is very important. They have also to borrow
and to make such loans as would not be eligible with these other
corporations you speak of, for current business.
Mr. S e ib e r l in g . What plan have you to work that out?
Mr. P o l e . I think it might be easily possible that a bank having
branches might go into such community and perhaps operate two
days or three days a week in order that the community might have
banking facilities.
Mr. S e ib e r lin g . Y o u do not think that——
Mr. P o l e . And there is nothing new in that idea.
Mr. S e ib e r l in g . Y o u do not think that the Postal Savings could
be expanded so as to take care of communities of that kind, where the
Comptroller of the Currency would designate that it was impossible
to establish a unit bank and where there were no banking facilities,
because I am just as much opposed to the Government going into
business as you are.
Mr. P o l e . I think, as a savings bank, the Postal Savings might
be of assistance, but I do not think it would take the place of a local
commercial bank.
Mr. S e i b e r l i n g . They draw mone}^ orders now, do they not; they
do a great many things of that kind?
Mr. P o l e . They deposit money and draw funds, but I think nothing
else.
100136— 30— v o l 1 p t 2------ 3
126
BRANCH, CHAIN, AND GROUP BANKING
Mr. S e i b e r l i n g . They have to keep books, of course?
Mr. P o l e . Yes.
Mr. S e i b e r l in g . And you do not think it would be possible to
enlarge that so that not only money could be deposited, but also
withdrawn by check?
Mr. P o l e . N o ; I do not think the post office could ever take the
place of the country bank.
Mr. S e i b e r l i n g . I am talking about sections where it is absolutely
impossible to have a bank on account of the business being so small?
Mr. P o l e . Of course a community being that small, it might not
be necessary to establish a bank there. It is not my idea that branches
should be established in every small hamlet in the country.
Mr. W in g o . Might I suggest that in my country there is a possi
bility of those villages losing even their post offices?
Mr. S e i b e r l i n g . It is very desirable to arrange facilities where
money in these rural districts, now in the stockings and other places,
might be placed in circulation.
Mr. P o l e . Yes, sir.
Mr. S e ib e r l in g . I think that is all.
Mr. S t e a g a l l . Just one suggestion there with reference to one
statement the gentlemen made— and evidently made under mis
apprehension: He said that we had appropriated $7,000,000 for the
purpose of lending to farmers to purchase seeds and fertilizers. I
do not think that act can be properly categorized along with the
other loaning facilities, such as Federal land banks, the Farm Board,
and intermediate credit banks. This $7,000,000 fund is purely a
temporary" and an emergency matter to take care of unprecedented
conditions created by a flood, something that probably will not
happen again, and I do not think anybody had in mind to make
that a permanent system.
Mr. S e i b e r l i n g . It included Ohio, and we did not have any
flood there that I know anything about.
Mr. S t e a g a l l . It was done probably as a matter of strategy to
get the matter through the other House. I do not advocate that
as a permanent policy. It was purely an emergency measure.
Mr. W in g o . In connection with one question that Mr. Seiberling
asked Mr. Pole, concerning limited credit under the Federal reserve
system, there seems to be a mistaken idea in the country that the
Federal reserve system carries unlimited credit.
Is not this true? The first is that you have to have eligible paper
before you can get credit. Another is the eligibility and acceptability
of the paper itself— that is, the acceptability. First we have eligibility
and second, acceptability and, in the circumstances in which it is
offered, whether the bank will take the eligible paper and grant credit.
Then after you have gotten by those limitations and handicaps,
the question of available gold for the required reserve comes in. So,
it is a mistaken idea to think of the Federal reserve as a source of
unlimited credit.
Mr. P o l e . Absolutely.
Mr. W in g o . There is another question in that connection that I
want to ask in reference to branches to take care of small communities.
I believe you said the other day, in response to a suggestion, that if
you had a small town, say, one of these towns under 10,000, that if
you undertook to take care of it by branch banks, they might under
BRANCH, CHAIN, AND GEOUP BANKING
127
take to take care of it by one branch and there would be a monopoly
and there might be two trade areas that would overlap; for instance,
Dallas, Tex., is close to the south end of my district. That is in the
trade area of Dallas as well as that of Little Rock. It is about as
near to Dallas as to Little Rock. In one of those towns there might
be a branch of a bank in Little Rock and also one branch of a bank
in Dallas, and you suggested that would give the necessary com
petition of service there and insure good service. Is that your idea,
that you would not be limited to the number of branches except as you
are now limited in the discretion of the charter granting authorities
which, in the case of the States, is the State commission, and, in the
case of the national banks, the Comptroller of the Currency?
Mr. P o l e . Yes. I spoke of these small communities being perhaps
in a position to monopolize the banking business provided the banks
were forced to a higher capital structure. In order to earn a fair
return on such capital, it would be necessary that the banks should
have a large enough area to attract sufficient business to do that.
Now, that was in connection with the suggestion which had been
made that banks should have a minimum capital of $100,000. I feel
that in a town like Dallas or a town like Little Rock the chances are
that there would be several important banks which would reach out
for business from every quarter.
Mr. W in g o . I see your idea. In addition to having two cities
that might each one of the have more than one bank—in other words,
in addition to having a bank in Dallas and a bank in Little Rock,
which might, each one, have a branch in this small city, a town under
10,000, why there might be also two banks in Little Rock and in
Dallas and the question of allowing them to have branches would
still be one, under your theory, for the supervisory authority to con
trol, as in the issuing of a charter to a national bank?
Mr. P o l e . Yes, sir.
Mr. W in g o . In other words, if the banking facilities of that city
would be sufficient to meet the public needs-----Mr. P o l e . That is my idea, as far as possible, to endeavor to give
every community of any size adequate competitive banking service.
Mr. W in g o . As a rule now—you spoke awhile ago of the potent
influence of the banker on the borrower—it is my experience that a
banker has considerable influence with the borrower.
Mr. P o l e . Yes.
Mr. S t e a g a l l . Somewhere in Proverbs it is stated that the bor
rower is the slave of the lender.
Mr. W in g o . But, Mr. Pole, how can you answer this question;
Mr. Goldsborough touched upon this question and Mr. Seiberling
also did. I think we can reasonably assume that even if you did have
branches, say, in a town that we will call A, one for each of the two
central banks that may be in Little Rock, when you came down to the
issues involved in a political campaign, those two banks would have a
community of interest. The probabilities are that they would be
supporting the same issues or the same candidates.
Now, then, would not this be what could naturally be expected,
knowing human nature both by observation as well as experience,
that the merchants and other people in that town where these two
branches are, would find a very subtle political pressure put on them
128
BRANCH, CHAIN, AND GROUP BANKING
to support the candidate or the issue that these central banks wished
to have supported? Is not that reasonably to be expected?
Mr. P o l e . They might naturally— that is individuals connected
with such a bank— take an interest in a political issue. Whether they
would exert improper political pressure is another matter.
Mr. W in g o . N o w , if the logic of your scheme is sound, the benefits
of that character along financial lines, having a tendency to grow— in
other words, the institutions having a tendency to grow— would
not their influence correspondingly grow?
Mr. P o l e . As they grow larger, I would say that their influence
would be greater, but it would not necessarily be directed to political
channels or be detrimental to the public welfare if so directed.
Mr. W in g o . Is not this the probable outcome to your plan, that
at first you would have—as a matter of fact, is it not the virtue of
your plan from your standpoint— that probably you would have a
bank with 1100,000 capital with one or two branches, and have a
great many of them scattered around the country, but, ultimately,
these banks in turn would be taken over and become nothing but
branches of a large bank? You will start out and maybe, we will
say, there will be 25, 30, or 35 banks over a State, each one having
branches out in the smaller towns in their particular trade areas, but
as time goes on there will be a natural tendency— and the arguments
in favor of it would be the same as the arguments you make to-day—
“ Here, we can work out economies, greater security for the depositors
and greater benefit and greater service if, instead of having 25 or 30,
we have only 4 or 5,” and where we have a bank to-day of $100,000
capital, with three or four branches, that bank becomes a branch
of a bank, say, located at Little Rock. It not that a natural evolu
tion of your scheme if your theory is correct?
Mr. P o l e . I think the size of a branch that would be permitted to
operate or, rather, the size of a bank that would be permitted to
operate a branch, should be regulated, and not permit branches for
the small banks, and my idea is, further, that the banks in the impor
tant cities would develop branches around them. They would be
gradually reaching out and, in the course of time, probably even
those parent banks in such cities might themselves under certain
conditions be consolidated and become branches, but I can not con
ceive of any idea where there would be any banking monopoly there.
I am inclined to think that there should be consideration given, as
I have said, to legislation regulating perhaps the consolidation of
banks after they get a certain number of branches or reach a certain
size.
The C h a irm a n . Might I suggest here that we proceed in order?
Inasmuch as the comptroller is going to file a brief, he will cover
that in his brief, so that we can proceed with Mrs. Pratt as the next
interrogator.
Mr. W in g o . I beg your pardon. I did not know I was interrupt
ingMr.
P o le .
That is, my brief in connection with trade areas?
The C h a irm a n . Yes.
Mr. W in g o . The chairman was not following me very closely. I
was going to another phase of the question. However, I will develop
that some other time. I beg your pardon, Mrs. Pratt.
BRANCH, CHAIN, AND GROUP BANKING
129
Mrs. P r a t t . Mr. Chairman, most of the questions that have
arisen in my mind have been covered by previous discussions, but
there is just one point I should like to have made clear.
The purpose of your proposed legislation, Mr. Pole, as I under
stand it, is to provide adequate and more substantially reliable
banking facilities for the smaller communities?
Mr. P o l e . That is one of the outstanding phases of my recom
mendation.
Mrs. P r a t t . Broadly speaking, that is the outstanding phase?
Mr. P o l e . Well, yes.
Mrs. P r a t t . New York is the greatest money market of the world,
is it not?
Mr. P o l e . Yes.
Mrs. P r a t t . There has been a great deal said here, in the course
of the discussion, about the centralization of credit which exists and
is probably increasing in New York?
Mr. P o l e . Yes.
Mrs. P r a t t . I do not know whether you view that with appre
hension.
Mr P o l e . No; I do not
Mrs. P r a t t . And what I wished to know is if there might not be
two results, with only one purpose, from this proposed legislation;
namely, as you establish these branch banks throughout the country,
having, as I understand it, parent banks
Mr. P o l e . Yes.
Mrs. P r a t t . Eventually these different parent banks, which would
be established, I think your purpose is, in trade areas somewhat
along the lines of the Federal reserve areas, but not coterminus-----Mr. P o l e . Yes.
Mrs. P r a t t . Would become more important and greater banking
centers. .
Mr. P o l e . I think so.
Mrs. P r a t t . That would lead, would it not, possibly to drawing
credit awray from New York?
Mr. P o l e . That is my thought.
Mrs. P r a t t . And you will have, as a result of this legislation, more
competitive credit centers throughout the country?
Mr. P o l e . More competitive credit and decentralization.
Mrs P r a t t . I assume, because of its size and location, New York
will always be, probably, the greatest center of credit, although it
might not necessarily be so?
Mr. P o l e In all probability, as far as w^e would be willing to look
ahead.
Mrs. P r a t t . Yes. You feel, do you not, that as the result of this
legislation there would be a decentralization of credit, and that would
be a valuable result?
Mr. P o l e . I do indeed.
Mrs. P r a t t . T o have more decentralization of credit throughout
the country?
Mr. P o l e . Yes.
Mrs. P r a t t . I did not know7 whether that was partly the purpose
of the legislation or whether, as has been brought out in the discus
sions, that would be a direct result.
130
BRANCH, CHAIN, AND GROUP BANKING
Mr. P o l e . It might be said to be the indirect result should branch
banking limited to trade areas be adopted.
Mrs. P r a t t . Just one more question, Mr. Pole. It is true wher
ever there is a great center for any commodity— calling money a
commodity— individuals, and, as has been brought out here, even
banks, go to the great center if they have something to purchase or
to sell?
Mr. P o l e . Quite often that is the case.
Mrs. P r a t t . It is nearly always the case, is it not?
Mr. P o l e . Yes.
Mrs. P r a t t . Unless these centers that would be created by this
proposed legislation do develop into large credit centers, you would
still have the same conditions as exist to-day, because the large
investor would still rather go to New York, would he not?
Mr. P o l e . I foresee that if any branch banking might be extended
in accordance with my suggestions, there would be no doubt, in my
mind, that large banks would grow up all over this country, by
reason of the fact they would embrace the capital and resources of
probably hundreds of smaller banks which would be in their trade
areas.
Mrs. P r a t t . And you would have essentially a great many money
markets of very large proportions?
Mr. P o l e . I should say that that would be the result.
Mrs. P r a t t . I think that is all.
Mr. S t e a g a l l . I want to ask Mr. Pole about one matter developed
by Mr. Seiberling in his interesting discussion, and that is in reference
to legislation to fix interest rates of national banks and banks of the
Federal reserve system. I do not know how Congress can, in any
way, regulate or determine interest rates to be charged by any banks
outside of the national banking system, except, of course, we could
pass legislation, controlling the Federal Reserve Board in the matter
of admitting State banks into the Federal reserve system by requiring
them to observe certain conditions.
Mr. P o l e . I think the conditions of membership are within the
discretion of the Federal Reserve Board.
Mr. S t e a g a l l . I doubt that, in my own mind, except in dealing
with the acceptability of the securities of a bank, and the question
whether or not it is financially sound— to say that the Federal
Reserve Board should arbitrarily deny membership to a State bank
that is in condition to come into the system, I should question.
Certainly Congress can not pass laws to determine the interest rates
charged in the various States?
i. Mr. P o l e . N o .
Mr. S t e a g a l l . If we attempt to fix uniform rates for national
banks, and indirectly we could find a way, through State banks
becoming members of the Federal reserve system, to fix arbitrary
rates throughout the country, of course no national bank, in any
circumstances, could charge in excess of that—•—
Mr. P o l e . N o .
r Mr. S t e a g a l l . In the present situation, the law simply requires a
national bank to observe the law of the State in which it operates as
regards the matter of interest rates to be charged?
Mr. P o l e . Yes.
BRANCH, CHAIN, AND GROUP BANKING
131
Mr. S t e a g a l l . If we attempted to fix a uniform interest rate
throughout the country for national banks, how would it operate
as between national banks and State banks? For instance, in the
city of New York, if we fixed a uniform rate for national banks, what
would be its effect upon the national banks in the city of New York,
in attempting to compete with State banks unbridled in fixing
interest rates?
Mr. P o l e . Do yoi. contemplate fixing the interest rates to be
charged by national banks below the State banks?
Mr. S t e a g a l l . Yes.
Mr. P o l e . That would have the effect of driving the national
banks into the State systems.
Mr. S e ib e r l in g . I am not advocating the fixing of uniform inter
est rates. I am advocating fixing a maximum rate. If you under
take to fix a uniform rate, that would control the rate. I want a
maximum fixed beyond which no one can charge.
Mr. S t e a g a l l . I am in thorough accord with that, if I under
stand the gentleman. I am only thinking of the difficulties encoun
tered in attempting to do that. It does not make any difference if
you make it uniform or we say a national bank nowhere in this coun
try shall charge to exceed 10 per cent per annum, we will be confronted
with the situation in New York— and it does not matter what would
be the justification for it or lack of justification, these conditions
will come about again as they have in the past where this accentuated
demand for loans will exist, of course, unless the State of New York
steps in and regulates the interest rates— the interest rates will turn
toward the skies again, and if the national banks are not permitted
to charge those rates, they can not compete in that field with the other
banks, and we will be confronted with the proposition that the
national banks will leave the national system and go to the State
systems. That is the difficulty.
Mr. P o l e . That will be the result.
Mr. S t e a g a l l . I wish we could find a remedy, but I am pointing
out the difficulties.
Mr. S t r o n g . Could we not pass a usury law and bar from the mails
and from interstate commerce, any banks that violate that law?
Mr. F o r t . We would not have to go that far.
Mr. S t e a g a l l . There is no difficulty about fixing the rates, but the
difficulty is the situation we would place our national banks in in
States where there were high rates permitted.
Mr. S t r o n g . That, would put a limitation on them.
Mr. S t e a g a l l Congress can not touch the operations of a State
bank.
Mr. S t r o n g . We could bar them from the United States mails.
Mr. F o r t . I doubt that, in view of the decision of the Supreme
Court in the Insurance Companies’ case, where it was held that that
was not interstate commerce.
Mr. G o ld s b o r o u g h . Mr. Chairman------The C h a irm a n . I think in the interest of order that we had better
proceed according to our plan.
Mr. G o ld s b o r o u g h . Mr. Chairman, I thought we had finished
with the questioning by the members.
Mr. F o r t . The chairman has not asked any questions yet.
132
BRANCH, CH AIN, AND GROUP BANKING
The C h a irm a n . When all members have asked questions, the pur
pose was to go around again in a general symposium.
Mr. G o ld s b o r o u g h . Mr. Chairman, I move we proceed in order
as we have not been doing all morning.
The C h a irm a n . Have you finished, Mr. Strong?
Mr. S t r o n g . N o ; but I will yield to you.
The C h a irm a n . The chairman is the next on the list. I desired to
ask my questions last.
Mr. S t e a g a l l . I think the chairman should have all the time he
needs in his discussion with Mr. Pole, and I suggest to the chairman
that it is now close to 1 o’clock and I think he had best begin his
discussion when he has plenty of time.
The C h a irm a n . Under those circumstances, then, suppose we ad
journ until to-morrow morning at 10.30 o'clock.
(Whereupon, at 12.50 o’clock, p. m., an adjournment was taken
until Wednesday, March 5, 1930, at 10.30 o’clock a. m.)
BRANCH, CHAIN, AND GROUP BANKING
H o u s e of R e p r e s e n t a t iv e s ,
C o m m it t e e on B a n k in g a n d C u r r e n c y ,
Wednesday, March 5, 1930.
The committee met in the committee room, Capitol Building, at
10.30 o’clock, a. m.; Hon. Louis T. McFadden (chairman), presiding.
The C h a irm a n . The com m ittee will come to order.
I desire to call the attention of the committee to a letter from
Gov. R. A. Young, of the Federal Reserve Board, in reply to an
invitation by the chairman of the committee, for the appearance of
the Federal Reserve Board or their designates before this committee.
The letter reads as follows:
Your letter of February 21, inclosing House Resolution 141, with regard to
the study of group, chain, and branch banking which your committee is to under
take, and stating that your committee will be pleased to hear from me or whom
ever the board may designate to speak for the board, upon the subject, has been
brought to the attention of the board by me.
In reply I am writing to say that while the board has in the past accumulated
information on the subject of group, chain, and branch banking, nevertheless,
the rapid strides made by group banking during the past two years particularly
has made it extremely difficult for the board to secure information promptly
enough to enable it to keep pace with recent developments and the present status
of this whole matter. With this in mind, it recently, at the suggestion of the
Federal Advisory Council and also of the governors of the Federal reserve banks
and the Federal reserve agents, enlarged the membership of its committee pro
secuting these investigations, by including representatives of the Federal reserve
banks.
The board feels that group, chain, and branch banking presents one of the most
important and most difficult problems of our changing banking structure before
the country at the present time. It believes that more complete information
regarding the forces which have impelled this new development will be neces
sary before conclusions of value can be arrived at regarding its effects— financial,
econom ic, and social. The board has not yet reached such conclusions and is not,
therefore, in a position to designate a representative to appear before your com
mittee and to speak for the board at this time.
I will, of course, be very glad to appear before your body, furnish all the in
formation we have at the present time, and answer any inquiries that I can, as
will also any of m y colleagues.
In the course of your hearings questioEs may arise whereby our research and
statistical division may be of service to you and to your committee. I hope you
will feel free to command us at any time. I can assure you in advance of our
complete cooperation.
STATEMENT OF JOHN W. POLE (resumed)
The C h a irm a n . Mr. Pole, in answer to a question of Mr. Strong,
you said you examined the Bank of Italy with 40 men. This is a
plan you worked out to meet the situation which has developed in
connection with the examination of these large groups of banks. Is
that strictly in accordance with the law? The law, as I understand
it, provides that the Comptroller of the Currency, through examiners,
shall examine each bank at least two times a year?
133
134
b r a n c h , c h a i n , a n d g r o u p b a n k in g
Mr. P o l e . Yes, sir. I think there would be no question about
that.
The C h a irm a n . Y o u do not think it is necessary to amend the law
to cover such situations?
Mr. P o l e . I think not. The method of examination is discretion
ary with the comptroller.
The C h a irm a n . The law is quite specific, however, in that respect.
It says there shall be at least two examinations each year.
Mr. P o l e . It is specific as to the number of examinations, but not
as to the method.
Mr. F e n n . Y o u can make more examinations than that if you care
to? It does not restrict you to two examinations? It compels you
to make two, but does not restrict you from making any more?
Mr. P o l e . N o , sir. Our experience with regard to the examina
tion of the very large branch banking systems does not cover a long
period of years and we are gradually becoming more and more familiar
with it, and I think we shall be even better able to cope with such
examinations as time goes on. It is quite likely we will have to ma
terially increase our forces as the banks grow.
The C h a irm a n . There has been much discussion in regard to the
methods of examining these large branch groups?
Mr. P o l e . I am preparing, at your suggestion, a brief in that
connection and am going to lay down, for the committee, the details
of our method of examining the branch bank systems.
The C h a irm a n . In the past, in regard to these large groups, a
serious question was raised as to whether or not there should not be
a simultaneous examination of the parent bank with the branches.
Of course, under this method that you have worked out, you do not
have a man in each one of the branches at the same time the main
offices are examined, do you?
Mr. P o l e . We do not.
M
eth ods
E m p l o y e d in t h e E x a m in a t io n o f
S y s t e m s in t h e T w e l f t h F e d e r a l
the
R
L arge B ranch
D is t r ic t
B
a n k in g
eserve
Until 1927 there was only one national bank in the twelfth Federal reserve
district maintaining branches and that bank and its three branches were examined
simultaneously. When a State bank was converted into a national bank with
287 branches the Comptroller of the Currency was confronted with a new and
somewhat perplexing problem. If the bank and its branches were to be examined
simultaneously, a force of more than 400 men would be required. The State
department had found it necessary in making a simultaneous entry to employ
temporarily a number of certified public accountants and others for this pur
pose but this practice was unsatisfactory on account of their lack of knowledge of
the State banking laws and the rulings of the banking department; also for the
further reason that improper comments were sometimes made of the bank’s
affairs by their temporary employees.
After careful consideration, and consultations by the chief examiner of the
twelfth district with his associates, it was concluded that the best results would
be accomplished by considering each branch as a semiindependent unit, for the
reason that it would be a practical impossibility to assemble a force of 400 men
who had the necessary detailed training and experience to make a simultaneous
entry into each of the branches and to submit reports that could be merged into
one complete and intelligible consolidated report.
The larger branch-banking systems do not make up a consolidated balance
sheet daily, though daily reports are required from the branches so that a bal
ance sheet for the entire system can be made for any given date. Daily com
putations are made of items necessary to determine required reserves. When
an examination of one of these systems is begun the examiners must close the
books as of that date and obtain a balance sheet for the entire system, regardless
BRANCH, CH AIN, AND GROUP BANKING
135
of the method of examination used. Since branch banking is comparatively
new to the chief examiner and his staff in the twelfth district, the method of
examination of the larger branch-banking systems has heretofore been varied
from time to time. While the method now being employed will be described it
is necessary to refer to our experience with at least one other method used.
In one of the earlier examinations of the large branch-banking systems forms
were prepared (specimens herewith) to be executed by branch managers, giving
a complete inventory of assets of each branch, as of date named, in sufficient
detail that a consolidated report could be made therefrom excepting, of course
(the most important part of any examination) the valuation of assets and their
classification as “ Slow ,” “ D ou btful,” or “ Loss.” In this particular examina
tion simultaneous entry was made into the head office and five of the larger
branches so that the examiners actually covered and verified approximately 60
per cent of the bank’s total assets. As fast as the examiner in charge could
release his men from the larger branches they were sent to the remaining branches
with a copy of the previous report of examination of the daity statement of the
branch as of date of current examination and of the branch manager’s own in
ventory of the assets of his branch as of that date. The examn r was under
instructions to examine the branch as of the date he reached it, but to make a
sufficient check of the manager’s inventory to satisfy himself of its accuracj7.
Inaccuracies discovered were trivial and largely attributable to carelessness or
failure to correctly interpret instructions from the chief examiner It would be
possible to make an audit of the accounts by this method, but this course would
be impracticable on account of the time and expense involved. Therefore, the
examiners contented themselves with “ spot checkings” ; that is, tracing out to
their final conclusion the larger items involved.
The method above referred to has developed the fact that the same borrower
is found in only one branch except in rare instances when a border customer
borrows from a second branch without the branch manager’s knowledge
This is
usually discovered at the head office which arranges for such borrowings to be
concentrated at one branch.
Relative to the exchange of loans or other assets between branches it may be
said that this is positively prohibited without the consent of the head office.
T o illustrate, a large branch banking system purchased a bank in a town, which
it merged with its existing branch there. The assets purchased included some
$300,000 of loans on real estate located in a section much nearer the other branches
of the bank and by direction of the head office these loans were sent to other
branches where they would receive the closer personal attention from the local
manager. Another point of interest here is that branches do not carry accounts
with each other. No. 20 will send checks upon No 40 direct to it, but a copy of
the letter of transmittal goes direct to the head office where all interbranch
accounting is done. If No. 40 protests important items, of course No. 20 is
notified by wire, but that has no effect on the accounting. In theory (of course,
not in practice) the branches can be examined from the head office files and rec
ords, including all loans for more than $1,000.
An examination of a large branch bank system was begun on December 31,
the date on which it was known the bank would obtain from its branches a daily
statement and compile a balance sheet for the entire system. The head office
only was examined on that date, including, of course, the administration depart
ment. The consolidated balance sheet contained assets of the head office verified
by the examiners, as well as the assets reported by the branches. Examiners
who were later sent to examine the branches were requested to carefully consider
important changes between the daily statement of December 31 and the date of
their entry into the particular branch, and to follow to a final conclusion any
item bearing evidence of suspicion or irregularity. This would seem to be as
far as the examiner can go with tin individual branch
If irregularity exists
it is usually the result of collusion between employees of two or more branches
and this, of course, is possible between men in two or more unit banks. The
inventory method enables the examiners to audit the period between date of
inventory and date of examination of the branch and, therefore, provides protec
tion against the exchange of assets between branches.
Branch bank systems carry their bond and securities investments, brokers’
loans, commercial paper, and bankers’ acceptances at the head office, so that in
an examination the examiners have to consider only those securities which have
already been placed under seal and such as may be in transit, the receipt of which
they verify by an inspection of the securities upon arrival at the head office.
136
BRANCH, CH AIN, AND GROUP BANKING
Interbranch accounts are carried through the head office entirely. For
instance, branch No. 10 will send to No 30 its cash letters, copies of these letters
and the replies thereto, whether return items or credits, are sent to the head office
where all of the accounting is conducted. The method, of course, reduces the
possibilities for any improper transfer of items or fictitious credits between
branches.
As a matter of information it may be stated that the larger branch banking
systems maintain thorough auditing departments, which report direct to the
executive officers and through them to the executive committee and board of
directors; they also maintain a comptroller’s department and an examining
department. The national bank examiners have found these departments
usually to be the most efficient of any of the departments of the bank.
If we had the type of branch banking which has been suggested by me there
should be developed a continuous contact between the examining force and the
executive committee of a branch institution and its board of directors. There
is no doubt that in such an institution the initiation of policies which control
the management are of great importance and the Government should be in a
position to gain immediate first-hand information in order that the public might
be protected.
To exam iners and assistants
In the present examination of the bank please observe carefully the following
instructions, suggestions, and comments
Branch examinations will be conducted as if each branch were a unit bank.
A consolidated balance sheet will be prepared as of the date on which the head
office is examined, namely, December 31, 1929. No data will be required from
examiners in branches for this balance sheet.
(1) Transcripts of accounts with head office will not be required.
(2) All assets (except accounts, including transit, with head office) should
be verified, including cash count, listing of loans and discounts, items for collec
tion sent elsewhere than head office, etc , tracers to be sent by examiners return
able to chief examiner. It will not be necessary to verify the liabilities.
(3) Give date of report on head office on page 1.
(4) Consolidated schedules (except bonds, etc.) will be compiled from your
reports of branches. These reports will be compiled on Form 1424-E and
references to schedules in these instructions refer to that form.
(5) Give all information in detail called for in Schedule 1, on page 2, and in
addition show the following in each instance:
Total direct loans to directors, officers, and emSecured
ployees___________________________________________ $________ _
T otal direct loans to advisory board m embers____ $ ____________
Unsecured
$___________
$ -----------------
(6) Give in detail all information called for in Schedule 2, page 2, and in addition
show •
Total direct loans in which directors, officers, or emSecured
ployees are interested____________________________ $----------------Total direct loans in which members of advisory
board are interested_____________________________ $-----------------
Unsecured
$----------------$-----------------
(7) In addition to information called for by Schedule 3, page 2, show par
value of national bank stocks pledged as collateral to bank under examination
and name or names in which stock is issued, that we may determine whether
directors are disqualified.
(8) In schedule of “ Overdue paper” please show totals of class A and class
B as follow's:
A. Total bad debts as defined by sec. 5204, United States Revised
Statutes (including real estate loans of $--------- ) ------------------- $------------------B. Other overdue paper (including real estate loans o f $ ----------)__ $ ----------------(9) The schedule ‘ ‘ slow and doubtful paper and losses on loans” should rep
resent the examiner’s opinion after full discussion wath officers of the branch
(and local directors, where necessary), and if there is a material difference of
opinion, that fact should be discussed in detail in the confidential section of
the report, and we should be supplied with full information on all important
loss items that they may be intelligently discussed wTith officials at head office.
(10) The schedule of real estate loans requires unusually careful attention.
Item 1 thereof (D. P. C.) refers only to those loans acquired since March 1,
1927, date of nationalization, and should include only those loans acquired in
BRANCH, CHAIN, AND GBOUP BANKING
137
settlement of debts previously contracted in good faith. Nonconforming loans
held prior to date of nationalization, or March 1, 1927, or any renewals thereof
should be included with other nonconforming loans, total to be shown under
item 4, “ Nonconforming loans held at date of conversion.”
Nonconforming loans acquired since March 1, 1927, should be shown under
item 3, as in violation of law.
Detailed schedules must be made ol items 1 3, and 4, and in addition thereto
please recapitulate schedule 4 under the following headings, showing totals.
Value, $---------- ; maturity, $— — — , unimproved, $-----------.
Totals only need to be shown for item 2.
In classifying nonconforming loans please make careful inquiry of branch
managers relative to each and do not rely wholly upon appraisal certificates, for
we have found that highly improved, income-producing agricultural land has
been reported ‘ I nim proved,” the examiner following the synopsis of the ap~
prasiers’ report, so made because there is no residence on the property. Those
classes nonconforming on account of value should also be carefully considered
(11) Item 2, page 7, should contain a complete schedule of overdrafts of six
months duration, showing names, and dates of inception, and those considered
uncollectible should be marked 1 Loss.”
(12) Reference is made to page 6, “ Other assets.”
Your report on suspense
resources should show date of item, brief description and classification, Total to
agree with line 9 of face of report. Please also prepare a separate schedule of
suspense liabilities or other liabilities, showing dates, brief description and
amounts.
Items carried under city cash collection account and documentary transit
account should be carefully scrutinized and totals shown separately on page 1
All transit items are to be verified.
(13) Accounts maintained by other banks with the individual branches should
be verified in the usual manner.
(14) Do not examine trust department. This will be done by an examiner
especially designated for this purpose.
(15) Make up a schedule in confidential section showing loans secured by any
of the following stocks:
Totals only need be shown, e g., “ Loans on stock of affiliates, $10,000, 100
shares; $35,000, 200 shares. ”
(16) Omit items 4 and 5, page 7; items 10, 11, 14, and 15, page 8; schedule 1,
page A (salaries) and item 5, page B.
(17) Pencil copies of reports of examination of branches in the southern
division should be promptly forwarded to examiners for review with credit
department, or that he may arrange for such conference in important cases, with
the examiner who makes the examination. If for any good reason you desire
to personally discuss criticisms with the credit department, please so advise
when transmitting your report.
(18) In submitting your monthly budget report, please show expenses as a
separate item. (This will be included in the chief examiner’s office with
subdistrict A).
Respectfully,
T E. H a r r i s
Sa n
F r a n c is c o , C a l if
To the manager, Branch---------- .
D e a r S i r : In order to facilitate an effective examination of t h e --------------------and its branches as of the close of business---------- you are requested to prepare
in triplicate and forward to T. E. Harris, chief national bank examiner, the
following schedules in duplicate retaining triplicate for y our files It is important
that this data be forwarded at the earliest possible moment and that totals of
schedules agree with daily financial statements.
In order that there may be uniformity, all branch managers must use legal size
paper in preparing schedules, and place the name of your branch on each sheet
of the report. If you do not have a supply of legal paper, purchase a supply
locally
Schedule No 1 — Statement of assets and liabilities as of above date on the form,
used in submitting this information to the head office, This includes all depart
ments.
Schedule No 2.— All loans to directors, officers and employees, including members
of the board of directors of the head office, and advisory board of any branch,
with detailed list of collateral or securit}r thereto.
138
BRANCH, CH AIN, AND GROUP BANKING
Schedule No 3.— Loans to corporations in which any director, officer, emploj^ee
or advisory board member is interested, with detailed description of collateral or
security thereto, together with name of party interested therein.
Schedule No. If..— List of all overdrafts of directors, officers or employees showing
date of inception. Also list of all other accounts showing overdrafts which are of
more than six months’ standing. (This schedule will not balance with D. F. S.).
Schedule No 5.— A detailed list of public funds on deposit, showing name, title
and address of officer who controls the account, amount of deposit and rate of
interest paid thereon (including deposits of all Government, State, county and
municipal authorities.).
Schedule No. 6.— All individual deposits (not including public funds, savings
deposits, or certificates of deposit) on which interest is paid, omitting names,
but showing aggregate amount for each rate paid. (This schedule will not
balance with any account on D. F. S.)
Schedule No. 7.— Schedule of all unsecured loans, showing name of borrower,
amount of loan, and, if past due, date to which interest has been paid.
Schedule No. 8.— Schedule of all secured loans, showing name of borrower,
amount of loan and, if past due, date to which interest has been paid and an
itemized list of collateral or security thereto.
Schedule No. 9.— List in detail all “ Suspense resources” showing collateral
or security thereto.
Schedule No. 10.— Schedule of all loans secured by real estate mortgage or
deed of trust giving details provided for in pro forma schedule attached. In
column 8 of the schedule indicate whether secured by improved farm land
(I. F.), improved city property (I. C.), or unimproved real estate (unimp.).
If mortgage was taken to secure a debt previously contracted in good faith
this fact should be indicated by “ D. P. C.” . Also indicate in column 8 on
past due items whether interest is payable semiannually (S. A.), quarterly
(Q.), or monthly (M.) and date to which interest has been paid. (Property is
within legal boundary if located in Federal reserve district.)
Schedule No. 11.— Schedule all bonds, warrants, and other securities, showing
par value, name, maturity, book value, and interest rate.
See specimen schedules attached for your guidance.
Yours very truly,
Chief National Bank Examiner,
Federal Reserve District.
Branch managers should compile data asked for on legal size paper. The first
page of each schedule must bear the columnar headings indicated below; and
must bear the name of the branch.
Schedule No. 1.— This must be compiled on your regular form of report to head
office (Forms GL, lx, and GL, 2x):
Schedule No. 2.— Loans to directors, officers, employees, and advisory board
members:
Am ount
Nam e
Collateral or security in detail
Schedule No. 8.— Loans to corporations in which directors, officers, employees,
of advisory board members are interested:
A m ount
N am e of party interested
Collateral or security
139
BRANCH, CH AIN, AND GROUP BANKING
Schedule No. 4-— Overdrafts:
Am ount
N am e
D ate of inception
I f a director, officer, or em
ployee, so state
Schedule No. 5.— Public funds on deposit:
Title
N am e of official
Address
Am ount
Interest
rate
Schedule No. 6.— Interest paid on individual deposits:
Two per cent on deposits aggregating, $——----- .
Two and five-tenths per cent on deposits aggregating, $---------- .
Three per cent on deposits aggregating, $---------- .
Three and five-tenths per cent on deposits aggregating, $---------- .
Four per cent on deposits aggregating, $---------- .
Over 4 per cent on deposits aggregating, $---------- .
Total, $---------- .
Schedule No. 7.— Unsecured loans. Indicate maturity and date to which
interest has been paid only on those that have passed date of maturity, and on
demand paper when more than six months' interest is accrued and unpaid. Also
indicate on past-due notes whether interest is payable semiannually (S. A.),
quarterly (Q.), or monthly (M .):
N am e of borrower
j
A m ount
M aturity
Date to which interest is
paid and how payable
(S. A .) (Q .) (M .)
Schedule No. 8.— Secured loans.
N am e of borrower
Am ou nt
M aturity if past due
Date to which inter
est is paid (if past
due)
Collateral or security
Schedule No. 9.— Suspense resources:
N am e of debtor
Date taken
Am ou nt
Collateral or security
140
BBANCH, CHAIN, AND GKOTJP BANKING
Schedule No. 10.— List of real estate loans (special form inclosed):
Schedule N o. 11.— Bonds, warrants, and other securities:
Par value
Description
M aturity and interest rate
List o f real estate loans (number o f bank, -
EstiN am e of borrower
Am ount
of loan
vXeof
Date m ort M aturity
gage taken of mortgage
property
!
State
Is prop
whether
erty
secured b y
located
improved
within
farm or
legal
other
boundary
property
I
The C h a i r m a n . N o w , referring to the affiliated companies, you
have stated that you thought it proper that the comptroller be
permitted to examine the affiliated companies—companies affiliated
with national banks, and, I am supposing, State member banks of the
Federal reserve system?
Mr. P o l e . I had no reference to State members banks because
we have no supervisory powers over them.
The C h a i r m a n . Y o u are speaking particularly of the national
banks?
Mr. P o l e . Yes, sir.
The C h a i r m a n . In your examination of national banks, where
there are affiliated companies, have you ever had any access to
affiliated companies in your examination?
Mr. P o l e . We have not, except occasionally banks will voluntarily
permit or request us to inspect the assets of an affiliate. We have not
legal authority to do so.
The C h a i r m a n . But you have, in certain instances, been permitted
to examine the affiliated companies?
Mr. P o l e . Yes, sir.
The C h a i r m a n . That is optional, however, with the banks?
Mr. P o l e . Yes.
The C h a i r m a n . A s to whether you do that or not?
Mr. P o l e . Yes.
Mr. F e n n . Ma}r I ask just one question?
The C h a i r m a n . Yes.
Mr. F e n n . Were those inspections of the affiliated companies,
so called, at the request of the banks or bank, or were they at your
request that you should be allowed to examine them?
Mr. P o l e . At our request or even at the request of the bank.
BRANCH, CHAIN, AND GROUP BANKING
141
Mr. F e n n . Sometimes the bank might think it would be to their
benefit to have a certification from you?
Mr. P o l e . They feel that way; a great many of them.
Mr. F e n n . They think it a good idea to have you check up on them?
Mr. P o l e . Yes, sir.
Mr. L e t t s . Will you get a definition of the term ‘ ‘ affiliated com
panies” into the record at this point, Mr. Chairman?
The C h a i r m a n . Yes; we will be glad, Mr. Pole, if you will give us
the definition of an affiliated company?
Mr. P o l e . The stock of an affiliated company is usually held in
trust for the benefit of the shareholders of the national bank and is a
State corporation with power to deal in stocks and bonds, make
investments, and do such other things as are permitted under its
State charter.
The C h a i r m a n . In addition to that, would that include the
ownership of the State bank?
%
Mr. P o l e . Among* its investments might be found the stock of
State banks.
The C h a i r m a n . In such a case as that, does your thought extend
to the access, for examining purposes, of State banks, where control
of such an institution is vested in an affiliated holding company?
Mr. P o l e . My thought would hardly extend that far, Mr. Chair
man. My particular reason for examination would be that the close
affiliation of the stock of the affiliated company with that of the
national bank may be such as to affect the national bank should the
affiliated company become in anyway involved.
The C h a i r m a n . Where a securities company owns control of a
State bank, whose solvency would affect the holding company and tlie
holding company would affect the national bank, should you not
have access to an examination of such a State bank?
Mr. P o l e . I hardly think it would be necessary to carry it to the
point of examining the State bank any more than it would be to
examire any other institution whose stock might be carried as an
asset of the corporation. It would be possible to determine the value
of the assets of the securities company without that.
The C h a i r m a n . Referring to the stock ownership of affiliated com
panies, I understand some affiliated companies’ entire stock is owned
by the stockholders of a national bank and there are other companies
where they are not the same stockholders, but the stock is scattered,
and simply controlled either through control of the officers and
management or control of the stock, and the minority control would
be in the hands of the public. Is that a fact?
Mr. P ole A s far as I know, I think there m ay be some such
instances.
Mr. L e t t s
Do you mean that the stock of the affiliated company
is held by the stockholders of the national bank as individuals or
held in trust for all of the stockholders of the national bank?
The C h a i r m a n . It might be either way. I am seeking information
here. I will be glad to have Mr Pole answer that
Mr. Pole In the case of national banks the stock is usually held
in trust for the benefit of the shareholders of the national bank.
The C h a ir m a n It has happened, has it not, in the past where
national banks have declared a dividend and organized an affiliated
100136— 30—v o l 1 p t 2-
142
BRANCH, CH AIN, AND GROUP BANKING
company from the dividend, that the entire capital has come as the
result of the declaration of the dividend of the bank?
Mr. P o l e . That is the case.
The C h a i r m a n . This is done with the approval of the comptroller
always?
Mr. P o l e . No; I would say not. The comptroller would not have
to approve such a thing as that.
The C h a i r m a n . It could proceed without his approval?
Mr. P o l e . If a bank declares a dividend, it is entirely a matter for
the shareholder to decide what he does with that dividend, whether
or not he invests in the stock of a securities company or something
else.
The C h a i r m a n . We have these various methods of organization,
and control of affiliated companies. The national bank law, as I
understand it, forbids the purchase by the bank itself of the stock
of the bank. That is correct, is it not?
M r . P o l e . Y e s , sir.
The C h a i r m a n . A national bank is not permitted to deal in its
own stock in any manner whatsoever?
Mr. P o l e . A bank may acquire its own stock to secure a previous
indebtedness.
The C h a i r m a n . It has come to my attention that some of these
affiliated holding companies, where the entire capital stock is owned
by the same stockholders as the national bank, have been buying
national-bank stock—the stock of the affiliated national bank.
Would you consider that to be legal under the national bank act?
Mr. F o r t . Will you state that question over, please?
The C h a i r m a n . I was stating where the stock of a com p any affili
ated w ith a national bank, is buying the national-bank stock, the
purchase of which is forbidden under the law to the bank itself, but
is purchased b y the holding com pany-------Mr. F e n n . The stock in the parent company?
The C h a i r m a n . In other words, that which is prohibited in the
national bank law to a national bank, is being carried on by the
purchase and sale by an affiliated company. Is that an evasion of
the law, or of the intent of the law, or is it legal?
Mr. P o l e . Where a State corporation is permitted to buy stock,
I think it would be legal for it to purchase stock in a national bank
with which it might be affiliated. As to whether or not I would
deem that advisable if carried too far, is of course another question.
The C h a i r m a n . There was one particular case called to my atten
tion—and I do not want to give any arbitrary figures, because I do
not know whether they are exact figures—where one of the affiliated
companies, the stock being owned entirely by the same interests as
owned the national bank, purchased the controlling interest in the
stock of the bank at a price of $350 to $400 a share. The fact that
they were purchasing the stock ran the stock up to between $700
and $800 per chare—just the mere operation of the demand for the
purchase of that stock.
Then I understand other circumstances arose, perhaps through the
crash of last fall, where the stock depreciated in value again, and that
the control of this national bank now rests entirely in the hands of
the affiliated company whose stockholders are exactly the same.
BRANCH, CH AIN, AND GROUP BANKING
143
Do you think such a condition as that should be permitted; or should
it be denied?
Mr. P o l e . I should think any manipulation of national banks
would be objectionable.
The C h a i r m a n . Is not that a manipulation, to avoid the law?
Mr. P o l e . Such a case as you speak of might be so termed.
The C h a i r m a n . It might be construed as a dummy company,
might it not?
Mr. P o l e . Yes; it might be so construed.
The C h a i r m a n . N o w , in regard to the examination of national
banks and trust departments, which are created by national banks,
under section 1 1 -K of the Federal reserve act, which I think the
national banks are permitted to do—to have trust departments
and carry on fiduciary relations—are your examiners equipped to
handle that increasing amount of trust business?
Mr. P o l e . We are preparing for a more comprehensive examination
of the trust departments, Mr. Chairman. That is an extremely
technical and difficult operation. We are training the men and are
endeavoring to cope with that situation.
The C h a i r m a n . That is an increasing responsibility that comes
through the growth of the trust business being conducted by the
national banks?
Mr. P o l e . Yes.
The C h a i r m a n . N o w , as to the method of examinations: I under
stand that so far as the examination of State banks is concerned, that
is done by the Federal reserve and your department has nothing
to do with it?
Mr. P o l e . Nothing whatever to do with State banks.
The C h a i r m a n . D o the Federal reserve people ever call upon you
to examine a State bank?
Mr. P o l e . N o .
The C h a i r m a n . N o w , as to the expense of these examinations.
Before I take that up in detail, what arrangement have you with
these big banks as to the payment for these continuous examinations?
How is that worked out?
Mr. P o l e . We assess the bank on the basis of its total resources
The C h a i r m a n . Well, is the cost of examination under a continuous plan, such as you are now pursuing, more costly to those
banks than it would be by making individual examinations of the
parent banks and the branches?
Mr. P o l e . It is not more costly to the banks, because under the
law a bank shall be assessed on its resources.
The C h a i r m a n . So, the same-----Mr. P o l e . So, we do not assess each branch separately.
The C h a i r m a n . But the cost of that examination is levied just
the same as it is on other banks?
Mr. P o l e . Just the same.
The C h a i r m a n . Does that actually cover the cost of examination
of these special groups?
Mr. P o l e . Practically so. In the large banks, it about covers
the cost. However, I have it in mind to recommend an amendment
to the law which will permit an additional charge for each branch
examined. But we have not done that yet.
144
branch
,
c h a in
,
and
group
b a n k in g
The C h a i r m a n . Will you place in the record a statement showing
just how you levy and collect the assessments for the examination of
banks and show the cost over a period of the last five years—the
annual cost. I would also like to have you put m a list of the names
and addresses of your national bank examiners now in your service,
including their assistants; the chief national bank examiners and their
assistants, and the salaries paid?
Mr. S t r o n g . And the number?
The C h a i r m a n . Including the number. You can do that, Mr.
Pole?
Mr. P o l e . Oh yes, and we will be glad to.
At the completion of an examination the examiner prepares a
bill to cover the cost of the examination. The bill is based upon a
minimum charge of $50 on assests amounting to $25,000, the remain
ing assest are assessed 3 cents on each $1,000.
The following is a statement showing the annual cost of examination
of all national banks for the past five years:
192
192
192
192
192
5
6
7
8
9
_________ _____ ___________________________________
$ 2 ,174 ,428 .74
2, 195, 709. 69
2, 334, 705. 72
2, 352, 069. 95
2, 499, 657. 68
National-bank examiners and assistants, by Federal reserve districts, March 5, 1980
D IS T R IC T
NO
1
N am e
Address
Salary
F D W illiam s, chief examiner
.
. .
Federal Reserve Bank Building, Bos $13,000
ton, M ass
T hom as E Dooley, examiner..........................
Hartford, C o n n ..
4,500
. . . .
Otis, M Freeman, exam iner..
. . . . .
Providence, R I ._ .
4,500
Aloysius W . Green, e x a m in e r ... .
| Manchester, N II..
.................
4,200
5,100
Boston, M a ss.................
.....................
M ichael J Hurley, examiner...................................
John Isaac, exam iner___
. . .
3, 300
...................
I
.d o . . .
. . . .
\\ P M cC all, examiner...................
: Portland, M e .................
..................
3, 300
. . . . . . .
Daniel F M u rp h y , examiner.............
4, 500
Boston, M a s s ..
.............................
Edw ard F Parker, examiner
.........................
7,000
------ d o .............................................. ..................
Frank J R yan , e x a m in e r .......................
.....................
_do
5.300
George M Bernier, assistant............................ ..
Hartford, C o n n .. . .
.....................
1, 900
C lyde A Cam pbell, assistant......... ................................— . . Portland, M e ___
2,060
.
. . . . . '
Francis Carolan, assistant.... . .
Boston, M a s s ... .
. . . ___
.1
2,150
M edville L. Clark, assistant___
2,000
. ..d o , .
. .
.
J
H enry V Cunm ngham , jr., assistant...............................
. . . d o _____
.
....
_ .I
1,500
Ernest G F lint, assistant.
. . .
1,920
. . d o ...............
............................. 1
W C Fridstrom, assistant..
.
. .
..d o
.
.
.
...
. I 2,300
Gerald Griffin, assistant..
2,440
------d o ..................
.........
Russell A Hersee, assistant.
. .
2,100
d o .. _
Julian R Hohenstein, assistant. . . .
do
3,000
Griffith W m Jones, assistant
.
2,040
R utland, V t .
.
. . .
Daniel P Miller, assistant...............
Boston, M a ss.........................
__
1, 620
Gordon I Miller, assistant
. do . .
I
1, 620
Harold W m Randall, assi st ant . . . .
Providence, R I .
.............................
1,620
George A Smart, assistant
.
. . .
Boston, M a ss. .
1, 740
How ell B Voight, assistant .
.
.
_do
..
2,700
Allan F W righ t, assistant
Manchester, N II
.
2 , 1P0
-
-
----------------------------—
-------
— -
---------------- -
-------- -
D IS T R IC T N O . 2
Owen T
Reeves, jr., chief examiner.........................
. . . | 525 Federal Reserve Bank Building, | $20,000
1 N ew York C ity, N Y .
i Buffalo, N Y .
.................
. . 1 3,900
j N ew Y ork, N Y ._
. . _______ .1
4, 200
i Buffalo, N Y ......................... ........................
6.000
i Kingston, N . Y .
.................................
3,600
1 Utica, N Y
4,000
| Alban y, N . Y .
_________ _
________
2,700
N ew Y ork, N Y ...
.................
3,000
do
'
5,500
Cecil Ash wood, examiner_____ ______ . . .
..
____ .
Otis W Beaton, examiner............... ........ ............ ...........
Harold W Black, examiner........................................................
Francis S Clarke, examiner____ ______ . . . . .
. ...
Ravm ond G . D an n, examiner
____________
. . .
Carlos B D aw es, examiner......................................
Andrew M acK enzie Douglas, examiner .
C C Francis, examiner_______________ . . . .
BRANCH, CH AIN, AND GROUP BANKING
145
Naiional-bank examiners and assistants, by Federal reserve districts, March 5, 1930
Continued
—
DISTRICT NO. 2—Continued
Salary
$4, 200
Watertown, N . Y _.
Paul L . Hotchkin, examiner________________________
7.000
New Y ork, N . Y . . .
Peter J. Lorang, examiner___________ _______________
4, 200
____ do..........................
Albert P . Luscombe, examiner.......................................
4.800
____
do______________
A . B . M cC ans, examiner____________________________
4.000
____ do______________
Chas. J. Machleid, examiner_________ _____ _________
6, 500
Robert Neill, examiner.......................................................
_ _ ..d o ______________
3, 300
Geneva, N . Y _____
Thos. J. O ’ Connor, examiner____ ___________________
3, 600
Harold P. Robinson, exam iner.___________ ______
New Y ork, N . Y . . .
7, 000
J. Oscar Roots, examiner_________ ___________________
4.000
____do____________________________________ :
Lewis A . Shea, examiner____________________________
7.000
____do_________ ________ _______ ____ _____ !
W illiam F. Sheehan, examiner______________________
8, 500
____do____________________________________ '
Raym ond R . Shroyer, examiner------------------------ ------3.000
____do____________________________________
H . E . Stewart, examiner____________________________
Albany, N . Y -------------- ---------- ----------------- ;
5, 000
Jesse M . Strong, examiner___________________________
4, 200
N ew York, N . Y ________________________j
John L . W atts, examiner__________ _________________
6, 000
Albany, N . Y . _ _________________________:
Edward B . Wilson, examiner..........................................
2, 620
New York, N . Y ________________________
Harold C . Adams, assistant_________________________
1.800
____d o___________________________ _______ _i
Ferdinand A . Barg, assistant_______________________
3, 500
John W . Beaton, assistant___________________ _______
____ do____________________________________ I
1.500
____ do____________________________________;
D avid S. Birch, a ssis ta n t--............. - ..............................
2. 000
____do____________________________________|
Edw in C . Boal, assistant____________________________
2,100
A lbany, N . Y ___________________ _____
M elvin J. Boe, assistant..................................................2, 620
N ew York, N . Y ________________________
Edward C . Boyce, assistant-................ ..........................
2, 400
____ do____________________________________
John Charles Brogan, jr., assistant_________________
2. 520
____ d o___ _____ __________________________
Irvin N . Clary, assistant____________________________
], .520
____ do____________________________________
Arthur I I . Coe., assistant_____________________ ______
1,800
Albany, N . Y ___________________________
W illiam G . Coe, assistant___________________________
2 . 220
Watertown, N . Y ______________________
Donald S. D ay, assistant____________________________
1,800
N ew York, N . Y _______________________
W ym an C . Donaldson, assistant-----------------------------2,
000
____
do____________________________________
Thorpe G . Drain, assistant_________________________
2.400
____ do_____________________ ___________
Cauldwell A . D unham , assistant___________________
2, 400
____ do____________________________________
Van W ert Ellis, a s sista n t-------------------- -------------------1.920
____ do____________________________________
W alter V . Ferris, assistant__________________________
2,160
Gilbert W . Gardner, assistant______________________
____ do------------------- -----------------------------------2.400
____ do------------------------------------------------------Edm u nd J. Graves, assistant............ ..............................
2, 280
____ do____________________________________
Gordon R . Graves, assistant________________________
2 , 100
Earm on Leon Hensley, assistant___________________
____ do___________ _____ ___________________
3.800
E d w . N . Howland, assistant______ ________ _____ _
____ do_______________________ ____________
2, 520
........ do____________________________________
John J. Irwin, assistant............................................. ........
2 . 000
____ d o____________________________________
Irwin L . Jennings, assistant_________________________
1, 620
Buffalo, N . Y _________________ ______ _
Lew ellyn A . Jennings, assistant____________________
2, 400
N ew York, N . Y ...................................— .
W alter Larsen, assistant....................................................
1.800
Felix J. M cC arthy, assistant...........................................
........ do____________________________________
3, 000
------- d o-------------------------------------------------------Francis X . M cK eone, assistant_____________________
2.400
____ do____________________________________
Victor M . Meister, assistant________________________
3,120
____ d o .................. ..............................................
Harry Messer, assistant_____________________________
2,000
Buffalo, N . Y . _ ............................. ................
G . S. Nichols, assistant......................................................
2 , 10 0
N ew Y ork, N . Y ------------------------------------George W . Nielsen, assistant________________________
2, 520
____ d o............................ ....................................
K n u d Ott, assistant_____________ ______ _____________
2.400
Donald Patterson, assistant............................. ..............
........ do____________________________________
____ do___________________________ ________
1, 920
Benjamin Peticolas, assistant________________ ______
1,800
____ do.............. .................................................
Herm an L . Pritchard, assistant.....................................
2,000
____ do____________________________________
Oliver B . Proctor, jr., assistant......... ......... ! ------------1, 620
Donald E . Pugh, assistant......... ......................................
Alban y, N . Y .
3.000
N ew Y ork, N . Y
Harold A . Reitz, assistant______________________ ____
do
2,220
John R . Reynolds, assistant_________________________
2.520
do
Richard Sailer, assistant ....................................................
3,300
do
Joseph A . Sales, assistant___________________________
2 ,1 0 0
do
Ernest John Scharpf, assistant______________________
2,680
Arnold F . W . Schneider, assistant................................
Utica, N . Y .
2.400
Buffalo, N . Y
Harold Jesse Seeley, assistant_____ ______ ___________
2,700
•Joseph James Silas, assistant________________________
N ew Y ork, N . Y
1,600
Kendrick J. Smith, assistant________________________
Buffalo, N . Y .
A lbany, N . Y .
A . Kenneth Spaulding, assistant...................................
2,200
N ew Y ork, N . Y .
3.000
Francis R . Steyert, assistant.----------------------------------2, 640
do
•Charles F . Strenz, assistant_________________________
2,720
R . B . Stringfellow, assistant_______________________________ ;_____ do.
Clarence A . Ulery, assistant_______________________________ I Kingston, N . Y _
2,040
2.520
G erald F. Varnum , a ssista n t........................................
j N ew Y ork, N . Y
2.520
Chester I. W enm an, a ssista n t............................. ...................... i -------- do___________
Franklin Parker W est, assistant___________________________|_____ do
1, 620
A da m Wetzel, assistant____________________________________ !_____ do
2.400
2,240
W m . F . Wilkinson, assistant..
. do.
,.do_
Herbert G . W ing, assistant..
1.920
-do_
2,640
George W . W ood, assistant..
146
BRANCH, CH AIN , AND GROUP BANKING
National-bank examiners and assistants, by Federal reserve districts, March 5,1930—*
Continued
D IS T R IC T N O . 3
N am e
Address
Salary
Stephen L . N ew nham , chief examiner____________________ 1500 W aln ut Street, Room 1503, Phila $15,000
delphia, Pa.
6,000
Edw ard A . Allanson, examiner____________ _____ _ _ . . . Philadelphia, P a____________________ ._
7,000
W illiam B . Baker, examiner_______________________________ _____d o ._ ............ ................................................
4,200
Wilkes-Barre, Pa_______________________
Alfred Boysen, examiner____________________________ . .
Henry B . Davenport, examiner____________________________ Lancaster, Pa __ ____________________ 6,200
R . Gordon Finney, examiner
________ __
Philadelphia, P a .........................................
3 , 600
Charles H . Hartm an, examiner__________________________
___ d o . . __________________________________ j
4,800
John H . Ketner, examiner__________________________________ Reading, P a ______________________ ______
3, eoo
Francis J. M cG innis, ex am in e r..._____ ____________________ Philadelphia, P a .------------------------- -----3, eoo
George L . M edill, examiner
Frank T . Ransom, examiner.
Joseph H . Siebert, examiner.
George F . Sm ith, examiner..
Vernon G . Snyder, examiner.
L loyd W . Stover, exam iner..
M arshall Abrahamson, assistant
N orm an H . Anderson, assistant.
Carl B . B aldt, assistant..........
Norm an G . Bloom, assistant.
John Calvin Brachbill, assist
Albert A . Burford, assistant.
R o y F . Cowan, assistant___
H ow e M acL ean Crawford, assistant
Ira L . Hall, assistant............
Frank B . Hower, assistant
Samuel N . Jones, assistant
J. Elm er Killm ond, assistant.
W illiam A . Lank, assistant
J. W esley L ittle, assistant.
B . J. M cG ilv e ry , assistant
Joseph A . M cLaughlin, assistant.
Conrad M elas, assistant—
Russell K . M etz, assistant
M . J. M uldow ney, assistant
Edw ard J. O ’ Rourke, assistant.
T ro y Rhoads, assistant
R aym ond W . Scharfenberg, assistant
D w igh t Andrews Segar, assistant
R ay D u P on t Sm ith, assistant.
Leon A . Stanger, assistant____
Lenwood M . VanOrsdale, assistant
Richard F . W alsh, assistant.
D IS T R IC T N O . 4
W illiam Taylor, chief examiner..
Jas. W . Austin, examiner...............
Ben J. Blaakley, examiner________
Addison A . Clarke, examiner........
A . Burton Faris, examiner----------Ira J. Fulton, examiner....................
George R . Gaskell, examiner_____
Lester P. Hauschild, exam iner.. .
F loyd P. H u n t, e x a m in e r ............
H arry L . Lanum , examiner...........
Louis A . Norm an, examiner--------Richard Rossman, examiner..........
W illiam J. Schechter, examiner...
M ichael H . Sims, exam iner..........
George H . Sm ith, examiner______
Loren Swenson, examiner________
Frank G . A b b e y , assistant.............
D onald W . Allen, assistant............
Joseph V . D enney, jr., assistant..
C hapm an C . Fleming, assistant—
W illiam B . Frantz, assistant.........
Herbert L . Gernandt, assistant—
Howell H . Harris, assistant-.........
W ilm o t Louis Harris, assistant...
C lyde Hendrix, jr, assistant...........
Preston P . Kellogg, assistant_____
W alter J. Ku n zi, assistant........ ..
Marcellus R . Lare, jr., assistant..
. W endell C . L a y cock, assistant___
Paul O . M alone, assistant..............
715 Federal Reserve Bank Building,
Cleveland, Ohio.
Cleveland, Ohio...........................................
Wheeling, W . V a ........................................
Lim a, Ohio_____________________________
Richmond, K y ________________ _________
Cleveland, Ohio________________________
Mansfield, O h io .........................................
N ew Castle, P a________________________
Cleveland, Ohio............................ ...............
Cincinnati, Ohio................... .......................
.do.
Pittsburgh, Pa—
____ do______________
____ do______________
Greensburg, P a . . .
Painesville, O h io..
M ansfield, Ohio—
Pittsburgh, Pa___
Cleveland, O h io ...
Pittsburgh, Pa____
____ do.........................
Columbus, O h io ..
Cleveland, O h io ...
Painesville, O h io..
Richmond, K y ___
Cincinnati, O h io ..
Pittsburgh, Pa____
Colum bus, O h io ..
Pittsburgh, P a------
147
BRANCH, CH AIN, AND GROUP BANKING
,
,
National-bank examiners and assistants, by Federal reserve districts March 5 1930
Continued
—
DISTRICT NO. 4—Continued
Salary
Charles J. M iller, assistant________
Robert D . O ’ Grady, assistant........
Ira Paine, assistant..............................
John H . Pole, assistant......................
Sherman C . Shull, assistant_______
E . Trim ble Smith, assistant______
Harold N . Smith, assistant________
Benjamin D . Staggers, assistant...
Gordon E . Starkey, assistant..........
Leon F. Stroefer, assistant________
Curtis D . Thomas, assistant...........
Chelsea E . Underwood, assistant..
H . M . Walker, assistant___________
$1, 900
2, 160
2,400
New Castle, P a .._
Pittsburgh, Pa___
____ do.......................
Cleveland, O h io ...
Greensburgh, Pa._
Colum bus, O h io ..
____ do_____________
Wheeling, W . V a ..
Lim a, O hio_______
Pittsburgh, Pa____
____ do______________
Painesville, O h io ..
Cleveland, O h io ...
2,000
1,860
2,000
1,860
1,860
1,860
1.920
1,860
1.920
2,100
D IS T R IC T N O . 5
D IS T R IC T
Ellis D . R obb, chief e x am in e r.......................................
Albert A . Basham, examiner _____ ________ ____________
James J. Byrne, exam iner,. .
_
__
_____
Field F . Cunningham, examiner..... ...................... .
Clvde J. P^vans, e x a m in e r...................................
W . Morris Lam mond, examiner____ __ . _
. . ____ .
W . P. Lifsev, examiner. . . . __ _______
______
John B . Luiken, examiner_____ _______________ ____ .
James W . S. Avlw ard, assistant___________________________
Edward C . Barnes, assistant
W m . A . Cottingham, assistan t..................................... . .
Reed Dolan, assistant________________________ ____________ _
Lorian C . Hendrix, a s s i s t a n t .._______ _______
.. .. .
Donald P'. Houser, assistant_________ . . . .
________
Leonard C . Johnson, assistant_____________________ _____ _
W illiam H . Lewis, jr., assistant........................... ......................
Jefferson S. M cC lain , assistant____________ __ . ...............
E . P. Medlock, assistant.. ________ ...
.
________
Hiram C . Miller, assistant............... ..........................................
Turner Rice, jr., assistant............ ...............................................
W ilb ur W . Sasser, assistant.. ________
. ____. . .
Aldine K . Snead, jr., assistant ________ __ _____ __
Gilbert M . Stell, assistant............ ................................................
James M . Stooksbury, a s s is t a n t ._________________ _____ _
$10 ,0 0 0
4, 500
4.500
4.500
4, 200
4, 200
4, 800
3.800
3,900
4.500
4,200
3,300
5.000
2,040
1,860
2,280
1,680
Washington, D . C . . .
Richm ond, V a _______
Washington, D . C ._ .
Charlotte, N . C . ........
Cumberland, M d ___
Washington, D . C . . .
____ do_________________
Raleigh, N . C ..............
Columbia, S. C ______
Washington, D . C . . .
____ do_________________
Huntington, W . V a ..
Pulaski, V a __________
Washington, D . C . . .
____ do........ ......................
____ do________ ________
Charlotte, N . C _____
Washington, D . C . . .
........ do_________________
____ do_________________
____ do.......... ...................
____ do.......... ...................
____ do_________________
____ do..............................
Huntington, W . V a._
Pulaski, V a __________
Raleigh, N . C ________
W ashington, D . C . . .
Richm ond, V a . - .........
Cumberland, M d ____
Washington, D . C . . .
____ d o________ ________
____ do___________ _____
____ do...............................
Ralph W . Byers, chief examiner____
Joseph A . Amrhein, examiner_______
Jennings L . Bailey, examiner............
John W . Dalton, examiner_____ _____
Charles W . Green, exam iner.......... ..
T hos. F. Kane, examiner____________
John R . M cM ullan, examiner_______
Chas. W . M otter, e x a m in e r ..............
F . C. Ockershausen, examiner______
Paul C . Ramsdell, examiner________
Charles A . Stewart, examiner.............
H . F . Stokes, examiner______________
D . Robertson W ood, examiner______
Maurice L. Barnett, jr., assistant-. .
James P. Benfer, jr., assistant.............
Wilfred H . Blanz, assistant.............
Douglas W . Cahill, assistant________
Francis J. Clark, assistant...................
Lewis H . Clark, assistant____________
Earl B. Crabtree, assistant__________
James S. Ellington, assistant...............
Hugh W . Folger, assistant___________
J. Cooke Grayson, assistant_________
Frank A . Gunther, jr., assistant........
James C . Hopkins, assistant________
W illiam E . Howard, jr., a ssista n t...
Vernon D . Palmer, assistant...............
Garrett A . Pendleton, assistant_____
Alton L. Powell, assistant____________
Robert M . Seabury, assistant________
Douglas O. Starr, assistant....................
W illiam M . Taylor, assistant________
W illiam T . Vandoren, assistant_____
W m . H . Wheelwright, jr., assistant..
2,220
2.000
1, 320
1,860
1,620
3,600
1,680
1,740
1.800
1.920
2,000
1.920
2,160
2 ,1 0 0
2,160
1, 980
2.160
:N O . 6
Atlanta, G a ______________
Knoxville, T e n n ......... ................................
M ontgom erv, Ala _________ ____
Lakeland, Fla
. .
Nashville, T e n n _____
New’ Orleans, L a .. . _______ __________
A lban y, G a . - - - - - - Birmingham, A la ..... ................Atlanta, G a_____________________________
M ontgom ery, Ala
Atlanta, G a. . .
- ..................... ....
_____d o...........................................................
. . . d o _______ _______________ __________
. .. d o .........
_ ... . - .
. . . .. . ..
____d o _____ ______________
..
_____d o................ ............................................
. . . .d o ................................................................
. . . do....................- . ____d o________
- .
Nashville, T e n n ______________ ____
Atlanta, G a . ......................................... . .
_____ d o_______ - . . . . . .
.
_____d o............ ................
_____do........................ ........................................
$12,000
4, *00
3, COO
3,(00
5, 200
1 4,700
:
4,200
1 4,700
1 1.500
j
1,920
I 1,500
| 2,220
1 1,500
1 1,800
i 1,500
1, 920
2,000
3, f 00
1.500
1,800
1.500
1.620
1,740
1,500
!
j
148
BRANCH- CH AIN, AND GHOUP BANKING
National-bank examiners and assistants, by Federal reserve districts, March 5, 1930—
Continued
DISTRICT NO. 7
Salary
A . P. L ey burn, chief examiner..
164 W est Jackson Boulevard, room
1209, Chicago, 111.
Glenn W . Baugh, examiner_______
Sioux City, Iow a.............. ..............
Robert S. B eatty, examiner.............
Decatur, 111......... ..........................
Lysle S. Burk, examiner__________
Des Moines, Iow a______________
W illston A . Cutler, examiner_____
Rock Island, 111_________________
Leo D . Donovan, examiner.............
Chicago, 111______________________
Samuel W . D ye, examiner...............
Peoria, 111.______________________
.Horace S. French, examiner_______
Chicago, 111______________________
H arry R . Fuller, examiner________
Indianapolis, In d _____ __________
R a b 3^ L . Hopkins, examiner...........
Detroit, M ic h ................ . . ..............
E . M . Joseph, examiner___________
Grand Rapids, M ich___________
H arry A . Laird, examiner_________
Des Moines, Iowa______________
Harold E . Laufer, examiner_______
Chicago, 111......... ..............................
W illiam R . Nolan, examiner...........
Waterloo, Iow a----------------- -------- .
H en ry F . Quinn, examiner________
Chicago, 111______________________
D avid H . Reimers, examiner_____
Des Moines, Iowa_______________
Indianapolis, In d _______________
J. Lyell Sanders, examiner...............
Robert K . Stuart, examiner_______
Milwaukee, W i s . ........... ...............
H . W . Walker, examiner__________
Wisconsin Rapids, W i s _________
M axw ell M . W ard, examiner_____
Chicago, 111______________________
George Robert W ilson, examiner..
Danville, 111..................................
Oliester A . Ackley, assistant______
Fort W ayn e, In d ............................
Edward C. Alderson, assistant___
Peoria, 111................................ . ........
T . F . Barradell, assistant_________
Chicago, 111______________________
Felix Brodthagen, assistant_______
Des Moines, Iow a______________
W alter F. Busch, assistant________
Grand Rapids, M ich ___________
Orth I. Dains, assistant___________
Decatur, 111_____________________
Paul E . Enlow , assistant_________
Chicago, 111______________________
Francis B. Fanning, assistant____
____ d o ____________________________
Laurence B. Finn, jr, assistant___
____ d o ____________________________
George J. Fitzgerald, assistant____
____ d o ____________________________
Theodore Flaska, assistant________
____ d o ____________________________
Detroit:, M ich ___________________
Bernard M . F lynn, assistant_____
E . L . Gustafson, assistant_________
Chicago, 111______________________
Sioux City, Iow a________________
G u y Richard Hefien, assistant___
Milwaukee, W i s ________________
Edward B . Johnson, assistant____
Roger A . M cL ean, assistant______
Chicago, 111______________________
Francis J. M adden, assistant_____
____ d o ____________________________
Rock Island, 111_________________
Warren F. M iller, assistant. . ____
M aurice B . M oon , assistant _.
Chicago. I l l ______________________
M arshall W . M urray, assistant____________________
P. E . Norsen, assistant_________ ___________ ______________i_____ d o _____________
W illiam F. O ’ Meara, assistant____________________________ I Danville, 111_______
J. C . Patterson, assistant___ ______ ________________________ i Indianapolis, Ind_
Ivan L . Potts, assistant____________________________________ !_____ do________
J. C . Rem ington, assistant____________________ _____ ______ i Chicago, 111 _
Franklin F . Robinson, assistant___________________________i Des Moines, Iowa...
Janies F . Rush, assistant________ ___________________________i Waterloo, Iowa
T hom as H . Sayer, assistant___________________ ____________ i Chicago, 111______________
Joseph W . Sinnott, assistant______________________________ j_____ do____________________
Lawrence B . Thurm an, assistant__________________ ______ _ Wisconsin Rapids, Wris .
M a x Van Scoy, assistant___________________________________ Des Moines, Iowa----------Richard J. Wainwright, assistant_________________________ Chicago, 111---------------- Earl J. WTalters, assistant.____ _____________________________ ______do____________________
$12,000
3.000
4.000
2.700
3.900
2.700
4.800
5.300
3.900
5.300
4,100
4.200
2.700
3.300
3.300
3,600
3.900
6.200
5.700
3.300
3.000
2.000
1.500
2.700
1,620
1.800
1,980
2,160
1,680
1,620
2 , 000
2,400
2 , 010
2,280
1.500
2, 000
1,740
2,160
2,160
1,440
2, 500
3, 800
D IS T R IC T N O . 8
John S. Wrood, chief examinaer..
Lewis R . Elkins, examiner________
H enry Glenn Harrison, examiner..
Robert K . Hooker, examiner______
W illiam W . Kane, jr., examiner.. .
John F . L illy, examiner--------- -------Stuart I I . M an n , examiner________
Russell E . M ooney, examiner_____
Edw ard A . Vonarb, examiner_____
H al Woodside, examiner__________
W illiam R . Young, examiner.........
Joseph D . Cowan, assistant----------Robert R . Dickinson, assistant___
Albert W . Doepke, assistant______
M artin J. Franey, assistant----------Hollis Haggard, assistant__________
Sterling Hale, assistant_____ ______
James Parker Hickok, a ssista n t...
Harry H . Holekamp, assistant____
1310 Federal Commerce. Building, St.
Louis, M o.
Evansville, I n d ________________________
St. Louis, M o ___________________________
.d o ..
.d o ..
Little Rock, A rk ..
St. Louis, M o ____
Louisville, K y ___
Centralia, 111_____
Springfield, M o . . .
M em phis, Teiin. ..
d o ..
Louisville, K y .._
St. Louis, M o ___
____ do____________
.d o ..
..d o .
.-d o .
$15,000
4.200
3.600
3,300
4,500
4.200
5, 500
3.600
3,900
6,000
6,000
1,560
1,620
2,160
2,040
1,920
1, 860
1,620
1.200
149
BRANCH, CHAIN, AND GROUP BANKING
N ational-bank exam iners and assistants, by Federal reserve districts, M arch 5, 1930—
Continued
D I S T R I C T N O . 8— Continued
.
■
Salary
John D . Spires, assistant.......................- ......................................
Pope James Walker, assistant_____________________________
Fred S. W etzel, assistant_________________ ________ ______ . .
Cliff W ood, assistant........ ............................- ................................
Evansville, I n d ..
St. Louis, M o ___
Springfield, M o ..
Little Rock, Ark.
$1, 740
1,500
1,740
1, 620
D IS T R IC T N O . 9
1334 First National-Soo Line Building,
Minneapolis, M in n .
Billings, M o n t________________________ _
Bismarck, N . D a k -------------------- ------------Minneapolis, M in n ____________________
Fargo, N . D a k _________________________
Minneapolis, M in n ____________________
Sioux Falls, S. D a k .............. ......................
____ do___________________________________
D u luth, M in n __________________________
Minneapolis, M in n ______ _____________
do.
..d o ..
.d o ..
..d o ..
..d o ..
.d o ..
,.d o ..
..d o ..
.do...
..d o ..
..d o ..
,.d o ..
.d o ..
..d o ..
..d o ..
Irwin D . W right, chief examiner..
Ole A . Anderson, examiner__________
James H . Gentry, examiner_________
W illiam F . Huck, examiner_________
Daniel D . McLaren, examiner______
Nels Nelson, examiner_______________
Elmer J. O ’ Bleness, examiner.............
Louis H . Sedlacek, examiner...............
Henry Sevison. examiner...... ............. .
L yle T . Stevens, examiner___________
L eR oy J. Van Brunt, examiner.........
Francis M . von Birgelen, examiner..
Harold Lester W ray, examiner--------J. Howard Barker, a ssista n t..............
Lorille J. Boyle, assistant.....................
M arvin B . Chapin, assistant________
L. Harold Ickler, assistant....................
Lester G. Le Fevre, assistant..............
Robert T . Lincoln, assistant------------Reynolds B . North, assistant..............
W alter W . Olson, assistant__________
Evan D . Saltzman, assistant------------Frank T . Sankovitz, assistant_______
F . Pinkham Sherman, assistant_____
E . D . Van Rhee, assistant....................
D IS T R IC T
Luther K . Roberts, chief exam iner..
Edgar F . Allen, examiner____________
Edw in J. Becker, jr., examiner...........
Rollin O. Bishop, examiner......... ........
W illiam H . Donahue, examiner_____
Jesse A . Fraser, examiner.......... ............
Cecil W . Lyon, examiner____________
Walter N . M ale, examiner___________
Pleasant V . Miller, examiner________
Frank S. Nelson, examiner__________
D avid V . Penn, e x am iner...................
Charles T . Rafter, examiner_________
Gerhard F. Roetzel, examiner_______
Murdo A . Ross, examiner___________
Claude L . Stout, examiner__________
Otis W . W hite, examiner................ ..
Elbert L . W illiam s, examiner_______
Clarence R . Anderson, assistant_____
Glenn E . Anderson, assistant_______
Ralph A . Blackburn, assistant...........
Charles M . Bowles, assistant..............
James E . Bradshaw, assistant_______
Ross M . Burt, assistant______________
Dillard Coggins, assistant______ _____
Robert E . Cook, assistant.....................
Merle Cushing, assistant_____________
John C . Faulkner, assistant....... ..........
Fred Gignilliat, assistant____________
Richard S. Goodhart, assistant..........
Howard N . Hardenbrook, assistant.
John S. Head, assistant______________
Paul T . Henninger, assistant...............
Charles G. Hout, assistant__________
W illiam N . Hurd, assistant_________
W illiam B . Knight, assistant.............
Charles D . Lents, assistant.............. ..
Joseph W . Morrisey, assistant______
NO.
$1 1 ,0 0 0
4.800
2, 700
4, 200
3,300
3,900
2, 700
5.000
4.500
4.500
3,600
3.000
3.000
1,680
1.800
1,800
1,860
1,800
2,100
2,400
2,100
1,860
1,980
1,800
1,860
10
800 Federal Reserve Bank Building,
Kansas City, M o.
Kansas C ity, M o ........................................
Clinton, Okla----------------------------------------Kansas City, M o .........................................
Muskogee, Okla______________ _____ ___
Hutchinson, K an s_______________ _____ _
Norfolk, N ebr__________________________
Denver, C o l o .. ...........................................
Kansas C ity, M o ____ _____ ____________
Grand Island, N ebr____________________
Oklahoma C ity, Okla................. ..............
Salina, K an s____________________________
Oklahoma City, Okla__________________
Kansas City, M o _______________ ______ _
Cheyenne, W y o ________________________
Denver, C o l o ................................ ...............
Kansas C ity, M o .
Oklahoma C ity, Okla.
Kansas C ity, M o _____
____ do................
Denver, Colo.
Kansas City, M o .
.do.
.do.
.do.
.do.
.do.
.do.
.do.
Clinton, Okla__________
Grand Island, N ebr___
Norfolk, N ebr..................
Kansas City, M o ______
____ do___________________
____ do___________________
Oklahoma City, O k la..
Muskogee, Okla.............
4,200
3, 600
3,900
4, 500
3,000
3, 300
3, 300
4, 000
3, 600
3, 600
3, 000
3, 300
4, 500
3, 600
4.800
3, 000
1.740
1,620
1.500
1, 740
1.500
2.700
2.700
1.920
1.920
1,680
1.740
1, 320
1, 560
1.800
1.740
1.500
1.500
1.740
1.740
1,680
150
BRANCH, CHAIN, AND GROUP BANKING
National-bank examiners and assistants, by Federal reserve districts, March 5 ,1 9 8 0 Continued
D I S T R I C T N O . 10— Continued
Salary
Howard 0 . M urray, assistant_________ _
Frank A . Rees, assistant.............................
Fred L . Rees, assistant__________________
Cecil G . Reynolds, assistant____________
Edm ond T om lin Richm ond, assistant..
Hubert S. Robinson, assistant____ _____
Leonard H . Sm ith, assistant.....................
Frank J. Tyliski, assistant______ ______ _
Louis F. W ard , assistant________________
Hilary B . W est, assistant_______________
Denver, C olo......... .
Kansas City, M o . .
_____ do_______________
Muskogee, Okla___
Kansas C ity, M o . .
--------do........ .................
Hutchinson, K a n s.
Cheyenne, W y o ___
Salina, K an s_______
Kansas C ity, M o . .
$1,440
3,000
1,200
1,800
1,440
1,620
1,500
1,800
1,620
1,740
D I S T R I C T N O . 11
1706 Republic Bank Building; Dallas,
Richard H . Collier, chief examiner..
Tex.
Dallas, T e x .....................................................
Jacob E m bry, exam iner...................................................
San Antonio, Tex_______________________
Charles W . Foster, exam iner.......................... ................
Headley B . Gilbert, examiner______ ______ __________
W ichita Falls, T e x_____________________
Abilene, T e x ...................................................
John W . Haw kins, e xam in e r....................... ..................
Dallas, T e x . . .................................................
Gilbar C . Hedrick, examiner...........................................
Bryan E . Horton, examiner_________________________
Waco, T e x ______________________________
W illiam Edgar H u tt, examiner______________________
Sherman, T e x ___________________________
Fort W orth , T e x ...........................................
Ernest Lam b, examiner......................... ............................
Houston, T e x _________ _________________
F . Raym ond Peterson, examiner...................................
W illiam W . Pierce, examiner............ ...............................
Corsicana, T ex__________________________
W alter A . Sandling, examiner______ ______________ . . .
Dallas, T e x . . .................................................
Shreveport, L a........................................... ..
W illiam L . Sibley, examiner..........................................
San Antonio, T e x _______________________
W illiam N . Whitehurst, examiner________ _______ _
Grady T . W itt, e x a m in e r .._________________________
Amarillo, T ex ................................................
Dallas, T e x ................... .................... .............
Thom as M . Glass, a ssista n t..-.......................................
Lenode Goldston, assistant_____________ ____________
Amarillo, Tex.
Louie L . Harris, assistant____________________________
San Antonio, Tex.
J. W . Hudspeth, assistant.................................................
do.
W aco, Tex.
Charles Godfrey Lee, assistant....................................... .
H ouston, T e x .
Ernest O ’Hearn, jr., assistant........................... ...............
Thom as C . Patterson, assistant_____________________
Corsicana, Tex.
Virgil P. Patterson, assistant.._______ _______________
Dallas, T ex.
Edw in B . Patton, assistant__________________________
do.
Luther K . Roberts, jr., assistant.___________________ _____ ___________________
do.
C lyde Shannon, assistant__________________________ ______ .j Shreveport, La.
Carroll B . Spearman, assistant..................................... ..............1 W ichita Falls, Tex.
Hunter L . W ilson, assistant_______________________________ i Sherman, Tex______
Leon B . Withers, assistant__________________________ _____ _ Fort W orth, T e x ...
Alfred R . Woodson, jr., assistant____________ _____________ ! Dallas, T e x ________
$13,000
6.300
4.500
4.700
3.600
4.500
3.300
5.000
6.300
4.500
3.000
4.000
3.600
3.600
3.300
1.600
1.700
1,620
2.000
1.700
1,920
1.700
1.500
1.700
1,980
1.700
1,800
1,800
1,900
1 ,2 0 0
D I S T R I C T N O . 12
Thom as E . Harris, chief exam iner...............
W illiam H . Baldridge, examiner___________
Ira I. Chorpening, examiner________________
G . S. Coffin, examiner_____________ __________
A n th on y J. Cooke, examiner............................
Cornelius A . Donahue, examiner----------------Charles A . Glazier, e x a m in e r ...____________
W illiam M . Gray, examiner________________
Marshall Hooper, examiner______ _____ _____
R . Foster L a m m , examiner_________________
Carvel C . Linden, examiner............ .................
Leland L . M adland, examiner........................
Charles Harold M cL ean, examiner_________
Clarence E . Morgan, examiner_____________
Robert E . A . Palmer, examiner_____ _______
Albert E . Price, examiner----------------------------John T . Rum m el, examiner________________
Leo Shapirer, examiner____ ______ __________
Orville C . Taylor, examiner................. ............
Aubrey F . Tolton, examiner------------------------M ax C . W ilde, examiner____________________
T hom as B . W illiam s, examiner_____ ______
Elmer M . W right, examiner............................
F loyd Andrew s, assistant-----------------------------John K enneth Barnes, assistant____________
Leland B . D u nham , assistant............. ............
! 1103 Alexander Building, San Franj
cisco, Calif.
! Spokane, W a sh _________________________
: Los Angeles, Calif_____________ ________
i Sacramento, Calif—.............................—
! Los Angeles, Calif______________________
1
..d o .
Pocatello, Idaho_____
Portland, Oreg_______
Seattle, W ash ________
Santa A na, Calif.........
Boise, Idaho.................
Seattle, W a s h ________
Los Angeles, Calif___
San Francisco, C alif..
Seattle, W a s h ...,-------San Francisco, C alifs
.do..
Sacramento, Calif___
Los Angeles, Calif___
Fresno, Calif_________
Portland, Oreg.............
Los Angeles, Calif___
Portland, Oreg_______
San Francisco, C alif..
Portland, Oreg_______
-------do...............................
$15,000
5.200
7.500
5.200
3.300
3, 300
3.300
2.500
4.300
5.300
3.000
7.000
4.500
3.600
3.300
3, 900
3.300
3,900
3.300
3, 600
5,800
3.000
3.600
2,240
1.500
1,860
BRANCH, CHAIN, AND GROUP BANKING
151
National-bank examiners and assistants, by Federal reserve districts, March 5, 1930—
Continued
D I S T R I C T N O , 12— Continued
Salary
Charles H . Franklin, assistant_____
Ed m u nd H . Galvin, assistant_____
R . N . Geller, assistant______ _______
A , Earl Harris, assistant.....................
R a y A . Hook assistant____________
G . W . Jorres, jr., assistant_________
Francis H . Ketcham , assistant........
H . E . Landis, assistant_____________
Thomas P. M cC o y , assistant...........
Arthur J. O ’ Meara, assistant______
James Congdon Osborn, assistant..
E . C . Overton, assistant___________
W . J. Peters, assistant______________
Louis I. Rasmussen, assistant-........
A . W . Scougall, assistant...................
H . E . Scofield, assistant......................
M ax Spendrup. assistant___________
M erton E . Stewart, assistant........ ..
Seattle, W ash ________
Santa Ana, Calif_____
Los Angeles, Calif___
.........do...............................
San Francisco C alif..
Los Angeles, Calif___
Seattle, W ash ...............
Los Angeles, Calif___
San Francisco, C alif..
Los Angeles, Calif__
Portland, Or eg_______
Los Angeles, Calif___
..d o ..............................
..d o ..............................
..d o . ........ ....................
San Francisco, C alif..
Los Angeles, C a lif....
San Francisco, C alif..
5,240
L, 620
1, 400
300
500
820
340
280
800
340
220
040
480
340
400
A S S I G N E D T O C O M P T R O L L E R ’ S O F F IC E
W illiam P. Folger, chief examiner___________________ _____
■Gail W . Crossen, assistant chief examiner________________
Reginald M . Hodgson, assistant chief examiner__________
W . Waller M cB ryde, assistant chief examiner___________
Clarence F. Smith, assistant chief examiner______________
Charles F . Wilson, assistant chief examiner______________
Adelia M . Stewart, examiner___________________ !__________
Sumner E . Kimball, assistant_____________________________
W . J. Owens, assistant______ ________ ____________________
Washington, D . C ______________________ $11,000
6,500
_____ do____________________________________
9,000
_____do__________________________ __________
9,000
.........do__________ ________________ ________
9.000
_____ do.................................................................
6.000
_____do___________ _______________________
_____ do........ ........................................................
5,500
3,600
_____ do____________________________________
5,200
_____do_____________________________ ______
R E C A P IT U L A T IO N IN N U M B E R S
Exam iners_______________________________________________________________ _____________ ___________ ________ ____ 194
Assistant examiners.....................................................................................................................................................................292
The C h a ir m a n . Are you carrying out the system of simultaneous
-examination of any parent bank and its branches?
Mr. P o l e . Yes.
The C h a i r m a n . They do that in the smaller groups?
Mr. P o l e . In the smaller groups.
The C h a ir m a n . Of the branch banks?
Mr. P o l e . Yes, sir; and as far as possible in the larger groups, by
covering the more important offices.
The C h a ir m a n . The reason you do not examine the larger groups
is because it is physically impossible to do so with your present force?
Mr. P o l e . Yes.
The C h a ir m a n . If you had a large enough force, you would rather
make a simultaneous examination of those banks?
Mr. P o l e . That would be preferable.
The C h a i r m a n . Eeferring to the organization of these affiliated
companies, I am not just clear as to whether or not, in your judg
ment, the affiliated companies, whose stocks are owned entirely or
in part by stockholders of the parent bank or national banks—do you
consider those as legal institutions under the law?
Mr. P o l e . As far as I know, Mr. Chairman, they are State char
tered institutions and I have no reason to question their legality.
152
BRANCH, CH AIN, AND GROUP BANKING
The C h i r m a n . Do your records show the ownership of these com
panies, where the control of the national banks is vested in the
holding companies or these affiliated institutions?
Mr. P o l e . Our records shown on July 1 of each year, where the
stock of these companies is distributed.
The C h a i r m a n . Is it the usual practice of these companies to have
the stock of a national bank owned in the name of a company or do
they have it in dummy names?
Mr. P o l e . Are you speaking of the holding corporations?
The C h a i r m a n . Yes.
Mr. P o l e . I really am not informed.
The C h a i r m a n . I am speaking of what is shown in the stock list of
the national banks as to the ownership of their own stocks—who owns
their own stocks. Do the records of the banks show clearly where
the holdings of a majority or less than a majority or control of them
are in an affiliated company, or do you have to guess at that?
Mr. P o l e . If the stock were in the name of another corporation,
of course the records would show that. It would be very difficult for
us to tell if the stock were held in the name of a dummy— the records,
of course, would not show that.
The C h a i r m a n . In some of Mr. Wingo’s questions to you the
other day, he referred to State examinations, and I have understood
from you this morning that you do not have anything to do with the
examination of member banks?
Mr. P o l e . That is correct as to State member banks.
The C h a i r m a n . Are you furnished with the examination sheets of
any of these examinations of State member banks which are held
entirely by the Federal Reserve Board?
Mr. P o l e . They are held entirely by the Federal Reserve Board.
The C h a i r m a n . In connection with these examinations, w^hat part
of the cost of the maintenance of your office or examinations is paid
by the Federal reserve banks?
Mr. P o l e . None of it.
The C h a i r m a n . None of it?
M r. P o l e . N o, sir.
The C h a i r m a n . D o you furnish the Federal reserve system with
any information as regards your examination of national banks?
Mr. P o l e . Copies of reports of our examination are sent to the
Federal reserve banks.
The C h a i r m a n . Each of the 12 banks?
Mr. P o l e . Yes.
The C h a i r m a n . Do they pay anything now for that?
Mr. P o l e . The actual cost of typing that report.
The C h a i r m a n . What is that specific charge?
Mr. P o l e . I think it is $4.50 or $5 now.
The C h a i r m a n . Will you put into the record the total receipts
from the Federal reserve to your department covering payments to
you for any part of the examination which you have rendered?
Mr. P o l e . Yes. The total amount received from such source
for the year 1929 was $77,559.75.
The C h a i r m a n . Do you make any use of the examiners of the
Federal reserve?
Mr. P o l e . We do, Mr. Chairman.
The C h a i r m a n . In what manner?
BEAN OH, CH AIN, AND GROUP BANKING
153
Mr. P o l e . We enlist their assistance in the examination of the
branch-banking systems.
^ T h e C h a i r m a n . They are always responsive to your calls to
assist in these examinations?
Mr. P o l e . Quite so.
The C h a i r m a n . H o w many examiners do the Federal reserve
have—do you recall?
Mr. P o l e . I really do not.
The C h a i r m a n . H o w many chief and assistant chief examiners
have you at the present time? My understanding is that you have
a chief examiner for each Federal reserve district.
Mr. P o l e . That is correct.
The C h a i r m a n . That is correct, is it?
Mr. P o l e . Yes.
The C h a i r m a n . And each one of those chief examiners has an
assistant, does he?
Mr. P o l e . There are examiners who usually act in their stead,
when they are away for any purpose. There is not such a title in
the field as assistant chief national-bank examiner.
The C h a i r m a n . One of the regular examiners assigned to that
district acts as chief when the chief examiner is away?
Mr. P o l e . Yes, sir; during his absence
The C h a i r m a n . In your statement of the names and salaries, and
so forth, of examiners, I wish you would also include such attorneys
as may be regularly employed by your department, their names and
addresses and the amount of salaries or compensation paid and also
information pertaining to those attorneys employed in connection
with failed national banks; and we will also like to have you put in a
brief as to how you handle the business in connection with failed
national banks. You have a department, I believe, that handles that?
Mr. P o l e . Yes
The C h a i r m a n . If you will give us a statement as to how that busi
ness is handled, we will appreciate it.
Mr. P o l e . I shall be glad to do so.
(The statement referred to as being furnished by Mr. Pole is as
follows:)
When a national bank is insolvent, the Comptroller of the Currency, in accord
ance with the statute, appoints a receiver for such bank; and if there is no pos
sibility of reopening the bank as a going concern, the receiver thus appointed by
the comptroller proceeds to liquidate the bank and pay its creditors to the limit
which may be obtained from the realization on its assets. These receivers are
usually appointed from men of experience in this line of w^ork and wiio may be
termed trained receivers, since they are shifted from receivership to receivership
in accordance with the demands of the work. Such receivers are not paid on a
commission basis, as was done in the earlier days of receiverships, but are paid
on a flat salary basis.
As of December 31, 1929, there wrere 424 insolvent national banks being ad
ministered by 172 receivers, some receivers in the interest of econom y having
charge of more than one bank. The average yearly salarv paid these receivers
on the basis of 424 banks was $1,681 per bank; or, on the basis of 172 receivers,
$4,144 per year per receiver. Under the law, the liquidation of national banks by
receivers is made under the supervision of the Comptroller of the Currency. As
an example, all compromises of debts and all sales of assets are approved by the
comptroller; all stock assessments are levied by the comptroller, and all dividends
are paid by the comptroller through the issuance of checks. T o maintain this
supervision it is necessary for the comptroller to have in his office a division giving
attention entirely to insolvent matters.
154
BRANCH, CH AIN, AND GROUP BANKING
There is attached hereto a chart showing the personnel of this division as of
December 31, 1929, at which date there were 73 employees, 2 field examiners,
and 4 employees in the office of the general receiver, the general receiver being a
receiver who takes over the liquidation of these receiverships which have been
practically closed out, with the exception of certain miscellaneous assets and un
finished litigation which would not justify the expense of the continuance of a
resident receiver.
In this division the supervising receiver, the two assistant supervising receivers,
and the receivers shown on the chart as district receivers are all men of experience
from the field, who have been detailed to the comptroller’s office by virtue of
their wide knowledge of conditions, their training, and their experience in liqui
dation work. These men have been brought from various sections of the country
and give direct attention to the receiverships in the sections, the conditions of
which they are familiar. As of December 31, 1929, the total amount of resources
of the insolvent national banks then in liquidation being supervised by the
com ptroller’s office through the insolvent division was, as of the date of the
failure of the various banks, in the aggregate sum of $344,486,598.
It can be readily appreciated that in these failed banks almost every question
of law can arise. In view of the complexity of these various questions and the
large amount of litigation, with numerous cases going to the Supreme Court of
the United States, it has been necessary to maintain a legal staff in connection
with this insolvent work. At the present time this staff consists of the general
counsel and two assistants; and in accordance with the chairman’s request,
their salaries are as follows:
General counsel_________________________________________________________ $9, 000
One assistant general counsel____________________________________________ 6, 000
One assistant general counsel____________________________________________ 5, 000
The C h a ir m a n . I would like to ask, if in your judgment, national
bank examiners and their assistants are properly compensated?
Mr. P o l e . I should say the scale of salaries of examiners is quite
low.
Mr. S t e a g a l l . Does not the comptroller's office fix those salaries?
Mr. P o l e . Yes.
Mr. S t e a g a l l . That is my recollection of the law.
Mr. P o l e . With the approval of the Federal Reserve Board.
The C h a i r m a n . You are speaking now of examiners.
the assistant examiners?
How about
Mr. P o l e . I think, as a general thing, the assistants are better
paid than the national bank examiners.
The C h a ir m a n . At what salary do you start examiners and assistant
examiners?
Mr. P o l e . Assistant examiners are usually started at $1,500 or
$1,600 a year and given the usual per diem in addition to their
expenses while away from headquarters.
The C h a ir m a n . $6 a day?
Mr. P o l e . Yes, sir. Examiners quite often start as low as $3,000,
in accordance with their experience and aptitude for the position.
They also receive their regular per diem and expenses when away
from headquarters.
The C h a ir m a n . Some examiners are drawing less than $3,000, are
they not?
Mr. P o l e . Some of the examiners of the junior grade.
The C h a ir m a n . At what salary do you start them?
Mr. P o l e . There is no fixed salary for them, but it is usually
$2,700—$2,500 or $2,700.
The C h a ir m a n . What is your experience as to the turnover among
your examiners?
Mr. P o l e . It is quite large.
BRANCH, CHAIN, AND GROUP BANKING
155
The C h a i r m a n . What is the reason for that?
Mr. P o l e . An examiner develops perhaps to the point where he
attracts the attention of a bank and they offer him a position which
is much more remunerative than we can pay.
The C h a i r m a n . Taking into consideration the importance of the
position of national bank examiners, clothed with the authority they
have, as well as their assistants, do you not think that the quality of
men employed could be improved a great deal by paying them
higher salaries? In other words, it seems to me that we should have
a very high type of man to be charged with the responsibility of
examining these important banking institutions. I am not intending
in this statement, to reflect upon your present corps of examiners.
I think they are a splendid lot of men—at least those that I have
come in contact with—but I am under the impression that they are
greatly underpaid for the type of work they are doing
Mr. P o l e . Yes.
The C h a i r m a n . I believe you are losing a great many men in your
department to-day because of the fact they are underpaid, and
I believe that you would greatly improve your service if you would
pay them a higher wage. The type of service they render certainly
entitles them to a better salary than they are now getting.
Mr. P o l e . I think 3^ou are right, Mr. Chairman.
The C h a i r m a n . I say that because I am deeply impressed with the
importance of improving these examinations because of the rapid
and diversified development of the banking systems.
I believe that you have a problem on your hands and I believe it is
most important that you should have the right type of men and that
they should be better paid because they are coming into contact
with the highest officers and managers of national banks; in other
words, they must sustain a certain standard of living to enable them
to meet men drawing salaries of from $10,000 to $50,000 a year in the
management of banks. For that reason, it seems to me—and I am
glad you agree with me— that the service could probably be improved
by paying these men a higher wage.
Mr. P o l e . I think there is no doubt of what you say. I think,
however, it would be extremely difficult for us ever to compete in the
matter of salaries with commercial banks. Men getting $5,000 a year
walk into positions of $15,000 a year and men who are getting $7,500 a
year now and then $15,000 or $2 0 , 0 0 0 a year. It is extremely difficult
to compete with commercial banks in matters of salary.
Mr. F e n n . I s it n ot a fact that your ablest men are drawn away
from you by the commercial banks?
Mr. P o l e . Yes.
Mr. F e n n . The ability shown by
them attracts the attention of
the commercial banks and their large salaries take them away from
you?
Mr. P o l e . Yes, sir; those are the men we lose.
Mr. F e n n . Is it not really a training school?
Mr. P o l e . For the examiners; yes. We usually consider it such.
Mr. F e n n . They go to work at these low salaries with the expecta
tion of getting higher salaries from commercial banks?
The C h a i r m a n . Mr. Pole, have there been any complaints by the
banks as to the amount of charges levied against them for these
examinations?
156
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . N o complaints, Mr. Chairman. I might qualify that
by saying that some time ago there was a feeling expressed upon
the part of some of the larger banks that they were paying the loss
which was entailed in the examination of the smaller banks in the
country. They felt they were paying a little more than their share.
The C h a i r m a n . Am I correct in saying that a year or two ago, or
during the period of Mr. McIntosh’s term, that out of the funds
collected, under the workings of the budget system put in operation
in each Federal reserve district, under a chief national bank examiner,
a surplus accumulated over and above that, which was paid back to
the banks?
Mr. P o l e . Yes, ir.
The C h a i r m a n . How was that disposed of?
Mr. P o l e . Returned to the banks, Mr. Chairman, by making
a round of examinations—one examination for each bank at a greatly
reduced rate.
The C h a i r m a n . What was the amount of that accumulation so
reimbursed to the banks?
Mr. P o l e . May I insert that in the record, as I have not the
figures in mind.
The C h a i r m a n . Put it in at this point, if you will, please.
Mr. P o l e . The amount of accumulation of funds that was reim
bursed to the banks was $577,118.21, which represented reduction in
fee of 2 % cents per thousand of resources.
Mr. W in g o . Mr. Chairman, did you not ascertain—Mr. Pole sug
gested that some of the larger banks complained about paying for the
smaller banks—I expected you to follow that up by asking if those
banks were the ones mentioned by Mr. Seiberling that were having so
much difficulty in making their expenses.
The C h a i r m a n . Do you put that in the form of a question?
Mr. W in g o . No; I did not, exactly.
The C h a i r m a n . It should be put in the form of a question. Mr.
Wingo, will you restate your question?
Mr. W in g o . Whether or not those who complained were these
larger banks that Mr. Seiberling and you went over their earnings
yesterday—these banks that have such difficulty in meeting expenses,
were they the ones complaining about these examination ex
penses-----Mr. P ole . A s I recall it the only complaints that have ever been
recorded in our officers are complaints from the New York banks.
Mr. W in g o . They were only making about 16 per cent a year and
they were probably trying to find some economics to increase their
earnings.
The C h a i r m a n . Y ou appoint all national-bank examiners and
assistant national-bank examiners and chief national-bank examiners?
Mr. P o l e . In the case of the national-bank examiners, with the
approval of the Secretary.
The C h a i r m a n . Secretary of the Treasury?
Mr. P o l e . Yes, sir.
The C h a i r m a n . Now if branch banking is permitted in the country
as you suggest, limited to trade areas, such laws as are passed here
would only apply to national banks. Is that correct? Also member
banks of the Federal reserve system.
BRANCH, CHAIN, AND GROUP BANKING
157
Mr. P o l e . I assume that is correct.
The C h a i r m a n . Well, would not such a plan then favor national
banks to the exclusion of State banks?
Mr. P o l e . I should hope it would favor the national banks. I
do not know whether it would to the point of exclusion of the State
banks, since the privilege of applying for membership or converting
into national banks would be open to them
The C h a i r m a n . If a national bank, for instance, operating in a trade
area was permitted to have branches and a State bank operating in
that particular trade area was not permitted to have branches, would
not that tend to nationalize those State banks in that community
in order to enable them to compete?
Mr. P o l e . The probability is that the States would pass similar
legislation. However, if their trade area should extend beyond the
State lines, it would be a decided advantage to the national banks
and would probably attract a great number of State banks into the
national system.
The C h a i r m a n . Because the State banks could not go outside of
State lines?
Mr. P o l e . Yes.
The C h a i r m a n . Some allegation was made the other day as to
trade areas. Take, for instance, Jersey City, Newark, New York
City, Kansas City, Mo., and so forth. Under your plan of not
permitting branches to cross Federal reserve district lines and State
lines-----Mr. P o l e . District lines, Mr Chairman.
The C h a i r m a n . Y ou mean district lines there?
Mr. P o l e . Yes, sir.
The C h a i r m a n . Would not there be many troubles in defining
trade areas through the Federal reserve districts; would not some
State banks be discriminated against definitely under that plan? I
wish you would, in the brief covering that, elucidate very clearly as
to how you would restrict chain banking to certain areas.
Mr. P o l e . I will try to do that. You mean chain banking or
group banking?
The C h a i r m a n . I have particular reference, in that last question,
to your statement wherein you indicated there should be some re
striction as to control through chain banking or holding companies
of those groups developed in certain trade areas.
In other words, it was indicated there that you were of the opinion
that New York should not control eventually these several independ
ent trade areas by controlling the branches or the parent banks which
had branches in these trade areas?
Mr. P o l e . Yes.
The C h a i r m a n . It is not clear to me just how control of that situa
tion could be wrorked out and if, in your statement, you can clarify
that, the committee, I think, would be very glad to have you do so.
In that connection, you rather indicated you thought it desirable
to decentralize New York financially. Did I understand you cor
rectly that you are in favor of building these units throughout the
territory, in these trade areas, and decentralizing the financial situa
tion in New York, by that operation?
100136— 30— v o l 1, p t 2------ 5
158
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . The building up of larger groups of banks all over the
country generally might result in a greater decentralization away
from New York.
The C h a i r m a n . But it would tend to centralize in these trade
areas, would it not?
Mr. P o l e . What might be termed a more local centralization.
It would centralize the funds which properly belonged to that par
ticular trade area or locality.
The C h a i r m a n . Mr. Busby, the other day, in his questions to
you, referred to the flow of money into the stock market. I should
like to ask you a question in connection with that.
Do you not think we might restrict the flow of money into the
stock-market operations by regulating the amount that a bank can
lend on certain stocks?
Mr. P o l e . That possibly might be done. It is rather difficult
to answer that question offhand.
Mr. W i n g o . D o the banks not do that now, Mr. Chairman?
Mr. F o r t . N o.
The C h a i r m a n . Are there restrictions on the amount now?
Mr. P o l e . There is a legal restriction with regard to the amount
which an individual may borrow from a bank. Of course any number
of individuals may borrow whatever the bank’s limit might be
The C h a i r m a n . I was referring to the amount loaned on the par
value or market value of stocks back of the loans.
-. P o l e . Oh.
e C h a i r m a n . D o you not think that the flow may be checked
by allowing a less amount, a safer amount, than the practice has
been heretofore?
M r . P o l e . Possibly som ething like that could be worked out. I
could not very well answer that offhand.
The C h a i r m a n . Mr. Letts asked you concerning the Bank of Italy
and affiliated companies. I wish you would tell us in detail the
make-up of this group in all its known ramifications over which your
department has jurisdiction. Just describe to us the make-up of
this particular group.
Mr. P o l e . Our department has jurisdiction only over the Bank of
Italy, which is a national association, operating in California with
something like 300 branches.
The C h a i r m a n . H o w about the Bank of America in New York?
Is that a national bank?
Mr. P o l e . The Bank of America in New York is a national
association.
The C h a i r m a n . You have jurisdiction over them?
Mr. P o l e . We have jurisdiction over them.
The C h a i r m a n . But the Bank of America in Los Angeles is a
State bank?
Mr. P o l e . A State bank.
The C h a i r m a n . Your jurisdiction, then, over the trans-American
group is confined entirely to the Bank of Italy in California and the
Bank of America in New York?
Mr. P o l e . That is correct.
T h e C h a i r m a n . Y ou have no access to any other of the affiliated
com panies?
Mr. P o l e . N one at all.
BRANCH, CHAIN, AND GROUP BANKING
159
Mr L e t t s . I wonder if it may be shown how many affiliated
companies there are?
The C h a i r m a n . I wish that you would put into the record how
many branches the Bank of Italy has and their location and the
number of branches of the Bank of America. Have you any knowl
edge as to the other affiliated companies in these particular groups?
Mr. P o l e . I have no official knowledge, Mr. Chairman.
The C h a i r m a n . A s I understood you to say, national banks were
not permitted to own their own stocks or the stocks of other State or
national banks. Is that correct?
Mr. P o l e . Correct.
The C h a i r m a n . Nor are they permitted to own directly stocks of
affiliated companies?
Mr. P o l e . That is correct, except such companies as might be
formed for the purpose of holding real estate for the accommodation
of the bank’s own business.
The C h a i r m a n . Well, has the Bank of Italy or the Bank of America
such a company?
Mr. P o l e . If it has the stock of such a company is not owned by
the Bank of Italy.
The C h a i r m a n . Well, it would be owned by one of the affiliated
companies?
Mr P o l e . It might be owned by the Trans-America Corporation
or one of its affiliates.
The C h a i r m a n . Are the bank buildings and equipment and main
offices and branches owned by the Bank of Italy or the Bank of
America, or owned by the affiliated companies?
Mr. P o l e . M 37 recollection is that they are owned by the affiliated
company.
The C h a i r m a n . These various groups of banks are either owned
by the Bank of Italy, the Bank of America, the Bancitaly, TransAmerican Co., or the Trans-American-Blair Co.—in other words,
there is a centralized control of the management, is there not?
Mr. P o l e . I am not able to answer that. I know that those com
panies are affiliated with one another, except possibly the Bancitaly
Co , which I understand has been absorbed by the Bank of AmericaBlair Corporation. But as to how the corporations are controlled,
I am not able to answer.
The C h a i r m a n . The make-up of officers and directors of these
various companies does not indicate anything so far as control is con
cerned. of these big groups; in other words, there is a management
group outside of the officers and directors of these various individual
institutions that has the real control, is there not?
Mr. P o l e . I could not definitely answer that, Mr. Chairman.
I have no official knowledge of the workings of these various corpo
rations except those which are of national charter. I am quite sure,
however, that any officer of any of those companies would be very
glad to furnish you all the information. I presume you may call
them to testify before your committee.
The C h a i r m a n . In that connection, it is the function of your
office, is it not, in small national banks, in communities, to know who
controls the institutions or who its stockholders and officers are?
Mr. P o l e . We usually do.
160
BRANCH, CHAIN, AND GROUP BANKING
The C h a i r m a n . Whether they are dummies or some one man or
group controls and dominates the situation.
Mr. P o l e . That is true.
The C h a i r m a n . Should any different rule apply as to large groups
than as to smaller ones?
Mr. P o l e . It would be very difficult for us to trace out the rami
fications of a corporation like the Trans-America Corporation and
as to whether or not the stock of the bank may be held by it or one
of its affiliates. It is a matter that we would hardly be posted on,
inasmuch as we have no jurisdiction.
The C h a i r m a n . This is one added reason you should have au
thority to examine these affiliated companies?
Mr. P o l e . I think it is important that we should have an insight
into to the affairs of corporations which own considerable amounts of
national-bank stocks.
The C h a i r m a n . In other words, you find, in the conduct of your
examinations, it is rather difficult to examine and know the full
facts as to the companies, because you are prohibited from examining
the affiliated institutons?
Mr. P o l e . Y e s.
The C h a i r m a n . N o w , Mr. Fort asked you concerning the owner
ship of bank stocks by banks and affiliated companies. I think you
pretty well covered that this morning.
Mr. P o l e . Yes.
The C h a i r m a n . Were you here this morning, Mr. Fort, to hear
the answers which Mr. Pole made?
Mr. F o r t . I was here most of the time.
The C h a i r m a n . Have you covered all the questions you wanted
to ask in regard to that particular phase?
Mr. F o r t . Not quite; no, sir. I have had some others that have
come to my mind during the examination of the comptroller by your
self and others.
The C h a i r m a n . I wish you would make note of them.
Mr. F o r t . I am doing that. We are to go ahead, are we not, Mr.
Chairman, after you, with a sort of recapitulation examination of the
witness?
The C h a i r m a n . Yes. Mr. Pole, you said in answer to Mr. Fort
the other day that two holding companies in one Federal reserve dis
trict do not now hold enough stock of member banks to give them
control of the election of the directors of the Federal reserve bank of
that district. Would you not say that those influences would deter
mine an election because of the preponderance of control of banks
in that district; that it might control the election of directors in the
Federal reserve district?
Mr. P o l e . I said that I was not sure that that was the case. I
might insert in the record, if you will permit me, a memorandum on
that question, Mr. Chairman.
The C h a i r m a n . Well it is perfectly clear that this question per
tains to the district in which the Minneapolis Federal Reserve Bank
is located.
Mr. P o l e . Yes.
The C h a i r m a n . And I hope that you have in that brief you are
submitting there a list of just how many banks are controlled by
these two groups in St. Paul and Minneapolis, and I would like to
BRANCH, CHAIN, AND GROUP BANKING
161
ask you, in that connection, whether or not your office was consulted
by either one of these holding companies as to the organization and
control of these several banks.
Mr. P o l e . They have consulted us with respect to organizations
of new national banks and with the taking over of certain national
banks, and we have been very much delighted, in some instances,
when they have gone into a community and have assisted us in
correcting a bad situation. As to the number of banks which they
have in their groups, I could probably furnish that.
Mr. W in g o . Mr. Chairman, may I suggest that I intended, at the
proper time, to suggest that we get a list of the names and locations
of these different groups and chains where more than 1 0 banks were
involved, and the names of the banks in the chain and where located,
and the names of individuals that dominated them or the holding
company or central bank that dominated them. We had a great
many conflicting statements as to the extent of this and where it is
located and I had intended suggesting to the committee that wTe call
for that, and if you are going to go into that question, why not pre
pare that and get it into the record? It may take a couple of weeks
to get it.
The C h a i r m a n . I s that available and can it be furnished to the
committee?
Mr. P o l e . The information was compiled up to December 31 by
the Federal Reserve Board, and possibly by the American Bankers
Association. It has not been compiled by our office. I feel quite
sure the records of the Federal Reserve Board would be available.
Mr. W in g o . It does not make any difference what source it comes
from. It is public information.
Mr. F o r t . If you are going to get that information and have it in
the record, is there any special necessity for restricting it to, say,
1 0 banks?
There may be groups of 5 banks that would far exceed in
importance a group of 1 0 or even 1 0 0 banks.
Mr. W i n g o . I see the force of your suggestion as to putting a limit
on the number.
Mr. F o r t . Why not get all?
Mr. W i n g o . The trouble is that possibly there would be some
where only one or two extra hands are involved. I think we should
have the outstanding ones. Of course if it is thought necessary to
have all of them, let us have them.
The C h a i r m a n . While this is not under the jurisdiction of the
comptroller, the comptroller is ex officio a member of the Federal
Reserve Board, and I am going to suggest to you, if that is available
through the Federal Reserve Board, that you present it to the com
mittee and it will be inserted in the record here.
Mr. P o l e . I shall be glad to obtain that for the record if it is
available.
Mr. W in g o . He would not only have to have the cooperation of
the Federal Reserve Board, but the State banking commissions.
However, I think they can give you this.
Mr. P o l e . It has been compiled in connection with information
received from the State banking commissions.
Mr. W i n g o . If it is available in the States, I have an idea you can
easily get it.
Mr. P o l e . It is a very difficult thing to get.
162
BRANCH, CH AIN, AND GROUP BANKING
The C h a i r m a n . Governor Young stated in his letter this morning
the willingness of his research department to cooperate with the
committee. If Mr. Pole has not got that information, I think he
can get it.
Mr. P o l e . I think so.
The C h a i r m a n . We would like to have it in the record at this
point.
C
h a in
or
G roup
B a n k in g
at
the
E
nd
of
D
ecember
and
June,
1929
The attached list of bank groups or chains is based on information collected
for the Federal Reserve Bolard by the Federal reserve agents and includes those
systems in which any person, group of persons, partnership, association, or
corporation has actual or potential control over the operations or policies of
three or more banking units, each working on its own capital and under its own
personnel. The sources of the information include State banking departments,
national bank examiners, the management or controlling interest of some of the
groups, press reports, etc. While the information obtained is believed to be
reasonably correct it may omit a few small chains for which no information is
available and may not include all the banks in some of the groups or chains
listed. It is also possible that the controlling interests do not regard some of
the banks included in the attached statement as constituting group or chain
systems.
over by Rogers Caldwell Group, Nashville, Tenn.
163
t Taken
BRANCH, CH AIN, AND GROUP BANKING
Number and loans and investments of banks in each chain or group— Continued
164
BRANCH, CH AIN , AND GHOTIP BANKING
2 Constituent banks taken over by Transamerica Corporation group.
8 10 banks suspended during July, 1929, and group dissolved.
4 One bank suspended Dec. 31,1929.
« Atlanta & Lowry National and Fourth
National merged to form
the First National.
BRANCH, CHAIN, AND GBOTJP BANKING
165
Number and loans and investments of banks in each chain or group— Continued
166
BRANCH, CH AIN, AND GBOUP BANKING
of stock
in one bank.
167
Disposed
BRANCH, CH AIN, AND GROUP BANKING
168
BRANCH, CH AIN, AND GROUP BANKING
O
O
C
O
C
5 CJN
Number and loans and investments of banks in each chain or group— Continued
h
ft
0
lO
o0 0
0
cnTt-T
tJ4
O
a J
S
3
05
03
«o
t"
c * co
CO rtj
H iO N
o' CMCO
rt<
««•
o - . -, -. • • C O N O rH N K
CO CO Oi <N 00
1M f-T (N
cT
COM O H N N
CO CO 05 IN 00 N
^Thh W Ci
# CO -tjl
CO CO CO
ic IO iC^
^ CO CO CO CO
£
Jj
O
o
i :.g
r!>-t>
! io
o 0
«S
W x)
§ S3
a
a
w
*«8
o_3
"3
fl £a
ode
333q- n3 e
qgp
rr
s> “ 1 ° .^
«
6
J «J0
jgg^H
ogsao “g gg-pw
aS
MO
£ oso T*8
^
bea>a
^
Io I“ ® !&
5 u ll| I
O h^<O
O
!0
mo
1
a
-a
. g •rn<
£ 3 -0 C
rn^c ofS
a
<3 ^ 03-0
03^
Say3&-mo
Mo fl 03.2,M -j- £)
^©
-u
S
p fqpufcj
BRANCH, CHAIN, AND GROUP BANKING
s §
169
Number and loans and investments of banks in each chain or group— Continued
170
BlIAXCH, CH AIN, AND GROUP BANKING
innesota
BRANCH, CH AIN , AND GROUP BANKING
171
Number and loans and investments of banks in each chain or group— Continued
172
BBANCH, CH AIN, AND GROUP BANKING
173
BRANCH, CH AIN, AND GROUP BANKING
CO
00 OJONO')
00i> »o
CO <N iO CO
1C
© <o co
<M
CO IO lOid>c»o>o lO
T3 o
;■<
ax
!_ -www
^ ^Sfe^^
O 03
S
1*
rS^lz:
j r|2oH r4“
• !
►4d
o q
S
1
§
S+23 o
-S 2.52
g i a *i aaSs d: liss igi is^i
P* Ph
M
Pl
O M odco^
100136— 30— v o l. 1, p t. 2------- 6
iSQ
*
§5
S&
3^-3
r3pS3
hS«g
SQ
®
_ ^£ ®>-3''S 'o
f
§as
1S.25°
b5 5 j
g a
D"353ftco * § • 3 ' -T^ b
.2’H’S
^<10-5 W H
over by Northwest Bancorporation.
<N CO
taken
CO 00
111 bank
CO
Number and loans and investments of banks in each chain or group— Continued
174
BRANCH, CH AIN, AND GROUP BANKING
12 Disposed of stock in one bank.
131 bank taken over by First Bank Stock Corporation.
14 Group taken over by First Bank Stock Corporation.
h Sold interest in 1 bank.
605 |.......................... ............................ ............................ __|
16 2 banks suspended. _
17 Controlling interest m 1 bank sold; no longer constitutes a chain.
18 2 banks merged; no longer considered a chain.
*
605j
BRANCH, CHAIN*, AXD GROUP BANKING
1 ,7 9 9 ;
175
2,133
Number and loans and investments of banks in each chain or group— Continued
176
BRANCH, CH AIN , AND GROUP BANKING
iO «5
o
05 oo '-i
lO .O
CT> 00 r-l
1
1£
: c1p
i >1c
> *. £
^ <ii a
i £ \>
00
e
a
1>
!>
e
sa
10MHH
r'
50
COrH
to
io
>o ^
nhh
<M Cl
<N
DHH
<N
i—
H
<N
CO
^
C*
CO
^
Cl
^ ^ CO
TjH rf ^ lo
^ ^ ^
r
c
C
ll
>
i>
It
"Hr-( | l-H
e*
1-1
CO
c
>
g: £
>c
CO
CO
^
CO CMrH ! CO
CO
00 rH <N
CO rHC'l
- _____________________________________________________________
IM
c
>
*
a
£
Illinois.
m
r“l
hh
CO
r
<N
rH
CO
328,789
6,366
132,477
1, 362
19, 609
8,734
28,343
15,135
20 2 banks consolidated.
1,361
19, 609
8, 734
19, 609
12,333
19, 609
12, 333
132,477
28,343
31,942
31,942
2,150
16, 672
4,252
15, 697
5,040
into or merged with existing branches and 3 banks added to the group.
<N
banks converted
rH
19 Seven
!
17,234
878
5,024
123, 369
181
776
5,005
3, 599
9,108
3,599
3,599
562
562
9,108
2, 890
2,890
21 Two banks merged.
123,369
3,344
3
§
iO
co
Western New York Investors,
Buffalo_________________________________________________________________________
American Shares (Inc.), N ew
Ynrlr flitv
Manhattan
Co., New
Y rork
C itv
4, 222
5,024
878
5,024
181
3, 825
l
Straus, S. W ., & Co., New
York City
_______________________________________________________
5,902
5,902
878
5,024
9, 246
6,083
oo"
_______________________________
5,082
4, 431
16, 976
5,082
4,431
27,606
fh
5,082
4, 431
31,070
1
Connecticut— .
4, 291
5,473
4,291
12, 666
11, 394
1, 713
g
Buchner, P. C., et al., GeneseoFirst National Bank & Trust
Co., Elm ira __________________________________________________ _______________
11, 256
22, 009
21, 871
3, 583
ss
Bank
Shares Corporation
of
United
States, New
York
C ity ___________________________________________ _______________________________
CO
9,013
8, 116
12, 666
7, 950
10, 615
7, 641
10, 615
21, 392
21, 083
149,995
400, 916
225, 072
39, 701
149,995
400, 916
225,072
39, 701
665,689
550, 911
550,911
225, 072
225, 072
39, 701
39, 701
. .
. ,1
|
8, 844
12,427
149,995
8,844
149,995
10, 557
815,684
1-i
oocco
O ^ I>
lO'-rtTgf
815,684
M
Palmer, Leslie R., I r v in g to n ...
CO
Northern New York Trust Co.,
W atertow n.
Globe Financial Corporation,
B rooklyn _____________
Interbank Investors Co., Buf
falo
Crandall Family, W estfield __
Hulbert, C. E., and associates,
DnwnsvillA
rH
New Y o r k ...... ............................
California
CO
Trading Cor
York C it y __
10,949
16, 992
1,110
10,949
00
Goldman Sachs
poration, New
67,499
100,025
O
16, 992
1,110
10, 949
18,102
00
<£>
§
10, 949
<N
03
Humphrey, W. J. & F. J.,
W arsaw ........................................
05
s
............................ ............................
QO
18,102
115, 559
OO
American
& Foreign
Shares
Cnrnoration. A lbanv
First Securities
Corporation,
Syracuse.-. - - - - . ---
BRANCH, CH AIN, AND GROUP BANKING
177
eg
8
CO
BRANCH, CH AIN, AND GROUP BANKING
Number and loans and investments of banks in each chain or group— Continued
178
Stock
Corporation.
** Formerly
Exchange National Co.
** All banks suspended
November, 1929*
179
*2 Two banks sold to First Bank
BRANCH, CH AIN , AND GROUP BANKING
Number and loans and investments of banks in each chain or group— Continued
180
BKANCH, CH AIN, AND GROUP BANKING
over by First Bank
Stock
Corporation.
26 Now
included in Rogers Caldwell Group, shown
above.
181
so Taken
BRANCH, CH AIN, AND GROUP BANKING
Number and loans and investments of banks in each chain or group— Continued
182
BRANCH, CHAIN, AND GROUP BANKING
BRANCH, CHAIN, AND GROUP BANKING
183
and address of m a n a g e m e n t
or controlling in terest
State m e m
b er
11
CO
CO
lO
^ COH H
o
1
CO
t>-
oo
CO<N
i i
r-i COM
^ co
us
5h
CM
CO
<N
CO
<M
s
a
§
00
(M
CO
IN
CO
c*
co
cs
lO
O
^CO 1
>-ico
745
805
135
CO
r-t
463
2 ,3 9 7
805
805
o
00 II
463
2 ,3 9 7
$940
$940
1, 660
879
908
454
2 ,6 8 5
1, 660
879
1,0 6 4
908
454
2 ,6 8 5
28
449
1,2 2 9
28
449
1, 229
362
20 ,986
20, 986
05 CO
912
3 ,6 2 6
5,7 6 4
$24 ,8 8 7
$25, 951
CO
CO
908
197
970
1 ,1 6 7
745
5 ,7 6 4
Ju ne
D ecem
ber
N onm em ber
05 CO 1
W illia m s, C. J., H in m a n , G .
A .,
and
P aerson,
W.
E .,
908
P o w e ll___________________________________________________________________________________________________
Taliaferro,
T.
S., jr.,
R ock
912
S p r in g s.............................................................................................................................................................. ................... ................................
3 ,6 2 6
P. J. Q uealy, K e m m e r e r ------------------------------------------------------------------------------------------------------------
D a k o t a _____________________________________________________________ __________ __________________
o'
197
970
9 ,3 6 9
12 ,9 9 4
June
m em ber
co
South
i-l
n n
1 2 ,9 9 4
2, 865
8, 801
1 3 ,1 1 5
879
879
3 ,9 2 9
9 ,7 0 9
13, 569
D ecem
ber
State
in v e s tm e n ts
3
M a r b le , A . H ., C h e y e n n e ...............................................................................
4
144,474
147, 480
1 ,6 6 0
1 ,6 6 0
16 5 ,4 6 0
168 ,4 6 6
00
CO
O
------------------------------------------------------------
5
$ 1 6 6 ,3 9 0
$172, 261
$1 9 1 ,2 7 7
$198, 212
05 05
O CO
!>►lO
oTco
W y om in g
(D e ce m b e r, 5 g ro u p s;
June, 5 g ro u p s)............................................................................................... ................................
11
22
June
N a tio n a l
and
D ecem
ber
June
D ecem
b er
T o ta l
Loans
© 2
OO1-H
ocTco"
05
H a y , J. W ., Cheyenne
N onm em ber
8
First
Wisconsin
N a tio n a l
B a n k, M i lw a u k e e . .........................
17
Coe, C. C., and Coe, A . E . ,
__________
Almona
5
B aker, Harry
D ., St. C ro ix
"fi'allc
4
D un e g a n , J. W ., Stevens P o in t .
R ose b u sh , Judson, M i lw a u k e e B ro w n , C. C ., K e n o s h a -------------------------------------------
.
N a tio n a l
of b a n k s
D ecem
D ecem
D ecem
D ecem
J une
June
J u ne
Ju ne
ber
ber
b er
b er
T o ta l
Wisconsin
(D e ce m b e r,
6 b an k s;
June, 5 b a n k s )............................... ................................
Name
N um ber
Number and loans and investments of banks in each chain or group— Continued
184
BRANCH, CH AIN, AND GROUP BANKING
1 1
1 !
II
i-i
<N ^
i-H
CM^
1 I
<N
rH-H
<N
H H
^
COlO
^
COlO
185
BKANCH, CHAIN, AND GROUP BANKING
Mr. L e t t s . I understand the statement with respect to the Min
neapolis and St. Paul situation is ready to go in at this point.
The C h a ir m a n . Yes. Do you want to submit that now. Mr.
Pole?
Mr. P o l e . This statement did not refer specifically to any par
ticular banks. You asked that that be included, and so I shall
have to revise it.
The C h a ir m a n . If you will revise that and insert it, we will be
obliged.
Mr. P o l e . I will be glad to do so.
(The statement referred to is as follows:)
P O S S IB L E
C O N TRO L
G RO U P
OP
E L E C T IO N S
BANKS
IN
OF
N IN T H
FEDERAL
FEDERAL
RESERVE
RESERVE
BANK
DIR E CTO R S
BY
D ISTR IC T
For purposes of election of class A and class B directors of Federal reserve
banks, member banks in each Federal reserve district are divided into three
groups, each electoral group consisting as nearly as possible of banks of similar
capitalization. Each group of banks is permitted to elect one class A and one
class B director. Each member bank certifies its first, second, and other choices
for a director of class A and class B, respectively. Only one choice for any one
candidate-may be voted. A candidate having a m ajority of first choice votes
is declared elected. In case no candidate has a m ajority of first choice votes,
the first and second choice votes are added together and if any candidate then
have a m ajority of electors voting he is declared elected; if not, the first, second,
and other choice votes are added and the candidate then having the highest
number is declared elected.
In the ninth Federal reserve district the electoral groups of member banks
are as follows: Group 1 consists of banks having a capital and surplus of
$400,000 and over, Group 2 of banks having a capital and surplus of from
$60,000 to $399,999, and Group 3 of banks having a capital and surplus of less
than $60,000. At the end of 1929, there were 683 member banks in the
Minneapolis district, of which 30 were in Group 1, 299 in Group 2, and 354 in
Group 3.
The number of member banks in the ninth district belonging to the North
west Bancorporation group and in the First Bank Stock Corporation group,
together with the percentage of the number of banks in each of these groups to
the total number of banks in each electoral group are shown below:
Member banks in the ninth Federal reserve district, by electoral groups, December 31,
1929
N um ber of banks in—
A ll
member
banks
_____ _______
_______________ ____ _______________
A ll m ember banks
First Bank Stock Corporation:
N um ber
__
_______ __________________________________
Per cent of total in group...................... ..........................................................
Northwest Bancorporation:
N u m b er___ __
__ _____ ______ ______________________________________
Per cent of total in group_____________________ _______ . _____ _________
First Bank Stock Corporation and Northwest Bancorporation com
bined:
N um ber
.
_ ______________________________________
Per cent of total in group.................................................................................
Group
1
Group
2
Group
3
683
30
299
354
65
9.5
7
23.3
47
15.7
11
3.1
55
i 13
4 3 .3
30
8 .1
10.0
12
3.4
120
17.6
20
66.7
77
25 8
23
6.5
1 Includes 1 bank which joined the group in January, 1930.
It will be noted that the First Bank Stock Corporation and the Northwest
Bancorporation together control 66.7 per cent of the member banks in Group
1, the group of largest banks, in the Minneapolis Federal reserve district; and
it is manifest that acting together these two corporations could easily control
the elections of class A and class B directors in this group by having the mem
186
BRANCH, CH AIN, AND GROUP BANKING
ber banks which they own vote for a particular candidate. On the basis of their
present holdings, therefore, these two corporations by their combined action would
be able to place upon the board of directors of the Federal Reserve Bank of
Minneapolis a class A director and a class B director from Group 1. Moreover,
the First Bank Stock Corporation and the Northwest Bancorporation together
control approximately 25 per cent of the banks in Group 2 in the Minneapolis
district. While this number is, of course, not sufficient to control absolutely
the elections of class A and class B directors in the district, it is obvious that
by acting jointly, they could give to any specified candidate a large number of
votes and with some additional votes from independent banks might bring
about the election of the desired candidate. This would be more easily accom
plished in an election where there were several candidates in the field, in w7hich
case control of a plurality of the votes might be sufficient to elect. Under some
circumstances, therefore, on the basis of present stockholdings, the two corpor
ations acting together might conceviably succeed in electing a class A and a
class B director from both Group 1 and Group 2 in the Minneapolis district, a
total of four directors.
Acting separately, the Northwest Bancorporation, owning as it does, approx
imately 43 per cent of the member banks in Group 1, could probably control
the election of class A and class B directors in that group in many cases, unless
the opposition were united on one other candidate. The First Bank Stock
Corporation, however, owning about 23 per cent of the member banks in Group
1, would probably find it difficult to compel the election of any candidate in the
group unless it were able to obtain the support of at least some of the banks
owned by the Northwest Bancorporation. It is doubtful whether either the
First Bank Stock Corporation or the Northwest Bancorporation could, acting
separately, control the elections of class A or class B directors in Group 2, as
their separate holdings in this group are only about 16 per cent and 10 per cent,
respectively.
As showrn in the above table, the holdings of these two corporations in member
banks in Group 3, the group of smallest banks, are relatively small and it is very
doubtful, on the basis of the present holdings, that much influence could be
exerted by these two corporations on elections of class A and class B directors
in this group, unless it be by moral suasion or some method other than direct
control of votes,
While the above shows the possibility of the control of elections of Federal
reserve bank directors by group banking systems, I wish to point out that there
would be no likelihood of similar control of such elections in the case of branch
banking. A parent bank and all its branches constitute but one corporate
entity and, accordingly, a member bank wTith any number of branches would be
entitled under the law to only one vote in elections of class A and class B directors.
For example, if the Northwest Bancorporation were a member bank with a large
number of branches instead of a holding corporation owning stock in a large
number of individual banks, it would have only one vote in elections of class A
and class B directors, whereas it now controls a large number of votes as indicated
above.
The C h a i r m a n . What is the attitude of your department when you
are approached by the heads of these chain groups for the organiza
tion of banks in any particular territory? Do you lend them assist
ance and cooperate with them to the end that these groups may be
developed?
Mr. P o l e . I would not go so far as to say that, Mr. Chairman,
because when a group undertakes to purchase a bank, it does not
consult us unless it is a question of reorganization under a national
charter which is sometimes the case—frequently the case—'and in
those circumstances we have always been very glad indeed to do what
we can to promote a better state of affairs in any particular locality.
The C h a i r m a n . Y o u have no notice, then, when a national bank
is taken over by one of these groups until you examine the stock
holders, list?
Mr. P o l e . Not necessarily.
The C h a i r m a n . And you do not take any cognizance of it?
BRANCH, CHAIN, AND GROUP BANKING
187
Mr. P o l e . N o ; we can not take anymore cognizance of that than
we can the transfer of the stock into other hands than the group.
The C h a i r m a n . Have you ever suggested to the organizers of these
groups the merging or taking over of a national bank in any of these
groups?
Mr. P o l e . I have not. There may have been some such suggestions
upon the part of our chief examiners or examiners in the field.
The C h a i r m a n . I s your department or are your chief examiners
consulted in regard to the organization of these various holding
companies affiliated with the banks?
Mr. P o l e . What is that, Mr. Chairman?
The C h a i r m a n . Is your department or the chief national bank
examiners consulted in connection with the organization of these
affiliated companies with national banks?
Mr. P o l e . Usually our organization department is consulted, in
order that a method may be adopted which has been approved, of
declaring a dividend and using the proceeds of such a dividend for
the capitalization of the affiliated company.
The C h a i r m a n . Does that extend to the point of approving or
disapproving the organization of these companies?
Mr. P o l e . No; we do not have to approve or disapprove.
The C h a i r m a n . I understood you to say the other day that we
did not need any larger banks in the central reserve cities. Was I
correct in this? To which cities did you refer?
Mr. P o l e . Chicago and New York are the central reserve cities.
The C h a i r m a n . Suppose two or more of the big banks in one of
these cities wanted to merge or consolidate; is it the practice of your
department to protest or approve, or could you stop, if you wanted
to, such consolidation or merger?
Mr. P o l e . Consolidations of banks has to be made with the ap
proval of the comptroller.
The C h a i r m a n . None of these mergers could be brought about
without the approval of the comptroller?
Mr. P o l e . Consolidation can not be brought about otherwise.
The C h a i r m a n . The other day you said, in answer to a question,
that you were largely responsible for much of the branch banking
discussion going on at the present time. How did you mean that?
Mr. P o l e . I mean that through my report to Congress, and through
addresses which I have made, interest over the country has been
aroused in the banking situation, particularly with respect to the
banking situation in the rural communities, where the failures have
been very large.
The C h a i r m a n . Are you carrying on any propaganda in favor of
branch banking or chain banking or group banking?
Mr. P o l e . None whatever.
The C h a i r m a n . I have here a report of the Comptroller of the
Currency, sent out by the National Shawmut Bank of Boston, it
apparently having been sent to banks generally. It is dated Decem
ber 2, 1929, and pertains to legislation recommended, and it is printed
at the United States Government Printing Office.
Was that sent out as a circular to the banks for distribution?
Mr P o l e . May I look at it? [After examining document.l I
know nothing about this. Mr. Await says that he does.
The C h a i r m a n . Can Mr. Await tell us about it?
188
BRANCH, CHAIN, AND GROUP BANKING
Mr. A w a l t . A s I remember it, Mr. Chairman, an officer of the
Shawmut Bank came into the office in Mr. Pole’s absence from the
city one day and asked if we could furnish them with some of the
copies of our annual report, and I said we could not. He wanted
quite a large number. I called up the statistical division of our office,
and they told me that some banks had desired copies of the comp
troller’s report and an arrangement had been made that they could
get them from the Government Printing Office by getting in touch
with the Public Printer and having them printed and paid for, and I
assume that that was done in this case. I do not know why they
wanted it.
The C h a i r m a n . The reason I mentioned it is that it seems that
these are being sent out to the banks of the country as part of a move
ment apparently to encourage certain forms of development.
Mr. A w a l t . I might suggest that if the committee desires to find
out the exact reason they call the officers of the Shawmut Bank.
I do not know what their reason is, and we did not approve anything
of the sort.
Mr. L u c e . It might be useful in the record to have it appear at
this point that any citizen may secure from the Government Printing
Office, at cost plus 10 per cent, any public documents that he may
desire.
The C h a i r m a n . I was not raising that question, but raising it in
connection with the dissemination of information that Mr. Pole
referred to the other day, as to whether the discussion was being
brought about from the comptroller’s office, or whether it was pro
ceeding independently of that, or just what there was to that.
Mr. L u c e . I have an ulterior motive in making the statement that
I did, because I desire to take every opportunity to correct the wrong
impression on the part of the public that members of Congress are
working the Public Treasury in the wide distribution of literature
at public expense.
Mr. W i n g o . I think it might be well, for reasons not necessary to
elucidate here— and the public seems to have developed a suspicion
along these lines—to make it appear affirmatively in the record that
what has been done, that what the Shawmut Bank has done is not
reprehensible at all but what they had a right to do. You and I have
seen some things go out in the last few weeks that are perfectly inno
cent, and yet the newspapers seem to think something terrible is sug
gested. So I do not think a reputable person or a reputable institu
tion like a bank should be suspected in a case like this of having done
something terrible where they have acted properly. They have
done what any citizen has the right to do, go to the Public Printing
Office and get copies of documents and pay for them. The Govern
ment does not lose any money. In other words, the right of legitimate
propaganda is really a part of the right of free speech and freedom of
press.
The C h a i r m a n . N o w , Mr. Pole, reverting to that question I asked
some few moments ago which was referred to by Mr. Fort the other
day; take, for instance, St. Louis, as a trade area. You avoided an
swering Mr. Fort fully in his question the other day about how many
banks you think, that city should have under your plan. For
instance, do you think it should have 1, 2, 3, or more banks, and just
how would you parcel out the business in the city? Would you, in
BRANCH, CHAIN, AND GROUP BANKING
189
case there were four big banks with branches, permit each of the four
to have a branch on each of the four corners of a location, or just how
would you do it? Would you divide the city into four districts, one
bank to serve each district, and where national-bank stocks are owned
by group, chain, or holding companies, how are the stocks registered
on the books of the bank, correctly or in the names of dummies— I
think you have answered on this last feature.
When you answer this question, I wish you would specifically set
forth just how you would deal with a specific trade area like St. Louis,
for instance, so that the committee may understand just how this
plan of branch banking would work out. If you will add that to the
brief you are preparing-----Mr. P o l e . Y ou wish me to add that to the brief on trade areas?
The C h a i r m a n . Yes.
Mr. P o l e . I thought you wanted me to answer it now.
The C h a i r m a n . Do you regard the national banking system as a
unit banking system?
Mr. P o l e . A unit and a branch banking system.
The C h a i r m a n . Your branches being confined to the cities?
Mr. P o l e . There are also branches of national banks outside of
the cities which have resulted from the conversion of State branch
banking systems.
The C h a i r m a n . A s I understand your testimony, you believe that
we have arrived at the point where we should look the situation
squarely in the eye as to these banks and recommend an enlargement
of the functions of the national bank business as now conducted?
Mr. P o l e . Yes, as being the o n l y r e m e d y which occurs to me, as
the only one which will carry t o the rural communities a safe and
sound banking service.
Mr. S t e a g a l l . Right there, let Mr Pole insert the figures showing
the development of branch banking in point of capital and the
number of branches since the passage of the McFadden Act.
The C h a i r m a n . February 25, 1927.
Mr. W i n g o . Let that show not only the branches established by
direct authorization, but those that have come into the national
system by reason of mergers or by reason of taking over State banks.
I think that is in your annual report
Mr. P o l e . It is.
Mr. W i n g o . But it might be wise to get it into the record a t t h is
point.
The C h a i r m a n Without objection, when Mr. Pole supplies that
it will be put in the record at this point.
(The information requested is reproduced belowT.)
BRANCHES
In the comptroller's report for the year ended October 31, 1927, the statement
was made that under the provisions of the act of February 25, 1927, the Comp
troller of the Currency had approved the establishment of new city branches to
the number of 127. In the year following 103 new city branches were authorized
and during the year ended October 31, 1929, the number authorized was 89.
Of the 319 local branches authorized by the comptroller 75 have been discontinued
leaving the total of city branches now in operation authorized by the comptroller
under the provisions of the M cFadden Act as 244.
During the past year 2 branches were added to the svstem through the con
version of a State bank and 82 branches were added through the consolidation of
100136— 30— v o l 1,
pt
2------- 7
190
BRANCH, CH AIN, AND GROUP BANKING
State banks with national banks. These additions, together writh those branches
in the system under date of October 31, 1927, less 104 branches dropped through
action of directors and shareholders or liquidation of national banks make a
total of 1,061 branches in existence in the national banking system as of October
31, 1929, summarized as followrs:
Closed during the year ended
Author
Oct. 31, 1929
Total
ized
in
during
exist
year
tion i ence
Volun
ence
Feb. 1 Oct.
ended
tary
Share Direc
Oct.
Oct.
j 25,1 9 27 \31,1928
Lapsed
liqui 31,1929
holders
tors
1
|
31,1929
dation
|
1
1
In
Classes
fa
Statutory-! ^
Additional offices, c branches_________ I
M illspaw A c t ________________________ _ 1
O branches_____________________________ 1
T otal..................................................
| In
165 1
:
202
5 j
469
162
168
6
187
2
82
372 :
992
173
44
5
1
10
17
427
243
142
5
244
6
11
86
1,061
1
1
89
1
25
The C h a i r m a n . I would suggest to the committee that our com
mittee has charge on the floor this morning of two bills, and probably
we had better recess.
Mr. G o l d s b o r o u g h . Mr. Chairman, it seems to me that the rule
under which this hearing is being conducted has worked out so far
very satisfactorily, and I am going to suggest that when we further
hear Mr. Pole, the same procedure be carried out. In other words,
there are certain of the members, I am sure, who, because of the dis
cussion, have other questions that they would like to ask, and if the
chairman would just begin and go around the committee as we did
before, I believe it would be better than to have a round table dis
cussion.
The C h a i r m a n . The Chair will be very glad to comply with that.
There are some members of the committee who have not had their
opportunity to question the witness.
Without objection, we will stand adjourned until 10.30 o’clock
to-morrow morning.
(Thereupon, at 11.57 o’clock p. m., an adjournment was taken
until Thursday morning, March 6, 1930, at 10.30 o’clock.)
BRANCH, CHAIN, AND GROUP BANKING
H
C
ouse
o m m it t e e
on
of
B
R
e p r e s e n t a t iv e s ,
a n k in g
and
C
urrency,
Thursday, March 6, 1930.
The committee met in the committee room, Capitol Building, at
10.30 o’clock a. m., Hon. Louis T. McFadden (chairman) presiding.
The C h a i r m a n . The committee will come to order.
Mr. Dunbar, would you like to proceed now?
STATEMENT OF HON. JOHN W. POLE— Resumed
Mr. D u n b a r . Mr. Pole, you stated that the great number o f
failures in banks have occurred since 1921—I think it was 5,000—is
that correct?
Mr. P o l e . Five thousand six hundred and forty.
Mr. D u n b a r . To what extent do you think that the failures of
these banks were due to conditions existing since 1921? The reason
I ask that question is this, that I was a member of the Committee on
on Banking and Currency nine years ago and we at that time had
confidential information that if the banks in Iowa were required to
liquidate and to do so within two years’ time, 95 per cent of them
would prove to be insolvent.
Now, then, to what extent have these bank failures in small com
munities been due to conditions existing since that time?
Mr. P o l e . I think it has been due in considerable part to the
economic conditions.
Mr. D u n b a r . Those banks at that time were practically insolvent
but we were told that if they were given a chance, probably they
could recuperate and that they might become solvent, and we were
also informed that the condition of many small banks throughout the
United States was the same. Has not the failure of these banks in
rural communities largely been due to the fact that they have been
unable to recover from the effects of frozen paper that they had in
their possession at that time?
Mr. P o l e . Undoubtedly that has had its effect.
Mr. D u n b a r . D o you believe that if the banks at that time had
been solvent in a fair proportion, that we would have had the bank
failures in recent years that we have had?
Mr. P o l e . The banks were not insolvent as far as the national
banks were concerned. Just as soon as we would discover a condi
tion of insolvency, the law requires us to take charge of that bank or
to put into effect such remedial measures as are available.
Mr. D u n b a r . Does this figure of 5,640 that you have given us
relate to national banks alone, or to national and State banks?
Mr. P o l e . National and State banks.
Mr. D u n b a r . Can you tell us how many of them were national
banks?
Mr. P o l e . There were 763 national banks, and 4,877 State banks.
191
192
BRANCH, CH AIN, AND GROUP BANKING
Mr. D u n b a r . Which shows that the national banks are better
supervised and better conducted than the State banks.
Mr. P o l e . We must take into consideration the fact that there
were almost three times as many State banks as national banks
Mr. D u n b a r . But the proportion of failures is 3 to 1—is that
correct?
Mr. P o l e . Approximately, in ratio to the number of banks.
Mr. D u n b a r . Of course, you have no supervision over any State
banks except in so far as they are members of the Federal reserve
system.
Mr. P o l e . We have no supervisory powers over those banks.
Mr. D u n b a r . A large number of the banks that have failed have
been banks as to which you had no power or authority to regulate
their affairs—is that correct?
Mr. P o l e . Very largely.
Mr. D u n b a r . Y o u said that if a $ 1 0 0 ,0 0 0 capitalization were re
quired of all banks, that it would close a great many banks in that
area and that there would be a tendency to monopoly.
Mr. P o l e . In the smaller communities, because there were in the
United States on June 30, 1929, 5,468 banks with capital of less than
$25,000; 5,357 banks of $25,000 capital; 6,031 banks with capital
above $25,000, but not exceeding $50,000; and 1,073 banks with cap
ital above $50,000, up to, but not including, $100,000. So that out
of 24,912 banks, there were 18,000 which had caiptal under $100,000.
Mr. D u n b a r . In a community in which there is a large number of
State banks, how would the requirement that a national bank have
a capitalization of $100,000 produce a monopoly?
Mr. P o l e . Because a bank has necessarily to have a sufficient
territory from which to draw business, which will enable it to earn a
reasonable profit on its capital investment, and, in addition to that,
it must have an area which will permit of reasonable diversification.
Mr. D u n b a r . If it were a monopoly, it would have all those ad
vantages, would it not?
Mr. P o l e . It would have those advantages, but it would also
deprive many communities of banking facilities which they are en
titled to.
Mr. D u n b a r . Then you are in favor of communities having bank
ing service in addition to the service to be rendered by national banks
with $100,000 capitalization?
Mr. P o l e . I am i n favor of that.
Mr. D u n b a r . If you established branch banking systems in those
communities, will that not drive away all of the State banks that are
now serving those communities?
Mr. P o l e . If national banks were given the right to extend their
branches, that probably would have the effect of getting a great many
State banks into the national system.
Mr. D u n b a r . D o you think it would get a great many of these small
banks into the national system?
Mr. P o l e . I think a great many of those small banks would become
branches of a bank which would be a member of the rational system,
provided the advantages which were given to the national bank were
such as to make the national system more attraetice than the State
system.
BRANCH, CH AIN, AND GROUP BANKING
193
Mr. D u n b a r . What would you suggest in the way of advantages
that we could give the national banking system that would make it
more attractive than State banks?
Mr. P o l e . If the national system were permitted to extend its
branches across State lines, it would be such an advantage.
Mr. D u n b a r . Y o u take Indiana and Ohio, for instance; we have
the cities of Cleveland and Cincinnati, and their banks would come
over into Indiana and compete with Indianapolis, Evansville, and
every one of the other large cities. What would be the object of
that? Why should they compete with one another in the different
cities? Those cities are large capital centers.
Mr. P o l e . A s far as Cleveland and Cincinnati are concerned, my
suggestion, in order that the development of the branch system might
be orderly, is that a bank should not be permitted to branch out into
a city in which there was a Federal reserve bank or a branch of the
Federal reserve bank.
Mr. D u n b a r . Y o u so stated the other day.
Mr. P o l e . Y e s .
Mr. D u n b a r . But now we have communities in which the banks
in existence are earning 10 and 12 per cent. They are prosperous,
but they can not furnish all of the credit required by local manu
facturers. Now, then, might not the plea be made that because they
can not extend that credit, a branch bank would be justifiable in
the opinion of the Comptroller of the Currency?
Mr. P o l e . It might b e s o .
Mr. D u n b a r . Then, if it were so, it would interfere with pros
perous municipal banks that have filled the requirements made of
them, with such assistance as they were able to give these manufac
turers in obtaining credits in large cities?
Mr. P o l e . That is the case now. Where banks are not able to
accommodate the larger borrowings of their communities they now
have to go to these larger cities.
Mr D u n b a r That is true.
Mr. P o l e . My idea is that the business that has developed in that
particular community would remain there, but it would be transacted
through a branch, furthermore it does not mean because banks would
be permitted to establish branches, that they would be compelled to
do so.
In Indianapolis there is not a branch of the Federal reserve bank,
is there?
Mr. D u n b a r . I do not know .
Mr. P o l e . Indianapolis might be the center of a very large and
important trade area of Indiana.
Mr. D u n b a r . It is now.
Mr. P o l e . Yes. It might be found that it wrould not be necessary
for them to take full advantage of what opportunities were offered
them under such an amendment.
Mr. D u n b a r . That is true, but I can imagine a situation where some
manufacturer might feel aggrieved in his dealings with the local
bank and he wTould go to the Comptroller of the Currency and make
his presentation to the effect that he could not be accommodated,
and a branch bank wTould then be established in that community,
which would interfere with and ruin the business of the banks which are
there now Do you not think that there is a high probability of
194
BRANCH, CH AIN, AND GROUP BANKING
interference with the banking business by the granting of a charter to
a branch bank in that kind of a community?
Mr. P o l e . Under the suggestion which I have made, that there
would not be much necessity for establishing de novo branches.
There would be nothing to prevent, as far as I know, some Cleveland
people coming down and bujdng a bank in Indianapolis, but, if they
did buy it, I can not imagine that it would be such keen competition
for the banks of Indianapolis.
Mr. D u n b a r . Theoretically it has been stated that a branch bank
ing system would have been of great benefit in the South, the South
west, and the Northwest.
Mr. P o l e . Undoubtedly.
Mr. D u n b a r . But I fail to see wherein it would be of any advan
tage in Indiana. In the district I represent, we have 53 banks, and
in 12 years there have been only 3 failures, 1 a national bank and
2 State banks. One State bank paid its depositors in full, the national
bank paid about 90 per cent. The other is in process of liquidation.
Most of the banks there pay large dividends, State and national,
10 and 12 per cent, and the only injury that has befallen them oc
curred in the debacle of last year’s speculation when people began to
use all their resources, borrowed from the banks, and lost their money
in Wall Street. Now they are in the financial condition that they
do not have money to deposit in banks and they do not have surpluses
of necessary funds to engage in their enterprises, so that the country
banks down there are somewhat embarrassed, because they do not
have money to supply speculative losses. Now, the remedy, instead
of establishing branches in those kinds of communities, is some law
that would regulate speculation, because speculators borrowed money
in those banks and invested it in New York. I know one bank in
my own district that loaned $200,000. Banks sent large sums of
money to New York for speculation because of high rate of interest.
Those banks have been injured, but it has been due only to specu
lation.
Mr. P o l e . Mr. Congressman, that era of speculation is of quite
recent date and covered a comparatively brief period, whereas banks
have been failing in rapidly increasing numbers since 1920.
Mr. D u n b a r . National or State?
Mr. P o l e . Both national and State; and there have been 115
banks fail in Indiana—more than 10 per cent of all the banks which
were in existence in 1920. Under the branch banking plan, if it were
not found to fit the particular State or the particular community to
which you refer, it would not be compulsory for them to go into the
branch-banking business. It would be easily possible for the im
portant banks of Indianapolis to continue as an independent bank,
perhaps taking advantage of the law to the extent of operating
branches within a short distance of Indianapolis, but if banks of
$100,000 minimum capital are to be established, it would deprive a
great many communities in Indiana of banking service to which they
are entitled, and my chief interest, as has been already expressed, is
particularly with the rural banking situation.
Mr. D u n b a r . A branch bank would have available to be loaned
not only $100,000, but a great many times $100,000, and it would
then interfere with the banks in the communities.
Mr. P o l e . It would offer to any community in which it operates
a branch its entire and complete facilities.
BRANCH, CHAIN, iN D GROUP BANKING
195
Mr. D u n b a r . I d o n o t s e e a n y o b j e c t i o n t o a n a t i o n a l b a n k
h a v i n g a c a p i t a l i z a t i o n o f $ 1 0 0 ,0 0 0 b e i n g a u t h o r i z e d f o r t h e s im p l e
r e a s o n th a t it w o u ld te n d t o p r o m o t e a m o n o p o ly o f b a n k in g in s ti
t u t io n s in th e c o u n t r y , w h e n th e b r a n c h b a n k s w o u ld c e r t a in ly d o
i t , w it h th e g r e a t in c r e a s e d a v a ila b ilit y t h e y h a v e o f lo a n in g m o n e y
to th e co m m u n ity .
Mr. P o l e . The point was raised that branch banking would tend
to create a monopoly in banking, and as a remedy for the situation
which exists in the rural communities, it has been suggested that
banks of not less than $100,000 capital be established, and it was
there that I presented the argument that, such capital limitation
would be more apt to create a monopoly among the small commu
nities, which might be just as dangerous as a monopoly among the
large communities, inasmuch as perhaps two banks could not suc
ceed if their capital had to be $100,000 or more unless they had
territory sufficient to attract an amount of business necessary to
make such a capital profitable.
Mr. D u n b a r . I do not see where the objection would be to a
national bank having a capital stock of $100,000 on the theory of
producing a monopoly, because if it did shut out some of these
small banks, so would branch banks. I believe it would be beneficial
to the entire community with the supervison given by the bank
examining system which you have.
Mr. P o l e . It is not a question of supervison entirely. It is a
question of ability to earn a fair return on invested capital.
Mr. D u n b a r . I think a $ 1 0 0 ,0 0 0 national bank in my section of the
country would be able to earn a fair investment on its return, because,
with few exceptions, every bank in 12 years has been able to do so.
And I am of the opinion that branch banking, except as it may be
developed from now on on account of speculation indulged in a year
ago, would have no beneficial result in that district. However, I
believe that there are a great many States where it would have bene
ficial results. At the same time, I recognize that theoretically it is the
right idea of banking. One of my objections to branch banking is
that it is going to run out all community banks eventually, and it is
going to supersede every banking system in the United States outside
of the large banking centers, and in doing that there will be a tendency
to develop toward paternalism, and then, following paternalism,
socialism.
We see that illustrated in our holding companies; we see it illus
trated in our chain stores, and we see it illustrated in our great cor
porations, which are taking away the individuality of the people of all
the communities, and making them of no avail.
I used to be secretary of the American Gas Association. I remem
ber 25 years ago when we would attend the convention of that asso
ciation, every man had the courage of his convictions and would get
up and express his opinion. I attended a meeting last October at
Atlantic City, and there were 5,000 in attendance. I looked over
that crowd and I was glad that I was not one of them, because but
few of them had an opinion of his own; a man had to look to the fellow
higher up if he wanted to talk, and he had to talk so as to get the
approval of the man higher up. They were all college graduates, but
all of them were impotent so far as having any personality or indi
viduality or sovereignty because they were desirous of having the
196
BRANCH, CHAIN, AND GROUP BANKING
approval of the superior, and I was glad that I was no longer con
nected with an organization that had to be servile to somebody, just
because they had the money and knew how to manipulate politics.
Now, if we have branch banking, that is only adding to that con
dition of man, and I hate to see the individuality that used to exist
on the decline.
Do you not think that that would be one tendency of branch
banking, to promote paternalism, and, following that, socialism?
Mr. P o l e . I have expressed myself as deploring the passing of the
unit bank. I do, however, recognize that there is a banking condition
in this country which must be remedied, with the tremendous number
of failures with which we have been faced during the last nine or ten
years, and with the earning position of the thousands of banks in
this country to-day I feel sure that something must be offered as a
remedy for it.
Mr. D u n b a r . D o you not think-----Mr. P o l e . May I go o n 9
Mr. D u n b a r . Surely; pardon me
Mr. P o l e . After giving the matter considerable thought, the idea
which has appealed to me as being the most effective is the branch
banking system, and that particularly because I believe it is far better
than the chain system or the group system. Now, inasmuch as there
must be in my opinion some remedy for the situation, I recognize
that it is very difficult to suggest anything which would be equally
effective in every part of this great country. The conditions in
Indiana are so different from the conditions in the Dakotas, that it is
difficult to prescribe any remedy which will be equally fitting. That
there is a necessity for remedy is well recognized and because of legal
restrictions against branch banking there has sprung up in this
country already a large number of chains and groups. National
banks reported as members of banking chains or groups numbered
791 at the end of December, as compared with 646 in June
Mr. D u n b a r . Pardon me, but are not those chains or groups
confined to the corporate limits in which the banks operate?
Mr. P o l e . By no means.
Mr. D u n b a r . Do you mean to say that a bank in Cincinnati that
has a chain will go into Indiana, into Kentucky, and into adjoining
communities?
Mr. P o l e . I am not specifically referring to Indiana, but in certain
sections of the country State lines and Federal reserve district lines
have been entirely disregarded.
Mr. D u n b a r . By what authority?
Mr. P o l e . Through the organization of holding companies under
State charters.
Mr. D u n b a r . We have no jurisdiction whatever of holding com
panies under State charters, have we?
Mr. P o l e . A s far as I know, we have not
May I continue this?
Mr. D u n b a r . Yes.
Mr. P o l e . State banks, members of groups in December numbered
134, compared with 111 in June, and nonmembers 1,144, compared
1,049 in June. Loans and investments of national banks belonging
to banking groups were $5,600,000,000, or about one-fourth of the
total of all national banks, where loans and investments of State
BRANCH, CHAIN, AND GROUP BANKING
197
member banks belonging to the groups aggregated $3,000,000,000 and
of nonmember banks $1,800,000,000
I was trying to show there that the 2,069 banks reported as belong
ing to banking groups or chains at the end of the year constituted onetwelfth of all the banks in the country, while the loans and invest
ments of groups and chain banks were about 10,500,000,000 or nearly
one-sixth of the aggregate loans and investment of all banks in the
United States.
So, as I say, we are faced with that condition now-----Mr. D u n b a r . Due to State charters?
Mr P o l e (continuing). And the question is, Would it be preferable
to regulate it by la w , or would it be better to let it develop as it is
doing without regulation0
Mr. D u n b a r . But if the Legislature of Indiana would be averse to
such a system of banking, w^e would be secured against these branch
banks and group banks going far.
M r . P o l e . I d o n o t k n o w h o w f a r t h e la w s c o u l d b e a m e n d e d t o
c o v e r s u c h a s it u a t i o n .
Mr. D u n b a r We would
have a right to control our own affairs
within our owrn State, except m so far as it did not interfere with
Federal law.
Mr. P o l e It might be possible to keep a group formed outside of
the State of Indiana from owning the stock of banks within the State
of Indiana.
Mr. S t r o n g I am not so sure that it would be possible by a State
law to keep another State from bringing a bank into that State.
Mr. A w a l t Of owning the stock in a bank in that State, which
would be possibly controlled, and therefore part of the chain.
Mr. S t r o n g . They could prevent the majority of the stock being
owrned outside, could they not?
Mr. P o l e . That is a legal question I am not prepared to answer.
Mr. S t r o n g I think they could.
Mr. D u n b a r . I am not a lawyer, but I do not understand how any
banking law of Indiana could not exclude branch banks from adjoining
States being legalized unless they were Federal.
Now, Mr. Pole, I recognize the theory of branch banking as being
economical as applied to the Southwest, the Southeast and the North
west, but do you not believe that it would be more conducive to the
development of man, his courage, his ingenuity, his resourcefulness,
not to have it, and that after the people in these various communities
had suffered, they would find a way to overcome their difficulties?
Mr. P o l e . I am trying to assist them along that line.
Mr. D u n b a r . By branch banking?
Mr. P o l e . Yes.
Mr. D u n b a r . I do not think it would do it, although I do recognize
it would help those communities at this time.
Mr. S t r o n g . D o not admit it for our community.
Mr. D u n b a r . What is your community?
Mr. S t r o n g . Kansas. Do not admit that branch banking would
help us. It would not.
Mr D u n b a r . It would not help us in Indiana, and I do not think
it would help any of the States on the Mississippi River. I think
it would help some of the States west of the Mississippi River, but
I believe if they were put upon their own resources and made to
198
BRANCH, CHAIN, AND GROUP BANKING
realize that they had to devise their means and plans to make the
banking system successful, they would do so.
I want to ask about the Bank of Italy. That is a branch bank
system, is it not?
Mr. P o l e . Yes.
Mr. D u n b a r . H o w did they acquire all their banks? Did they
purchase existing banks?
Mr. P o l e . In a g o o d many instances.
Mr. D u n b a r . In a great many instances they purchased banks?
Mr. P o l e . Yes.
Mr. D u n b a r . To what extent were the existing banks coerced
into selling?
Mr. P o l e . I am not able to answer that.
Mr. D u n b a r . Can you tell us how those that were not purchased
succeeded after the Bank of Italy expanded?
Mr. P o l e . I am hardly able to answer that.
Mr. D u n b a r . Would not the natural presumption be that after
the Bank of Italy began to obtain such a strong fortress, all the other
banks of the community had to surrender on best terms?
Mr. P o l e . That is a good many years ago.
Mr. D u n b a r . D o you not believe that if branch banking were
made effective in Indiana, the banks there would have to surrender
and sell out on best terms?
Mr. P o l e . Not necessarily so. I can visualize a strong bank in
an Indiana town that is well managed and a profitable institution
competing quite successfully with any branch which might be operated
from Indianapolis?
Mr. D u n b a r . I do not mean Indianapolis. I am down on the
Ohio River, in the “ sticks.”
Mr. P o l e . Did you not say Indianapolis?
Mr. D u n b a r . No, sir. I did a while ago.
Mr. P o l e . I thought you referred to Indianapolis.
Mr. D u n b a r . Let us take a bank at Mitchell, Ind., which has a
capitalization of $100,000 and a surplus of $100,000. We have
institutions there that borrow $500,000, and the bank can not lend
that money, but it can advise where the money can be borrowed.
Suppose some one says, “ We want a branch bank here that can
lend us all their money.5’ What chance would that $100,000 bank
with a $100,000 surplus have after a branch bank came in. Because
it would lose one of its best customers, and it would lose other cus
tomers, because it is easier to go right to a bank in your home town
and get all your money.
Mr. W i n g o . Mr. Chairman, if the gentleman will permit me, it is
evident that he has not read the hearings of this committee some
years ago where the methods of the Bank of Italy in extending its
branches and destroying independent banks in other communities
were fully pictured, and both sides were presented here.
M r . D u n b a r . I n e v e r r e a d it.
Mr. W i n g o . I suggest that you can get there a concrete illustration
of what happens.
Mr. D u n b a r . What happens?
Mr. W i n g o . They drive them out of business.
Mr. D u n b a r . The independent banks?
Mr. W i n g o . Yes.
BRANCH, CHAIN, AND GROUP BANKING
199
Mr. D u n b a r . And that would be the case if we had branch banks
in Indiana.
Mr. W i n g o . May I suggest that there would be no virtue in the
proposal if you did not, because you say the present situation is a
bad one, and to get rid of what you call these weak banks is one of
the alleged virtues of the branch-banking scheme, to give service to
the community of stronger and better institutions. I did not know
anybody was insisting that there should be branch banking and still
at the same time expect that what they regard as unprofitable and
economically unsound institutions continue I thought they were
going to supplant the present system with what they claim will be a
stronger and better one.
Mr. D u n b a r . Would you regard the present system at Mitchell,
Ind., as one which should be supplanted?
Mr. W i n g o . I do not know anything about that system.
Mr. D u n b a r . Take any bank in any town that has a capitalization
of $100,000 and had to loan $500,000 perhaps to one institution.
Would you regard that system as being ideal because they had to go
out and borrow money in different cities, or would you consider it a
system that was worthy or that should be supplanted?
Mr. W i n g o . N o ; I am a great believer in the independent, unit
bank. I have always opposed branch banking, chain banking and
group banking. If you can show me that changed conditions make
branch banking necessary I shall be glad to hear you.
Mr. D u n b a r . I think branch banking might have been the salva
tion of some of the communities of this country, but I believe that,
having lost their all, they should begin over again and begin on a
sounder basis.
Mr. S t r o n g . The evident purpose of branch banking is to build
up a monopoly in banking; that has been the result of every branch
bank group that has started, and consequently they have had to
drive out competing banks to establish the monopoly. Otherwise
there would be no use of starting it.
Mr. D u n b a r . That is what I am afraid of.
Mr. S t r o n g . It is the purpose of it.
Mr. D u n b a r . I wanted information from Mr. Pole on that subject.
Mr. P o l e . I should differ with Mr. Strong when he says that it is
the evident purpose of such a system of banking to drive out compe
tition. I think there will be ample competition in branch banking,
and where‘branch banking has been developed in this country there
is no lack of competition, and the banking situation in California,
where branch banking has been developed beyond that of any other
State, shows over a period of 10 years an infinitely more satisfactory
condition with regard to bank failures than most of the other States.
Mr.
Mr.
Mr.
D u n b a r . That is undoubtedly true.
B u s b y . Will the gentleman yield?
D u n b a r . Y es.
B u s b y . Would you call the absorption
Mr.
of the Bank of Italy,
the Bancitaly and the other associated corporations by the TransAmerica Corporation, issuing stock that was worth on the market
less than one-fourth of the value originally of the Bank of Italy, a
failure, or what would be your designation of the changed conditions
of the Bank of Italy under the circumstances we find it to-day from
what it was in June, 1928? It is not an independent entity any more
200
BRANCH, CH AIN, AND GROUP BANKING
in the sense that the stock is owned as bank stock is usually owned,
but the stock is owned by the Trans-America Corporation and is
worth now less than one-fourth of what the Bank of Italy stock was
in June, 1928.
W^iat was that but a failure in the sense that the stock depreciated
three-fourths of its value?
Mr. P o l e . That was the stock, Mr Busby, of the Trans-America
Corporation of which you are speaking.
Mr. B u s b y . No, I am speaking of the Bank of Italy. The Bank
of Italy is not an independent stock proposition, for the Bank of
Italy stock is not listed any more, but the Trans-America stock is
listed, and the Trans-America stock was traded on the basis of 1%
shares for 1 share of Bank of Italy, and that stock is listed to-day
at 45, whereas the Bank of Italy stock on June 5, 1928, was listed at
293. That is a drop from 293 to 66}{ at the present time. As to the
Bancitaly Co., which was more or less of a trust corporation—Baneitaly Corporation, as it was called— the stock on June 5, 1929, was
listed at 211, and that stock was exchanged for Trans-America Cor
poration stock, share per share, and the Trans-America Corporation
stock is listed to-day at 45.
not that practically a failure of the whole Bank of Italy system?
y^Mr. P o l e . I think that stock may have been split. I am not sure
m that.
Mr. B u s b y . No; I have photographic copies of the history of it,
taken from one of the reputable sources of information It was
handled in this way; it was exchanged share for share for TransAmerica Corporation, and it is worth 45 cents now.
Mr. F o r t . He has used the date of June 5. On the following day,
or two days later, was not that stock worth on the market some
thing more than $200 less?
Mr. B u s b y . I will give you the history of it, if you will permit me,
Mr. Dunbar.
Mr. D u n b a r . Yes.
Mr. B u s b y . On Saturday, June 9, the Bank of Italy closed at 280.
On Monday it opened—Monday, June 11, 1928— at 257. It ex
perienced a low of 125, and it closed at 212. On Tuesday its high was
250, and its low was 150%; it closed at 210, and it wiggled down the
line until the 23d, when we find it standing about 180.
Now, as to its companion corporation, the Bancitaly Corporation,
on Saturday, June 9, 1928— and this is after the slump had slightly
started— it closed at 195. On Monday, June 11, 1928, its high was
177, and its low 109, and it closed at 153. On Tuesday it opened at
140; its low was 120, and it closed at 135.
So the Bank of Italy, as an original institution, has dropped from
its high pinnacle of 293 to, for exchanged stock in the Trans-America
Corporation of New York and San Francisco, 66){ cents per share of
what was formerly the Bank of Italy stock, or 45 cents for TransAmerica Corporation.
Mr. P r a l l . Was there a corresponding decrease in the value of
all bank stocks at that time?
Mr. B u s b y . There was not a corresponding decrease, although
there was a slight and synpathetic decrease in other bank stocks,
but they soon regained their position. However, the Bank of
Italy stock, I find from following the San Francisco Chronicle quota
BRANCH, CH AIN, AND GROUP BANKING
201
tions through those periods, never did get back to its former footing,
and finally was taken over by the holding company that I mentioned,
which took over practically all of the six or seven interests that were
represented by the Bank of Italy. I say “ interests” because they
were independent corporations doing different types of business in
line and in sympathy with the Bank of Italy; and that is the biggest
branch banking institution in the country.
Mr. P o l e . Y o u are speaking largely-----Mr. B u s b y . Will you please answer my question first? I was
stating the condition, and asked you if that was not a virtual failure
of this tremendous branch banking institution?
Mr. P o l e . Y o u are speaking here of t h e movements of stock
largely of the Trans-America Corporation.
Mr. B u s b i . It was not organized at that time; it was organized on
the 11th of October, 1928, after the considerable slump in the Bank
of Italy stock, and was organized as a holding company for the pur
pose of taking over the Bank of Italy interest in its several forms.
Mr. P o l e . There might have been considerable fluctuation— and
I think there was—in the Bank of Italy stock, whatever causes it
might have been due to.
Mr B u s b i I can explain the causes, which I think will interest
Mr Dunbar who is asking the questions of the comptroller. Do you
understand the causes, Mr. Dunbar?
Mr. D u n b a r Yes, but ask the question.
Mr. B u s b t . I will await another time.
Mr. D u n b a r . D o i t r i g h t n o w .
Mr. P o l e . I was going to add, in answer to your question, Mr.
Busby, that regardless of the stock fluctuations of the corporation to
which you referred, the truth is that the history of the Bank of Italy
is that it has increased from very small beginnings steadily upward
until to-day it is a bank with more than billion dollars of deposits.
Mr. D u n b a r . What is its capitalization?
Mr. P o l e . May I incorporate that in the record?
Mr. D u n b a r . Yes. What dividends does it pay?
Mr. P o l e . I will furnish that for the record.
Mr. F o r t . Here is the figure on the Bank of Italy—invested
capital, $106,253,731.
Mr. P o l e . What is the capital stock?
Mr. F o r t . I do not know that it is here.
Mr. L e t t s . That is as of November.
Mr. D u n b a r . Can you tell u& how much they have paid in divi
dends, Mr. Fort?
Mr. F o r t . No.
(The information requested is as follows:)
The capital of the Bank of
Dividend rate is 12 per cent.
Italy
National
Association is $50,000,000.
Mr. D u n b a r . H o w many independent banks in California in t h e
last 10 j^ears have liquidated or been merged either with the Bank of
Italy or with other institutions? Can you tell us anything about
that?
M r . W in g o Y ou m e a n e it h e r m e r g e d o r s o ld o u t t o t h e
I t a l y , o r a c q u i r e d in s o m e o t h e r w a y ?
Mr. D u n b a r . Yes.
Bank of
202
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . The Bank of Italy has to-day in the neighborhood of
300 branches. I think I could safely say that the majority of its
branches outside the large cities were formerly independent banks.
As to exactly how many were independent banks and how many
were de novo branches, I have not the figures.
Mr. D u n b a r . Can you tell us how many independent unit banks
there are now in California, and the amount of their capitalization?
Mr. P o l e . I will be glad to furnish those figures for the record.
Mr. D u n b a r . Will you please inform us how many of them are
national banks and how many are State banks?
Mr. P o l e . Yes.
Mr. D u n b a r . Will you please put in the record their capitaliza
tion?
Mr. P o l e . I w i l l b e g l a d t o .
(The information requested is as follows:)
Three hundred and eighty-four unit banks in the State of California as of
December 31, 1929. Of this number, 193 were national and 191 were State
banks.
Mr. D u n b a r . Most of the bank failures have been State banks—I
believe that was your assertion a while ago?
Mr. P o l e . That is true.
Mr. D u n b a r . Most of these banks would never have been in
existence if we had had the branch-bank system, would they?
Mr. P o l e . A great many of them undoubtedly would not have
been in existence.
Mr. D u n b a r . Have you any idea of the number of State banks
that have failed in Indiana to date?
Mr. P o l e . Indiana has been one of the States in which there have
been fewer bank failures than in a good many other States. There
have been 115 suspensions since 1921, up to December 31, 1929,
which is 10.9 per cent of the 1,057 banks which were in existence on
June 30, 1920.
Mr. D u n b a r . That is a good record?
Mr. P o l e *. In comparison with some other States, it is quite
good, but 10 per cent of the number of banks in a State like Indiana
is no record to be particularly proud of.
Mr. D u n b a r . Yet branch banking would not have assisted this
very much?
Mr. P o l e . I think it would have assisted it very much, because
those banks generally are small banks in rural communities.
Mr. D u n b a r . If it would have assisted to a considerable extent, it
would only have done so by knocking out the country banks, the good
as well as the bad.
Mr. P o l e . Which knocked themselves out by failing.
Mr. D u n b a r . But the good ones are still there and will be there,
provided they can liquidate the financial losses due to stock exchange
transactions.
Mr. P o l e . May I just add one remark, and that is that because
banks would be permitted to establish branches does not mean that
it would be incumbent upon them to do so.
Mr. D u n b a r . I know it would not be incumbent, but it would be
almost putting them in the position where they would have to sur
render and give up like you would have to surrender and give up to
bandits that accosted you.
BRANCH, CHAIN, AND GROUP BANKING
203
Mr. P o l e . That has not proved to be the case to any great extent.
Mr. D u n b a r . It would be almost that case, because I do not see
how the banks in my district would exist if you had a branch bank
there for the reasons that I have given you heretofore.
Now, I admit that branch banking in some sections of the country
would be a wonderful panacea, and I also contend that if these banks
that have suffered as a result of their own lack of adequate knowledge
and conduct of business affairs can be made to recover and stand on
their feet in the future, they will be better off, and I believe that most
of these bank failures have been due to conditions existing prior to
1922; they have never been able to dispose of their frozen paper due
to the depreciation in the value of farms of 50 per cent, all of which
has rendered it impossible for those banks to recover their prestige,
and conditions existing since that time have been such as to have
forced many of them into liquidation.
Mr. P o l e . Regardless of what the reasons may be, they have failed.
Mr. D u n b a r . They have failed, but the point I am making is that
they failed because of conditions existing prior to 1922.
Mr. P o l e . Might not those conditions prevail in the future?
Mr. D u n b a r . Yes.
Mr. P o l e . D o we not w ant to guard against them ?
I do not
m ean to be questioning you.
Mr. D u n b a r . D o you want
to guard against the banks getting
into that condition as the result of their own fault?
Mr. P o l e . It would be very desirable.
Mrs. P r a t t . Mr. Dunbar, may I ask the comptroller a question?
Mr. D u n b a r . Certainly.
Mrs. P r a t t . Mr. Pole, is it your idea to force a uniform system
throughout the entire country, or to permit the present system to
exist where unit banks have a sound position?
Mr. P o l e . It is not my thought, Mrs. Pratt, that a bank should
be forced to go into a branch banking system.
Mrs. P r a t t . But my point is this: There would be perhaps a
branch system formed in one section of the country, and if in another
district present conditions were sound under the unit banking sys
tem, would you still feel it incumbent to go on with a uniform system,
in spite of the fact that present conditions in connection with unit
banks were sound?
Mr. P o l e . It is not my idea that we could permit branch banking
in one part of the country and not permit it in another. I do think,
however, that it would be more effective in some parts of the country
than in others.
Mrs. P r a t t . It could be flexible?
Mr. P o l e . It would automatically be flexible, because where unit
banks are operating successfully and profitably there might be no
inducement for them to sell out to any branch system of banking,
and they might wish, as they have done in very many cases over
the country, to continue as successful and profitable independent
units. There are many instances where bankers will tell you that
they want no better competition than that of branch banks.
Mr. D u n b a r . I think that is true, or would be true in many
localities, but if you could have a branch banking system in some
parts of the country, for the present at least it might be a good
thing; but it would work hardship in other parts of the country.
204
BRANCH, CH AIN, AND GROUP BANKING
We have talked a great deal about losses sustained by banks, about
bank failures, which have been mostly State banks.
Mr. D u n b a r . We talked a great deal about bank failures, which
were mainly State banks. It would be a good thing to have all
banks, if possible, in the national banks system? Do you think that
would be a good thing for the country? I might say that I do.
Mr. P o l e . I think the national system, inasmuch as it is the only
system through which the Government can enforce its policies,
should be the predominating system. I am not prepared to say that
it should be the only system.
Mr. D u n b a r . These financial losses that have been sustained are
not as great as people think they are, usually.
Mr. P o l e . I do not know what people usually think they are.
They are a very impressive set of figures.
Mr. D u n b a r . H o w much has been lost by the stockholders of
banks by failures in the last 10 years?
Mr. P o l e . By stockholders?
Mr. D u n b a r . N o ; by depositors.
Mr. P o l e . I am not able to say that, because out of 5,640 failures,
4,800 of them have been State banks and I have no idea as to what the
loss to depositors in State banks has been. I do know that it has
been very heavy and I think the loss which has been entailed has
been nothing short of a calamity in the communities in which the
failures have occurred.
Mr. D u n b a r . It is a calamity; it is true.
The C h a i r m a n . Will you yield for a minute? I want to suspend
this inquiry just for a minute in order to call up two resolutions.
(Discussion off the record.)
Mr. D u n b a r . Now, I am not going to detain you much longer,
but I wish, Mr. Pole, that you would give us the amount of losses to
depositors caused by failures of national banks during the last 10
years. Can you do that?
Mr. P o l e . Yes, sir.
The C h a i r m a n . I think that material has already gone in.
Mr. P o l e . It has.
Mr. D u n b a r . Then, you need not put it in again.
Mr. S e ib e r l in g , If you have legislation here which would permit
branches in trade areas, you could then have a main bank out in
sections where you have no banking facilities, merely rent a room
and put in a few employees and give banking facilities, and also pro
tect the State banks by providing that no branch bank could be put
in where they have banking facilities, without the consent of the State
bank or the other bank, which would give them an opportunity to
take over the bank, if it is desirable to be done.
I wish you would explain what you have in mind about that.
Mr. P o l e . I could not imagine that the opinion of a State bank
would be anything but a prejudiced opinion as to whether or not
another bank should be established in that community, but, on
the other hand, I, as comptroller, certainly would not permit the
establishment of a branch in any community where the banking
facilities were ample. As I have already stated, I think it would be,
in practice, that very, very few de novo branches would be estab
lished. If a branch system wanted to establish branches in a com
munity which was already adequately served, it probably would not
get permission from the comptroller to do so.
BRANCH, CHAIN, AND GROUP BANKING
205
On the other hand, if it wishes to negotiate with a bank already in
existence, and they were willing to buy that bank and the bank was
willing to sell, there would be nothing to prevent it doing so, in which
case no doubt they would be permitted to establish that bank as a
branch, which would not, of course, increase or decrease the number
of banking offices in that community.
Mr S e ib e r l in g . On the other hand, if they do not have facilities
and needed them, that could be established by the way I have stated?
Mr. P o l e . Yes.
M r. S e ib e r l in g W ith ou t any heavy overhead or anything of
that kind?
Mr. P o l e . Y e s.
Mr. D u n b a r . Y o u are opposed to holding companies, so far as
the Government is concerned?
M r. P o l e . A s an ultimate system; yes. As a possible step toward
branch banking it has many good features
Mr. D u n b a r . This step toward branch banking— the tendency
would be for holding companies to develop?
Mr. P o l e . If no legislation were enacted-----Mr. D u n b a r Then, legislation would have to be enacted, in
order to prevent the development of holding companies? To what
extent have you holding companies? You spoke about that a while
ago—only as State permits them to out into adjoining territor}^
There is no Federal law on the subject?
Mr. P o l e . There is no Federal law on the subject.
They are developed to the extent that already there are included
in such holding companies 2,069 banks, which are one-twelfth of all
the banks in the United States.
Mr. S t e a g a l l . If you will pardon me-----Mr. D u n b a r . Yes.
Mr. S t e a g a l l . Mr. Pole went over those figufes once already.
Mr. P o l e . Yes. Those banks embrace $ 1 0 ,5 0 0 ,0 0 0 ,0 0 0 of loans
and investments, which is nearly one-sixth of all loans and investments
in the United States, and the group system of banks is growing most
rapidly. There are new groups being formed every week and I hear
rumors from all over the country of large amounts of capital being so
employed.
Mr. D u n b a r . You think branch banking would prevent the growth
of group banking?
Mr. P o l e . I do to a very large extent.
Mr. D u n b a r . One more subject and I am through. You said
that branch banking— at least I understood you to say it—would help
prevent the centralization of money in New York and other money
centers and would decentralize it and distribute capital all over the
country. Am I correct?
Mr. P o l e . Yes.
Mr. D u n b a r . That was the contention put forward for the adop
tion of the Federal reserve system and that failed. Capital has been
centralized more in New York since the establishment of the Federal
reserve system than ever before. Now, then, how would branch
banking be any different from the Federal reserve system? Would not
most of our branch banks be centralized right in New York and where
100136— 30— v o l 1, p t 2-
206
BRANCH, CHAIN, AND GROUP BANKING
we had branch-banking corporations, say, in Pittsburgh and St.
Louis, would they not still report right to New York as they do now?
Mr. P o l e . I am not prepared to accept your premises as correct
Mr. Congressman. While the banking resources of New York have
tremendously increased since the establishment of the Federal
reserve system, the resources of the other 11 Federal reserve districts
have also tremendously increased, but as to whether or not New
York has increased out of all proportion to the others, I am not
prepared to say.
Mr. S t r o n g . Might I suggest that in the other districts, the
Federal reserve banks are not quite as close to Wall Street, and
that such close association tends to a concentration of wealth?
Mr. D u n b a r . Is it your opinion that the Federal reserve system
has decentralized wealth and money?
Mr. S t r o n g . It certainly has not. It has centralized money every
place where there is a Federal reserve bank.
Mr. D u n b a r . It has centralized it every place there is a Federal
reserve bank, but, in your opinion------Mr. S t r o n g . The big centralization has been in New York,
because the Federal Reserve Bank of New York City is close to
Wall Street— I mean in the same city.
Mr. S t e a g a l l . I am wondering about this: If the branch banking
plan gives us a system of banks strong enough to compete with the
strong monopoly tending banks, what need have we for the Federal
reserve system?
Mr. P o l e . The large banks now are heavy borrowers at certain
periods and would no doubt continue to use the facilities of the
Federal reserve banks.
Mr. S t e a g a l l . You do not think that would undermine or destroy
the Federal reserve system— the elimination of the small unit bank?
Mr. P o l e . I think that it is quite possible that under the present
system, which has grown out of group banking, some small unit
banks might leave the system. Already some groups have been
formed, which are operating outside of the Federal reserve system.
Mr. S t e a g a l l . You think that evil is to be feared in the present
situation?
Mr. P o l e . I do not think an important branch bank would under
take to operate outside the Federal reserve system.
Mr. D u n b a r . I have nothing more, Mr. Chairman.
The C h a irm a n . Mr. Strong.
Mr. S t r o n g . Mr. Comptroller, while the chairman has gone over
very carefully one subject which I wanted to discuss, there is a matter
I want to take up further with you and that is the examination of
national banks. The information I want to get is this: The bank
examiners are not paid from the Government Treasury, are they?
Mr. P o l e . The banks, Mr. Strong, are assessed for the cost of the
examination.
Mr. S t r o n g . Who sets the limit on the salaries for the examiners?
Mr. P o l e . The salaries of the examiners are fixed by the Comp
troller of the Currency, with the approval of the Federal Reserve
Board.
Mr. S t r o n g . In the course of your examination by the chairman,
you stated that our bank examiner department is now practically a
training school; that you take them before they are experienced and
BRANCH, CH AIN, AND GROUP BANKING
207
that after they have been with you a certain time and become ex
perienced, some big bank comes along and takes them away from the
service.
Mr. P o l e . That is quite often the case.
Mr. S t r o n g . Why are you not justified in paying salaries suffi
ciently large to hold good and experienced men in the service, as
long as the banks that do take them away from you have to pay the
expense anyway; why not pay them enough to hold them—-those
best qualified to examine banks?
Mr. P o l e . The position of bank examiner, Mr. Strong, is a diffi
cult one. He has to be away from home a great deal and has to
travel a great deal. It is not, in itself, a very attractive life.
Mr. S t r o n g . What is the average salary that you pay?
Mr. P o l e . I am furnishing a complete list of that.
Mr. S t r o n g . Well, about what?
Mr. P o l e . $ 5 ,0 0 0.
Mr. S t r o n g . Well, why not pay a salary sufficient to these men
so that they will stay in the service, regardless of the inconvenience?
Mr. P o l e . I doubt if you could offer them enough money for that,
Mr. Strong.
Mr. S t r o n g . Did you ever try it?
Mr. P o l e . The service could be undoubtedly improved by offering
better salaries.
Mr. S t r o n g . Have you ever tried it?
Mr. P o l e . Yes; salaries have been considerably increased during
the last few years.
Mr. S t r o n g . But have you tried to keep men from going out into
private life, by increasing their salaries?
Mr. P o l e . Oh, yes.
The C h a i r m a n . Will you yield to me a moment?
Mr. S t r o n g . Yes.
The C h a i r m a n . I will say that in my conversation with some of
these splendid men that I happen to know, I have observed a spirit
of loyalty to duty, a spirit of craftsmanship, so to speak, where
many of these men stay as national-bank examiners because of the
pride they have in their work and because of a realization of the
importance of it, and that they were rendering a real service, and it
is my belief that they would stay in the positions at a lower salary
oftentimes than what banks would pay them, because of their pride
in their work. They realize the high quality of their work.
It is my observation that you would not have to meet the high
salaries paid by banks in that respect, if a moderate salary were
paid these men doing this important work.
Mr. F o r t . Is not that true through all the technical branches of
the Government service?
The C h a i r m a n . I think it is true, especially in the Department of
Agriculture. It is true undoubtedly all through the Government
service, that men do not have to be attracted by the salaries they
receive in the Government, and many of them are doing their work
at particularly small salaries. I know several men in the Agricul
tural Department who could go out in general work and draw $25,000
a year, who are now drawing $5,000 a year or less in the department.
I think there are many of those men under Mr. Pole who feel the
same way about it.
208
BRANCH, CHAIN, AND GROUP BANKING
Mr. S t r o n g . The point I was trying to bring out was this: These
bank examiners are the guardians of the funds of the people. Their
examinations protect the people who have the deposits in the banks—
a tremendous fund and a tremendous trust— and yet you say that,
when a man gets very proficient, some private bank takes him away
from 3^ou and yet you say that the banks themselves that eventually
pay the larger salaries to your examiners to get them awray from you,
are under obligation to pay the cost of the examinations, and, neces
sarily, would have to pay the larger salaries you might have paid
them to keep them in the service. Therefore, why would it not be*
the proper policy for you to pay salaries sufficient to hold these men,
especially wThen they go out into private life, the}7 go to the same
banks or other banks, which are assessed for the expense of these
examinations. Why not pay salaries sufficient to retain these men
m the service?
Mr. P o l e . There is a consideration there that requires some
thought. The banks, under the law, are assessed in accordance with
their total resources. In the case of large banks, of course, they can
easily pay whatever the costs may be. In the case of small banks,,
the present examination fee, is quite an amount for a small bank to
payMr. S t r o n g . Don’t you think they should pay it in order to give
the public protection?
Air. P o l e . The earnings of small banks are so limited that any
increased expense would have to be taken into consideration asinvolving an additional burden.
Mr. F o n T A s a matter t * f fact, the Government only allow s a salary
of $9,000 to the Assistant Secretary of the Treasury, who is over the
comptroller, who is over the examiners. You can not start by raising
any one point without first rehabilitating the Government service
and raising the officers still higher.
Mr. S t r o n g . If he has power to assess banks to pay for examina
tions, he can pay sufficient salaries to keep efficient and experienced
examiners Their services to the public is very, very great and they
have a very great responsibility.
Mr. P o l e . There are a great many practical difficulties. In a
general increase of salaries of examiners, for the purpose of making
their positions more attractive, so that the examiners will stay in the
service, the increase would have to be general, and, in order to save
for the service, perhaps, six men, you would have to increase the
salaries proportionately of perhaps 12 or 15 or 20 men.
Mr S tr o n g Why would you have to do that?
Mr P o l e . Because you have to make the scale generally uniform.
Mr. S t r o n g Is there any law that requires that?
Mr. P o l e . No; but it is a matter of practice.
Mr. S t r o n g . But as a matter of good business—you do it in
business?
Mr. P o l e . I think that would involve a great deal of dissatisfac
tion if you should raise the salary of one man who has been in the
service three years, four or five thousand dollars a year,, and do not
raise the salary of another man at all who has been in the service
perhaps the same time. The question would be that of efficiency-----Mr. S t r o n g . Certainly.
Mr. P o le And that is very largely a matter of opinion.
BRANCH, CH AIN, AND GROUP BANKING
209
Mr S t r o n g . It ought not to be a matter of opinion.
Mr. P ole It is not an easy question to settle.
Mr. S tr o n g It is exactly what you would do in private life If
you have an efficient man who has been with you 3 years and an
inefficient man who has been with you 10 years, you would raise
the salary of the efficient man and put him in the position of trust.
Mr P ole We endeavor to do that
Mr S t r o n g . I think it would be a bad policy to say that you
have to raise all of them because you want to keep a few outstand
ing men
Mr P o l e . My feeling is that if you w^ere to pick out 100 men
and raise their salaries to the point of being able to compete with
commercial banks from which they might have offers of perhaps
double wThat they are now getting—and which offers are frequently
made—it would cause a great deal of disturbance in the service.
I thmk your idea is perfectly sound, but I think it would have to
be worked up to the point you aim at gradually
That is being done; salaries have been quite markedly increased
during the last few years.
Mr S tr o n g . Who has charge of the regulation of the salaries—
yourself or the chief examiners?
Mr P ole Myself, with the recommendation, usually, of the chief
examiner who knows the man best
Mr S t r o n g . Naturally he would hesitate to advance some one or
two men over his fellows, but it seems to me that the interest of
the public in this matter is so very, very great, that it ought not to
be the policy to let good examiners and good men go out of the
service because of offers of large salaries by commercial banks, who
would have to pay their salaries if they were kept in the service
What salaries are paid to chief examiners in the different districts?
Mr. P o l e . I will furnish that information.
Mr. S t r o n g . Y ou do not know?
Mr. P o l e . Yes.
Mr. S t r o n g . Why not state them9
Mr. P o le Mr. Reeves, of NewTYork, gets $20,000 a year
In District No 1, the salary of the chief examiner is $13,000
In District No 3, it is $15,000
In District No 4, it is $10,000
In District No. 5, it is $10,000
In District No 6, it is $12,000.
In District No. 7, it is $12,000.
In District No. 8, it is $15,000.
In District No. 9, it is $11,000.
In District No. 10, it is $15,000.
In District No. 11, it is $13,000.
In District No. 12, it is $15,000.
Mr. F o r t . Will you let me ask the comptroller one question9
Mr. S tr o n g Certainly.
Mr. F o r t . What is the salary of the Comptroller of the Currency?
Mr. P o l e . $12,000.
Mr. S t r o n g . Then, your chief examiners are paid considerably
more than yourself and other men in the Treasury Department and
in your own department?
210
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . A great many of them are paid more than I am, Mr.
Congressman. I am not so well posted on the salaries of other
departments.
Mr. S t r o n g . D o the chief examiners examine banks themselves?
Mr. P o l e . T o make a complete physical examination of a bank,
I would say not often. They are invariably on hand wherever there
is a bad situation—they cooperate with the board in shaping policies
and remedying undesirable situations.
Mr. S t r o n g . What is the highest salary paid a bank examiner?
Mr. G o l d s b o r o u g h . Mr. Strong, is it not your idea to prevent
these bank failures that exist in the unit system by providing a better
system of examination?
Mr. S t r o n g . Certainly. That is why I am asking these questions.
What is the highest salary paid to bank examiners outside of the chief
examiners?
Mr. P o l e . My recollection is that the highest salary paid is $9,500.
Mr. S t r o n g . What excuse is there for paying $21,000 to a chief
examiner, considerably more than you receive, and only up to $9,500
to the man who stands between the banks and the people’s interest?
Mr. P o l e . It is $20,000 in New York.
Mr. S t r o n g . W e ll, $20,000.
Mr. P o l e . The chief examiner in New York has a very responsible
position.
Mr. S t r o n g . What is it?
Mr. P o l e . He is in contact with all the national banks in New
York. He consults with them on questions of policies and has super
vision of the examinations of the entire second Federal reserve dis
trict and must be a man of wide experience and possess qualifications
which fit him for that important position.
Mr. S t r o n g . D o you think he is in a more important position than
the Comptroller of the Currency, who has control of the whole
system?
Mr. P o l e . Modesty prevents my answering that question.
Mr. S t r o n g . Also the Secretary of the Treasury, a Cabinet officer?
It seems to me the salaries in the comptroller’s office, as far as the
examiners are concerned, could be revised in the interest of the
people.
The chief examiners are paid very high salaries while the examiners,
who stand between the banks and the depositors, are not being paid
enough.
Mr. F o r t . That is the exact policy the gentleman urged a moment
ago— the policy the banks follow. The chief executive would get a
higher salary than the man out on the road in the work. You
suggested that we should pay salaries high enough to hold the men.
In outside employment, the executive in charge would be getting
a greater salary-----Mr. S t r o n g . But here is a figurehead that gets $20,000 and the
man who does the work gets $9,500 and less.
Mr. P o l e . He is an executive and not a figurehead.
Mr. S t r o n g . But he does not do the work that protects the
people. He confers with the banks.
Mr. P o l e . N o ; and I would not say that the president of the
United States Steel Corporation goes out and makes steel. He is
a very important executive nevertheless.
BRANCH, CHAIN, AND GROUP BANKING
211
Mr. S t r o n g . He is not in your department?
Mr. P o l e . N o .
Mr. F o r t . I agree-----Mr. S t r o n g . I decline to yield, Mr. Chairman. I do not want to
get into an argument over that.
One of the principal reasons for your statement in favor of branch
banking— the setting up of branch banking systems—is that there
have been so many failures in the last nine years.
Mr. P o l e . That is the principal reason—to offer something that
will remedy that situation.
Mr. S t r o n g . Why did you take the last nine years for an example?
Mr. P o l e . Because the failures have been increasing in numbers
during the last nine years
Mr. S t r o n g . Why not include nine years before that?
Mr. P o l e . I thought nine years was far enough to go back. The war
has been over for 9 years— 10 years— and it seems to me that most
businesses have been reestablished on a normal basis, but banking
has lagged behind and instead of getting better in the rural communi
ties, is getting worse and worse while every other business is prospering.
Mr. S t r o n g . What percentage of failures are due to inefficient ex
aminations, because you can not pay proper salaries?
Mr. P o l e . Very few of them.
Mr. S t r o n g . Then, that is not the reason they fail?
Mr. P o l e . N o , sir; I would not say so.
Mr. S t r o n g . Will you put into the record, at this point, the num
ber of bank failures prior to the nine years you have used in your
first statement?
Mr. P o l e . The number?
Mr. S t r o n g . Yes.
Mr. P o l e . I am already furnishing that for the record. Would you
like to have this reinserted?
Mr. S t r o n g . No; you need not encumber the record.
Mr. P o l e . My information will cover the number of bank failures
for every year since 1904.
Mr. S t r o n g . Is it not a fact that the reason we have had so many
bank failures in agricultural States in the last nine years is really due
to the deflation that followed the war?
Mr. P o l e . That has accentuated it.
Mr. S t r o n g . That has been principally the cause in the agricultural
States?
Mr. P o l e . Very largely.
Mr. S t r o n g . Very largely the deflation of agriculture——■
Mr. P o l e . The deflation of agriculture has accentuated it.
Mr. S t r o n g . Very largely?
Mr. P o l e . T o a material extent.
Mr. S t r o n g . Y ou know that during the war the Government
selected men to go out and urge agricultural States to produce more
food, do you not, and the result of that encouragement was that the
farmers extended their farming and credits, and then, when the war
came to an end they were in debt from an inflation of their farming;
they were in debt to the banks and those frozen credits that had been
held during all these years were the causes of these failures, were they
not?
Mr. P o l e . T o a considerable extent.
212
BRANCH, CHAIN, AND GROUP BANKING
Mr. S t r o n g . For instance, I know a great many banks that have
had to take over farms, because of loans that were extended during
and after the war. They could hold them in my State for but five
years when they are forced to sell them. The losses were such that
failures followed.
Now, do you think it is fair to urge a condition such as that as a
reason for putting out a branch bank system over the nation?
Mr. P o l e . I think that a branch bank system extending to the rural
communities would be decidedly helpful.
Mr. S t r o n g . All right. Tell us how branch banking would have
handled the situation when deflation came after the war.
Mr. P o l e . In one respect they would have been much more careful
in the manner in which loans were made.
Mr. S t r o n g . Why? Would they have had better information?
Mr. P o l e . They would have had better judgment, probably.
Mr. S t r o n g . Why would they?
Mr. P o l e . Because they are men of wider banking experience.
They lend money more scientifically. They perhaps lend it less on
character and more on actual intrinsic values and are generally
more conservative.
Mr. S t r o n g . Y o u think they would not have been patriotic
durng the war and loaned money to help produce food?
Mr. P o l e . I would not say that it is very patriotic to lend other
peoples money to irresponsible borrower.
Mr. S t r o n g . Nobody asked you that.
Mr. P o l e . What did you ask me?
Mr. S t r o n g . Read the question.
(The reporter read the question.)
Mr. P o l e . I take it that the banker lends other people's money
and if he does not lend it with judgment, he is not performing any
patriotic duty.
Mr. S t r o n g Then your idea is that during the time the Govern
ment was urging the farmers to increase their production and the
banks to lend them money, that the branch banks would not have
responded?
Mr. P o l e . I could not uphold the position that the Government
would ask the banks to make improvident loans.
Mr. S t r o n g . Now, did I ask anything like that?
Mr. L e t t s . I submit that the Comptroller is answering the ques
tion.
Mr. S t r o n g . All right, let us have the question read and see if he is.
(The reporter read the question.)
Mr. S t r o n g . Now, read his answer and see what he said.
(The reporter read the answer.)
Mr. S t r o n g . Now, did I ask anything like that?
The C h a irm a n . Referring to your statement that branch banks
would not lend on character as security, I am reminded that during
the Pujo investigation of the money trust, when Mr. J. P. Morgan
was on the stand, he made the statement that character loans were
regarded by him as good and sometimes the best security; that he
had loaned as high as a million dollars on a man’s character. That is
quite in contrast with your statement.
Mr. P o l e . Not at all. I can conceive of numerous instances where
men would lend on character, and I think character is perhaps the
BRANCH, CHAIN, AND GROUP BANKING
213
most important element in granting a loan, but it must be taken in
connection with other things and not solely character. A man’s
ability to pay must also be taken into consideration.
Mr. S t r o n g . N o w , the point-----Mr. P o l e . A man of ever such good character might have his
ability to repay questioned.
Mr. S t r o n g The point I am trying to bring out is not that the
banks made bad loans at the time they were made During the
war the 4-minute men were asked to go into the picture shows and
make talks and were furnished data upon which they could present
the facts to people, and one of the things suggested was that the
farmers of the country should produce more food, not onty to feed our
men in France, but also the Allies, and the bankers were urged to
support them I made such speeches myself, in which I pointed out—
pardon me, if I am going to make this examination, I should like to
have the attention of the comptroller.
I was sent data for one speech myself in which I was asked to urge
the farmers to go to the banks and buy Liberty Bonds and pay only
10 per cent in cash and 90 in debt for the balance and go to the banks
myself personally and see that they did it and that was done They
were also urged to produce more food, and if they needed money, to go
to the banks for it; and the banks were expected to make such loans.
The banks did not make bad loans They made loans which were
good at that time Then deflation came The value of land, horses
and cattle and sheep and everything went down and the loans w^ere
poor.
Mr G o l d s b o r o u g h Will the gentleman yield? What caused the
deflation? We have heard something about that in the committee
Mr. S tr o n g There is a difference about that My opinion was the
inflation that was permitted after the w s l y caused it
The point I am trying to get at is this: What would these branch
bankers have done under those conditions? Would they%ave refused
to make the loans?
M r. P o l e . T o answTer this question as to what would have hap
pened under a situation involving a state of facts which did not exist,
would be rather venturesome.
Mr. S t r o n g . Nobody has asked you anything of that kind. I
have stated facts and asked what would your branch banks have
done during the war; would they have made these loans that after
wards became bad?
Mr. P o l e . I think such branch bank systems as existed during the
war did make them
Mr. S t r o n g . Did make them?
Mr. P o l e . Yes.
Mr. S t r o n g And did not have any losses?
Mr. P o l e . Yes; they suffered losses, but we are operating now
10 or 12 years after the time you are speaking of.
Mr. S t r o n g . The deflation came in 1920 and 1921. I am asking
these questions now, 10 years after that. Those frozen loans have
carried over?
Mr. P o le And the bank failures 10 years after the war are in
creasing in number.
Mr. S t r o n g . But the frozen loans—the examiners in the State
bank departments and in your own department are urging the closing
up of those frozen loans, and that is what is causing the failures now.
214
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . It is an interesting fact that there are numerous
instances where banks in the same town, side by side, have operated
over a long period of years, before the war and since the war, and that
some banks have succeeded and others have failed, with the same
conditions to contend with, same localities—a question largely of
management.
Mr. S t r o n g . That is your opinion, but I know banks where there
were two banks in the same town, both of whom took over about the
same number of farms. One bank happened to be in position to
induce someone to buy those farms. The other bank was not in that
position and could not find anyone to buy them and it had to close.
It was not a matter of judgment. They both loaned the same
amount of money practically on the same security.
The point I want to bring home to this committee is that the
increase in the losses of banks in the agricultural country is because
of the deflation since the war and it is not fair to assume that your
branch banking system would have remedied it unless it refused to
make the loans.
Mr. P o l e . I think that a system of branch banking, if it had been
in effect in those days, would have managed its business in such a
way that had these losses occurred, it would have been large enough
and strong enough to have been able to absorb them, whereas the
small bank is on such a narrow earning basis that if an unusual loss is
sustained it can not stand it.
Mr. S t r o n g . D o you think if the owners of these branch banks in
the rural com m unities found they would have these large losses they
w ould have pu t up the m oney and taken the losses?
Mr. P o l e . I do not think so—or the unit banks either.
Mr. S t r o n g . Is it not one argument in favor of branch banking
that the parent banks, buying the branch bank, will retain the local
management that understands the people in the community and
their credits*
Mr. P o l e . That is often the practice.
Mr. S t r o n g . Then, you would have had the same men at the heads
of the banks if you had had branch banking?
Mr. P o l e . Y ou would have had the same m an, but the policies of
th a t branch would have been directed b y experts at the head office.
Mr. S t r o n g . Well, the experts would not have known what value
the securities had; they would have had to depend on the local
management.
Mr. P o l e . To some extent.
Mr. S t r o n g . Certainly.
Mr. L e t t s . But that would be a matter of applying a policy.
Mr. S t r o n g . The applying of the policy at that time would have
been to make the loan or not. At that time the security was good.
We had, after the war, a gentleman lay down on this table loans
from a western bank made to a sheep raiser. The sheep at the time
the loan was made were worth about $9.50, and he loaned $3.50,
and we had him lay down alongside that loan the account of what
those sheep sold for in Chicago after the transportation cost and com
missions were paid and it was about 35 cents a head. No one could
have foretold a loss of that kind. Now, what would the branch bank
have done in that circumstance?
BRANCH, CHAIN, AND GROUP BANKING
215
Mr. P o l e . If that loan had been m ade b y a large branch bank, it
w ould have been able to have absorbed such losses, whereas had he
borrowed the m on ey from a sm all bank, it m ight nat have been able
to do so.
Mr. S t r o n g . That gentleman was here and he told us in executive
session that if that kind of testimony got out it would break 47 banks
with which he was connected in the Northwest. He was making a
plea that we use our influence to urge that the loans be not called.
I should like to put into the record the fact that 35 cattlemen from
Kansas came to this Capitol headed by Governor Stubbs, asking for
an arrangement to prevent the calling of cattle loans, and the Secre
tary of Treasury helped to raise $100,000,000 to be deposited in
Chicago to relieve the situation, yet the loans at the time they were
made by the banks were considered good. It was simply the aftermath of the war and the deflation that caused the failures.
And such failures are not fair argument that our system of unit
banks is unsound and we ought to have a branch banking system?
Mr. F o r t . A s I understood the comptroller’s argument as to the
greater soundness of branch banking, as he urges it—and the gentle
man from Kansas knows I am not committed to it—it was that
branch banking would produce a greater diversification of loans,
because the same bank would be making both city and country loans
and could therefore stand losses in one line of business without
affecting its solvency.
Mr. S t r o n g . That might apply to your country, but not to an
agricultural district, where all business depends on agriculture.
Mr. F o r t . Would it not apply to a Kansas City bank with branches
out in Kansas, with both types of loans?
Mr. S t r o n g . I am pointing out that the banks would not have
made the loans and in that way have embarrassed the country, or
they would have made them and suffered the same losses. Whether
they could have made them and met the losses, I do not know.
Mrs. P r a t t . Is it not true, Mr. Strong, that some of the losses which
some of the farmers sustained, were due more or less to speculation
on their part? Were they not relying on the food prices that pre
vailed during the war and instead of merely using the land they had
to produce food, did they not go out and buy more land with the pos
sible presumption that they were going, thereby, to make more
money?
Mr. S t r o n g . That is undoubtedly true in individual cases.
Mrs. P r a t t . They pyramided, so to speak, and the losses were,
largely, speculative?
Mr. S t r o n g . Some were, no doubt. Up in Iowa I think they
indulged in that kind of speculation, but in general, in Kansas, they
did not. In my State they cultivated more land more intensively, and
went into debt to get the machinery with which to do it.
Mr. L e t t s . I admit there was more or less of that in Iowa, but
it was done with the concurrence of the banker in a great many
instances, and, as I stated for the record a few days ago, some of our
bankers not only put the second mortgages into their own little banks
but sometimes the thirds. They sometimes sent the first and the
only good one to some insurance company and oftentimes, as I
stated before, it was found that the first and the second mortgages
did not supply enough money to buy an additional piece of land,
and it became necessary to have a purchaser take out some additional
216
BRANCH, CHAIN, AND GROUP BANKING
insurance upon which the banker was getting a commission
A lto
gether it was not only a spirit of speculation which existed in the
farm er, but one which existed in the banker as well.
Mr S t r o n g . Certainly
Mr. L e t t s . In a great many instances.
Mr. S e ib e r l in g . Y ou do not mean to say that the depreciation in
farm lands on account of the deflation after the war, was any greater
than the depreciation in industry?
Mr. S t r o n g . The deflation in agricultural, products was greater.
Mr. S e ib e r l in g . I do not think so.
Mr. S t r o n g . T w o million farmers lost their farms, but a great
many more lost their entire working capital.
Mr. S e ib e r l in g . In our cities, within 30 days, the raw materials
and products on hand depreciated 50 per cent, more than $100,000,000,
in the plants in our community.
Mr. S t r o n g . I remember that we passed a bill before this com
mittee, putting in the step rate interest plan and it was represented
that it was done to check the inflation in New York, but they did
not put it into effect in NewTYork City—but in Kansas I appreciate
the whole country was deflated, but agriculture suffered most because
they were left in debt, with the prices of their products below the
cost of production
I know losses to occur from instances of that kind that the bankers
could not have controlled; great financiers could not have controlled—
no one could control. A lot of money was lost in the stock market
recently. That can not be charged to the impotence and inability
of the men who lost the money.
I am holding that our bankers in our agricultural districts are not
incompetent to run banks. They are the same men who would be
used, under a branch banking system, to run the banks as managers.
These banks failed because of the effort during the war to increase
production and the deflation that followed, and it is not fair to make
that an argument for branch banking.
Mr. L e t t s . May I add to what I said a moment ago, by making
further reference to the matter of deflation in the agricultural regions;
we had been accustomed, year after year, to have supplied all the
money necessary at harvest time to move the crops and to enable the
farmers to carry their young animals over the winter and fatten them
and send them into the market when they were prime and would
bring the highest prices and furnish the best products to the consum
ing public. The year of the deflation, for some reason or other, from
some policy perhaps the loans were called; instead of supplying the
credit to which we were accustomed, the existing loans were called
and the farmers were required to gather up everything they had on
their farms and sell it in order to meet the demands, even to the point
of driving young animals—pigs, lambs and calves—off their farms so
that the year following they did not have the necessary animals on
their farms to go ahead in the normal way in the breeding and raising
of stock.
Mr. S t r o n g . And was it not the custom of those farmers to give a
mortgage on the farm to the bank in order to carry over those condi
tions, and when they gave up the farms to the banks and the banks
became vested with the title, they were entitled, under the law, to
hold them only five years before disposing of them, and it was being
forced to dispose of a lot of those farms that broke the banks?
BRANCH, CHAIN, AND GROUP BANKING
217
M r. L etts . I hope, out of these hearings will come some sort of
understanding that will develop a banking policy under which, at
no time in the future, can it ever happen that loans will be called at
harvest time, and when it will require men to dispose of their young
animals and deplete the farms and bring on ruin as it did a few years
ago.
Mr. S t r o n g . In regard to the monopoly of money and credits
that will ensue from a national branch-banking system, you are
proposing in each of the 12 districts—I presume these are the Federal
reserve districts or like districts—I understand you call them trade
areas; you will set up 12 trade areas in the United States and confine
branch banking to each one of those areas.
Mr. P o l e . That is not m y suggestion.
Mr. S t r o n g . Well, what is it?
Mr. P o l e . That branch banking should be extended to within the
trade area, but as to the extent of that trade area I have not
suggested, but have said that in the most extreme case it should not
be permitted to extend beyond the Federal reserve district lines
Mr. S t r o n g . Who would grant that permission?
Mr. P o l e . Congress.
Mr. S t r o n g . Then your idea is that in each one of the 12 trade
areas, as determined by Congress, should be set up a branch banking
system that should not be allowed to run out to another trade area
Mr. P ole There might be, in some instances, a Federal reserve
district consisting of a trade area In other Federal reserve districts
the entire district may more than cover the situation and it might be
necessary to set up three or four areas.
Mr. S t r o n g . I thought you said you would confine it to 12 trade
areas.
Mr. P o l e . I made no such suggestion as that.
Mr. S t r o n g . Who would determine whether they could extend
outside of the trade areas?
Mr P ole The law would cover the extent to which branch bank
ing might be extended
Mr S t r o n g What is the objection to extending them from one
trade area to another.
Mr P o l e . I should like to see the trade areas limited to the point
where each important center would develop its own branch system
and in an orderly manner without permitting any bank to cover the
entire country with branches, even if it were so disposed.
Mr. S t r o n g . Then you would only have branch banking groups
in each trade area?
Mr P ole Radiating from a central point.
Mr. S tr o n g How would you prevent holding companies from get
ting control of all these trade area branch banks?
Mr. P o l e . The probabilities are that the holding companies would
disappear if they were given the greater advantage of being per
mitted to operate branches instead of members of a group.
Mr S t r o n g You think it would have a greater advantage?
Mr P o l e . I think the operating advantage would be sufficient
to - —
Mr
Mr
Mr.
Strong .
P ole. I
S trong.
What do you mean by “ greater advantage” ?
said “ operating advantages.”
Yes. Well, what do you mean by that?
218
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . Under the present system a unit bank has to keep an
entire board of directors and full set of officers.
Mr. S t r o n g . I am talking about the danger of group banking or a
holding company getting possession of all the trade areas and you
say that you hope to build up strong enough branch banks in each of
the trade areas, so that there would be no incentive for that.
Mr. P o l e . I do not quite understand your question. I think that
it was the suggestion there should be some regulation as to how far
groups should be permitted to consolidate or branch banking systems
should be permitted to consolidate.
Mr. S t r o n g . Why?
Mr. P o l e . So that their operations could be confined to their own
trade areas and not extend all over the country.
Mr. S t r o n g . What is the objection to extending all over the
country?
Mr. P o l e . I do not think anybody is advocating nationwide
branch banking for the moment. It is looking entirely too far ahead.
Mr. S t r o n g . When we passed the McFadden bill, the Comptroller
of the Currency thought it would be sufficient to limit the branches
to the city in which the parent bank was located. Now the Comp
troller of the Currency says we should establish 12 trade areas.
Mr. P o l e . Y o u keep referring to 12 areas. I did not limit it to 12
trade areas.
Mr. S t r o n g . N ow you believe in extending the branch banking to
cover the different trade areas?
Mr. P o l e . Yes.
Mr. S t r o n g . N o w , would not the same desirability of enlarging the
system apply if somebody would urge that it should be made nation
wide branch banking?
Mr. P o l e . I would not be in favor of that. It is on entirely too
large a scale and would present operating difficulties which I do not
know whether the supervising authorities would be in a position to
cope with.
Mr. S t r o n g . When we discussed the McFadden bill we had a great
deal to say about getting the nose of the camel under the tent as far
as branch banking was concerned and some of us thought it could
be limited, if it was an evil, and it was generally admitted that it
was an evil— be limited to the city in which the parent bank was lo
cated. They said that the State banks in the larger centers were
putting in branches, which embarrassed the national banks, but if
the national banks were permitted to have branches in the cities where
the parent banks are located, that would meet the situation. Now,
your suggestion is that we extend the range of branch banking to
trade areas and it seems to me that the same argument will eventually
lead us into favoring an extension of branch banking so that it will
be nation-wide. What would be the objection to nation-wide branch
banking?
Mr. P o l e . If nation-wide branch banking were permitted by
Congress it might create a condition where large banks might estab
lish branches all over the country without respect to the natural flow
of trade to any central community, in addition to which the operatingdifficulties would be so great that the supervisory authorities will have
trouble in coping with it.
Mr. S t r o n g . You have no fear of a money and credit monopoly
if you had nation-wide branch banking?
BRANCH, CH AIN, AND GROUP BANKING
219
Mr. P o l e . I am so far from thinking that nation-wide branch
banking would ever be permitted, that I have not given a great deal
of thought to what might happen under such a system.
Mr. S t r o n g . Would not that be one danger if we had’nation-wide
branch banking?
Mr. P o l e . I say I have not given a great deal of thought to such a
contingency as nation-wide branch banking. I do not think it will
happen for years to come.
Mr. S t r o n g . Chain banking is extending and becoming nation
wide?
Mr. P o l e . I am not advocating it.
Mr. S t r o n g . I thought you said a moment ago that as a step to*
branch banking it might be advisable.
Mr. P o l e . I said that group banks might have some character
istics which are desirable as a step toward branch banking, but not
as an ultimate system.
Mr. S t r o n g . H o w do you regard chain banking?
Mr. P o l e . I am not in favor of chain banking.
Mr. S t r o n g . Y o u are only in favor of group banking as an ultimate
step toward branch banking?
Mr. P o l e . I said it might possibly make the inauguration of
branch banking more orderly.
Mr. S t r o n g . When you cover a trade area with branches, would
there not be the tendency toward a monopoly in that trade area of
money and credits?
Mr. P o l e . I do not see why there should be any greater monopoly
in a trade area than there is in banking now. If branch banking
were permitted, the big banks in any metropolitan center would take
advantage of such an opportunity and would be just as much in
competition with each other as they are to-day.
Mr. S t r o n g . D o you think there is much competition in banking
in the northern part of California to-day?
Mr. P o l e . Yes.
Mr. S t r o n g . You think there is much competition between the
independent banks and the Bank of Italy?
Mr. P o l e . I think they are competitors; yes.
Mr. S t r o n g . Has it not been the history of the Bank of Italy that
it has absorbed whatever bank it wanted and forced that absorption?
Mr. P o l e . There are numerous towns in California where the
Bank of Italy operates side by side with a unit bank.
Mr. S t r o n g . But they generally force the unit bank to sell out to
them if they want it?
Mr. P o l e . I say there are plenty of instances where they operate
side by side and do not force them to sell out.
Mr. S t r o n g . They may have an agreement. Is it not a fact that
the Bank of Italy have forced banks to sell out to them in numerous
instances?
Mr. P o l e . I am not informed of that.
Mr. S t r o n g . There have been instances of that right in Washing
ton, have there not?
Mr. P o l e . Not that I know of.
Mr. S t r o n g . Let me call your attention to the fact that a man by
the name of Savage, one of the old and experienced bankers, had
a bank at Columbia Road and Eighteenth Street, and one of the
220
BRANCH, CH AIN, AND GROUP BANKING
banks in Washington put in a branch within half a block of him, and
being unable to buy or force him out of business, purchased the land
at the back of his bank and announced they would build an immense
bank overtowering his bank and finally forced him to sell out against
his will. That is true, is it not?
Mr. P o l e . I d o n o t k n o w a b o u t t h o s e f a c t s .
The C h a i r m a n . Will you yield to me?
Mr. S t r o n g . Yes.
The C h a i r m a n . You spoke a moment ago to the effect that you
were not in favor of chain banking. Will you state your reasons why?
Mr. P o l e . I have already defined a chain bank. The particular
danger is that if a member of a chain fails, it drags with it the entire
chain.
The C h a i r m a n . Under those circumstances, then, in view of that
statement, should we permit membership in the Federal reserve sys
tem of chain banking, where it is operated by a bank in the Federal
reserve system?
Mr. P o l e . That would be a matter, I think, Mr. Chairman, for the
Federal Reserve Board to cover, would it not?
The C h a i r m a n . Well, you are ex officio a member of the Federal
Reserve Board.
Mr. P o l e . But I am not authorized to speak for the board.
The C h a i r m a n . You are in charge of examinations of all national
banks and many national banks are now owned and operated by
chains. These banks are being operated under your supervision and
you have already expressed the difficulties which you encounter in
the examination of these banks where they are intermingled with other
companies and control and you have said that you should have author
ity to examine these affiliated companies. I think, under the cir
cumstances, you are the proper one to answer that question.
Mr. P o l e . Chain systems of banking are frequently composed of
both State and national banks. The national banks are, perforce,
members of the Federal reserve system and as to whether or not it
should be denied such affiliation because its stock is owned by an
individual or group of individuals, is a question which I would not
be prepared to answer now. The question would seem to involve,
possibly, the expulsion of a national bank from the system because
it was a member of a chain.
The C h a i r m a n . Well, if a national bank was violating methods in
its operation which tended to endanger the security and perhaps
cause the failure of that bank would you not as comptroller, feel
justified in taking drastic action?
Mr. P o l e . I would not say chain banking is operating in any
sense illegally. The law permits it.
The C h a i r m a n . Y o u just said its existence is a dangerous situation.
Mr. P o l e . Did I say that?
The C h a i r m a n . The reason I am asking these questions is that
this question of chain banking has been considered in this country
for many years, and in some instances, it has succeeded, where it
was in strong hands, and in other instances, where it was in weak
hands, it has failed, and caused great suffering and disaster.
Mr P o l e . Yes.
The C h a i r m a n . There are a great number of chain banks in
operation to-day. It is very difficult to know whether they are
strong hands or in weak hands. I have no doubt there are some
BRANCH, CHAIN, AND GROUP BANKING
221
in the hands of people who are not as capable as they should be in
operating such institutions. Exploitation may be taking place but
national banks are involved in those chains. I think it raises a very
serious question in regard to the future conduct of banking in the
United States, as to whether we are going to permit our national
banks to be tied up in chain banking and I would like to know your
frank opinion in regard to it.
Mr. P o l e . Personally, I am not in favor of it.
The C h a i r m a n . Well, one way to prohibit it would be to deny the
national banks that are parts of chains the right to continue as mem
bers of the Federal reserve system. Don’t you think, if the continua
tion of such a system endangers national banks, that drastic action
should be taken?
Mr. P o l e . I should like to see some legislation which would pro
hibit the operation of chain banks.
The C h a i r m a n . D o you know of any legislation that could be
enacted that would be more effective than to forbid them membership
in the Federal reserve system?
Mr. P o l e . That, of course, would not prevent a chain of banks from
operating outside of the system.
The C h a i r m a n . But it would protect the national banking system.
Mr. P o l e . Yes.
Mr. F o r t . May I ask a question right following your line, Mr.
Chairman?
The C h a i r m a n . Yes.
Mr. F o r t . Mr. Pole, don’t you feel that if we recognize definite
abuses anywhere in the system we should proceed to correct them
even though that involved unscrambling some things that have
already happened?
Mr. P o l e . I d o .
Mr. F o r t . And following up Mr. McFadden’s question further,
have we not, in addition to the power of debarring from the Federal
reserve system, a still more potent weapon, the right to prohibit any
bank to clear checks that violate our theory of sound banking?
Mr. P o l e . I imagine that would be possible.
Mr. S t r o n g . In view of the fact it is common knowledge that
wherever chain banking or group banking or branch banking is per
mitted, it is spreading very rapidly, do you not believe that if your
system of establishing branch banking in trade areas is permitted,
that eventually, inside of those trade areas will be only one or perhaps
two groups of branch banks?
Mr. P o l e . Legislation might be enacted to prohibit two free con
solidations of banks, eliminating competition thereby.
Mr. S t r o n g . Then you believe it would be dangerous if but one or
two groups of branch banks were established in the country?
Mr. P o l e . I am not in favor of a banking monopoly. I would like
to see a continuation of banking competition.
Mr. S t r o n g . H o w are you going to prevent it under your system?
Mr. P o l e . My system?
Mr. S t r o n g . Under the system you propose, I mean.
Mr. P o l e . I think that that might be taken into consideration by
Congress through legislation preventing consolidations of such groups.
100136— 30— v o l 1,
pt
2------- 9
222
BRANCH, CH AIN, AND GROUP BANKING
Mr. S t r o n g . But there would be no groups established until after
we created a trade area. For instance, in California, will we say we
will tear down the Bank of Italy’s branch banks and reduce them.
Mr. P o l e . I do not think the law would be retroactive.
Mr. S t r o n g . Do you think there could be any hope of building up
another group that could compete with the Bank of Italy?
Mr. P o l e . There is more than one group that competes with the
Bank of Italy in California.
Mr. S t r o n g . I understand they had an understanding between
the group in Los Angeles and the group in San Francisco, under which
the Bank of Italy would take the northern part of the State and the
group in Los Angeles would take the southern part of the State, but
when I was out there some time ago, there was a great deal of excite
ment when the Bank of Italy bought a bank in Los Angeles in alleged
violation of the agreement.
Mr. P o l e . I know nothing of such an agreement, but outside of the
Los Angeles group there is a very strong competition out of San
Francisco itself.
Mr. S t r o n g . There are a few strong banks, of course.
Mr. P o l e . I am talking about a single very important branch
banking system.
Mr. S t r o n g . H o w many branches have they?
Mr. P o l e . They are in keen competition with the Bank of Italy,
as far as I am informed, with considerably more than 100 branches.
Mr. S t r o n g . D o they extend out into the rural districts?
Mr. P o l e . Yes.
Mr. S t r o n g . Outside of the towns adjacent to San Francisco?
Mr. P o l e . Yes.
Mr. S t r o n g . Then, your idea is that there would be competition
between branch banks in the trade areas?
Mr. P o l e . My idea is that I would see to it that there was compe
tition by preventing too free consolidations of groups and large
banks having branches.
Mr. S t r o n g . If you think it necessary to give them the extent of
territory that a trade area would make, it would necessitate having
a very large number of branches?
Mr. P o l e . That is true.
Mr. S t r o n g . All right, now. You mean you would say to one
branch banker* “ You must have a branch in this town, but the other
branch bank group can not?”
Mr. P o l e . Not at all.
Mr. S t r o n g . H o w would you prevent a final working out of a
monopoly?
Mr. P o l e . I d o u b t , i n t h e fir s t p l a c e , w h e t h e r t h a t w o u l d b e v e r y
m u c h t o b e fe a r e d , b e c a u s e I t h in k t h a t th e re w o u ld b e s u ffic ie n t
o p p o r t u n i t y i n t h e b a n k i n g b u s in e s s f o r c e r t a i n l y m o r e t h a n o n e
b a n k a n d t h e c h a n c e s a re t h e r e w o u ld b e s u ffic ie n t o p p o r t u n i t y f o r a
n u m b e r o f b a n k s i n a l a r g e t o w n , a s t h e r e is n o w a n d t h e m e r e f a c t
t h a t th e b a n k s w e r e g iv e n th e p r iv ile g e o f b r a n c h e s w o u ld n o t
d i m i n i s h t h e n u m b e r o f i m p o r t a n t u n it s i n m e t r o p o l i t a n c e n t e r s .
The C h a i r m a n . Suppose the First National Bank of New York
the Chase National Bank of New York and the National City Bank
of New York should decide to merge or consolidate: Could that be
done without your permission?
Mr. P o l e . I t c o u l d n o t .
BRANCH, CHAIN, AND GROUP BANKING
223
The C h a i r m a n . What would be your attitude, for instance, follow
ing up that hypothetical situation, and the question Mr. Strong has
asked you, if, say, those three banks should want to consolidate?
Would you approve or disapprove?
Mr. P o l e . I would not express any opinion on that now. When
we have a request for consolidation we look into all the facts and
circumstances and our decision is determined upon our findings.
Mrs. P r a t t . May I just ask one question in connection with Mr.
Fort’s questions?
The C h a i r m a n . Yes.
Mrs. P r a t t . H o w can you debar a national bank from the Federal
reserve system just because it is a member of a chain banking group
if it complies with the regulations, because, of necessity, it is no
longer a national bank if it is not a member of the Federal reserve
system?
Mr. P o l e . That is correct.
Mrs. P r a t t . H o w would you proceed?
Mr. P o l e . There is no way under the present law. A national
bank is, perforce, a member of the Federal reserve system.
Mrs. P r a t t . Y o u can not debar them unless you find something
wrong with the particular bank?
Mr. P o l e . Y o u could not even then, as long as it held its national
charter.
Mrs. P r a t t . Unless it ceases to be a national bank-----Mr. P o l e . It would remain a member of the Federal reserve sys
tem. If it ceased to be a national bank it would become a question
of whether or not it would be eligible or wish to come in as a State
member.
Mr. F o r t . It could be done by an amendment of the law.
Mr. L e t t s . H o w c o u l d y o u a c c o m p l i s h i t ?
Mrs. P r a t t . Y o u would have no jurisdiction over a chain bank
unless it be a member of the present Federal reserve system?
Mr. P o l e . No.
Mrs. P r a t t . And you can not differentiate between the national
banks?
Mr. P o l e . N o .
Mrs. P r a t t . A national bank would cease to be a member of the
chain system if it is not a member of the Federal reserve sj^stem?
Mr. P o l e . Yes.
Mrs. P r a t t . And that could not be changed without changing the
law?
Mr. P o l e . N o .
The C h a i r m a n . While it is 1 o’clock, the House has adjourned,
and I am informed by Mr. Strong that he can finish within a few
minutes. I think we had better let Mr. Strong proceed.
Mr. B u s b y . Before Mr. Strong proceeds, may I ask a question?
Mr. S t r o n g . G o a h e a d .
Mr. B u s b y . Do you know of any national banks whose stock is
held or a majority of whose stock is held or controlled by a holding
corporation?
Mr. P o l e . Yes.
Mr. S t r o n g . A s I understand it, your position would be that as
comptroller, you would seek to restrict branches in the trade areas
from forming a monopoly through competing with and forcing
independent banks to sell out to them?
-2 2 4
BRANCH, CH AIN, AND GROUP BANKING
Mr. P o l e . I do not know of any way in which a bank can be forced
to dispose of its stock. It would not require any legislation for that.
I can not conceive of any Comptroller of the Currency authorizing
the establishment of a branch in a town or a community where
independent banking was supplying all the banking needs of such a
community.
Mr. S t r o n g . Well, they allowed a branch bank to be placed on
Eighteenth Street within a few hundred feet of a bank that was satis
factory to the people there.
Mr. P o l e . Of course there is a lot of difference between what I
intended to convey to the committee when I spoke of branch banking
in the rural communities, and what you speak of, which is city branch
banking. In the city branches are more in the nature of a conven
ience to the bank’s clients and has no reference to the safety of a
small bank.
Mr. S t r o n g . That is true. Of course I am opposed to branch
banking because I fear a monopoly of money and credit. Especially
do I think such monopoly will work against the agricultural States,
and if permitted, I think it will finally dominate and control the
Government, just as the Second United States Bank did when it
forced a bill for the renewal of its charter through Congress by loaning
money to Members of Congress and to the newspapers, and would
have succeeded but for the veto by Andrew Jackson. I am afraid
of any monopoly built up by group or chain or branch banking.
I believe it would have more power than the Government.
Mr. P o l e . Has there been a monopoly of banking in countries
where branch banking is in effect?
Mr. S t r o n g . I have been told that there is. I was in Canada
once when a gentleman, who was in the manufacturing business, told
me that they had forced his private bank out of existence through a
branch bank and then declined to extend credit to him. That was a
monopoly in that town; so much so that he sold his business. He
was forced not only to sell his interest in the bank, but his interest
in the manufacturing concern, because his competitor was interested
in the branch bank.
Mr. P o l e . In a very large number of towns in Canada there are
not only two branch banks, but three and four competing keenly
with each other.
Mr. S t r o n g . That may be, but here we have unit banks and then
a branch banking group comes in and forces those unit banks out of
existence in order to get control of the banking in that community.
That was done in the building up of branch banks in California
by the Bank of Italy. I had a banker out there tell me he had a
bank that he operated a great many years and raised a boy and sent
him to school with the purpose of having him succeed him and there
came an offer to buy from the Bank of Italy and he refused. They
then said they would put a bank building alongside him and they
went so far as to buy a lot near him and still he refused. Then
one day some men walked in and said, “ We have purchased the
accounts of your customers and we want the money rijght now.”
Being unable to comply, he sold his bank. I can not say whether
that is true, but the man was vouched for by his friends as a thor
oughly reliable man. I am pointing out a condition that might arise.
branch
,
c h a in
,
and
group
b a n k in g
225
TIow will you prevent a final monopoly of banking in trade areas
where you permit branch banking? Will the comptroller step in
and forbid that kind of business?
Mr. P o l e . Why should there not be legislation on that point?
Mr. S t r o n g . Without legislation-----Mr. P o l e . I think it would be extremely undesirable if any single
bank were permitted to monopolize the banking business of any
area or section of the country. I am perfectly in accord with your
idea.
Mr. S t r o n g . We had a law restricting the branch banking to
the city where the parent bank was located. Unable to violate that
law they started group banking systems and they are doing indirectly
what the law prevented their doing directly.
Mr. P o l e . Not under the national law. They are being formed
under State laws.
Mr. S t r o n g . But you can not pass laws which will provide in
every case where a branch bank shall or shall not be established.
Mr. P o l e . If you will leave that to the discretion of the comp
troller, as far as I can speak for myself, there would be no monoply.
It might be, Mr. Strong, that in giving consideration to this question,
you might say that the discretion should be in the comptroller and
possible with some other officials, with the idea of carrying out a
national policy governing the consolidation of banks and preventing
monopoly in banking.
Mr. S t r o n g . From your testimony I am quite willing to believe
that if you were the comptroller you would try to prevent the
establishment of a monopoly in branch banking. I believe you would,
but how about the next comptroller?
Mr. P o l e . He might have a different view?
Mr. S t r o n g . He might believe a monopoly would be the right
thing.
Mr. P o l e . That is true.
Mr. S t r o n g . A comptroller, for instance, came before this com
mittee several years ago and made a positive statement against
branch banking and yet you now come before us and favor it.
Mr. P o l e . Y e s .
Mr. S t r o n g . Suppose these trade areas would be established, in
which branch banking would be permitted, and they would
finally dominate the banking interests in that district—would
there be any use of the Federal reserve system after they so controlled?
Mr. P o l e . Oh, there is no question in my mind but there will
always be use for the Federal reserve system.
Mr. S t r o n g . Would not they dominate and control the Federal
reserve bank in their trade areas?
Mr. P o l e . Undoubtedly to an extent.
Mr. S t r o n g . Then, they would virtually, in fact, be the Federal
reserve system?
Mr. P o l e . I am filing a brief, if you recall, on that very question,
as to the possibilities or probabilities of members of a chain being
able to elect directors of the Federal reserve bank of its district,
which will cover that.
Mr. S t r o n g . And -there would be that possibility?
Mr. P o l e . It might be theoretically possible, but, as a matter o f
practice, quite unlikely that it would happen.
226
branch
,
c h a in
,
and
group
b a n k in g
Mr. S e i b e r l i n g . The comptroller referred a few moments ago to
countries having branch banking. I wonder if you could tell us the
countries having nation-wide branch banking.
Mr. P o l e . England and Canada are two of them.
Mr. S t r o n g . I believe I have no other questions. I will put into
the record at this point, as I have suggested to the chairman, the
statement of former Comptroller Dawes, made to this committee, in
opposition to branch banking.
(The statement referred to is as follows:)
You have invited me to express my views to your committee doubtless for
the reason that as Comptroller of the Currency I have general supervision over
the national banks. I wish to state clearly at the outset that the statements
which follow are made by me solely upon my responsibility as Comptroller of
the Currency. They are not intended in any way to represent the views of
the Federal Reserve Board of which I am a member ex officio.
With your permission I shall confine my discussion primarily to the subject
of branch banking— the outstanding problem in our banking system to-day.
On the side of the National Government this question is simultaneously before
the Federal Reserve Board and the comptroller; before the board in the matter
of the extension of branch banking by the State member banks in certain States,
and before the comptroller as a question of preserving the integrity of the
national banking system in those States. Since the national banks constitute
the backbone of the Federal reserve system, it becomes necessary therefore for
me as comptroller, in this discussion, to refer to the situation before the Federal
Reserve Board.
The organization of the Federal reserve system was possible because of the
power of the National Government to enforce the cooperation of the national
banks. At its inception it was primarily an instrumentality of coordination,
imposed upon the existing national system. At the present time, of the 31,000
banks in the United States 9,916 are members of the Federal reserve system,
and of the members of the Federal reserve system 8,292 are national banks.
The assets of the national banks as of June 30, 1923, were $21,511,766,000, as
compared with the assets of the State member banks amounting to $12,293,124,000.
The national bank act does not permit national banks to engage in the exercise
of general banking functions beyond the limits of the municipalities in which they
are located. They can not, therefore, enter the general field of branch banking.
These elementary facts are stated in order to bring out the obligation of the
Federal reserve system to the national banks, and the extent to which the Federal
reserve system is dependent upon the national banking system. Except for the
national banks the Federal reserve system could not have been organized, and
if a conditions is permitted to develop which should seriously and permanently
cripple the national banking system it would be a direct and possibly fatal blow
to the Federal reserve system.
The development of the American banking system has been an evolutionary
process, and the preeminent strength which it possesses in world finance at the
present time is in large measure due to the fact that it took its form in a gradual
and orderly way, meeting by practical adjustment conditions as they developed.
It is distinctly not an adaption of any foreign system nor is it a structure conceived
and built by any individual or group of individuals at a given time involving the
rigid enforcement of a ready-made theoretical plan. Under our system of bank
ing, the most stable and most rapid economic development that the world has
ever seen has taken place.
From time to time efforts have been made to substitute for the old machinery
a system which might seem to be theoretically and technically more perfect.
The frontal attacks of the proponents of foreign banking systems have invariably
broken down without, in any substantial manner, permanently modifying or
affecting the general principles of American banking. The genius of the American
people for independence in matters of local self-government is thoroughly in
grained and will never succumb in any clean-cut issue where the choice rests
between centralized control and personal and community independence.
At the present time no direct or open attack is being made on these traditional
principles. The danger which confronts our present banking system lies in an
insidious and gradual undermining influence which is not so much the outgrowth
of a conscious effort to introduce a new system as it is the result of a natural desire
BRANCH, CHAIN, AND GROUP BANKING
227
to secure temporary benefits for particular individuals and banking institutions
without consideration being given as to the ultimate effects on the highly compli
cated and efficient machinery of American finance and exchange. It i§ peculiarly
a time when these indefinite tendencies should be precipitated into their essential
elements.
If a new system and theory of banking is in progress it should be determined
whether or not it is a desirable system, and if a desirable system it should be
encouraged, fostered and put into effect as rapidly as possible. If it is not a
desirable system that fact should be developed and steps should be taken now to
eradicate it before a condition has developed which would involve a great national
disturbance and injustice to individuals and communities.
The above remarks are intended to appl'y to the general subject of branch
banking. By branch banking I mean an association of banking houses operating
in one or more cities or towns but all under the discretionary control of the board
of directors of a parent bank and upon the capital of such parent bank.
Unless the State member banks enter into branch banking there is, in my judg
ment, no material divergence of interests between t*he State and national banks.
If, however, State member banks engage in unlimited branch banking it will mean
the eventual destruction of the national-banking system and the substitution for
it, and eventually for the Federal reserve system, of a privately owned and highly
centralized financiaL control of the banking machinery of the United States.
It is this belief wnich impels me to discuss at some length present tendencies
in branch banking, and if the interest of your committee is largely centered on
the status of nonmember banks it is proper to say that these nonmember banks
are almost entirely independent unit banks and any substitution for the present
system would have as vital an effect on their future as it would have upon the
member banks and on the old independent unit banking operations of the nationalbanking system.
In support of the general contention that the principle of branch banking has
been carried to such an extent as to constitute a definite trend in certain localities
the following facts are submitted:
Branch banking is permitted with various modifications in the following 18
States: Arizona, California, Delaware, Georgia, Louisiana, Maine, Maryland,
Massachusetts, Michigan, Mississippi, New York, North Carolina, Ohio, Oregon,
Rhode Island, South Carolina, Tennessee, and Virginia.
The lawrs of some of these States restrict the establishment of branches to the
city or county of the location of the parent bank, while others permit branches
to be established in any part of the State. In California, for example, 82 of the
State banks are operating a total of about 475 branches. In that State, one bank
operates 28 branches, one bank 19 branches, another about 71 branches in 48
different cities, another about 72 branches. Four banks in California operate a
total of 190 out of the 475 branch banks in the State. In the State of Massa
chusetts, chiefly in the vicinity of Boston, State banks and trust companies are
operating several hundred branches. In the State of Michigan upward of 300
branches of State banks are in operation. In the city of Detroit 14 banks are
operating about 200 branches and there are in Detroit only three national banks
left in operation. In the State of New York about 251 State banks are operating
branches. In the United States to-day it is reported that 517 State banking
institutions have in operation 1,675 branches.
The figures used above are not intended to be authoritative or complete, and
are used only for the purpose of illustration. They are, I believe, sufficient to
indicate that the issue has long since passed the theoretical stage and has reached
the status of a practical condition.
Granting that a State legislature may properly enact legislation permitting the
local State banks to engage in branch banking, the larger questions remain, first,
as to the effect of such legislation upon the national banks operating in such
States under the national bank act as administered by the Comptroller of the
Currency, and, second, the effect upon the Federal reserve system of admitting
to or retaining in membership such State banks engaged in branch banking.
In view of the facts stated above I may safely say that branch banking already
exists in the United States, and that it is distinctly a practical and not a theoret
ical issue.
The discussion of branch banking seems naturally to divide itself into three
main questions:
First. Is a reserve system, either governmentally or privately controlled,
necessary?
228
BRANCH, CH AIN, AND GROUP BANKING
Second. Can the present Federal reserve system survive the imposition upon
it of large and powerful chains of branch banks which, in practice as well as in
theory, are privately owned and privately controlled reserve systems?
1 Third. Can a general system of branch banks exist simultaneously with a
system of independent unit banks?
If it should be concluded, in the consideration of these questions, that the
Federal reserve system is necessary and that it can not survive the strain upon it
of systems of branch banks, and that branch banks will mean the elimination of
independent banks, it will then, I believe, be a logical and necessary conclusion
that the issue is a clean-cut one as to whether the country prefers a system of
privately owned branch banks or a reserve system under Federal control.
As to the first question, namely, the necessity for a reserve system, it seems
hardly necessary, in view of the record of the existing organization, to enter into
any extended arguments, but it would, perhaps, be well to state some of the
basic considerations on account of which it was given its present form. The
principle of a central bank l^as been a controversial one for over a century. In
deference to the widespread and thoroughly American distrust of the centraliza
tion involved in a single Government bank 12 banks were established in different
sections of the country in order to secure the closest possible contact with the
local member banks and a thorough understanding and adaptability to com
munity conditions. Through the operations of the 12 individual units a proper
sympathy with an understanding of local conditions and needs is secured, while
at the same time, through the Federal Reserve Board, a liaison between the
districts is secured and the detachment necessary for a proper compromise be
tween local interest and national policy. Through the Federal reserve system
the transfer of funds from points of surplus to points of deficit is accomplished
with the primary purpose of promoting the best interests of the whole country
and not with a view to enabling individuals or sections to reap a financial ad
vantage at the expense of others. If it were assumed that the instrumentality
for the transfer of funds could be provided by a private reserve system, such as
a branch banking institution, it could hardly be fairly contended that the con
trolling influence would be other than profit. Necessarily, in adjustments of
this kind the interests of a branch bank or individuals must be private profit
and not public welfare.
The whole Federal Reserve System bears a very striking analogy to the general
principles which underlie the American Government, being founded upon a
system of checks and balances calculated to preserve local independence under
centralized and coordinating control. It would be so distinctly a step backward
and so manifestly a dangerous proceeding to destroy the regulated cooperation
of banking facilities that it seems to me entirely unnecessary to discuss further
the necessity for some sort of a reserve system, and the issue is, should it be done
by governmental coordination or private centralization?
The second point referred to, as to the ability of the Federal reserve banks
to survive the imposition upon the system of large privately controlled reserve
systems, is a practical one which at the present moment faces the Federal Reserve
Board. The question as to the duties and rights of the board to interfere in
the extension of a system which, in the opinion of many might contain the seeds
of a development which will mean the eventual destruction of the Federal
reserve system, is by no means a simple one, either legally or from the standpoint
of policy. The board, however, clearly has the moral and legal right to refuse
admission to the system of any institution which either because of its financial
condition or the method of its operation is unsound, and it has the same right
to deny the privileges of the Federal reserve system to a member bank under
similar conditions. It is reasonable to assume that a bank, for administrative
purposes, might safely control 10 branches; but the same bank under American
conditions might not, in safety to its depositors and general creditors, operate
a thousand branches. If the Federal reserve system takes a neutral position
on the general issue of branch banking and refuses to sanction the admission to
the system or request the withdrawal of banks which are operating more than
a safe number of branches, they will be faced continually with decisions of a
highly controversial nature and which are not susceptible of reduction to ele
mental formulae. The local situation, the personal equation, the temporary
financial conditions, and a thousand and one conflicting influences will have to
be balanced and considered in every application for a branch. However wise
their decisions the board will, of necessity, frequently appear to be arbitrary
and improperly partisan. The publication of their reasons for action in, particu
lar cases would frequently be productive of injustice to the individual applicant
and disturbance to the financial community. If the reasons for decision in these
BRANCH, CHAIN, AND GROUP BANKING
229
matters were not made public, in my opinion, the system would be subjected
to such attacks and insinuations as would eventually seriously impair its stand
ing and be destructive of its dignity and influence. In order to avoid these
consequences the board has it in its power to adopt a general policy of clarification
and control.
The elementary considerations which I have stated above and purpose to
elaborate further seems to me to justify a decision on the part of the authorities
to limit definitely the extent to which member banks may indulge 111 the estab
lishment of branch banks.
As a practical consideration, aside from the broader aspects of the case, it
must be constantly borne in mind that the Federal reserve system can only be
successfully maintained if the administrative authorities have an adequate
knowledge of the conditions of the member banks. This necessitates examina
tion, w'hich, in the case of the national banks, is provided by the Comptroller of
the Currency. National banks can not engage in banking beyond the limits of
the city in which the institution is located. In the examination of State banks
the Federal reserve system is compelled to rely on its own examiners and such
incidental and voluntary assistance as it can secure from the various State
officials.
The examination of an institution with branches and subsidiaries is a very
difficult one. The interdepartmental relationships vastly complicate it. It is
more difficult to examine 10 institutions of a given size which are associated
in a branch banking system than it would be to examine 10 independent institu
tions, as all of the transactions between the different branches have to be investi
gated, and eliminations and adjustments made to produce a composite picture
and prevent the improper manipulation or shifting of assets. This can not be
done satisfactorily wtihout a simultaneous examination of parent band and each
one of the branches. This may be construed as an ex parte statement, but it
bears the weight not alone of my individual opinion but of the employees of the
comptroller’s office who have been engaged in the examination of banks for many
years. Bank examination involves very much more than a mere scrutiny of
figures. Questions of moral character, of local reputation, of valuations of securi
ties, of conformity to laws and rulings— these and many other elements enter into
a proper examination. In the case of the examination of a very large bank, say
with 75 to 100 branches, it would be impossible to mobilize a force of examiners
of the ability to make an intelligent analysis of the situation in each individual
community even if it is to be assumed that the character of the banker is not a
factor in the condition of the institution.
The last stated considerations are incidental as compared with the more im
portant one which involves the ability of the Federal reserve bank to meet the
mobilization demands of an association of institutions under the control of a
single interest having the power to concentrate the requirements of all of the sep
arate institutions into one demand. This demand might be made practically
without notice in a period of stress, on account of necessity or with a desire to
produce a certain condition in the community which might be opposed to the
general interest but favorable to that of the particular institution. To say that
if a large proportion of the banking interests of a State are centralized in the hands
of five or six or a dozen branch banking institutions and that these institutions
will not combine, either as a result of direct conferences or agreement or of mu
tuality of interests, is to ignore the fundamental basis of human action. If any
lessons are to be drawn from the development of large industrial enterprises in
the United States it is that the principle of centralization, when once inaugurated,
will proceed, unless interfered with by governmental action, to a point of com
plete concentration in an individual, or a group dominated by an individual.
Should a situation of this kind develop in any Federal reserve district the Federal
reserve bank would either be eliminated as a factor in the financial community or
be virtually under the control of such a group.
As to the question of whether or not it is possible for independent unit banking
systems to exist and operate in conjunction with a branch banking system, very
definite conclusions may be drawn from the results of the operations of branch
banking systems in other countries.
Branch banking is in vogue in England, Scotland, Ireland, Canada, Australia,
New Zealand, France, and other parts of continental Europe. I understand it is
also in operation in the Latin-American countries. According to figures published
in the bulletin of the American Institute of Banking for July 1923, in 1842 there
were in England 429 banks and in 1922 only 20 banks, of these 20 banks, 5 con
trolled practically all of the banking of the nation. There are about 7,900
branches in operation. In Scotland there are only about 9 banks with about
1,400 branches, and in Ireland about 9 banks with about 800 branches.
230
BRANCH, CH AIN, AND GROUP BANKING
In 1885 in Canada there were 41 independent banks. Under the operation
of branch banking, the number was reduced to 35 by the year 1905. I am
informed that in Canada to-day there are only 14 banks, operating about 5,000
branches. There are no independent unit banks in western Canada, in fact
none west of Winnipeg. Banking control through the branch system is concen
trated in the cities of Montreal and Toronto.
It has been authoritatively stated that there are only 6 unit banks in New Zea
land, and 20 in Australia. (See Statesman Yearbook for 1923.)
Experience in other countries definitely indicates that independent unit banks
do not exist parallel with branch banks. As indicating that this is not necessarily
due to conditions which exist abroad, but might not exist in the United States,
the following points are adduced, which to my mind, show that there are such
inherent antagonisms between the two systems that they could not, under any
circumstances long operate together in the same country.
Branch banking is, in its essence, monopolistic. The financial resources of a
number of communities are put under the control of a single group of individuals.
Funds liquidated in one community may be used to develop other communities
at the discretion of the officers of the central bank. The economic development,
therefore, of a given territory under the control of a branch would depend upon
the policy of the bank. The bank would have the power to retard or to encourage
the development of a given community or individual enterprise. In this connec
tion it has been well said that if the sudden creation of great branch banking sys
tems shall result in withdrawing funds from the support of rural communities
in order that they may be invested in self-liquidating commercial paper originating
elsewhere, then it will be true that sound abstract banking principles will have
been applied, but at a cost to the future development of the rural communities
that will far outweigh any advantages that may be gained.
In a system of independent unit banks, the bank which best serves the com
munity is the bank which is most certain to live the longest and be the most
profitable to its stockholders. Since the type of man who starts a bank in a
small community is essentially constructive, his natural associations and sym
pathies are with men of constructive type, and he extends the facilities of the
bank most liberally to them. His loans take into account as a first consideration
character and moral responsibility. He is naturally inclined to encourage young,
aggressive, and enterprising individuals who will, in the course of time, bring
business to the institution as he succeeds, and will develop commercial and
industrial enterprises and be a factor in the creation of corporate and private
undertakings, all of which will be feeders to the bank. As this type of individual
is usually not the possessor of high-class collateral at the beginning of his career,
the banker is dependent in a large measure on the character, of which he can only
be sure by personal contact and acquaintance.
The distinctive accomplishment of the banking system of the United States is
its contribution to enterprise and its stimulation of growth; its criterion is service.
The European standard is safety first, last, and all the time.
It can well be said that the rapid economic development of America has been
largely due to the policy of the pioneering unit banks which recognized this
principle of service. It is inconceivable that the representative of a nonresident
board of directors should be granted the authority and the discretion to make a
type of loan which is based on character, knowledge of local conditions, and
ultimate benefits to be realized by the community and by the banks. While it
requires a high order of ability to make this class of loan, the banking history
of the United States would show, in the main, a surprisingly small mortality.
These loans, however, on account of their small size in individual cases, and
difficulty of ascertaining their intrinsic value, do not afford a basis for discount
with other banks in case of stress, and no bank could exist if it were dependent
entirely upon them. If, across the street from the unit bank making this sort
of loan, were the agent of a great branch banking institution, this agent would
very quickly acquire the larger and from the narrow banking standpoint, the
desirable business of the town. This he could do by offering lower rates of interest
on loans and higher rates on deposits than local conditions would ordinarily
justify, which, in the nature of the case would probably be withdrawn as soon
as the independent unit banks of the town were finally eliminated. This is a
process which has been pursued in the evolution of our great industrial enter
prises which have had to be curbed by the action of the Sherman antitrust law
and other governmental action.
The opportunities for coercion on the part of large institutions with branches
scattered over a whole State are very great. This coercion might take any one
of a number of forms
The connection of the branch banks with out-of-town
BRANCH, CH AIN, AND GROUP BANKING
231
customers of the institutions of a community permits of pressure being readilybrought.
Under the Federal reserve system, and through his relations with his cor
respondents, the competent unit banker is able to secure for the larger customers
of his town facilities which are beyond the abilities of his own institution to
grant, The branch banker can, in the case of every large customers, grant these
facilities more directly and to that extent is rendering a special service to the
community, but the ultimate result of these influences is to give the easiest
obtainable and most desirable business to the branch bank, leaving the unit
bank to take care of the enterprises of the town which have not already reached
a condition of independence.
The expression has been used as applied to one State where branch banking
exists on a large scale that the branch banks skim the cream and the unit banks
are left with the skimmed milk, the result being that the unit banks have gone
out of existence and the borrower who is a good moral risk but can not produce
a certain form of collateral is left to depend on the good graces of a representative
of a branch bank who is frequently the possessor of all the discretionary powers
of the local railroad agent and no more.
One of the monopolistic influences exerted by the branch banker is the ability
to secure, by the payment of higher salaries, the transfer to other points of the
efficient employees of the unit banks. A general procedure in the creation of
branch banking systems in one of our American States has been the absorption
of local unit institutions. During the first few years the operations of these
local unit institutions have, in many cases, been successful because the enter
prising and pioneering talent that created the bank is still retained in an official
capacity, but men of this type will not long consent to hold positions which are,
in their essence, merely advisory and there is soon substituted therefore the type
of employee who must be bound by rigid instructions and is capable of inter
preting them in only a mechanical way. In case of an acute financial disturbance
demanding immediate action it is necessary for the representative of the branch
bank to refer back to the head office for instructions as to his course of action,
and a delay is occasioned by red tape which frequently makes it impossible for
them to help in an emergency, even when they have the desire.
The relations of the national bank to operations in branch banking have been
the subject of a very widespread misunderstanding. In order that the situation
might be clarified and defined, the present comptroller requested an opinion of
the Attorney General which has just been handed down. A previous opinion
given by Attorney General Wickersham was to the general effect that a national
bank might not de novo establish a branch bank. The present opinion from
the Attorney General makes it clear that none of the major or important inci
dental functions of a national bank may be exercised beyond the limits of the
city in which the parent institution is located. This opinion also indicates that
certain functions of a national bank, incident to the banking business, may be
be carried on at fixed points within the city limits and outside of the four walls of
the banking house. This opinion is not inconsistent with that of Attorney
General Wickersham, and the practical application which will be made of it
will be that certain national banks will be permitted to establish what are
virtually tellers’ windows in places more or less removed from the banks, but in
the city limits, where they may take deposits and cash checks. The discretion
ary powers which are inherent in such transactions as making loans, purchasing
securities, and similar activities will not be permitted to be carried on in such
offices located at a distance from the parent institution.
It seems to me unnecessary at the present time to do more than make the
above reference to the legal situation. The force of the opinion of the Attorney
General just handed down would as a practical matter remove the national banks
from the branch bank controversy since a national bank can not engage in the
banking business outside of the city limits of its location and inside of the city
limits it may under certain conditions perform only limited functions at a dis
tance from the banking house.
I am of the opinion that the comptroller could not properly permit the estab
lishment of these outside activities by a national bank, such as teller’s windows,
in any locality where the State laws or practices prohibit the State banks from
rendering similar services.
Authorization to national banks to establish such additional offices will be of
great advantage in certain localities where the State banks are already extending
their services in this manner. In such cities as New York, Cleveland, Detroit,
and California, the national banks will be able to reach their customers in the
matter of making deposits and cashing checks in the same way that their com
232
BRANCH, CH AIN, AND GROUP BANKING
petitors do in this single important aspect of the banking business. At the present
time, in the city of Cleveland there are only three national banks, and in the
city of Detroit only three. This will enable the national banking system to really
eneter these two great cities, from which they have previously been excluded,
perhaps not on equal terms, but at least on a living basis.
It is my opinion that the major question of branch banking is not in any way
affected by this differentiation of the functions of the tellers’ windows except to
mitigate the handicaps that at present exist in some great cities and that it can
not by any possibility be used for the extension of the principle of branch banking.
The banking arrangements of any individual city are distinctly a matter for
local determination. When the extension of branches passes the city lines^and
becomes State wide a condition such as I have previously described is created,
under which the whole balance of the Federal reserve and unit banking system
of a large section of the country is disturbed and the fire will, in my opinion, very
quickly jump over State lines.
If the branch banking movement can not use the Federal reserve system as'an
instrumentality for its extension, it will probably never become a great menace^
and with the national banks extended a reasonable measure of facilities for. self
protection within the limits of the municipalities in which they operate, the
national banking system and the Federal reserve system can be maintained in
their present status.
First, that the development of branch banking, unless curbed, will ban the
destruction of the national banks, and thereby the destruction of the Federal
reserve system and the substitution of a privately controlled reserve system for a
governmental system of coordination.
Second, that if the Federal Reserve Board has not the power to refuse the ad
mission of institutions engaged in general branch banking, and to curb the further
extension of this principle by member banks, they should be given the power.
(Whereupon, at 1.45 o’clock p. m., the committee adjourned until
Tuesday, March 11, 1930, at 10.30 o’clock a. m.)
(Face p. 154.)
100136—30.
Beceivers
Supervising
Assistant
@FedFRASER