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Branch, Chain, and Group Bankini HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY HOUSE OF REPRESENTATIVES SEVENTY-FIRST CONGRESS SECOND SESSION UNDER H. Res. 141 AUTHORIZING THE BANKING AND CURRENCY COMMITTEE TO STUDY AND INVESTIGATE GROUP, CHAIN AND BRANCH BANKING APRIL 15, 16, AND 17, 1930 VOLUME 1 Part 8 100136 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON: 1930 COMMITTEE ON BANKING AND CURRENCY LOUIS T. McFADDEN, Pennsylvania! Chairman OTIS WINGO, Arkansas. JAMES G. STRONG, Kansas. HENRY B. STEAGALL, Alabama. ROBERT LUCE, Massachusetts. E. HART FENN, Connecticut, CHARLES H. BRAND, Georgia GUY E. CAMPBELL, Pennsylvania. '*W . ^ I # e V e NSON, South Carolina. OARROLL L. BEEDY, Maine. T. ALAN GOLDSBOROUGH, MaryUn I. AWNING S. PRALL, New York. JOSEPH L. HOOPER, Michigan. JEFF BUSBY, Mississippi. GODFREY G. GOODWIN, Minnesota. F. DICKINSON LETTS, Iowa. FRANKLIN W. FORT, New Jersey. BENJAMIN M. GOLDER, Pennsylvania. FRANCIS SEIBERLING, Ohio. MRS. RUTH PRATT, New York. JAMES W. DUNBAR, Indiana. P hilip G . T hompson , Cink. n CONT EN TS Decker, E. W., Northwest Bancorporation, Minneapolis, Minn______ _ Wakefield, L. E., First Bank Stock Corporation, Minneapolis, Minn.-.. in 787 879 BEANCH, CHAIN, AND GBOUP BANKING TUESDAY, APRIL 15, 1930 H o u se 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 , Washington, D. C. The committee met at 10.30 o ’clock a. m., Hon. James G. Strong, presiding. Mr. S t r o n g . The committee w ill come to order. Mr. G o l d s b o r o u g h . Mr. Chairman, before we begin the regular business, it has been called to my attention that April 22 is an open date in this committee. I am going to suggest that the Eastern Shore Trust Co. be invited to send a representative here for that day. Mr. S t r o n g . Very well. The clerk will take care o f that. I understand we are to meet this morning for the purpose of hearing Mr. E. W. Decker, of Minneapolis, Minn., from the Northwest Bancorporation. Mr. Decker is present. We shall be glad to hear Mr. Decker at this time. STATEMENT OF E. W. DECKER, REPRESENTING THE NORTHWEST BANCORPORATION, MINNEAPOLIS, MINN. Mr. D e c k e r . Mr. Chairman, I asked the chairman for the privilege of telling my story, which is not prepared in writing, without inter ruption, which permission he has granted. Following that I will be very glad to answer any questions that I can. Mr. S t r o n g . That w ill be the procedure of the committee, Mr. Decker. Mr. D e c k e r . Let me say first, Mr. Chapman, that in m y opinion this committee is now approaching a subj ct which is the most im portant and far reaching, so far as banking is concerned, of any which has engaged the attention of the country since the days of Andrew Jackson. That being true, at least in my judgment, I think the com mittee is very wise in proceeding with the plan of an exhaustive study of the entire subject before attempting any hasty legislation. Mr. Wakefield, who is to appear, I believe, to-morrow, and I, certainly appreciate the courtesy of the invitation to appear before you, to tell you of the conditions in our part of the United States. One reason that I think you are very wise in your procedure is this. Congress attempted some sixty-odd years ago to establish a national banking system in this country, and very wisely so. They invited the people to deposit their money in these banks and to apply to these banks for proper banking facilities. Undoubtedly there followed with that procedure the responsibility on the part of the Government which I have no doubt your committee 787 788 BRANCH, C H AIN , AND GROUP BANK IN G fully recognize. One of the responsibilities in connection with that system, in my judgment, is to allow the banks in that system to be prosperous. It is fundametal, gentlemen, that no single bank, no group of banks, nor all the banks in the United States together, can be safe for the depositor, give adequate facilities to the legitimate borrower, year in and year out, unless they are prosperous. All of the commercial banking capital of this country to-day is private capital. Private capital always seeks for investment lines which are profitable. That is also fundamental. If banking is not prosperous, private capital will not go into it. We have been operating in this country for 150 years under a system of unit banks. I believe that system has been the best that we could have had for the development of a country that is so vast in area; 3,000 miles long and nearly 1,500 miles wide; and also con sidering the diversity of our resources and the various problems which confront different parts of the country, I believe that the unit system was the best system we could have operated under. With 27,000 to 30,000 individual banks in the United States to-day, it has become perfectly apparent to students of the situation that that system has now become antiquated and absolutely inadequate. No better evidence is needed than the tremendous failures of banks which are taking place. I am going to endeavor to show you a way in which the advantages of that system will be retained, not disturbed, but will be supplemented by a development which will meet the changing conditions. The building of our highways and the incoming of the closed car, the automobile, the telephone, the radio, and various other modem appliances, has brought us very closely together. Anoka, a small town 25 miles outside of Minneapolis was as far from Minneapolis 30 years ago as Minot, N. Dak. is to-day, a distance of 600 or 700 miles, so far as business and banking are concerned. The crossroads bank has had its farm-loan business taken away from it, largely by the United States Government. There is very little dealing in land, which formerly was profitable. In North Dakota, the State has taken the hail insurance away from the small banks. Their profit on exchange has been disturbed somewhat. They have been unable to resort to other forms of making money, as the city bank has, in these changing conditions, and therefore they find it very difficult to exist. In the city, whether you like it or not, the commercial banker of ^.o-day must be an investment banker. He can not escape it. I might say that I was born in Minnesota, on a farm. I lived there 18 years. I used to milk 12 cows and walk 2 miles to school, so I know something about hard work on a farm. I have been in the banking business in Minneapolis 43 years in a bank which has correspondents all the way to the Pacific coast, so with ordinary observation, I ought to be able to give some idea of the conditions there in banking. Notwithstanding these conditions, business in our section of the country is in my judgment on a sounder basis to-day than it has ever been in my experience. We have been operating as business men under a tremendous handi cap of an antiquated system of banking, as I will attempt to show you. BRANCH, CH AIN , AND GROUP BANKING 789 I assume you will want to hear from me more particularly regarding conditions in the section where we operate. I might say that the bank with which I have the honor to be connected in Minneapolis was organized in 1872 and has never missed a dividend. I do not speak of that to brag about my bank, but to show you that under proper management, banking has been continually prosperous in our part of the country. Now, when you come to the country districts, you have an entirely different situation. We fully recognize that we can not operate a bank in the country on the same basis on which you operate a bank in the city. A city bank is, as I said a moment ago, becoming partially at least an investment bank. Customers of ours in Minne apolis who used to borrow money are not applying for loans any more, except very occasionally. They have financed themselves by bond issues, note issues, stock issues, and instead of coming to the bank to borrow $500,000 for their business, they have in many instances been loaners of money. Therefore, whereas 30 years ago when Mr. Forgan came to our bank, great sums of money were loaned there in the fall to move the crop by Canadian banks, and our bank was always a heavy borrower in the fall for the purpose of moving crops, in many seasons in the last 10 years our bank has been loaning money on the Street in New York at the time when crops were moving, because of a surplus of funds. Mr. Wakefield’s bank and my own are large owners of bonds; Government bonds, municipal bonds, various investment bonds, commercial paper, because our customers have not absorbed all of our funds. That is true, notwithstanding the fact that in the deflation period of 1920 and 1921 our two banks alone loaned $60,000,000 to country banks who were our customers, to tide them over that crisis, and in many instances accepted collateral which, to say the least, was doubtful. The city banks in Minneapolis and St. Paul have charged to profit and loss in the last 10 years at least $6,000,000, a very large proportion of which was lost indirectly in loans to bankers throughout that section of the country. Our loans direct to the banks themselves on collateral as a rule were paid. But indirectly we furnished capital for these banks by loaning money to country bankers and those losses have been very heavy. So we can not be charged with not using our own resources to tide over the situation in banking in our section. The reason we were able to do that and continue paying dividends and remain as strong as the Rock of Gibraltar, as we have in season and out, is because the banks naturally were prosperous. No bank in the world can live by loaning money to people who can not pay it back. A commercial bank is expected to take reasonable chances in its loans. That we did so is evidenced by the statement I have made regarding losses. Those losses must be taken care of by profit, or the result is disastrous. In the last 10 years the banking situation in our country has been deplorable. In my judgment it is a national disgrace. In a country as rich and as intelligent as the United States is, to be per mitting a condition of banking which has existed there for 10 years is nothing less than tragedy. 790 BRANCH, CH AIN , AND GBOTJP BANKING I believe it is the duty of the banker, as well as those in charge of banks, to furnish the same protection and the same facilities to the farmer in North Dakota, so far as banking is concerned, as the broker who does business with the National City Bank in New York City. Onr trouble with agriculture, about which there has been so much talk, in my judgment is largely due to the banking situation. It is not true, in my judgment, that these banks have failed due to agri cultural distress, but that agriculture has been in trouble because of our banking distress, as I will show you. Have in mind, gentlemen, that banking is the heart of business. It is utterly impossible permanently to have prosperous business and weak banks. Had not the large banks of the United States been absolutely and fundamentally strong during the recent stock collapse, the whole business of the United States would have fallen flat. It could not have been otherwise. I will* give you a few instances— and I am only going to attempt, Mr. Chairman, to hit the high spots in my talk— of what that situa tion in banking has been. Take Cavalier County, N. Dak., a county, gentlemen, with good soil and generally speaking, a good class of farmers. In 1919 there were 26 banks in Cavalier County. I will not read off the names, although I have them here, because I do not care to burden you with that. Twenty-one banks out of the 26 have closed and are closed to-day. The total deposits in 1919 of those 26 banks was $5,665,000. The deposits in the remaining five banks are $717,000. What do you think happened to the farmers of Cavalier County? Was this agricultural distress? Supposing thay had gotten 10 or 15 cents more a bushel for their wheat? You might about as well hare allowed a cyclone to go across Cavalier County as to have allowed that condition of banking to exist. Now have in mind that a similar condition, but not as bad, of course, in all sections which during that 10-year period closed 1,500 banks in our district, with between three and four hundred millions of deposits, created a loss to those depositors, a class of people who could less afford to lose it, and that is undoubtedly true, generally speaking, throughout the whole United States in the loss or at least the tie-up of a billion and a half in deposits in closed banks. The burden has fallen upon the people who could least afford to stand it. Have in mind also that the depositor not only lost his money but the borrower in those banks was approached by the receiver and informed he would have to pay up. What happened to him? What resources he had he had to attempt, at least, to turn into money to meet his note. Do you wonder we have had some so-called Bolshevists in our country when such a condition exists? In Cavalier County, to which I referred, I will give just one instance of a woman who came in with $3,400 in dirty money, in a shoe box, to pay her mortgage. I know of one other instance— I could give you innumerable ones— of a very prosperous farmer in North Dakota who had a sizeable deposit in a number of banks. Three of those banks failed. He went to the balance of them where he had his money on deposit, drew it out, took it home, hid it in his bed ticking, BRANCH, CH AIN, AND GROUP BANKING 791 I know of a great many instances where farmers have had money in banks accumulated to pay off their mortgages and before the mortgage matured, the bank failed. I know of one instance at least where a farmer had sufficient money in two different banks to pay his mortgage and both banks failed. In Moorhead, Minn., the only bank there closed December 22, 1928, with $2,200,000 deposits. They appealed to the Northwest Bancorporations to put in a bank. We responded. We organized a national bank, opened it in Moorhead and March 5, 1925, three months later, immediately made available to the depositors of the closed bank, $1,000,000 cash, $750,000 of which they immediately brought back and deposited in the new bank. Gentlemen, that country is not broke by any manner of means. But it is pretty hard for a man to swim when you tie a millstone around his neck. In Two Harbors, Minn., the president of a bank belonging to our group a few months ago committed suicide. He had a daughter who was mentally defective and it had grown on him mentally until he finally killed his daughter and committed suicide. That was on a Sunday. The next morning, naturally, there was a run on the bank. Two Harbors is 22 miles north of Duluth. We telephoned to our bank in Duluth to send them $100,000 in currency and as much more as they wanted. Before noon the run had subsided; no trouble. I do not know what would have happened to that bank, had they been independent entirely. Now, what did we do for Cavalier County, the one I just men tioned? Across the line is the city of Grafton. The Grafton National Bank has been a customer of ours for over 40 years. They came down to us and actually cried for help. We took over that bank, put in some new capital just recently. Money is now coming into the bank. They were absolutely helpless— absolutely helpless. The Northwest Bancorporation has put into banks in its group, of which there are 98 banks and trust companies, in the last 12 months, in cash, over $4,000,000 and taken out of those banks undesirable if not bad paper, and to secure us against this advance which was made through the medium of loaning to a separate corporation organized for that purpose, we took over the assets charged off and in addition held out a sufficient amount of stock in the Northwest Bancorporation which is the holding company, to secure us, as that stock was to be given and will be eventually given to the shareholders of the old bank when their loan is paid, which is evidence that we have been willing to put in money to clean up the situation. Mr. Wakefield will be able to tell you a similar story. In order to make my story as short as possible, about two 37ears ago my young men came to me in the bank and said that they were absolutely convinced that a concentration of banking capital was going on in the country and that I should direct my attention to it; and that- they thought that we should in some way or other assist in stabilizing the banking business in our part of the world. I said, in my judgment, it is the business of the banker to stabilize banking conditions here because if he does not, either the politician or the business man who has become thoroughly disgusted, will step in some day and change it for us, perhaps in a way that does not suit us. 792 BRANCH, C H AIN , AND GROUP BANKING So I proceeded with my directors to devise a plan first of stabilizing banking in our part of the country; second, in attempting to pro vide facilities for our people, of which there was an apparent dearth, and to prevent, if you please, eastern or foreign interests obtaining control through purchase of stock of the banks in our district. Now, you may think we are trying to set up a monopoly. I am going to endeavor to show you that we are trying to prevent a mono poly. It is idle for any one to say to-day that we do not like big business. It is here. It is here to stay and it is never going to go* It is utterly impossible, if desired, to drive it out. We are the richest nation in the world. We are a world banker if not the world banker. Big business is going to grow and you can not take care of big business without big banks and big banking capital. It makes no difference whether you like it or not. I consider it our job to see that we accomplish that with the least possible harm, if it is harmful. I found in three or four instances definite cases where eastern capital had approached our banks in our territory— sound banks— to buy control. The people had been asked to set a price on their banks. I said to our directors, “ if these banks are going to pass into other hands, the control should be kept in this district.” When we approached those men with our plan, they said, “ We do not want to sell out. We do not want the money, but we do want to have a partner. We are sick and tired of sitting up here on the prairie with the lack of confidence, as we have for many, many years, without a partner.” So we have attempted to set up in our district what is actually a cooperative system of banking. It is not a monopoly. It is the only way that I know of to prevent a monopoly. During the 43 years that I have been in the banking business, I have seen my customers and my own directors go to New York and Chicago— such as Pillsbury, General Mills, Archer Daniels, Minne apolis Honeywell, Cream of Wheat, Munsingwear. New York banking houses have underwirtten their securities, taken off 10 or 15 points, sent the security back at the higher price. Our customers draw the money out of our bank to buy it, not by hundreds of dollars or thousands of dollars, but millions of dollars. I said to our people, “ Why should not that profit be kept at home— at least, some of i t ” ? We are not foolish enough to think we can become independent. But we are sufficiently satisfied with o’ut own capital and ability to believe we can become more independent. How could that be prevented? No one bank nor no two banks in our district were large enough to handle transactions of that sort, no matter how sound they might be. We felt that a group of banks all in our country, largely with the same problems, sympathetic with each other, each cooperating, co ordinating, not consolidating, can and will do it. So we organized the Northwest Bancorporation under the laws of Delaware. We went to four of the best banks— not the poorest, the best banks— presented our plan. They said immediately, “ That is the most con structive thing that has ever been offered here in this part of the country. We will gladly join you. We will not sell our banks.” Take the First American National Bank, Duluth, a consolidation of the two largest banks there, a bank of $36,000,000 deposits to-day. BRANCH, CH AIN , AND GROUP BANKING 793 They said, "W e would not sell control of this bank outside of Duluth at any price. ” They have 30 directors, half of whom are millionaires. “ We will join you in this group, leaving this bank still a Duluth bank but assisted by the cooperation of these other banks. ” Now, the Northwest Bancorporation, with its ninety-odd banks all in that part of the world, is attempting to retain to our country the unit bank, but adding to it all the strength and influence of the group. It is not a monopoly. It is not dominated in Minneapolis, although that is the headquarters, because there are on the board of directors of the Bancorporation 126 men, practically every one of whom is a successful business man, in numberless lines of business, and less than 30 of them reside in the city of Minneapolis. They are running that corporation. They attend the meetings regularly and enthusiastically. There are so many things which this banking corporation can and is doing for our part of the country that it is almost impossible to enumerate them. First, it has unquestionably, together with M r. Wakefield’s corporation, stabilized our banking conditions at least at the points where there are banks which have joined our group. It is enabling us to finance our people at home, as I explained to you. It is enabling us to secure trusts in these various points where our banks are located, which is a field hardly touched. In Fargo, N. Dak., alone, our bank has already written in the last year a dozen trusts from people who were unwilling to create a trust in a local bank, not being assured of its perpetuity. A man has $100,000 that he wants left to protect his wife and girls. He wants to know that his trustee is going to be there 25 years after he is gone. It was utterly impossible to convince him that he should create that trust and leave it in the local bank. He knew nothing of what the management of that bank would be in five years or whether it would be in existence. We satisfied him that the Northwest Bancorporation with $75,000,000 of capital and nearly $500,000,000 of resources was going* to be there, that it was large enough and strong enough and presided over by a sufficient number of capable, successful business men, that the perpetuity would be guaranteed; that they would hire good management and would always see that the institution was properly managed and not dependent on any one man or two men or any set of men. That trust business in itself is not only a tremendous service, but it is profitable business which belongs in our own district. We are entitled to retain in our district as much of the wealth which we take out of the soil as is possible and in my judgment we are entitled to the support of the United States Government in so doing. We were not smart enough to find any better way of doing it. In the matter of young men, from time immemorial our smartest young men have been leaving us for New York and Chicago. Why? Greater opportunity. Mrs. Pratt here may know that some years ago a Westerner was bragging in New York that all the smart men that they had down there came from the West. “ Yes,” the New Yorker said, “ and the smarter they were the sooner they came.” I can tell you of one instance of a young man who was receiving $25,000 a year, connected with our organization who within four 794 BRANCH, CH AIN , AND GROUP BANKING months was offered $75,000 a year to go to Chicago, not with a bank. He declined. Why? Northwest Bancorporation offered opportu nities to him which were good enough for him and had it not been for that, company, he said he would have gone. Another young man who handles our publicity work in Minneapolis was offered $35,000 a year to go to New York City. He came back and told me he declined it purely because of this banking group; that, he saw opportunities enough for us at home. That is a much larger question than appears on the surface. Why? In banks as in everything else, management is nine-tenths of the story. Pass all the laws in the world about banking. Without man agement your institutions would fail. How are you going to secure management if your best and most capable young men and women leave you to go to larger fields? The keeping in our own district of young developing men is in my judg ment a very important consideration in the organization of these groups. Our section of the country was in disrepute. Large international and national concerns would not even open offices there 8 or 10 years ago. An agricultural credit corporation was organized with the assist ance of Secretary Mellon and Clarence Wooley and one or two others and eastern interests subscribed $10,000,000 in cash, immediately available, to correct the distress there, so-called, in agriculture and banking, but largely in banking. We wanted capital to come in. We want to develop our country. Yet it was all going the other way, so far as banking was concerned. In the meantime we are on a sounder foundation, as I said at the outset. We have diversified our farming. We are a very wealthy country and if we had had in operation in the last 15 years, gentlemen and Mrs. Pratt, a sound banking system, it is my judgment that 50 per cent of all the so-called agricultural distress would not have been heard of— absolutely. Another percentage was due to poor farming and of course another percentage to conditions over which no one had control. Now, what is the remedy? That is what you people want to know. I think we have found the solution, so far as our country is concerned in the banking line, and it is the result of a great deal of thought and considerable experience. We have the temperament of the people to deal with. You will ask me, “ Will branch banking cure it?” My answer is, “ Emphati cally no.” The banks throughout our district who are members of the North west Bancorporation, regardless of what my personal opinion might be, and their competititors which are still independent banks, are unalterably opposed to branch banking. Why? I will give you a concrete illustration. Take the city of Minot, N. Dak. It has a little less than 25,000 people. The First National Bank is a member of our group. It has been there a great many years. They have a fine board of directors; it is a fine bank; small capital and large deposits. I said to them, “ Supposing you are asked to become a branch of the Northwestern National Bank of Minneapolis, instead of a member of our group?” They said, “ We would not have it. Our bank has been here a great many years. We have our local pride; local board of directors, local management.” BRANCH, CH AIN, AND GROUP BANKING 795 They are now members of the group, mind you; the same local authority, and the same local responsibility which they had before they joined our group. We have taken not one iota of a thing away from them in any manner, shape, or form. They have got everything they had before plus the strength, the influence and power of a cooperative system or group system, as we call it, of banks at their back. You say, “ Well, you would supplant them if the management did not suit you, at headquarters.” M y answer is it would be against our interests to supplant them unless the bank was mismanaged. If the bank was mismanaged grossly it would not make any difference who owned the stock. It is our business to put them out and put some one in who could manage it. We have a large investment in that town, in that terri tory. It would be against our selfish interests to supplant the management. That feeling exists throughout our entire district and in my judg ment to attempt to force branch banking at this time on those people, in lieu of group banking would stir up the biggest hornet’s nest that you have seen for some time, because that is a big country and there are a lot of people there and a great many banks, and they are unalterably opposed to branch banking. Their training and their traditions are all along other lines. They believe in group banking, because they see that they have retained all that they had before and added all the advantages, or practically all the advantages that branch banking would give them. In the small towns, the so-called crossroads towns, I will admit that we have a real problem. A town which is so small that it can not support a unit bank, regardless of whether it is independent or in a group, but which is large enough to be entitled to some banking facilities, will probably need some kind of a branch or teller’s window. I know of no other solution. But in a town of sufficient size to warrant a unit bank, which has existed in most cases for 50, 60 years, many of them, with its local pride, its local directors, its local interests, its local management— to force that bank to become a branch bank will run counter to public opinion and in my judgment create a great deal of unnecessary trouble if you can accomplish the same things in other ways. It is true branch banking can be operated more economically probably than group banking. I think the difference in cost to-day is a great deal more than made up by the advantages of the inde pendence of the locality which has been the basis of our Government since it started; and to destroy which would be exceedingly unfor tunate. It is idle for me to attempt to say what we should have in 15 years or 25 years. I do not know. I only know that, as I see it, our duty is to meet the situation as it is to-day and correct the evils with the least possible disturbance to the machinery which has been operating for manjr years. That is more true in banking than in any other business in the world, because banking is based on the confidence of the people, and as I stated before, is the heart of business. Unless it is sound, business can hardly possibly prosper. Millions of dollars in our part of the country have been and still are, in my judgment, to-day in hiding. We have many evidences of 796 BRANCH, C H AIN , AND GROUP BANKING it. One town in Minnesota had five banks. They are all closed, A friend of mine owns some mortgages out there. Recently he went out to collect them and every one of them was paid— brought in cash in tin boxes and in socks— in Minnesota, one of the richest States in the Union; producing more butter than any other State in the Union. It is not a wheat State at all. We get more money for our eggs than we do for our wheat. You ask me, “ What about stockholders7 liability, if this stock is owned by a corporation?” M y answer is that in a well-managed corporation, that question will never arise. If one of the banks in our group has a misfortune, it will be taken care of and the public will never hear from it. But if it should develop, the chance of collecting liability or taking care of the deposits of the bank belonging to a group in my judgment are greater, better than the likelihood of collecting money on stockholders' liability in country districts, be cause in most cases when the bank is gone, the shareholders are also gone. In that connection, I advocate the requirement if possible, in some legal way, of a percentage of assets of a holding company being in liquid securities other than bank stocks. Mr. Wakefield’s company and out own each has 10 per cent to-day in liquid securities that can be turned into money immediately to clean up the bank, if it re quires it. The comptroller says it is difficult to audit holding companies. Very true. We not only welcome, but solicit visitorial powers by the Comptroller of the Currency in not only our national banks but our State banks, the security companies belonging to our institution and the parent company itself. Nothing would suit us better than to have him in control of every feature of our group banks. Whether that is legral or not, I can not say. Mr. W in g o . You would include the holding corporation, too, would you? Mr. D e c k e r . Absolutely. You say, “ We will have some bad holding companies. We will have some organized for stock-jobbing purposes. That makes the comptroller’s job difficult.” Yes; but the fact remains that if you furnish the Comptroller of the Currency with sufficient money, with sufficient organization, he can quickly determine whether national banks joining groups are being used for illegitimate purposes. It is not a difficult matter to determine whether our group and Mr. Wakefield’s is founded for the purpose of of anything except the good of the banks of the country and for their solidarity, or whether there is evidence of stock jobbing or manipula tion. It is not a difficult matter. After all, the comptroller has to use his judgment in judging human nature as well as in examining figures, which do not amount to much, because they are not always correct. There are so many ways in which the Northwest Bancorporation is assisting the banks in its group, it is hard to enumerate them. For instance, they have been buyers of bonds, some of them, for years. They have no experts. Some of them have no bond department. They have bought bonds with very slight knowledge of their merit. They immediately said to us, “ For goodness sake, help us to buy bonds and tell us whether what we have we had better get rid of .” BRANCH, CH AIN, AND GROUP BANKING 797 They solicit our assistance. We are not cramming it down their throats. It is cooperative in every sense of the word. But if one member misbehaves, he is going to be called and he will be called so much more promptly in a good group of banks than he would as a unit bank, that the saving to depositor and borrower will be tre mendous; there is no question about it in my mind. To-day there are hundreds of banks in our section of the country who want to join these two groups. There is no trouble in getting banks in. The trouble is in keeping them out. Why do they want to come in? Simply because, as I say, they realize they can retain everything they now' have, with ail these advantages. We are not urging them to come in. We are making great plans for development of our country in finan cial lines aside from ordinary commercial banking. It is obvious to any of you that the average farmer can not come to a local bank and borrow money for 90 days with any expectation of paying it. Unless he is shipping wheat to market or cattle or sheep, he must have a longer time for credit. The independent bank during these years would say to that bor rower, “ Yes, we have some money to loan. You are good. You will eventually pay. I have not the money to spare now and there fore I can not accommodate you.” Or, if he had the money to spare he would say, “ I am afraid I will need it before you can pay it and I do not dare let you have it.” To-day, every legitimate borrower in every bank in these two groups is taken care of in every bank in the group, without exception. We are also interested in this long-time credit. Northwest Bancorporation recently acquired the Montana Cattle Loan Co., which now has over a million dollars in cattle loans in Western Montana; necessarily long-time loans. The loans are not properly acceptable to a commercial bank. So we are carrying them in this outside cor poration. We have under discussion right now, Mr. Wakefield’s institution and ours, a question of such business as the agricultural credit corpora tion has been handling, and they have done a wonderful job up there in getting sheep and cattle into North Dakota, which was only a few years ago an exclusive wheat State. Why, I could keep you here all day giving you figures of the way North Dakota is diversified. It takes capital. Who is going to fur nish it? Those little individual banks certainly could not. They could not even take care, many of them, of their good customers. That is one of the many things being planned to-day. Now, you say, “ Why does the Northwest Bancorporation go into Iowa and Nebraska? They are not in your Federal reserve district?” M y answer is threefold. In the first place, they asked us to come in and they gave as their reason, this: “ We are satisfied group bank ing is coming. We believe in it. We want to get in it. Obviously, we can not join New York or Chicago because they are not forming groups, and we would not if we could. We won’t go to Kansas City. We want to join Minneapolis, because we believe that you under stand our problems and are sympathetic with them and by joining you, we believe the best can be accomplished for our company.” That was their reason and I believe it was a good one. Another reason why we went into that territory was that we believed that in 798 BRANCH, CH AIN , AND GROUP BANKING order to make a unit sound and at least partially self-sufficient, you must have a very great diversity of resources. We have in the Northwest Bancorporation to-day mining interests and water power interests of the Rocky Mountains, the grain growing, the tremendous dairy interests of Minnesota, the iron mining of Minnesota, the corn and the hogs of Iowa, the manufacturing business of Iowa, which is much greater than those people realize— tremendous manufacturing business there now, and in Nebraska the winter wheat and cattle as an offset to our spring wheat. This territory furnishes a diversity of resourses which in our judgment makes a unit justifiable. Obviously, a unit in North Dakota or a system of branch banking in North Dakota alone would be fatal. They would be worse off than they are to-day, because the same conditions would embarrass them all at the same time. So, in order to have a unit sufficiently large in diversity of resources to make it reasonably self-sufficient, we include those States. And another reason we included them was this: We realized that to have a bank group able to function in a way that I have indicated, it must be large enough to be effective. Whether you like it or not, size is fundamental in many lines of business to-day. It certainly is in banking. It is impossible for the banks in our district to do the things which I have enumerated, financing our industries at home, and so on, without large units. Those large units, in my judgment, will build up the country more and keep more of its wealth at home than any other one thing that has been done since that country started. We are tired, as we say, of having the cow fed in Minnesota and milked in New York. W e have paid tribute to the East from time immemorial and you would be amazed if you knew the percentage o f our wealth that passes out o f that State every day to other hands ; in financing, in insurance, in interest and in 40 ways. Is there any reason why we should be forbidden to keep that business at home? Is there any reason why we should not expect to be assisted in keeping it home 'i It is not monopoly. It is an attempt to prevent monopoly. But I do not know o f any way under the sun, o f 40 little fellows reventing monopoly unless they get together and cooperate. We ave not discovered any way, at least, in our country. Those are the three reasons that we cover a large territory. In many instances Mr. Pole will tell you where we have taken over banks that were not in beautiful shape. The national bank exam iner sat in, has approved o f the whole deal, exchange of stock, and been delighted. We have taken out o f those banks assets that were not desirable. Now, have in mind, we did not buy these banks. W e exchanged stock in practically every instance where we have a bank to-day, and notably in the leading towns. There are twice as many share holders to-day, in Minot, for instance, in the Northwest Bancor poration as there is in the bank at Minot. And there is more than twice as much money invested in Northwest Bancorporation stock in Minot these was in the First National Bank o f Minot. Based upon the books o f the corporation as o f December 31, 1929, the Northwest Bancorporation had 11,469 stockholders, 90 per cent E 799 BRANCH, CH AIN , AND GROUP BANKING o f whom resided in the territory served by affiliated banks. The following table shows the number o f stockholders o f the Northwest Bancorporation by States: Minnesota---------------------------------North D ak o ta _________________ South Dakota__________________ Montana________________________ W isconsin_________________ .____ M ichigan_______________________ Iowa____________________________ ____ 400 7,719 Nebraska_______________________ ____ 250 640 W a sliington_________________________ 260 780 Miscellaneous__________________ ____ 750 250 420 50 Total 11,469 It is the policy o f the corporation to encourage the distribution o f stock among customers and employees o f the affiliated banks as well as among other persons in the States o f the Northwest. W e believe that a wide distribution o f stock in the territory which the corpora tion serves is an element o f strength and will be an important factor in building up the business of affiliated banks. Comparison between the number o f stockholders o f various banks before affiliation with the number o f Bancorporation stockholders after affiliation in the same city are given below. It should be remembered that in giving the number o f share holders o f the bank, this includes all shareholders regardless o f whether or not they live in the city where the bank is located, while all Bancorporation shareholders given are residents o f that city. Before hanks became affiliated Bank share holders National Citizens Bank, M ankato, M in n ................. First National Bank, W inona, M in n .......................... First National Bank & T rust C o., Fargo, N . D ak. First National Bank & Trust C o., M inot, N . Dak. N ational Bank of Huron, S. D a k .............. ....... ............ Security National Bank, Sioux Falls, S. D ak ........... National Bank of LaCrosse, W is ........... ....................... 71 62 100 20 44 Bancor* poration share holders 110 112 177 39 61 143 220 Now, is not that cooperation? W e have made available the stock in the corporation. I f it is a good thing, if it is prosperous, our people can participate in it. They would not buy stock in the local bank, many o f them, and if it was a bank that they wanted to buy stock in, they could not get it. It was closely held. We have attempted to put that on a democratic basis. So that the interest in the localities is greater in the cooperative group than it was in the local institution. Take the matter o f taxes. Our banks in North Dakota say, “ I f you ask us to become branches, where are we going to collect taxes ? ” They are taxing these local bank stocks. They are getting a large amount o f money annually from them. They say, 44I f we are a branch o f the Northwestern National Bank o f Minneapolis, Minne sota will collect all the tax, because the stock will be issued there, and we will have to resort to other forms o f taxation to run our government.” 1 0 0 1 8 6 — 3 0 — v o l 1 p t 8 --------- 2 800 BRANCH, CH AIN, AND GROUP BANKING I hold no brief either for or against branch banking. I have no prescribed theory on which this whole question can be soundly set tled. I only know that the people, in my judgment, in banking and in business, including farmers, in our section o f the country believe that we have at least, for the time being, found the solution o f our banking problem, and as I say it is hard to say what we will need in 15 or 20 years. I do not know, Mr. Chairman. I could go on and talk here for four hours, but I have just tried to touch the high spots, and I think I will stop and give the members a chance to ask questions, if they want to, and make further expla nation. Mr. L u c e . Mr. Decker, your very instructive statement might be supplemented, it seems to me, by a little more description o f the machinery and the operation. Mr. D ecker . Yes. You asked certain questions—your chairman did—in a memorandum sent to me. W ould you like me to read those? The first question asked is— Copy of the charter, date of organization, and by-laws. We will furnish that. Mr. L u c e . Yes. Mr. D ecker . Second: Is that satisfactory ? Furnish list of the directors of your holding company showing the principal business occupation of each. (The list referred to is as follow s:) X o i ’. T H W E S T I»AXCORPORATION OF KICK! Its EL W . Decker, president; J. C. Thomson, vice president and general manager; Robert E. Macgregor, vice president and treasurer; H. D. Thrall, vice president and assistant treasurer; Alex. Highland, vice president and assistant general manager; E. J. Weiser, vice president: Theo. Wold, vice president; Hanford MacNider, vice president. David Williams, vice president; Isaac S. Moore, vice president; Clyde E. Brenton, vice president; Gardner B. Perry, vice president; R, O. Kaufman, vice president; D. R. West, secretary; H. Hallenberg, chief examiner; W . E. Brockman, director, advertising, and publicity; Robert F. Maetavish, assistant treasurer; William N. Johnson, assistant secretary; Grant W . Anderson, assistant secretary; W illis D. Wyard, assistant secretary; J. W , Groves, assistant secretary; John DeJong, assistant secretary; W . Gordon Hegardt, assistant secretary; M. E. Ryan, comptroller. EXECUTIVE COM M ITTEE E. W . Decker, cliairnum. W . G. C. Bagley; Clyde E Brenton; G. W . Burton; W . A . D urst; Alex. Highland; Ford E. H ovey; F. A . Irish; R. E. Macgregor; Hanford MacNider, Isaac S. Moore; W . Z. Sharp; David C. Shepard; J. G. Thomson; H. D. T hrall; George P. Tweed; E. J. W eiser; David W illiam s; Theodore W o ld : G. H. Yaro.s; IX It. West, secretary. BRANCH, CH AIN, AND GROUP BANKING 801 IMilKCTOUS Flour and grain interests: Ward Ames, jr., vice president, Barnes'-Ames Co., Duluth Minn. Julius H. Barnes, grain exporter, Duluth, Minn. James F. Bell, president, General Mills (In c.), Minneapolis, Minn. John Crosby, director, General Mills, (In**.), Minneapolis, Minn. Frank T. Heffelflnger, president, F. H. Peavey & Co., Minneapolis, Minn. John S. Pillsbury, vice president, Pillsbury Flour Mills Co.. Minneapolis, Minn. Henry F. Salyards, president, Ely, Salyards & Co., Duluth, Minn. A. L. Searle, president, Searle Grain Co., iL b l.), Minneapolis, Minn. Adam G. Thomson, president, A. D. Thomson & Co., Duluth, Minn. Linseed oil products: Shreve M. Archer, president, Areher-Danieis-Midland Co., Minneapolis, Minn. Mining interests: W . B. Castle, vice president, Interlake Iron Corporation, Duluth, Minn. W . P. Chinn, general manager, mining division, Pleklands, Matlier & Co., Duluth, Minn. T. F. Cole, mining, Duluth, Minn. Edward C. Congdon, mining, Duluth, Minn. Oarl A. Luster, president, Clyde Iron Works, Duluth, Minn. George P. Tweed, iron ore, Duluth, Minn. Livestock and packing: II. G. Black, assistant treasurer, Armour & Co., Chicago, III. John E. Wagner, treasurer, Cudahy Packing Co., Chicago, 111. Public utilities: W . B. T . Belt, president, Northwestern Bell Telephone Co., Omaha, Nebr. J. E. Davidson, president, Nebraska Power Co., Omaha, Nebr. A. M. Robertson, vice president, Minneapolis Street Ry. Co., Minneapolis, Minn. Railroad interests: Ralph Budd, president, Great Northern Ry. Co., St. Paul, Minn. Chas. Donnelly, president, Northern Pacific Railroad, St. Paul, Minn. Carl Gray, jr., vice president, C. St. P. M. & O. Railroad Co., St. Paul, Minn. H . A, Scandrett, president, C. M. St. P, & P. Railroad Co., Chicago, 111. Lawyers: Howard J. Clark, attorney, Des Moines, Iowa. Albert C. Cobb, Cobb, Hoke, Benson, Krause & Faegre, Minneapolis, Minn. Chambers Kellar, attorney, Lead, S. Dak. J. F. D. Meighen, Meighen, Knudson & Sturtz, Albert Lee, Minn. Oscar Mitchell, Mitchell, Gillette & Carmichael, attorneys, Duluth, Minn. Edgar M. Morsman, jr., attorney, Omaha, Nebr. Arthur E. Nelson, Kerr, Nelson, Burns & Mohan, attorneys, St. Paul, Minn. S. B. Wilson, chief justice Supreme Court of Minnesota, Mankato, Minn. Investments and insurance: Marshall W . Alworth, capitalist, Duluth, Minn. Fred R. Bigelow, president, St. Paul Fire & Marine Insurance Co., St. Paul, Minn. Marcus Daly, capitalist, New York, N. Y. Henry Gund, capitalist, La Crosse, W is. F . C. Hubbell, president. F. M. Hubbell Son & Co., Des Moines. Iowa. Frederick H. Kenaston, president, Stanstead Corporation, Minneapolis, Minn. S. L. Prentiss, president, The Northern Corporation, Winona, Minn. Philip L. Ray, J. & W . Seligman & Co., New York, N. Y. Carl T. Schuneman, president Shuneman Bayliss & Co., St. Paul, Minn. Oliver P. Thompson, trustee, The Thompson Trust, Des Moines, Iowa. A. C. Weiss, investments, Duluth, Minn. 802 BRANCH, CH AIN , AND GROUP BANKING Lumber and building m aterials: E. W . Backus, president, Backus-Brooks Co., Minneapolis, Minn. E. C. Finkb.ne, president, Finkbine Lumber Co., Des Moines, Iowa. F. E. Keeler, president, Mason City Briek & Tile Co., Mason City, Iowa, W . E. Magner, president, Cutler-Magner Co., Duluth, Minn. Arthur R . Rogers, president, Rogers Lumber Co., Minneapolis, Minn. H. B. W aite, president, H. B. W aite Lumber Co., Minneapolis, Minn, General business: Norman B. Black, publisher, Fargo Forum,' Fargo, N. Dak. Fred Bohen, president, Meredith Publishing Co., Des Moines, Iowa. Joseph Chapman, president, Donaldson Realty Co., Minneapolis, Minn. Gardner Cowles, president, Register & Tribune Co., Des Moines, Iowa. J. H. Cownie, president, J. H. Cownie Co., Des Moines, Iowa. Frederic Crosby, vice president, American Hoist & Derrick Co., St. Paul, Minn. George D. Dayton, president, The Dayton Co., M'nneapolis, Minn. John P. Feuling, president, Central Warehouse Co., St. Paul, Minn. J. B. Forrest, vice president and treasurer, Bannons (In c.), St. Paul, Minn, G. L. Heegaard, president, Mandan Mercantile Co., Minneapolis, Minn. H. J. McConnon, McConnon & Co., Winona, Minn. C. F. Michel, president, La Crosse Refining Co., La Crosse, W is. H. A. Patterson, president Mercantile Co., Mankato. Minn. John A. Seeger, president, Seeger Refrigerator Co., St. Paul, Minn. C. W . Stott, president Stott Briquet Co., St. Paul, Minn. W . A. Tilden, president, Tilden Produce Co., St. Paul, Minn. Wholesale interests: C. O. Follett, president, Smith, Follett & Crowl, Fargo, N. Dak. Seth Marshall, president, Marshall-Wells Co., Duluth, Minn. J. G. Ordway, manager and assistant treasurer, Crane Co. of Minnesota, St. Paul, Minn. N. F. Russell, president, Bridgeman-Russell Co., Duluth, Minn. George W . Welles, president, Kelley-How-Thomson Co., Duluth, Minn. Bankers: Theo. Albrecht, prescient. Union Investment Co., Minneapolis, Minn. W . G. C. Bagley, president, First National Bank, Mason City, Iowa. R. E. Barron, president, First National Bank & Trust Co., Minot, N. Dak. J. W . Barton, vice president, Metropolitan National Bank, Minneapolis, Minn. E. J. Bowman, president, Daly Bank & Trust Co., Anaconda, Mont. Clyde E. Brenton, president, lowa-Des Moines National Bank & Trust Co., Des Moines, Iowa. W . H. Brenton, vice president, lowa-Des Moines National Bank & Trust Co., Des Moines, Iowa. George W . Burton, president, National Bank of La Crosse, La Crosse, W is. H. M. Bushnell, vice president and trust officer. United States National Bank, Omaha, Nebr. Alfred Christopherson, president, First National Bank, Albert Lea, Minn. Edward W . Decker, president, Northwestern National Bank, Minneapolis, Minn. R. E. Driscoll, vice president and cashier, First National Bank, Lead, S. Dak. W . A. Durst, president, the Minnesota Loan & Trust Co., Minneapolis, Minn. Paul H. Evans, president, Security Bank & Trust Co., Owatonna, Minn. H. J. Fahnestock, president, First National Bank & Trust Co., W ater town, S. Dak. Lee M* Ford, president, Great Falls National Bank, Great Falls, Mont. S. S. Ford, vice president, Great Falls National Bank, Great Falls, Mont, G. C. Fullinweider, president, National Bank of Huron, Huron, S. Dak. F. H. Gannon, president, First National Bank, Aberdeen, S. Dak. J. H. Gilbert, president, First National Bank, Dillon, Mont. Alex. Highland, vice president, and assistant general manager, Northwest Bancorporation, Minneapolis, Minn. Frank Horton, president, First National Bank, Winona, Minn. Ford E. Hovey, president, Stock Yards National Bank, Omaha, Nebr. BRANCH, CH AIN, AND GROUP BANKING 803 Bankers— Continued. F. A. Irish, vice president, First National Bunk & Trust Co., Fargo, N. Dak. 0 . E. Johnson, vice president, Empire National Bank, St. Paul, Minn. Louis C. Kurtz, chairman of board, Iowa-Des Moines National Bank & Trust Co., Des Moines, Iowa O. A. Leach, president, Citizens National Bank, Wahpeton, N. Dak. S. McKennan, president, Union Bank & Trust Co., Helena, Mont. It. E. Macgregor, vice president, Northwestern National Bank, Minneapolis, Minn. Hanford MacNider, chairman of board, First National Bank, Mason City, Iowa W . A. Mahl, vice president, First National Bank, Winona, Minn. E. L. Mattson, vice president and trust officer, Midland National Bank & Trust Co., Minneapolis, Minn. Charles B. Mills, president, Midland National Bunk & Trust Co., Minne apolis, Minn. Isaac S. Moore, president, First ami American National Bank, Duluth, Minn. L. T. Morris, president, Citizens National Bank & Trust Co., Watertown S. Dak. Robert P. Morsman, president, United States National Bank, Omaha, Nebr. George B. Norris, president, Metropolitan National Bank, Minneapolis, Minn. C. A. Parker, vice president, First National Bank, Mason City, Iowa Lynn Peavey, president, Security National Bank & Trust Co., Fairbault, Minn. Camden Rayburn, vice president, National Bank of Huron, Huron, S. Dak. Albert J. Robertson, vice president, Iowa-Des Moines, National Bank & Trust Co., Des Moines, Iowa. R. L. Rutter, president, Spokane & Eastern Trust Co., Spokane, Wash. A. G. Sam, president, Live Stock National Bank, Sioux City, Iowa. W . Z. Sharp, president. Security National Bank & Trust Co., Sioux Falls, S. Dak. David C. Shepard, president, Empire National Bank, St. Paul, Minn. C. V. Smith, vice president and trust officer, the Minnesota Loan & Trust Co., Minneapolis, Minn. George W . Sugden, president, National Citizens Bank, Mankato, Minn. J. C. Thomson, vice president and general manager. Northwest Bancorporation, Minneapolis, Minn. H. D. Thrall, president, BancNorthwest Co., vice president and treasurer, the Minnesota Loan & Trust Co., Minneapolis, Minn. Edwin N. Van Horne, president, Continental National Bank, Lincoln, Neb]*. E. J. Weiser, president, First National Bank & Trust Co., Fargo, N. Dak. D. R. West, vice president and treasurer, BancNorthwest Co., vice presi dent. the Minnesota Loan & Trust Co., Minneapolis, Minn, David Williams, chairman of board, First & American National Bank, Duluth, Minn. Theodore Wold, vice president, Northwestern National Bank, Minneapolis, Minn. G. II. Yates, vice president, United States National Bank, Omaha, Nebr. There are 126 various lines of business. T h ird : Number, name, location, capital, surplus, deposits and resources of each bank acquired, showing which are national, which State members of the Federal Reserve system, and which are nonmembers. Mr. L u c e . They will be put in the record. (The list referred to is as follow s:) 804 BRANCH, CH AIN , AND GBOTJF BANKING Northwest B(incorporation member tonics [<<N” denotes National banks. S M B ” denotes State bank members of Federal Reserve System . ures as of February 2 8 ,1930J Capital i ! ! Surplus N g & S t Bank & T rust C o., Lewis- i town, M o n t................................................... Continental National B ank, Lincoln, ; N ebr. ( N ) .......................................................; First State Bank, M alta, M o n t . . . .........‘ First National Bank, M an dan , N . i D ak. ( N ) _ ...................................................... National Citizen B ank, M ankato, : M in n . ( N ) ......................................................> First National Bank. M ason C ity, ! Iowa ( N ) .........................................................; N orthw est Savings B ank, M ason C ity ; Iow a................................................................. ; Farmers & Merchants National Bank. M ilb ank, S. D ak . ( N ) .......................... Bank of M iles C ity , M iles C ity, M o n t. N orthw est National Bank, Minneapo- ; lis, M in n . ( N ) .............................................. j Minneapolis Loan & Trust C o., M inn e apolis, M inn . ( S M B ) - ............................. Second Northwest State Rank, M inn e- apolis, M in n ......... ........................................ Third Northwest National Bank, M in neapolis, M in n . ( N ) ................................... Fourth Northwest National R ink . Minneapolis, M inn . ( N ) ......................... Deposits Resources 1 ...... ......... First National B ank, Aberdeen. S. ! D a k . ( N ) ........................................................ I First National Bank, Albert Lea, I M in n . ( N ) ......................................................! D a ly Bank & T rust C o., Anaconda, i M o n t. ( S M B ) ...............................................! First National B ank, Appleton, M inn , j ( N ) .................................................................... Austin State B ank, Austin, M in n .......... i D akota National B ank & T rust C o., ! Bismarck, N . D ak . ( N ) ........................... : Brookings C ou nty Bank, Brookings, S. D a k ..................................................... Security National Bank, Cheney, i W a sh . ( N ) . . . : ............................................. j First National B ank, Deadwood, > S. D a k. ( N ) ................................................... ; low a-D es Moines National Bank & I Trust C o., Des M oines, Iowa ( N ) ___ First National Bank, D illon, M o n t. ( N )j First & American National Bank, i D u lu th , M in n . ( N ) ......... .......................... First National Bank & Trust C o., : Fargo, N . D ak . ( N ) ._ ............................... ; First National B ank, Fairbury, Nebr. j ( N ) ....................................................................! Harbine Bank, Fairbury, N ebr................j Second National Bank & Trust C o., : Faribault, M inn . ( N ) ............................... i Fergus Falls National Bank, Fergus ! Falls, M in n . ( N ) .................................I . . . , Grafton National Bank, Grafton, ! N . D a k. ( N ) ....................... ..........................| Groat Falls National B ank, Great F a lls ,; M o n t. ( N ) ......... ............................ ...............: Continental National Bank, Harlow- ' ton, M o n t. ( N ) ......................... - ................ H ill C ou nty State B ank, Havre, M o n t.. U nion B ank and T rust C o., Helena, ' M o n t. ( S M B ) . . ......................................... ; National Bank of Huron, Huron, S. i D a k . ( N ) .............................. ..........................' James River National B ank & Trust ! C o ., Jamestown, N . D ak . ( N ) _ ............ National B ank of LaCrosse, LaCrosse, W is. ( N ) ......................................................... ; Scanlan-Habberstad Bank & Trust C o .,; Lanesboro, M in n . (S M B ) .......................• First National B ank, Lead, S. D ak. \ F ig- $100,000. 00 I $100,000.00 $2 904,279.50 j $3, 244,518.84 100,000.00 : 60. 000.00 2,425,421. 70 | 2,745,353, 03 100,000. 00 . 150,000.00 4,843,520.77 j 5,195,487.37 26, ooa 00 ! 60, 000. 00 : 12,500.00 32,000.00 436,769.48 i 351,236.77 j 481,322.65 433,518. 85 100,000. 00 1 tJ57,701.32 50,000.00 479,227. 58 j 50, 000. 00 5, 000.00 282,979.53 j 339, 539.29 50: ooo. oo 15,000.00 695,613.18 S 359,756. m 150,000.00 50,000.00 1,969, 756. 48 j 2 , 165,026.39 2. 000,000.00 200,000.00 1,000,000.00 200,000.00 32,526,192. 08 | J, 547, 517.15 | 3(5/812,085.93 4 ,140,607.9t 3. 000,000. 00 2. 000, 000. 00 29,307,080.49 j 36. 6 12,693. 300,000. 00 200,000.00 7,495,959.13 j H. 179,626. .13 100,000.00 100.000.00 50.000.00 35.000.00 2.088, 912.10 j 1,912,545.72 ; 2.308,945.04 168,410.80 200,000.00 40,000. 00 2.094,508. 00 ! 2, 450,110.67 100. 000. 00 50,000.00 1,865,971.47 ! 2, 225?, Ufl.7*. 94 2, 100. 000. 00 20,000.00 866,090.81 | 250. 000. 00 I 75,000.00 2,331, 469.65 j 50, 000. 00 100,000.00 50.000.00 35.000.00 606,391. 75 i 800,177.70 | 250. 000.00 150,000.00 2,832,047.11 | 3.349,240.05 55,000. 00 3,622,392.55 I 4,037,7 L9.57 225, 000.00 [ 1,124, 004. 33 2,847,747. M 780,575.61 977,815. 57 100, ooo. 00 j 50,000.00 1,633,449.19 | 1, 825,980,80 500,000.00 | 250,000.00 5,185,867.22 j 6, 709,050.27 100,000.00 | 50,000.00 1,831,493.36 j 2,021,484.03 100,000.00 ; 100, 000.00 2, 795,047. 59 ; 3,136,863.13 100,000.00 50, 000.00 647,292.78 j 814, 215. 16 200,000.00 50,000.00 200,000.00 25,000.00 5,117,450.16 1 1,084,195.42 j 5,601,945.91 1.200,116. 50 2,795,140.49 120,000.00 50,000.00 2,546,009.57 ; 300,000.00 100,000. 00 5,088,458.47 ; 5,983,812.77 500,000. 00 j 250,000. 00 S, 187, 772.06 j 9, 292,995. Ofl 100,000.00 j 50,000.00 339,806.96 j 491,877.91 50.000.00 i 50.000.00 ; 25,000. 00 25,000.00 453,761.24 j 571,893. 23 | 539,706.81 '>77,107.40 5, 000,000. 00 ; 2 , ooo, ooo. oo 81,227,225.54 | 94, 705,086. T l 1. 000. 000. 00 1 1, 500,000.00 16,799,290.47 J 20. 288,982.. 00 50.000. 00 j 25,000. 00 1, 354,731. ST 20,000.00 j 1,247,498.76 ! 1 1,060,461.53 j 100.000.00 I 3,317,087.07 1 3, 596,864.. 7U 200. 000. 00 | 100. 000. 00 1, 298,640.83 805 BRANCH, CH AIN , AND GROUP BANKING Northwest Bancorporation member banks— Continued Capital Fifth Northwest National Bank, M in neapolis, M inn . ( N ) .................................. Central National B ank, Minneapolis, M in n . f N ) ..................................................... Metropolitan National B ank, M inne apolis, M inn . ( N ) ....................................... M idland National Bank & T rust C o., Minneapolis, M in n . ( N ) ......................... First National Bank & Trust Co., M inot, N . D ak. ( N ) ................................. First National Bank, Moorhead, M inn. ( N ) .............................................................. First National Bank, Napoleon, N . D ak. ( N ) ................... ................................... State Bank of Northfield, M in n ............. Farmers State Bank, Osseo, M in n ......... Stock Yards National Bank, South Omaha, Nebr. ( N ) ..................................... South Omaha Savings Bank, South Omaha, N ebr....... ........................- ............. U nited States National Bank, Omaha, Nebr. ( N ) ...................................................... Security Bank & Trust C o ., Owatonna, M inn . ( S M B ) .............................................. First National Bank. Rapid C ity, S. D ak. ( N ) .................. ................. ............. .. L ive Stock National Bank, Sioux City, Iowa ( N ) ....................................................... Security National Bank, Sioux Falls. S. D ak. ( N ) ............ ..................................... Em pire National Bank, St. Paul, M in n . ( N ) ..................................................... M urray County State Bank, Slayton, M in n ............................................................... Stock Yards National Bank. South St. Paul, M inn . ( N ) .............................. .......... Spokane & Eastern Trust C o.. Spokane, W ash. ( S M B )........................ ..................... Commercial National Bank, Sturgis, S. D ak . ( N ) „ _ .................... ....................... American National Bank & Trust Co., Valley C ity, N . D ak. ( N ) . . _ ................ Citizens National Bank, Wahpcton, N . D ak . ( N ) ............... ........... ..................... Citizens National Bank & Trust C o .. W atertow n, S. D ak. ( N ) ......................... First National Bank & Trust Co., Watertown, S. D ak. ( N ) ........................ First National Bank, W inona. M inn . ( N ) ................... ................... .................... T o ta l..................................... . . . . . U nion Investment Co. banks........... $100,000.00 | 1 Surplus Deposits $10. 000. 00 i Resources $619. 648. 08 $741,385. 37 1,712, 083.85 1,999,600. 91 100,000.00 50,000.00 500,000. 00 250,000. 00 10,093. 208. 66 11,377,124.48 500,000. 00 , 18,967,530.91 | 22,408,823. 00 4,106.668.35 ' 4.471.862.95 880,620.76 j 1,050,754.87 204,186. 73 i 1,057.724.44 713, 402. 76 i 244,142.06 1,170,176.20 802,274.32 m ooo. oo ; 1 0 . 0 1 6 , 4 9 - 5 . 6 0 : 11, 549,890. 92 1,000,000.00 100,000.00 100,000.00 250.00.00 50.000.00 25.000.00 7.50.000. 00 25,000 00 1.100,000. 00 100.000.00 100,000.00 . 50 000.00 : 50.000. 00 ; 8.000. 00 I 50.000. 00 i 15.000.90 ; M 2 .9 0 2 .9 7 j 1,048,424,68 700, 000. 00 I 20.921.093.44 j 23,491,925.77 25.000.00 i 100.000.00 I 2.118, 590. 54 | 2.382.819.96 80.000.00 I 2,049,055.28 : 2,350,910. 50 . 200. 000. 00 150 000.00 250.000.00 : 6,133. 734.55 I 6, 765,044.01 250.000.00 ; 5,454,514.97 ! 6,147,261.33 350.000.00 150.000.00 ; 5,198, 964. 82 \ 5,814,830.52 50.000.00 15.000.00 ! 545,596.83 j 621,389.38 850.000. 00 100.000.00 : 4,189, 582. 56 ; 4,862,945. W 11,680, 417. 59 j 13,356,117.53 1,000,000.00 j 250.000.00 50.000.00 j 50.000. 00 893.106.88 1,072,491. 57 25.000.00 : 885,274.91 | 1, 033,465.10 100.000.00 I 75.000.00 I 100, 000.00 i 1,218. 084.19 1, 480.424. (4 50.000.00 ! 1, 516, 278. 59 1,808,70}. 70 2,584,657.22 75.000.00 100.000.00 100.000.00 ; 2,23 8 ,0‘39.31 : 300,000.00 300,000.00 ! 7 ,103,684.43 8,041,098.60 23,330,000.00 967,000.00 12,937,500.00 : 366,911,850.58 371, 500.00 i 13,923,429.74 425,278,107.67 16,047,548.16 24,297,000.00 13,309,000.00 441, 325,655.86 Federal reserve system members Northw est Bancorporation,. Union Investment C o............ | 380,835,280.32 i National j 48 i 16 L. State Non members 806 BRANCH', CH AIN , AND GROUP BANKING Union Investment Co. bank* IN denotes national banks. N o State banks are members Federal reserve system] First National B ank, Belle Plaine ( N ) , . Morrison C ounty State Bank, B o w lu s.. Union State Bank, Browns Valley______ Dodge Center State Bank, D odge Cen ter...................................................................... Bank of Elk River....... .................................. First National Bank, Farmington ( N ) . . State B ank of Greenwald............................ Hastings National Bank, Hastings ( N ) . First National Bank, H aw ley ( N ) .......... Security National Bank, Hopkins ( N ) „ First National Bank, Jordan ( N ) ............ State Bank of Lake Park...... ...................... Rock County Bank, Luverne....... ............ First National Bank, M ontgom ery ( N ). First National B ank, N ew Prague <'N). First National Bank, Red W in g ( N ) ._ . American State Bank, R ich m on d .......... State Bank of Rockville............................... Union State. Bank, Sauk Rapids......... . First N ational Bank, T w o Harbors (N )_ State Bank of Virginia............. .................... Peoples State Bank, Warren........... .......... First National Bank, Waterville ( N ) . . . Capital i $25,000.00 12,000.00 25,000.00 i 1 25,000.00 i 20.ooo.oo 25,000.00 25,000.00 50.000.00 25,000.00 50, 000.00 25,000.00 25,000.00 50,000.00 25,000. 00 50.000.00 100,000.00 15,000.00 10,000.00 30,000.00 50,000.00 50,000.00 25,000.00 25. 000.00 ; Surplus | Deposits Liabilities $363,528.04 162,443.61 385,549.66 $6,000.00 3,000.00 5,000.00 $427,893.39 179,489.60 421,795.99 363, 209. 59 401,629.29 546,078.50 !' 271,222.06 5,000.00 15,000.00 16,000.00 i 5,000.00 ! 403,503.29 451,923.23 595,359.90 307,400.81 878,527.83 *290,245.34 759,722. 53 407,002.09 297,809.92 444,862.18 507,535.41 766,895.41 1,608,304.86 294,203.50 248,013. 55 214,661. 21 891,811.70 1,044,568.23 253,353.47 816,805.93 i 802,638.07 245.275.27 628,713.16 344,712.03 264,040. 35 368,064.09 441,711. 72 627,438.00 1,348,979.79 264,286. 76 227,053.92 175,836.12 764,273.93 928,230.15 220,584.07 723,101.44 Farmers State Bank, Fairdale.................. State Bank of Starkweather....................... 15,000.00 15,000.00 0 | 5,000.00 ! 01,018. 51 111,043.67 78,078.85 134,217.41 First National Bank. Baldwin ( N ) ___ Berlin State B ank, Berlin.......................... First National Bank, Grantsburg (N )_. First National Bank, Knapp ( N ) ........... First National B ank, N e w Richmond ( N ) ......... ......................................................... First National Bank, Prescott ( N ) ........ 25,000.00 50,000.00 25,000.00 25, 000. 00 20,000.00 ! 25,000.00 I 25,000.00 ! 5,000.00 448,661.03 929,116.34 597,084.12 191,408.32 530,492.74 1,031,535.19 687,217.71 226,720.64 25.000.00 25,000.00 5,000.00 13,000.00 230,504.17 485,993.96 289,208.56 558,387.71 967, 000.00 371,500.00 13,923,429.74 16,047,548.19 10,000.00 5,000. 00 10,000.00 5,000. 00 5,000.00 10,000. 00 5,000.00 25, 000.00 25,000.00 7,500.00 5,000.00 6,000.00 20.000.00 50,000.00 5,000.00 25,000.00 I | j 1 | I ! ! !■ ; i | ! j NORTH DAKOTA Mr. D ecker. Fourth: Give a list by name aiul capital structure of each corporation other than banks, the majority of the stock of which is owned by your holding company. That will be furnished. It consists largely o f securities companies, like the Northwest Bancorporation, and such companies. Mr. L u c e . That may be handed to the stenographer. (The list referred to is as follow s:) .1 ffil iit tc& com pun fr» Capital BancNortlnvest C o ,, Minneapolis, M in n , (securities): C om m on .....................................................................................................- ...............— Preferred-------------- ------------------------------- ------------- ........................ ................................. Union Investment C o., Minneapolis, M in n , (holding and managing)............ . Central C o ., Minneapolis, M in n , (loans and insurance)................. ....................... First National D uluth C o., D n lu th , M in n , (securities)................................... — Stock Yards Mortgage C o., South St. Paul. M in n . (loans and insurance)------low a-D es Moines C o., D es M oines, Iowa (securities)------ --------- --------- ------------M ontana Livestock Loan C o., Helena, M o n t. (loans)_________________________ Continental C o., Lincoln, N ebr. (securities)___________ _______________________ _ U . S. N ational C o., Om aha, N ebr. (securities).................... ................................. .. Cattle Feeders Loan C o ., Om aha, N ebr. (loans)--------------------- --------------- - ........... Spokane Eastern Corporation, Spokane, W ash, (owner of Spokane & Eastern T r . C o. & Spokane Eastern C o . ) - - - ......................................................................— Spokane Eastern C o ., Spokane, W ash , (securities) (owned b y Spokane Eastern Corporation).......................................................................................................... 1 Surplus and ( undivided } profits $200.000.00 ( 1,cm000.00 !.. 500.000.00 ; 10.000.00 i $200,456.01 100.000.00 I 369,250.00 12,516.21 7,854. 74 6,786.69 50.000.00 50.000.00 25.000.00 325. 500.00 : 100,000.00 j 202,625.56 750.000.00 i 50.000.00 i 50.000.00 I 2, 205,653.00 249,527. 50 100, 000.00 27,490.57 5,506,153.00 1,317,687. 72 BRANCH, CH AIN, AND GROUP BANKING Mr. D eckek. 807 Fifth: State full.v the method of acquiring a bank, whether by cash, purchase of stock, or by exchange of stock, and the method of negotiation. That can he briefly answered, although I think I have covered it. In nearly every instance banks are acquired by an exchange o f stock, although when the corporation was first organized we offered them part cash if they preferred it. In each acquisition, consideration is given to the territory served by the bank and the need and provision for a more stabilized local banking condition and a broader, more uniform and complete serv ice as well as continuous banking facilities which will not be affected by temporary and local depressions. Negotiations are generally initiated by those desiring to affiliate, but in some instances the* corporation, through its representatives, invites affiliation. Stock o f the corporation is exchanged for stock of the bank, except in cases where it is necessary to recapitalize the bank, and in those instances the old capital structure is wiped out by losses or reserves set up for possible losses, and it is then necessary for the corporation to provide new capital. A ll exchanges are made on as uniform a basis as is possible, taking into consideration the capital, surplus and undivided profits, resources in use as capital and net accruals; the foregoing constituting the bank's total invested capital. The total invested capital, the volume o f deposits, and the average earnings over a 5-year period to a great extent determine the ratio of exchange. O f course, management, and future prospects for growth and strategic location are also taken into consideration. When an agreement has been reached on the exchange ratio, the bank is examined by our own examiners who make the examination without having in mind the terms o f the contract and ultimate con summation o f the deal. The examination is unbiased with the end in view of obtaining all information possible regarding the pros pective affiliate. Before affiliation is finally brought about, the undesirable assets are eliminated and the bank comes into the group on a clean basis and thereafter is maintained in a sound and healthy condition. M r. L uce. H ow la rg e a p ro p o rtio n o f th e sto c k ? Mr. D e c k e k . Well, ou t o f a to ta l o f stock issued to -d a y -------Mr. L u c e . I mean by any individual bank— in the case o f any one bank. Mr. D e c k e k . What percentage was cash? Mr. L u c e . Was all o f the stock o f the bank exchanged i Mr. D e c k e k . About 98 per cent— practically all, with the excep tion o f the director’s qualifying shares. The greater part o f the stock has been exchanged. You may say that the Northwest Bancor poration owns practically 98 per cent. To be exact, it is 96.2 per cent of all the stock as of December 31, 1929. Some of the rest has been turned in since, which will bring the percentage up. Now, the basis of exchange of stock, where stock was exchanged, was, o f course, a matter of mutual agreement. We took into con sideration profits, book value, earnings, prospects, and everything, and agreed upon what would be a fair exchange for their giving up their stock in the local bank and taking for it stock in the holding company, and we retained the stock in the local bank. 808 BRANCH, CH AIN , AND GROUP BANKING Mr. G o o d w i n . Were the stockholders practically unanimous in the transfer % Mr. D e c k e r . Yes. About 97 per cent o f the stock has been ex changed, so I think that answers that. O f course, a part o f the re maining 3 per cent is accounted for by the directors’ qualifying shares. So there is very little left. There is no trouble in exchang ing stock. They were delighted to get a stock that had a market and that was based on diversified resources in place o f a local bank sub ject to local business vicissitudes and changing management, the perpetuity of which was not assured. Sixth: Describe the capital structure of your holding company, showing the classes of stock and the extent and method of the stock distribution. There is only one kind o f stock. There are 1,600,000 out at $50 a share par value. To be exact, there are 1,641,36i shares and o f the total amount outstanding, 342,869 were sold at public offering and the balance was used in the exchange o f stock with the affiliated banks. So about four-fifths have been issued to member banks and one-fifth to the public. Mr. L u c e . H o w m u ch w as p o o le d ? Mr. D e c k e r . None at all. Mr. L u c e . A ll subject to be marketed? Mr. D e c k e r . Yes, sir. Mr. S e i b e r l i n g . What par has the stock ? Mr. D e c k e r . $50. I think you were about to ask me how we would prevent Wall Street from buying control. Mr. L u c e . Yes, sir; that was what I wanted to know. Do you care to answer it now ? Mr. B u s b y . We can not hear a thing at this end o f the table. Mr. L u c e . The point I am driving at is whether this stock, being on the market, can be concentrated by purchase on the part of New York interests or any other interests? Mr. D e c k e r . My answer is this: One of the leading purposes in the organization o f the Northwest Bancorporation was to prevent outside interests obtaining control o f our banks. My contention is that it would be much easier for an outside institution to acquire these one hundred-odd different banks, one at a time, and buy from the individual’s control, if they wanted to sell, than it would be if they wanted to buy control of the Northwest Bancorporation for the reason that the Northwest Bancorporation is presided over by 126 directors, practically all o f whom are wealthy, independent business men. Not one would sell control of that institution knowingly at any price. It would make no difference whatever what the price was. Also, they have that same local pride and local interest which has been in existence for 60 years, which dominates these small banks. Now, if there is no loyalty anywhere; if money is the only thing in the world, I do not know how you can pass any law toprevent a man selling out to some one else. You may know of a way: I do not. But my judgment is that what we have done has made it much more difficult, if not impossible, for outside interests to acquire control than would have been the case before the corporation was organized. BRANCH, CH AIN, AND GROUP BANKING 809 W e do not want to be dominated by New York or Chicago; it is not sound; it is not good for New Y ork or Chicago, and it is not ood for us, and I do not know of a commercial banker— and I now them all personally—in either New Y ork or Chicago that has the slightest desire to acquire control in the Northwest Bancorporation. Every one says they have enough trouble o f their own and the only thing that would tempt them to do it would be they felt some one else was going to do it ahead o f them. There is always that fear, I suppose. I think we have reduced that danger to the minimum, because we have set back o f it the best brains, the best minds, and the most loyal people who live in our country. I f you can not trust them, whom will you trust? They do not want to sell out: they want to buy more stock. I should be entirely sympathetic with any move on the part of this Congress to pass a law which would make it impossible for peo ple outside o f our district to acquire control o f our holding company and banks. Then,” perhaps you ask, u why are you not willing to have some law to make it impossible for you to acquire, say, the Minot Bank ? ” My answer is that at some place along the line you must build a- unit strong enough to stand on its own feet. Minot can not do it alone. Minneapolis and St. Paul, in that district, can. Our banks are managed by experts, people born and bred in that country. They know the problems and their solutions. Our prob lems are different from the Atlantic seaboard. For instance, take the freight rates, water rates, tariff, and so forth. We have a pride in our affairs, and we are going to look after our own interests, and that is what we are doing here. We would solicit any assistance from the Government to make it impossible for people outside of our district to acquire control o f our banks or holding company. Is that an answer ? Seventh: f Explain fully what control or influence the holding company, or a central bank controlled by the holding company, exercises over the group of banks acquired. That is to say, what sort of central management or central advisory hoard or, committee is set up and exactly how contacts are maintained between the member banks of the group and the central bank or holding company. How is the group policy initiated and applied or enforced? Well, we have set up a staff o f examiners who examine every bank in the group at least once a year, and those examinations will be very thorough, believe me, from a business standpoint, pure and simple. They will review the examinations twice a year, by the national bank examiner, or State bank examiner, as the case may be. We will have a report from these banks sufficiently often to know what their operations are, but with no desire whatever to dominate a local bank or other local interests who find it wise to follow a certain policy. Practically every bank in the group, except some o f the very small cues, are represented on our board o f directors. By the way, I forgot to say that there is a provision that is either in our constitution or by-laws—I forget which— which makes it mandatory that every bank in our group must have 75 per cent of its directors local men. As a matter o f fact, to-day, they are all 810 BRANCH, CH AIN, AND GROUP BANKING local men. W e have not put a Minneapolis man on the board o f directors o f any bank that is in our group. You will say, though, “ Well, you can fire them at the annual elec tion and put in another set of directors.” Yes, but would it be to our interest to do it i f they were not pretty bad? W e have a large investment, for instance, at Minot and naturally we want the coop eration of the people, or thev will go to some other bank. E ighth: Upon what principle are you working in determining the geographical area into which your group of banks will be extended? In other words, what do you consider to be the territorial limits of your group and what determines the limits of the area? I think I have answered that and I do not think you want me to repeat it. Affiliated banks o f the Northwest Bancorporation are located, generally, through the ninth Federal reserve district and in portions o f the seventh, tenth, and twelfth. In the acquisition of banks, F ed eral reserve district lines have not governed the territory which we have entered. The purpose in the organization o f this corporation was to assist in stabilizing the banking conditions in the Northwest States and adjoining natural trade territories. The corporation’s activities now cover eight States. Assurance that continuity and stability o f earnings will be main tained is found in the wide diversification o f business activity in the territory served by affiliates in Northwest Bancorporation group. Basic sources o f wealth in many principal lines are found in the extensive territory from eastern Wisconsin to eastern Washington, from North Dakota to Nebraska, and in the intermediate States, Montana, Minnesota, South Dakota, and Iowa. In some areas busi ness comes primarily from the production o f corn, wheat and other grains, dairy products, sugar beets, vegetables and fruit, while live stock production predominates elsewhere. In other areas, banks in the group are concerned primarily with business from the great iron, copper, gold, and silver mining, and oil industries. In the larger cities particularly, manufacturing, in itself widely diversified, con tributes a large volume, and other important business comes from insurance, transportation, public service and general wholesale and retail merchandising. Along with this diversification of outside sources from which busi ness is derived, the organizations in Northwest Bancorporation group diversify within themselves in commercial banking, savings, trust functions, financing o f industries, making o f mortgage loans, investments, safe deposits, foreign exchange, and all other banking functions. Ninth: Give method of central audit and examination of the members of the group of banks owned by your holding company. I have covered that. Mr. L u c e . W ill you tell us a little more about the mechanical process? You told us, for example, that there was no borrower in your field who could get up the securities, who would fail to get a loan. How is that accomplished? Mr. D e c k e r . It is accomplished by the fact that the local bank naturally wants to take care o f its good customers. BRANCH, CH AIN , AND GROUP BANKING 811 Mr. L u c e . But if that bank has not the money, how does it get it and where does it get it? Mr. D e c k e r . I f the bank has the money it feels free to lend it, knowing if the deposits go off, or there is a crop shortage, he has some one to call on. I f he has not the money in that bank, he can easily borrow it from some other bank in the group—say, for example, the Northwestern National Bank, as it was formerly, before the members joined the group—or. in the case o f Minot, if Minot has a customer that is good, and that customer wants $50,000 and the local bank can only legally lend $25,000, we will take the additional loan— not a permanent line o f credit, but an additional loan to tide over the period, if it is a loan for a period. I f he needs additional lines permanently, he will have to secure it from the local banks, as he would if there was not this group. It is not our policy to overload local banks if it is possible to avoid it. I f the local borrower is entitled to that loan and there is good reason to believe that some day he will pay it back, and you can do the country some good up there by lending the money, we will provide means for doing it, that could not be done before. Mr. L u c e . It is the mechanics o f the thing that I am interested in. Do you maintain a central office under the name o f the North west Bancorporation? Mr. D e c k e r . Oh, y es. M r . L u c e . Y o u h a v e f u n d s th e re to lo a n ? Mr. D e c k e r . Not as a corporation. It is a holding corporation. Mr. L u c e . Suppose the First National Bank o f Minot desires to get money to lend and it does not turn to some other bank, as it might, but turns to you, what do you do ? Mr. D e c k e r . I f they convince us that that is a section where the legitimate borrowing capacity is larger than the depositing capa city, which is not likely to exist except in cases such as those I mentioned, where there are cattle loans or sheep or livestock loans— and those we are providing for in the side corporations— aside from that, there would be very few cases, in my judgment, where deposits in that section will not be sufficient to take care or the legitimate borrowings there. That is the fact. We are not such a poor country that you have to bring in a mass o f outside money to take care of the district from the banking standpoint. Mr. L u c e . I appreciate that. Mr. D e c k e r . Y o u mean if John Smith, for example, comes in and borrows $100,000 and puts in a note? Mr. L u c e . Yes. Mr. D e c k e r . W e will take that note into our portfolio. The hold ing company, o f course, makes not loans. They will send it, prob ably in our instance, to the Northwestern National Bank, which is the largest unit in the Northwest Bancorporation. Mr. L u c e . Suppose the bank in question has not the money that you are referring to? Mr. D e c k e r . The Minot bank? Mr. L u c e . The National Bank o f Minot. Mr. D e c k e r . Well, supposing the National City Bank has not the money to lend, they will find a place to get it. Mr. L u c e . I think you are drawing a contrast between the opera tions of the group system and the branch system. 812 Mr. BRANCH, CH AIN , AND GROUP BANKING D e c k e r . Y e s ; on th is th e o r y -------- Mr. L uce. Let me bring out what I am trying to understand. Mr. D e c k e r . G o ah ea d . Mr. L u c e . A branch bank is a branch of a parent bank, which conducts a large banking business with deposits and resources of all kinds, so that it can direct its funds to this or to that locality where there may be a greater need or greater profit. Mr. D e c k e r . E i g h t . Mr. L uce. N ow is there any corresponding machinery under your system to do the same thing? Mr. D e c k e r . N o . Mr. L u c e . I f more money is necessary in North Dakota at a given time than is necessary in Minnesota, have you any method for divert ing funds from one part of your area to another part of your areaT as a branch bank can? Mr. D e c k e r . Plenty of means of doing it, if our best judgment in dicates that it should be done. Mr. L u c e . What would be the means? Mr. D e c k e r . The bank at Minot, for instance, if that was the point where loans were larger in proportion than deposits, would redis count. First, they will undoubtedly rediscount with the Northwest ern National Bank at Minneapolis, which had been their corre spondent many years before they joined the group. I f it became apparent that the Minot bank was permanently and constantly overloaning, we would go up there and see if it was neces sary and whether the management was lax in putting out too much money in slow loans and discover whether there was no evidence that we would get it back in a particular time. We would review that situation and determine what was the fair and right thing to do and, having in mind our large investment in the Minot bank, our selfish interest would demand that the interests there be protected. To answer your question, a group bank, as we operate it, would not operate quite as quickly nor would it be as well oiled, in shifting money from one section to another, as a branch bank; and that is one of the things that our people object to. They do not want all their money taken out of one section and loaned to another unless they can be assured they can have it at a time when needed. Mr. B e e d y . Are you referring to the officers of the Northwestern National Bank of Minneapolis? Mr. D e c k e r . Yes. Mr. B e e d y . Y ou do not refer to the set-up of your holding cor poration? Mr. D e c k e r . I would not say that. We have a president, general manager and corps of officers. Unquestionably the officers will su pervise the operation of these banks, and the Minot Bank will have practically the same scrutiny under the Northwest Bancorporation management as it would have if it was a branch of the Northwestern National Bank. We have our money invested there and we will see that it is properly loaned, but we will leave it to the local man agement of the Minot Bank and the management of these local insti tutions, as long as we are satisfied they are running them right, and when we are satisfied they are not, we are going to correct that situation. BRANCH, CH AIN, AND GROUP BANKING 813 Mr. L u c e . Let me ask some questions about this matter o f local management. You have given us to understand that the stock, which was once owned by the people in that locality, is now owned by what is virtually a cooperative association; however, that the directors are still elected locally. The common experience o f man kind is that office without power sooner or later degenerates into something of a traversty. We find it here in Congress, as illustrated, for example, by the fact that the Committee on Appropriations holds the purse strings and, therefore, in many directions controls, and that other committees have been shorn o f much o f their responsibility and power. W hy do you assume that, through a period o f years, a local board o f directors, that has no final responsibility, will meet the needs o f a community as a unit bank would meet it ? For instance, a board o f directors, confronted by some difficult situation, will be led to feel, “ Well, we have no authority here; we have no responsibility; no final authority or responsibility. The men down in Minneapolis will have to carry this load.” Do you not apprehend that, in time, there may develop in this or that locality, a situation that might have been avoided i f the men who run the bank, own, and control the bank, and were responsible for it ? Mr. D e c k e r . I think there is a danger, yes; but so long as those men are the best men in the community; so long as they have a large financial interest in the Northwest Bancorporation, a larger financial interest than they had before in the local bank, and so long as they have the power, which we do not take away from them, the manage ment o f the bank, we believe, and we have sufficient faith in human ity to believe, that that is a workable plan. Now, if I am wrong; if you can not trust these men and they will say, “ Let George do it now ; he is responsible; why should I w orry: I have my stock in the company and can sell it and go to Cali fornia and quit ”—if that is what the whole country does, there is just one result and there will be branch banking. But to-day, if you choose to call ours an experiment, I believe it is the best experiment that could be tried to retain all we1have now, and yet meet the changing situation, without necessarily run ning counter to a very strong local feeling in our section against branch banking. I believe that the psychology o f the situation has to be taken into full consideration, particularly in banking, because you must have the confidence o f the community in order to draw out the money from hiding. We think we have found a way so that the local depositors and borrowers—the fellows on the street— are going to have greater safety and better service than they had before, or that they would get to-day under branch banking and, therefore, we believe that it is a better plan. Now, I can not guarantee that, as you suggest, some day in this particular case, if this group o f directors fall down on the job—well, we would see that coming in advance and we would provide men there that will take the responsibility—but if I am a director in the Standard Oil Co. o f New Jersey, or some big corporation, or 814 BRANCH, CH AIN, AND GROUP BANKING even the National City Bank o f New York, I do not think it is fair to assume that, because it is a big institution and a long ways off, I would not be a good director, if responsibility is placed on me. We place that responsibility absolutely on them. We do not take any authority away from them. Naturally, they will not assume responsibility without authority, and we would not let them assume authority without responsibility. Mr. L u c e . There is this difference between group and branch banking, that when a doubtful loan is in question, I understand in the case o f your group banks, you learn of it only once a year from your examiners when they go around and examine your banks. The central office o f a branch-bank system learns of it within 20 minutes. Mr. D e c k e r . There will be no loans of any size or unusual char acter made without submitting them to the head office. But there is exactly where the local board o f directors assume their authority. I f, in their judgment, there is a safe loan to be made, they will go ahead and make it. W e will say it is a new one and has not been passed on before, or comes up since our men examined that bank. W e expect those local directors to assume the responsibility o f that loan. I believe it is safe to assume that they will, because they have been there for years, and know the local situation. These are not new men. They have been operating successful banks. Mind you, the banks we have taken in are not banks, with a few exceptions, where we felt we had to lend assistance. As a rule the banks are 50 or 60 years old and successful banks. W e have not picked up a lot o f cripples. We are picking up nothing but good banks, because we felt that the only way to make a banking institution there that would survive would be to have a cooperative banking group of good banks, and not poor ones, So, we put that responsibility on the local board. I f we discover that they have not good judgment, why, they will be told so. Mr. L u c e . But then you will be locking the stable door after the horse has been stolen. Mr. D e c k e r . They are not going to make a lot o f bad loans before we know it. We get reports every 30 days. W e also get the State Bank and National Bank Examiners’ reports. Mr. L u c e . I think perhaps you misunderstand, from the burden o f my questions-----Mr. D e c k e r . I f I speak earnestly, you will understand that I mean nothing personal. Mr. L u c e . These hearings began with the statement by the Comp troller to the effect that the overwhelming occasion for an investiga tion was the fact that thousands—I think it was 9,000 banks— have failed in the past decade; that the safety o f the funds o f the people is our chief concern. Mr. D e c k e r . R ight: absolutely right. Mr. L u c e . And in order to have you throw further light upon this question as to how increased safety is going to be accomplished by your system, I will further inform you that this committee has now, through 8 or 10 years, watched the failure o f the cooperative idea to function as was hoped in the farm-loan system, and some o f us are not very hopeful about the possibility o f the cooperative idea sufficing to meet the banking situation. Mr. D e c k e r . Neither am I. BRANCH, CH AIN , AND GROUP BANKING 815 Mr. L u c e . N o w , you present to us a system that is based purely upon the cooperative theory, but as yet, to be frank, it does not dis close a great addition o f safety to depositors o f the various banks. Mr. D e c k e r . My answer to that is this, the depositor in the local bank has everything he had before in the way o f safety. He has the knowledge that the management o f that bank is going to be checked and watched as it was not before. He has the knowledge that the Northwest Bancorporation is back o f it, with its large re sources, and they are able to take out o f that bank the securities which may get into it that are not desirable. A fter all, management is nine-tenths o f the law. Heretofore his bank had a manager and the only one who was watching him was his directors. They were all local men. Now he has all that, and he has the Northwest Bancorporation’s organization watching him in ad dition to that, checking him and advising him and assisting him. So I think that the depositors in any one of the banks in our group have double security, at least, to-day, over what they had be fore. They have lost nothing and have gained a lot. Mr. L u c e . One further question and then I have to be excused, to go on the floor by reason o f a matter in which I am vitally con cerned. Is any uniformity in discount rates secured or encouraged? Mr. D e c k e r . I d id n o t g e t th a t. Mr. L u c e . I s any uniformity in the discount rate obtained or encouraged ? Mr. D e c k e r . Between the banks in the group? Mr. L u c e . Yes. Mr. D e c k e r . N o, sir. Mr. S t r o n g . I was called away and I do not know whether or not you have advised the committee regarding the plan o f your group organization. Mr. D e c k e r . Yes. Mr. S t r o n g . Let me ask you this: Suppose a bank get in trouble-----Mr. D e c k e r . One o f our banks? Mr. S t r o n g . Yes; one o f your banks. Mr. D e c k e r . It is not going to get in trouble. Mr. S t r o n g . But suppose it does. Mr. D e c k e r . A ll right. Mr. S t r o n g . And you send your committee down there and take out $100,000 worth o f paper and replace it with the funds of the bank and there is a loss on that paper. Who stands that loss ? Mr. D e c k e r . The Northwest Bancorporation. W e would put new capital into the bank immediately. Mr. S t r o n g . The other members of the cooperative organiza tion— are they not liable to resent the fact that you took the profits or capital of the cooperative group to repair an injury to a single member o f the organization? Mr. D e c k e r . Not if they believe in the principle o f the group. Mr. S t r o n g . Well, supposing I am the president o f a large bank in a city called A, and a bank in a city named B gets into trouble. It may be not very far from my bank. How long will I be satisfied with taking the profits or the capital o f the group to which I belong, to help out this bank at B ? 100136— 30— vol 1 p t 8---- 3 816 BRANCH, CH AIN , AND GROUP BANKING Mr. D e c k e r . The answer to that is this, that, as president of the bank o f A , you are a director o f the Northwest Bancorporation and you helped get up the organization and know its policies and methods. You went into that banking corporation and exchanged your stock in the local bank for the stock in the Northwest Bancor poration because you thought it was better for yourself and your bank. You must have believed in the principle involved* or you would not have gone in. You must believe that the directors o f the Northwest Bancorporation will see that proper officers, at all times, look after these banks, and do not allow them to make excessive loans. O f course there may be some losses, but the minute a bank gives evidence, through its management, o f making excessive loans, that management will be supplanted. I do not want to give the impression that the Northwest Ban corporation will not have any control or supervision o f these banks so they will not at all times know what is going on, because I would not have put our money into i t ; we would not have given up a record o f 60 years without missing a dividend, if we did not believe we had set up an organization which we proposed to watch and follow and manage, to make our investment there good. Mr. S t r o n g . When a bank goes into your group, it does bury itself individually and the owners place their stock in the Northwest Bancorporation. I f that is true, I do not see how any individuality o f management and local control can prevail. Mr. D e c k e r . That local control is only exercised in case o f emergency. Mr. S t r o n g . Y o u mean that central control? Mr. D e c k e r . Yes, sir; absolutely. I f we have; a group of fellows up in Minot who do not know how to run the bank, we will find it out and put some one in that does. Mr. S t r o n g . The local institution continues to elect its board of directors ? Mr. D e c k e r . Well, the election o f the board has to be made by the shareholders, o f course. Mr. S t r o n g . Then, in case of mismanagement, your group organi zation steps in and supplants that authority ? Mr. D e c k e r . Yes, sir. Mr. S t r o n g . And has the right to vote those directors out and take charge? Mr. D e c k e r . Absolutely. Mr. S t r o n g . Then, there is a domination by the central group ? Mr. D eck er. T o that extent, absolutely. Mr. S t r o n g . Y o u have formed a group organization of big, strong banks. What becomes o f the little banks in the small communities? Mr. D e c k e r . We have some small banks, through the Union In vestment Co.— about 31 banks. I do not know how small some are, but they are very small. Mr. S t r o n g . Are those banks branches o f the Union Investment Co.? Mr. D e c k e r . N o ; the Union Investment Co. is a small holding company which has been in existence for a great many years which you may refer to as approximating what we call chain banking. W e bought or exchanged stock with the shareholders o f the Union BRANCH, CH AIN, AND GROUP BANKING 817 Investment Co. just as we have with the various banks, because we wanted those large banks to look after small banks that wanted to come into the organization, so that local institution, which is better qualified to handle the small local banks, than the Northwest Bancorporation, has charge of them. Mr. S t r o n g . Then, your small banks are handled by chain banking institutions within your group? Mr. D e c k e r . There is just that one institution and there will be no more. That is a matter o f convenience. There is an instance of taking in 31 small banks that wanted to come in. We took them in through that organization, instead of directly through the cor poration, because that special organization is organized to look after little banks and they require different supervision than such a bank as is located at Minot, where you have a strong board of directors. Mr. S t r o n g . Within the territory o f your group corporation, there are a great many other small banks % Mr. D e c k e r . Yes, sir. Mr. S t r o n g . What do you propose for their protection ? Mr. D e c k e r . You mean banks that are not in our group ? Mr. S t r o n g . Yes. Come into your group ? Mr. D e c k e r . That depends. Mr. S t r o n g . What? Mr. D e c k e r . That depends on a great many things. Mr. S t r o n g . You would not take them in if they were not strong banks ? Mr. D e c k e r . I would not take them in if we did not think we could make money at that point by operating a branch there, nor would any one else. Mr. S t r o n g . Would you ever put in a competing bank; would your group ever install or create another bank in competition with a bank outside your group ? Mr. D e c k e r . N o , sir; no such instance has ever been brought up. W e have plenty of places to go in without competing with other banks. Mr. S t r o n g . Then, your plan of cooperative banks or group banks will not remedy the need o f proper banking facilities in the small towns ? Mr. D e c k e r . N o, sir. Mr. S t r o n g . H o w do you propose to take care of those ? Mr. D e c k e r . I think I mentioned that while you were out of the room. Mr. S t r o n g . I b e g your pardon. Mr. D e c k e r . That, in my judgment, under the present terms and conditions, is the place where branch banking could and should func tion. There are small towns where either a county seat bank, or a larger bank in the State, could afford to operate a branch econom ically for the purpose o f receiving deposits, and perhaps making small loans, if there was a demand, where we could not afford, nor could anyone else afford, to invest the money to operate a unit bank. In those instances, I believe branch banking is the only answer. Mr. S t r o n g . But a branch banking group could hardly be or ganized and continued successfully that would only control little banks. They would want to go into the larger towns. 818 BRANCH, CH AIN , AND GROUP BANKING Mr. D e c k e r . Yes, sir; that is the reason I say branch banking should supplement group banking and not be fastened onto i t ; other wise, in the end, the situation will be worse than in the beginning. Mr. S t r o n g . Y o u want the branch bank established to be a branch o f some bank in your group ? Mr. D eck er. N o ; that would be a freeze-out game. But, for illustration, here is a good county seat, with two banks. One bank is in our group and the other bank, is in Mr. Wakefield’s organization. I assume any law passed will enable a bank to estab lish branches only with the approval of the comptroller. That will be for him to answer whether the bank is strong enough and suffi ciently capitalized to operate branches in its immediate territory. Mr. S t r o n g . I do not see how your plan will work in conjunction with the branch-banking scheme unless you dominate and control the branch banks in your territory. Mr. D e c k e r . W ell, whether we dominate or control them, I think, is a question whether we render better service and the people prefer to do business with us than with some one else. Mr. S t r o n g . Then it comes to this: Cooperative group banking in larger places for the larger places, and branch banking for the small towns ? Mr. D e c k e r . Yes, sir; but that branch banking limited to those small towns, without the support o f the other, in my judgment, would be fatal—particularly in the rural districts, where they would be. Mr. S t r o n g . D o you think there would be any danger in competi tion o f that kind, of the people living in the smaller communities o f the United States, of which there are, of course, thousands, not get ting proper banking service ? Mr. D e c k e r . I d id n o t g e t th a t. Mr. S t r o n g . Do you think there is any danger, if your system is adopted, that the people living in the thousands o f small towns will not get the proper banking service ? Mr. D e c k e r . I think there is less danger of their not receiving it under our system than any other system proposed in this country, or any other country. In Canada, half a dozen banks control the whole business. W e are not proposing to go that far. W e propose to adopt the fea tures of their system which we have been forced to adopt under the changing conditions, but retain all local pride and responsibility that is possible under our system. Mr. S t r o n g . N o w , the Comptroller of the Currency and the Gover nor of the Federal Reserve System has approved branch banking over the United States confined to trade areas. Mr. D e c k e r . Yes. Mr. S t r o n g . In your case, Minneapolis would be a trade area. Mr. D ecker. Y ou mean it would be a center of a trade area? Mr. S t r o n g . Yes. Mr. D e c k e r . Yes. Mr. S t r o n g . Then branch banking, under the proposition proposed by the comptroller, and approved by the Governor o f the Federal reserve system, would be established in your community or trade area ? Mr. D e c k e r . It would be authorized. BRANCH, CH AIN , AND GROUP BANKING 819 Mr. S t r o n g . That would set up competition between some large branch bank and your group ? Mr. D e c k e r . Yes, sir—right. Mr. S t r o n g . Well, your idea is that also a law, if one were passed, would have to legalize or authorize or permit the continuance o f your form o f cooperative group bank? Mr. D e c k e r . Exactly. Mr. S t r o n g . And let the two systems operate in competition? Mr. D e c k e r . I f they do naturally, yes, sir; but not to destroy what has been set up in a natural, evolutionary way by forcing another sys tem at a time when public sentiment is against that in the country. I do not fear the competition o f branch banking, provided you keep Mr. Chase National and Mr. National City Bank of New Y ork out o f our district. Anyone who chooses to come into our district and organize a large bank in Minneapolis or a small bank in Podunk and put their money in competition with us, we are willing. I f we can not stand up against legitimate competition, we are not worthy to be there. Mr. S t r o n g . Then, you do not propose a monopoly o f banking by group banking or chain banking in trade areas ? Mr. D e c k e r . I will answer that— I think I have already answered it, though—the so-called group banking, set up in an area sufficiently large to include resources o f sufficient diversity to establish a sound unit— that system asks no assistance o f Congress, or of anyone else to-day. We are not asking for any assistance. Now, if Congress chooses to set up a branch banking system, limited to a somewhat similar area, we will say, in competition with us, we have no objection whatever, and if that system is better, we will be the first ones to adopt it. We are not wedded to our system. W e have developed what we believe to be the best under all the existing circumstances in our district, and if anyone can show us a better, we will be delighted. Mr. S t r o n g . How long has your system been in effect ? Mr. D e c k e r . About a year, last January. Mr. S t r o n g . I s it growing? Mr. D e c k e r . In number of banks? Mr. S t r o n g . Yes. Mr. D e c k e r . Well, we are not taking in banks very fast, for a couple of reasons: First, we want to have time in which to digest what we have swallowed. That is not the proper word, but you have used the word “ monopoly ” and so I will use the word “ swallow.” Mr. S t r o n g . I think that is very apt. Mr. D e c k e r . And, secondly, the Secretary o f the Treasury, in his annual message, stated that he hoped while Congress was making an exhaustive study of group and branch banking, that group banking would proceed very moderate^. W e respected his suggestion, as Mr. Wakefield, at least, will agree, and immediately changed our policy out of respect for his suggestion. Now we have banks camp ing on our doorstep by the hundreds demanding not that we keep out o f their country, but that we get in their country. That comes from the country, from the little fellow on the street^ who thinks he is entitled to protection and service. 820 BRANCH, CH AIN , AND GROUP BANKING Mr. S t r o n g . And is h e not? Mr. D e c k e r . Absolutely; and we have found no better way o f furnishing it. Mr. S t r o n g . And it will be your intention, later, to expand and take in all worthy banks in that territory? Mr. D e c k e r . I would not say that; but when the Lord has given us a garden to hoe I think we had better hoe the whole garden and get all the weeds out. Mr. S t r o n g . And if branch banking wants to come in and wants to do some hoeing, what will be your attitude ? Mr. D e c k e r . We will furnish him with a hoe, because every time he hoes out a weed he helps us. Mr. S t r o n g . Providing he does not attack your weeds? Mr. D e c k e r . W e will take care o f our weeds. Mr. S t r o n g . But do you honestly think there will be continued, throughout a great many years, real competition between two such systems as that in a trade area? Would not either they swallow you, or you swallow them? Mr. D e c k e r . Y o u mean small banks? Mr. S t r o n g . Y o u say you eventually expect to take in the little oanks that are knocking at your door. Mr. D e c k e r . Oh, no. Mr. S t r o n g . I mean the desirable ones. You will not take in banks that are not making money. Now, i f we follow the suggestion o f the comptroller and set up a branch bank in a trade area, I want to ask you if it is your real, honest opinion, as the result o f your experience in life, that those two systems will continue in competition with each other, or will not the natural result be that one will absorb the other ? Mr. D e c k e r . My answer is that the banking business o f this coun try is absolutely under the control o f either the Government o f the United States or one of the 48 States. They grant charters. Money is the most difficult thing in the world to monopolize, notwithstand ing the general feeling to the contrary. It flows like water. To-day we make our loans in Minneapolis in competition with London abso lutely, and we have to meet that competition. It would certainly be against our interests to have, we will say, just one group in our whole trade area with no competition. Competition, unless it is destructive, is the life o f trade. I f it is destructive, it is the death o f trade; absolutely. Mr. S t r o n g . Absolutely. Mr. D e c k e r . There is less danger o f monopoly, in my judgment, in banking than in almost any line, for this reason: W e have no pat ent on it; we do not own the mine from which it is taken. The Government grants the charters, and if, however, we can see greater security to the depositor and better service to the borrower by a sys tem which we have set up, then the fellow on the street will take care o f that business himself, because he will go where he chooses to go. Mr. S t r o n g . A ll you say is true; and yet an}' competitor coming into your territory now would have a pretty hard row to hoe, would he not ? Mr. D e c k e r . I think, as a compliment------Mr. S t r o n g . That is the way I intend it. BRANCH, CH AIN, AND GROUP BANKING 821 Mr. D e c k e r . A s a compliment to the present organizations, he would have to be a pretty good banker and have some capital to run it right. I f he has, we will welcome him. Mr. S t r o n g . The fact you have seen fit to gain strength through the uniting o f your banking institutions, would not that same incentive, if you had! a great competitor up there in branch banking or any other competition—would not that same incentive lead you to a com bination o f those groups? Mr. D e c k e r . I do not think so. I think it would be the worst thing that could happen to the development o f the country and the worst thing that could happen to the banking situation. Competi tion keeps my boys on their toes. Mr. S t r o n g , i ou have created a monopoly of the best banks in that territory and you do not want New York to come in. Mr. D e c k e r . I would not say we have created a monopoly. Mr. S t r o n g . Y o u have created a combination so strong that all the rest want to get in. Mr. D e c k e r . Y o u are speaking about Mr. Wakefield and ourselves, also? Mr. S t r o n g . Oh, n o. Mr. D e c k e r . I f you think we have no competitor, come up and listen to some of the cussing and discussing that is going on up there. Mr. S t r o n g . Does Mr. Wakefield join you in the wish that New York shall not come in? Mr. W a k e f i e l d . Absolutely. Mr. D e c k e r . O f course. That is exactly what we are trying to avoid. When you talk about monopoly, do not lose sight o f the fact that in order to protect yourself you have to be of sufficient size. Mr. S t r o n g . I will avoid the use o f the word “ monopoly.” Let us say we will have controlling groups— and I speak of groups of banks like yourself and the gentleman behind you, Mr. Wakefield— in that trade area. Evidently you do not want anyone else to come in. Mr. D e c k e r . I have not said so. Mr. S t r o n g . Y ou do not want New York or Chicago to come in? Mr. D e c k e r . N o, sir; because I do not think it is a good thing for our territory or for them. Mr. S t r o n g . Then, it is your idea that it would be a pretty good thing to set up a system by which we would have great groups domi nating or controlling the banking business in trade areas, but not in the United States as a whole ? Mr. D e c k e r . D o not misunderstand me. W e have no objection to New York or Chicago comingi in with capital and starting banks. What we object to is for them to be able to establish branches of their existing banks. I f the people connected with the Chase Na tional Bank of New York choose to come into Minneapolis and organize a $5,000,000 bank, they have the same right as anyone. W e do not object to that. W e do object, however, to a domination in New York o f our loan resources, and the reason we do not object to the same domination, i f you choose to call it that, on our part as against Minot— which would be a perfectly legitimate question for you to ask me— is that unless you set up a unit o f sufficient size and strength you can not protect your country, and the answer is that 822 BRANCH, CH AIN , AND GROUP BANKING Minot wants to come in. When we want to go into New York that will be a different story, but it will not be in my day. Mr. S t r o n g . I can see how you set up a strong system o f banks in your territory, but I can not see what will come o f the small banks in the small community. Mr. D e c k e r . What do you care about the small bank in the small community? You are concerned about the man in the small com munity. Mr. S t r o n g . I f I was a man in a small community, I would care* Mr. D e c k e r . I came from Chicago over the Baltimore & Ohio Railroad. I do not care who owns that railroad. A ll I am inter ested in is whether it has a good roadbed and furnishes good trans portation service. Banking is a vehicle for the convenience o f busi ness, and you must have strong banks. Mr. S t r o n g . That is the argument o f the Comptroller for branch banking. Mr. D e c k e r . Well, if our system is not better, as we think it is, for our section o f the country and for the little fellow and the big fellow, you need not worry about what will work out, because nature will take its course. Mr. S t r o n g . What I can not see is that if branch banking, group banking, and chain banking are proper kinds o f banking in trade areas, irrespective o f the fact they may not take in some smaller fish, why is it objectionable as a nation-wide banking system? Mr. D e c k e r . I will tell you. Mr. S t r o n g . Y o u are willing to absorb, in Minneapolis, the other towns, the larger towns, where you have group banking—you are willing to absorb the interests and life and necessities of the banks in the little towns. W hy should you object to New York absorbing the interests and growth and development of your organization? Mr. D e c k e r . I will tell you why. I f you go to the leading bankers o f London and Berlin and Paris, they will tell you, “ For God’s sake, do not set up in your country such a system as we have got.” W hy? Because they do not care for that great responsibility. When you come to the United States, you have an entirely different problem. You have an empire 3,000 miles long and 1,500 miles wide, with a republican form of government, which, as the Irishman told his friend as he landed in New York and asked what kind o f a democracy we had— “ W hy,” he said, “ each man here is as good as any other man, and most o f them are a damn sight better.” That is the independent American spirit which we do not want to crush. Mr. S t r o n g . But how-----Mr. D e c k e r . N o w , wait a minute. Our territory is so large, and the interests so diverse that, in my judgment, a nation-wide system of branch banking would be fundamentally unsound, undesirable, and not even courted by New York or Chicago banks that know their business to-day. Mr. S t r o n g . The governor o f the Federal Reserve Board told us the other day that he thought nation-wide branch banking would come; perhaps within 50 years. Mr. G o ld s b o r o u g h . Governor Young said that. Mr. S t r o n g . Y es; Governor Young—that nation-wide branch banking would come within perhaps 50 years. He was opposed to BRANCH, CH AIN , AND GROUP BANKING 823 it now, because we did not have the men trained to handle i t ; consequently, he is willing to limit it to trade areas, but he gav*> 1he implication very plainly that as soon as men are trained for nation wide branch banking, he would have no objection. The suggestion that the responsibility would prevent men that might handle nation-wide branch banking from desiring it, would be entirely overcome by the profits. Objection to responsibility is gen erally overcome by profits. No man likes the responsibility o f any work, but he assumes it and carries it for the profits that is in it. Mr. D e c k e r . My answer is that I am not smart enough to sa$ what will come in 50 years, or 25 years, or even 15 years. My train ing has been to meet the situation as it is, in a practical way, handle it the best I know how, in the interests o f the people, and take care of to-morrow’s problems when they come. Mr. S t r o n g . I appreciate that and it may be that no one in Con gress is smart enough to work it out and yet we will be asked to do it. What is your suggestion and your proposition? Should we permit branch banking in your trade area? Mr. D e c k e r . I have no objection to it whatsoever. Mr. S t r o n g . And you are perfectly willing to approve the comp troller’s proposition? Mr. D e c k e r . Perfectly willing and personally I have no objection to it whatsoever. Outside o f some cities I have in mind, I believe that the rank and file o f the people are unalterably opposed to it. I respect their wishes. I believe it is good business to respect their wishes. Therefore I would suggest, if you want my suggestion, that I certainly would not advise Congress to hurry into branch banking. I would not hurry into anything until I was pretty sure I was right. Mr. S t r o n g . I d o n o t th in k w e sh a ll. Mr. D e c k e r . Because in the meantime, and in the moving o f natu ral forces and natural developments, that situation will be taken care of. There are forces at work to-day which may make your problem, Mr. Strong, very much simpler three or four years from to-day. None o f us see very clearly to-day. The members o f this particular committee are facing a responsi bility in banking which has not been equaled since the day o f Andrew Jackson. Therefore I would suggest that you make a very ex haustive study. This country is rich. We have gone througn the worst of it, I hope, and I would not hurry into anything until I was sure o f a solution. Mr. S t r o n g . W e are doing that. In the meantime we are advised that banks afe organizing groups to do what the law contemplates they shall not do. Mr. D e c k e r . I do not follow you there. I do not see anything in the law that prohibits-----Mr. S t r o n g . We tried to prevent national banks from engaging in branch banking, and then we provided a limitation whereby they should only engage in it in States permitting branch banking by State banks, and then only in the cities where the parent bank was located. Mr. D e c k e r . Yes. Mr. S t r o n g . Then the group and chain bank were developed, undef which they can go outside o f those lines, and they are doing 824 BRANCH, CH AIN , AND GROUP BANKING now what, by the McFadden Act, we sought to prevent the national banks from doing. Now, this development is going on all over the country. How long shall we sit down and let this development go on? The time finally will come when we can not control it. I realize, and this committee realizes, that we have to go slow, and, I think, that is our intention, but if we go too slowly we may meet a condition where you gentlemen have built up something that we can not over come without a catastrophe. Mr. D e c k e r . Y o u will do ten times as much damage to the busi ness in the United States in a hurried and ill-advised action than you will to allow the bankers to take care o f the banking business in the United States. Mr. S t r o n g . W e do not act hurriedly or ill advisedly, but you have taken care o f the big banking interests in your territory and others are doing so in other territories, and then when we start in and try to provide some law by which there will be some control, then, you think, the catastrophe will come. You think we ought to allow the bankers to take care of the banking business of the United States. Our fear is that the longer we delay it the greater the catastrophe will be. Mr. D e c k e r . Please differentiate between looking after small banks and little people. You are not interested in protecting little or big banks; you are interested in the people of the United States. The little fellow, I maintain, is entitled to the same protection and safety and the same service in borrowing or anything else as the big fellow. Mr. S t r o n g . But we have to look after the little fellow. The big fellow will look after himself. Mr. D e c k e r . That is true. That is a fundamental truth. But there is a chance for the little fellow to become a big fellow. Mr. S t r o n g . And there is a big chance o f the big fellow gobbling up the little fellow. Mr. D e c k e r . That has existed from time immemorial. But there is no country in the world, either now or at any time in history, when the little fellow with industry and ability and application stands one-tenth the show he does to-day in the United States. It is all bunk saying that the little fellow does not have a chance. He has the most excellent chance he ever had, and the banks are not holding him back. Mr. S t r o n g . He has a chance unless he is an individual business man or an individual banker against the chain stores and department stores, and various groups and chain banking combinations. Mr. S t r o n g . It is about 1 o’clock. I have no further questions. Do you want to adjourn now, or do you want to continue? Mr. F enn . I have only a question or two. I should like to ask them before we adjourn. Mr. S t r o n g . Very well, proceed. Mr. F e n n . A s I understand, there are two o f these associations represented here—-the Northwest Bancorporation and the First Bank Stock? Mr. D e c k e r . Yes. Mr. F enn . N ow, which of them are in the cooperative system? BRANCH, CH AIN , AND GBOTJP BANKING 825 Mr. D e c k e r . W e call it group banking. It ,is practically and identically the same. Mr. F e n n . In your membership, i f I can use that term, o f these two organizations, are there State and National banks, too? Mr. D e c k e r . Yes, sir. Mr. F e n n . Irrespective o f charters? Mr. D e c k e r . Absolutely. Mr. F e n n . Now, is there any considerable group o f banks there, State, or National, in your area that do not belong to one or the other o f these associations? Mr. D e c k e r . Not o f any considerable size. Mr. F e n n . Mostly small banks that you have described ? Mr. D e c k e r . Yes, sir. Mr. F e n n . And I understood you to say there was another asso ciation ? Mr. D e c k e r . The Union Investment. Mr. F e n n . I think you said it was somewhat connected m th your association ? Mr. D e c k e r . Yes, sir. Mr. F e n n . And takes care o f those—I use the term “ takes care o f ”—takes supervision o f those small country banks? Mr. D e c k e r . Let me answer your question this w ay: There are a number o f small so-called groups. Take the John W . Black Co. They have about 18 or 20 banks operating entirely independently and then Bremer, o f St. Paul. He is personally a shareholder o f a hundred banks in our territory, and there are a number of other smaller ones, like Hazlett, with 8 or 10 banks, and has been operating for many years. Mr. F e n n . Are all the banks in the Minneapolis area connected with an association ? Mr. D e c k e r . Not at all. There are about 2,800 banks left in the ninth district. Out o f that 2,300 there certainly are not in excess of 300 in the groups, large and small. Mr. F e n n . Now, the important thing— important in reference to capital and surplus—are there important banks not connected with any one o f these groups ? Mr. D e c k e r . Yes; indeed. Mr. F e n n . What is their impression o f group banking? Mr. D e c k e r . I would say, generally speaking, they are watchfully waiting. Mr. F e n n . You do not know whether their sentiment is. in favor of branch or group banking? Mr. D e c k e r . Take the First National o f Butte and the Bremer Bank in St. Paul have sixteen or eighteen millions of deposits, en tirely independent, and there are other banks with three, six, or eight millions in deposits, not in any group and not being disturbed, but the great majority, in number of banks, o f course, in the whole district, either in or out o f groups, are small banks. Mr. F e n n . Now, how many banks in your group—the national banks are, of necessity, members o f the Federal reserve system— in other words, how many o f your banks are member banks o f the Federal reserve system? Mr. D e c k e r . Seventy. 826 BRANCH, c h a i n , a n d g r o u p b a n k i n g Mr. F e n n . Seventy out o f ninety-eight? Mr. D e c k e r . Yes, sir. Mr. F e n n . A large proportion ? Mr. D e c k e r . Naturally, we have up to date taken the larger banks and beter banks, either State or National. Mr. F e n n . I wanted to know if there were other banks that were important in that region, not in the groups. Mr. S t r o n g . W e will adjourn now until 2.30, at which time Mr. Campbell will be allowed to question the witness. I f he is not here, Mr. Beedy will question the witness. (Thereupon, at 1 o’clock, p. m., a recess was taken until 2.30 o’clock, p. m.) AFTER RECESS Pursuant to the taking of a recess, the committee resumed its hearing, Hon. James G. Strong presiding. Mr. S t r o n g . The committee will come to order. Mr. Decker, you may resume. Mr. Campbell does not care to cross-examine and so, Mr. Beedy, you are next. STATEMENT OF E. W. DECKER— Resumed Mr. B e e d y . Mr. Decker, Mr. Luce brought up a matter that has seemed to be o f quite general interest. There seems to be a fear here or a doubt as to whether we are on the way to a monopoly o f credit in this country, and he asked you the question as to whether you thought it would be easier for W all Street or New Y ork inter ests to buy up your group, once you had it organized, than it would have been before, and your answer was that you thought it would be very much easier for New York interests or Chicago interests to go to 100 different banks separately and buy them than it would be to get control o f the organized group. You will remember that question and answer. Mr. D e c k e r . Yes, sir. Mr. B e e d y . And yet you have more than once said, unless my mem ory is at fault, that the group system was the natural evolution o f the banking business, that it was possible to form such a system because individual banks would not sell out, that they wanted to hold their individuality or retain it, that they would join in a group where they would not sell. How do you reconcile those two statements? Mr. D e c k e r . Because they do not consider joining our group by an exchange of stock selling out. Mr. B e e d y . Y o u do not get the pertinence o f my question. In reply to Mr. Luce’s question, you said it would be easier for big interests in New York or Chicago to buy up individual banks than it would to get control o f your group through a purchase o f your holding company stock, and yet you say that group banking is pre ferable to branch banking as a matter o f evolution because individ ual banks will not sell out, that public sentiment is against the branch-banking proposition and they will come into a group where they will not sell; yet your answer to his question was that it would be easier to buy individual banks than to take over the group. BRANCH, CH AIN, AND GROUP BANKING 827 Your two answers would seem to be somewhat inconsistent, and I wondered what your explanation is. Mr. D e c k e r . I get your point. The explanation is this, that had there been no prospect o f the formation of such a group as we have formed, those individual banks would have been tempted to sell out because they were discouraged; they could see no future in staying up there all alone, with no partners, and now that a plan has been devised whereby they can join the group which they believe is largely self sufficient and strong, they would not be so much in clined to sell their stock in the Northwest Bancorporation. When I said that they would not sell out to us for cash, I meant that, be' cause they saw what it would mean; neither did we want them to sell for cash, but had they sold for cash, then they would not have been a part o f the group in which that bank was going because we made no secret about our plans at all. Therefore they said to us: As partners, yes, delighted to join; we do not want to ever sell our stock? we would rather own the stock than to own the cash. O f course, they could turn around with the cash and buy stock if it were publicly offered. Mr. B e e d y . In other words, your judgment, based on your expe rience of some 40 years as a banker, is that there is less danger of a big organized interest in a great financial center such as New York or Chicago taking over a group which has already been bought up and organized, necessitating but one transaction, than there would be o f its going to work and picking up individual banks and attempt ing to build up a structure which would approximate a control or the ability to control credit in a given locality ? Mr. D e c k e r . Absolutely. In the first place, they realize now that what they have is worth more than they thought it was by that union. Their stock in the Northwest Bancorporation is going to be worth more than their stock in the local bank ever would have been worth, and therefore they are less willing to sell it. Second, the Northwest Bancorporation, with 126 directors o f the best men in that part o f the world, the most loyal men, is placing your fortunes in the hands o f the most reliable, those who are able to keep it, who do not have to sell, and those who have at stake the greatest interest in that part o f the country and therefore less apt to sell. Mr. B e e d y . N o w , with respect to this stock o f the holding com pany, this $50 par-value stock, as bearing upon your financial struc ture, did you make the exchange or did these individual owners o f bank stocks make their exchanges with the holding company on any basis which would result in a uniform return on their investment ? Mr. D e c k e r . Not entirely. Mr. B e e d y . So that one bank stock which went into your group might have represented such a return on the investment that when it was exchanged for the holding company stock it might return 15 or 20 per cent, and again it might to another bank represent 8 per cent on their original investment? Mr. D e c k e r . On their original investment? Mr. B e e d y . Yes. Mr. D e c k e r . On the stock in the local bank? Mr. B e e d y . Let me make myself clear. They turned over what stock they had in their local bank. That stock might have been 828 BRANCH, CHAIN, AND GROUP BANKING returning them 15 or 20 per cent on their original investment, and they turned it over for the stock in the holding company in such a way that, as against another bank, they are getting 25 per cent return while the other bank is only getting 8 per cent. Mr. D e c k e r . A s a matter o f fact, most o f them were not getting any return; they had used all of their profits to clean up the poor stuff, and a good many o f those banks were not paying any dividends. Mr. B e e d y . I understand that you have taken on very few weak banks, that all o f your banks were strong banks. Mr. D e c k e r . N o . I beg your pardon. Mr. B e e d y . The majority o f them. Mr. D e c k e r . Yes, but I gave you a number o f instances where we cleaned up situations. M r . B e e d y . Y o u sa id e x c e p t in a f e w e x c e p tio n a l in sta n c e s y o u h a d ta k e n o v e r s tr o n g b a n k s. Mr. D e c k e r . The larger number were strong banks. Mr. B e e d y . Y o u made it a point to take over strong banks that were money-makers ? Mr. D e c k e r . Yes, sir; but many o f those strong banks had been using their profits to clean up their banks, and they had been declar ing no dividends at all and there was no market for their stock, you might say. M r . B e e d y . B u t th e m a jo r it y o f th e m h a d , a n d n o w h a v e , su r p lu s f u n d s f o r lo a n in g p u rp o se s ? Mr. D e c k e r . Yes, sir; they have great potential value for the fu ture, i f properly managed, in this group. Mr. B e e d y . In fact, a great number had so much o f a surplus of loanable funds that they have been investing them in good bonds because they could not find safe loans in other directions? Mr. D e c k e r . Quite true. Mr. B e e d y . On what basis or value was this holding company stock, reckoned in the transfer ? Mr. D e c k e r . We took into consideration the book or so-called liquidated value o f the holding company stock, which was deter mined, o f course, by the total book or liquidated value o f the bank stocks which they had up to that time acquired, as against the book or liquidating value o f the stock in the bank which was joining. We considered the earnings o f the two as nearly as you could estimate them over three, four, and five years, the amount o f capital invested, o f course, in good paper, and the prospects, and if it was a bank that had excellent prospects, we considered its good will of more value. Mr. B e e d y . My question went more directly to the point o f the value reckoned for the holding company stock. Was it computed at $50 per share? Mr. D e c k e r . When we sold stock to the public, we offered it, the first issue, at $50, but when we made the exchange we figured the par value at $50, but the book value o f the holding company stock was determined by the book value of the stocks in banks which it owned. Mr. B e e d y . And that largely paralleled the market quotations o f the stock from time to time ? BRANCH, CH AIN, AND GROUP BANKING 829 Mr. D e c k e r . N o , we did not pay very much attention to the mar ket value. They ran the stock up higher on the market than it should have gone, we thought. Mr. B e e d y . It went up at one time to 90. Mr. D e c k e r . Yes. Mr. B e e d y . Did you ever trade in any o f that at. that value ? Mr. D e c k e r . No, sir. It really did not make any difference what price we put our stock at until you also determined the price of the other, because it was an exchange. We endeavored to make an exchange which was fair to the shareholders of the holding company who had already come in and to the shareholders o f the bank under consideration. Mr. B e e d y . I s th e sto c k o f th e h o ld in g c o m p a n y on sale to th e p u b lic t o -d a y ? Mr. D e c k e r . Yes, sir. Mr. B e e d y . What is the price of Mr. D e c k e r . Fifty-four. Mr. B e e d y . I s any of the stock it to-day ? o f the Northwest Bancorporation owned or controlled by New York or Chicago interests? Mr. D e c k e r . S o far as we know, not a dollar. There may be some scattering shares in the hands o f investors. Mr. B e e d y . But, as to the majority o f it, you know where it is and you local men control it? Mr. D e c k e r . Wait a minute—I must qualify that. We offered last September to our shareholders a new issue o f approximately 144,000 shares, which was 1 share for each 10 which they owned, at $72.50 per share. Before that stock was offered to the shareholders, I had it underwritten at $70 a share, because I thought it was good business. Mr. B e e d y . D o I understand that you have increased your capital ization of your holding corporation? Mr. D e c k e r . Three times. Mr. B e e d y . Within a year and-----Mr. D e c k e r . And three months. That stock I had underwritten by, I think, 75 different houses who were invited to join in the underwriting at $70 a share. Mr. B e e d y . Locally? Mr. D e c k e r . N o ; scattered all over the country. Mr. B e e d y . You did not have to go to New York for the under writing ? Mr. D e c k e r . There were New York houses, Chicago houses— all bond and security houses had an opportunity to join, and I think that the most that any one house had was something like 3,000 shares. That was an underwriting, you understand. Now, before the time arrived for our shareholders to take this stock and pay for it— and if they had done so, the underwriter would have received no stock-----Mr. B e e d y . I s th e underwriter a Minneapolis concern? Mr. D e c k e r . N o ; 75 different houses. Mr. B e e d y . S o that the purpose for which you organized this group, namely, to finance your own locality with your own capital, has failed in respect to your own organization? Mr. D e c k e r . No, sir. 830 Mr. or BRANCH, CH AIN, AND GROUP BANKING B eedy. - -J ’ 1 W hy did you have to go to bond houses in New Y ork 1 a? Mr. B e e d y . W hy did you? Mr. D e c k e r . Well, I thought it was good business?. Mr. B e e d y . Then, it is not good business to organize for the pur pose o f financing your own business in your own locality with your own capital ? Mr. D e c k e r . Certainly, but we can not do it all. Mr. B e e d y . A h ! Mr. D e c k e r . W e do not attempt for one minute to say that we are able to finance everything in our district. Mr. B e e d y . I thought it was rather peculiar that you would not finance your own business in your own community, i f that was one o f the essential purposes o f your organization. Mr. D e c k e r . Please understand that this stock was put over and was offered to the shareholders at that time. I thought I saw trouble ahead in stock prices, so I had that stock underwritten, and we in vited any bond house—whoever they were, whether in San Francisco or New York—to join in that underwriting, but none o f them had more than 3,000 shares o f the 75 houses. Before the time arrived for our shareholders to buy that stock at 72%, and at the time it was offered it was selling on the market at 85, the collapse came on the stock market and our stock gradually went back to $50 a share, and in the meantime I called on the underwriters to pay for it at $70. Mr. B e e d y . N o w , the original capitalization o f your holding com pany was what? Mr. D e c k e r . D o you mean authorized ? Mr. B e e d y . Yes. Mr. D e c k e r . Authorized capital stock was $75,000,000. Mr. B e e d y . And that was all issued in stock ? Mr. D e c k e r . N o ; it was issued, you see, a little at a time, as we acquired-----Mr. B e e d y . What I mean is, there were no bonds involved in that set-up ? Mr. D e c k e r . N o ; only one kind o f stock; no other securities o f any description. Mr. B e e d y . O f that original authorization o f $75,000,000, you issued how many shares o f the capital stock at $50 par value before you began to-----Mr. D e c k u r . Acquire banks ? Mr. B e e d y . N o ; before you began to change your set-up. You said that you had changed it three times? Mr. D e c k e r . Our first issue o f stock to the public for cash wa& $5,000,000 at $50 a share. That was greatly oversubscribed, and that was on the 1st o f March, 1929. In August we sold 100,000 shares, or $5,000,000 worth more to the public for cash. Mr. B e e d y . That was in August? Mr. D e c k e r . In August. Then, as I saw the crisis coming pretty fast, and requiring some cash, as I thought, or at least as needing a large surplus in cash always on hand, I insisted on selling out 150,000 shares more. BRANCH, CH AIN, AND GROUP BANKING 831 Mr. B e e d y . For $7,500,000? Mr. D e c k e r . A t $72 per share. That was offered to the share holders first. The original offer, by the way, was the only offering not made to the shareholders. That was foreclosed after the firstoffer, and the constitution o f the company provides that all further issues o f stock must be made to the shareholders, thereby preserving their rights. Mr. B ei2dy. Then the result o f your first sale o f stock was approxi mately $7,500,000 ? Mr. D e c k e r . N o ; 150,000 shares at $70 was between $10,000,000 and $11,000,000. Mr. B e e d y . And those are the three stock issues that you referred to in your original testimony? Mr. D e c k e r . Yes. Mr. B e e d y . S o that as a result of your stock sales, you have about $21,000,000 worth of stock issued and outstanding? Mr. D e c k e r . That is correct. Mr. B e e d y . N o w , how much o f this stock, if any, went to the underwriters ? Mr. D e c k e r . Well, a very large per cent, practically all, you might say, of the last issue, because in the meantime the collapse had come and our stock among others had moved back to $50 a share. Mr. B e e d y . S o the underwriters themselves took these 150,000 shares ? Mr. D e c k e r . Right; at $70 a share. Mr. B e e d y . And that stock is theoretically on the market at the present time ? Mr. D e c k e r . Yes. However, since then I have organized a pri vate syndicate o f individuals in our own town who have been will ing to take over that stock from these underwriters at $50 a share. They have said that they did not care to sell it at that price, so a great deal of it they still have, but they will market it whenever, in their judgment, the market price warrants it, I suppose. Mr. B e e d y . Now, in the course o f your testimony, I notice that you admitted that branch banks can be run more economically than the individual banks under the group system. Mr. D e c k e r . Yes. Mr. B e e d y . I suppose that is generally conceded, and you further stated, if I remember correctly, that the majority o f your banks were what you termed the larger banks that you had taken into the group, that one local syndicate, the name o f which I forget-----Mr. D e c k e r . Union Investment Co. Mr. B e e d y (continuing). Had organized and taken under its con trol some 25 small banks, that you took over the stock o f the Union Investment Co. as such, and therefore those 25 small banks were in your system but subject to the immediate supervision o f the exist ing investment trust company ? Mr. D e c k e r . Right. Mr. B e e d y . And is it true as a matter o f principle that you do not care to take in any more small banks at the present time ? Mr. D e c k e r . No; I would not say that. Mr. B e e d y . Y o u are not out seeking them? 100136— 30— VOL 1 pt 8-- 4 832 BRANCH, CH AIN , AND GROUP BANKING Mr. D e c k e r . We do not care whether a bank is large or small. It is a question o f whether it is needed in the community where it exists and whether it can be made profitable. Mr. B e e d y . Your criterion would be rather the soundness o f the institution and the local need for its maintenance ? Mr. D e c k e r . Yes, sir; and its ability to make money under our management or with our system. Mr. B e e d y . N o w , having no objection to the branch-banking sys tem in your trade area as a competitor with the group-banking idea, in your opinion, would a branch-banking system, since it can be more economically administered, perhaps prove to be somewhat more advantageous to the small banker than the group system ? Mr. D e c k e r . More advantageous for the small banker? Mr. B e e d y . For the small bank. Mr. D e c k e r . I f it was a branch, it would not be a bank. Mr. B e e d y . O f course; if a central branch bank were organized and it took over 100 small banks, we will say, and operated them as branches-----Mr. D e c k e r . I get you. Mr. B e e d y (continuing). They could probably be better operated in that kind or a system than they could under a group ? Mr. D e c k e r . Well, I think that would be the easiest competition we could have. Mr. B e e d y . Somebody has got to take care o f these small banks. Mr. D e c k e r . Yes. Therefore my judgment is that tiie way to take care o f the small banks would be this: Let us take the county seat, for argument’s sake, which has a national bank or two or three o f them; the best way would be to allow them to have branches in their own county or immediate terirtory, but in my judgment the natural evolution would be that the county bank with these branches will want to join a group; it will not want to stand alone. Mr. B e e d y . Just as your investment trust is now in your group ? Mr. D e c k e r . That is it exactly. Mr. B e e d y . While you do not pretend to predict what the next 10 or 15 years is going to bring about, you think that the natural ten dency will be perhaps for the county bank or a bank within some limited area to take over and operate a few branches? Mr. D e c k e r . Yes. Mr. B e e d y . And that county bank, in turn, will be inclined to come into your group? Mr. D e c k e r . Yes, sir. Mr. B e e d y . That is the trend, as you see it ? Mr. D e c k e r . Yes, sir; that as against a bank in, say, Minneapolis, with branches in all these little towns. In my opinion the branch bank in Minneapolis would be a very poor competitor o f ours, be cause in the larger towns, in these centers, we do not operate a branch but an independent bank, one that is popular at home and in which the local business men have an interest. For instance, if the people who own the National City Bank came into Minneapolis, after you passed a branch banking bill with vour trade areas, and started branches over the same country where our member banks are located, they would immediately run counter to public opinion and get very little business. BRANCH, CH AIN, AND GROUP BANKING 833 Mr. B e e d y . That is an interesting feature o f your testimony. You counselled us against rushing into any action, which is perhaps wise; but you say that if we should now attempt to force upon the country a branch banking system, general in its application, that we would run counter to public sentiment. What is public sentiment; what is your definition of it? What did you mean when you said that? Mr. D e c k e r . I perhaps can best explain it by taking an individual case. I think I referred this morning to the First National Bank o f Minot, a bank with $4,000,000 or $5,000,000 in deposits. The}7 would be unalterably opposed to becoming a branch o f the North west National Bank at Minneapolis, which is a large unit in our bank corporation, because, they say, “ Our bank has been here 30 or 40 years; we have our own board of directors, our own pride, and if we are to become a branch you will send a hired man up here to run it, and after he has been here 2 years you will send him off some other place, and we do not want it.” Mr. B e e d y . Then, I understand you to refer to the public banking sentiment as represented by the banks. Mr. D e c k e r . Yes; but still further, the business sentiment is also exactly the same. One o f my friends within the last two weeks attended a meeting of lumbermen from all over our part o f the country, and he took the pains to ask them what their feeling was toward this group-banking movement as against branch banking, and they said that without any question they did not want the branch banks, they did not want the Canadian system, that they want their local banks. So I think the feeling is general among business men that way. Mr. B e e d y . Beyond the popular conception that you referred to, simply to the effect that certain communities do not want an outside fellow sent down to run a local bank, it is doubtful, is it not, whether the public as such understands the difference between branch banking and group banking, or the difference between branch banking and chain banking? Mr. D e c k e r . I think you would be surprised how well they do understand it around in our country. Mr. B e e d y . Members o f this committee did not understand the difference until Mr. Pole had explained it to us. Mr. D e c k e r . Y o u ask the farmer around Minot whether he would rather go into the Minot bank and do business with it as organized to-day or take his chances with a branch bank there operated by a hired man, and I warrant that nine times out o f ten he will say, “ Leave it as it is, because the manager o f the branch will have to submit to headquarters practically all loans,” and they know that the Minot bank still functions under the authority o f its board o f directors. Do I make myself clear on that ? Mr. B e e d y . Yes. Would you not be willing to make the statement that probably none of us yet know what the public sentiment, in the broad sense o f that term, is as yet as to the advisability o f having either a branch banking or a group banking system ? Mr. D e c k e r . In sections where group banking has not been tried, probably yes, but in our section, where it has been in effect for over a year, I would say no. I think that is pretty clear. 834 BRANCH, CH AIN , AND GROUP BANKING Mr. B e e d y . O f course, Mr. Decker, we are trying to keep in mind the little depositors, the individual depositors, and the man that sometimes want to buy an inexpensive home, and borrow $1,000 or $2,000. When we consider that class o f people as opposed to the business interests and the banking interests, it is difficult for us here, from the testimony we have yet had, to find out what the sentiment o f that class o f people is, and I was wondering i f yon have anything along that line. Your statement is very interesting; about the lumbermen, but have you taken any steps to find out what the small depositor is thinking about this trend toward con centration in the banking business? Mr. D e c k e r . It is a matter o f education, and I have failed as yet to hear o f one case o f an individual who was a doubting Thomas or even an objector who had not changed his mind when he under stood what group banking meant as against branch banking. Now, naturally the man on the street does not know what he wants except that he wants to borrow $1,000. My experience as a banker there shows me that his chances o f getting that $1,000, i f he is worthy o f it, are better, infinitely better, under our group system than it was before, because many of the unit banks were unable to accommodate him, and in my judgment his chances are infinitely better than under the branch-banking system, because I think that man’s individual case will receive more attention and sympathy with the local bank and its local man than he would from a manager o f a branch. Mr. B e e d y . What dividends does the stock o f the holding com pany pay now? Mr. D e c k e r . $1.80 a share a year, or 45 cents a quarter. Mr. B e e d y . What is your theory o f the increased capacity to pay dividends on this increased capitalization o f the banks that you have grouped? You have no more banks than existed before, yet they are paying dividends on a vastly increased capitalization. Mr. D e c k e r . N o, they are not paying any more dividends than a fair dividend. Mr. B e e d y . Let me make myself clear. When you took over some o f these individual banks, you took into consideration their standing and reputation, and their good will, as we sometimes say, and those banks were not paying any dividends on good w ill; yet you in your holding company issued stock representing that good will, and the syndicate or group is now paying dividends on that stock which was paid for good will. I think it would be interesting for you to explain to us what your theory is, and there is a legitimate explanation, o f course, as to the ability to pay dividends on that increased capital ization where you have no more banks than in the first place and no more money in the aggregate than was originally in your com munity. Mr. D e c k e r . W ell, the answer to that is that the book or liquid ating value o f the Northwest Bancorporation stock to-day is $40 per share, independent o f all good will. There are sufficient assets under any sort o f reasonable management to earn at least double the present dividend requirements; in fact, our earnings last year were considerable more than double the dividend rate. The dividends are very small, and we are going to keep them small. BRANCH, CH AIN, AND GROUP BANKING 835 Mr. B e e d y . In other words, reckoning your stock in the holding company at $40 per share, you want the committee to understand that that is the parallel value o f the existing banks just as you took them over, with assets ? Mr. D e c k e r . Yes, without any account o f good will. Mr. B e e d y . N o w , irrespective o f what this committee might do to meet the situation, the developments in the formation o f groups and chains have come upon us so rapidly that unless we do lay our selves wide open to the charge o f precipitate action, it is probably true that whatever was going to be accomplished will have been accomplished. Would you think it advisable, if the evidence that we have had presented to us should convince the majority o f us that there is a limit to the advantages of a concentration in the con trol o f credit as there is in the concentration o f capital for purely industrial purposes, for us to pass a law which would impose such burdens upon these groups and chains as they are now set up as to discourage further action along that line ? Mr. D e c k e r . N o. I think you could better afford to let nature take its course until you are pretty clear in your mind what is best to be done, because it is perfectly apparent to me that banking is going to concentrate very much along the same lines as the public utilities have, and I doubt very much if any law can be passed that will work that will prevent it, because I think it is fundamental to-day by reason o f the concentration o f capital in business, in large companies, requiring large banking accommodations, that a large number o f small banks in the United States can never again accommodate the business o f the United States. Mr. B e e d y . But you will agree that we do arrive at a point when in the concentration of banking facilities we have attained the high est economic efficiency? Mr. D e c k e r . Yes, sir. Mr. B e e d y . Then, of course, wThat that point is is what we are trying to find out. A fter we have gotten so far, it then becomes disadvantageous to go further with the group system or the branch banking system, does it not? Mr. D e c k e r . Yes. Mr. B e e d y . You have no suggestion, if any, as to what limitations should be imposed upon the concentration o f banking capital, have you ? Mr. D e c k e r . I would be delighted if a way could be found to prevent the concentration o f banking capital further than liberally prescribed trade areas, o f which there might be a number—I do not 'know how many, but in our section, so sparsely settled, with relatively few diversified interests, that trade area would have to be very large in order to make it a workable unit as to size and influence in com peting, if you please, with other large combination of capital in New York and Chicago. It if could be prevented and not go beyond certain districts, so far as we are concerned, it would suit us fine, but when you come to talk about Pittsburgh, Cleveland, Detroit, Boston, Philadelphia, New York, or Chicago, I confess that I would not undertake to say whether a man in New York should be pro hibited from owning stock in a bank in Pittsburgh, or a holding company, even, but I am very clear that ir. our section a man on the 836 BRANCH, CH AIN, AND GROUP BANKING street, a business man or a farmer, will be best served in a banking way by prescribing something like the trade area which I had men tioned, to be managed, supervised, controlled, and owned by people who live in that district and who make the wealth which goes into the banks. I confess that I do not know just how you are going to do that, however. Mr. B e e d y . It is a difficult problem. Mr. D e c k e r . Very. Mr. B e e d y . O f course, it is fully as essential that w e see to it that healthy competition in the banking business obtains. Mr. D e c k e r . Absolutely. I think that is fundamental, but it is difficult. Mr. B e e d y . Y ou twice have used the phrase here that you want to let nature take its course, and I am not sure that you want to let that stand. O f course, the set-up o f credit and the manipulation o f credit come about by purely artificial methods; nature does not have anything to do with it, in the broad sense ? Mr. D e c k e r . What I meant by that was that the bankers are work ing out a solution of our present difficulties, and doing it cautiously, because the investor in bank stock is watching them closely, so that they do not go so far that they will become top-heavy. Mr. B e e d y . But in dealing with banking we must make a very fundamental distinction between it and agriculture, over which the forces of nature have such a tremendous control. Mr. D e c k e r . Very true. Mr. B e e d y . While the banking business is a man-made business controlled by arbitrary rules which men imposed and which law- making bodies set up. Mr. D e c k e r . Right. Mr. B e e d y . That is the distinction that we are agreed upon. I understand, then, in a few words, that your testimony might be summed up as follows, that group banking within reasonable trade areas is the natural evolutionary development of the banking business to satisfy the needs o f commerce and industry in general, Mr. D e c k e r . Right. Mr. B e e d y . And that, as a matter o f fact, branch banking as such is the more economical system in administration, and that so far as you are concerned you are perfectly willing that this committee should pass some law authorizing branch banking within trade areas, that you do not want the committee to take any arbitrary steps to hurt you and the group which you have set up, that you are willing to take your chances in competition as a group banker with legally authorized branch banks ? Mr. D e c k e r . Yes, sir; provided it is confined to these trade areas. Mr. B e e d y . Exactly. You are not advocating nation-wide branch banking ? Mr. D e c k e r . No, sir. Mr. B e e d y . I think that is all. Mr. D e c k e r . Having in mind all the time that my testimony refers more particularly to the conditions in the district in which we oper ate, rather than attempting a solution for the problem in any other sections with which I am not familiar. Mr. B e e d y . Yes, indeed. Mr. S trong. Mr. Fort is next. BRANCH, C H AIN , AND GROUP BANKING 837 (Mr. Fort was not then present.) Mr. S t r o n g . Mr. Goodwin. Mr. G o o d w in . I just have a question or two, Mr. Decker, to ask you. Speaking on the subject of the public mind in reference to branch banking, several States—yours and mine included—have passed laws prohibiting branch banking. Does that not give us a very fair pic ture o f the public sentiment at least in those States that have passed laws prohibiting branch banking ? Mr. D e c k e r . I think the sentiment, Mr. Goodwin, is changing very rapidly. Two or three years ago that sentiment was general, but to-day, to say the least, they are in doubt, but if you refer to branch banking alone, I would say that the sentiment, outside o f the centers, the cities, was still, so far as I have been able to learn, almost unani mously against branch banking, but the sentiment in those same rural districts regarding group banking is very different indeed. Mr. G o o d w in . In your experience in the building up o f the North west Bancorporation, have you found the people in the localities where you are now operating friendly to the suggestion o f group banking? Mr. D e c k e r . Very; exceedingly so, so much so that a great number o f them want to buy stock in both Mr. Wakefield’s group and our own. They feel it is sort of their own baby there in the northwest, but the baby is growing up, and they are proud of it. Mr. G o o d w in . I s there any industry with proper security or col lateral, or any individual, that can not now, within reasonable limits, be financed in the Twin Cities or in the area in which you operate ? Mr. D e c k e r . I f you refer to long-time financing, I would not want to say that we would be able to finance all enterprises originating in our district. Take water power in the Rocky Mountains, natural gas developments, large industries—I would not want to saj that we could unassisted finance, for a long time, all o f the industries origi nating in our district, but if you refer to commercial banking-----Mr. G o o d w in . I mean the ordinary business interests that are local to the community within which your group operates. Mr. D e c k e r . N o trouble whatever for him to get all the money he is entitled to. In fact, my experience o f 40 years in banking leads me to believe that there have been nine failures due to too much credit to one failure due to too tight credit, and a great majority of the people in the United States would go broke if you loaned them enough money. Mr. G o o d w in . You just made the statement that the third issue of stock, the issue that was underwritten, is partially held by the under writers now. Mr. D e c k e r . Yes. Mr. G o o d w in . Can you tell the committee approximately how much of that stock is so held ? Mr. D e c k e r . Oh, I should sav possibly 100,000 shares out o f 1,600,000. Mr. G o o d w in . There will be no danger, then, that the owners o f that stock would in any way control the operations of the company or dictate its management or in any way interfere with its operations 1 Mr. D e c k e r . My judgment is there is no way in the world that aiiy individual or set o f individuals or holding company or corpora tion could obtain control o f the Northwest Bancorporation without 838 BRANCH, CH AIN , AND GROUP BANKING coming to headquarters and selling the idea to its directors and lead ing shareholders, which would mean that the whole district was willing to sell out. That is why I am so sure that they would never be willing to do it, which leads me to believe that we are now in a safer position in that respect that ever before. Mr. G o o d w in . I think that is all. Mr. S t r o n g . Mr. Letts. Mr. L e t t s . Mr. Decker, did you place in the record the names o f the various banks in your group ? Mr. D e c k e r . Yes. Mr. L e t t s . That has been done. Mr. D e c k e r . That w ill b e d on e. Mr. L e t t s . And that contains a statement o f the capital and sur plus o f each bank ? Mr. D e c k e r . Yes. Mr. L e t t s . Y o u are a Delaware corporation, I understand? Mr. D e c k e r . Yes, sir. Mr. L e t t s . What is the authorized capital? Mr. D e c k e r . $300,000,000. Mr. L e t t s . Has any part o f that capital been issued out o f the treasury o f the company for anything other than cash or the stocks o f banks that you have taken into your group ? Mr. D e c k e r . Yes. In addition to the issuance o f our stock for cash in its sale, or in exchange for bank stocks, there has been some stock issued for a cattle-loan company in western Montana, o f which I spoke this morning, and two or three security companies which are capitalized independently in Minneapolis and, I think, Des Moines, Omaha, and Duluth. Mr. L e t t s . Has any part of this stock been issued for organiza tion or promotion purposes? M r . D e c k e r . N o t a d o lla r . M r . L e t t s . W h a t are th e p o w e rs a u th o rize d b y y o u r c o rp o ra te c h a r te r ? Mr. D e c k e r . They are very general. Mr. L e t t s . Are you authorized to issue insurance? Mr. D e c k e r . I doubt it. I would have to examine the articles to be sure. Mr. L e t t s . Have you those articles o f incorporation here? Mr. D e c k e r . Yes. Mr. L e t t s . I think it would be a good thing to have them in the record. (The articles o f incorporation referred to are reproduced below.) A b t ic l e s of I n c o r p o r a t io n and M St a t e of B y -L a w in n e a p o l is , s M N of in n orth w est B ancorporatton, . M in n e so t a , County of Hennepin, ss: I, Grant W . Anderson, do hereby certify: That I am the duly elected, qualified, and acting assistant secretary of Northwest Bancorporation, a corporation. That the following is a true, complete, and correct copy of the Articles of Incorporation and By-laws of said corporation together with all amendments thereto; that the same was spread on the minute books of said corporation and now forms a part of the minutes and records of this corporation. In witness whereof I have hereunto set my hand and the seal of this cor poration this 11th day of April, 1930. [ s e a l .] G r a n t W . A n derso n . BRANCH, CH AIN, AND GROUP BANKING 839 F irst. T h e nam e o f th is corporation is N orthw est B an corp ora tion . Second. Its p rin cip a l office in the State o f D ela w a re is located a t N o. 7 W e st T enth Street, in th e city o f W ilm ington , cou nty o f N ew C astle. T he nam e and address o f its resident agent is the C orp ora tion T ru st Co. o f A m erica, No. 7 W est T en th Street, W ilm ington , D el. T h ird . T h e nature o f th e business, or o b jects or purposes to be transacted, p rom oted, o r ca rried on, a r e : T o a cquire by purchase, subscription, or otherw ise, and to ow n and hold, fo r investm ent purposes, the ca p ita l stock, scrip or any v otin g tru st certificates in respect o f the shares o f ca p ita l stock issued or created by any m oneyed, finan cia l, o r investm ent corp ora tion or association created and organized, or to be created and organized, under the law s o f the U nited States o f A m erica or o f a n y S tate or T e rrito ry t h e r e o f; and to issue in exchange th erefor shares o f the ca p ita l stock o f this co r p o r a tio n ; and w h ile the h old er or ow n er o f any such shares o f ca p ita l stock, scrip o r v otin g trust certificates, to possess and exercise in respect th ereof any and all rights, pow ers, and p rivileges o f ownership, in clu d in g the righ t to vote th ereon ; T o loan m oney to any a foresa id corporation or association, any o f w hose shares o f ca p ita l stock, scrip, or votin g trust certificates a fo re sa id shall be ow n ed at the tim e o f such loan b y this corporation , and to d o a n y and all la w fu l things designed to protect, preserve, im prove, or enhance the va lu e o f any such shares, scrip, or v o tin g trust ce r tifica te s ; I n a d d ition to and n ot in lim ita tion o f a n y o f the a foresaid p ow ers, to invest tem p orarily any o f its ca p ita l o r surplus fu n d s in bonds, m ortgages, or evidences o f indebtedness, and any oth er securities issued or created by any individual, copartnership o r other corporation , join t-stock com pany or association, pu blic o r p rivate, or o f the G overnm ent o f the U nited States o f A m erica, o r o f any fo re ign governm ent, or o f a n y State, T erritory , m unicipality, o r other p olitica l subdivision, o r o f any governm ental a g e n c y ; T o acquire, hold, sell, reissue, o r cancel any shares o f its ow n ca p ita l s t o c k : Provided, however, T h a t this corporation m ay n ot use a n y o f its fu n ds o r p rop erty fo r the purchase o f its ow n shares o f capital stock when such use w ould cause a n y im pairm ent o f the ca p ita l o f this c o r p o r a tio n : And provided further, T h a t the shares o f its ow n ca p ita l stock belonging to this corp o ra tio n shall not b e voted, d irectly o r in d ir e c t ly ; T o organize, incorporate, and reorganize subsidiary corporation s f o r all la w fu l p u rp o s e s ; T o con du ct all or any p a rt o f its operations and business w ith ou t restriction o r lim it as to am ount in the S tate o f D ela w a re o r in any o r a ll oth er State*. T e rritories, d istricts, colonies, and dependencies o f the U nited S lates o f A m e r ic a ; T o h a ve and to exercise any and all p ow ers and p rivileges n ow o r h ereafter co n ferred b y the la w s o f the State o f D ela w a re upon corp oration s form ed under the a cts herein after referred to, o r un d er any a ct am en d atory th e re o f or sup plem ental thereto or substituted th e r e fo r ; T h e fo reg oin g clauses shall be con strued both as ob jects and p o w e r s ; and it is hereby exp ressly p rov id ed that the foreg oin g enum eration o f specific pow ers shall n ot b e held to lim it or restrict in any m an ner the pow ers o f this corporation. F ourth . T h e tota l authorized ca p ita l s tock o f th is corp oration is $75,000,000, d ivid ed into 1,500,000 shares, o f the p a r va lu e o f $50 each. I f it seems desirable so to do, the b oard o f d irectors m ay fro m tim e to tim e issue s crip fo r fra ction a l shares o f s t o c k ; such scrip shall not con fer upon the h old er any v o tin g or oth er righ ts o f a stockhold er o f th e corp oration but the corporation shall, from tim e to tim e, w ith in such tim e as the board o f d irectors m ay determ ine, issue one w hole share o f stock upon the surrender o f scrip fo r fra ction a l shares a ggregating one w h ole share, p rop erly indorsed, i f in registered fo rm . A m ended O ctober 10, 1929. (S ee in b a ck .) T h e holders o f com m on stock o f this corp ora tion shall h a ve their respective preem ptive rights to subscribe fo r other shares o f com m on stock, excep t as by la w lim ited and excep t that, fr e e o f such preem ptive right, the board o f d irectors m ay (1 ) fro m tim e to tim e exch a n ge unissued stock o f the corp oration or any stock o f the corp oration t o b e issued by reason o f a n y in crease o f the au th or ized ca p ita l stock o f th e corporation fo r stock o f financial, m oneyed, o r invest m ent corp oration s and associations, an d ( 2 ) , p r io r t o J a n u a ry 1, 1930, a t such tim e or tim es and in such am ount o r am ou nts a s said b oard o f d irectors deem s advisable, sell com m on ca p ita l stock n ot exceed in g in th e aggregate $5,000,000 p a r value. 840 BRANCH, C H AIN , AND GBOUP BANKING F ifth . T h e am ount o f ca p ita l w ith w h ich th is corp oration w ill com m ence b u sin ess is $1,000, b eing 20 shares o f the p a r va lu e o f $50 each. S ixth. T h e nam es and places o f residence o f the subscribers to the ca p ita l s tock and the num ber o f shares subscribed fo r b y each are as f o l l o w s : N u m ber o f sh a re s A . V . L ane, W ilm ington , D el_____ C. S. Peabbles, W ilm in gton , Del. Ii. E . G ray, W ilm ington , D e l_____ 18 1 1 Seventh. T h is corporation is to have perpetual existence. E ighth. T h e p riva te p rop erty o f the stockholders shall not be su b ject to the p a ym en t o f corp ora te debts to any exten t w hatever. N inth. T h e num ber o f d irectors o f the corp oration shall be as specified in the b y-la w s, and such num ber m ay from tim e to tim e be increased o r d ecreased in such m anner as m a y be prescribed in the by-law s, p rov id ed the nu m ber o f ■directors o f the corp oration shall not be less than three. In case o f any increase in th e num ber o f directors, the ad d ition a l d ire cto rs m ay be elected b y the b o a r d o f d irectors to h old office u n til the next annual m eeting o f th6 stockholders a n d u n til their successors are elected and qualified. In case o f a va ca n cy in th e board o f directors, a m a jo rity o f the rem aining m em bers o f the b o a rd m ay -elect d irectors to fill such vacancy. D irectors shall b e stockholders. T enth. In fu rth era n ce and not in lim itation o f the p ow ers co n fe rre d b y the la w s o f the State o f D elaw are, the board o f d irectors is exp ressly a u th o riz e d : T o m ake, alter, am end, or repeal the b y-law s o f the corporation , excep t as o th erw ise p rov id ed in said by-law s. T o determ ine fro m tim e to tim e w h ether and to w h at extent and a t w h at tim es an d p laces and under w h at con ditions and regulations the accou nts and b ook s o f the corporation , or any o f them , shall be open to the inspection o f the sto ck h o ld e rs; and no stockhold er shall have any right to inspect any a ccou nt o r b ook or docum ent o f the corporation excep t as con ferred b y the la w s o f the S tate o f D ela w a re, unless and u n til authorized so to d o b y resolu tion o f the b o a r d o f d irectors, or o f the stockholders. f T o set ap art out o f any fu n ds o f the corp ora tion a va ilable f o r d ivid end s a reserv e or reserves f o r w ork in g ca p ita l or fo r a n y other la w fu l purpose, and also to abolish a n y such reserve in the sam e m anner in w h ich it w as created. I f the by-law s so provide, to designate tw o or m ore o f its num ber to con stitu te an e x ecu tiv e com m ittee, w h ich com m ittee shall fo r the tim e being, as p rov id ed in said resolution or in the b y-law s o f this corporation, have and e x ercise any or all o f the pow ers o f the board o f d irectors in the m anagem ent o f the business a n d a ffa irs o f this corp ora tion and have p ow er to au th orize the seal o f this corp ora tion to be affixed to all papers w h ich m ay require it. T h is corp oration m ay in its by-law s con fer p ow ers upon its d irectors in a d d ition to the foreg oin g and in addition to the pow ers and authorities exp ressly con ferred upon them b y the statute. B oth stockhold ers and d irectors shall have pow er, i f th e b y-la w s so prov id e, to h old their m eetings and to have one or m ore offices w ith in or w ith o u t the S tate o f D ela w a re and to keep the b ooks o f th is co rp o ra tio n (s u b je ct to the p rov ision s o f the statutes) outsid e o f the State o f D ela w a re a t such p laces as m ay b e fro m tim e to tim e designated b y the b oard o f d irectors. E leventh. In the absence o f fra u d , no con tra ct o r tra n saction betw een this corp ora tion and any other associa tion o r corp oration shall be a ffected b y the fa c t that a n y o f th e d irectors or officers o f this co rp ora tion are in terested in o r a re d irectors or officers o f such oth er associa tion or corp oration , and any d irector o r officer o f this corp ora tion in d ivid u a lly m ay be a p a rty to o r m ay be in terested in any such con tra ct or tra n saction o f this c o r p o r a tio n ; and no such con tra ct or tra n saction o f this corp oration w ith a n y person o r persons, firm , associa tion , o r corp oration shall be a ffected b y the fa c t that any director o r officer o f th is corp ora tion is a p a rty to or interested in such con tra ct o r tra n s a ction o r in any w a y con nected w ith such person or persons, firm, a ssocia t io n , o r c o r p o r a tio n ; p rov id ed that such con tra ct or oth er tra n saction shall be a u th orized or ratified b y the vote o f a m a jo rity o f the d irectors o f th is c o r p ora tion n ot so in te re s te d ; and each and every person w h o m ay b ecom e a d irector or officer o f this corp ora tion is hereby relieved fro m a n y lia b ility t h a t m ight oth erw ise e x is t from thus con tra ctin g w ith this co rp o ra tio n fo r the benefit o f h im self or any person, firm , a ssociation, o r corp o ra tio n in w h ich he m a y b e in a n yw ise interested. BRANCH, CH AIN, AND GROUP BANKING 841 T w elfth . T h is corporation reserves the rig h t to am end, alter, change, o r rep ea l a n y p rov ision con tained in this certifica te o f in corp ora tion in the m anner n o w o r h ereafter p rescribed by statute, and all rights con ferre d upon stock holders herein a re gran ted su b ject to this reservation. W e, th e undersigned, being each o f the orig in a l subscribers to th e ca p ita l stock h erein before nam ed, fo r the p urpose o f form in g a corp o ra tio n to do business b oth w ith in and w ith ou t the S tate o f D elaw are, and in p ursuance o f the gen eral corp ora tion la w o f the State o f D elaw are, b eing chapter 65 o f the R ev ised C ode o f D ela w a re, and the acts am en datory th e re o f and supple m ental thereto, do m ake and file this certificate, hereby decla rin g and c e r tify in g that the fa cts herein stated are true, and d o resp ectiv ely agree to take the num ber o f shares o f stock h erein before set forth , and a ccord in gly have hereunto set ou r hands and seals this 24th day o f Jan uary, A . D . 1929. In presence o f : A lbert L. M il l e r . A. V. L ane. C. S . P e a b b l e s . L. E. Gray. State of D elaw are, County of 'New Castle, s s: B e it rem em bered, that on this 24th d a y o f Jan uary, A . D . 1929, personally cam e b efore me, A lb ert L . M iller, a n ota ry p u b lic fo r the S tate o f D elaw are, A . y. Lane, C. S. Peabbles, and L . E . G ray, p a rties to the fo reg o in g certificate o f in corp ora tion , know n to m e p erson a lly to be such, and severa lly a ckn ow l edged the said certificate to be the act and deed o f the signers respectively and th a t the fa cts therein stated a re tru ly set forth . Given under m y hand and seal o f office the day and year aforesaid . A l b e r t L . M i l l e r , Notary Public. R ecord ed in the record er’s office at W ilm in g ton in C ertificate o f Incorpora* tion R ecord H , vol. 30, p age 516, etc., the 24th d a y o f January, A . D. 1929. o f f ic e s 1. T h e principal office shall be in the city o f W ilm ington , cou n ty o f N ew C astle, State o f D elaw are, and the nam e o f the resident agent in ch arge th ereof is the C orp oration T ru st Co. o f A m erica. T h e corporation m ay also have an office in the city o f M inneapolis, State o f M innesota, and also offices at such other places as the board o f directors m ay f r o m tim e to tim e appoint or the business o f the corporation m ay require. seal 2. T h e corporate seal shall have inscribed thereon the nam e o f the co r p ora tion , the year o f its organ ization , and the w ord s “ C orporate seal, D ela w a re .” Said seal m ay be used b y causing it o r a fa csim ile th ereof to be im pressed or affixed or reproduced or otherw ise. .STOCKHOLDERS M EETINGS 3. A ll m eetings o f the stockholders shall be held at the office o f the co r p o ra tio n in M inneapolis, Minn., or at such other office o f the corporation as shall fro m tim e to tim e be designated by the board o f directors. 4. A n annual m eeting o f stockholders, a fte r the yea r 1930, shall be held on the first T u esd a y o f Jan uary in each year, i f not a legal holid a y, and i f a legal holiday, then on the n ext secular day follow in g, at 11 o'clo ck a. m., when they shall elect b y a p lu ra lity vote, b y ballot, a b oard o f d irectors, and transact .such other business as m ay p rop erly be brought b efore the m eeting. 5. T h e holders o f a m a jority o f the stock issued and outstanding, and entitled t o vo te thereat, present in person, or represented b y p roxy, shall be requisite and shall con stitu te a quorum at all m eetings o f the stockholders fo r the tra n saction o f business excep t as otherw ise p rov id ed b y law , b y the certificate o f incorporation or b y these by-law s. If, how ever, such m a jo rity shall not be present or represented at any m eeting o f the stockholders, the stockholders entitled to vote thereat, present in person, or by prox y, shall have p ow er to 842 BRANCH, CH AIN , AND GBOUP BANKING a d jou rn the m eeting from tim e to tim e, w ith n otice other than announcem ent a t the m eeting, u n til the requisite am ount o f votin g stock shall be present.. A t such a d jou rn ed m eeting a t w h ich the requisite am ount o f v o tin g sto ck shall be represented, any business m ay be transacted w h ich m ight have been tra n sacted at the m eeting as orig in ally notified. 6. A t each m eeting o f the stockholders, every stockhold er h a vin g the rig h t to v ote shall be entitled to vote in person, or b y p ro x y appoin ted b y an instru m ent in w ritin g subscribed b y such stockh old er and bearin g a d ate n ot m ore than three years p rior to said m eeting, unless said instrum ent prov id es f o r a lon g er period . E ach stockh old er shall h ave one vote fo r each share o f stockh a vin g v otin g pow er, registered in his nam e on the books o f the corporation , excep t that n o share o f stock shall be voted on at any election f o r d irectors w h ich has been tra n sferred on the books o f the corp oration w ith in 20 days n e x t p reced in g such election. The vote fo r directors, and, upon the dem and o f a n y stockholder, the vote upon any question b efo re the m eeting shall be b y ballot. A ll elections shall be had and all questions d ecided b y a plu ra lity vote. 7. W ritten notice o f the annual m eeting shall be m ailed to each stockholder en titled to vote thereat, at such address as appears on the stock b o o k o f the corporation , a t lea st 30 days p rior to the m eeting. 8. A com plete list o f th e stockholders en titled to vo te at th e ensuing election, arra n g ed in alph ab etica l order, w ith the residence o f each, and the num ber o f votin g shares held b y each, shall be p repared by the secreta ry and filed in the office w h ere the election is to be held, at least 10 days b e fo re e ve ry election, an d shall at all tim es d u rin g the usual hours fo r business, and d urin g the w h ole tim e o f said election, be open to the exa m in a tion o f any stockholder. 9. S pecial m eetings o f the stockholders, fo r any purpose or purposes, unless oth erw ise p rescrib ed b y statute, m ay be ca lled b y the president, and shall be ca lled b y the presiden t o r secretary, at the request in w ritin g o f a m a jo rity o f the b oard o f directors, o r at the request in w ritin g o f stockh old ers ow n in g a m a jo rity in am ount o f the entire ca p ita l stock o f the co rp ora tion issued and outstanding, and en titled to vote. Such request shall state the purpose or pu rp oses o f the prop osed m eeting. 10. B usin ess tra n sacted at all special m eetings shall be confined to the o b jects stated in the call. 11. W ritte n n otice o f a special m eeting o f stockholders, statin g the tim e and p lace and o b je ct th ereof, shall be m ailed, postage prepaid, at least 10 days b e fo re such m eeting, to each stockhold er entitled to vote thereat at such address as appears on th e books o f the corporation. DIRECTORS 12. T h e p rop erty and business o f this corp oration shall be m an aged b y its b oard o f directors, n ot less than 3 n or m ore than 45 in num ber. T h e num ber to con stitu te the first b oa rd shall be three. D irectors m ust b e stockholders. T h ey shall be elected at the annual m eeting o f the stockholders, and each, d irector shall be elected to serve un til h is successor shall be elected and shall q u a lify . T he num ber to con stitu te the b oard o f d irectors shall be determ ined: by resolution fro m tim e to tim e increasing or decreasing such num ber, p rov id ed that th e num ber o f said d irectors shall n ot at any tim e be red u ced to less than 3 n or increased to m ore than a total o f 45. In case o f a n y in crease in the num ber o f directors, the add ition a l d irectors m ay b e elected b y the b oard o f d irectors to h old office u n til the n ext annual m eeting o f the stockh old ers and u n til th eir successors a re elected and qualified. In ca se o f a n y va ca n cy or va ca n cies in the b oa rd o f directors, a m a jority o f the rem ain ing m em bers o f the board m ay elect a d irector or d irectors to com plete the board . (A s am ended F eb ru a ry 19, 1929) 13. T he d irectors m ay hold their m eetings and have one or m ore offices, and keep the books o f the corporation , excep t the orig in a l o r d up licate stock ledger, ou tsid e o f D ela w a re, at the office o f the corp oration in the city o f M inneapolis, M inn., o r at such other places as they m ay from tim e to tim e determ ine. 14. I n a d d ition to the p ow ers and au th orities b y these by-la w s exp ressly con ferred upon them , th e b oard m ay ex ercise all such p ow ers o f th e co rp o ra tion and d o all such la w fu l a cts and things as are n ot b y statute o r b y th e certifi ca te o f in corp ora tion or b y these by-law s directed o r required to be exercised o r done b y the stockholders. BRANCH, CH AIN, AND GROUP BANKING 843 COM M ITTEES 15. T h e board o f d irectors m ay, b y resolution o r resolution s passed b y a m a jo rity o f the w h ole board, designate one or m ore com m ittees, each com m ittee ■to con sist o f tw o o r m ore o f the d irectors o f the corporation, w hich, to the exten t p rovid ed in said resolu tion or resolution s o r i,n these by-law s, shall have and m ay exercise the p ow ers o f the board o f d irectors in the m anagem ent o f the business and affairs o f the corporation, and m ay have p ow er to authorize the seal o f the corporation to be affixed to all papers w h ich m ay require it. S uch com m ittee or com m ittees shall have such nam e o r nam es as m ay be stated in these by-law s or asi m ay be d eterm ined fro m tim e to tim e b y resolution adopted b y the board o f d irectors. 16. T he com m ittees shall keep regular m inutes o f their proceedings and report the sam e to the b oard when required. c o m p e n s a t io n of d ir e c t o r s 17. D irectors, as such, shall not receive any stated salary fo r their se rv ice s; but b y resolution o f the board a fixed sum and expenses o f attendance, i f any, m ay be a llow ed fo r attendance a t each regular or special m eeting o f the board, p rovid ed that nothing herein con tained shall be con strued to p reclu de any director from serving the corp oration in any other ca p a city and receiving com pensation th erefor. 18. M em bers o f special or standing com m ittees m ay be allow ed lik e com pen sation fo r a tten d in g com m ittee m eetings. M EETING S OF T H E BOARD 19. T h e new ly elected b oard m ay m eet at such place and tim e as shall be fixed by the vote o f the stockholders a t the annual m eeting f o r the purpose o f organ i zation or otherw ise, and no n otice o f such m eeting shall be necessary to the new ly elected d irectors in ord er lega lly to con stitu te the m eeting, p rovid ed a m a jority o f the w h ole board shall be p resen t; or they m ay m eet at such place and tim e as shall be fixed by the consent in w ritin g o f all the directors. 20. R egu la r m eetings o f the board m ay be held w ith ou t notice at such tim e and place as shall fro m tim e to tim e be determ ined by the board. 21. Special m eetings o f the b oard m ay be called by the p residen t on tw o d a ys’ notice to each d irector, eith er p erson a lly or by m ail or b y teleg ra m ; special m eetings shall be called b y the president o r secretary in like m anner and on lik e n otice on the w ritten request o f tw o d irectors. 22. A t all m eetings o f the board one-third o f th e total board o f directors, but n ot less than tw o d irectors, i f the board shall at such tim e h ave a tota l m em bership o f less than six, shall be necessary and sufficient to con stitu te a quorum f o r the transaction o f business, and th e act o f a m a jo rity o f the d irectors present a t a n y m eeting at w h ich there is a quorum shall be the act o f the board o f d irectors, excep t as m ay be otherw ise specifically p rovid ed by statute o r b y th e certifica te o f in corp ora tion or b y these by-law s. OFFICERS 23. T h e officers o f the corporation sliall be chosen by the d irectors and shall be a president, such vice presidents as the board o f d irectors m ay fro m tim e to tim e determ ine, and a secreta ry and a treasurer. T h e b oard o f d irectors m ay also ch oose assistant secretaries and assistant treasurers. T h e secretary and treas urer m ay be the sam e person and any v ice president m ay hold at the same tim e the office o f secretary or treasurer. 24. T h e board o f d irectors, at its first m eeting a fter each annual m eeting o f stockholders, shall ch oose a president and such v ice presidents as it m ay de term ine fro m its ow n m em bers, and a secretary and a treasurer, w ho need not be m em bers o f the board. 25. T h e board m ay appoint such other officers and agents as it shall deem necessary, w h o shall h old their offices fo r such term s and shall exercise such pow ers and p erform such duties as shall be determ ined fro m tim e to tim e by the board. 26. T h e salaries o f all officers and agents o f the corporation shall be fixed by the board o f directors. 844 BRANCH, CHAIN, AND GROUP BANKING 27. T h e officers o f the corp ora tion shall h old office until th eir successors a re ch osen and q u a lify in their stead. A n y officer elected or ap p oin ted b y th e b oa rd o f d irectors m ay be rem oved at any tim e b y the affirm ative v o te o f a m a jo rity o f the w h ole board o f d irectors. I f the office o f any officer o r officers becom es va ca n t fo r any reason, th e va ca n cy shall be filled b y the affirm ative v o te o f a m a jo rity o f the w h ole b oard o f d irectors. T H E PRESIDENT 28. (a) T h e president shall be the ch ie f execu tive officer o f the c o r p o r a t io n ; lie shall preside at all m eetings o f the stockholders and d ir e c t o r s ; he shall have gen eral and a ctiv e m anagem ent o f the business o f the corporation , and shall see that all ord ers and resolution s o f the b oard are ca rried in to effect. (6 ) H e shall execu te con tracts requiring a seal under the seal o f the co r p o ration . ( c ) H e shall be e x officio a m em ber o f all standing com m ittees, and shall have the general p ow ers and duties o f supervision and m anagem ent usually vested in the office o f presiden t o f a corporation. VICE PRESIDENTS 29. A n y vice presiden t shall, in the absence or d isa b ility o f the president, p erform the duties and exercise the p ow ers o f the president, and shall p e rfo rm such other duties as the board o f d irectors shall prescribe. T H E SECRETARY AN D A S S IS T A N T SECRETARIES 30. ( a ) T h e secreta ry shall attend all sessions o f the b oard and a ll m eetings o f the stockhold ers and record all votes and the m inutes o f all p roceedings in a b ook to be kept fo r that purpose, and shall p erform lik e duties fo r the sta n d in g com m ittees w hen required. H e shall give, or cause to be given, notice o f all m eetings o f the stockholders and o f the b oa rd o f d irectors, and shall p erform such oth er duties as m ay be prescribed b y the board o f d irectors or president, under w h ose supervision h e shall be. H e shall keep in s a fe cu stod y the seal o f the corporation , and when authorized b y the board, affix the sam e to a n y instrum ent req u irin g it, and w hen so affixed it shall b e attested b y his sign a tu re or b y the signature o f the treasurer. H e shall be sw orn to the fa ith fu l discharge o f his duty. ( 6 ) T h e assistant secretaries in the ord er o f their sen iority shall, in the absence o r d isa b ility o f the secretary, p erform the duties an d exercise the p ow ers o f the secretary, and shall p erform such other duties as the board, o f d irectors shall prescribe. T H E TREASURER A N D A S S IS T A N T TREASURERS 31. (a) T h e trea su rer shall have the cu stod y o f the co rp o ra te fu n ds and securities and shall keep fu ll and a ccu rate accounts o f receipts and d isburse m ents in b ooks b elonging to the corp ora tion and shall d ep osit all m oneys,, and oth er va luable effects, in the nam e and to the cred it o f the co rp ora tion in such d epositories a s m ay be designated b y the b oard o f d irectors. (5 ) H e shall disburse the fu n ds o f the corp oration as m ay be ordered b y the b oard , tak in g p rop er vou ch ers fo r such disbursem ents, and shall render to the president and d irectors, at the regular m eetings o f the board , or w hen ever they m ay req u ire it, an a ccou n t o f a ll h is transactions as treasu rer and. o f the financial con d ition o f the corporation . ( c ) H e shall giv e the corp ora tion a b on d i f req u ired by the board o f d irec tors, in a sum and w ith one or m ore sureties s a tisfa ctory to the board , fo r the fa ith fu l p erform a n ce o f the duties o f his office, and fo r the restora tion to the corporation , in ca se o f h is death, resignation, retirem ent o r rem oval fro m office, o f all books, papers, vouchers, m oney, and other prop erty o f w h atever kin d in h is possession or under his con trol b elonging t o the corporation . ( d ) T h e assistant treasurers in the ord er o f their s en iority shall, in the absence o r disa b ility o f the treasurer, p erform the duties and e x ercise the pow ers o f the treasurer, and shall p erform such other duties as the b o a rd o f d irectors shall prescribe. BRANCH, CH AIN , AND GROUP BANKING 845 VACANCIES 32. I f the office o f any d irector o r d irectors becom es va ca n t b y reason o f death, resignation, retirem ent, d isqualification, rem oval fro m office, or other w ise, the rem ain ing directors, though less than a quorum , shall choose a suc cessor o r successors, w h o shall h old office un til the next annual election and un til a successor or successors have been duly elected, unless soon er displaced. d u t ie s of o f f ic e r s m ay be delegated 33. In ca se o f the absence o f any officer o f the corporation, or f o r any oth er reason that th e b oa rd m ay deem sufficient, the b oard m ay delegate, fo r th e tim e being, the pow ers o r duties, or any o f them, o f such officer, to any other officer, or to any d irector, p rovid ed a m a jority o f the entire b oard co n cu r therein. c e r t if ic a t e s of stock 34. T h e certificates o f stock o f the corporation shall b e num bered and shall be entered in the book s o f the corporation as they are issued. Tjhey shall exh ibit the h old er’s nam e and num ber o f shares and shall be signed by the presiden t o r a v ic e presiden t an d the treasurer or an assistant treasu rer, o r the secreta ry or an assistant secretary. contracts 35. S e c t i o n 1. E xcep t as m ay be otherw ise exp ressly p rovid ed in these b y law s, n o w ritten instrum ent u su a lly under seal, m ade b y any person or persons in b eh a lf o f the com pany, or in its nam e, shall be binding upon it, unless the sam e, in each instance, shall h a ve been m ade un der a u th ority o f said board o f d irectors or shall h a ve been d u ly ratified b y said board o r shall h ave been m ad e p ursuant to p ow er b y it especially delegated. Sec . 2. E xcep t as m ay be otherw ise exp ressly p rov id ed in these by-law s, all con tra cts or other w ritten instrum ents m ade in the com p any’s nam e shall be signed b y the presiden t and attested b y the secretary, or shall be executed b y such others persons and in such other m anner as shall fro m tim e to tim e be directed b y the board o f d irectors b y a ppropriate resolutions. TRANSFERS OF STOCK 36. T ra n sfers o f stock shall be m ade on the books o f the corp oration only b y the p erson nam ed in the certifica te or b y attorn ey la w fu lly con stitu ted in w riting, and upon surren der o f the certifica te th erefor. CLOSING OF TRANSFER BOOKS 37. T h e b oard o f d irectors shall h a ve pow er to close the stock tra n sfer books o f the corp ora tion fo r a period not exceedin g 40 days preceding the date o f any m eeting o f stockholders or the date fo r paym ent o f a n y dividend or the date fo r th e allotm ent o f rig h t o r the date w h en any change or con version or exchange o f cap ital stock shall go into e ffe c t : Provided, however, T hat in lieu o f closin g the stock tra n sfer books as aforesaid , the b oard o f d irectors m ay fix in ad va n ce a d a te n ot exceed in g 40 da ys p reced ing the date o f a n y m eet in g o f stockholders or th e date fo r the paym ent o f any dividend, o r the date f o r the allotm ent o f rights, or the date w hen any ch an ge or con version or exch a n ge o f ca p ita l stock shall g o in to effect, as a record date f o r the deter m in ation o f the stockhold ers entitled to n otice of. and to vote at, a n y such m eeting, or entitled to receive paym ent o f a n y such dividend, or to any such allotm ent o f righ ts or to exercise th e rights in respect o f a n y such change, •conversion or excjhange o f ca p ita l stock, and in such case on ly such stock h old ers as shall b e stockholders, o f record on the date so fixed shall be entitled to such notice of, and to vote at such m eeting, o r to receive paym ent o f such dividend, or t o receiv e such allotm ent o f rights, o r t o exe rcise such rights, as the ca se m ay be, n otw ithstand ing any tra n sfer o f a n y stock on the books o f the corporation a fte r a n y such record date fixed as aforesaid . 846 B R A N C H , CHAIN, AND GBOUP BANKING REGISTERED STOCKHOLDERS 38. T h e corp ora tion shall be entitled to trea t the holder o f re co rd o f any sh a re o r shares o f stock as the hold er in fa c t th e re o f and a cco rd in gly shall not be bou n d to recognize any equitable or other claim to or interest in such share o n the p a rt o f a n y other person, w h eth er or not it shall have exp ress or other n otice th ereof, save as exp ressly p rovid ed b y the law s o f D elaw are. LOST CERTIFICATE 39. A n y person cla im in g a certificate o f stock to be lost o r destroyed, shall m ake an affidavit or affirm ation o f that fa ct and a d vertise the sam e in such m anner as the b oard o f d irectors m ay require, and the b oard o f d irectors m ay, in th eir discretion , require the ow n er o f the lost or destroyed certificate, or h is lega l representative, to give the corporation a bond, in such sum as they m a y d irect, not exceed in g double the value o f the stock, to in d em n ify the co r p ora tion against any claim that m ay be m ade against it on a ccou n t o f the alleg ed loss o f any such ce r tifica te ; a new certifica te o f the sam e ten or nnd f o r the sam e num ber o f shares as the one alleged to be lost o r destroyed, m ay be issued w ith ou t requ irin g any bond when, in the ju d gm en t o f the d irectors, it is p r o p e r 's o to do. STOCK HELD IN OTHER CORPORATIONS 40. A ll ca p ita l stocks in other corporation s ow ned b y this corporation , excep t as herein after p rovided, shall be voted at the m eetings, regular a n d /o r spe cia l, o f the stockholders o f said other corp ora tion s b y the presiden t o f this co r p ora tion , or, in his absence, b y any vice president, and in the event, durin g such absence, o f the presence o f m ore than one vice presiden t o f this co rp o ra tion , then by a m a jo rity o f said vice presidents present at such stockh old ers’ m eeting, unless there shall have been executed and delivered, p ursuant to a resolu tion o f the board o f d irectors o f this corporation , to som e oth er attorn ey sp ecifically nam ed in a p rox y a p ow er o f attorn ey to represent this co rp o ra tio n a t such stock h old ers’ m eeting fo r the purposes in said p ow er o f a ttorn ey speci fied, and in the event that n o such p ro x y shall h ave been au th orized by the b oa rd o f d irectors w ith referen ce to any stock ow n ed by this corporation , and as o ften as such m ay be the case, the presiden t and secretary o f this co rp o ra tio n a re hereby a uthorized to execute in the nam e and under the seal o f this corp ora tion p rox ies in such form as m ay be required by the corp o ra tio n w h ose stock is to be voted thereunder, nam ing as the a ttorn ey authorized to a ct b y said p ro x y such in d ivid u a l o r ind ivid u a ls as to said presiden t and secreta ry shall seem advisable, and the a ttorn ey or a ttorn eys so nam ed in said p ro x y shall, u n til the revoca tion or exp ira tion thereof, vote said stock at such stock h old ers m eetings on ly in the event that neither the p residen t n o r any vice presiden t o f this corporation shall be p resent thereat. 41. In the even t that this corp ora tion shall ow n in excess o f 50 p er cen t o f the ca p ita l stock o f a n y financial or m oney corp ora tion or a ssocia tion and if, in the a cquisition o f such stock this corp ora tion shall have agreed that as to th e votin g o f such stock f o r the election o f d irectors this b y-la w o r an agreem ent substantially in accord therew ith shall be b in d in g on th e co rp o ra tion, then and in each such event th e stock so a cquired shall, a t a ll m eetings fo r the election o f a b oard o f d irectors o f any such associa tion o r co rp o ra tion , b e voted in fa v o r o f the election to such b oa rd o f a sufficient nu m ber o f residents o f the city w h ere the p rin cip a l office o f such corp oration o r a ssocia tion is lo ca te d so that, i f the candidates so voted fo r shall be elected, a t least 75 p er cent o f the m em bers o f said b oard o f d irectors shall be residents o f said city. T h is section 41 o f these b y-law s shall be am ended o n ly upon the affirm ative vote o f 80 p er cen t in am ount o f the com m on stock o f this co rp o ra tion outstand ing at the tim e o f such am endm ent or b y the b oard o f directors a fter receip t o f th e w ritten consent o f the h olders o f a t le a st 80 per cen t o f the com m on stock o f this corporation. INSPE CTION OF BOOKS 42. T h e d irectors shall determ ine fro m tim e to tim e w h eth er, and, i f allow ed , w hen and un der w h at con ditions and regulations the a ccou n ts and books o f the corporation (ex cep t such as m ay b y statute be specifically open to in sp ection ) or any o f them shall be open to the in sp ection o f th e stock BRANCH, C H AIN , AND GROUP BANKING 847 holders, and the stockhold ers’ rig h ts in this resp ect a re and shall b e restricted a n d lim ited accordin gly. CH E C K S 43. A ll ch ecks o r dem ands fo r m oney and notes o f the corp o ra tio n shall be signed b y such officer or officers as the board o f d irectors m ay fro m tim e t o tim e designate. FISC A L YEA R 44. T h e fiscal yea r shall begin the 1st d a y o f J an u a ry in each year. DIVIDENDS 45. D ivid en ds upon the ca p ita l stock o f the corporation , s u b je ct to the p ro vision s o f the certificate o f in corp ora tion , i f any, m ay b e d eclared b y th e board o f d irectors at a n y regular or special m eeting, p ursuant to law . D iv i dends m ay be p a id in cash, in p rop erty or in shares o f the ca p ita l stock. B e fo re p aym ent o f any dividends there m ay be set aside out o f any fu n ds o f the corporation a va ilab le fo r d ividends such sum or sum s as the d irectors fro m tim e to tim e in their absolute d iscretion, think p rop er as a reserve fu n d t o m eet contingencies, o r f o r equalizing dividends, or f o r rep a irin g o r m ain tain in g a n y p rop erty o f the corporation , o r fo r such other purpose as the d irectors shall think con du cive to the interests o f the corporation . d ir e c t o r s ’ a n n u al statem ent 46. T h e b oa rd o f d irectors shall pesent at each annual m eeting, and w hen ca lled fo r b y vote o f the stockh old ers a t a n y special m eeting o f the stock holders, a fu ll and clea r statem ent o f the business and con dition o f th e co r p oration . n o t ic e s 47. W h en ever under the p rovisions o f these by-law s notice is req u ired to be given to any d irector, officer o r stockholder, it shall n ot b e con strued to m ean personal notice, but such n otice m ay b e given in w ritin g , by m ail, b y depositing the same, in the p ost office or letter b ox, in a p ost-p aid sealed w rapper, ad dressed to such stockhold er, officer o r d irector at such address as appears on th e books o f the corporation , or, in d efa u lt o f oth er address, to such director, officer, o r stockhold er a t the general p ost office in the c ity o f W ilm in g ton , D el., and such n otice shall be deem ed to b e given at the time, w hen the sam e shall be thus m ailed. A n y stockholder, d irector, o r officer m ay w a ive a n y notice requ ired to be given un der these by-law s. am endm ents 48. T hese by-law s, excep t as herein above oth erw ise p rovided, m ay be altered o r am ended b y the affirm ative vote o f a m a jo rity o f th e stock issued and ou t standing and entitled to vote thereat, at any reg u la r or special m eeting o f the stockholders i f notice, o f th e proposed altera tion or am endm ent b e con tained in the n otice o f the m eeting, or, excep t as herein before and in the certificate o f in corp ora tion o f this co rp ora tion otherw ise provided, b y the affirm ative vote o f a m a jo rity o f the board o f d ire cto rs : Provided, however, T h a t n o change o f the tim e o r place fo r the election o f d irectors shall b e made, w ith in 60 days next b efore the d a y on w h ich such election is to be held, and that in ca se o f any change o f such tim e o r place notice th ereof shall be given to each stock h old er in person o r b y letter m ailed to his la st know n post-office address, at least 20 days b e fo re th e election is held. A rtic le 4 o f the a rticles o f a ssocia tion o f N orth w est B an corp ora tion as am ended O ctober 10, 1929: “ 4. T h e total a uthorized ca p ita l stock o f this corporation is $300,000,000, d ivid ed in to 6,000,000 shares o f the p a r va lu e o f $50 each. “ I f it seem s d esirable so to do, the b oard o f d irectors m ay fro m tim e to tim e issue scrip fo r fra ctio n a l shares o f stock, such scrip shall n ot co n fe r upon the h o ld e r any v otin g o r other rig h ts o f a stockh old er o f th e corporation b ut the corporation shall fro m tim e to tim e, w ith in such tim e as the b oard o f d irectors m ay determ ine, issue one w h ole share o f stock up on the surrender o f scrip 100136— 30— v o l 1 p t 8---- 5 848 BRANCH, CH AIN, AND GROUP BANKING f o r fra ctio n a l shares a ggregating one w h ole share, p rop erly in d orsed i f in registered form . “ T h e h old ers o f com m on stock o f this corp ora tion shall h a ve th eir resp ective p reem p tive rig h ts to subscribe fo r oth er shares o f com m on stock, excep t as b y la w lim ited and excep t that, fr e e o f such preem ptive right, the, b o a r d o f d irec tors m a y ( 1 ) fro m tim e to tim e exchange unissued stock o f the corp o ra tio n o r a n y stock o f the corp ora tion to be issued b y reason o f a n y in crease o f the au th orized ca p ita l stock o f the corp ora tion f o r stock o f financial, m oneyed, o r in vestm en t corp oration s and associations, and (2 ) p rio r to J an u a ry 1, 1980, at su ch tim e o r tim es and in such am ount o r am ounts a s said b o a rd o f d ire cto rs deem s advisable, sell com m on ca p ita l stock n ot exceed in g in th e aggregate $5,000,000 p a r value, and (3 ) w here in d ivid u a l p ersons f o r th e p urpose o f en ablin g them to q u a lify as d irectors o f any bank, in w h ich th is co rp ora tion sh a ll h a v e a cquired shares o f stock in such bank, as and w h en th e stockh old ers in th is corp ora tion m ay becom e entitled to subscribe f o r a d d ition a l shares o f s to ck in th is corporation, a t th e sam e tim e there m ay b e sold, b y th e issu a n ce o f su b scrip tion rights or otherw ise, to each o f said persons so ow n in g and h old in g shares o f stock in a n y such bank such n u m ber o f shares o f stock o f th is corp ora tion and a t such p rices as th e board o f d irectors o f th is co rp o ra tion shall determ ine to be adequate to com pensate such person o r persons f o r a n y loss o f su b scrip tion rights by such person o r persons b y reason o f th e fa c t that h e has reta in ed or acq u ired shares o f stock in such bank.” s e ctio n 12 o f th e b y-la w s o f N orthw est B an corp ora tion as am ended J a n u a ry 7 ,1 9 3 0 : “ S e c . 12. T h e p rop erty and business o f this corp o ra tio n shall b e m an aged b y its b oa rd o f d irectors, n ot less than three in num ber. D ire cto rs sh a ll b e elected a t th e annu al m eeting o f the stockholders, excep t as h e re in a fte r p rov id ed , an d ea ch d irector shall be elected to serve u n til his su ccessor shall b e elected and sh a ll q u a lify . T h e num ber to con stitu te the b oa rd o f d irectors sh a ll b e d eter m in ed fro m tim e to tim e b y resolu tion o f th e stockh old ers o r o f th e b o a rd its e lf, in creasin g o r d ecrea sin g such num ber, p rov id ed th a t th e num ber o f sa id d irec to rs shall n o t a t any tim e be reduced to less than three. In ca se o f a n y in crease in the num ber o f d irectors, o ccu rrin g betw een th e dates o f the annual m eetings o f the stockhold ers, the ad d ition a l d irectors m ay b e elected b y a m a jo r ity v ote o f a quorum o f the b oa rd o f d ire cto rs to h old office u n til th e n e x t annual m eetin g o f the stockh old ers and u n til th e ir su ccessors are elected an d q u a lify . In ca se o f a n y va ca n cy o r va ca n cies in the b o a rd o f d irectors, a d ire cto r o r d irectors m ay b e elected to com plete the b o a rd b y a m a jo rity v o te o f a quorum o f the b oard o f d irectors, o r in th e event th a t th e rem a in in g d irectors a re less than a quorum , then b y a m a jo rity o f th e rem a in in g d irectors.” Mr. L e t t s . Have you engaged in any business up to this time other than the banking business and the handling o f securities ? Mr. D e c k e r . N o; and its allied industries, like this cattle loan company. Mr. L e t t s . This morning you said something about a large amount o f money getting away from your district, and as illustrating that you said something about insurance. Is it a part o f your plan that you will finance an insurance company, for instance? Mr. D e c k e r . N o , sir. Mr. L e t t s . L ife, accident, fire, or otherwise ? Mr. D e c k e r . No, sir. We buy our insurance, and we have no idea o f writing it ourselves or financing other insurance companies. M y impression is that our articles do not permit us to go into the insurance business. Mr. L e t t s . That was the purpose o f m y first question. Mr. D e c k e r . I am quite positive about that. Mr. L e t t s . The reason I asked that question is that in considering another group we found that they claimed to be able to divert a large amount o f insurance to their own company through their banking policies and facilities. Mr. D e c k e r . We buy our insurance on the open market. BRANCH, CH AIN , AND GROUP BANKING 849 Mr. L e t t s . I s it your intention to handle real-estate mortgages? Mr. D e c k e r . The holding company ? Mr. L e t t s . Yes. Mr. D e c k e r . No, sir. Mr. L e t t s . Is it your intention to operate real-estate agencies for the sale o f lands ? Mr. D ecker. N o, sir. Mr. L e t t s . Then I take it it is your purpose to stick to the banking business, other than the handling of securities ? Mr. D e c k e r . Yes, sir. Mr. L e t t s . And the handling o f securities is done b y security com panies organized for that purpose? Mr. D e c k e r . Right. Mr. L e t t s . This morning you made some mention of the matter o f taxation, and I assumed you were about to tell us how under your plan the banks here and there bore their proper proportion o f the tax burden o f the various States, but you did not develop that. Can you tell us a little further just what you were then about to say? Mr. D e c k e r . Yes. W e have in our bank corporation a certain number of banks in North Dakota, we will say, both State and national. Those banks pay a personal-property tax on every share o f stock in existence into the treasury o f the State o f North Dakota. I f those banks were dissolved and we established branches in their place, the State o f North Dakota would receive no ta x ; the tax would be paid entirely in the State o f Minnesota where all the stock was in the parent bank. Mr. L e t t s . In other words, you say that under your plan the present method of taxing in the various States will continue to pre vail, whereas it would not under the branch system? Mr. D e c k e r . That is right. Mr. L e t t s . W h a t is th e p a r v a lu e o f y o u r sto c k ? Mr. D e c k e r . $50 a share. Mr. L e t t s . Has any of that stock been issued from the treasury for less than that? Mr. D ecker. N o, sir. Mr. L e t t s . I think that is all. Mr. B e e d y . There was one misconception or misunderstanding in figures that I want to clear up. T^hen Judge Letts just now asked you what your capitalization was, you said “ $300,000,000.” Mr. D e c k e r . Authorized. Mr. B e e d y . What was the figure o f $750,000,000 that you gave me? Mr. D e c k e r . $75,000,000? Mr. B e e d y . I guess that is it. Mr. D e c k e r . $75,000,000 was the first authorization. That was later increased. Mr. S t r o n g . Mr. Seiberling. Mr. S e ib e r l in g . This organization, the holding company was pro moted) by a large bank, I take it, with which you were originally connected in Minneapolis? Mr. D e c k e r . They were the prime movers; yes, sir. Mr. S e ib e r l in g . What was the name o f that bank? Mr. D e c k e r . Northwestern National Bank. 850 BRANCH, C H AIN , AND GROUP BANKING Mr. S e ib e r l in g . And that was the first unit taken over, I take it, the stock in that bank? Mr. D e c k e r . No ; there were three or four banks taken over simul taneously. Mr. S e ib e r l in g . And who fixed the value o f the stock o f the banks you took over in the first instance or first transaction? Mr. D e c k e r . B y mutual agreement between the four banks who joined simultaneously. Mr. S e ib e r l in g . These banks were also interested in the holding company? Mr. D e c k e r . They became interested. Mr. S e ib e r l in g . They promoted the holding company? Mr. D e c k e r . Y es; just as much as we did. Mr. S e i b e r l i n g . S o that in the first instance when you took over these banks, you had the same parties in interest on both sides o f the transaction? Mr. D e c k e r . Mutual agreement. Mr. S e ib e r l in g . And how did you arrive at the value o f the stocks in the banks you first took over? Mr. D e c k e r . W ell, largely in three ways. First, book or liqui dated value—in other words, invested capital; average earnings over a period o f years; and prospects for future earnings. Mr. S e ib e r l in g . A nd how did you fix the value o f the holding company stock which you issued? Was that fixed at $50. Mr. D e c k e r . That was fixed at $50. Mr. S e ib e r l in g . A nd you arrived at the value o f the banks you first took over and issued stock in accordance with that valuation? Mr. D e c k e r . That is right. Mr. S e ib e r l in g . Then you went out and acquired other banks? Mr. D e c k e r . Yes. Mr. S e ib e r l in g . H ow did you determine the value o f those banks when you took them over? Mr. D e c k e r . Well, we attempted to be perfectly fair with both parties to the transaction. Mr. S e ib e r l in g . I d o n o t q u e stio n th a t. Mr. D e c k e r . Along the same lines; the book value, earnings, and prospects, and volume o f deposits, o f course, which entered into the question o f earnings. Mr. S e ib e r l in g . Then you figured the book value o f your holding company stock when you issued it to them ? Mr. D e c k e r . Yes, sir. Mr. S e i b e r l i n g . S o that the cheaper you could buy these other bank stocks, the higher, o f course, your book value o f your holding company would go? Mr. D e c k e r . Y e s; i f we acquired them for cash. Mr. S e ib e r l in g . Have you written up any o f these stocks on y o u r holding company’s books f Mr. D e c k e r . No, sir ; we wrote some o f them down. Mr. S e ib e r l in g . I see that under your charter you have the right to organize, incorporate, and reorganize subsidiary corporations for all lawful purposes, so that you could authorize an insurance company, an abstract company or, in fact, any kind o f a company or subsidiary you would find to your advantage. BRANCH, CH AIN , AND GROUP BANKING 851 Mr. D e c k e r . I did not know it; it has never been suggested or discussed. Mr. S e ib e r l in g . W hy did you not take over these small banks that you put into the subsidiary o f your holding company ? Mr. D e c k e r . W hy didn’t we take them direct? Mr. S e ib e r l in g . Yes. Mr. D e c k e r . Because we were satisfied they could be better looked after by the Union Investment Co., because those small banks owned by the Union Investment Co. are not organized locally with directors and managers in quite the same manner as the other banks are, and we thought the Union Investment Co., which had built up an organ ization for 25 or 30 years that they have been in existence, had built up an organization better fitted to handle those small banks. Mr. S e ib e r l in g . Are you sure that that is the only reason for adopting that plan ? Mr. D e c k e r . Y ou mean, o f taking those in through the Union Investment Co.? Mr. S e ib e r l in g . Yes. Your overhead would have been much less if you had taken them into youf holding company, would it not ? Mr. D e c k e r . N o ; because we would have to increase the overhead expense of the holding company in order to take care o f these little banks. Mr. S e i b e r u n g . When you approach a bank, who determines whether it shall go into your subsidiary or holding company? Mr. D e c k e r . W e have never taken any in in any other way. We did not buy these small banks; we traded our stock fo? the stock in the Union Investment Co. Mr. S e j b e r l in g . And some other person organized that company? Mr. D e c k e r . Oh, yes. Mr. S e ib e r l in g . And you had nothing to do with it in the be ginning? Mr. D e c k e r . Not at all. It had been in existence 25 years. Mr. S e ib e r l in g . Y ou just bought that; I did not understand that. I was somewhat interested in what you said about-----Mr. D e c k e r . I f you will pardon me, I might add that we have not taken in any more independent banks and put them into that corporation, if that answer’s your question. Mr. S ib e r l in g . Y ou h a v e n o t ta k e n in a n y a d d itio n a l b a n k s ? Mr. D ecker. N o. Mr. S e ib e r l in g . I f I understand your testimony correctly, you think that chain banking is preferable to branch banking because o f the local-----Mr. D e c k e r . Group banking; don’t call it chain banking. [Laughter.] Mr. S e ib e r l in g (continuing). Because o f the local interest which you maintain in connection with the unit bank ? Mr. D e c k e r . Yes, sir*. Mr. S e ib e r l in g . And you think the customer likes that plan o f banking better than branch banking? Mr. D e c k e r . Yes, sir. Mr. S i b e r l in g . And what is your reason for that ? Mr. D e c k e r . Well, I thought I had covered that. The customer likes it better because, he thinks, he will get a better hearing, a more sympathetic hearing, in the local bank with its 852 BRANCH, CH AIN , AND GROUP BANKING local board o f directors and local manager and local pride than he would from the manager o f a branch. Mr. S e ib e r l in g . But the manager would be in the main branch, in the large city. Mr. D e c k e r . There would be a local manager in that city. Mr. S e ib e r l in g . Yes, but the real manager would be in the large center. Mr. D e c k e r . Yes, the situation would be much less favorable than it would be under group banking. Mr. S e ib e r l in g . Do you think the customer might also be afraid that he might not get the same terms in connection with the rate of interest for his loans ? Mr. D e c k e r . Yes, I think he would, because the man who deter mines the rate of interest in a group bank is the local man, who lives there. He has his home there, and his directors all live there, and they all pay taxes there. Probably everything that they own in the world is there. Mr. S e ib e r l in g . But you did not give that reason a while ago and I wanted to bring that out, that where you deal with your home people, you have the human interest. Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . And you get consideration that you do not get when you are dealing with somebody a long distance away. So you think you overcome that by your plan here ? Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . And it does not make much difference if they do shift the money in your district, because the stockholders o f your holding company are scattered all over your district and they are interested in maintaining every unit bank they own ? Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . And so you do have that local interest? Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . Just the same as though they owned the bank. Mr. D e c k e r . Even larger than it was before. Mr. S e ib e r l in g . More stockholders? Mr. D e c k e r . Yes, in number and the amount. Mr. S e ib e r l in g . H o w do you figure you are going to increase your rate o f dividend in the holding company ? Mr. D e c k e r . Y ou mean over what we are paying now? Mr. S e ib e r l in g . Y o u sa id y o u w e re g o in g to in crease i t g r e a tly . Mr. D e c k e r . I said we were not likely to increase it. Mr. S e ib e r l in g . N o; you said you were going to double your earnings. Mr. D e c k e r . N o ; I said the earnings were now double the amount o f the dividends which we are paying. Mr. S e ib e r l in g . But you are going to greatly increase those earn ings? Mr. D e c k e r . Well, we hope to. Mr. S e ib e r l in g . H o w are you going to do that? Mr. D e c k e r . In the first place, by economy. W e will save $75,000 a year on surety bonds alone and get a better coverage, in some in stances ten times over what it has been. We will save considerable money in buying adding machines and standard equipment which are not made locally. W e always say to our local bank, “ Patronize BRANCH, CH AIN , AND GROUP BANKING 853 home industries.” Then we say to them, “ If you are buying ma chines not made at home, we do not ask you to buy them from us, but i f you wish to join the rest o f the crowd and save money, you are permitted to,” and without exception they are delighted to have that opportunity. Mr. S e i b e r l i n g . D o all of your banks pay the same interest on deposits ? Mr. D e c k e r . N o , sir. Mr. S e i b e r l i n g . D o you have banks that pay no interest on deposits ? Mr. D e c k e r . There are plenty o f banks that pay no interest on an open checking account. M r . S e ib e r l in g . Or on savings accounts? Mr. D e c k e r . We have no banks that pay no interest on savings accounts. Mr. S e ib e r l in g . But you have banks that pay different rates? Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . And you charge different rates for loans also ? Mr. D e c k e r . Yes, sir. Mr. S e ib e r l in g . W hy is it that you do not pay the same rate on savings deposits in one bank as you do in another? M r . D e c k e r . For a number o f reasons. Mr. S e ib e r l in g . Give us some. Mr. D e c k e r . Conditions o f the locality, competition o f other banks in the locality, custom—we would hesitate to disturb a policy which a bank had been operating successfully under. Mr. S e ib e r l in g . Y o u would not hesitate to increase the rate of interest, would you? I f a bank had been paying 3 per cent on de posits, you would not hesitate to increase it to 4 per cent, would you? Mr. D e c k e r . Yes; certainly we would. Mr. S e ib e r l in g . W hy? Mr. D e c k e r . Because it would b e a question whether we could afford to do it. Mr. S e ib e r l in g . But you do pay it in some sections ? Mr. D e c k e r . But these banks, please remember, are still unit banks, and the local management is responsible for the results, which include the earnings, and why should Fargo be willing to advance their rate to 4 per cent because La Crosse was paying 4, if their earnings did not warrant it? Mr. S e ib e r l in g . What is the difference in the various banks? What is the lowest rate that you pay, and the highest ? Mr. D e c k e r . I think I would say that, in a general way, 3 per cent is about the lowest and 4 per cent is about the highest. Mr. S e i b e r l i n g . Where do you pay the 3 per cent? Mr. D e c k e r . Minneapolis. Mr. S e ib e r l in g . And where do you pay the 4 per cent ? Mr. D e c k e r . In the smaller towns. Mr. B e e d y . Y o u are t a lk in g ab o u t sa v in g s accou n ts? Mr. S e i b e r l i n g . Savings accounts; yes. Mr. D e c k e r . Or certificates of deposit. Mr. S e ib e r l in g . And does the same rate obtain in all country dis tricts? Mr. D ecker. N o. 854 BRANCH, CH AIN , AND GROUP BANKING Mr. S e ib e r l in g . What is the difference in the country districts? Mr. D e c k e r . Well, there may be a case in which for years they have been paying 4 per cent, and that is because they could not agree among themselves, even though they knew it was too high. Then, here is another district where the banks have been cooperat ing and working together better, and they have reduced the rate, and for years the State departments o f banking have urged that they reduce the interest that they are paying on deposits, for they had been getting to the point where the banks were not earning money on savings, and Mr. Wakefield says that there is now a law in the State o f Minnesota prohibiting the payment o f over 4 per cent on savings. Mr. S e ib e r l in g . I s there a law fixing the amount you can charge for loans, too ? Mr. D e c k e r . N o, sir; except usury. The usury law is 8 per cent. Mr. S e ib e r l in g . Well, the chief interest that the citizen who does not own bank stock has is to get as much for his deposits as he can, and to borrow his money as cleaply as he can. Mr. D e c k e r . Right. Mr. S e ib e r l in g . And then, in addition to that, there is also the safety o f the deposit. Those are really the three only interests that the public in general have, that part o f the public who are not stock owners o f banks. Is that not correct? Mr. D e c k e r . Y es; perhaps so, but remember that we are in com petition with the Government on savings; we are in competition with the bond man on the sale o f securities; we have plenty o f competi tion when we attempt to induce Jim Smith to put his money in the bank at 3 or 4 per cent. Mr. S e ib e r l in g . But if you can eliminate that competition, you could lower the rate you pay on savings deposits, could you not? Mr. D e c k e r . Not as long as the Government savings banks are there and the public can buy Government and other bonds; no. We have got to meet the open market; they do not have to deposit their money in the local bank. They have learned a lot better than that, that they can buy Government bonds, or buy stocks, and they have learned that they can put their money in the postal savings banks. Mr. S e ib e r l in g . I have heard that stated here a good many times, but are there not millions of people in the United States that do not know anything about the things you are talking about? Is it not true that the only thing they know is the bank? Mr. D e c k e r . Oh, I think they are wiser than you realize, Mr. Seiberling. Mr. S e ib e r l in g . I do not think so. Mr. D e c k e r . They have got radios and newspapers, and they know a lot more than they did a few years ago. Mr. S e ib e r l in g . But when it comes to money, the only person they have dealt with is the banker. Mr. D e c k e r . That has been the inclination in years past, but now they have learned so much that they are seeking other avenues of investment for their funds. Mr. S e ib e r l in g . N o w , you stated awhile ago that a great deal o f the money was carried in stockings, and so forth. W hy does not the postal savings draw that money out? 855 BRANCH, CH AIN, AND GROUP BANKING Mr. D e c k e r . It has. In the State o f Montana, in 1919, the per capita investment in postal savings banks was $2.66. Ten years later it was $11.26; and Montana moved into first place of all the States in the Union in investments in postal savings. That is the answer; that money has gone out o f circulation so far as Montana is concerned, whereas it should be in deposits in Montana for the benefit of her own industries, and those industries are deprived o f that because they did not believe that they had a sound banking system which made it safe for them to leave their money in the bank. Wyoming moved into second place. Take South Dakota; that is a flagrant case. In 1919 the per capita investment o f the inhabitants o f South Dakota was 7 cents in postal savings. Ten years later it is $6.25. So, what good do postal savings do to the State o f South Dakota ? Mr. S e ib e e l i n g . I s not the money deposited in the Federal reserve centers o f the State ? Mr. D e c k e r . You have to buy Government bonds and put them up as collateral. I have here a whole list o f all the States in the Union and the increases in postal savings. It has been a tremendous competitor, and you could not blame the people. Mr. W i n g o . I think it would be well to have that statement go in the record at this point. Mr. S t r o n g . Without objection, it is so ordered. (There was no objection, and the statement referred to is printed below.) Per capita postal savings 1929 1919 A m ou nt j Position M ontana______________ W y o m in g ____________________________________________________________ South D akota_______________________________________________________ Florida.................. ............................................................................................. N evad a__________________ . _____ _____________________________________ Id ah o ______________ _______________ __________________________________ W ashington____________________________________________ _______ ___ Oregon_______________________________ _______________________________ N ew M exico___________________________________________ ________ ____ Colorado_____________________________________________________________ Iow a___________________________________ ______________________________ N orth D a k o ta .._________ ___________ _____ ______ ____________________ M innesota_______ ___________ _______ ________________________________ Arizona_______________ ______ __________________________ _______ _____ N ew Y o r k ______________ ____________ ________________________________ O klahom a........ ................................................................................................... Kansas........................ . ...................................................................................... M issouri______________ __________________________ _______ ____________ Massachusetts________________________ ______________________________ A labam a............................................................................................................. U tah................................................................................. .................................... Nebraska_____ ________ _______________________ _________________ ____ Illinois______________________________________________________ Pennsylvania....... .................................. ......................................................... South Carolina................................................................................................. T exas..................... .......................................................................... .................... California......... ............... .................................................................................. Connecticut______________ __________________________________________ District of Colum bia...................................................................................... N ew H am p sh ire............................................................................................. Georgia________________ ___________ ________________ . _______ __ Rhode Island.................................................................................................... $11.26 ! 7. 67 ! 6.25 5.59 5.04 4. 78 4. 31 4. 21 3. 88 3.53 3.39 3. 36 3.02 2.89 2.43 2.31 1.94 1.49 1.44 1.27 1.16 .95 .8 9 .86 .81 ! 68 .6 7 .66 .65 .6 2 .59 l 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Am ou nt $2.66 1.90 .07 .76 6.57 1.03 3.81 3.41 .29 2.06 .21 .04 1.16 1.40 5.62 .14 .43 .85 1.66 .21 2.92 .3 6 1.70 2.37 .03 .1 7 1.13 3.17 1.16 1.48 .06 2.29 Position 7 14 40 25 1 22 3 4 31 12 35a 43 20a 19 2 37 27 23 17 35b 6 30 16 8 44 36 21a 5 20b 18 41 9 856 BBANCH, C H AIN , AND GBOTTP BANKING Per capita postal swings — Continued 1929 N e w Jersey__________________________________________________________ W isconsin_____________________________ ______________________________ W e st Virginia_______________________________________________________ Indiana______________________________________________________________ M ichigan____________________________________________________________ O hio....................................................................................................................... Delaware____________________________________________________________ Arkansas____ _____________ __________________________________________ Tennessee____________________________________________________________ Louisiana____________________________________________________________ N orth Carolina_____ ________________________________________________ Verm ont_____________________________. _______________________________ M a in e ________________________________________________________________ K en tu ck y____________________________________________________________ Virginia______________________________________________________________ M aryland ________________ ___________ _______ ______ _________________ Mississippi____________________ ____________ _______________ _________ 1919 A m ou nt Position A m ou n t .5 5 .49 .49 .47 .4 5 .43 .4 0 .3 4 .2 4 .18 .1 8 .1 5 .14 .09 .09 .0 7 .0 6 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 2.27 1.13 .41 .84 2.09 1.72 1.95 .0 9 .11 .21 .01 .25 .5 3 .2 6 .3 9 .2 8 .0 5 Position 10 21b 28 24 11 15 13 39 38 35C 45 34 26 33 29 32 42 Mr. S e ib e r l in g . Do you mean to tell me that in controlling this large group of banks your unit managers do not constantly confer with you as to rates of interest to charge on loans and things of that kind ? Mr. D e c k e r . Never have we discussed it. It would be true on large loans; i f you had a concern in Des Moines, where we have a bank, that was a large borrower, or in Duluth, where they have large grain and elevator accounts, we would and have conferred on rates for the last 25 or 30 years, but on the local loans o f these banks we pay no attention to the rate they charge. What we are interested in are two things, the development o f the country around that bank where we have a large financial interest and the showing on the part o f the bank o f reasonable profits above losses. Mr. S e ib e r l in g . D o you think the same institution which acts as trustee should also engage in the business of underwriting securities ? Mr. D e c k e r . No, sir; absolutely not. Mr. S e ib e r l in g . Should the holding company ? Mr. D e c k e r . No, sir; absolutely not. Mr. S e ib e r l in g . How many subsidiaries have you in this holding company ? Mr. D e c k e r . One hundred and ten. Mr. S e ib e r l in g . What are these investment companies? Mr. D e c k e r . They are companies in four or five centers who handle securities, underwriting sales o f securities, bonds, and, in some instances, stock. Mr. S e ib e r l in g . And they own stocks, do they? Mr. D e c k e r . Own them ? Mr. S e ib e r l in g . Yes. Mr. D ecker. No, sir. Mr. S e ib e r l in g . Have you any subsidiaries that own stocks? Mr. D e c k e r . They might take up a stock they had underwritten until they had sold it, but they would be more cautious o f the stocks. O f course, there is no halo around bonds. Many people would rather have stock in some company than bonds in others. Mr. S e ib e r l in g . Then, you have, counting all o f your subsidiaries, one hundred and some corporations? BRANCH, CH AIN , AND GROUP BANKING 857 Mr. D e c k e r . R ig h t . Mr. S e ib e r lin g .* I think that is all. Mr. L e t t s . I intended to ask one question I overlooked. Mr. S t r o n g . A ll right. Mr. L e t t s . I wanted to inquire whether or not you have been ap proached by any other large interest, such as the Transamerica Corporation or this new one, the Manhattan Corporation, or what ever its name is, to sell out? Mr. D e c k e r . Not directly. W e have been approached, not know ing whom the parties represented, and we told them that we were not interested. Mr. L e t t s . I asked that because I have an idea that there w ill be a tendency to spread across the country. Mr. D e c k e r . Very naturally. It indicates we have something worth having. Mr. S t r o n g . Mrs. Pratt, y o u are next. Mrs. P r a t t . Most o f the questions that I had in mind have been covered by others. I would like to ask Mr. Decker a question, and perhaps I will be excused if I make a statement first. I judge from your testimony here that you feel, from the way it has worked out in your district, that the solution to the banking troubles of this country is in group banking? Mr. D e c k e r . Yes. Mrs. P r a t t . It has been stated here that the purpose of any pro posed legislation would be to give to the smaller districts, where there have been bank failures due to frozen credits, and so on, a more fundamentally sound banking system. I think you said that you felt that those districts would be perhaps better taken care of by a branch banking system. Mr. D e c k e r . The very small ones. I would draw the line here in a town so small or inconsequential that it could not support a unit bank, no matter who owned the stock, whether it was in our group or out, and make it profitable, and yet a town large enough so that it was entitled to banking facilities. In such a town I see no other solution than what you might call a branch or a teller’s window. I can illustrate that possibly by what took place in Jamestown, N. Dak. There were four or five banks in Jamestown, and all ox them were in more or less trouble. They had within a radius of 15 or 20 miles, 15 or 20 small banks, many of which were owned by the same people who owned the bank in Jamestown. The whole situa tion was bad, and my honest opinion is that the whole thing would have collapsed without any doubt. The First Bank Stock Corporation, of which Mr. Wakefield is president, and ourselves, at earnest solicitation, went out there and consolidated the Jamestown banks into two good banks and cleaned them up, and then these banks within a radius of 15 or 20 miles which they had owned and which they said never could make any money, of their own accord dissolved and told their customers to ride into Jamestown to do their banking. Now, that could not be done in every case, but it was done in that case. I f there was a town out from Jamestown so far that it would really! be a great inconvenience to force them to go into Jamestown every time they wanted to make a deposit or do any banking busi 858 BRANCH, CH AIN, AND GROUP BANKING ness, one o f these banks in Jamestown, if permitted to do so legally, could establish a branch or even have a teller’s window. W e have had them come to us and ask us to let them make deposits in the drug stores, which they were willing to do i f they could only get their money into our bank, because they felt that our bank was safe. Now, I say that if a branch banking law were to be legalized in this country, I would suggest starting on a very small scale— possibly, for argument’s sake, say county-seat branch banking, and then allow it to develop and see whether it is a better system than the other. Mrs. P r a t t . Would you feel that under the group system you could eventually take care o f the whole situation without branch banking? Mr. D e c k e r . It would be more difficult and more expensive. Mrs. P r a t t . And you would not advocate branch banking from your group system? You would advocate a separate branch system? Mr. D e c k e r . I am not advocating one or the other. I would have no objection and I see no objection to a branch banking system in trade areas, provided that you do not undertake to upset the group banking system which is now in existence, but if the one were to be forced at the exclusion or termination o f the other, in my judgment it would be disastrous. Mrs. P r a t t . And you feel that really the only way to take care o f these small communities at the present time is through a branch banking system? Mr. D e c k e r . Except as they are willing to come to the centers or i f the town is large enough to support a unit bank. Now, let me qualify that to this extent. You can go into certain sections o f Iowa where the country is very thickly settled and very prosperous, and, notwithstanding some reports to the contrary, there are many small banks that are very prosperous. I happen to know o f one group of small banks there where the profits are so much larger than our own that it makes us look like 80 cents. But, when you get to the sparsely settled regions of the Dakotas and Montana, it is quite different; it just is not in the cards for a small unit bank to make a living; it is not there. So many o f their prerogatives have been taken away. They no longer loan money on mortgages at a profit; they no longer have land, their insurance has been taken away from them, and they can not handle securities because there is little demand for them, and their overhead is so great and their taxes so high that they can not make money enough to take care of their losses, to say nothing o f their operating expenses. Mrs. P r a t t . But you have, through your group system, prac tically cleaned up the area through which you operate, have you not? Mr. D e c k e r . N o; we have hardly started. Generally speaking, we have taken banks in key towns. Mrs. P r a t t . What I meant was that you have taken care of those communities where there have been failures. Mr. D e c k e r . Not in every instance, no. W e have taken banks largely in key points, as we call them, feeling that if we had in North Dakota, for instance, 15 important points where there were BRANCH, CH AIN , AND GROUP BANKING 859 sound banks, the State would not suffer very greatly, at least in comparison with the condition that they had been in. Now, we have soft-pedalled, so to speak, on reaching out further and taking more banks, partly out o f respect, as I stated this morn ing, to the Secretary o f the Treasury, who said he hoped that group banking would proceed moderately until this whole question has been considered. We do not want to go ahead, Mr. Wakefield’s group and ours; we could go out and in 12 months take in 500 banks without any question whatever, and they would be delighted to come in on almost any kind of a basis. I f this committee wants to assume the responsibility of saying, “ Go ahead and do it,” we will get busy, but while the question is being agitated nationally we felt it was no more than decent for us to slow up a little until we saw what action Congress was going to take, and we knew better our selves how far we could find it profitable to go because we are not a philanthropic institution, and neither is any other banker or group of bankers, because you can not get away from the fundamental principle that banks have got to make money or go broke. We have had it demonstrated many times. Mrs. P r a t t . You feel that the group system, or banks operating under a group system, gives a greater stimulus and initiative to local industries, do you not, than, say, a branch banking system? Mr. D e c k e r . Very greatly, Mrs. Pratt. I can not help but feel that a system o f branch banking in this country such as exists in England, with five banks, we will say, controlling the banking in terests of the United States, will be almost a death-knell to the initiative of the American people. Their whole training and tradi tions are contrary to it; they rebel against it, and I share that feeling with them. Mrs. P r a t t . The Comptroller o f the Currency, and I do not know whether Governor Young made the statement, but it was made here several times, said that it was desirable to decentralize credit and to have a greater number o f credit centers throughout the country. W ould you subscribe to that? Mr. D e c k e r . Absolutely, but those centers must be large enough and strong enough to be o f some consequence, or you accomplish nothing. We, therefore, have set up a unit which in diversification and size we believe is large enough. I want to make this perfectly clear, that we are in a very much more independent position o f New York financially to-day than we ever were in the history o f that country. There is no comparison. When Mr. Wakefield and I go down to New York to-day, they sit up and take notice. W hy? W e do not represent just one little bank that they can do what they please w ith; we represent an aggre gation o f capital and an aggregation o f men and an aggregation of brains in different lines o f business, so that they have a wholesale respect for us, and any deals we have with them are entered into to-day on a very much different basis than they were formerly. Do I make that clear? Mrs. P r a t t . Yes; perfectly clear. I think that is all. Mr. S t r o n g . Mr. Wingo. 860 BRANCH, CH AIN , AND GROUP BANKING Mr. W i n g o . Do you know o f any incentive that leads men to invest their money or keep it invested in the banking business when it is no longer profitable? Mr. D e c k e r . N o , sir. Mr. W i n g o . That is sometimes done in a local community to pro tect a local bank, it is not, but that is an exception ? Mr. D e c k e r . Yes, and that time has gone, Mr. Wingo. Mr. W in g o . A s I gathered from your statement, in your opinion the day o f the independent unit bank has passed? Mr. D e c k e r . N o , I would not say that. I would say that in the very small town, yes. Mr. W i n g o . Except in the larger communities? Mr. D e c k e r . Yes. Mr. W i n g o . What would you call a small town? What would be the limit, under your theory? I f nothing is done and the natural trend o f things is not interfered with, in what towns or in what size towns would the individual bank survive, in a State where branch banking is permitted statewide ? Mr. D e c k e r . W ell, for instance, like California ? Mr. W i n g o . Take any illustration that you care to give. Mr. D e c k e r . W e have not had any experience, Mr. W ingo, so it would be difficult for me to answer that. Mr. W in g o . I was just trying to get your opinion. You said that in your opinion the independent unit bank had passed in the smaller towns. What did you have in mind there? Mr. D e c k e r . It is not entirely the size o f the town. I t is the amount o f business which they can acquire. A town might be very small and still have quite a rich farming community around it, and it might have considerable deposits, much larger than the size o f the town itself would indicate. Mr. W i n g o . But that is an exception. Just take the general run o f towns in your country, in which you are doing business. What do you have in mind as to the size ox the town from which the unit bank will probably pass and which will have to be served either by group banking or by branch banking? Mr. D e c k e r . Perhaps I can best answer with these statistics: The statistics show that during the last 8-year period, between 1921 and 1928, inclusive, 63 per cent of the bank suspensions were in banks with capital stock o f $25,000 or less; 40 per cent were in towns with less than 500 population; 20 per cent were in towns o f less than 1,000 population, and 19 per cent in towns o f less than 2,500. Mr. W i n g o . That is interesting, and we have had those statistics and I have been studying them for months, but that does not answer my question. You stated in response to my question, that the day o f the independent unit bank was passing, and you said that was only true o f small towns. What size town did you have in your mind when you made that statement ? Mr. D e c k e r . I did not have any particular size in mind. I had in mind the town which was not large enough to enable a bank to make a profit. Mr. W i n g o . What, in your mind, in your territory is the size of that town ? Mr. D e c k e r . I would not want to say. I have not had enough experience to tell. BRANCH, C H AIN , AND GROUP BANKING 861 Mr. W i n g o . Do you think, having in mind the natural trend o f banking, that the independent unit bank is going to survive in com munities o f less than 5,000 or 10,000 population? Mr. D e c k e r . I think it can easily survive in towns o f 5,000. Mr. W in g o . D o you think that the independent unit bank can survive in a town in competition either with a unit o f a group banking or o f a chain banking system or branch o f a branch banking system? Mr. D e c k e r . I do not know. I think only time will tell. Mr. W i n g o . Y ou h a v e n o t stu d ie d th a t q u e stio n ? Mr. D e c k e r . The competition will be not of size, but o f service. Mr. W in g o . That is the point I am getting at. Mr. D e c k e r . I think it will be increasingly difficult for the inde pendent unit. Mr. W i n g o . I s there any reason why competition in banking serv ice will affect the maintenance o f the different units o f banking any differently than in the case o f grocers or hardware stores, or anything else ? Mr. D e c k e r . Yes; because banking is based on confidence. A man will go into a grocery store and buy a dozen oranges, and he does not care who he is dealing with, but when he goes in a bank there is the personal equation brought in, and there is the safety o f the bank and the friendliness indicated in loaning money, and it is very different from getting on a street car and paying 10 cents for a ride. Mr. W i n g o . What is the total outstanding capital at the present time o f your holding corporations ? Mr. D e c k e r . Approximately 1,600,000 shares, at $50 a share, par value, about $80,000,000. Mr. W i n g o . And how much o f that is invested in the capital o f the banks or subsidiary corporations? Mr. D e c k e r . A ll o f it except about, say, $12,000,000, which is in cash or its equivalent. Mr. W i n g o . And that sum represents what you called the liquid assets that you set apart? Mr. D e c k e r . Yes, sir. Mr. W i n g o . Y o u are keeping over 10 per cent o f the liquid assets as reserve? Mr. D e c k e r . R ig h t . Mr. W i n g o . Your experience has shown you that that is ample in the group banking system ? Mr. D e c k e r . A s far as we have gone so far. That is not in the banking system; that has nothing whatever to do with the individual banks. We do not take $1 out o f any o f the banks in our group, except the usual dividends paid. A ll the rest o f the earnings remain in the individual bank, not a nickel in the holding company. Mr. W in g o . Y o u stated that you felt like keeping a certain amount o f the liquid assets in the holding corporation to meet emergencies that might arise in some o f these banks. Mr. D e c k e r . That is right. Mr. W i n g o . I was wondering whether or not you had operated to the extent where probably you had established in your mind what would be a fair reserve—we will call it a reserve; it is comparable to the reserve for deposits in the bank. 862 BRANCH, CH AIN, AND GROUP BANKING Mr. D e c k e r . I would say that our experience up to date would indicate about 10 per cent or 15 per cent. Mr. W i n g o . In response to one or two questions by Mr. Beedy, you said something about its being better for Congress to proceed slowly and to “ let nature take its course.” I suspect that that ex* pression has a different meaning in Maine than in your country? Mr. D e c k e r . The gentleman here corrected me on that. Mr. W i n g o . As I understand, you mean that the credit necessities o f the changing economic structure naturally will follow these eco nomic changes? Mr. D e c k e r . Right. Mr. W i n g o . And you think it is better to wait until you see what is going to be the final trend o f this economic structure before you undertake to fix the final set-up of your credit structure to serve that economic structure; is that your thought? Mr. D e c k e r . W ill y o u repeat that, please? Mr. W i n g o . I got this thought when you first answered that, in view of something that you had said earlier in the day. O f course, we all agree that the credit machinery has to bend and to conform to the economic machinery— the structure which it serves. Mr. D e c k e r . Right. Mr. W in g o . And that with the change that is rapidly going on in the economic structure and industrial organization o f America there is a tendency toward larger units? Mr. D e c k e r . Yes. Mr. W i n g o . With mass production and resulting economies and all that talk that we are all familiar with, I took it that your thought was, when you said we ought to let nature take its course, that it would be better for the legislative body to wait until we had a settled economic structure that you thought was going to represent the general trend for some time, before we undertook to finally shape the credit machinery that would serve that economic structure? Mr. D e c k e r . That was not exactly correct. What I meant was th is: That there are forces at work, naturally, to-day correcting this situation, through group banking and otherwise, so that there is not the same necessity for haste on the part o f Congress as there would be if those forces were not correcting the situation; and that the reason I thought it was wise for Congress to take its time was not so much to await developments but to make an exhaustive study of what the needs would be. I f this committee o f Congress, for instance, had sufficiently studied this question so that they were satisfied they had its solution, I would not wait for any develop ment; but I do not believe that any one person in the United States to-day knows just what form this legislation should take, and that being the case, I see nothing in the present situation which calls for precipitant action without due and exhaustive study. Mr. W i n g o . The natural trend, you think, beyond all question, is toward group and chain and branch banking ? Mr. D e c k e r . Undoubtedly. Mr. W i n g o . Undoubtedly, you think? Mr. D e c k e r . Undoubtedly. Mr. W i n g o . What distinction do you make between group bank ing and chain banking ? BRANCH, CH AIN , AND GROTJP BANKING 863 Mr. D e c k e r . There is a very decided difference. Chain banking is largely small banks, or, perhaps, a little larger bank, operated more nearly like branches and owned and operated by a holding company, which is in turn owned and dominated by 2, 3, 4, or 5 men. Mr. W i n g o . There is a difference, then, only in the spirit and domination o f management? Mr. D e c k e r . N o . Group banking consists in the joining o f strong bank, large or small, goods banks that can make money, each one o f which is presided over by a local board o f directors and local management and not dominated in the same way that a bank in a chain is, and the parent company in group banking like ours is pre sided over by 126 directors, all o f whom are successful men, so that you have not the domination of 1, 2, 3, or 4 men, for no matter how good they might be, they might be tempted to do some things which should not be done. In other words, it is utterly impossible with 12 6 directors in our corporation to join in any movement that would weaken or undermine our banking structure. Mr. W i n g o . Y o u sa id t h a t th ere w ere 5 0 0 b a n k s th a t w ere anxious t o com e in to y o u r sy ste m -------Mr. D e c k e r . I think that is Mr. W i n g o . I f you had not about right. decided to go slow on account o f the suggestion o f the Secretary o f the Treasury. Mr. D e c k e r . Yes, sir. Mr. W i n g o . Naturally the inquiry in my mind was why there had not been another group formed to take over these 500, if they are so enamored o f the group-banking system. Mr. D e c k e r . Well, it makes no difference how much they are enamored o f i t ; the fact is that these so-called 500 banks that wished to join our group have evidently not interested some one with suf ficient capital and brains and organization to take them and form a group. Mr. W i n g o . And they are attracted by the brains and the success in the operation o f your corporation—that is the reason they come to it? Mr. D e c k e r . Let me make clear another thing. In my judgment it would be impossible to successfully form a group system o f bank ing unless it was centered around one or two, at least, very strong, successful banks in an important center. It would have to head up in one or two very strong banks or it would not be a success. Mr. W i n g o . A nd I believe you stated earlier in the day that, after all, the success or failure o f a bank largely depended upon its man agement? Mr. D e c k e r . Yes; and its location in a place where it is possible to make money. Mr. W i n g o . Yes. The success or failure o f the average bank will depend largely, like the success or failure o f the average industrial plant, automobile corporation, or any other, upon the ability and the efficiency o f the managing brains ? Mr. D e c k e r . Right. Mr. W i n g o . Management is three-fourths o f it? Mr. D e c k e r . Well, I would say nearer seven-eighths. Mr. W i n g o . A ll right. In these groups that you have just spoken o f there is danger o f deterioration when they lose these few choice 100130— 30— v o l 1 p t <S------- 6 864 BRANCH, CH AIN, AND GROUP BANKING executives which attract these banks now. Take these 500 banks, for instance; i f you and these other executives who have proven their ability were to pass out, do you think they would be less inclined to get into your group? Mr. D e c k e r . I think you would always find in our organization young men coming along who are smarter and abler than we are. Mr. W i n go . The perpetuity and continual growth o f the strength o f your corporation depends upon your ability to train additional executives to take the place o f your men as they drop out? Mr. D e c k e r . Absolutely; and we have a school for that purpose. Mr. W i n g o , Do you think there is any unhappiness in the business world in the fear that possibly we will not be able to get enough trained executives to handle these larger units ? Mr. D e c k e r . In banks ? Mr. W i n g o . Banks and everything else. I have been led to believe, in my conversation with men, that there was this fear. They believe in these economies o f mass production, and so on, but their chief fear was that they would not be able to find men with the executive ability and training that can make a success o f the operation. Mr. D e c k e r . I think that is answered by the greater opportunity for the development o f young men at large salaries and profit-shar ing plans which make these young men independent, and a great deal more independent, Mr. Wingo, in my judgment, in most cases than they would be if in business for themselves. Mr. W i n g o . A s I understood, your suggestion was that you went out o f your trade area, or your Federal reserve district, down into Iowa and Nebraska in order to get diversification ? Mr. D e c k e r . Yes. Mr. W i n g o . Or, rather, you cited that a s one o f the benefits that flowed from your going down there; that that gave your corporation a diversity ox investments or banking operations which added to the strength and security as well as the profits of your institution? Mr. D e c k e r . R ig h t . Mr. W i n g o . Y o u suggested that you would limit branch banking to, say, a county seat or a small area; that possibly the set-up you thought would be available would be a group system, and, say, here in a large town—we will take a county seat for an arbitrary illustra tion—will be one o f your sound and capable group banks, a unit o f your group. Then your theory will be that that unit o f your group will be permitted to have tellers’ windows or branches in these smaller towns in that county or immediate area that would not be able to maintain profitably a separate independent unit bank? Mr. D e c k e r . Eight. Mr. W i n g o . I f it is necessary, in order to give strength to a group system, to have a wide diversity o f business and o f area, why is it not also true o f the branch? W ould you not have a failure o f diversity o f business i f you had that branch confined to that one county ? Mr. D e c k e r . I have no objection whatever, Mr. W ingo, to the branch privilege being extended over that entire trade area so long as you do not disturb the group bank which is in existence to-day. I f you will allow the two to compete with each other, you can make the trade area in branch banking just as large as you please, and BRANCH, CH AIN , AND GROUP BANKING 865 if that proves to be the better plan and people like it better, Mr. Wakefield and I will be delighted to take that. Mr. W i n g o . You put your finger on the real situation, and that is this, that in spite o f the efforts to restrict concentration o f capital, both in industry and banking, as represented by laws o f Congress and as represented by banking laws and other laws o f the different States, the combination o f the leaders o f industry and banking, o f necessity, finding these other concentrations o f capital, have found a way to develop those larger concentrations, and you think, I gathered, that even i f we changed these laws, these same men will through these combinations find a way to meet the changing necessi ties o f the day? Mr. D e c k e r . Y es; if you d o not interfere with existing conditions; but my judgment is that if branch banking were authorized over our entire so-called trade area, or the area which the Northwest Bancorporation is operating to-day, and group banking were in some way legally forbidden that it would result in disaster. Mr. W i n g o . But i f we left the situation as it is now, the determi nation whether group banking or branch banking would prevail, or whether you would have a combination o f each, would depend entirely upon the determination or judgment o f the men who were putting their capital in the banking business? Mr. D e c k e r . Absolutely. Mr. W i n g o . D o you know o f any reason why we should suspect that those who are engaged in the banking business would have less difficulty in getting around restraining laws than do the industrial leaders in getting around the restraining laws with regard to in dustrial combinations? Mr. D e c k e r . W ell, I think banking is much more dangerous to tinker with than any other business in the world, because it is the heart o f all business. Mr. W in g o . I agree with you, but you do not catch my question. Is there any reason why we, as legislators, could hope that a restric tive law restricting the combination and concentration o f capital in banking can be any more effectively enforced than the present laws restricting the combination o f capital in industry? Mr. D e c k e r . Well, I do not know. Mr. W in g o . It is the same problem, is it not ? Mr. D e c k e r . Very largely. Bankers are human; there are good, bad, and indifferent ones, but the poor ones do not survive. Mr. W i n g o . In other words, if a majority of the men engaged in the banking business— men whose character and achievements and ability, as well as their control o f funds, command the respect o f the investment and the banking world— make up their minds that a given form of banking shall be used, they will find a method, do you not think, to use that form, just like the same type of men in the industrial world are finding a way to get around the antitrust law? Mr. D e c k e r . I have no doubt that they would attempt to find a way. Mr. W i n g o . Yes; we know that, but I am not quarreling with you. The thought I had was this, that I sometimes wonder if there is not such a thing as the futility o f attempting to enforce certain laws, unsupported by public sentiment. 866 BRANCH, CH AIN, AND GROUP BANKING Mr. D e c k e r . Against economic laws, absolutely. Mr. W i n g o . There are certain economic forces that are repre sented by the conclusions that are registered by leaders o f industry in this country, and those economic forces have in the past frequently proven superior to either the wisdom or stupidity o f legislative bodies, have they not ? Mr. D e c k e r . Absolutely, and the sooner Congress can determine what those economic laws are and we go with them instead o f against them, the sooner you will get effective legislation. Mr. W i n g o . Y ou said that branch banks could be operated on a more economical basis than units o f a group. What economies o f operation did you have in mind when you said that ? Mr. D e c k e r . Less taxes; you could operate on a much smaller capital. I have the figures here to show that our deposits in pro portion to the total capital investment in our group are much smaller than in Canada, Great Britain, or any other country that operates entirely on branch banking. I f we were to change all of our banks into branches and make them all branches o f the Northwestern National Bank o f Minneapolis, that bank would not require as much capital as the combined capital o f all o f these banks, and there would be a great saving there. There would be a saving in the cost of operation o f a branch bank, because it would be run by these so-called hired men at a great deal less expense; but I am equally certain that the difference in cost is more than offset by the advantage o f our plan, at least so long as public opinion in that district is as it is to-day. Mr. W i n g o . Public opinion is changed by propaganda overnight: you are aware o f that. Mr. D e c k e r . Well, it is changing, but it is not merely public opin ion ; it is local pride, a very desirable thing to have, to maintain, and not to destroy, 1 think. Mr. W in g o . Are you an attorney ? Mr. D e c k e r . Not yet. Mr. W i n g o . Y ou made the statement that if your system were turned into a branch banking system, then the local branches in the States other than the States where the parent corporation is located would not pay any taxes. Mr. D e c k e r . Personal property taxes. Mr. W in g o . What attorney gave you that opinion? Mr. D e c k e r . N o attorney did. A ll I know is that the banks in North Dakota are paying in about $150,000 a year in personal prop erty taxes, on the capital stock o f those banks. Mr. W i n g o . D o you mean to say that i f a bank in Minneapolis had a branch in South Dakota, the branch would not pay any personal property tax in South Dakota ? Mr. D e c k e r . Not unless they enact a new law. Mr. W i n g o . Have they not a personal property tax out there? Mr. D e c k e r . I understand so. Mr. W i n g o . H o w can they escape it ? Mr. D e c k e r . Mr. Washburn here is a lawyer. Mr. W i n g o . They would tax you on real estate and on the capital out there. Mr. D e c k e r . There would be no capital there. BRANCH, CH AIN, AND GROUP BANKING 867 Mr. W i n g o . No capital? Mr. D e c k e r . N o , sir. Mr. W i n g o . They might do like some o f the States, require these foreign corporations to estimate the amount o f capital used in the State and then that would be the basis o f a contest in the courts. Mr. W a s h b u r n . Perhaps so, but they would have to pass a new law. Mr. W i n g o . D o you think Congress would permit a corporation to escape taxes like that ? Mr. W a s h b u r n . Section 5219 now covers that. Mr. W ingo. Your corporation is a Delaware corporation, is it? Mr. D e c k e r . Yes, the holding company. Mr. W i n g o . Suppose that you had a corporation with branches in other States; if it is a State corporation, section 5219 would not apply to it, and you gentlemen might say that they would escape local taxes. Mr. D e c k e r . No, the corporation which would have branches would be the Northwestern National Bank o f Minneapolis. The Northwest Bancorporation would be dissolved. Mr. W i n g o . Y o u say that under a branch banking system that the branches would not pay any taxes because the situs o f the branch was in a different State than the situs o f the home bank ? Mr. D e c k e r . I assume that. Perhaps I may be wrong. Mr. W i n g o . I think you are in error, but you may be right. I am not much o f a lawyer, and I am mistaken frequently, but I think you are now'. Mr. D e c k e r . Very likely. Mr. W i n g o . Mr. Chairman, I believe I will forego the other ques tions so as to give these gentlemen an equal opportunity with mine. Mr. S t r o n g . Mr. Fort. Mr. F o r t . Mr. Decker, you have said that your banks, with the exception o f three or four, do not deal in securities—is that correct ? Mr. D e c k e r . Well, the banks themselves in no case deal in securi ties. Mr. F o r t . Either as underwriters or otherwise? Mr. D e c k e r . N o, sir; except as they buy them for their own investment. Mr. Mr. F o r t . They do not enter into underwriting? D e c k e r . N o, sir. F o rt . But they have affiliates in some cases? D e c k e r . Yes, sir; corporations capitalized for that purpose. F or t . With the same officers as the officers o f the bank? D e c k e r . Not entirely. They are expert men in that particular Mr. Mr. Mr. Mr. line. Mr. F ort . Do you feel in these modern days, when so many o f the loans o f banks are upon collateral, that it is wise for the same men to act both as officers o f an affiliate underwriting securities and as officers of the bank making loans on those identical securities ? Mr. D e c k e r . I think it is an element o f safety, because the securi ties company affiliated either directly or indirectly with a strong bank will be more conservative than a securities company which is not affiliated with a strong bank. 868 BRANCH, CH AIN, AND GROUP BANKING Mr. F ort . Y o u think that there would be no feeling o f obligation on the part of the bank to grant greater loans on securities sold to its customers by its affiliate than it would grant on securities sold to its customers by others ? Mr. D e c k e r . Not the slightest obligation. In fact, in our own bank, we do not even know what securities the securities company is handling, unless it is a special one that has been brought to our attention. W e pay no attention to that whatever. Mr. F o r t . Some o f your banks are incorporated under Federal law, under the national bank law, and some under State laws, are they not? Mr. D e c k e r . That is correct. Mr. F o r t . D o you see any advantage or any disadvantage to be had by having uniformity of both State and national laws? Mr. D e c k e r . Very great. Mr. F ort . Which way should it be—uniform or not? Mr. D e c k e r . Uniform. Mr. F o r t . Would it be your judgment that the national code, as it now stands, is a better banking code than the State codes? Mr. D e c k e r . I think, as a rule, yes. Many o f the State codes, however, are modeled after the national. Our own is in Minnesota * Mr. F o r t . How many banks are there in your own group ? Mr. D e c k e r . Ninety-eight. Mr. F o r t . And how m a n y in Mr. Wakefield’s group? Mr. D e c k e r . About 93. Mr. F o r t . How many member banks are there in the Ninth Fed eral Reserve District ? Mr. D e c k e r . Members o f the Federal reserve system, you want? Mr. F o r t . Yes; the total number. Mr. W a k e f i e l d . There are over 300 and some odd banks which are members. Mr. F o r t . The story has been told to some o f us that your two corporations combined own sufficient banks to give you, acting jointly, the power to elect the directors of the Federal Reserve Bank of Minneapolis. Is that true or not ? Mr. D e c k e r . I do not know. I have not taken the trouble to even look it up. I have absolutely no interest in it, because I do not know what in the world we would do with the Federal Reserve Bank i f we did control it. Mr. F o r t . D o you feel that it is a desirable situation that an in strumentality o f the Government, such as the Federal reserve bank, should be subject to control as to its directorate by any single group ? Mr. D e c k e r . No, absolutely not. Mr. F o r t . Or any combination o f a couple o f groups, working together ? Mr. D e c k e r . W ell, it would be just a question o f which would secure the better management o f the Federal reserve bank. Mr. F o r t . But, the distinction being that the Federal reserve bank is a Federal instrumentality ? do you think it ought to be allowed to be controlled by a relatively small number o f men in a district ? Mr. D e c k e r . I should think it would be better if it were not, and certainly we have not the slightest desire to control it. BRANCH, CH AIN, AND GROUP BANKING 869 Mr. F o r t . Y o u have said, and quite wisely, that we should be very slow to legislate in this question, and I think you have shown a very fine spirit in your view that you should be slow to proceed to scramble anything that we might feel ought to be unscrambled. Mr. D e c k e r . Eight. Mr. F o r t . Do you think that it would be wise for us to request the banks o f the United States generally to withhold group and merger action until we can reach a decision? Mr. D e c k e r . Well, I should doubt it. Mr. F o r t . Your own procedure has indicated that you feel that is what should be done. Mr. D e c k e r . Well, in the meantime there might be delay in op erations which are distinctly o f service to the business o f the coun try. I never had the thought presented to me before o f Congress suggesting to the public that some day it is going to pass a law and they had better hold off until Congress decides what the law shall be. Mr. F o r t . O f course, a great deal o f this has to meet the approval o f Federal officers. Mr. D e c k e r . I think it would be very proper for the Comptroller o f the Currency to keep very close supervision o f what is going on in the country in the way o f group banking, to see that nothing is done which would indicate a stock-jobbing plan or a manipulation o f banks, and i f he saw the slightest evidence o f it, I think it would be very proper for this committee to charge him with keeping a closer watch to see that no damage was done. Mr. F o r t . A merger o f a national bank has to be with the consent o f the Comptroller o f the Currency? Mr. D e c k e r . R ig h t . Mr. F o r t . That he could control absolutely. Mr. D e c k e r . Yes, sir. I would have no objection whatever to the Comptroller o f the Currency being informed o f every acquisition we propose to make, and I think we could satisfy him or at least he would agree with us or we would agree with him as to whether it was wise to go ahead, if it were a national bank. Mr. F o rt . Y ou were asked a question or two about the operation o f the fiduciary powers o f banks in connection with the buying and selling o f securities. Do you see any reason, Mr. Decker, why the same relation should not exist between a bank as trustee and its cestui que trust as the relation that exists between an individual trustee and the cestui que trust? Mr. D e c k e r . Y e s . Mr. F o r t . What? Mr. D e c k e r . A bank is a large holder o f people’s money on de posit. W e have felt in our own case that it was better to have the trust in an absolutely separate and distinct trust company, because under our own State laws, and therefore in the case o f the Northwest ern National Bank, we have no trust department. The trust company is managed by specialized men. It is a very dangerous, very com plicated, and a very intricate business; it requires expert training particularly on the part o f lawyers who have no knowledge whatever o f commercial banking or even investment banking except as their trusts are buyers o f securities. 870 BRANCH, CH AIN , AND GROUP BANKING Mr. F o r t . I think you answered the previous question as though you differed with me. What I had in mind was this: That the or dinary private trustee may not, directly or indirectly, in any trans action with the trust make any profit of any sort or description other than the commission. Mr. D e c k e r . Right. Mr. F o r t . In Kentucky they have a law that the bank must pay a minimum o f 5 per cent interest on all funds on deposit with itself where it is the trustee and must further allow whatever it makes on other funds in its hands as interest to the depositor. That rule would apply to the individual trustee if he retained any moneys o f the trust. Is there any reason for distinction in favor o f a bank over an individual trustee? Mr. D e c k e r . I do not think any bank or any individual trustee can afford to pay 5 per cent on trust funds and invest them in proper securities. Mr. F o r t . I said funds on deposit in those banks acting as trustees. Mr. D e c k e r . Yes; but they must carry reserves against those de posits. My judgment is that they can not invest them safely and get such a rate of interest on the deposit. Mr. F o r t . The rule in Kentucky, as I understand it, is that it must pay all that it makes on its own trust funds, and that it may not deposit at 2 per cent, for instance, trust funds in its own checking department while awaiting investment. Mr. D e c k e r . W e are not permitted to keep our own trust funds in the trust company at all. Mr. F o r t . D o you believe in that? Mr. D e c k e r . Absolutely. Mr. F o r t . Then the question o f the rate o f interest becomes im material. Mr. D e c k e r . And we have to go out and compete in the open market for the interest you can get. Mr. F o r t . I think that is eminently correct. Chain banking, as we have it to some extent in my State, has taken the form o f ownership o f the stock o f one bank by another bank. Are your banks permitted to own stock in other banks ? Mr. D e c k e r . N o , sir; except in foreign banking corporations, and then with the consent o f the Comptroller o f the Currency. Mr. F o r t . H o w about your State banks and trust companies? Mr. D e c k e r . They are not permitted to own stock in any corpora tion. Mr. F o r t . Are your trust companies? Mr. D e c k e r . N o , sir. Mr. F o r t . S o there is no cross-ownership of stock anywhere in your system ? Mr. D e c k e r . No, sir. Mr. F o r t . In a group system such as this, in those States that per mit banks to own stock, they ought not to be permitted to own stock in the company that owns the control o f them, ought they? Mr. D e c k e r . Certainly not. Mr. F o r t . Or cross-stock ownership in each other ? Mr. D e c k e r . No, sir. Mr. F o r t . Your suggestion of teller’s windows in the smaller towns which are not big enough to maintain a unit bank brings up BRANCH, CH AIN , AND GROUP BANKING 871 this question: Would you limit those teller’s windows to those com munities where there was no unit bank? Mr. D e c k e r . Well, I think the natural result would be that if there was a unit bank in that town and it was unprofitable, they would cer tainly want to go out o f business and would immediately go to the bank which was authorized to start a branch there or a so-called teller’s window, and if they had assets that were o f any value at all. the two would get together. Mr. F o r t . Y e s; but let us take the towns where there is a unit bank and where it might be thought that there was also room for a teller’s window; would you have the teller’s window go in and compete with the unit bank? Mr. D e c k e r . I would not fear that, because the bank would not start a branch there without the approval o f the Comptroller o f the Currency if it were a national bank, or without the approval o f the State department o f banking if it were a State bank, so that I think that that check would take care o f it. Mr. F o r t . But we are considering here the possible adoption of branch banking through trade areas, and in formulating legislation should we permit the Northwestern National Bank o f Minneapolis, as an example, to establish a branch or a teller’s window in a town al ready possessing unit banks? Mr. D e c k e r . Certainly, with the consent o f the Comptroller o f the Currency; otherwise they could only have a branch in some place where there was not a unit bank. The probabilities are that they could not make any money there. Mr. F or t . I am not speaking o f your organization in the North west, but, generally speaking, men being human, would not the power to establish a branch in competition with a unit bank have the result o f forcing the unit bank to become a member o f a group, i f you wanted it? Mr. D e c k e r . Well, I think that if that privilege were given, it could only be operated with the consent o f the Comptroller, and the danger would be very greatly minimized. Mr. F o rt . Not so long, would it, as you have a duplicate system o f State and national banks and you have in your group members o f both ? Mr. D e c k e r . I f the group continues, I see no objection whatever to saying that you could not put in a branch where there is a unit bank, but if you are talking about branch banking exclusively, that is, doing away with group banking and having nothing but either trade area branch banking or absolute unit banking, group banking and chain banking to be done away with entirely, then that is a different question. Mr. F ort . I was talking on the theory o f a possible extension o f branch banking privileges without an effective prohibition o f group or chain banking. Mr. D e c k e r . Well, then, we have no objection whatever to branch banking being restricted to towns where there are no unit banks. Mr. F o r t . Would it or would it not be a sounder piece o f legisla tion ? Mr. D e c k e r . Well, that is a pretty delicate question. I do not know. 872 BRANCH, CH AIN , AND GROUP BANKING Mr. F o rt . The theory being whether we want to permit compe tition from a big bank m a metropolitan center-----Mr. D e c k e r . 1 see your point. Mr. F o r t (continuing). With a locally controlled bank which desires to remain independent. Mr. D e c k e r . I f you prohibited the larger bank from having a branch in that town, how are you going to serve the people ? Mr. F o r t . Presumably the unit bank will not continue unless it is profitable, as you very ably pointed out. Mr. D e c k e r . Y ou would wait until they were ready to quit? Mr. F o r t . In other words, you would either have to wait until they were ready to quit the locality or else you would have to permit a big bank like yours to go in and put up a form o f competition that the local bank could not stand. Mr. D e c k e r . I still think I would not make that restriction so long as the larger bank could not put a branch in the towrn where there was a unit bank except with the consent o f the Comptroller o f the Currency. I f you want to entirely eliminate the competition between the State and the national system— and, o f course, the small bank in most cases will be the State bank— then you immediately say to the national bank, “ You can not go into a town where there is a State bank,” and I do not believe that that would be in the interest o f the national banking system. Mr. F o r t . I see that view ; I had not thought o f that. One other line o f questions. You have explained, and I think entirely proper, the reasons for the different rates o f interest that are paid by local banks in your group to depositors. Do those same reasons apply as to the rates o f interest that should be paid to the depositors in a branch banking system, or should a branch banking system pay uniform rates to all of its depositors ? Mr. D e c k e r . Well-------Mr. F o r t . The investment o f funds is identical. Mr. D e c k e r . I have had no experience in branch banking, but my first thought would be that in all probability under branch banking they would pay the same rate at all points, and I think the Canadian banks do that. I think that would be a natural development. Mr. F o r t . O f course, if we were going to allow branch banking to compete with unit banking, they could go in and pay a higher rate o f interest. Mr. D e c k e r . The unit bank could. Mr. F o r t . The branch in the town where it was competing? Mr. D e c k e r . Y e s . Mr. F o r t . And the question in my mind is, if we are going to extend branch banking, should we permit that to be done, or should we say that since all o f these investments gain the same rate o f interest, whether from Minneapolis or Fargo, you have to pay the same rate to your depositor ? Mr. D e c k e r . I think that would be fair. In other words, I think it would be unfair to let the branch go into a town to-day where there is a unit bank and try to run that bank out by putting up the rate. I think that would be grossly unfair, and should be curbed. BRANCH, CH AIN, AND GROUP BANKING 873 Mr. F o r t . Or for tb,em to get the money from the town where they had no competition and paid a minimum rate of interest there ? Mr. D e c k e r . I think that is unfair. Mr. F o r t . And then pay a higher rate where they had competition ? Mr. D e c k e r . I think that is unfair. Mr. F o r t . That is all. Mr. S t r o n g . Mr. Busby. Mr. B u s b y . I believe you stated that your authorized capitaliza tion was $300,000,000? Mr. D e c k e r . Yes, sir. Mr. B u s b y . And you only have $80,000,000 of that subscribed and outstanding in stock ? Mr. D e c k e r . Right. Mr. B u s b y . And that gives you an additional $220,000,000 to be brought into play in the operation o f your Northwest Bancor-’ poration in the event you decide that you need it ? Mr. D e c k e r . Yes, sir. Mr. B u s b y . What amount of that $80,000,000 outstanding covers banking operations ? Mr. D e c k e r . A ll except about $12,000,000, which is in cash or liquid securities. Mr. B u s b y . N o w , what part covers investment trust operations or securities? Do you have separate corporations organized as in vestment security organizations? Mr. D e c k e r . Yes, sir. Mr. B u s b y . H o w m u ch d o th e y a m o u n t to ? Mr. D e c k e r . I would have to guess at it, but I would say $3,000,000 or $4,000,000. Mr. B u s b y . N o w , you have also your cattle loan financial organiza tion. What does that amount to ? Mr. D e c k e r . I think the capital is $150,000, capital and surplus. Mr. B u s b y . Y o u told us a while ago o f issuing 1 5 0 ,0 0 0 ,shares of stock of the holding company, which was taken over by a syndicate at $72 a share? Mr. D e c k e r . A t $70. It was offered to the shareholders at 72. The underwriters were given two points for underwriting it. Mr. B u s b y . And, that having been taken over by the underwriters, they attempted to sell it and the stock market crash came before they disposed o f it? Mr. D e c k e r . N o , the stock market crash came long before they acquired it. They did not pay for it until December 15, or six weeks after the crash in the stock market. Mr. B u s b y . What type o f organizations composed your under writing syndicate? Mr. D e c k e r . Banks, securities companies, bond houses like HarrisForbes, Guaranty Trust, Halsey-Stuart, the Continental in Illinois, First Chicago, and others all over the country. Mr. B u s b y . The greatest number o f units included in that number o f 75 which formed the underwriting syndicate were investment trust organizations, were they not? 874 BRANCH, CH AIN, AND GROUP BANKING Mr. D e c k e r . No, none o f them were investment trusts. They were bond and securities houses who buy and sell securities. Mr. B u s b y . Outright? Mr. D e c k e r . Yes, sir. Mr. B u s b y . The way things turned out, your organization made $3,000,000 on that adventure, between the price at which it proposed to repossess them and that at which it sold them? Mr. D e c k e r . And we added $2,800,000 to our surplus. Mr. B u s b y . Y ou outguessed the other fellows? Mr. D e c k e r . W e thought we did a good piece o f merchandising. [Laughter.] Mr. B u s b y . That is the situation all over the country with banks that have large banking organizations and that have these subsid iaries ? Mr. D e c k e r . Yes, sir. Mr. B u s b y . They are engaged largely in the merchandising or guessing game, as to which one is going to get the better o f the securities operation when it finally is sold out ? Mr. D e c k e r . Yes, sir. Mr. B u s b y . D o you not think that that situation has largely in flated the bond and stock markets o f the country ? Mr. D e c k e r . Undoubtedly. Mr. B u s b y . D o you not think that the credits required by the business o f the country are much less than the amount o f credits that have been extended by operations just described and by bank loans and call loans? Mr. D e c k e r . A t the inflated period prior to the crash, yes; to-day, no. Mr. B u s b y . A year ago at this time, did your banks maintain a large reserve in the New York banks so as to take advantage o f the high rate on the call money market ? Mr. D e c k e r . Many o f them; not with the New York banks. Mr. B u s b y . I mean in that locality, so as to be available for the New York Stock Exchange operations. Mr. D e c k e r . Many o f them loaned money on the Street on call loans and made those loans through a New Y ork bank. Mr. B u s b y . That is what I mean. Mr. D e c k e r . Oh, yes. In our case, it happened at a time when our elevators were full o f grain, and our money was all being used at home. W e did not have any money loaned in W all Street be cause we did not have any to spare. Mr. B u s b y . I did not say when the crash came; I said a year ago at this time. Mr. D e c k e r . Well, we do not hesitate to loan on the New York Stock Exchange, so-called brokers5 loans, when the money is not required at home by our own customers. Mr. B u s b y . D o you not think that the fact that the call loans commanded an interest rate considerably above that ordinarily realized in the commercial field that it pulled much money from all other parts o f the country to New York City where those opera tions were under way? Mr. D e c k e r . Not in our banks. W e paid no attention whatever to the call-rate loan in New York. BRANCH, C H AIN , AND GROUP BANKING 875 Mr. B u s b y . Y o u could make more money by placing it there. Mr. D e c k e r . Yes, temporarily, but we would have driven our trade away. W e loaned to our customers at 6 per cent millions o f dollars when we could have loaned it on the Street at 10 per cent, and it did not tempt us a particle. In the first place, we were not interested in the other 4 per cent and, in the second place, we thought that it was safer to lend our money at home, Mr. B u s b y . Subsidiaries that deal in stocks and bonds are hardly as stable as the main banking institutions in their operations, are they? Mr. D eck er. N o, sir; they are not as stable. Mr. B u s b y . And that is the reason why you would prohibit them from holding and handling trust funds placed as you mentioned a while ago? Mr. D e c k e r . Yes, sir. Mr. B u s b y . With your banking institution. Mr. D e c k e r . But I want to differentiate between the securities company affiliated with us and the one that is independent on the Street, because we have a reputation at stake, and naturally our securities company will decline many underwritings which the pri vate banking institution takes over. Mr. B u s b y . What would you think o f a law that would prohibit banking institutions from having subsidiaries that engaged in that class o f marketing? Mr. D e c k e r . I think it would be disastrous, because it would leave the field absolutely over to the private operater, who could raise more cain than the banks would ever think of. Mr. B u s b y . It would make banks safer, would it not ? Mr. D e c k e r . N o, sir; not in my judgment. Mr. B u s b y . D o you not know that a bank that has a subsidiary, where that subsidiary is handling an issue of bonds, is going to be more lenient toward its own institution than it would toward the general field of investment? Mr. D e c k e r . N o, sir; absolutely not. Mr. B u s b y . D o you not think that those same directors in the bank as are in the subsidiary, operating for the same purpose, to secure dividends on investments, would be easier with the invest ments handled by the subsidiary than they would with those com ing from the general field of investment? Mr. D e c k e r . N o, sir. I f a customer came in to see me as presi dent of the Northwestern National Bank and wanted to borrow money on a certain security, and I happened to know that that security had been handled by our own securities company, I would scrutinize it more carefully than I would if it came from some other place. Mr. B u s b y . That is a little contrary to human nature, is it not? Mr. D e c k e r . N o, sir; not in banking. It is contrary to the methods of banks that have gone broke. Mr. B u s b y . I thought you had been putting human nature into your banks, until we came to these securities companies, and there you seem to get hard on them. Mr. D e c k e r . Any banker who is not hard once in a while won’t be a banker very long. It is not at all impossible for a bank to be strict and severe and still be human. 876 BRANCH, CH AIN, AND GROUP BANKING Mr. B u s b y . N o w , the inflation o f 1921 was spread over the coun try generally, was it not? Mr. D e c k e r . Yes. 1920, I think it was. Mr. B u s b y . I meant 1920. And then we began to build up a new method o f financing. Instead of borrowing money from a bank, business enterprises issued stocks and bonds and sold those to the public generally, and the public all over the country acquired those investments, did they not? Mr. D e c k e r . Yes. Mr. B u s b y . Those were sold largely on the New York Stock Exchange and on the other stock exchanges throughout the country to the public. Do you not believe that the public bought many o f those with a view to getting a raise in the market rather than getting dividends on the stocks? Mr. D e c k e r . Unquestionably. Mr. B u s b y . And it was more o f a gamble, so far as the public was concerned, than an investment ? Mr. D e c k e r . Yes. Mr. B u s b y . And these inflated bank credits and the easy money for call loans increased that type o f operation on the part o f the people over the country, did it not ? Mr. D e c k e r . Yes, sir. Mr. B u s b y . And when the crash came, although it was in another way from the way the 1921 crash happened, it just as effectively stifled business and crippled the people financially as the crash o f 1921, did it not ? Mr. D e c k e r . N o . The stock-market crash last year was not the cause; it was the result. W e had been through seven or eight years o f tremendously rapid expanding business; we were due for a slow-up. It was in evidence six months before the stock market collapsed, and therefore I think it would have come anyhow, a slowing up in business, and business is not slow to-day throughout the United States generally because o f the stock-market collapse; it is slow because we have been going very fast, and naturally it is healthy to slow up. Mr. B u s b y . We were overbuilt in many lines, were we not ? Mr. D e c k e r . In many cities. Mr. B u s b y . I am not talking o f building in the sense o f brick and mortar, but we were overdeveloped ? Mr. D e c k e r . We were overtrading. Mr. B u s b y . I f I understand the situation aright, the demand for increased credits in 1928 was about 3 per cent, while through the different types o f loans made in 1928 increased credit to something like 8 per cent, and we necessarily had to wait until we caught up with the demands for business to the extent that we had extended credit in the field o f credit operations beyond a safe point compared with business needs. Mr. D e c k e r . W ell, when you become too much inflated and you get prices too high, you have got to slow up until your savings and your increase in wealth is able to take care o f that situation, and it happened in 1893 one way, in 1897 in another way, and last year in still another way, and the next one will probably be different. It all goes back to the same thing. BRANCH, CH AIN, AND GROUP BANKING 877 Mr. B u s b y . Are your stocks listed on the Chicago Stock Exchange ? Mr. D e c k e r . Ours is ; y e s , sir. Mr. B u s b y . I notice that last week 2,750 shares-----Mr. D e c k e r . In the Northwest Bancorporation. Mr. B u s b y (continuing). Y(ere sold on the Chicago exchange. What would prevent outside interests from acquiring a controlling interest in your holding corporation if its shares are listed in suffi cient number on the Chicago exchange? Mr. D e c k e r . There is no list o f shares, Mr. Busy, on the exchange. They are simply offers to trade in it. It would make no difference whether they were listed or n ot; it is always a question of buyer and seller. When those two meet, there is a trade. Mr. B u s b y . Suppose some one kept on buying until enough o f your shares were sold to a purchaser-----Mr. D e c k e r . They never would get them, because the higher the price goes, the less the holder is inclined to sell. Mr. B u s b y . Y o u saw to it that not enough shares in the North west Bancorporation are available at any price to the prospective purchaser to get control of your institution? Mr. D e c k e r . I would say that 90 per cent of our stock belongs to people who would not consider selling it at any price, and if they suspected, as they would a long way in advance, a desire to get control, the proposed purchaser would be checked before he had started. Mr. B u s b y . Where did these 2,750 shares that were sold come from? Mr. D e c k e r . I h a v e n o idea. Mr. B u s b y . Just come from somebody who had shares? Mr. D e c k e r . A natural trader. They may have gone into better hands than before. Mr. B u s b y . That is all, Mr. Chairman. Mr. D e c k e r . Mr. Chairman and gentlemen o f the committee, you have been very kind to me. Mr. S t r o n g . On the part of the committee, I want to thank you for your visit here, and the information you have given us. Mr. D e c k e r . Thank y o u . Mr. S t r o n g . Mr. Wakefiield, can you remain over to-morrow night? Mr. W a k e f i e l d . Yes. Mr. S t r o n g . I f you can do so, I think it would be very helpful in that it would give the members o f the committee an opportunity to get from you such information as you are in position to give us. Mr. W a k e f i e l d . I can spend Wednesday and Thursday here. Mr. S t r o n g . That will be very helpful. Mr. F ort . I move we adjourn. (The motion was duly seconded and agreed to, and the committee thereupon adjourned until Wednesday morning, April 16, 1930, at 10.30 oxlock.) BRANCH, CHAIN, AND GROUP BANKING WEDNESDAY, APRIL 16, 1930 H o u s e o f R e p r e s e n t a t iv e s , C o m m it t e e o n B a n k i n g a n d C u r r e n c y , Washington, D. G. The committee met at 10.30 o’clock a. m., in the committee room, Capitol, Hon. James G. Strong presiding. The A c t i n g C h a i r m a n (Mr. Strong in the chair). The commit tee will come to order and the hearings will be resumed. Mr. Wake field, o f Minneapolis, is present and will address the committee. Mr. Wakefield. STATEMENT OF I . E. WAKEFIELD, VICE PRESIDENT FIRST BANK STOCK CORPORATION, OF MINNEAPOLIS AND ST. PAUL, MINN. Mr. W a k e f i e l d . Mr. Chairman and gentlemen, I represent the First Bank Stock Corporation, o f Minneapolis and St. Paul, and I have here a prepared statement with copies enough to present to the various members o f the committee; but in order to get the matter before you this morning I will give you briefly some o f the facts which are presented in the statement. As I understand it, the purposes o f this committee are to investi gate the trends which are taking place in the banking business, at tempt to discover the causes for the recent developments, and to find a proper solution of the difficulties which have arisen and enact laws which will provide for the conduct o f the banking business of the future. In order to arrive at a satisfactory conclusion concerning matters o f that kind, it is perhaps essential that we have some of the facts which have developed the present situation; and in speaking of the banking business my experience has been entirely within the ninth Federal reserve district, in that territory, and the things that I speak o f will be those o f my own knowledge as existing within that territory, and without any pretense on my part o f understanding or o f knowing definitely what may be the facts in other sections o f the country. Our territory was developed and built up from nothing, and dur ing a long period o f years, largely, I think, through the influence and operation o f the so-called unit bank. Small groups o f persons in communities o f various sizes organized banks, and during a great many years successfully operated them, always, in my opinion, "with 100136— 30— vol 1 pt 8------- 7 879 880 BRANCH, CHAIN, AND GROUP BANKING the desire on the part of the people operating them to serve to the best possible advantage their particular community and the busi nesses and people who were within that community. Their under takings were successful and commendable over a long period o f years. Up in our territory the development of the unit bank went way beyond any possible reason for the existence of banks, and in 1920 we found ourselves with a greatly excessive number o f banks com pared to population over any other section o f the United States. The State o f North Dakota at that time had 5 banks in existence per population to 1 on the average over the country; South Dakota had 4; Montana, 3; and Minnesota twice as many as the average. Most o f these were banks of small capital and small deposits. Mr. L e t t s . How was it in Iowa— can you say ? Mr. W a k e f i e l d . I never made up figures on Iowa. This development was largely encouraged by the feeling on the part o f the various legislatures, the lawmaking bodies o f the States, that the privilege of banking ought to be extended to the small indi vidual—which is a perfectly natural and proper feeling— and the permitting of the establishment o f banks of as small capitalization as $10,000, and in towns where the need for additional banks was not, perhaps, evident and justified. Banking was a popular business. During all that time there were certain profits to be derived in the banking business which have since been eliminated. The business o f making farm mortgages, and o f selling them and transferring them to insurance companies and investors, afforded a very substantial profit to the country banker in the way o f com missions on those loans. The business o f selling lands, o f dealing in them, during all this period, occurred when lands were increasing in value and the buying and selling o f lands was o f large volume and there were substantial profits to be derived by country bankers in the operation o f the land business. In addition to that, during that period, and up until recent years, each o f those small country banks made it a practice to charge exchange on their checks when they were returned to those banks, and which furnished them, in many cases, with revenues sufficient practically to pay the clerical help o f their banks. Now all o f those sources o f revenue have disappeared. The establishment o f the Federal land banks and the joint stock land banks, with their tax exempt securities, have changed completely the current o f the mortgage business. The deflation and difficulties in the agricultural sections have practically eliminated farm land sales. The establishment o f the rural credit associations by the various States has been an added source o f money on farm mortgages, and eliminated the natural and existing methods o f handling those securi ties. The Federal reserve bank, when it was established, operated upon the theory that all transfer of checks should be carried on a par basis and that eliminated, over a period o f years, those exchange charges from which the small banks had derived considerable rev enue in the years past. That particular feature, however, has recently been modified to some extent, and those small banks are again privileged to charge exchange and do so charge; that is, those not members o f the Federal reserve system. BRANCH, CH AIN , AND GROUP BANKING 881 The general basis of loans in those banks in the ninth Federal reserve district, was upon credits largely based upon farm values and the business o f agriculture. So in 1920, there was in existence in the ninth Federal reserve district, about 3,800 banks. With the change that followed the deflation of agriculture, a large part of the basic value o f the collateral upon which their loans were based, was destroyed. Over a period of many years, the increasing value o f farm lands was an automatic debt satisfier on the part o f the farmer and it was frequent or ordinary that the country banker would loan to his farmer customer on a second mortgage certain funds which, after a period o f three to five years, could be joined onto the first mortgage on that land and liquidated to his bank. With the deflation period coming on, that possibility or oppor tunity was no longer in existence and the country banks found them selves holding equity security to cover the debts of his customers to his bank and to which there was no value. Just in order that we may understand just a little of what has taken place in connection with farm values, there have been in the ninth Federal reserve district, during a period of four years, abandon ments or foreclosures in the four States of North Dakota, South Dakota, Minnesota, and Montana (this is based upon figures prepared by the Department o f Agriculture), the years being 1923, 1927, 1928, and 1929, involving 25,820,000 acres and covering 67,867 farms. During the period from 1920 to 1929, there were 1,517 banks closed in that district. There were 226 of those banks which have since re opened, leaving the remaining 1,300 closed involving deposits of over $300,000,000, which represented the savings of the thrifty people of the towns in which those banks were located, to the number of ap proximately 300,000. Now, gentlemen, I do not know whether any of you have ever lived in a town where there has been a bank closing. But if you have, you have some appreciation o f what it means to have the savings o f the thrifty people of the community, accumulated over 15. 25, or 30 years, wiped out and destroyed in an overnight catastrophe. It means that that community has a setback that it will be the most difficult thing for them to recover from, and such things have happened in 1,517 communities in the ninth Federal reserve district, and I have a map here showing the ninth Federal reserve district and showing by black spots each point where there has been a closed bank. Some of them have several. I thought it would give von a picture, offhand, of the extent that that thing has occurred. O f course, very many o f these towns or sections were left entirely without banking facilities. I have a statement here which is very carefully prepared. It is not an individual effort. It is the result o f facts and thought given over several months, and I am going to leave enough o f them so that each member may have one to read fully if he chooses to do so. I really would like to have this become a part of the record when I get through with it. Mr. S t r o n g . Without objection, it is ordered that the statement prepared by Mr. Wakefield, part o f which he is now discussing, shall be wholly incorporated in the record at this point. 882 BRANCH, CH AIN , AND GROUP BANKING (The statement referred to is here printed in full, as follow s:) Sta tem en t p o r a t io n B a n k in g b y L y m a n E . W a k e f ie l d , V ic e P r e s id e n t F ir s t B a n k S t o c k C or ; P r e s id e n t F ir s t N a t io n a l B a n k i n M in n e a p o l is ; B e fo r e t h e a n d C u r r e n c y C o m m i t t e e o f t h e H o u s e o f R e p r e s e n t a t iv e s G entlem en o f the com m ittee, group banking as it ha s developed in th e ninth F ed era l reserve d istrict is designed to m eet definite con dition s ex istin g in the N orthw est. I am not here as a special p lead er f o r g ro u p ban king as against any other system , but sim ply to explain the causes that resulted in the d evelop m ent o f a system o f banks around the F irst N ational B anks o f M inn eapolis and St. Paul. E ssentially group banking is the con trol throu gh m a jo rity stock ow nership o f a num ber o f banks throu gh a h old in g com pany, p attern ed co rp o ra te ly a fte r the m odern investm ent trust, but operated as a cen tral m anagem ent institution. In o u r ca se the h old in g com pany is the F irst B an k S tock C orporation . W ith it a re affiliated som e 97 banks, trust com panies, and financial institutions, a ll loca ted w ith in the boundaries o f the ninth district, w h ich in clu d es the States o f M innesota, M ontana, N orth and South D akota, the upper peninsula o f M ichigan, and north w estern W iscon s n. B an k s in the group affiliate w ith the h old ing com pany throu gh exch a n ge o f shares, o r throu gh ou trig h t sale o f stock. E ach retain s its separate id en tity u n d er loca l m anagem ent o f officers and d irectors and op erates independently o f the oth er m em ber o f the group, but su b ject to exa m ination and supervision o f the h old ing com pany. A ffiliation is a m utual transaction. W e have m aintained the p osition o f offerin g op p ortu n ity to the in d ivid u a l banks to enter the group. B an ks d esirin g t o rem ain independent w ill continue to have our earnest support and coop era tion . T h e F irs t N ation a l B anks o f M inneapolis and St. P aul have thousands o f accou n ts fro m unit ban ks throu ghou t the N orthw est and M iddle W est, and certa in ly w e w ou ld do nothing to jeop a rd iz e their position o r a tta ck their independence. B u t the independent banker appreciates the benefits to be d erived from the grou p plan as acutely as do the m etrop olita n banks w h ich fa th ered this p ra ctica l reorga n ization o f the banking structure in the N orthw est. T h e a la crity w ith w h ich b oth the la rge and sm all banks in the d istrict ha ve taken advantage o f the op p ortu n ity o f affiliation is evid en ce o f the fa c t th a t the north w estern banker is con scious o f the benefits that the grou p system offers. T o un derstand the group banking m ovem ent requires an a p p recia tion o f con d ition s in the N orthw est. A ctually, a ch an ged econ om ic status has com p elled a reorga n ization o f ru ral banking. The group plan as w e h ave developed it is accom p lish in g th is reorganization and should result in gre a tly im proved con ditions, fo r certa in ly the N orthw est m ust have strong banks in w h ich there is a bsolute confidence i f w e are to progress com m ercially. T h e te rrito ry w a s and still is la rgely a gricultu ral, although its resources are as diverse as any section o f the U nited States, b ut the colla tera l that a gricu ltu re offered to substantiate its loans has a lw a ys been the b asis o f m ost cred it outside the largest com m ercia l centers. P r io r t o 1920 ca n be con sid ered “ the g o o d old days ” in ru ra l banking. S in ce the C iv il W a r , land values in the N orth w est had been stea d ily appre ciatin g. A g ricu ltu ra l ban ks loaning on real-estate colla te ra l cou ld d eal alm ost blin d ly. T h e in crease in land values over the p eriod o f three to five yea rs a lw a ys p rov id ed a volu m e o f ad d ition a l colla tera l and safety. F a rm m ortgages w ere as salable as G overnm ent bonds. T h e cou n try ban ker w a s con sta n tly solicited to sell m ortgages to investors at d istant points. I f he m ade a m istake in p u ttin g too m an y eggs in the one basket, he had every reason to believe th a t it w a s about th e b est basket available. S in ce 1920 the N orthw est has been the scene o f a con stant struggle, p olitica l and econ om ic, to reestablish the fou n d a tion s o f its b asic financial structure w h ich w ere ru dely ja r r e d b y the sequences o f the w ar. T h e yea rs 1917 and 1918 h a d w itnessed a m agnificent effort on the p a rt o f the fa rm e rs o f the N orthw est to in crease to a m axim u m the p rod u ction o f fo o d stu ffs as a p a trio tic con trib u tion o f the N a tion ’s w a r effort. P rod u ction costs increased, m arket values rose a n d land values appreciated greatly as a consequence. These in BRANCH, CH AIN , AND GROUP BANKING 883 cid ents o f expansion w ere reflected in th e operation s o f the ru ra l ban ks o f the territory. M uch additional la n d w a s brought into cu ltivation. M ach in ery and stock to till this new land w ere p urchased in la rge quantities at high prices.. T h e banks coop erated fu lly w ith the a gricu ltu ra l population b y the extension o f n ew cred its w h ich w ere reflected in trem endously increased de posits. A la rge equity in these n ew ly developed fa rm s w as represented in second m ortgages h eld b y the banks as colla teral fo r note loans. W ith the advent o f 1920, the gen eral p rice level took a sharp decline and the rea ction fo llo w e d throu ghou t the entire cred it structure. C ountry banks serving ex clu siv ely a gricu ltu ra l com m unities and often areas dependent upon one or tw o cereal crop s fo u n d them selves con fron ted w ith dra stic deflation o f all va lu es upon w h ich their business w as based. W h en the p rice deflation began loa n s and d iscounts w ere at a peak tw o and one-h alf tim es as high as the level o f a norm al p eriod b efore the w ar. The late John H. R ich , chairm an o f the b oa rd and F ed eral reserve agent fo r the F ed era l reserve bank in M in neapolis, described the ban king structure as it existed in 1921 in a report subm itted to the F ed eral R eserv e B oard. “ Just preced in g the colla pse o f 1920,” he said, “ the d istrict con tained 3,875 banks, th e acreage in w h eat had increased, m erch an dising establishm ents had crow d ed in w h ere there w as no econ om ic necessity fo r them, and all lines o f business a ctiv ity had been overdone. N oth ing cou ld b e m ore ch aracteristic than the then existin g ban king situation. B ased on the ra tio o f p opulation p er bank fo r the U nited States as a w hole, N orth D akota had five banks w here one w ou ld have been sufficient, South D akota, fou r, M ontana three, M innesota tw ice as m any as the national average.” Since 1920 A m erica lms heard m uch o f the fa rm problem fro m the te rrito ry in v o lv e d ; but the ban king problem w as equally acute. D u rin g the 10-year p eriod from 1920 to 1929, inclusive, 1,517 banks in the ninth F ed era l reserve d istrict closed their doors. O f this num ber, only 226 reopened. The rem aining 1,300, w ith deposits in excess o f .$300,000,000, w ere liquidated at a heavy cost to m ore than 300,000 depositors. T hese losses fell m ost heavily upon ou r fa rm in g p op ulation and it is from the d istricts hardest hit b y bank fa ilu re s that the m ost insistent dem ands fo r fa rm r e lie f have com e. In m any cases the recovery by depositors w as p ra ctica lly nil. Som e p a id from 15 to 20 cents on the dollar. B u t it w as a m in ority that yield ed the depositors m ore than one-h alf o f the fu n ds intrusted. The grim record o f closed banks b y yea rs fo l l o w s : 3920 _ _ __ .. 1921____ _ _____ 1922 ____ _______ . 1923 _ _____ 1924_ . ___ T35 _ 73 ___ 64 _ 279 ____________ 295 „ _ — _ _ _________ 16S _____ 1925_ _ _ 283 1926 _ _ _____ 1927 _ ____________ _______________ 142 _ _ 94 1928— ______ ______ 1929 S4 B u t no sta tistica l sum m ary ca n tell the w hole story o f the distress that fo l low ed in the com m unities affected. The w ip in g out o f the cap ital investm ents o f stockholders and the fu rth er levy in g o f lia b ility assessm ents consum ed the savings o f thousands o f ind ivid u a ls and fam ilies. S acrifices fa r beyond legal requirem ents often w ere m ade in vain attem pts to avert closings. M any tow ns w ere left w ithout banking fa cilities. In a num ber o f instances, p ublic-spirited groups o f business m en out o f loya lty to their hom e tow ns guaranteed deposits and brought out frozen assets enabling the banks to continue. These p a triotic assum ptions o f loss, how ever, w ere fe w as com pared w ith the total. The fa rm er cu stom er o f a closed bank suffered doubly. N ot on ly w as his cash ca p ita l tied up, but he w as deprived o f his sou rce o f cred it and w as co m pelled to subm it to hasty and un expected liqu id a tion o f his loans to sa tisfy the claim s o f closed bank receivers. T h e m an w ho had undertaken a p rogram o f diversification w as fo rce d to sell o ff his fou n d a tion stock at m eat p rices to sa tisfy h is loan. T he ru ra l bank fa ilu res are a d irect reflection o f agricu ltu ra l con ditions. T he D epartm ent o f A gricu ltu re recently com p iled a com prehensive record o f a gri cu ltural bankruptcies. C overing the States o f M innesota, N orth and South D akota, and M ontana, it show s that fa rm bankruptcies fo r the fo u r States dur- 884 BRANCH, CH AIN , AND GROUP BANKING in g the five years fro m 1930 to 1914, inclusive, averaged 159 a year. H ere is the record o f such bankruptcies in the fo u r States beginn in g five yea rs l a t e r : 1919____ 1920 1 9 2 1 ___ 1922 1923 _ 1924 _________. _ _ __ ___ 111 __________ 173 ________ 256 ________ 679 ________ _____ 1 ,4 2 0 ____ 1 ,9 9 9 1926____ 1927 _____ _ 1928 ______ 1929____________ _ _____ _ _ __ 1,9 4 7 ____ 1,267 _ 784 ____ 717 T h e precip itate deflation o f fa rm land values ca rried p rices to a p oint lo w e r than had existed sin ce the p anic o f 1893. T h e decline in som e areas w as m uch hea vier than in others. R ecen tly the D epartm ent o f A gricu ltu re surveyed the fa rm land situation in the States o f the N orthw est. E stablishing the average p rice o f lands from 1912 to 1914 at 100, it show s that the inflation ca rried va lu ation s in M innesota in 1920 to poinr 213, an increase o f 113 p er cent. T he pres ent level is 138. N orth Dakota wenr to 145 in 1920 and is now at 98, tw o points b elow th e pre-w ar price. South D akota w ent to 181 in 1920 and is now at 95. In M ontana a peak o f 126 was reached in 1920. In 1929. prices had fa lle n to a level o f 72, or 28 points below the pre-w ar average. In 1925 the departm ent estim ated the loss in the fo u r States in dollars at $2,754,000,000, and since 1925 this tota l has continued to m ount. W ith agricultu re the basis o f rural banking credit, these con ditions resulted in an accu m u lation o f “ other real estate '* in the banks o f the territory. On June 2, 1918, “ other real estate ” in the banks o f the fo u r States totaled $9,271,000. Seven years la ter on Septem ber 28. 1925, “ other real e s ta t e ” w as listed to a tota l o f $45,323,000. A nd this does not include the great volu m e o f such c o l la tera l that had been taken out o f the banks throu gh the organ iza tion o f liq u i d a tin g com panies am on g the stockholders. N or does it include the fro z e n real estate assets in the banks that had closed up to that tim e. F a rm m ortgages lo st th eir liqu id ity and hundreds o f banks w ere deprived o f one o f their ch ie f sou rces o f incom e. S elling d irect to the p ublic or to large investing corporations, the ru ra l bank w a s the p rim ary fa rm loan agency p rior to 1920, and the great traffic :n such colla tera l w as the p rom p tin g reason fo r the overly banked situation. T o-d a y the rem nant o f this business is being con du cted by new agencies such as the F ed era l and State fa rm banks, specifically ch artered land banks, and em ployed agents o f the larger m ortga ge p urchasers such as the insurance com panies. M any ru ral banks a ’. so con du cted a general renl-estate business, d e a ln g p rin ci p a lly in the sales o f fa rm lands. T h is source o f profit, too, has been p ra ctica lly w ip ed out. in co m e from service charges o f one form or another also has been red uced d ue to the con stant pressure exerted by the F ed era l reserve banks and com m ercia l organ ization s. T he p rin cip le that the flow o f com m erce .should not be h am pered b y exchange charges w a s costly to the ru ra l banks, but in recent m onths there has been a tendency to restore a num ber o f the aban don ed service charges. L ook in g back over this period w e can see that the banking crisis had its in cep tion in the events o f the sp r'n g and sum m er o f 1920. In 1918 a w h eat cro p o f 277,000,000 bushels w as grow n in the fo u r States o f M innesota, N orth and South D akota, and M ontana, and w as m arketed on a basis o f $2.231/£ p er bushel fo r the best grade o f hard spring wheat, the G overnm ent-fixed m inim um p rice. T h e inflation com m enced w ith the 1918 crop. L a n d values b o o m e d ; sales o f fa rm s and new lands were at record volum e and p r ic e ; d ep osits in cou n try banks w ere at a peak and their loa n in g p ow er w as greatly expanded. M a n y banks established record earnings, w h ich w ere d 'strib u te d in dividends. T h e 1919 crop, how ever, w as short, only 140,000.000 bushels o f w h eat b ein g p rod u ced , due to bad w eather fa ctors and rust dam age. In the m ean tim e the p rice ha d risen and reach ed as high as .$3.40 a bushel durin g the fa ll o f 1919. A peak o f $3.50 w as paid d u rin g the spring o f 1920, and propaganda began to b e h ea rd in the fa rm areas that w ith the d issolution o f the fo o d com m ission’ s grain purchasing and ration ing the lid w ou ld be off. “ F ive-d ollar w heat ” w a s the sloga n and fa rm leaders, politicians, agencies, and seers o f all kinds w ere a ctiv ely urging the farm ers to hold th eir 1920 w heat un til a fte r the F o o d A d m in is tr a t 'd ! con trol exp ired the last o f July. T h is propaganda w as e x BRANCH, CH AIN , AND GROUP BANKING 885 trem ely effective, although w orld -w id e d istribution o f food stu ffs w as ra p id ly being restored. H a d there been a n orm al m arketin g o f grains du rin g the p eriod o f fixed p rices, a trem endous liqu id a tion o f farm borrow in gs w ou ld have ord i na rily occurred. B u t b y N ovem ber best grades o f spring w h eat w ere sellin g as low as $1.49. T h e crop w a s being m arketed in sm all quantities and the banks o f the region w ere un able to collect m ore than a fra ctio n o f their seasonal bills receivable. T h e deflation set in q uickly. D u rin g the w a r-exp an sion period the cou ntry banks had been com pelled to b orrow h ea vily from th eir rediscount correspon den ts and the F ed era l reserve bank to ca rry tlieir custom ers through the grow in g season, and it m ust be rem em bered that the w ar crops were p rod uced at excessive costs f o r labor, m achinery, seed, and m ateria ls o f all kinds. The fa il o f 1920 fou n d the cou ntry banker, w h o gen erally had excess fund** a t that p eriod o f the year, fo rce d to borrow , fu rth er expanding liis loans. T h e 1921 crop w as a p a rtia l fa ilu re and the ban king situ a tion began to becom e acute, w ith the cou n try banker ca rryin g a 2-year total o f u n liquidated loans. T h e 1922 crop w as la rge and p rices correspon din gly low . B est w h eat brought fro m $1.06 to $1.22 durin g Septem ber and October. C ollections som ew hat im proved . B u t the next year, 1923, the crop w a s again short w ith on ly 156,000,000 bushels o f w h eat being grow n in the fo u r States. B an k fa ilu res during the y ea r show ed a trem endous increase. A la rge crop w as grow n in 1924 and w as m arketed at better p rices then had been p a id sin ce 1920. C onditions w ere som ew hat alleviated, but not perm a nently. B y this tim e confidence in cou n try ban ks w a s b a d ly shaken, and this la ck o f confidence fu rth er a dded to the ru ra l ban ker’s difficulties. H e fe lt fo rce d to keep h is bank in sufficiently liq u id con d ition to m eet a m ass w ith d ra w a l at any m om ent and as a consequence b u ilt up h is reserves o f cash on hand and on deposit w ith other banks, G overnm ent boards, and other easily n egotiable low ra te paper. T h is n ot only red uced the ban k’s ea rn in g pow er but w ith d rew a large volu m e o f ca p ita l from the support o f o rd in a ry business. In the m eantim e new loa n in g agencies o f all kinds had sprung up p rovid in g a fu rth er expansion o f land credits. F ed era l fa rm banks, S ta te land banks, join t-s to ck land banks, etc., w ere offerin g a m argin on first m ortgage real estate loans greater than the com m ercia l banks ha d a fford ed at the peak o f w a r expansion, thus in creasin g the fa rm er’s fixed ch arges but n ot increasing his earning p ow er. T h e interm ediate cred it banks w ere developed and con tinu e to operate absorbing a con siderable volu m e o f business that should be co n ducted by the com m ercial banks. C hattel loans o f a first m ortga ge nature on livestock and grains are a gricu ltu re’s nearest pa ra llel to the short-term notes o f ind ustry— basic ban king colla teral, and the interm ed iate credit banks ab sorb ed m uch o f this business. These n ew agencies p ou red a trem endous volu m e o f m oney into the country, but d id little to assist in a ccom p lishing liqu id a tion o f p reviou s borrow in gs w h ich th e ru ral ban ks w ere carrying. In this em ergency, the first step tow a rd group ban king was taken w ith th e organ iza tion o f the A gricu ltu ra l C red it C orp ora tion o f 1924. Financed by the largest industries o f the N orthw est w ith the aid o f eastern interests, it set to w ork to m eet a te rritoria l p roblem . D u rin g its first y e a r o f operation, the corp ora tion took over a large volu m e o f livestock loans fro m operatin g and closed banks, and the fo llo w in g yea r began m akin g livestock loans direct t o the owners, tak in g a ch attel m ortgage on the anim als. These loans a re payable in installm ents and have greatly aided the general diversification p rogram w h ich the N orthw est has undertaken. D u rin g the five years that this loan plan has been fun ction in g, the corporation has d istributed $5,892,000 on direct livestock loans to 12,169 fa rm ers. R epaym en ts o f $3,448,000 h a ve been m ade and loans now in fo r c e am ount to $2,443,000. T o date, losses o f only $24,346 have been ch arged o ff and ch arge-offs are m ade as soon as the first d elin quency arises. G roup ban king is designed to m eet territoria l p roblem s o f th e sam e nature. N ew territory m ust necessarily develop la rgely on credit, and group ban king can d irect this cred it upon a com prehen sive program basis. T he collapse o f fa rm values w a s but one o f several fa cto rs w ith w h ich the banks o f the N orthw est w ere con fron ted . In fo rm e r years, there had been an annual influx o f new ca p ita l in to the territory represented b y the investm ent o f settlers, ca p ita l expen ditures fo r developm ent p urposes o f an ind ustrial nature, 886 BBANOH, CH AIN, AND GBOTJP BANKING and tim e d ep osits in the banks from outside the territory. M uch m oney fro m distant p oin ts w a s in N orthw estern banks attra cted b y the high rates o£ interest paid. T h is m on ey ra p id ly m elted a w a y in w ith d ra w a ls as in terest rates d eclined . A s w e h a ve w a tch ed the situation develop in the N orthw est, the fa c t o r o f m anagem ent in the ru ral banks has thrust its e lf m ore and m ore in to th e fo r e grou n d . T h e w ell-m anaged ban k w h ose officers w ere in a p osition to rea lize th e ch an gin g con d ition s in the entire a gricu ltu ra l te rrito ry survived, w h ere its less ca p a bly d irected com p etitor encountered difficulties. On June 30, 1913, th ere w ere 2,928 banks in the d istrict. Seven years a fter, on June 30, 1920, the to ta l ha d reach ed 3,877. N ew banks had sprung up lik e m ushroom s a fte r a rain. P ro sp e ro u s fa rm e rs in scores o f instances had m oved to tow n and, a ttra cted b y th e rep orted la rg e ea rn in g s in the ban king business, had enlisted the support o f a fe w frien d s, a p p lied f o r ch arters, and launched banks. B u t banks a re m ore ea sily created than ban kers. F o r a m anager, they looked aroun d and h ired an assistant ca sh ier o r clerk fro m som e near-by bank, p revailed upon a sch ool-teach er to exch a n g e p rofessions, or brought in an am bitiou s s>n fro m the fa rm . In one in sta n ce the tow n barten der w as m ade the bank m anager. A n d everyth in g w en t w ell as lon g as land w a s boom ing. B u t that typ e o f ban king definitely has com e to an end. N o lon g er is the in crease in land values the a u tom atic debt satisfier that it w a s f o r gen eration s. W e a re increasing ou r ca p ita l b y w orking, saving, and ca re fu l in v e stin g ; and ban k in g f o r ou r territory requires able, a lert, and tra in ed intelligence. I h a ve cited these as the fa cto rs that brought about the ban king crisis, b u t I d o n ot w a n t to lea ve you w ith the im pression that ou r te rrito ry has suffered a n y perm anent in ju ry . T he boom days have ended, but w e a re b u ild in g a firm er, m ore stable, and better p rosp erity than ever b efore. T h e N orth w est is on an ea rn in g and savin g basis. Its bank deposits a re again sh ow in g an up w ard trend, but this tim e w e intend to fo r t ify ou r ca p ita l and p rotect it w ith a s tron ger ban king structure. In 1913 ou r banks ha d d ep osits o f $755,000,000. T h e y reach ed $1,855,000,000 in 1920, and a year la ter had declined to $1,512,000,000. On O ctober 4, 1929, tota l deposits o f a ll ban ks in the d istrict w ere $1,678,205,000. T h e average d ep osit o f the 2,350 ban ks in the d istrict is greater than ever b efore. O ur a gricu ltu ra l areas a re being revolution ized. S in gle crop p in g ha s given w a y to a w id ely d iversified agriculture. Our cities a re g row in g and prospering, and ou r people are look in g fo rw a r d con fiden tly to m aterial prosp erity. B u t the ru ra l ban king situation rem ain s as a severe handicap. T h e C om p troller o f the C urren cy in his recent rep ort sum m ed up the existin g situation in these w ord s, upon w hich I can not im p r o v e : “ W h erea s a depositor in a la rge city bank, w h eth er a w age earner or a b u si ness man, has had fu ll p rotection, the d ep ositor in the sm all cou n try ban k has suffered severely fro m the in a b ility o f so m an y banks to m eet th eir d eposit liab ilities. “ I t is a cause fo r im m ediate con cern that the op eratin g con d ition s fa ce d b y cou n try ban ks show no prospect o f im provem ent under the present system . T h ere a re m an y cou n try banks now op era tin g at a loss and m an y others op er a tin g upon earnings insufficient to ju s t ify their ca p ita l investm ent. “ C om prehensive study o f the ban king situation fo r the p ast nine yea rs cle a rly in d ica tes that the system o f ban king in ru ra l com m unities has b rok en d ow n throu gh causes b eyon d con trol o f the in d ivid u a l banker o f the lo ca l com m unity.” I t w a s to rem edy this situation th a t grou p ban king develop ed ou t o f the T w in Cities. F o r gen eration s the la rger banks o f M inn eapolis and St. P a u l h a ve been territoria l banks o f ap p roxim ately the sam e region n ow in clu d ed in the re serve d istrict. T h ey w ere the depositories o f the railroads, the m ills, the m an u fa ctu rin g plants, the jo b b in g houses, the line eleva tor com p anies and lum ber yard s, d ra w in g from and servicin g the territory as a w h ole. T h e y w ere also the reserv e d ep ositories and red iscou n t correspon den ts o f the cou n try banks in the d istrict. In a m a jo r w a y the final financial resp on sib ility f o r the va st section exten d in g fro m the G reat Lakes to the R o ck y M ountains w a s theirs. A l though th eir relation s w ith the cou n try banks o f the d istrict w e re p rim a rily those o f ban ker an d custom er, w hen the a gricu ltu ra l crisis a rose the burd en o f sus tain in g the entire fa b r ic w a s thru st upon the T w in C ity banks. I t is m ore th a n sim p ly circu m sta n ce th a t the best and m ost liq u id p a p er o f m an y o f the BRANCH, CH AIN, AND GROUP BANKING 887 correspon den t institu tion s was held b y the la rger ban ks as red iscount colla teral. A t once this colla tera l becam e essential to the sta b ility o f the ru ra l units caught b y the deflation, and the la rge d epositories fou n d the fa te o f m an y o f th eir custom er banks their responsibility. E xercisin g this resp on sib ility be cam e a m atter o f m anagem ent— their ow n treasuries m ust be protected, their custom er banks m ust be saved w h erever possible. T his coop era tion o f the large com m ercial and reserve d ep osit banks un d ou b ted ly saved m an y o f their sm aller correspondents. A id o f the W a r F i nance C orp ora tion w as enlisted and through it m uch o f the red iscou n t co l la tera l w as released and liqu idated and the p roceed s returned to the origin al holders. B ut in too m an y instances the com bined efforts o f all agencies cou ld not a vert failu res. I n reach in g ou r d ecision to em bark upon the group-banking p rogram w e w ere p rom pted solely b y the n ecessity o f some form o f p ra ctica l reorganization o f the ru ral ban king structure, i f the territory as w h ole w a s to recover fro m the effects o f the fa rm deflation. T h e soundness and adequacy o f the banking fa cilitie s o f the d istrict are v ita l and w e w ho are residents o f the larger cities m ust expect the cities to develop and prosp er only as the rest o f the d istrict g row s and prospers. T o correct the situation, w e fe lt that i f we cou ld create an ad visory org an i zation, properly m anned and w ith sufficient ban king exp erien ce to offer to in d ivid u a l units m ak in g up the ch ain exp ert ad vice an d assistance in the m an agem ent o f their loca l banks that there w ou ld be n o question o f the benefits that w ou ld accrue. T he basic ch an ge in the nature o f the investm ents o f the ru ra l banks has been great. T h e ru ra l banker has had to turn to bonds and com m ercia l paper, colla tera l investm ents o f another type, w ith a prop ortion o f his assets. In b u yin g such investm en ts he w a s dependent la rgely upon tra velin g securities salesm en w h o visited him period ica lly . Investm ent o f his surplus fu n d s beyond the needs o f his loca l requirem ents can b e m uch better handled cen trally by h igh ly experien ced buyers p urchasing in substantially la rger quantities* and m uch m ore closely in con ta ct w ith the securities m arket. A s fa r as the general op eration s o f the banks a re concerned, our p lan provides f o r the retention in th e loca l com m unity o f th e strongest possible con trol over th e a ffa irs o f the unit. M anagem ent rem ains in th e hands o f resident officers and lo ca l directors, th e cen tral office exercisin g its supervision th rou gh p e riod i ca l reports o f con dition, regular exam ination s, and the a doption o f p roven standards. B y the creation o f a group a w id er d iversification o f risk and resources is accom p lished than is p ossib le in a sin gle unit. T h e group in clu d es not only a great va riety o f a gricu ltu ra l depositories but also m any o f the com m ercial banks o f both the m etropolitan and second ary cities. Seasonal needs o f va riou s indus tries v a ry w id ely, but each division has a p eriod o f peak loa d. T he d iversifica tion existin g behind each ind ivid ual u n it w ill enable it to m eet m ore adequately the seasonal needs o f its cu stom ers and district. I ts associa tion w ith th e cen tral banks in the grou p w ill enable it to arrange cred it fa cilitie s fo r its la rger custom ers w h ose needs at tim es exceed the loan lim ita tion s o f a loca l unit. T h e parent corp oration , also, is in a p osition to increase the ca p ita l stru ctu re o f any o f its affiliates should lo ca l con dition s w a rran t greater cred it resources. C hain banking— that is, a num ber o f un its under the sam e ownership, gener a lly a single individ u a l— is now new. These chains o f ru ra l banks have existed fo r generations, but the units have seldom stressed affiliation, p re fe rrin g to m ain tain the fiction o f loca l independence. T h e group p lan is a d eparture fro m the old er chains in that th e group is created abou t one o r m ore cen tral institu tion s o f established reputation. F or instance, the F irst B an k Stock C orp oration group is headed b y tlie F irst N ationals o f M inneapolis and St. Paul, the tw o largest ban ks in the ninth F ederal reserve d istrict, each w ith resources in excess o f $100,000,000; the M etals B an k & T ru st Co., o f B utte, and the F irst N ational o f G reat Falls, the la rgest ban ks in M ontana. In esta b lish in g th e group w e h a ve had to feel ou r w ay. O riginally the F irst N ational B an ks o f M inneapolis and St. P a u l organ ized th e F irst B an k S tock Investm ent Co., the stock o f the investm ent com pany being held by a llied c o r p ora tion s o f the tw o banks. In other w ord s, it w a s a subsidiary h old in g co m pany. O u r first p ra ctice w as to p urchase a m a jo rity interest in banks seeking affiliation. A fte r several m onths’ op era tion s w e cam e to the con clusion that 888 BRANCH, CH AIN, AND GBOTJP BANKING the hold in g com p any should be the parent corporation , and w e am ended ou r p lan an d created the F irst B an k Stock C orporation . T h e F irs t B an k S tock C or p ora tion n ow is? a h old in g corporation fo r a ll th e ban ks in the group, great and sm all. W e n ow acquire, i f possible, all the stock o f th e u n it banks, w ith the excep tion o f d irectors’ q u a lify in g shares, lo ca l investm en t interest b e in g m a in tain ed b y ow n ersh ip o f stock in the h old in g com pany. T h is has the result that th e corporation instead o f individ u a ls ca rr y the stock lia b ility f o r the m em ber ban ks o f the group. T h is, w e believe, is on e o f o u r grea test con trib u tion s to the security and sta b ility o f the m em ber banks. L e g a lly the stockholder o f a bank is su b ject to a dou b le lia b ility , but the p arent corp ora tion o f a group has a fa ctu a l lia b ility f o r the m ain ten an ce o f its un its to a degree fa r beyond a n y legal requirem ents. I f , throu gh som e disa strou s happening, such as a serious con version o f a bank’s fun ds, its structure should be im paired, the hold in g com p any m ust reestablish it fro m th e cen tral reserv e o f the group. I t w ou ld be su icid al to perm it any sin gle un it in th e grou p to fa il, no m atter w h at the cause. T h e in d ivid u a l bank n ow is supported n ot only by its ow n ca p ita l and reserve stru ctu re but also by th a t o f the corporation. T h e h o ld in g com p a n y's legal resp on sib ility is no greater than w as the in d ivid u a l stock h old er’s, b u t its m ora l lia b ility goes to the nth p ow er. W e a re b uild in g up a double reserve, in the banks them selves, and a cen tral reserve in the F irs t B an k S tock C orporation. A ctu a lly , the entire ca p ita l and surplus o f the corporation is a reserve o f its units. T h is group plan in p ra ctice affords the custom er o f the sm allest, ru ra l affiliate, th e sam e degree o f security that the great m etrop olita n banks p rov id e th eir cu stom ers. I t also meets the grow in g dem and fro m the sm aller cen ters th a t their financial agencies provid e m ore intelligent and a lert gu ida n ce in business and investm ent m atters, and m ore fa v ora b le treatm ent as to interest rates, w h ich have been high by com parison w ith the la rger cities. W e have established a m a jo r su bsid iary w h ich w ill operate through all the banks in th e grou p and p rov id e the residents o f the sm aller citie s the sam e investm en t s ervice th a t is m ain tained in connection w ith the banks o f the T w in C ities. I t is a lso our intention to expand the trust fa cilitie s o f the sm aller m em bers, eith er in their ow n un its or in coop eration w ith long-establish ed tru st com panies w h ich a re m em bers o f th e group. U nquestionably the im m ediate result o f the in creased s e cu rity th a t group b an k in g afford s w ill be the return to the loca l com m unities o f con sid erable ca p ita l that has been sent aw ay in recent years, to create a h ig h ly liqu id reserve. T h e group plan, too, offers op p ortunity f o r the cap able banker, no m atter w h ere situated, to dem onstrate his ability, and p rovides a roa d fo r h is advancem ent and progress. W e can exp ect that w ith in a fewT years the fa rm m ortgage wTill be restored as a liq u id instrum ent. U pon w h at basis o f va lu a tion final s ta b ility w ill be reach ed no one can say, but once a sta b ility is reached, a gricu ltu ra l areas w ill return to a norm al cred it basis. The grou p plan o f ban kin g should be able to speed the a ttainm ent o f such sta b ility and assist in restoring the fa rm m ortga ge to its rig h tfu l place in the cred it schem e. In a d op tin g the group plan, w e set up the on ly m achinery that w as ava ilab le to us. C ritics have alleged that it is but an eva sion o f the b an on b ra n ch banking. It is p robably true branch ban king m ight b e m ore econ om ica l in som e instances. Our operations to date h a ve show n that there is a size and typ e o f com m unity w h ich is too sm all to ju s t ify the m aintenance o f a separately ca p ita lized and corp ora tely staffed bank o f its ow n and w h ich the grou p can n ot enter w ith a u n it bank. On the other hand, those tow n s w an t som e fo rm o f banking convenience. A branch o f a la rger bank w ith perhaps a single officer in charge, cou ld tak e ca re o f them w h ile the la rger cen tral ban k w ou ld p rov id e greater secu rity and better service than the sm all, independent unit. B an ks in these sm all com m unities can not and do not earn sufficiently to ju s t ify their existen ce. A nd gentlem en, let m e m ake this point w ith all the fo r c e that I com m and. A bank that does n ot m ake a p rofit is a high ly dangerous institu tion in its com m unity. A n y com m ercial institution that is n ot endow ed m ust earn to exist, and com m ercial ban king is a business o f sm all profit. I t follow s, therefore, that its p rofit m ust be certain. E x p erien ce ind ica tes that it takes excep tion a l m anagem ent to enable a bank to earn sufficiently t o ju s t ify its existen ce i f it has deposits o f less than $250,000 un der a State ch arter, or less than $500,000 under a n a tional ch arter. BRANCH, CH AIN, AND GROUP BANKING 889 In this con nection it is interesting to note that 73 tow n s in M innesota, w ith less than 100 population, have banks. In nine o f these tow ns the to ta l deposit is less than $50,000 ; 24 h ave deposits fro m $50,000 to $100,000; 19 fro m $100,000 to $150,000; 10 from $150,000 to $200,000; and five fro m $200,000 to $250,000. In com m unities o f from 100 to 200 in population, five h a ve deposits under $50,000 ; 36 from $51,000 to $100,000 ; 29 from $100,000 to $150,000; 19 fro m $150,000 to $200,000; and 12 fro m $200,000 to $250,000. In tow ns o f all sizes in M innesota there are 55 w ith a total d ep osit less than $50,000, 71 from $51,000 to $100,000, S8 from $100,000 to $150,000, 95 fro m $150,000 to $200,000, and 16 from $200,000 to $250,000. T his show s a to ta l o f 325 tow ns in the one State w here the bank deposits are less than $250,000. A t the sam e tim e, there are 345 tow ns w h ich have no banking fa cilitie s w hatsoever. I am not prepared to suggest wliat areas from a standpoint o f pu blic p olicy should be included w ithin a banch-banking zone. A cen tral bank in a cou nty seat tow n cou ld con veniently have offices in the sm aller centers w ithin the cou nty. On the other hand flow o f trade is a m atter o f con venience and not governed by fixed cou nty lim itations. State branch banking or even reserve d istrict lim its w ou ld a void con flict w ith alrea dy established routes and zones o f trade. I d o believe, how ever, that the benefits o f group banking should not be sacrificed. G roup banking and branch banking could w ell go hand in hand, supplem enting each other. The grou p plan offers distinct advantages at points sufficiently large to w a rran t the m aintenance o f a unit bank. It retains in the local com m unity the benefits o f loca l m anagem ent, satisfy in g the v ery natural desire o f the residents o f the com m unity that their bank be a ctu a lly a hom e institution. Then, too, there is a w idespread public feelin g that the branch bank is not as responsive to p urely loca l needs as the hom e bank. This need not be true, but, the feelin g is actual w hether the prem ise is correct or not. T he group plan obviates this criticism . A n affiliated ban k is as m uch a hom e institution a fte r as b efore jo in in g the group. The hold in g com pany is not a bank, and its success is dependent upon the grow th and its success is dependent upon the grow th and success o f its units. N a tu ra lly it m ust look to the developm ent o f each affiliated bank w herever loca ted fo r its ow n profit and assist in the developm ent w ith every m eans at its com m and. T o do otherw ise w ou ld be co n tra ry to its ow n self-interest. I f the affiliated bank does not serve its com m unity equally w ell o r better than the independent un it w e m ay expect com p etition to arise a t the first opportunity. T h e group bank has no exclusive fo rm o f franchise, and w e recognize that it m ust p rovid e an im proved service to exist. T he w hole tendency o f operation is d ?ffu s ron rather than con centration aroun d a cen tral treasury. W e can foresee that if branch banking under certain lim itations o f area and bound ary should be perm itted that a num ber o f the larger banks in the grou p cou ld extend their service b y the establishm ent o f branches in near-by com m unities. A lthou gh I can speak only f o r our ow n organization. I b el'e v e that group bankers gen erally w ou ld encourage the suggestion that the investigative p ow ers o f the national ban king departm ent be extended to the hold in g com panies, and th a t these corporation s should be su b ject to period ica l exam ination s. W e, in the banking business, know that searching exam ination is one o f the real sa fe guards o f sound p ractices and this w ou ld h old as true in the m anaging c o r p oration s as in the banks them selves. In conclusion, m ay I add that the first ob jective o f every bank m ust be service. This is not altruism , but sim ply sound business. S ervice m eans d ep osits and deposits m ean profits. T h e p rosp erity o f th e com m unity and the p rosp erity o f its bank in evita b ly go hand in hand, and w h atever increases the p ro sp erity o f the ban k adds to the p rosp erity o f the com m unity w h ich it serves. T h e group system o f banking is sound because it rests on these fo u n d a tio n s : F ir s t : C ooperation o f resources. Second. D iv ersifica tion o f resources. T h ird . O w nership spread throu ghou t the territory. F ou rth . C reation and m anagem ent b y bankers. 890 BRANCH, CH AIN , AND GROUP BANKING Grain crops of Minnesota, North Dakota, South Dakota, and Montana R ye Barley 191 1 191 2 191 3 191 4 . 191 5 191 6 .. 191 7 191 8 1 9 1 9 .. . . 192 0 192 1 192 2 192 3 1924.............. . 1 9 2 5 .. . 192 6 192 7 . 192 8 . 131.935.000 263.043.000 179.160.000 154.192.000 322.977.000 120.360.000 183.952.000 277.459.000 140.189.000 104, 022,000 163.098.000 231.876.000 156, 450,000 2-.8, 268,000 ............................ 209, 503,000 158, 247,000 276, 710,000 278.642.000 132, 210,000 163.282.000 174.120.000 183,000,000 168.110.000 183,860, 000 193.472.000 229.494.000 228,416, 000 248. 682, 000 303.412.000 268,335, 000 337, 565,000 262, o43, COO 258, 661,000 253.113.000 293, 384,000 266, 596,000 129.840.000 270.245.000 212.640.000 194.189.000 336.025.000 223.367.000 237.925.000 299, 714,000 , 54.008.000 100.242.000 77.065.000 79, 519,000 112.695.000 74.251.000 88.482.000 123.895.000 46.140.000 08, 757, 000 55, 266,000 72.229.000 68,628, 000 91, 378, 000 98.976.000 65.183.000 128.641.000 157.613.000 196, 2S3, 000 i 2 8 6 ,4 2 9 , 0 0 0 . 221.404.000 317.070.000 I 3 1 0 .8 6 9 .0 0 0 I 4 0 7 ,2 ^ ,0 0 0 : 3 7 3 .8 6 6 .0 0 0 i 203.449.000 j 260.823.000 I 292, 724,000 ] 5.216.000 7.202.000 8.160.000 8,505,000 10.530.000 14.385.000 23.179.000 39.712.000 28,993, 000 21, 780, 000 25.785.000 63.374.000 27,820, 000 39,788, 000 24,376, 000 17.150.000 35, 256,000 22, 274,000 21.530.000 13.410.000 12.302.000 13.324.000 12.870.000 7.999.000 14.196.000 6.895.000 10,331, 000 7.732.000 10.089.000 16. 671,000 30.890.000 21, 795,000 18.690.000 25.201.000 18, 709,000 Far\m land valuations— Minnesota, North Dakota, South Dakota, and Montana, from circular No. 101, December, 1929, Department of Agriculture [1912 to 1914— ICO per cent] M innesota............. N orth D akota___ South D ak ota___ M o n ta n a ................ ! 1912 to 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 192, 1914 1927 1928 j 1929 | 100 100 100 100 145 100 97 70 122 112 108 94 138 118 116 100 155 124 126 106 167 213 212 130 1 145 141 145 ; 181 j 173 114 i 126 105 187 136 146 96 177 128 126 87 170 114 117 81 159 109 115 75 I 155 105 107 72 140 99 96 71 138 98 95 72 j ! ! i -2 -1 -1 +2 Sales of farms for delinquencies, Minnesota, North and South Dakota, Montana NUMBER OF FARMS PER 1,000 CHANGING OWNERSHIP DUE TO MORTGAGE FORECLOSURES, DELINQUENT TAX SALES, BANKRUPTCIES, ETC. Default sales 1926 TnitedlStates average.. 21.6 M inn esota......................... 30.6 N orth D akota.............. . 59.0 South D akota__________ 66.1 1927 1928 ! 1929 23.3 22.8 29.2 31.9 61.1 55.9 66.1 | 57.9 69.0 I 56.4 Per cent of default to all sales T otal sales 19.4 30.1 37.7 35.0 39.2 1926 1927 1928 61.4 57.9 91.8 93.0 108. 5 68.5 61.4 97.6 101.7 117.6 66.0 02.4 98. 5 99.6 114.0 1929 57.9 ! 88.5 ! 80. 2 ■ : 71.8 I 104.1 1926 ; 1927 35.1 52.8 64.2 71.0 65.3 : ; i ; i ! 1928; 1929 34.0 34.5 ! 47.9 • 51.1 i 62.6 ; 50. 7 j 64.9 5 8 .i : 49.4 ; 58.6 ESTIMATED NUMBER OF FARMS AND ACREAGE SOLD UNDER DEFAULT. YEARS—1926, 1927, 1928, AND 1929 Farms M innesota________________________ ;_____________________________________________________ North D akota__________________________________________________________________________ South Dakota__________________________________________________________________________ ________ _________________________________________________________ _____ _____ Montana ! 1 33.5 51.4 47.0 48.7 37.6 FOUR Acreage 22,898 16, 241 17,895 10,833 3,663, 680 7,341,002 7, 193,970 7 , 621,434 67,867 25,820,086 BRANCH, CH AIN , AND GROUP BANKING 891 Range of wheat prices, Minneapolis Chamber of Commerce highest cash grade January February 1.82 - 2 .0 2 % 1. 7 3 % -l. 99 191 7 ..............— 191 8 2. 23% 2 .23 % 2.231-2-2.34 1 9 1 9 ........................... 2. 2 3 % -2 .28 192 0 ................ 2.80 -3 .5 0 1 2.60 -3 .1 0 1. 6 4 % -l. 95% ; 1 .5 5 % -1 .7 8 % 192 1 192 2 1 .2 0 % -1 .4 1 % : 1.37 -1 .6 3 % 192 3 _____ _____ 1 .1 6 % -1 .43$* ! 1.18 -1 .4 2% 192 4 ___________ 1 .12% -1. 30 % 1 .14% -1. 31% 192 5 1.71 -2 .2 6 % 1. 7 0 K -2 .22 1. 6 7 % -l. 96% 1. 6 0 % -l. 88% 192 6 .................... 1 .3 8 % -1 .4 9 % 1 9 2 7 - ............. ............ 1 .4 0 % - l. 50 1928............................. 1. 3 4 % -l. 75 1.3134-1. 77% July 191 191 191 192 192 192 192 192 192 192 192 192 7 8 9 0 1 2 3 4 5 6 7 8 ■ 2 .3 8)4 -3 .00 .............. 2 .2 3)4 -2.40 ______ 2.57 -3 .0 5 ............ 22.40 -3 .1 0 1.29 -1 .9 2 1 .3 2 % -l. 59% ................... 1 .0 1 % -1 .37 1 .2 2)4 -1.61 1.48 -1 .8 5 % 1. 61J4-1.92% 1 .4 0 % -l. 64 1.2714-1.80 March April M ay June 1. 9 3 % -2 .12 2 .23 % 2. 23% -2. 53 2.65 -3 .2 5 1. 5 3 % -l. 79% 1 .4 4 % -l. f 2 % 1 .1 8 % -1 .41% 1 .1 0 % -1 .33% 1.40 -2 .2 2 1 .5 3 % - l .78% 1 .3 0 % -l. 48% 1 .3 8 % -1 .8 1 % -2 .9 0 2. 23% 2.50 -2 .9 2 2.90 -3 .3 5 1.3434-1.64% 1 .5 0 % -l. 73% 1 .21Jg-l. 51 1 . 1134 - 1 .3 1 % 1.34 -1 .8 6 % 1. 5 4 % -l. 76% 1 .3 3 % -l. 40% 1. 4 3 )4 -2 .13% 2. 67% -3. 54 2 .23 % 2.55 -2 .8 3 2.85 -3 .4 5 1 .41% -1. 76% 1 .4 7 % -l. 71% 1 .1 6 % -1 .45 1 .1 2 % -1 .35% 1 .5 4 % -l. 90 1 .5 7 % -l. 71 1.3834-1.65% 1 .4 9 % -2 .09% 2.3234-3.25 2 .2 3 % 2.44 -2 .6 2 22.75 -3 .2 5 1.3434-1.83% 1 .3 5 % -l. 60% 1 .0 5 % -l. 38% 1 .1 1 % -1 .51% 1 .4 9 % -l. 87% 1. 5 5 % -l. 78 1.413^-1.65 1.43 -1 .8 4 August September October N ovem ber December 2.30 -3 .0 5 2.2334-2.26 2.40 -3 .0 0 2.30 -2 .9 5 1 .3 4 % -l. 70% 1 .0 6 % - l .44% 1 .0 9 % -l. 34% 1.28 -1 .5 6 % 1 .5 3 % -1 .8 4 % 1 .4 1 % -1 .69% 1 .3 7 % -l. 65% 1.0734-1.52% 12.21 2 .2 3 % -2 .25% 2.45 -3 .0 0 2 .35% -2. 75% 1.4034-1.60% 1.06 -1 .2 0 % 1 .1 3 % -1 .33% 1. 2 6 % -l. 58% 1 .3 5 % -l. 74% 1.39 -1 .5 6 % 1 .3 0 % -l. 38% 1 .0 7 % -l. 44% 1 2.21 2. 2334-2.24% 2.65 -2 .9 5 2.0034-2.36 1.22 -1 .4 5 % 1 .0 6 % -l. 22% 1.14 -1 .3 0 % 1. 3 7 % -l. 69% 1. 3 5 % -l. 78 1 .4 2 % -l. 58% 1.23 -1 .5 6 1 .0 6 % -l. 35% 2 .2334-2.25% 2.75 -3 .2 0 1 .4 9 % -2 .18 1 .1 9 % -1 .40% 1.15 -1 .3 0 % 1 .0 9 % -l. 27% 1 .37 % —1. 75% 1 .4 7 % -l. 81 1.3734-1.52 1.2434-1. 59% 1 .0 7 % -l. 37% 2.21 2.2334-2! 25 3.00 -3 .4 0 1.57 -1 .8 5 % 1.21 -1 .3 6 % 1.1634-1.34% 1 .0 7 % -l. 25% 1 .5 3 % -2 .07 1 .5 9 % -l. 95% 1 .4 1 % -1 .50 1.28 - 1 .6 6 % 1.0734-1- 36 2.11 1 Governm ent prices started. 2 Fixed prices expired. Mr. W a k e f i e l d . In 1913 the total banking resources in our district were $755,000,000. In 1920 they were $1,855,000,000, and a year later had declined to $1,512,000,000. I mention that because at the present time our banking resources are again on the increase, and because I want it distinctly understood that, in spite o f all o f the statements which I will make here o f the difficulties and disasters which we have experienced, we still have a fairly sound and coming section of the country. Fundamentall}r and basically there is not any better part o f the United States than the ninth Federal reserve district. Everything is there to grow and to build with, and if we can find a satisfactory method of stopping these calamities which have been with us these years, I am sure it will not take very long for us to be again on the upgrade. There are remaining now about 2,300 banks in the ninth Federal reserve district. In making this statement I want the committee to know that the institutions around which the First Bank Stock Cor poration was built are the First National Bank of St. Paul and the First National Bank of Minneapolis, each institution with approxi mately $100,000,000 o f deposits, both old banks which have been in existence since 1868, and that those banks have had and now have as their customers a great many hundreds o f small unit banks o f the district, and that our desire and our efforts are and have been de voted to supporting the small unit banks in every manner possible. Phev to-day are our customers, and these things we are undertaking to do we would not permit to interfere with their business in any manner possible, because they are entitled to every possible help ancl support. 892 BRANCH, CH AIN , AND GROUP BANKING As Mr. Decker told you yesterday, during the years 1921 and 1922 the Twin Cities banks wene into the Federal reserve bank for the maximum amount practically that they could borrow and turned around and furnished that money to the small unit banks in the territory in an effort to carry them through the extreme difficulties o f that time. Now, I think that the officials of the Twin Cities banks, the North western National, the First St. Paul, the First National o f Minne apolis, undoubtedly saved a great many possible closings that may have taken place if they were not there ready and willing to help and assist those small banks. In reaching our decision to go into the group banking business, it was based upon these factors: This thing has been discussed over several years in our territory— we felt, because o f the realization that, with the experience that we have had. our territory must continue to be in a depressed and un satisfactory situation until the time came when there were banking facilities of the right character provided over the territory, and we have studied that and worked on it. Mr. Decker and the Northwestern National people were the first to conclude to undertake a movement o f this kind. We were all reluctant to do it. I do not think any of us who were engaged in the banking business in the Twin Cities were anxious tp assume the responsibility and set out and become interested in the banking situation over the entire territory. So we moved rather slowly. My own associates, at first, felt we would involve ourselves in exactly the same undertaking, but that we could do identically the same thing without forming a group tied down to the First National Banks of St. Paul and Minneapolis. So, we undertook to handle it in a different way, and this statement will verify what Mr. Decker said yesterday about the attitude o f the banks in the territory. We undertook to form a separate corporation, controlled by the First National Bank of Minneapolis and the First National Bank o f St. Paul and, through it, go into the various com munities and acquire a controlling interest in various banks. W e undertook that operation over a period o f about six months—long enough to discover that the people out in the territory absolutely were not interested in selling a control of their bank, nor were they willing to sell it entirely, but they were very anxious to have us form the same type o f organization as the Northwest Banking Corporation put into effect, in an undertaking looking toward the straightening up and carrying on o f the banking business of the territory. So, a few months later, we changed our plan and adopted identi cally the same plan as used by the Northwest Banking Corporation and, at that time, we exchanged the capital stock o f the First Na tional Bank o f St. Paul, the First National Bank o f Minneapolis, and the Metals Bank & Trust Co. o f Butte, Mont., and the First National o f Great Falls, Mont., and the Western Montana Bank of Missoula. They formed our original group. W e got together with the different interests involved, agreed upon a basis o f capitalization and incorporation, and made an exchange o f stock with those particular banks and, from that time, have been adding additional banks through the exchange of stock as oppor BRAN"OH, CH AIN, AND GROUP BANKING 893 tunity offers, and it seemed desirable to do so until, at the present time, we have a group, a statement of which each one o f you has before you. Now, our plan provides for retaining the local management and local directors in exactly the same manner as described yesterday. A t this point I am going to file some information, because I want to give certain information at this time and have already men tioned this list. In the questionnaire which came from Mr. McFadden he asked for certain information. First, we were asked for a copy of the charter, date o f organization, and by-laws. I have a copy o f the charter which is attached here, and which I will offer at this time for the record. Then, there is requested a list o f the directors of our holding com pany, showing the practical business occupation o f each, which is in this pamphlet which I am filing also. Then the number, name, location, capital, surplus, deposits, and resources o f each bank acquired, showing which are national, which are State members o f the Federal reserve system, and which are nonmembers. Then a list by name and capital structure o f each corporation other than banks, the majority o f the stock of which is owned by our hold ing company. That is contained in the pamphlet. [Reading:] S tate fu lly the m ethod o f acq u irin g a bank, w hether by cash, p urchase o f stock or b y exchange o f stock, and the m ethod o f negotiation. Now, I have a statement here, attached to this [exhibiting], which I will file, but which I will read at this time, because it describes the method. W e have a cq u ired con trollin g interest in the va riou s ban ks and corporations com p risin g our grou p in the fo llo w in g m a n n e r: (a ) B y p urchase o f their stock f o r cash. (b ) B y in corp ora tin g new banks, and paying in the ca p ita l in cash. ( c ) B y exch a n gin g stock o f this corporation fo r stock o f the banks. (d ) B y a com bin ation o f (a ) and ( c ) . I n som e cases w e have solicited the affiliation, but in a la rge m a jo rity o f cases w e have been approached by the banks them selves. In every case a v ery thorou gh exa m ination is m ade b efore the p urchase is com pleted, and all unde sirab le assets a re eith er rem oved fro m the bank or insured b y adequate gu ar anty. In som e cases w h ere un desirable assets a re rem oved, the accepted assets a re gu aran teed b y d eposit o f a portion o f our stock, given to them in exchange fo r theirs. W e require a ll depositing stockhold ers to gu aran tee the v a lid ity o f their stock, and a lso require them to sign a gu aran ty p rotectin g us against a n y lia b ilities o f the ban k existin g on the date on w h ich the deal is closed, and n ow show n on the balance sheet. T he num ber o f shares o f ou r stock given in exchange fo r the stock o f affiliating bank or corporation is determ ined both b y the am ou nt o f net ca p ita l assets w h ich w e require, and by the earning p ow er o f the ban k or corporation over a p eriod o f years. The methods are similar to those described by Mr. Decker yes terday. T h e ca p ita l stru ctu re o f the F irst B ank Stock C orp oration is com posed solely o f fu lly p a id an d nonassessable shares o f the p ar value o f $25 per share o f ou r ca p ita l stock. T h ere w as outstanding on D ecem ber 31 a total o f 3 016.870.57 shares o f th is stock w ith a p ar va lu e o f $75,421,764.39. T he stockholders are d istributed geog ra p h ica lly as fo llo w s : M inneapolis, 6,753 s tock h old ers; St. Paul, 2,345 stock h old ers; M innesota (ou tsid e o f T w in C itie s), 3,201 s to c k h o ld e rs ; M ichigan, 383 stock h old ers; M ontana. 987 stock h old ers ; N orth D akota, 892 sto ck h o ld e rs ; South D akota, 516 sto c k h o ld e rs ; W is consin, 446 s tock h old ers; other States, 596 stockholders o r a total o f 16,119 stockholders. 894 BRANCH, CH AIN , AND GROUP BANKING W ith the excep tion o f 200,000 shares sold throu gh F irs t M inneapolis Co. and F irs t St. P a u l Co. to th e gen eral p ublic at $47.50 per share, and 32,000 shares sold to officers and em ployees o f the corp oration s affiLated w ith F irs t B an k S tock C orp ora tion a t $42.50 per share, all o f th e stock h a s been issued in e xch a n g e fo r the stock o f banks and corporation s n ow affiliated w ith us, and n o attem pt h a s been m ade to otherw ise con trol its d istribution. I will file that statement. Mr. S t r o n g . Without objection it is received. (The statements referred to are printed in full as follow s:) C e r t if ic a t e of I n c o r p o r a t io n F i r s t B a n k S t o c k C o r p o r a t io n N o v e m b e r 5, 1929 of as A m ended, F irst. T h e nam e o f this corporation is F irst B an k S tock C orporation . Second. Its p rin cip a l office in the State o f D elaw are is to be lo ca te d a t 900 M a rket- Street, in the city o f W ilm ington , cou n ty o f N ew Castle, and the nam e an d a d d ress o f its resident agent is C orp oration S ervice Co., 900 M arket Street, W ilm in g ton , Del. T h ird . T h e nature o f the business and th e ob jects and purposes to b e tra n s acted, prom oted, and ca rried on are to do any o r all o f th e things h e re in a fte r m ention ed as fu lly and to the sam e extent as n atural p ersons m ight o r co u ld do, v i z : ( а ) T o subscribe f o r or cause to be subscribed fo r, buy, ow n, hold , receive, acquire, sell, assign, transfer, hypoth ecate, pledge, or oth erw ise d eal in, handle, o r dispose o f the bonds, stocks, and other securities or evidences o f in d eb ted n ess created or issued b y any bank o r b y any other corp ora tion o r corporations, p a rt nerships, individuals, associations, w hether public, private, or m unicipal, o r a n y corp orate b od y or b y any g ov ern m en t; and w h ile the ow n er th ereof to possess and to exercise in resp ect th ereof all the rights,, pow ers and p rivileges o f ow n er ship, in clu d in g the rig h t t o vote thereon, and th e rig h t to tra n s fe r th e said securities to one o r m ore persons, firing, or corporation s, su b ject to v otin g trusts o r oth er agreem ents placin g in them the votin g p ow er o f said s e cu ritie s; to gu aran tee the paym ent o f principal o f a n d /o r interest upon a n y bon d s or oth er evid en ces o f in d eb ted n ess; and to gu aran tee the paym ent o f divid en d s on a n y o f the above-m entioned securities issued b y corporation s o r associa tion s in w h ich this corporation m ay at any tim e have an interest and to gu aran tee the p erform a n ce o f a n y con tract by, or otherw ise aid in any m anner, any oth er corp ora tion o r associa tion in w h ich this corporation shall at any tim e h a ve an interest. ( б ) T o loa n m oney upon secu rity or otherw ise, eith er fo r its e lf o r as agent fo r others. ( c ) T o organize, incorp orate, reorganize, m erge, con solid ate, and finance banks, com panies, corporation s, join t-stock com panies, syndicates, an d a ssocia tion s o f a ll kinds engaged or to engage in any la w fu l k in d o f business, and to u n d erw rite, su bscribe fo r , and indorse the bonds, stocks, securities, deben tures, notes, o r un dertakings o f any such com panies, corporation s, jo in t-s to ck com panies, syndicates, and a ssociations, and to m ake any gu aran tee in con n ec tion th erew ith o r oth erw ise f o r the paym ent o f m oney or f o r the p e rfo rm a n ce o f any ob lig a tion or undertaking, and to do a n y and a ll things necessary or con venient to ca rry any o f such purposes in to effect. ( d ) T o purchase, lease, or oth erw ise take, hold, sell, exchange, tra n sfe r, repair, m aintain, im prove, m ortga ge and in any other m anner deal in and deal w ith rea l p rop erty, m ix ed and personal p rop erty, w h erever situate, w h eth er w ith in o r w ith ou t the State o f D ela w a re. ( e ) T o a cquire th e good w ill, rights, and prop erty, and to take o v e r the w h ole o r p a rt o f th e assets and lia b ilities o f any person, firm , associa tion , o r co rp o ra tion , and to p a y f o r the sam e in cash, the stock o f this corp oration , bonds, o r o th e rw is e ; to h old o r in any m anner dispose o f the w h ole o r any p a rt o f th e p rop erty so a cq u ire d ; and to con du ct in any la w fu l m anner the w h o le o r any p a rt o f th e business and p rop erty so acquired, and to e xe rcise all th e p o w e rs n ecessary o r con venient in and about the con du ct and m anagem ent o f such business. ( / ) T o p urchase or otherw ise acquire, hold, use, sell, and in a n y m an ner d ispose o f and deal in patents, inventions, im provem ents, processes, tra d e m arks, tra d e nam es, rights, and licenses secured un der letters patent, co p y righ ts o r oth erw ise, and to gran t licen ses o r other rig h ts therein. BRANCH, CH AIN , AND GROUP BANKING 895 (ft) T o enter into, make, and p erform con tracts o f any and every kind fo r any la w fu l purpose, w ithout lim its as to am ount, w ith any person, firm, associa tion o r corporation , m unicip ality, county, State, T errito ry , or govern ment. (h) T o b orrow o r ra ise m oneys f o r a n y o f the p urposes o f this corp oration , and from tim e to tim e, w ith ou t lim it as to am ount, d raw , m ake, accept, indorse, execute, and issue p rom issory notes, dra fts, bills o f exchange, w arran ts, bonds, debentures, and oth er negotiable or non negotiable instrum ents and evidences o f indebtedness, secure the paym ents th ereof and o f th e interest thereon by m ortga ge upon, or pledge, or con veyan ce, or assignm ent in tru st o f, the w h ole o r any p a rt o f the p rop erty o f this corporation , real o r p ersonal, in clu d in g co n tra ct rights, w h eth er at the tim e ow n er or th erea fter acquired, and sell, pledge, o r oth erw ise dispose o f such bonds or other ob liga tion s o f this corp oration fo r its corp ora te purposes. (i) T o purchase, hold, and reissue the shares o f ca p ita l stock, p rovided it shall not use its fu n ds or prop erty fo r the purchase o f its ow n shares o f ca p ita l stock w h en such use w ou ld cause any im pairm ent o f its cap ital, and, furth er, that shares o f its ow n ca p ita l stock belonging to it shall n ot be voted d irectly o r ind irectly. O') T o ca rr y on any and a ll o f its operation s and business and to prom ote its o b jects w ith in the State o f D ela w a re and elsew here w ith ou t restriction s as to place o r am ount. (fc) T o d o any o r all o f the things set fo rth to the same extent as natural persons m ight o r cou ld do, and in any p a rt o f the w orld , as p rincip als, agents, con tractors, trustees, o r otherw ise, alone or in com pany w ith others. T h e foreg oin g cla u ses shall be con strued both as o b je cts and p ow ers, and it is hereby exp ressly p rovid ed that the foreg oin g enum eration o f specific pow ers is in fu rth era n ce o f and in a d d ition to, and not in lim ita tion o f, the general p ow ers con ferred b y th e law s o f the State o f D elaw are. F ourth . T h e to ta l authorized ca p ita l stock o f this corporation is 10,000,000 shares o f the p a r va lu e o f $25 each. Shares o f the capital stock o f this co rp o ra tion m ay be issued b y the corporation fro m tim e to tim e f o r such con sid era tion , not less than the p a r va lu e th ereof, as m ay be fixed fro m tim e to tim e b y the b oard o f d irectors. A t all m eetings o f the stockhold ers o f this corporation each stockholder shall be entitled to one vote fo r each share o f ca p ita l stock held b y him . T h e holders o f the ca p ita l stock o f this corporation shall have the preem ptive righ t to p urchase shares o f the ca p ita l stock o f the corporation now o r here a fte r authorized w h ich m ay fro m tim e to tim e he issued and sold save and excep t that an aggregate o f 500,000 shares o f the corporation m ay be issued fo r cash w ith ou t offerin g the sam e to the holders o f cap ital stock p ro rata fo r sub scrip tion and that any stock o f the corporation m ay be issued and exchanged fo r stock o f any bank, banking association, trust com pany or other corporation o f w h atsoever nature, w ith ou t so offerin g the sam e to the holders o f cap ital stock. F i f t h : T h e m inim um am ount o f cap ital w ith w h ich it w ill com m ence business,, is $1,000. S ix t h : T h e nam e and p lace o f residence o f each o f the in corp ora tors are as fo llo w s : S. J. M ackey, W ilm ington , D e la w a r e ; J. Skrivan, W ilm in gton , D e la w a r e ; H . K ennedy, W ilm ington , D elaw are. S even th : T h e existen ce o f this corporation is to be perpetual. E ig h th : T he priva te p rop erty o f the stockholders o f this corporation shall not be su b ject to the p aym ent o f corporate debts to any extent w hatever. N in t h : T h e num ber o f d irectors o f th is corporation shall be fixed and m ay be altered from tim e to tim e as m ay be p rov id ed in the by-law s. In case o f any increase in the num ber o f directors, the a d d itional d irectors m ay be elected b y the b oard o f d irectors to hold office until the n ext annual m eeting o f the stockh old ers and un til their successors are elected and qualified. In case o f va cancies in the board o f directors, the rem aining d irectors m ay elect directors to fill such vacancies. D irectors o f this corporation need n ot be stockholders therein and need n ot be elected by ballot. T e n t h : In fu rth era n ce and n ot in lim ita tion o f the p ow er con ferred b y statute, the b oard o f d irectors is exp ressly a u th oriz ed : (a) T o fix, determ ine, and va ry from tim e to tim e the am ount to be m ain tained as surplus and the am ount or am ounts to be set a p art as working: capital. 100136—30— v o l . 1 p t 8------8 896 BRANCH, CH AIN, AND GROUP BANKING (&) T o adopt, am end, alter, change, add to or repeal by-law s o f this co rp o ra tion, w ith ou t any a ction on the p art o f the stockholders. T h e by-law s a dopted b y the d irectors m ay be amended, altered, changed, added to o r repealed b y the stockholders. ( c ) B y resolu tion passed by a m a jority o f the w h ole board , to designate one o r m ore com m ittees, each com m ittee to con sist o f tw o (2 ) o r m ore o f the d irectors o f the corporation , w h ich com m ittees sh a ll have and exe rcise (e x ce p t w hen the b oa rd o f d irectors shall be in session ) such p ow ers and righ ts o f the b oard o f d irectors in the m anagem ent o f th e business and a ffa irs o f the co r p ora tion as m ay be p rov id ed in the by-law s or in said resolution , and shall have p cw i.r to authorize the seal o f this corp ora tion to be affixed to all p a p ers w h ich m ay require it. ( d ) T o authorize and cause to be executed m ortgages and liens, w ith ou t lim it a s to am ount, upon the real and personal p rop erty o f this corporation . ( e ) F rom tim e to tim e to determ ine w h eth er and to w h at extent, a t w h at tim e and p lace, and under w h at con dition s and regulations the a ccou nts and b ooks o f this corporation , o r any o f them, shall be open to the in sp ection o f a n y s to c k h o ld e r; and n o stockhold er shall have any rig h t to inspect any account, books, or docum ent o f this corporation excep t as con ferre d b y statute o r b y the by-la w s, or as au th orized by a resolution o f the stockholders o r b o a rd o f d irectors. ( f ) T o sell, assign, convey, or otherw ise dispose o f a part o f the prop erty, assets, and effects o f this corporation, less than the whole, or less than substan tia lly the w h ole thereof, on such term s and con dition s as they shall deem a d visable, w ith ou t the assent o f the stockholders in w ritin g o r o th e rw is e ; and a lso to sell, assign, tra n sfer, convey, and otherw ise d isp ose o f th e w h o le o r su b sta n tia lly the w h ole o f the property, assets, effects, fra n ch ises, and good w ill o f this corporation on such term s and con ditions as they shall deem a d vis able, but on ly w ith the w ritten consent or pursuant to the affirm ative vote o f the h old ers o f a m a jo rity in am ount o f the stock then h a vin g votin g p ow er an d a t the tim e issued and outstanding, but in any event not less than the am ount requ ired b y law. ( g ) A ll o f the pow ers o f this corporation. in so fa r as the sam e la w fu lly m ay be vested by this certifica te in the board o f d irectors, a re h ereby co n fe rre d upon the b oard o f d irectors o f this corporation. E leventh. In the absence o f fra u d , no con tract or transaction betw een this corp ora tion and any other association or corp oration shall be a ffected b y the fa c t that any o f the d irectors or officers o f this corp oration are interested in o r are d irectors o r officers o f such other a ssociation o r corporation , and any d irector o r officer o f this corp oration in d ivid u a lly m ay be a p a rty to, or m ay be interested in, a n y such con tract or transaction o f this c o r p o r a tio n ; and no such con tra ct o r tra n saction o f this corporation w ith any person o r persons, firm, a ssocia tion , or corporation shall be affected by th e fa ct th a t any d ire cto r o r officer o f this corp oration is a party to, or interested in, such co n tra ct o r tra n s action, o r in any w a y connected w ith such person or persons, firm , a ssociation, o r c o r p o r a t io n ; and each and every person w ho m ay becom e a d ire cto r o r officer o f this corp ora tion is hereby relieved from any lia b ility th a t m igh t o th erw ise e x is t fro m thus con tractin g w ith this corporation fo r the benefit o f h im se lf o r a n y person, firm, association, or corporation in w h ich h e m ay be in a n y w a y in te re s te d : Provided, however, T h a t in any such case the fa c t o f such interests shall be disclosed to the other d irectors or stockholders a ctin g upon o r in referen ce to such con tra ct or transaction. T w elfth . T h is corporation m ay in its b y-la w s m ake any o th e r p rovision s o r requirem ents fo r the m anagem ent or con du ct o f the business o f th is c o r poration , p rov id ed the sam e be not incon sisten t w ith the p rov ision s o f th is certifica te o r con tra ry to the la w s o f the State o f D elaw are, o r o f the U nited States. T hirteenth. T h is corporation reserves the righ t to am end, a lter, change, add to, or repeal a n y p rovision con tained in this certifica te o f in corp ora tion in the m an ner n ow or h ereafter p rescrib ed by statute, and all rights co n fe rre d upon officers, d irectors, and stockholders herein are gran ted su b ject to this reserva tion. W e, the undersigned, being all o f the in corp ora tors fo r the purpose o f fo rm in g a corporation , in p ursuance o f an act o f the L egislatu re o f the State o f D ela w a re entitled “ A n act p rov id in g a general corporation l a w ” (a p p roved M a rch 10, 1899), and the act am en d atory th ereof and supplem ental thereto, d o m ake and 897 BRANCH, CH AIN , AND GROUP BANKING tile this certifica te o f incorporation, hereby declaring and ce r tify in g that the fa cts herein stated are true and accordin gly hereunto have set ou r respective hands and seals this 1st day o f A pril, A. D . 1929. S. L. Mackey. [sejA.l.] J. Skrivan. [seal.] H. K e n n e d y , [ s e a l .] In the p resence o f : J o h n W . G a il e y . B y -L a w s of F ir s t B ank Stock C o r p o r a t io n as A m ended ARTICLE I S e c t i o n 1. T h e p rincip al office o f the corporation in D ela w a re shall be in W ilm ington , and the resident agent in charge th ereof shall b e C orp oration S ervice Co. The corp oration m ay also have offices in the cities o f M inneapolis and St. P aul, in the S tate o f M innesota, and a t such other p laces as the board o f d irectors m ay fro m tim e to tim e designate. Sec. 2. T he corp ora te seal shall be circu la r in form and h ave inscribed thereon the nam e o f the corporation , the year o f its in corp ora tion (1929) and the w ord s ' ‘ C orporate Seal, D ela w a re.” ARTICLE I I , STOCKHOLDERS 1. T h e annual m eeting o f the stockholders o f the corporation, begin n ing w ith the yea r 1930, shall be held at its office in M inneapolis or a t its office in St. P aul as m ay be determ ined by the execu tive com m ittee and stated in the notice o f said m eeting m ailed to the stockholders, on the first T uesday o f J a n u a ry o f each yea r at 3 o ’clock p. m. (o r i f said day be a legal holiday, then on the n ex t succeeding d a y not a h o lid a y ), at w h ich m eeting the stock holders shall elect b y ballot b y p lu ra lity vote a b oard o f d irectors con sisting o f not less than 50 nor m ore than 150 m em bers. E ach stock h old er shall be entitled to one vote in person or b y p ro x y f o r each share o f stock held b y him. N o change o f the tim e or p lace o f a m eeting fo r the election o f d irectors, as fixed b y the by-law s, shall be m ade w ithin 60 days n ext b e fo re the day on w h ich such election is to be held. Sec. 2. A complete list of stockholders entitled to vote, arranged in alpha betical order, shall be prepared by the secretary and shall be open to examina tion by any stockholder at tlie place of election for 20 days prior thereto and during the whole time of election. Sec. 3. Special m eetings o f stockholders m ay be called b y the chairm an o f th e board o f d irectors o f the presiden t and shall be ca lled on th e request in w ritin g o f any three d irectors, o r on the request in w ritin g o f stockhold ers o f record ow n in g n ot less than on e-fou rth o f the ca p ita l stock outstanding w h ich ca ll o r request shall in each case sp ecify the p urp ose o f th e m eeting so ca lled o r requested. T h e n otice o f such m eeting shall in gen eral term s state the p urpose o f such m eeting and no business shall be transacted th erea t excep t as stated in the notice thereof. A ny such m eeting m ay be held at such place w ithin or w ithout the State o f D ela w a re as m ay be fixed b y th e b oard o f d irectors, or by the execu tive com m ittee, o r the ch airm an o f the b oa rd o r the president, and as m ay be stated in the notice o f such m eeting. Sec. 4. N otices o f all m eetings shall be m ailed b y the secreta ry to each stock hold er o f record at his last know n post-office address as th e sam e appears on the book s o f the corporation . N otices o f annual m eeting shall be m ailed 10 da ys p rior to the date thereof, and n otices o f special m eetings shall b e m ailed o days p rio r to the date thereof. Sec. 5. A t a n y annual or special m eeting o f the stockholders, a m a jo rity o f the shares o f ca p ita l stock o f the corp ora tion then outstanding, represented by rhe ow ners th ereof o r by their p rox ies du ly authorized in w riting, shall con stitute a quorum fo r the tra n saction o f business. A n y m eeting o f the stockholders at w h ich a m a jority o f the ca p ita l stock then outstanding is not so represented, shall be a d jou rn ed fro m tim e to tim e, not exceed in g 30 days in any one ad journm ent, until a m a jo rity o f the stock is so represented, and at any a d jou rn ed m eeting o f the stockholders, a quorum being present, a n y and all business m ay be transacted w hich m ight h ave been S e c tio n 898 BRANCH, CH AIN, AND GROUP BANKING tra n sacted a t the orig in al m eeting and w ith the sam e fo rce and effect, an d at any such a d jou rn ed m eeting, p rox ies intended fo r use a t the m eeting o rig in a lly ca lled shall be va lid unless such p rox ies oth erw ise provide. Sec. 6. T h e chairm an o f the board o f d irectors or the presiden t shall, in the ord er nam ed, preside over all m eetings o f stockholders, and i f neither o f su ch officers b e present, then the chairm an o f the m eeting shall be elected b y p lu ra lity v ote o f the stockholders. Sec. 7. T h e board o f d irectors m ay close the stock tra n sfer books o f the corp ora tion fo r a period not exceedin g 20 days p reced in g the d ate o f a n y m eet ing o f stockhold ers or the date fo r paym ent o f a n y d ividend o r the d ate f o r the a llotm ent o f rights or the date when any change or con version o r exchange o f stock shall go in to effect ; or, in lieu o f closin g the stock tra n sfe r books, the b oard o f d irectors m ay fix in advance a date, not exceed in g 20 da ys p re ce d in g the d ate o f any m eeting o f stockholders o r the d ate f o r the paym ent o f any d ivid en d or the date fo r the allotm ent o f righ ts or the date w hen a n y ch an ge o r con version or exchange o f stock shall go into effect, as a re co rd d ate f o r the determ in ation o f th e stockholders entitled to n otice o f and to vo te a t a n y such m eeting, o r entitled to receive paym ent o f a n y such dividend, o r to any such a llotm en t o f rights, o r to exercise th eir righ ts in respect o f a n y such change, con version o r exch a n ge o f stock, and in such case on ly such stock h old ers as shall be stockholders o f record on the d ate so fixed shall b e en titled to such n otice o f and to vote at such m eeting, o r to receiv e paym ent o f such d ividend, o r to receive such allotm ent o f rights, o r to e x ercise such rights, as th e ca se m ay be, n otw ithstand ing any tra n sfer o f a n y stock on th e b ook s o f th e corp oration a fte r a n y such record date fixed as aforesaid . ARTICLE I I I Section 1. T h e b oard o f d irectors o f the corp ora tion shall con sist o f suchnum ber o f d irectors as m ay b e elected b y the stockholders or board o f d ire cto rs from t ‘m e t o tim e, such num ber, how ever, to b e n ot less than 50 n o r m ore than 150. T h e d ire ctors shall h old office u n til the n ex t annual election and u n til th eir successors are elected and qu alify. T h e b oa rd o f d irectors m ay at any tim e, and fro m tim e to tim e, elect d irectors to fill va ca n cies am on g th eir n u m ber in a n y m anner a risin g and, w ithin the lim its as to num bers a bove set fo rth , m ay a t a n y tim e, and from tim e to time, elect ad d ition a l directors. A quorum o f th e b oard o f directors shall at all tim es con sist o f the sm allest num ber o f d irectors perm itted b y la w to con stitu te a quorum , i. e.. one-third o f the num ber o f p ersons w h o shall at a n y given tim e b e directors. D irectors need not be stockhold ers. Sec. 2. M eetings o f the b oard o f d irectors shall be held at such place, w ithin o r w ith ou t th e S tate o f D ela w a re, as m ay fro m tim e to tim e be fixed by resolu tion o f the board o r as m ay b e specified in the ca ll o f a n y m eeting. R e g u la r m eetings o f the board o f d irectors shall be held at such tim es and a t such p laces as m ay fro m tim e to tim e b e fixed b y resolution o f the board and special m eetings m ay be held at any tim e upon the ca ll o f the execu tive com m ittee, the ch airm an o f the b oard o f d irectors, o r the president, b y oral, telegrap hic, or w ritten n otice d u ly given, sent, o r m ailed to each d ire cto r n ot less than tw o days b e fo re the m eeting. A m eeting o f the b o a rd m ay be h eld w ith ou t notice im m ed iately fo llo w in g the annu al m eeting o f the stockholders a t the sam e place at w h ich such m eeting is held. N otice need not be given o f regu la r m eetings o f the board held a t tim es fixed b y resolution o f the board . Sec. 3. T h e b oa rd o f d irectors m ay, b y resolu tion o r resolution s, passed b y a m a jo rity o f the w h ole board , d esignate an execu tive com m ittee to con sist o f not less than 6 n or m ore than 15 d irectors, as the b oard m ay fro m tim e to tim e determ ine. In a d d ition to the m em bers designated b y the board, the p residen t o f the corp ora tion shall at all tim e ex-officio be a m em ber o f the ex ecu tiv e com m ittee. T h e execu tive com m ittee shall have and m ay exercise, w h en the board js not in session, all th e p ow ers o f the board o f d ire cto rs in the m anagem ent o f the business and affairs o f the corp oration and shall have p ow er to a u thorize the seal o f the corp ora tion to be affixed to all papers w h ich m a y require it, b ut th e execu tive com m ittee shall n ot h a ve p o w e r to elect m em bers o f th e b o a rd o f d irectors o r t o ch an ge the m em bership of, o r to fill v a ca n cies in the execu tive com m ittee o r to m ake o r am end b y -la w s o f the corp oration . In a d d ition to the fo re g o in g pow ers and w ith ou t in any m an ner lim itin g the sam e, the execu tive com m ittee is h ereby s p ecifically g ran ted th e fo llo w in g p o w e r s : BRANCH, CH AIN, AND GROUP BANKING 899 (a) T o issue shares o f tiie ca p ita l stock o f the corporation and w ith in the lim itations set forth in the certificate o f in corp ora tion to offer shares o f the ca p ita l stock o f the corporation fo r sale p ro rata to the stockholders o f the co r p ora tion or otherw ise as the execu tive com m ittee m ay from tim e to tim e deter m ine, and to offer shares o f the cap ital stock o f the corporation in exchange fo r shares o f stock o f any hank, banking association, trust com pany, o r other c o r p ora tion o f w hatsoever nature 011 such basis as the executive com m ittee m ay fro m tim e to tim e determ ine. (b) T o declare dividends upon the capital stock o f the corporation and to set a sid e such reserves as the executive com m ittee m ay determ ine advisable, ( c ) T o borrow m oney and to secure the repaym ent o f the sam e by pledge or m ortgage o f any or all o f the assets o f the corporation. ( d ) T o determ ine the term s and con ditions upon w hich the stockholders m ay exam ine the books o f the corporation and the extent o f such exam ination. (r) T o sell a part o f the assets o f the corporation less than the w h ole or less limn substantially the w hole (hereof. i h T o direct the closin g o f the books fo r the transfer o f shares o f the capital stock o f the corporation and to fix record dates fo r determ ination o f stockholders entitled to vote at m eetings o f the stockholders o f the corporation, or to receive dividends upon the capital stock o f the corporation, or to receive rights to pur chase additional shares o f the capital stock o f the corporation, or fo r any other purpose. (g) T o purchase property o f any sort or description fo r the use o f the cor poration. (h) T o appoin t officers o f the corporation, excepting only the chairm an o f the board o f directors, the president, and the vice presidents, and to determ ine the salary and com pensation o f ail o f the officers o f the corporation. (i) T o authorize the signing o f checks, notes, contracts, and other instrum ents fo r and on b eh a lf o f the corporation. (j) T o propose and declare advisable am endm ents to the certificate o f in cor p ora tion o f the corporation and to ca ll m eetings o f the stockholders to con sider the same. (fc) T o authorize the purchase by the corp oration o f shares o f its cap ital stock. (!■) T o fix the am ount o f or to w aive a bond upon the issuance o f certificates o f stock in lieu o f lost, destroyed, or stolen certificates. («<•) T o change the p rin cip a l office o f the corporation and the resident agent in charge thereof. (n) T o authorize the issuance o f scrip o f the corporation in lieu o f the fr a c tion a l shares and to determ ine the date upon w hich such scrip shall be and becom e void. ( 0 ) T o m ake application to the N ew Y ork Stock E xch an ge a n d / 01* the C hicago Stock E xch an ge fo r the listing thereon o f the shares o f the ca p ita l stock o f the corporation and to execute any and all instrum ents, and do a ll acts and things necessary or proper in ord er to cause said shares so to be listed, including the a ppointm ent o f N ew Y ork a n d /o r C hicago tra n sfer agents and registrars. (p) T o appoin t proxies and attorn eys in fa ct fo r the corporation t o vote upon shares o f stock o f any bank or other corporation ow ned b y this corp oration at m eetings o f stockholders o f such bank 01* other corporation. T he board shall have the pow er at any tim e to change the m em bership o f the e xecu tive com m ittee, to fill existin g va cancies in its m em bership, o r to d issolve it. The executive com m ittee m ay m ake ru les fo r the con du ct o f its business and m ay appoint such com m ittees 01* assistants as it shall fro m tim e to tim e deem necessary. F ive m em bers o f the execu tive com m ittee shall con stitu te a quorum but any less num ber th ereof m ay a d journ. W h ile the m em bers o f the executive com m ittee shall act only a s a com m ittee and the in dividual m em bers shall have no p ow er as such, still it shall n ot be essential that said com m ittee a ct on ly in m eeting but any a ction taken w ith the w ritten consent o f all mem bers o f the execu tive com m ittee shall be as valid and effectual as though fo rm a lly taken at a m eeting o f said execu tive com m ittee. S ec . 4. The board o f d irectors m ay also, by resolution or resolutions passed by a m a jo rity o f the w h ole board, designate one or m ore other com m ittees, each o f such com m ittees to consist o f tw o or m ore o f the d irectors o f the corporation w h ich, to the extent provided in said resolution or resolutions, shall have and .may ex ercise the pow ers o f the board o f d irectors in the m anagem ent o f the business and affairs o f the corporation, and shall have pow er to authorize the seal o f the corporation to be affixed to all papers which m ay require it. Such •committee or com m ittees shall have such names or names as m ay be determ ined 900 BRANCH, CH AIN, AND GROUP BANKING fro m tim e to tim e b y resolution adopted by the board o f d irectors. A m a jo rity o f the m em bers o f any such com m ittee m ay determ ine its a ction and fix th e tim e and p lace o f its m eetings, unless the board o f d irecto rs sh a ll oth erw ise provid e. T h e b oard o f d irectors shall h ave p ow er at any tim e to fill va ca n cies in, to ch an ge the m em bership of, or to dissolve any such com m ittee. ARTICLE IV S e c t i o n 1. The board o f d irectors, as soon as m ay be a fter the aunual election in each year, shall ch oose a ch airm an o f the board o f directors, a presiden t and tw o or m ore vice presidents, to serve u n til the next annual m eeting o f the d irectors and u n til their successors shall be elected and shall q u a lify . The b oard o f d irectors shall also appoint a secreta ry and treasu rer and such oth er officers, agents, and em ployees as it m ay deem proper, w h o shall serve d urin g th e pleasure o f the board o f d irectors. T h e office o f secretary and trea su rer m a y be h eld b y the sam e person and a vice p residen t o f the corp ora tion m ay also be eith er the secreta ry or treasurer. The ch airm an o f the board o f d ire cto rs and the p residen t shall be chosen from am on g the directors. Sec . 2. S u b ject to such lim itations as the b oard o f d irectors or the execu tive com m ittee m ay fro m tim e to tim e prescribe, the officers o f the corp oration shall ea ch h a ve such pow ers and duties as gen erally pertain to their resp ective offices, as w e ll as such pow ers and duties as m ay fro m tim e to tim e be co n fe rre d b y the b oard o f d irectors or by the executive com m ittee. The secretary shall be sw orn to the fa ith fu l discharge o f his duties. A n y o f the officers o f the co rp o ra tio n m ay be required to giv e bond fo r the fa ith fu l discharge o f their duties, in sucli sum and w ith such surety as the board o f d irectors or the execu tive com m ittee m ay fro m tim e to tim e prescribe. Sec. 3. The salaries of the officers shall be fixed from time to time by tlie board of directors or the executive committee and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. a r t ic l e v S e c t i o n 1. T he interest o f each stockholder o f the corporation shall be e v i denced b y a certifica te or certificates fo r shares o f stock in such fo rm as the board o f d irectors m ay from tim e to tim e prescribe. The shares o f the stock o f the corp ora tion shall be tra n sfera ble on the books o f the co rp ora tion b y the h o ld er th ereof in person or by h is attorn ey upon surrender fo r can cella tion o f a certifica te or certificates fo r the same num ber o f shares w ith an assignm ent and p ow er o f tra n sfer indorsed thereon or attached thereto d u ly executed, and w ith such p r o o f o f the v a lid ity o f the signature as the corp oration or its agents m ay rea son a bly require. Sec . 2. The certificates of stock shall be signed by the president or a vice president and by the secretary or an assistant secretary, provided that if such certificates are signed by a transfer agent or transfer clerk and by a registrar, the signatures of such president, vice president, secretary or assistant secretary may be facsimiles, engraved, or printed. Sec. 3. No certificate for shares of stock in the corporation shall be issued in place of any certificate alleged to have been lost, stolen, or destroyed, except upon production of such evidence of such loss, theft, or destruction, and upon delivery to the corporation of a bond of indemnity iu such amount and upon such terms and secured by such surety as the board of directors or the executive committee in its discretion may require. a r t ic l e vi S e c t i o n 1. T he books o f the corporation , excep t the orig in al or duplicate stock ledger, m ay b e kept outside o f the State o f D ela w a re at such p lace or p laces as the board o f d irectors or the execu tive com m ittee m ay fro m tim e to tim e determ ine. Sec. 2. T h e b oard o f d i r e c t o r or the exo utive com m ittee m ay authorize any officer o r officers, agent o r agents o f the corp oration , to enter in to any con tract o r execu te and deliv er any instrum ent in the nam e o f and on b e h a lf o f the corp oration , and such au th ority m ay be general or confined to specific instances, and unless so a uthorized b y the board o f d irectors or execu tive com m ittee no officer, agent, or em ployee shall have any p ow er or a u th ority to bind the co r p o BEAN OH, CH AIN , AND GROUP BANKING 901 ration by any con tract or engagem ent or to pledge its cred it o r to render it liab le p ecu n iarily fo r any purpose o r to any amount. N o loans shall b e con tracted on beh a lf o f the corporation and n o negotiable paper shall be issued in its nam e unless authorized by the board o f d irectors o r the execu tive com m ittee. W h en so authorized, any officer o r agent o f the corp oration m ay effect loans and advances at any tim e fo r the corporation from a n y bank, trust com pany, or other institution, o r from a n y firm, corporation, o r in d iv id u a l; and fo r such loans and advances m ay m ake, execute, and deliver p rom issory notes or oth er evidences o f indebtedness o f the co r p o r a tio n ; and w hen au th orized as a foresaid , as security fo r the paym ent o f any and all loans and advances to, and indebtedness and liab ilities o f the corporation, m ay, su b ject to the prov ision s o f the certificate o f incorp oration, m ortgage, pledge, hypoth ecate, or tra n sfer any real and personal p rop erty at any tim e held by the corporation , and to that end execute instrum ents o f m ortgage or pledge or otherw ise tra n sfer said property. Such au th ority m ay be general or confined to specific instances. A ll checks, d ra fts, or other ord ers fo r the paym ent o f m oney, notes, or other evidences o f indebtedness issued in the nam e o f the corporation, shall be signed by such person or persons and in such m anner as shall fro m tim e to tim e be determ ined by the b oard o f directors or the execu tive com m ittee. A ll fu n ds o f the corp oration shall be deposited from tim e to tim e to the credit o f the corp oration under such con dition s and in such banks, trust com panies, o r other depositaries as the board o f d irectors or the executive com m ittee m ay designate, or as m ay be designated by any officer or officers, agent or agents o f the corporation to w h om such p ow er m ay from tim e to tim e be delegated by the b oard o f d irectors or the executive com m ittee; and fo r the purpose o f such deposit any person or persons to whom such p ow er is so delegated m ay indorse, assign, and deliver checks, dra fts, and other orders fo r the paym ent o f m oney w h ich are payable to the ord er o f the corporation . U nless otherw ise ordered by the board o f directors, or the executive com m ittee, the ch airm an o f the b oard o f d irectors o r the president shall have fu ll p ow er and au th ority in beh a lf o f the corporation to attend and to act and to vote a t any m eeting o f the stockholders o f a n y corporation in w h ich the com p a n y m ay hold stock, and at any such m eeting shall possess and m ay exercise any and all the rights and pow ers incident to the ow nership o f such stock, and w hich, as the ow n er thereof, the corporation m ight h ave possessed and exercised i f present. The board o f d irectors or the execu tive com m ittee byresolution , fro m tim e to time, m ay con fer like p ow ers upon any other person o r persons. Sec. 3. The fiscal yea r o f the corporation shall begin on the 1st day o f Jan u a ry in each year and shall end on the 31st day o f D ecem ber follow in g. S ec. 4. Any stockholder, officer, or director may waive in writing any notice required to be given under these by-laws whether before or after the time stated therein. Sec. 5. The by-laws of the corporation may be amended, added to, rescinded, or repealed at any meeting of the stockholders, provided notice of the proposed change is given in the notice of the meeting. Subject to the power of the stockholders to amend, add to, rescind, or repeal any by-laws made by the board of directors, the board may make additional by-laws for the corporation and may from time to time amend, add to, rescind, or repeal any of these by-laws. State of M in n e s o t a , County of Hennepin, .s I, A . E. W ilson, do hereby ce rtify that I am the duly appointed, qualified, and a ctin g secreta ry o f F irst B ank Stock C orporation , and that the foreg oin g is a true and correct cop y o f the by-law s o f said corporation in effect at the date hereof. In w itness w h ereof I have hereunto set m y hand and the seal o f F irst B ank Stock C orp ora tion this 5th day o f N ovem ber, 1929. A. E. W i l s o n , Secretary. F ik s t B ank S t o c k C o h p o r a t io n W ith the a d op tion o f the Federal reserve act, banking in the U nited States w as established upon a definite region a l basis, w ithin areas h a vin g com m on econ om ic interests and bound together by established zones o f trade and avenues o f transportation. 902 BEANCH, CH AIN, AND GROUP BANKING T h e ninth F ederal reserve district, com p risin g the States o f M innesota, M on tan a, N orth D akota, and South D akota, the upper peninsula o f M ichigan, and jiorth w estern W isconsin, is cen tralized in the F ed era l R eserve B an k o f M inneapo lis. St. P a u l and M inneapolis are the largest cities w ithin the d istrict, the term i nal h ead quarters o f the ra ilroa d s traversing the territory, the seats o f m an y o f the la rg er industries and businesses serving the d istrict as a w hole, and the clea ra n ce centers o f a m a jor volu m e o f com m ercial tra n saction s orig in atin g w ith in the territory. F o r gen eration s the F irst N ational B anks o f M inneapolis and St. P a u l have ueen territoria l banks o f ap p roxim ately the same region n ow included w ith in the reserve d istrict. T hey a re the largest banks in the district, an d h ave a lw a ys been closely identified w ith the m a jo r fiscal a ctiv ities o f the N orthw est, servin g as the d epositories o f the territoria l industries and a lso as the re d is cou n t correspon den ts and reserve depositories o f th e m a jo rity o f the banks o f the sm aller cities and tow ns. ORGANIZATION In A ugu st, 1929, the stockholders o f these tw o banks in associa tion w ith a um ber o f the other leadin g banks o f the ninth d istrict decided to u n ite the strength o f their institutions w ith in a group organ iza tion , w h ich it w a s b elieved cou ld better serve this territory by creatin g a m edium throu gh w h ich the ban ks o f the N orthw est cou ld associate fo r com m on strength, im p roved service, an d fa cility . T h e F irst B an k Stock C orporation o f M inneapolis and St. P aul w as organ ized a s a cen tral h old in g com pany, a fford in g op p ortu n ity to the k e y banks o f the d istrict to affiliate throu gh com m on ownership, b rin g in g into a partnership rela tion the territoria l banks o f the m etrop olita n cities, the com m ercia l banks o f the in d u strial centers, and the a gricu ltu ra l ban ks o f th e ru ral areas. PRESENT SCOPE S in ce its org an iza tion the corp oration has grouped together 93 o f th e leadin g banks, trust com panies, and a llied financial houses, in clud ing m an y o f the oldest and m ost substantial institutions o f the territo ry w ith lo n g record s o f sound m anagem ent, substantial earnings, and notable service to th e ir com m unities. B y p oolin g th e interests o f these ban ks greater diversifica tion o f res: urces and risk is a ccom p lish ed ; each affiliate is enabled to m eet m ore a d e q u a tely th e seasonal needs o f its trad e area, w h ile p eriod ica l surpluses o f fun ds a ccu m u lated beyond local cred it needs can be con sta n tly and p rofitab ly em ployed su p p ortin g the general tra d e o f the territory. Sixty-seven cities n ow a re served b y affiliates o f the corp oration , as f o l l o w s : Cities State M innesota_______ ______________________________ _______ _____ ______________ ________________ M ontana ____ _____ ______ __ . . _____ ___________________ N orth D a k o ta________________________ _____ ____ __________________________________ _________ South D akota_________________________ _____ _____________________ _____ _____________________ M ichigan ____________________________ *_______________________________________________________ Territorial affiliates____________ ____ _____ _____________ _______ _____________ ___________ 24 13 17 10 3 U n its 44 15 17 12 3 2 O W N E R S H IP T h e F irs t B an k S tock C orp oration is te rrito ria lly ow ned. Its a uthorized ca p ita liza tion is 10,000,000 shares at $25 par, o f w h ich ap p roxim ately 3,030,000 shares a re outstanding, held by som e 16,000 in d ivid u a l stock h old ers resident a lm ost ex clu siv ely w ith in the d istrict. T hu s the territo ry as a w h ole p a rtici pates in the d istrib u tion o f the earnings o f the corporation . IN V E S T M E N T S AND F IN A N C IN G Supplem enting the usual ban king fu n ction s o f the affiliated m em bers o f the group, tw o m a jo r su b sid iaries a re m aintained. T h e F irs t Securities C or p ora tion p rov id es a gen eral investm ent and secu rities service op era tin g throu gh the banks o f the group and exten d in g its fa cilitie s to th e in v estin g p u b lic th rou g h ou t the N orthw est. BRANCH, CH AIN , AND GROUP BANKING 903: T h e F irs t B a n cred it C orporation is an agency f o r p rov id in g cre d it fa c ilitie s in specialized financing fields, p a rticu la r in the b u ild in g and con stru ctio n lines, financing in sta llation sales throu gh m an ufacturers and dealers. OPERATIONS O perations o f the F irst B an k S tock C orp ora tion contem plate th e reten tion in the hands o f loca l b oard s o f d irectors and resident officers o f the m anagem ent o f the ban kin g units. T h e cen tral organ iza tion a fford s a supplem entary, coop era tiv e service fu n ction in g throu gh several d ivision s and designed t o m aintain h ighly com petent m anagem ent in the units. P eriod ica l exam ination s, cen tral investm ent o f second ary reserves, adoption o f proven standards, exchange o f in form a tion and the brin gin g to bear o f train ed jud gm ents throu ghou t the entire system o f banks should insure their op eration at a m axim u m con stant o f efficiency, p rov id in g a degree o f security fo r depositors equal to that o f the greatest banks o f the nation. M ANAGEMENT M anagem ent o f the F irst B an k Stock C orp ora tion is vested in a b oard o f d ire ctors rep resen ta tive o f the m ost substantial interests o f the N orthwest, an execu tive com m ittee o f com m ercial, agricu ltu ra l, and investm ent bankers o f m any years exp erien ce in the territory served and a group o f op era tin g officers recru ited from the execu tive staffs o f the F irst N ational B anks o f St. Paul and M inneapolis. T h e execu tive com m ittee o f fifteen is com posed as f o l l o w s : C. T . Jaffray, ch airm an o f the board o f F irst B an k S tock C orporation , and p residen t o f the M inneapolis, St. P aul & Sault Ste. M arie R ailroa d . G eorge H . P rince, p residen t o f the corporation and ch airm an o f the F irst N a tion a l B an k o f St. Paul. L ym an E. W akefield, vice presiden t o f the corporation , p residen t o f the F ir s t N a tion a l B an k o f M inn eapolis and ch airm an o f the B oa rd o f the F irs t M inne a p olis T ru st Co. R ich a rd C. L illy , vice presiden t o f the corp ora tion and p residen t o f the F irs t N a tion a l B an k o f St. Paul. P. J. Leem an, vice president and general m anager o f the corp o ra tio n and vice p residen t o f the F irs t N ational B an k in M inneapolis. J am es E. W ood ard , P resident o f the M etals B ank & T ru st Co. o f B utte, Mont. Sam Stephenson, presiden t o f the F irst N ational B ank o f G reat F alls, M ont. T . A . M arlow , P resident o f the N ational B an k o f M ontana, H elena. J. C. B assett, ch airm an o f the board o f the A berdeen N ational B an k & T ru st Co., and presiden t o f the F irst S tate Savings B ank, A berdeen, S. Dak. C. B . L ittle, president o f the F irst N ational B an k o f B ism arck, N. Dak. R . W . W ebb, president o f the F irs t M inneapolis T ru st Co. J. A . Oace, vice president o f the F irst N ational B an k o f St. Paul. Ju lian B. B aird , president o f the F irst S ecurities C orporation . St. Paul. A. McC. W ashburn, vice president and general cou nsel o f the F irst B an k S tock C orporation , M inneapolis. N. P aul D elander, vice president o f the F irst S ecurities C orporation , St. Paul. R E SPO N SIBILITY T h e m anagem ent o f the F irst B an k S tock C orp ora tion is con sciou s o f the great degree o f public resp on sib ility w h ich the nature o f this organ ization entails. B an kin g is a sem ipublic fu n ction and ban ks are ch arged not only w ith the safeg u a rd in g o f the accu m u lated cap ital o f the areas they serve but w ith the m aintenance o f a stable financial structure throu gh ca re fu l direction o f the uses to w h ich this ca p ita l is put. S trong banks are essential to p ro sp e rity and sound developm ent and it is ou r purpose to a fford the entire territory a b an king service m eritin g the greatest degree o f confidence. It is also our intention that th e d evelopm ent o f this system shall be con ducted fra n k ly and openly and that the residents o f the N orthw est shall at all tim es be p rov id ed w ith com prehensive in form a tion con cerning its a ctivities. W ith that p olicy in v iew this booklet is published. 904 BRANCH, CH AIN , AND GROUP BANKING G roup B a n k in g G roup banking is the nam e that has com e into com m on usage f o r this step in the evolu tion o f the A m erican banking system , w h ich has d eveloped exten sively in the N orthw est, prom pted b y a need to m eet a definite ch an ge in econ om ic con dition s. G roup b an king is n ot sim ply chain ban king under another nam e. C hain s o f ban ks under com m on ow nership o r com m on con trol, usu a lly o f a sin gle ind ivid ual, have existed fo r generations, th e m a jo rity stock h old er or stock h old ers sim ply ex ercisin g that natural right to supervise the operation s o f all the corporation s in w h ich their holdings represented con trollin g interests. C hain m anagem ent gen era lly reflected a single dom in an t in dividual. G roup ban king, on the other hand, is the a ssociation o f a num ber o f corp o ra te ly ind e pendent in stitutions w ith in a single h old in g com pany f o r m utual advantages, the group b eing b uilt aroun d one or m ore la rg e banks o f a te rrito ria l n a tu re and its m anagem ent restin g in the hands o f the banking interests o f the te rrito ry served. H O W B A N K S AFF IL IA T E T h e a ssocia tion o f these banks is accom plished b y the exchange o f stock o f the affiliatin g institutions f o r the shares o f the h old in g com pany, the investm ent in terest o f the in d ivid u a l stockholders b eing tra n sferred to th e co n tro llin g co r p ora tion . A s a consequence, the ow nership o f a group rests in the hands o f a la rg e num ber o f stockholders representative o f the entire d istrict served b y the group. In th e p arent corporation , a reserve cap ital structure is created w h ich stands a s an em ergen cy reserve f o r every m em ber o f the group. ADVANTAGES G roup ban king o f this type has certa in inherent elem ents o f in creased stren gth over single ban king institutions. B an kin g is a business o f ca re fu l investm en t o f the fu n d s entrusted by d epositors, and the sim ple p o o lin g o f the investm en ts o f a num ber o f banks entails a w id er diversifica tion o f risk. T h e grou p a ccom plishes a fu rth er d iversification throu gh the greater v a rie ty and typ e o f a rea and in d u stry served b y its m em bers. S up p orted b y this greater d iversification the un it is in a p o sitio n to m eet m ore fu lly p eak cred it loads and seasonal needs o f its com m unity. Such season a l needs o f d ifferent loca lities and ind ustries v a ry w id ely, o fte n to a p oin t o f com p lete a bsorp tion o f loca l credit resources. T h e grou p org an iza tion p rov id es m eans o f m obilizin g the cred it supply o f the te rrito ry to m eet these con dition s. A t the p eriod s o f over-su pply o f ava ilab le m oney in units o f the grou p this ca p ita l m ay be m arsh aled fo r financing the gen eral business o f the te rritory . T h e cen tral trea su ry a lso prov id es a m eans f o r exp a n d in g the ca p ita l stru ctu re o f its affiliates i f the grow th o f the lo ca l com m unities req u ires the exp a n sion o f loa n in g p ow er to m eet ra p id developm ent o f tra d e and ind ustry. M aintenance o f supplem entary fa cilitie s in te rrito ria l division s o f th e grou p w ill enable the affiliated banks to p rov id e typ es o f services fo rm e rly offered b y on ly the la rgest banks. M anagem ent o f the banks in the group rem ain s in the hands o f th eir c o r p ora te organ iza tion , the cred it au th ority b eing exercised b y lo ca l officers and d irectors. Supervision b y the h old in g com p a n y is d irected a t m ain ta in in g efficient m anagem ent, the con du ctin g o f ca re fu l exam ination s, the req u ire m ent o f p eriod ica l reports, the exch a n ge o f in form a tion , and th e a d op tion o f efficient standards and m ethods. BUILDIN G T H E C O M M U N IT IE S SERVED G roup ban king con tem plates the developm ent to the m axim u m o f the service o f th e com p on en t un its to the com m unities in w h ich they a re situated. O nly through the p rosp erity and success o f its affiliates can the grou p exp ect to develop and p rosper, and its con tinu ed p rosp erity rests w ith the d evelopm ent o f the com m unities served. BRANCH, CH AIN, AND GROUP BANKING 905 I n recent -years there has been a grow in g tendency am ong the sm aller and m ore isola ted banks to keep their assets in such a liqu id con dition as to be ;;ble to m eet an em ergency, m ass w ith d ra w a l at any m om ent. T h is has re sulted in the creation o f overly la rge liqu id reserves, such as cash on hand, cash cm deposit w ith other banks, investm ents in h ighly liqu id assets such as G o v ernm ent and other low -return bonds and notes. The existen ce o f a la rge m obile reserve w ithin the holding com pany w ill release back to the use o f the loca l com m unities a large volum e o f ca p ita l now' w ith d ra w n from support o f general business. T h e N orthw est is a new cou ntry, rich in resources w h ose exp loitation fo r the benefit o f the people living w ithin (he territory, w ill require large credits from outside its borders. T he group is a m edium through w h ich ca p ita l can l v draw n into the N orthw est and diffused throu ghou t the entire region. These are the financial institutions affiliated w ith F irst B ank Stock C orporation . ! Figures as of l)e< ember 3 !, i929] Slate, bank, and city Capital, surplus, and undivided profits Deposits MINNESOTA First National Bank, M inneapolis1_________ First Minneapolis Trust C o., M inn eapolis.. First Minneapolis C o ., M inneapolis............... Minneapolis-Trust Joint Stock Land Bank, M inneapolis_________________________________ M innehaha National Bank, M inn eapolis.. Bloomington-Lake National Bank, M inneaplis-------------------------------------- --------------- -------Produce State Bank, Minneapolis................. Hennepin State Bank, M inneapolis-----------First National Bank, St. Paul______________ M erchants Trust C o ., St. Pau l....................... Grand Avenue State B ank, St. Paul........ .. Farmers & Merchants State Bank, St. Paul. First Veterans State Bank, St. Pau l............... j Security State Bank, St. P au l......... ................-j Freeborn C ounty National Bank & Trust 1 Co., Albert L ea................... ................................j N orth Side State Bank, Albert Lea_________ i Farmers National Bank, Alexandria________ ! Austin National Bank, A u stin..........................j First National Bank, A u s t i n .._____________ I National B ank of Benson, Benson_________ Farmers National Bank, Blue Earth _______ First National Bank, Blue Earth ------- --------First National Bank, Brainerd_____________ M innesota National Bank, East Grand Forks (opened Jan. 2 ) _____________________ First National Bank, Fairm ont____ ________ First National Bank, Graceville______ ____ _ First National Bank, Heron L ake_________ State B ank of Litchfield, L itchfield.............. American National Bank, Little Falls_____ Peoples State Bank, Little F a l ls ................... First National Bank, M an kato_____________ M ankato Loan & Trust C o., M a n k a to _____ Northfield National Bank Trust C o., Northfield_______ ____________________________ First National Bank, Owatonna...................... Pipestone National Bank, Pipestone_______ Security National Bank & Trust C o., Red WTing..................................................................... First National Bank, Rochester____________ Merchants National Bank, Sauk C e n tre .... First National Bank, Spring V a lley ________ Security Natilnal Bank, W illm a r _ -........... First. National Bank, W in d o m _____________ T o ta l.. $98,089,2.37. 49 23,879,378.42 $11,613, 170.30 2,400,000. 00 3,697,842.47 667,169.93 121,562.17 $121,035,069.92 26,510,493.24 4,484,010.33 1,622,346.14 5,073,272.16 1,8-48,564.10 2,103,852.36 1,175,329.84 578,162.77 93,059,881.05 7,916,619.29 519,641.67 893,204.16 262,200.00 799,690.80 2,570,425.25 1,318,672.85 693,141.87 113,962,801.79 9,183,666.59 575,157. 47 983,426.82 381,161.52 909,278.21 451,905.99 721, 569. 77 985, 291.10 1,770,728.93 2,456, 236.36 150,266. 52 573,388.25 463, 576.46 3,113,015.13 586. 205. 71 77?, 935.03 1,125, 208.11 1,963,928.28 2,894,680.49 224,694.55 714,570.19 519,127.65 3,407,891.15 1,203,774.98 814, 784. 88 824, 288.19 1,312,412. 65 1,506,012.36 391, 789.06 3,683,109.18 65,000.00 1,393,073.22 904,173.91 952, 565.83 1,483,958. 54 1, 766, 225. 36 429,913.67 4,142, 204.82 151,421. 32 167,062. 51 i 136, 743. 21 | 110,119. 47 1, 038,574. 26 1,822,635.08 1, 071,095.13 1,314,896.69 2,059,378.29 1,196,356.17 166,121. 01 1 383,951.54 69, 741. 92 ! 102,441. 70 127, 706.62 ! 177,706. U 1,383,294. 71 3,712,470.88 1,144,476.46 1,203,156. 61 95,376. 56 1,222,003.03 1,556,626.46 4,316, 266.15 1,298,420.07 1,365,598.31 223,083.18 1,485,199.69 263,424.16 136,617.18 123,725.89 11,046,408.05 1,180,802.25 52,100.58 79,155.93 112,709.01 97,056.58 i 130,000.00 52,365. 26 126,592.60 140,616.51 315,388.90 74,428.03 80,865.72 44, 301.19 217,934.12 65,000.00 139,298.24 52,818.83 93, 277. 64 152,069.15 151,003.52 38,124.61 321,595.64 120,183. 24 35,349, 201. 79 ! S j I i1 !1 | ! i j j 264,004, 776. 52 i 327,843,744.06 Figures for the North side office, the W est Broadway office and the St. A n thony Falls office of the First National Bank in Minneapolis are included in the totals of the main office. 906 BRANCH, C H A IX . AND GROUP BANKING Capital, surplus, and undivided profits State, bank, and city ! i Deposits t Resources M ONTANA M idlan d N ational Bank, Billings.................... Commercial National Bank, Bozem an.......... M eta ls B ank & Trust C o., B u tte.................. . Am erican N ational Bank, F orsyth .................. Chouteau C ou nty B ank, Fort Benton........... First National Bank, Great Falls.................... M o n tan a National B ank, H avre...... ................ Am erican N ational B ank, H elena.................... M on tan a T rust & Savings Bank, H e len a.. . National B ank of M ontana, Helena________ National B ank of Lewistown, L e w istow n .. National Park Bank in Livingston, Livings to n ------------------------------------------------------------------First National Bank, Miles C it y ...................... Western M ontana National Bank, MissoulaFirst State Bank, S h elb y .. . ............................... T otal........................................... ..............— $325,000.00 504,307.79 1,278,185.55 36, 781.89 97,000.00 789.936.87 81,714.90 511,467.36 327,929.81 j 1 425.924.88 | 200,229.19 ! $4,223, 760.78 2.735.096.50 21,140, 244.53 458,892.12 893,067.00 12,360,038.83 1.072.327.51 4,598,081.63 2,664,621.61 3,614,999.83 1,331,251.32 $4,748,760.78 3,310,704.14 22,776,710.08 500,674.01 991,352.00 13,304,975.70 1.156.242.41 5,209,548.99 2.992.551.42 4,155, 662. 21 1,531,480.51 244.498.80 300,858.95 408.657.80 42, 908.24 !1 I I 3,095, 544.92 2,823,552.49 4,435,804.06 619, 607. 71 3,372,907.19 3,128, 701.44 4,944,461.86 662, 515.95 5,575,402.03 | 66,066,890.84 72,787, 248.69 43S, 041.62 i 76,028.04 j 66,385.30 66,015.48 | 3.989, 507.39 712.449.29 677, 294. 22 292, 267.96 4. 527, 549.01 802,690.49 743, 679. 52 412, 996.15 334. 732. 77 40, 369.30 2, 552. 937.39 535,114.23 3.000,134.08 583, 264. 17 268,122. 80 102,174.55 66, 749.95 139,083.10 39,812. 53 127,171.60 40, 000. 00 58,595.03 117,326.72 i 54,464.66 | 138,350.71 j 860, 512.76 803, 360.42 662, 885. 29 1,456,042.79 429,888. 50 1, 526,693. 58 500,000.00 357,880.46 665,822.78 386,901.98 1,162,518.30 1,136, 75S.S8 930, 534.97 762,418.05 1,604,181. IS 495,113. 13 1. 772,108. 05 600,000. 00 435,635.48 814,541.94 471,909.31 1,361,0u8. 53 17, 572, 077. 34 20,460, 582. 95 NORTH DAKOTA First National Bank, Bismarck......................... First N ational Bank, Cando___________ _____ Merchants National Bank, Cavalier............... First N ational Bank, Coopers tow n................. Merchants National B ank & Trust Co., F argo........................................................................ First National Bank, Glen U llin.............. . Red River National Bank & T rust Co., Grand F o r k s . .. ................................................... First N ational B ank, H arvey............................. First National B ank, Hebron...... ..................... National Bank & T rust C o., Jamestown___ First National B ank, Lidgerwood................... Union National Bank, M in o t________________ First N ational Bank in Neche, N cch e........... First N ational B ank, N e w England............... First N ational B ank, N e w R o c k fo r d .-------First N ational Bank, Rolla................................. National Bank of Valley C ity, Valley C ity T otal..................... ............................................ 2,173,424.16 SOUTH DAKOTA Aberdeen National B ank & T rust C o., Aberdeen................................................................. First State Savings Bank, Aberdeen________ Clark C ou nty National Bank, C lark_______ First National B an k, Gettysburg------- ---------Potter C ou nty B ank, G e ttysb u rg-................. First N ational B ank, Highm ore....................... Security National B ank (in process of or ganization), H u ron........... .................................. First National Bank, Lem m on _____ _________ First National Bank, M iller............................... First National Bank, Ree Heights................... First National B ank, St. Lawrence................. First National Bank & T rust C o., Ver m ilion......................... .............................................. T o ta l................. .'...................................... . 255, 562.17 103, 247.61 61,509.01 48, 281.14 51,907.73 114,672.26 !i I | j ;i ! 260,000.00 ! 77,472.90 i| 173,632.30 ■ 49, 656.08 59, 073. 63 j ’ 3,380, 282.33 834, 623.83 433,695.55 437,846.32 617,157.22 847,936.40 3,635, 944, 525, 516, 683. 1,017, 532,183.70 1,126,243.51 300, 665. 27 288, 532.79 260, 000.00641.88S.65 1, 299, 875.81 350, 321.35 372, 306. 44 844. 50 780.11 688.24 956. 21 519. 28 603. m 163,611.13 1,959, 275.07 2,149,312. 33 1,418,625.96 10,758,441.99 12,398,096. 58 509,893. 32 243,176. 71 185,465.45 ! 3,873, 519. 63 3,122,788.47 1,767,082. 66 4,628,412. 95 3,436,705. 182,068,'632. 96 938, 535.48 | 8,763,390. 76 MICHIGAN First N ational B ank, C alum et.......................... First N ational B ank, Hancock.......................... First National Bank, Laurium .......................... j i 10,133,751. 09 TERRITORIAL SUBSIDIARIES First Bancredit Corporation, St. P a u l.. First Securities Corporation, St. P a u l Combined totals.. 1,101.227.54 7,500,000. 00 8,601, 227.54 54,056,416. 96 | 2, 751,120. 30' 13,990,463. 78367,165, 577.45 16,741,584.08460,365,007. 4o- BRANCH, CH AIN , AND GROUP BANKING 907 OFFICKRS O. T . J a ffra y , ch airm an o f the board o f d ire cto rs ; G eorge H . P rince, p resi d e n t; L ym an E . W akefield, v ice p resid en t; R ich a rd C. L illy , v ice p re sid e n t; P aul J. Leernan, vice president and gen eral m a n a g e r; L y le W . Scholes, v ice p re s id e n t; A . M cC. W ashburn, v ice presiden t and general c o u n s e l; E. C. K ibbee, vice p re s id e n t; A lfr e d E. W ilson , secreta ry and c o m p tro lle r ; M . M. H ayden, t r e a s u r e r ; and M. A . C ooley, assistant secreta ry find assistant treasurer. DIRECTORS Shreve M. A rch er, M inneapolis, president A rcl er-D an iels M id lan d Co., D ellw ood E lev a tor Co., and T oled o Seed & O il C o .; d irector, F irs t N ational B ank o f St. P a u l; M erchants T ru st Co., St. P a u l; and St. P a u l F ire & M arine Insur ance Co. J u lian B . B aird , St. P aul, p residen t F irst S ecurities C o rp o ra tio n ; vice p resi dent, M erchants T ru st Co., St. Paul, and F irs t V eterans S tate B ank, St. P a u l; treasu rer, F irst B an cred it C o rp o ra tio n ; secretary-treasu rer and director, N orthw est A irw a y s (I n c .) ; d irector, F irs t N ational B an k o f St. Paul, and Grand A venue S tate B ank, St. Paul. J. C. B assett, A berdeen, S. D ak., ch airm an o f the board o f d irectors, A ber deen N a tion a l B an k & T ru st C o .; p residen t a n d . d irector, F irst State Savings Bank, A berdeen, S. D a k .; vice presiden t and di rector, F irst N ational Bank, Fred erick , S. D a k .; d irector, F ed era l R eserve B ank, M inneapolis, D a kota Cen tral T elephone Co., and A g ricu ltu ra l C red it C orporation . R ussell M. B ennett, M inneapolis, p residen t and trea su rer M ace Iron M ining Co., B enore Co., and Ilu d d ore C o .; presiden t F id elity L a u n d ry M ach in ery & E ngin eering C o .; vice president and treasu rer M inneapolis & M ich igan D evelop m ent C o .; v ice presiden t, W arben L a n d C o .; treasu rer K eew atin M ining Co., Sargent L and Co., Sutton L a n d Co., K ea rsa rge L a n d Co., M eriden Iron Co., the C asca d e C orporation , C ascade L a n d Co., and C ascade M ining C o .; d irector and m em ber o f execu tive com m ittee, B ra zilia n Iron & Steel C o .; d irector, M inne apolis, St. P a u l & Sault Ste. M arie R a ilw a y Co., F irs t N a tion a l B an k in M inne apolis, F irst M inn eapolis T ru st Co., th e M u nsin gw ear C orp ora tion , V assar S w iss U nderw ear Co., C unic Investm ent Co., Judson L and Co., Judson M ining Co., N evada L a n d Co., N evada M ining Co., P ilgrim L and Co.. and L ed d ore M ines (L t d .) . F. R . B igelow , St. Paul, presiden t St. P a u l F ire & M arine Insurance Co., M ercu ry In surance Co., and St. P a u l-M ercu ry In d em n ity Co. o f St. P a u l; d irector, F irst N a tion a l B an k o f St. P aul, M erchants T ru st Co., St. Paul, and M otor P ow er E qu ipm ent Co. John W . B lack , M inneapolis, p residen t John W . B la ck C o .; S ecurity State Bank, C annon F a lls, M in n .; F irs t N ational B ank, T h ie f R iv e r F alls, M in n .; S ecu rity State B ank, B eard sley, M in n .; R ich field N ation a l B ank, M in n e a p o lis; and C olum bia N a tion a l B ank, C olum bia H eigh ts, M in n .; v ice president, Iron N ational B ank, Iron w ood , M ich .; O neida N ation a l B ank, R hinelander, W is .; F irst N ation a l B ank, W heaton , M in n .; and C rystal F a lls N ation a l B ank, C rystal F alls, M ic h .; d irector, P rod u ce S tate B ank, M inneapolis. R alp h B udd, St. Paul, presiden t G reat N orthern R a ilw a y C o .; d irector, C hi cago, B u rlin gton & Q u in cy R a ilroa d Co., the C olorad o & Southern R a ilw a y Co., W estern F ru it E xp ress Co., Spokane, P ortla n d & Seattle R a ilw a y Co., G lacier P ark H otel Co., C anadian R ock ies H otel Co., F irs t N ation a l B an k o f St. Paul, M erchants T ru st Co., St. Paul. E. L. C arpenter, M inneapolis, presiden t Shevlin, C arpenter & C larke Co., C arpenter-H ixon Co. (L t d .) , L and, L o g & Lum ber Co., M cC loud R iv e r Lum ber Co., Shevlin-C larke Co. (L t d .), the Shevlin Co., Shevlin, C arpenter & H ixo n Co., N ational L um ber M a n u factu rers’ A s s o c ia tio n ; vice p resident, the S hevlin-H ixon C o .; director, N orthw estern N a tion a l L ife In su ra n ce Co., F irst N ational B ank in M inneapolis, F irs t M inn eapolis T ru st C o .; trustee, F a rm ers & M echanics S avings B ank, M inneapolis. F . A. C ham berlain, M inneapolis, ch airm an executive com m ittee F irst N ational B ank in M in n ea p olis; president M inneapolis E astern R a ilw a y C o .; d irector F irst M inneapolis T ru st C o .; M inneapolis & St. L ouis R a ilw a y C o .; N orthw est ern N a tion a l L ife Insurance C o .; and N orthw estern F ire & M arine In surance Co. H ovey C. C larke, M inneapolis, treasurer Shevlin, C arpenter & C larke Co., M in n eap olis; d irector Shevlin-C larke Co., M in n eap olis; ch airm an L lo y d s o f 908 BRANCH, CH AIN, AND GROUP BANKING M in n eap olis; director F irs t N ation a l B an k in M in n e a p o lis; F irst M inn eap olis T ru st C o .; and M inn eapolis Foun dation. F ra n k lin M. Crosby, M inneapolis, vice p residen t o f General M ills (I n c .) and the W ashburn-C rosby g r o u p ; d irector F irst N ational B an k in M inneapolis. N. P. D elander, St. P aul, vice president and d irector F irst Securities C orp ora tion ; d irector F irs t N ation a l B an k o f St. P a u l ; M erchants T ru st Co., St. P a u l ; F irst B a n cred it C o rp o ra tio n ; T oro M a n u factu rin g C o .; S tott B riqu et C o .; A . J. K ra n k C o .; and T ri-S ta te T elephone & Telegraph Co. S. W . D itten h ofer, St. P aul, ch airm an o f the board T he G olden R u le, St, P a u l; presiden t D itten h ofer R ea lty Co. C harles D on nelly, St. Paul, president N orthern P acific R a ilw a y Co. and . N orth w estern Im provem ent C o .; d irector C hicago, B u rlin gton & Q uincy R a il roa d C o .; C olorad o & S outhern R a ilw a y C o .; R a ilw a y E xp ress A gen cy (I n c .) F irs t N a tion a l B an k o f St. P a u l ; and M erchants T ru st C o., St. P aul. L. O. E vans, N ew Y ork, gen eral cou nsel A n a con d a C op per M in in g C o. a n d B u tte, A n a con d a & P acific R a ilw a y C o .; d irector M etals B an k & T ru st C o,t B utte, M o n t.; F irs t N a tion a l B ank, G reat F a lls, M on t.; and W estern M ontana. N a tion a l B an k, M issoula, M ont. E. T . F oley, St. P aul, presiden t F oley B roth ers (I n c .) ; d ire cto r P u r ity B ak eries C orp ora tion ; F irs t N ation a l B an k o f St. P a u l; and M erchants T ru st Co., St. P aul. H a rry P. G allaher, M inneapolis, presiden t the N orthw estern C on solid a ted M illin g C o .; d irector, F ir s t N ation a l B an k in M inneapolis. C harles W . G ordon, St. Paul, president G ord on & F ergu son ( I n c .) , St. P a u l ; d ire cto r C. G. G u nther’s Sons, N. Y . ; F irst N a tion a l B an k o f St. P a u l; and M erchants T ru st Co., St. P aul. T h eod ore W . Griggs, St. P aul, p residen t and treasu rer G riggs, C oop er & C o .; d irector F irs t N ation a l B an k o f St. P a u l ; M erchants T ru st Co., St. P a u l ; M in nesota E m p loy ers’ A ss o cia tio n ; C. W . G riggs Investm ent Co., T acom a, W a s h .; and C able T elephone Co., Cable, W is. W illia m H am m , jr., St. Paul, vice president Theo. H am m B rew in g Co., H a m m R e a lty Co., H am m B u ild in g C o rp o ra tio n ; In ter-C ity R e a lty & L o a n Co., F . & R . C orp oration , and E m poriu m o f St. P a u l (I n c .) ; d irecto r F irs t N a tion a l B a n k o f St. P a u l and M erchants T ru st Co., St. Paul. Isa a c E. H ansen, St. Paul, vice president F irst N a tion a l B an k o f St. P aul. H a rry J. H a rw ick , R och ester, Minn., secretary and treasu rer M a yo C linic, R och ester, M inn., and M a yo P rop erties A sssocia tion , R och ester, M in n .; d irector, secreta ry, and treasu rer the K a h ler C orporation , R ochester, M in n .; F irs t N a tion a l B an k in M in n ea p olis; F irs t M inn eapolis T ru st C o .; W e lls-D ick ey C o .; and O. M. C orw in Co. John H . H auschild, M inneapolis, president C harles W . S exton C o .; a ttorn ey U n d erw riters a t L loyd s o f M in n ea p olis; d irector F irs t N ational B an k in M in nea p olis and M inneapolis F ire & M arine In su ra n ce Co. H o ra ce M . H ill, M inneapolis, presiden t Janney, Semple, H ill & Co., Minne* a p o lis ; d irector F irs t N a tion a l B an k in M inn eapolis and F irst M inn eapolis T ru st Co. L ou is W . H ill, St. Paul, ch airm an o f the board, F irst N ational B an k o f St. P a u l ; d irector, G reat N orthern R a ilw a y C o .; president G reat N orthern Iro n O re P r o p e r tie s ; director, N ational S urety Co., N ew Y o r k ; M erchants T ru st C o., St. P a u l ; and Petroleum C orp oration o f A m erica, Jersey City, N. J . ; presiden t G la cier P a rk H otel Co. and C anadian R ock ies H otel Co. (L td .) ; presiden t an d d irector A rth u r Iron M ining Co., St. P a u l ; F illm ore Iron M ining Co., St. P a u l : G ran t I r o n M ining Co., St. P a u l; H a rrison Iron M ining Co., St. P a u l; J a ck so n Iron M in in g Co., St. P a u l; L eon a rd Iron M ining Co., Sr. P a u l; M inaw a I ro n Co., St. P a u l; M inosin Iron Co., St. P a u l; N ibiw a Iro n Co., St. P a u l; N orth Star Iro n Co. o f W est V ir g in ia ; P olk Iron M in in g Co., St. P a u l ; T y le r I r o n M in in g Co., St. P a u l ; V an B uren Iron M ining Co., St. P a u l ; W ab igon Iro n C o., St. P a u l ; a n d W en on a Iron Co., St. P a u l ; d irector, A lex a n d ria Iro n Co., D u lu th ; M esaba S ecu rity Co., D u lu th ; M onterey Ore Co., D u lu th ; N eath M ining C o., D u lu th ; and W y s o x Iron Co., D uluth. L ou is K . H ull, M inneapolis, presiden t W estern P a cific L and & T im ber C o .; m em ber o f the execu tive com m ittee, M cC loud R iv er Lum ber C o .; d irector, F irst N ational B an k in M in n ea p olis ; F irst M inneapolis T ru st C o .; F irs t M in n eap olis C o .; M inn eapolis-Trust J oin t S tock L a n d Bank. C harles G. Ireys, M inneapolis, v ice president, treasurer, and director, R u s sell-M iller M illin g Co., M in n eap olis; secretary, treasurer, and d irector, O cei- BRANCH, CH AIN, AND GROTJP BANKING 909 dent E lev a tor C o .; E lectric Steel E leva tor C o .; secretary, treasu rer, general m anager, and director, A m erican E levator & W arehouse Co. (I n c .) , B uffalo, N. Y . ; and O ccident T erm inal Co., Duluth, M in n .; director, F irst N ational B ank in M in n eap olis; F irst M inneapolis T ru st C o .; W ells-D ickey Co. H ora ce H . Irvin e, St. Paul, president T hom pson Y ard s (I n c .) ; treasurer. W eyerh aeu ser T im ber C o .; vice president, W eyerh aeu ser Sales C o .: director, St. P a u l F ire & M arine Insurance C o .; Globe Steel Tubes C o .: F irst N ational B an k o f St. P a u l; and M erchants T ru st Co., St. P a u l; president G rand A venu e S tate B ank, St. P a u l; and Snohom ish R iv e r B oom Co. C. T. Jaffray, M inneapolis, presiden t M inneapolis, St. Paul & Sault Ste. M arie R a ilw a y Co. and D uluth, South Shore & A tla n tic R a ilw a y ; chairm an o f the b o a rd the A gricu ltu ra l C redit C orporation and N orthw estern F ire & M arine Insurance C o .; director F irst N ational B ank in M in n ea p olis; F irst N ational B an k o f St. P a u l ; F irst M inneapolis T ru st C o .; M erchants T ru st Co., St. P a u l ; F irst M inn eapolis C o .; F irst Securities C o rp o ra tio n ; F irs t B an cred it C orp ora tion ; N orthw estern N ational L ife Insurance C o .; T itle Insurance C o .; A m erican R a d ia tor C o .; and N orthw est T erm inal Co. J ohn Junell, M inneapolis, member, Junell, Oakley, D ris coll & F letcher, at to rn e y s; d irector, F irst N ational B ank in M in n eap olis; Southern M innesota J oint S tock L and B a n k ; T ru a x -T ra er C oal C o .; and A utom otive In vest m ents (I n c .). C harles O. K alm an, St. Paul, president K alm an & Co., St. P a u l ; president and d irector W a tertow n & S iou x F a lls R a ilw a y ; d irector, F irs t N ational B ank o f St. P a u l; M erchants T ru st Co., St. P a u l; N orthw estern T ru st Co., St. P a u l ; St. P aul N ational B a n k ; N orth A m erican A via tion (I n c .) ; Petroleum C orpora tion o f A m e r ic a ; G riggs, C ooper & C o .; the E m porium o f St. P aul ( I n c .) ; G ordon & F erguson ( I n c . ) ; Sehunem ans & M annheim ers, St. P a u l; A n ch or C asualty C o .; B liss & L a ughlin (I n c .) ; H udson M otor Co. o f Illin o is ; K alm an Steel C o .; Stott B riqu et C o .; and M inneapolis T h ea tre Co. P a u l J. K alm an, St. Paul, ch airm an o f the board G lobe Steel T ube C o .; K a l m an Steel C o .; and H udson M otor Co. o f I llin o is ; presiden t K alm an Investm ent C o .; B liss & L aughlin (I n c .) ; K alm an F loor C o .; and T w in C ity M otor C ar C o .; director, F irst N ational B ank o f St. P a u l; F irst B an cred it C o rp o ra tio n ; M er ch an ts T ru st Co., St. P a u l ; G rand A venue State B ank, St. P a u l ; and B enedict Stone (I n c .). C ornelius F. K elley, N ew Y ork, presiden t A naconda Copper M ining C o .; A ndes C opper M ining C o .; B utte, A naconda & P acific R a ilw a y C o .; In ternational Sm elt in g C o .; Chile C opper C o .; C hile E xp lora tion C o .; S ilesian-A m erican C orpora t io n ; Silesian H old in g C o .; and C opper E xp orters (I n c .) ; vice president, U nited M etals Selling C o .; and Copper E x p ort A s s o c ia tio n ; d irector, B u tte W a te r C o .; G u aran ty T ru st Co., N ew Y o r k ; W estern M on tana N ational B ank, M issou la ; M etals B an k & T ru st Co., B u t t e ; A m erican B ra ss C o .; A naeonda-A m erican B rass Co. (L td .) ; and R o ck y M ountain P ow er C o .; ch airm an C opper In s titu te ; and G iesche Spolka A k c y jn a ; first vice p residen t A m erican M anu factu rers E xp ort A ssociation. W illia m P. K enney. St. Paul, vice president and d irector o f traffic, G reat N orthern R a ilw a y C o .; director, G reat N orthern R a ilw a y C o .; vice p re sid e n t G la cier P a rk H otel C o .; vice president and director. F irst N ational B ank o f St. P a u l; d irector, M erchants T ru st Co., St. P a u l; M innesota M utual L ife Insurance C o .; and W estern F ru it E xpress Co. H ora ce C. K lein, St. Paul, m anaging partner, W ebb P u blish in g Co., St. P a u l : director, Standard F a rm P ap er A s s o c ia tio n ; and A gricu ltu ra l P ublishers A sso ci ation. P. J. Leem an, M inneapolis, vice presiden t and general m anager. F irs t B ank Stock C orp ora tion ; vice president, F irst N ational B an k in M in n eap olis; p resi dent P rod u ce State B a n k ; v ice president. F irst M inneapolis C o .; director. F irst M inneapolis T ru st C o .; F irst S ecurities C o rp o ra tio n ; F irst B an cred it C orpora t io n ; F ed era l R eserve B ank. M in n eap olis; N orthw estern F ire and M arine In surance C o .; T w in C ity F ire Insurance C o .; N orthern F in a n ce C o rp o ra tio n ; D uluth. South Shore & A tla n tic R a ilw a y C o .; and W estern Oil & F uel Co. R . C. L illy, St. Paul, p residen t F irst N ational B an k o f St. P a u l; vice presi dent, F irst B an k S tock C orp ora tion ; vice president and d irector. M erchants T ru st Co., St. P a u l: vice presiden t and d irector, G rand A venu e State B ank, St. P a u l; president N orthw est A irw a y s (I n c .), St. P a u l: director, F irst Securi ties C orp ora tion ; v ice presiden t and d irector, F irst B an cred it C o rp o ra tio n ; director, F irst N ational B an k in M in n ea p olis; T ri-S ta te T elep h on e and T elegraph 910 BRANCH, CH AIN , AND GROUP BANKING C o .; G riggs, C ooper & C o .; and the E m porium o f St. P a u l ( I n c . ) ; trustee, M innesota M u tu al L ife Insurance C o .; d irector, D a k ota C entral T elephone Co., A berdeen, S. D ak. C. B . L ittle, B ism arck, N . Dak., presiden t F irst N ational B an k o f B is m a r ck ; P rov id en t L ife Insurance Co., B ism arck, N. D a k .; and B ism arck L o a n & In vest m en t C o .; d irector, F irs t N ational B an k o f St. P a u l ; M erchants T ru st Co., St. P a u l ; and B ism arck B u ild in g & L oan A ssociation. A . C. L orin g, M inneapolis, president P illsb u ry F lou r M ills (I n c .) o f D e la w a re ; and P illsb u ry F lou r M ills Co. o f M in n esota ; d irector, G reat N orthern R a ilw a y C o .; and F irst N ational B an k in M inneapolis. Jam es M acN aughton, Calum et, M ich., presiden t C alum et and H e cla C onsoli d a ted C opper C o . ; vice president, gen eral m anager, Isle R o y a l C opper C o .; L a S a lle C opper C o .; and C liff M ining C o .; general m anager, L a k e M illing, S m elting & R efin in g C o .; d irector, D uluth, South Shore & A tla n tic R a ilw a y Co. Sum ner T . M cK night, M inneapolis, presiden t S. T. M cK n igh t Co., M in n e a p o lis ; ch airm an b oard o f directors, P rod u ce State Bank, M in n e a p o lis; presiden t M inne a p olis T h ea ter C o .; L a S a lle R ea lty C o .; and C om m ercial D ev elop in g C o .; d irector, F irs t N ational B an k in M in n eap olis; N orthw estern B e ll Telephone C o . ; N orthw estern States P ortla n d Cement C o .; M inneapolis-M oline P o w e r Im plem ent C o .; and A nch or C asualty C o .; trustee. M inneapolis Foun dation. T. A . M arlow , H elena, M ont., president N ational B an k o f M ontana, H e le n a ; presiden t M ontana T ru st & Savings B ank, H e le n a ; d ire cto r M etals B an k & T ru st Co., B u t te ; d irector N orthern M ontana State B ank, B ig Sandy, M o n t.; d irector F ed era l reserve bank, H elena b ra n ch ; d ire cto r F irst N a tion a l B an k o f St. P a u l; d irector M erchants T ru st Co., St. P a u l: director M on tana F lo u r M ills Co., G reat F a l ls ; d irector M ontana E lev a tor C o .; d ire cto r Independent C oal & C oke Co., Salt L a ke C it y ; d irector G reat N orthern R a ilw a y C o .; p a rtn er M cN am ara & M arlow , B ig Sandy, M on t.; d irector M cN am ara & M a rlow ( I n c .) . B . Y. M oore, M inneapolis, v ice president and treasu rer F irst M inn eapolis T ru st C o .; v ic e presiden t and treasurer F irs t M inneapolis C o .; v ic e presiden t M inn eapolis-T rust J oin t S tock L a n d B a n k ; d irector B a rd w e ll R obin son Co. J. A . Oace, St. P aul, vice president F irs t N ational B ank o f St. P a u l ; d ire cto r M erchants T ru st Co., St. P a u l; d irector F irs t B an cred it C o rp o ra tio n ; d ire cto r F irs t Securities C o rp o ra tio n ; d irector F irs t V eteran s’ State B ank, St. Paul. E . B . Ober, St. P aul, presiden t M otor P o w e r E quipm ent Co., St. P a u l; v ice p resid en t A n ch or C asualty C o .; d irector F irst N ational B a n k o f St. P a u l; d irector M erchants T ru st Co., St. P a u l; d irector St. P aul In d u s trie s; d ire cto r M in n esota E m p loyers’ A ssociation. A . F. P illsb u ry, M inneapolis, treasu rer P illsb u ry F lo u r M ills C o .; d ire cto r F irst N ational B an k in M in n ea p olis; director F irs t M inneapolis T ru st C o .; vice p residen t F a rm ers & M echanics Savings B ank, M in n eap olis; d ire cto r N orth w estern N ational L ife Insurance C o .; d irector T w in C ity R a p id T ra n sit C o .; p resid en t K ea rsa rge M ining C o .; d irector Sutton M ining C o .; d ire cto r K eew atin M in in g C o .; d irector S argent M in in g Co. C. S. P illsbury, M inneapolis, v ice presiden t P illsb u ry F lo u r M ills C o .; d ire cto r F ir s t N ational B an k in M in n ea p olis ; d irector F irst M inneapolis T ru st C o .; d ire cto r M inneapolis, St. P aul & Sault Ste. M arie R a ilw a y C o .; v ice presiden t T itle In su ra n ce C o .; presiden t Sargent L a n d C o .; president K eew atin M ining C o .; vice presiden t Sutton L a n d C o .; vice president U nion E le v a to r C o .; d irector K e a rs a rg e L and Co. J. S. P om eroy, M inneapolis, v ic e presiden t F irs t N ational B a n k in M inne a p o lis ; d irector F irs t M inneapolis T ru st C o .; p residen t B loom in gton -L ak e N a tion B ank, M inneapolis. F . M . Prince, M inneapolis, chairm an o f the board F irs t N a tion a l B an k in M in n e a p o lis ; d irector F irst M inneapolis T ru st C o .; d ire cto r F irs t N ation a l B ank, Cloquet, M in n .; director the Shevlin C o .; d irector F irs t N a tion a l-S oo L in e B u ild in g Co. G eorge H . P rince, St. Paul, president F irs t B an k S tock C o r p o r a tio n ; chairm an and d irector F irs t N ational B an k o f St. P a u l; d irecto r F irst N ational B an k in M in n e a p o lis ; president M erchants T ru st Co., St. P a u l ; d ire cto r F irs t S ecurities C o rp o ra tio n ; director F irst B an cred it C orp ora tion ; m em ber a d visory cou n cil F ed era l R eserv e B oard , W ashington, D. C . ; v ice president F irst N a tion a l B an k o f C lo q u e t; director A rch er-D a n iels M idlan d C o .; d ire cto r St. P a u l F ir e & M a rin e In su ra n ce C o .; d irector T ri-S ta te T elephone & T elegrap h C o .; d irector C on solid a ted E lev a tor Co., D uluth. G eorge W . R obinson, St. Paul, president and general m an ager T ri-S ta te T ele p h o n e & Telegraph Co., St. P a u l ; v ic e presiden t D a k ota C entral T elephone Co., BRANCH, CH AIN, AND GROUP BANKING 911 A berdeen, S. D a k .; vice president U nited States Independent T elephone A sso cia tion ; president P rogram S ervice C o .; v ice president N orthern B u ildin g & L oan A s s o cia tio n ; trustee M innesota M utual L ife Insurance C o .; d ire cto r F irst N ational B an k o f St. P a u l; d irector M erchants T ru st Co., St. P a u l: d ire cto r St. Paul Industries (I n c .) . John D . R yan, N ew Y ork, ch airm an o f the b oard A n acond a C opper M ining C o .; chairm an o f the b oard C hile C opper C o .; chairm an o f the b oard A ndes C opper M ining C o .; d irector International Sm elting C o .; d ire cto r N ational C ity B an k o f N ew Y o r k ; d irector A m erican B rass C o .; president U nited M etals S elling C o .; president the M ontana P ow er C o .; trustee E m igrant Industrial Savings Bank, N ew Y o r k ; d irector M etals B an k & T ru st Co., B utte, M o n t.; trustee C onsolidated Gas Co. o f N ew Y o r k ; d irector B rooklyn E d ison C o .; d ire ctor A m erican P ow er & L igh t C o .; d irector U nited States R ealty & Im prove m ent Co. F red W . Sargent, C hicago, president C hicago & N orth W estern R a ilw a y C o .; C hicago, St. Paul, M inneapolis & Om alia R a ilw a y C o .; d irector, C ontinental Illin ois B an k & T ru st Co., C h ica g o ; M erchandise B ank & T ru st Co., C h ica g o ; U nited States Cham ber o f Comm erce. H . A . Scandrett, C hicago, president C hicago, M ilw aukee. St. P a u l & P acific R a ilro a d C o .; C hicago, M ilw aukee & G ary R a ilroa d C o .; C hicago, T erre H aute & S outheastern R a ilroa d C o .; m em ber o f executive com m ittee o f A ssocia tion o f R a ilw a y E x e c u tiv e s ; m em ber o f ex ecu tive com m ittee o f W estern A ssociation o f R a ilw a y E x e c u tiv e s ; d irector, C hicago U nion S tation C o .; Ind ia n a H arbor B e lt R a ilroa d C o .; M inneapolis E astern R a ilw a y C o .; C ontinental Illin ois B an k & T ru st Co., C h ic a g o ; F irst N ational B an k o f St. P a u l ; M erchants T ru st Co., St. P a u l ; C ontin ental T elegraph C o .; E xcelsior C oal C o .; M ilw aukee L and C o .; W estern R a ilro a d A ssociation, C hicago. Sam Stephenson, G reat Falls, Mont., presiden t F irst N ational B ank, G reat F alls, M o n t.; m em ber, Cooper, Stepheuson & H o o v e r ; presiden t G reat F a lls T ow n site C o .; R o ck y M ountain F ire Insurance C o . ; G reat F a lls E le ctrica l P ro ducts C o rp o ra tio n ; ch airm an o f the executive com m ittee. M ontana F lo u r M ills Co. M artin L. Thom pson, V erm ilion, S. Dak., chairm an o f the b oard F irst N a tion a l B an k & T ru st Co., V erm ilion, S. D a k .; president A ssocia ted Farm s, ( I n c .) , d irector, T hom pson Lum ber C o .; ow n er T h om pson -L ew is Co. L ym an E. W akefield, M inneapolis, president F irst N ational B an k in M inne a p olis ; chairm an o f the b oard o f d irectors F irs t M inneapolis T ru st C o .; Vice presiden t F irst B an k S tock C o rp o ra tio n ; d irector, F irst Securities C o rp o ra tio n ; F irs t N ation a l B an ak o f St. P a u l; M erchants T ru st Co., St. P a u l; W ellsD ick ey C o .; G eorge A . H orm el & C o .; Jacob E. D ecker & S o n s ; treasu rer and d irector, N icollet H otel, M in n eap olis; president and director, E qu ita b le L oan A ss o cia tio n ; director, N orthw est F ire & M arine Insurance Co. E. C. W arner, M inneapolis, p residen t E. C. W a rn er Co., M in n ea p olis; Cana d ian E lev a tor Co. ( L t d .) ; T u x ed o P a rk C o .; ch airm an o f th e board, M cG ill W a rn er C o .; v ice p residen t, N orthw estern F ire & M arine Insurance C o .; p resi dent G rain S ecurities ( L t d . ) ; director, M on arch L u m b er C o .; F irst N ational B an k in M in n e a p o lis ; C onsolidated G rain Co. (L td .) ; T w in C ity F ire Insurance C o .; H a n over F ire In surance C o .; F u lton F ire Insurance Co. A . M cC. W ashburn, M inneapolis, v ice presiden t and general counsel F irst B an k S tock C o rp o ra tio n ; F irs t N ation a l B an k in M in n ea p olis; d irector, F irst M inneapolis T ru st C o .; F irs t S ecurities C o rp o ra tio n ; F irst B an cred it C orp ora t io n ; vice president, S palding H otel Co., D u lu th ; H ow ze, Spencer & C o .; d i rector, Investm ent C ertificate Co., D uluth, M inn. R o b e rt W . W ebb, M inneapolis, presiden t F irs t M inneapolis T ru st C o .; F irst M inn eapolis C o .; M inn eapolis-T rust J oin t S tock L and B a n k ; ch airm an o f the b oard, F irst S ecurities C orp ora tion ; director, F irst N ational B an k in M inne a p olis ; N orthw estern F ire Insurance C o .; T w in C ity F ire Insurance C o .; F irst B a n cred it C o rp o ra tio n ; ch airm an o f the board T itle Insurance Co. o f M inne s o ta ; trustee, M inneapolis F oun dation. F red erick B . W ells, M inneapolis, vice president, F . H . P ea vey & C o .; p resi dent G lobe E leva tor C o .; vice president, P eavey-D uluth T erm in a l E lev a tor C o .; M onarch E lev a tor C o .; d irector, F irs t N ational B an k in M in n e a p o lis ; F irs t M inn eapolis T ru st C o .; presiden t G rand T ru n k P a cific E lev a tor C o .; v ice presi dent, B ritish -A m erica E lev a tor C o .; presiden t N ational E lev a tor C o .; N orthern E lev a tor Co. 100136— 30— vol 1 p t 8---- 9 912 BRANCH, CH AIN, AND GROUP BANKING S tu art W . W ells, M inneapolis, p residen t W ells-D ick e y C o .; director, R u ssellM iller M illin g C o .; F irst N ational B an k in M in n e a p o lis ; F irst M inn eap olis T ru st C o .; F o le y M a n u factu rin g C o .; O. M. C orw in C o .; E qu ita b le L oa n A ssocia tion . F. E. W eyerh aeu ser, St. Paul, vice president, W eyerh aeu ser T im ber Co., T acom a, W a s h .; vice president, T hom pson Y a rd s (I n c .) , St. P a u l; d ire cto r G reat N orthern R a ilw a y Co., C ontinental Illin ois B ank and T ru st Co. C h ic a g o ; F irs t N a tion a l B an k o f St. Paul, M erchants T ru st Co., St. Paul. R . M. W eyerh aeu ser, St. Paul, d irector, N orthern P a c fic R a ilw a y Co., ch airm an o f the board, N orthw est Paper C o .; president E d w a rd R utled ge T im ber Co., F irst N ational Bank, Cloquet, Minn., d irector, F irst N ational B ank, o f St. Paul, M erchants T ru st Co., St. Paul. W . D . W illa rd , M ankato, Minn., vice president, F irst N ational B ank, M ankato, v ic e president and treasurer, M ankato L oan and T ru st Co., secretary-treasu rer, M ankato C itizens T elephone Co., treasurer, M ankato Ind u strial C orporation. F red erick E. W illia m son , C hicago, president, C hicago. B urlington , and Q uincy R a ilroa d Co., C olorad o and Southern R a ilw a y Co., F o rt W o rth and D en v er C ity R a ilw a y Co., W ich ita V alley R a ilw a y Co., d irector, C h ica go B u rlin g ton and Q u in cy R a ilroa d Co., C olorad o and Southern R a ilw a y Co., F o rt W o rth and D en ver C ity R a ilw a y Co.. W ichita V alley R a ilw a y Co., T rin ity and B ra zos V alley R a ilw a y Co., W estern P acific R a ilro a d Co., C hicago U nion S tation Co., F irst N ational B ank, C hicago, F irst U nion T ru st and S avings Bank, C hicago, C ontin ental Illin ois B ank and T ru st Co., C hicago, F irs t N ational B an k o f St. Paul, M erchants T ru st Com pany, St. Paul. Jam es E . W ood ard , B utte, M ont., presiden t M etals B an k and T ru st Co., B utte, vice president, F irs t Securities C orporation, D irector, F irst B an cred it C orporation , M id lan d N ational Bank, B illings, In tersta te Lum ber Co., E le c trica l P rod u cts C orp ora tion o f M ontana, M ontana F lo u r M ills Co., W e st D om e O il Co. BRANCH, CH AIN , AND GROUP BANKING SSSSS SSSSSSS 888888 88 913 8 8 8 8 8 8 8 8 ^ .8 ssssssssis s'ssssass s g s s ss g g g g g s i !! & 2SS8SS5 SSSS38SS 8SS SSSSSSSS8S s s s is ig s m m * iii m um m g ssassssss m m m m rn mmm^cff mmm~ m mmm imtam ~e>f eo f-T ~ ^ SSSfeSSSS ggS3 i§i mmmi ggas gg ssssssssssss mm mmm mt ssiS mmmmmm m m im S'1'' ^ _r gy m m m m rn w- _r^rH %H -ec-„-„- siSiis mmm m mmm a immmt ggSSSg §8833288 Sg§ S3S SSISSJ5SSgSS SSSSS8 8 8 8 8888 888 8 8 8 8 8 8 88 88 8 88 88 8 88 8 8 iiiiii liiiiii Ifssaa igsssss sgs ss'g^s s"» gsssssgssg m m m m n m tm m 8 8 8 8 8 8 8 8 8 8 8 8 8 888 8 8 8 8 8 8 8 8 88 8 8 8 8 8 8 8 8 8 8 iiiiii iiiiiii iii iiiiiiii ii iiiiiiiiii “■§* s - a - f s W f §8 fS W g g S S g i N ow §§§§§§ i i ^ ' ^ l 914 BRANCH, CH AIN , AND GBOUP BAN K IN G S*SSS **g§S*SS S§|gSgS|R||8g§S sg g s s s gSSSS SSSSSSSSS im a m s s s s s s s s s s s s a is s S = § S gg i t i i m iii m m m mm um m ^Ogi'cOrH irf^rfrHCOCoV m m m 8828 SSS §!§§ I S I KSSS5S S5SS38S2S8S mm s s s ^ iiii mu mamm sggsss s s s s s s s s urn mmmi m r p w m m sss sa§ m Mi m iii ss= s 888 88S m um 888 S88 8SSS8 SSSSSSS8 sssgg SSgSKgggSSSSSSE tm m m m m m i £s*»‘s rf2 s “‘s rfssHs m mm mm mt * m m m m m 88888 88888888 iiiii m m a m i* 888888888888888 m um m uu 888888888888888 & **$*& *& ***$ w * *** m hi **« BRANCH, CH AIN, AND GROUP BANKING 8^3^ Ig 88888 8K ggggg8888S83 coS o co ^Th i n i ' l l i-C R ’Cf C f r J rH C-f 3 § 8 3 E t£ 3 8 § £ g fc 8 g N ig N 3 S S g i g CO « " g § i § i § i S S <o 00 p 'i q i S E l l i S i S l s s I S S t-T c fr-T 1 | 5 NK W N © m m t 00r-1 T(i cTco'io' “i ’t eo g s s ss fe s g a s s ss m M z is is iii 8888888888888 88888 888 §82Sg il* SSSgg 888 8888888888888 gs?££g 888" 8 nnKgS8882 882 s $g s s 88 a •£ w d «•* ! ^Spq c a 53® tiM'Z ffl c 2 c_ Z3 « §.2^ am.2+2 ei g~ 03.2.2 *&52■ £rr'gfc ■£ u. ♦ ■egS^e ±C b?SsE §. o'S“ 2 -S £ £=§ il^ l g !Z ijl § §h5^Wo g B fll *43 3 o I '^ f Q OCQ © _, os 2 • l u l l 'l l Ii # l | BZcoccO 915 916 BRANCH, BRANCH, CH AIN , AND GROUP BANKING 97. 99. 100 100 S3 S8 SS5 CO<© COrH ocl OS'S S °°o idooid §82|g2 ^rHtCr-T Sf2 rt<O «c cC OM HO> is ! 0 110 & i£ is? ICO 05 I> Es Other corporations s OOO rf 00 i-H SS SSoS r? ef «:.s o o SO O'-* . o§0 e D ow So s is I ! I ..!!! I S S ?o 917 BRANCH, CH AIN , AND GROUP BANKING (5 ) W e h ave acquired con trollin g interest in the va riou s hanks and co rp o ra tions com p risin g ou r group in the fo llo w in g m a n n e r: ( а ) B y p urchase o f their stock f o r cash. (6 ) B y in corp ora tin g new banks, and pa yin g in th e ca p ita l in cash. ( c ) B y exch a n gin g stock o f this corporation fo r stock o f the banks. (d) B y a com bin ation o f (a) and ( c ) . In som e cases w e have solicited the affiliation, but in a la rge m a jo rity o f ca ses w e have been approached by the banks them selves. In every case a v e ry thorou gh exam ination is m ade b efore the purchase is com pleted, and all un d esira b le assets are eith er rem oved fro m the bank or are secured b y ade quate gu aran ty. In som e cases w h ere undesirable assets a re rem oved, the accep ted assets are gu aran teed b y deposit o f a p ortion o f ou r stock, given to them in exchange fo r theirs. W e req u ire all d epositing stockholders t o gu ar an tee the va lid ity o f their stock, and a lso require them to sign a gu aran ty p rotectin g us against a n y liab ilities o f the bank existin g on the d a te on w h ich th e deal is closed and now show n on the balance sheet. T h e num ber o f shares o f our stock given in exchange fo r the stock o f the affiliating ban k o r co rp o ra tion is determ ined both by the am ount o f net ca p ita l assets w h ich w e require, an d by the earning p ow er o f the bank o r corporation over a p e rio d o f years. (б ) T h e ca p ita l structure o f the F irst B an k S tock C orp ora tion is com posed so le ly o f fu lly-p a id and nonassessable shares o f the p a r value o f $25 per share o f ou r ca p ita l stock. T h ere w as outstanding on D ecem ber 31 a tota l o f 3,016,870.57 shares o f this stock w ith a p a r value o f $75,421,764.39. T he stock holders are d istributed georgra p h ica lly as fo llo w s : N u m b er o f stock h old ers M in n ea p olis__________________________________________________________________ Saint P a u l____________________________________________________________________ M innesota (outsid e o f T w in C itie s )---------------------------------- 1------------------------M ich ig a n --------------------- -------------------------------------------------------------------------------------M ontana______________________________________________________________________ N orth D ak ota________________________________________________________________ South D a k ota ________________________________________________________________ W iscon sin _____________________________________________________________________ O ther States__________________________________________________________________ 6,753 2,345 3 ,201 383 087 892 516 446 596 16,119 W ith the exception o f 200,000 shares sold through F irst M inneapolis Co. and F irst St. P aul Co. to the general p u blic at $47.50 per share, and 32,000 shares sold to officers and em ployees o f the corporations affiliated w ith F irst B ank Stock C orporation at $42.50 per share, all o f the stock has been issued in exchange fo r the stock o f banks and corporations now affiliated w ith us, and no attem pt has been m ade to otherw ise con trol its distribution. I have some facts concerning the matters you discussed yesterday which I know you will be interested in. The conditions which I described a few moments ago, concerning the possible earnings of the small banks, have changed substantially the opportunity for a bank in various-sized communities. To-day the bank in the small com munity finds it practically impossible to make a fair earning and I want to repeat what Mr. Decker told you yesterday that there is no more dangerous institution in a community anywhere than a bank which can not make money. It is just fundamental if they can not make a profit, they are a dangerous institution because they can not exist. They do exist over a period, because the stockholders will permit themselves to be assessed for operating charges, but eventually they get tired of that and there is a closing. My experience is that it takes exceptional management to enable a bank to earn sufficient to justify its existence if it has deposits of less than $250,000 under a State charter, and less than $500,000 under a national charter. 918 BRANCH, CH AIN, AND GROUP BANKING I am reading these figures, because I can not carry them in my head, but taking Minnesota alone, there are 73 towns in Minnesota with less than 100 population that have banks. In 9 o f these towns, the total deposit is less than $50,000; 24 have deposits from $50,000 to $100,000; 19 from $100,000 to $150,000; 10 from $150,000 to $200,000; and 5 from $200,000 to $250,000. In communities o f from 100 to 200 in population, 5 have deposits under $50,000; 36 from $51,000 to $100,000; 29 from $100,000 to $150,000; 19 from $150,000 to $200,000; and 12 from $200,000 to $250,000. In towns o f all sizes in Minnesota, there are 55 with a total deposit less than $50,000; 71 from $51,000 to $1’00,000; 88 from $100,000 to $150,000; 95 from $150,000 to $200,000; and 16 from $200,000 to $250,000. This shows a total of 325 towns in the one State where the bank deposits are less than $250,000. That does not mean there is only one bank in the town; in many instances there are two. There are 145 towns which have no banking facilities whatsoever. I want to call your attention to this: Is it possible to make a state ment before you that will not be circulated in the newspapers, to the detriment o f our own people back home ? Mr. S t r o n g . Not in the presence o f the newspaper gentlemen, because that is what they are paid for. These young men are paid to get the news; especially to get the news you do not want them to have. Mr. W a k e f i e l d . It is my observation that most newspaper men have some judgment. Mr. S t r o n g . It is my experience that if you ask them not to print a thing they will not print it. Mr. W a k e f i e l d . I will say this, at this point, that since I came down here-----Mr. B r a n d . Let us settle this question. I want the information which he thinks would be interesting to this committee, in order that we may intelligently prepare legislation to remedy these evils. Mr. W a k e f i e l d . I will get to it in another way. Mr. B u s b y . I f it is worth while to explain the matter, I do not think it is well to cover it up, even if it applies to your institution. Mr. W a k e f i i S l d . It does not involve my institution. Mr. B u s b y . Or any other institution. Mr. W a k e f i e l d . It does not involve much, but it might be mis understood. Referring to these 145 towns without banking facilities, and where there were banks, since I came down here, Mr. Yeigel, who is super intendent o f banks o f the State of Minnesota, has come out publicly with a recommendation that the State o f Minnesota authorize State banks to put branches or offices or teller’s windows into those towns. I will read the statement. P erson a ly, I am inclined to think the State m ight perm it stron g banks to esta b lish branches in n eighboring places, say w ith in a rad ius o f 20 m iles. T h a t rig h t w ou ld be ca re fu lly lim ited so it cou ld n ot be abused. N o bank w ou ld b e a llow ed to put a branch in a tow n w h ich had a ban k already. N o b ra n ch w ou ld b e perm itted excep t u n d er a ch a rter fro m the com m ission . O rd in arily not m ore than one ban k should be allow ed to have a b ranch in any p lace. B ranch es such as I h a ve in m ind w ou ld be m erely offices, w ith a te lle r in ch arge, w h ose a u th ority w ou ld be lim ited to receiv in g deposits and cashing checks. BKANCH, CH AIN, AND GKOTJP BANKING 919 Mr. Veigel’s purpose in making that recommendation undoubtedly is because o f the fact there are so many small communities at the present time not served with banking facilities, and he would like the State banks o f Minnesota to take care o f these people. Mr. Decker described yesterday the requests that had come to per mit deposits in drug stores. We have had the same kind o f thing and have them constantly, but there is not any way you can take care of those things under the present conditions. This position on the part o f Mr. Yeigel is a complete change o f attitude. He has been, in the past, firmly opposed to any form of branch banking at any time. Now, this condition that I have just described in reference to these small towns, there are the points where this branch banking seems to become a topic for discussion. I feel myself that ultimately the small banking business must be taken out through branches o f some institution that can afford to run offices at various points. We are not prepared to suggest areas, from the standpoint of public policy, for branch banking and our opinion and our belief o f the attitude o f the general public in the territory concerning branch banking, as a general thing, are the same as those described by Mr. Decker yesterday. I think our larger towns would be resentful o f an effort or a necessity of having branch banks in their various communities. It is quite likely that the trend may be such that within a few years our people out there may change their attitude in that respect. However, I feel confident at this time that if legislaion were passed, which directed or made necessary for us immediately to convert our banks into a branch banking system, it would mean the destruction of that business, because I think that it would mean that we would have a new crop o f banks formed to take advantage of the feeling existing at the present moment, and it would simply destroy an agency that is there taking care of the business better than it can be through any other arrangement and it would be very very disastrous. I realize that it may be necessary that branch banking be author ized within certain trade areas. I do not know who will determine those areas. I should hate to try to do it myself. I f that were done, we would be perfectly willing to operate in competition with whatever might develop under a privilege o f that kind. But I do believe that it would be destructive and disastrous if a permission o f that kind were granted, and at the same time legis lation, destructive o f the thing which we are undertaking to do, were put into effect. Now, do not forget this: I think I can show you that my motives and feelings in that statement are sincere, because, in my opinion, if we could to-day convert our entire group into a branch system, I feel satisfied that we could handle that business more profitably and make more money than we can under the group system. We feel that the benefits from group banking should not be sac rificed, and even though there were a branch banking system I still believe there will be for many years a better and more successful banking service rendered in many communities through the group system as we are operating. Now, I referred awhile ago to the motives which prompted our undertaking this type of organization. 920 BRANCH, CH AIN, AND GROUP BANKING Gentlemen, I think that you will all admit that if you were living out in Minneapolis and St. Paul and you were engaged in the bank ing business there and in a position to see the possibility for future development and the carrying on successfully of the business of the territory and you realized that there was no possibility for growth or development within your city, except as the territory which makes it should grow and develop, you would be very much interested in trying to see that that territory outside o f your trade area got itself into a position where it would be satisfactorily banked at the earliest possible moment, and that is the only motive which we have in undertaking the job which we are doing. It is for the definite pur pose o f furnishing banking facilities in each one o f the points where we operate, which will have the confidence o f the public, which will be in the position o f knowing that they need not be fearful o f their own single institution, and on account o f that fact unwilling to take care of the loans and business in their own community which they should take care of, and who understand that the driving force back of the entire organization is the means and the will to serve those various communities and develop any business that is legitimate in this territory to the limit. That is not altruism. There is nothing to that. That is the way through which our banks have grown in the cities, and it is the only way. That is the means through which the business of the Twin Cities was developed. It is the development of the territory surrounding it, and there is no other way to develop it. So our purposes are those o f self-preservation practically. We want that territory to stand out in a business way. Over very many years the territory o f the ninth Federal reserve district was freer from any business and financial difficulties than any other section o f the United States. We have always been able on account of the agri cultural background to hold ourselves in steady rein and go ahead progressively. W e have gone through a period which has been very unsatisfactory and we are on the way up and we are trying to see that we do not again find ourselves in the difficulties which we have just experienced and through which we have passed. Now, I am going to state a few things here which I trust, from the questions asked here yesterday, are those things which you are par ticularly interested in and anxious to have information on. In the questionnaire you asked me to explain fully what control or influence the holding company, or a central bank controlled by the holding company, exercises over the group o f banks acquired. Now, gentlemen, the First Bank Stock Corporation is organized under the laws of Delaware, and I should like to tell you why. In our first consideration o f this matter we intended to organize under the laws o f Minnesota, which would have given our corporation a double stock liability. That particular feature is one which we would have welcomed in the organization. However, we transferred the corporate organization to the laws o f Delaware for this reason, that under the laws o f Minnesota any stockholder o f our corporation living in any other State, in case o f death, his stock would be subject to inheritance taxes in two or three different States, and we felt it was an unjust thing to ask our people to buy stock when we were covering a wide area, in a corporation BRANCH, CH AIN , AND GROUP BANKING 921 where, in case o f their death, they would be subject to the inheritancetax penalties at two or three different points. That was the basis for using the Delaware incorporation. It was not to avoid the double liability on the stock. We did not care anything about that. Mr. B r a n d . W ould it interrupt you to ask you a question there % Mr. W a k e f i e l d . No, sir. Mr. B r a n d . What is the liability under the present law o f the group banks? Mr. W a k e f i e l d . They have the double liability, but the corporation is the holder o f their stock. W e would not have had any objection to the double liability o f the holding company’s stock. Mr. B r a n d . But it is a double liability on the stock o f the banks? Mr. W a k e f i e l d . Yes, sir. Mr. W i n g o . I do not think you made clear the point you wanted to make in reference to the inheritance tax. Mr. W a k e f i e l d . I think you gentlemen are all familiar with the fact that it has gotten to the point now where different States have passed laws that if a man goes to New York and dies— rather, if he owns stock in Minnesota, we collect an inheritance tax on it in Minnesota. Mr. G o l d s b o r o u g h . Y o u mean two States, and not two or more States? Mr. W a k e f i e l d . It may be many States. There have been cases where the whole stock has been used up in payment o f taxes. Mr. W i n g o . W hy did you go to Delaware? They do not have it there ? Mr. W a k e f i e l d . N o , sir. Mr. S e i b e r l i n g . There is no transfer tax in Delaware ? Mr. W a k e f i e l d . N o , sir. In our case we have the First Bank Stock Corporation with officers and employees set up to supervise the man agement o f the banks in our group, and in that supervision we go a long ways. We depend upon the officers and directors of the banks, who, by the way, have identically the same responsibility, and they do not avoid it—the same responsibility they have always had, or would have had, and as is true under all corporate ownership, in case o f mismanagement. The stockholders are the ones who are obliged to make changes in the directors and officers. In this case, we feel that we have a much more live and active interest on the part o f the stockholders, because the stockholder is the First Bank Stock Corporation, and the First Bank Stock Corporation is following the business o f that institution intimately and it will, i f anything goes wrong in any single unit in that insti tution, be in a position o f taking an active interest as a stockholder and bring about required changes in a much more satisfactory manner than is ordinarily true o f a corporation whose stock is spread over a large group of small stockholders, the interests of which are not definite or active. Mr. G o o d w i n . And perhaps more expeditiously? Mr. W a k e f i e l d . Yes, sir. Our method o f conduct is this: No bank has been taken into our organization except upon a complete examination which involved the setting up o f a complete set o f information for our own office concerning the loans in that bank, and we have a record to start with o f the loans in that bank. In 922 BRANCH, CH AIN, AND GROUP BANKING all cases, every loan made by officers involving $500 and over are reported to our office in Minneapolis daily and accompanying that loan, i f it is a new loan, is a financial statement or a statement o f the collateral upon which the loan is made; so that in the case o f a poor one being made, we have knowledge o f that fact within 24 hours after it has happened. We have a corps o f examiners who are charged with the responsi bility o f entering and examining those banks not less than two times each year, and who make those examinations and bring them into the office and enter into correspondence with the officers o f the banks or discuss with them there anything that they think needs a little attention. One o f the difficulties o f the small banker has been this fact, that he has had no opportunity to get in touch with people and avail himself of the modern method o f banking—the modern method of determining the value o f credits, and our experience is that that group with which we are associated are the happiest bunch o f men over the fact they have a chance to sit in and advise, and work out, and find out how a bank should be operated and how loans should be made. I want to repeat what Mr. Decker said yesterday, that there is much more damage done by a poor loan than there is by not making loans that should be. There is much more harm done by making the loan that is not justified than ever will be created by turning down some one who should have the money. In connection with all this, I want to say that I have been reading the testimony that has been presented before this committee, and it has been my opinion—and perhaps it is not correct—that there has been in the minds o f the members of the committee the need o f pro tecting the borrower. Now, gentlemen, I want to make this clear. In my opinion, the job this committee has to undertake is to protect the depositor, and the borrower needs no protection. Money is the most competitive commodity in the world. There is not anyone that I ever have known o f that can get a monopoly in it. It will move overnight if there is a better place to put it, and I have never seen the time when any business or enterprise that needed capital to develop it did not find it. There will always be varying costs o f money, based upon the risks and the type o f thing that the money is going into. Some people are willing to take a long risk and a long rate. Others prefer to con fine their loans to those which carry no risk and always secure the least possible commercial rate. In my opinion, Congress nor no one else needs to devote one mo ment’s thought to protecting the borrower. The borrower will take care o f himself, and he will get his money at the most reasonable rates possible, where the credit is justified, during whatever condition prevails at that time. So our supervision o f those banks is intimate and very close, be cause we recognize that in every single institution in our group our responsibility is complete. We have a liability for assessment on stock that we own in these individual banks o f 100 per cent. That does not mean anything. Our liability is what is involved in every bank we operate, and it is necessary to see to it that those banks do not have any more difficulties than is reasonable. BRANCH, CH AIN, AND GROUP BANKING 923 Now, then, yesterday questions were asked about the flexibility or the flow o f funds through group operation from section to section. I can not speak for any other people in the business, but I am going to make a statement of our Own practices in that respect. We are operating entirely within the ninth Federal reserve district, and there are varying needs and conditions over that district. I f we have a bank located at a point where, at a particular time, there is a demand for funds beyond which we have deposits to make loans, we investigate the credit involved, and at the same time the First Bank Stock Corporation has intimate knowledge o f the money available to lend in each bank or their condition, and if there is some other bank needing loans, and the loans are good ones, we have no hesitancy in transferring that loan to that particular bank. 01* to the First National Bank of Minneapolis or the First National Bank of St. Paul, and if a case should develop where there were no funds within the group we will do what we have done in the past. We have 67 banks who are members of the Federal reserve system. The First National Bank of St. Paul and the First National Bank o f Minne apolis are both members. We will go to the Federal reserve bank and borrow such money as is required to take care o f the reasonable needs of our territory over any particular period. It is our business and what we should do and what the Federal reserve bank is for and what we have done in the past. In answer to this question— Upon w h at prin cip le are you w ork in g in determ ining the geograp hical area into w h ich you r group o f banks w ill be extended— I desire to say that we have confined ourselves to the ninth Federal reserve district as a matter o f principle and I have described the method of audit and examination. I think, gentlemen, that is all I have to say in the way of a state ment at this time. Mr. S t r o n g . I understood you a few moments ago to say that Congress should devote itself to the protection of the depositor— the man with the money— and give no concern to the man who wanted to borrow money. Is that your position ? Mr. W a k e f i e l d . I think so. Mr. S t r o n g . H o w many banks are there in your group? Mr. W a k e f i e l d . There are 91 in that list. Mr. S t r o n g . H o w many were in the group as originally started ? Mr. W a k e f i e l d . Well, there were a few more than that. W e had this little company while we were trying to buy banks, and we had IT banks in that company. In this information I have given, I have given the percentage o f stock owned by the First Bank Stock Corporation in each bank. In two or three banks, you will find we only own the control. Mr. S t r o n g . But 17 started the group ? Mr. W a k e f i e l d . There were 83 banks to start with. Mr. S t r o n g . W ho set the values on those banks, as taken over by your group ? ‘ Sir. W a k e f i e l d . The First National Bank of St, Paul was an in dependent institution, and so was the First National Bank of Minneapolis. The value o f those 17 banks which we had already purchased was what we paid for them. 924 BRANCH, CH AIN , AND GROUP BANKING Then we had a conference between the people in the three Montana banks, the First St. Paul, and the First Minneapolis, to determine a fair basis upon which they should join. Mr. S t r o n g . I have not gotten to that. I am talking about the original group. Mr. W a k e f i e l d . 'Our original group started with what I h a ve described. Mr. S t r o n g . Who set the value on the two big banks in Minne apolis and St. Paul ? Mr. W a k e f i e l d . We sat down and took the capital, resources, and earnings, together with the deposits, and figured out a formula which was worked out. Mr. S t r o n g . Were you an officer in either bank? Mr. W a k e f i e l d . The First National Bank o f Minneapolis. Mr. S t r o n g . Y o u set your prices upon your own banks when you started the group ? Mr. W a k e f i e l d . W e did not. It was a difficult thing to do be tween the two cities. Mr. S t r o n g . Y ou agreed between the two banks how much stock o f the holding company you would take for the stock o f your banks? Mr. W a k e f i e l d . W e agreed upon a formula which the officers thought would be fair, and then that formula and agreement were turned over to a committee of the boards o f each o f the two banks for review and approval and was finally approved by the board o f directors o f the two banks. Mr. S t r o n g . But the officers of the two banks agreed upon how much stock they would allow themselves for the stock o f the two banks ? Mr. W a k e f i e l d . Absolutely. Some one had to do that. Mr. W i n g o . Do you not think in that connection it would be wise to have him give the formula? Mr. W a k e f i e l d . I can not-----Mr. S t r o n g . Do you have any objection to giving us the formula that you used? Mr. W a k e f i e l d . I have described it, but I can not tell you exactly the figures used. But it was based upon this: The First St. Paul had less capital assets than we had and they had less stock, although they had a bank with deposits as great. Mr. S t r o n g . Did you have an examination made o f each o f those banks ? Mr. W a k e f i e l d . Yes; they examined ours and we examined theirs. Mr. S t r o n g . Y o u jointly agreed on the stock you would allow? Mr. W a k e f i e l d . Yes. Mr. S t r o n g . When you came to take in the stock o f the other banks you used a different formula? You said how much they should have for the stock? Mr. W a k e f i e l d . In a great many cases they got a better deal than we got ourselves. Mr. S t r o n g . I do not know anything about the facts. I expect there were a great many cases where they did not, were there not s Mr. W a k e f i e l d . I can see what you have in your mind, Mr. Strong, and of course any statement that I might make you would feel was probably my opinion. I think it would be propably the best thing BRANCH, CH AIN , AND GROUP BANKING 925 for you to find out from a lot o f the people who got the stock whether they were treated fairly and are being treated fairly. Mr. S t r o n g . They might not know, if they get a dividend, whether they were treated fairly or not. Mr. W a k e f i e l d . Many of the stockholders to-day are receiving greater dividends on their stock which they received than they used to pay themselves in their own banks. Mr. S t r o n g . Oh, I realize that combination o f money and credit are likely to produce large incomes. Mr. S e ib e r l in g . W ill you ask him at this point if that applies to the original banks? Mr. W a k e f i e l d . They are receiving identically the same dividends. Mr. S t r o n g . But they placed a value on the banks o f which they got the stock. I think it is fair to go into this because o f the state ment you made that Congress should take care of the man who has the money—the depositor— and not the man who has to borrow it. Personally I think that is a peculiar statement. Mr. W a k e f i e l d . The difficulties in our territory have arisen en tirely from the difficulties of the depositors. Mr. S t r o n g . It has been suggested that I ask you how are the directors in the individual banks of the group elected ? Mr. W a k e f i e l d . They are elected by the stockholder which hap pens to be the First Bank Stock Corporation. Mr. S t r o n g . Then they are not elected by the individual banks? Mr. W a k e f i e l d . The First Bank Stock Corporation is the owner of the stock o f the banks and is the only person who can elect the directors. Mr. S t r o n g . Then you elect the directors in all the banks? Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . What dividends on your stock do you pay ? Mr. W a k e f i e l d . Our sto c k is $ 2 5 p a r v a lu e a n d p a y s a d o lla r d iv id e n d . Mr. S t r o n g . What was the original stock o f the two banks—the one in S t. Paul and the one in Minneapolis ? Mr. W a k e f i e l d . Both have $6,000,000 capital. Mr. S t r o n g . Both had ? Mr. W a k e f i e l d . It is the same to-day. Mr. S t r o n g . And they took $6,000,000 o f stock from the holding company ? Mr. W a k e f i e l d . They had $6,000,000 capital. I have it all in this little booklet. You take our bank, the First National Bank o f Minneapolis: It has capital, surplus, and undivided profits o f $11,613,170.30. Mr. S t r o n g . H o w much stock did you take in the holding com pany ? Mr. W a k e f i e l d . Let me finish this. A ll these institutions belong in the First National Bank, and I will tell you this. We have $11,613,170.30 in capital, surplus, and undivided profits in the First National Bank. We have $2,400,000 in the First Minneapolis Trust Co. We have $3,697,000 in the First Minneapolis Co. We have $667,000 in the Minneapolis Trust Joint-Stock Land Bank. 926 BRANCH, CH AIN, AND GROUP BANKING In addition to that we have an equity of a considerable amount in our buildings, which has been charged down. Now, our total set-up of capital assets that we showed was $22,000,000, and we received $30,000,000 of stock of the First Bank Stock Corporation. Mr. S t r o n g . A fter you figured in all the assets and value you got $8,000,000 more than the figures showed ? Mr. W a k e f i e l d . In stock. Mr. S t r o n g . In the holding company I Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . What did the St. Paul bank get ? Mr. W a k e f i e l d . They got $27,000,000, I believe. I can not tell you that exactly. I remember my own figures, because I handled them. Mr. S t r o n g . Theirs was also watered—that stock? [Laughter.] Mr. W a k e f i e l d . I do not admit there was any water around the place. Mr. S t r o n g . O f course, there could not be any other liquids at the present time. There was some liquid put into it, evidently, anyhow. Mr. W a k e f i e l d . A t the time we made this arrangement the stock o f the First Natitonal Bank o f Minneapolis was selling at $220 a share. The stock that we received—the par value of the stock that we received, which was four shares for one, was $100. Now, I do not think we watered any. Mr. S t r o n g . Did you do the same thing with the other banks— increase them in a proportionate amount in your corporation for the stock you took from them ? Mr. W a k e f i e l d . I f they had an organization that you justify i t ; yes. Mr. S t r o n g . But you passed upon that? Mr. W a k e f i e l d . Yes, sir. In connection with that, every one o f these deals was a mutual transaction. There was nobody obliged to sell. That was a mutual agreement. Mr. S t r o n g . I know some little banks that were glad to sell. Mr. W a k e f i e l d . I know a lot o f them that would be glad to sell. Mr. S t r o n g . But it was the most intense pressure upon them anyone could possibly imagine. Mr. W a k e f i e l d . Not in our section. Mr. S t r o n g . Y o u feel that branch banking would be all right in the little towns that could not support a regular bank? Mr. W a k e f i e l d . Mr. Strong, I feel that it is almost essential in order to find some means o f taking care o f these deposits, where there are no banks in those communities— almost essential to get them into some live institution that can furnish the necessary banking facilities. Mr. S t r o n g . But you think in the small towns that no one can make enough profit in to support a unit bank, that branch banking should be permitted? Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . But in communities where banks can make a regular profit— enough profit to support a regular bank—von do not think Congress should authorize branch banking? BRANCH, CH AIN, AND GROUP BANKING 927 Mr. W a k e f i e l d . I think it may be perfectly proper for Congress to authorize branch banking in trade areas, but if they should do it. I think it would be disastrous to force us to discontinue our group banking. Mr. S t r o n g . Y ou would have no objection to branch banking operating in your area ? Mr. W a k e f i e l d . None at all. Mr. S t r o n g . O f course, the argument the branch banker or the man advocating branch banking, might make in your trade area, is that if they are allowed to go in there, they will select not only the profitable banks in the good banking towns, but they will put branches in all towns and that they can do it through teller windows, and give the people banking facilities which your arrangements withhold from them.’ Mr. W a k e f i e l d . No. I f such authority was given, do not ever think that we would be asleep. We would be taking care of those small towns. Mr. S t r o n g . With teller windows ? Mr. W a k e f i e l d . With all the banking facilities that could be handled profitably in those communities. Mr. S t r o n g . But you would be the judge, o f course, as to what that town would be entitled to. Mr. W a k e f i e l d . Some one h a s to be. Mr. S t r o n g . You do think the residents o f the town should be, but it should be some one in distant control ? Mr. W a k e f i e l d . It must be some one who understands that busi ness and knows whether they can operate that branch with profit in that territory. Mr. S t r o n g . D o you agree with Mr. Decker— I did not listen very closely to your discourse with regard to the farm problem— do you agree with Mr. Decker’s interesting statement yesterday that the farm problem grew out o f lack o f capital rather than the lack of banking facilities ? Mr. W a k e f i e l d . It grew out o f too much capital. Mr. S t r o n g . Grew out o f too much capital ? Mr. W a k e f i e l d . Yes, sir. I agree with Mr. Decker that a great deal of our difficulty was occasioned entirely by our banking situa tion, but not all o f it by any means. Mr. S t r o n g . Y ou think you had more banks than bankers? Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . Are you aware of the fact that just prior to the war the tariff was taken off o f agricultural products? We had prac tically free trade in agricultural products. Mr. W a k e f i e l d . I have been engaged in business in a manner which has kept me alive to the farm difficulties over a great many years. Mr. S t r o n g . That being true, you know that as a fact, do you not ? Mr. W a k e f i e l d . I do not know a thing about the tariff. Mr. S t r o n g . That is one branch o f the farm problem you have not followed ? Mr. W a k e f i e l d . I do not feel that it has been an important factor in the farm difficulty. 100136— 30— vol 1 pt 8--- 10 928 BRANCH, CH AIN, AND GKOTTP BANKING Mr. S t r o n g . Y o u think it is not important, not having investi gated it? Mr. W a k e f i e l d . N o ; I think—let us delve into that a bit. Mr. S t r o n g . A ll right, delve. Mr. W a k e f i e l d . I will make my statement about farm products in this manner: The products o f the farm are primarily food products. The market for those products is dependent upon the needs o f the population o f the world for food. There is no method or means whereby an extension o f that market can be brought about beyond those needs., It is not as it is with the automobile manufacturer, or other manu facturer o f other articles. You can not get a man to buy twice as much food as he needs, although you may induce him, through sales efforts, to buy two automobiles, or half a dozen neckties. It is an absolutely limited market. The world generally is attempting to produce the food necessary in the various countries, as far as possible in those countries, and, in my opinion, there are no means whereby the United States, as an individual nation, can create a condition which will enable us to pro duce unlimited quantities of food products and secure an adequate price for them; in other words, in my opinion, the industry o f farm ing in this country must depend primarily upon the domestic market for the sale o f its products, and when it reaches beyond that or at tempts by any artificial means to provide a market beyond that, they are treading on dangerous ground. Mr. S t r o n g . Then you do not think we should attempt to export agricultural products ? Mr. W a k e f i e l d . I think it is perfectly legitimate to export all you can, but you are up against all the factors o f the world market when you do it. Mr. S t r o n g . In your discussion o f the farm problem — I want to try to follow you along those lines—you seemed to think that it is wholly a matter o f financial trouble, or wholly a financial problem. Mr. W a k e f i e l d . The farm problem? Mr. S t r o n g . Yes. Mr. W a k e f i e l d . N o; I do not—by no means. Mr. S t r o n g . What I wanted to point out was that after the war was over we were the only major country in the world that was flooded with farm products. Mr. S t r o n g . N o w , as I understand, under your system, so far, you have accepted only banks in communities where you feel a banking institution can make a profit? Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . Then it will be necessary for Congress, or by some other means, to provide banking facilities or accommodations by teller windows, or in some way, for those communities that can not support a bank proper? Mr. W a k e f i e l d . Under the present law, there is not any way we could take care o f those small communities, and do it in a sound business way. Mr. S t r o n g . H o w eto you feel that Congress ought to proceed in its legislation toward permitting branch banking—just simply per mit it in trade areas by national banks, unlimited ? BRANCH, CH AIN, AND GROUP BANKING 929 Mr. W a k e f i e l d . That would require more thought than I have given it, before I could set up a formula. Mr. S t r o n g . Do you think trade areas is the proper limitation ? Mr. W a k e f i e l d . I do. I do not know how you are going to de termine trade areas. There is this thing to think about, that is, when the Federal reserve banks were established, it evidently was in the mind of Congress at that time they were opposed to permitting a central bank in the United States, or a centralized control of credit and of banking facilities, and so they undertook at that time to set up districts, based upon the flow of banking business, and determined on certain areas which, in my opinion, were pretty carefully and pretty successfully worked out, to govern the location of the various Federal reserve banks. There were hearings held in our section, I presume there were in others, at which all people interested might present themselves and their arguments and finally a certain dis trict was located and determined as being the ninth Federal reserve district. Now, in my opinion, that was a thoroughly sound idea. The last thing that we want to see is to find ourselves hitched up body and soul with, we will say, New York City or W all Street; because we believe if we are permitted to have an independent, strong, institution, with plenty o f competition in our territory, that we can serve that territory more intelligently and better than it can be done through any other method. Mr. S t r o n g . I know you have said that: but what I am trying to get at is what you think Congress should do with regard to setting up trade areas. Mr. W a k e f i e l d . I think that would have to be left to some land of commission that could sit down and make a study, the same as they did in establishing the Federal reserve banks, and determine what those should be. Mr. S t r o n g . The governor o f the Federal Reserve Board when before the committee said, I think, they had a tentative figure of making a division o f about 27 areas, if I am correct in that. Mr. Aw a l t . Thirty-seven. Mr. S t r o n g . Yes; 37 areas. Mr. A walt. And afterwards amended it to 50, I believe, Mi Strong. Mr. S t r o n g . And afterwards amended it to 50; that would not be in accord with your idea? Mr. W a k p f i e l d . It might. I have not any idea on that particular thing; I do not know just how the country should be divided. Mr. S t r o n g . The president o f the Federal Reserve Board also said he thought that finally those areas would be broken down and we would have national branch banking, but he did not contemplate that would happen for perhaps 50 years and gave as a reason that they did not have at the present time trained men to handle nation wide branch banking. Is that in accord with your views ? Mr. W a k e f i e l d . I do not know as it is in accord with my views. M y views are that I should dislike very, very much ever to see coun try-wide branch banking in this country. I do not think we would do as well. Mr. S t r o n g . Your present idea is it might be confined practically to the 12 Federal reserve systems? 930 BRANCH, CH AIN, AND GROUP BANKING Mr. W a k e f i e l d . Yes, sir. Mr. S t r o n g . That is what you sought to do in your group bank, in your district? Mr. W a k e f i e l d . Yes, sir. (A t this point Mr. Luce took the chair.) Mr. L u c e . Did I understand you to say, Mr. Wakefield, that when those banks were taken over you required that each one o f them should guarantee its liabilities o f the moment? Mr. W a k e f i e l d . Yes. We could not take in a bank and assume undisclosed liabilities that they might have. W e made those people stand back of what they gave us in the way of figures. Mr. L u c e . Y ou referred to the undisclosed liabilities. Mr. W a k e f i e l d . It covers all liabilities. Mr. L u c e . And how were you able to help out any bank that had suffered as a result o f the inflation and was struggling to keep its head above water? Mr. W a k e f i e l d . Well, sir. I will give you a picture. Here is just one instance which just tells that story. This is in a city o f 3,000. The largest bank in the community was experiencing an active with drawal; the bank’s reserve account was overdrawn and its cash on hand was less than $1,000. When our examiners reached the scene* they found the town alert with lots o f people in front o f all three banks, and the public generally disturbed by rumors. This was an old bank with deposit liabilities in excess o f a million dollars. The stockholders had previously paid an assessment o f 50 per cent. This was very recent. The affiliation was accomplished by our organiza tion of a new corporation, which was supplied with a capital struc ture o f $150,000 and which assumed the former bank’s deposit lia bilities. The bank pledged all o f its assets, including its capital and surplus and, in addition, the stockholders and the directors o f the old bank put up a guarantee fund o f $200,000 in cash. That was $200,000 on a $100,000 bank and they had already paid a 50 per cent assessment. Now, then, that shows you how far those people would go to prevent a closing in their community, and their one ambition was to save their depositors from being tied up by the failure o f the bank, if there was any way to do it. Mr. L u c e . But your central organization took no risks in the creation o f this structure ? Mr. W a k e f i e l d . Well, we took some. Mr. L u c e . And what were they ? Mr. W a k e f i e l d . Well, after all o f this was done, we do not know whether we are going to come out entirely whole, or not. W e figured that if that arrangement did not cost us over $50,000 we would feel we were justified in preserving that town; because it would have involved a large group o f banks up and down that territory. Mr. L u c e . H o w w o u ld th a t b e a lo ss o f $ 5 0 ,0 0 0 , i f a ll o f th e l i a b ilitie s w e re g u a ra n te e d ? Mr. W a k e f i e l d . Guaranteed to this extent, that we accepted im mediately certain assets and assumed the entire deposit liabilities. Mr. L u c e . I see. Mr. W a k e f i e l d . The guarantee is not big enough. BRANCH, CH AIN, AND GROUP BANKING 931 Mr. L u c e . Did I understand you aright, also, when I gathered your shares in the holding company are nonassessable ? Mr. W a k e f i e l d . The holding company’s shares are nonassessable. They are a Delaware corporation. Mr. L u c e . Is it your judgment the requirement of contribution by owners in case o f failure is a wise and admirable thing in the business world ? Mr. W a k e f i e l d . Not generally; but I think it is proper in banking. Mr. L u c e . And why should the owners o f a holding company escape these liabilities more than anybody else ? Mr. W a k e f i e l d . They have not. They are stockholders in the holding company—the holding company itself is liable for 100 per cent assessment on every bank stock it owns, which comes out of the property o f the stockholders of the holding company. Mr. L u c e . But you are not liable on those holdings in proportion to the old holdings ? Mr. W a k e f i e l d . On the individual stock owned in the holding company, we could not levy an assessment. Mr. L u c e . It has been brought up from time to time that branch banking may at times result in collapse o f a huge institution, as took place in Canada in one instance. Mr. W a k e f i e l d . Just one, I think, in the whole history o f the country. Mr. L u c e . That shows the possibility that your holding company might go on the rocks. Mr. W a k e f i e l d . I do not believe it would, but there is a possibility. Mr. L u c e . The Canadian bank undoubtedly did not believe it would. Mr. W a k e f i e l d . Quite likely. Mr. L u c e . But an attempt is made to discourage us from institut ing branch banking on the ground it once did happen; that once there was a great failure o f a bank with many branches, and that establishes the possibility your holding company might, in a period o f financial stress, become bankrupt. Mr. W a k e f i e l d . Yes. Mr. L u c e . N o w how do you justify the exemption o f your own directors and your own stockholders from the double liability which is required under those circumstances from other corporations? Mr. W a k e f i e l d . Well, my opinion is this, that through a set-up with a capital structure such as we have, the liability, in case of loss o f some unit in that group, is far more strongly covered than it would be with an individual liability o f a group o f stockholders. Mr. L u c e . Very likely this is a technical question and has no im portant bearing, but we are confronted with the Canadian episode and it may be proper to inquire as to what would happen under simi lar circumstances in this country. Mr. W a k e f i e l d . Yes. Mr. L u c e . Suppose some o f the communities in your neighbor hood dwindle. There is a story in this morning’s paper— or was it yesterday—to the effect that the census enumerators are finding throughout Illinois, I think was the particular locality specified, large numbers of villages that are dwindling and in one case the whole village was sold out at auction—the changing conditions o f the 932 BEANCH, CH AIN, AND GROUP BANKING time resulting in a dwindling of the smaller communities. What will happen; wThat course shall you pursue if one o f your communi ties has that experience ? Shall you close that bank ? Mr. W a k e f i e l d . I think good business judgment would require us to liquidate the institution and close it if we were operating in a town where it was no longer possible to make a profit in doing the business. Mr. L u c e . Then, your form o f doing business does not necessarily assure a continuance o f existing banking facilities ? Mr. W a k e f i e l d . It certainly assures a continuance i f there is enough business there to justify a continuance. Mr. L u c e . But would it be in the case of competition in a pros perous community ? Mr. W a k e f i e l d . Well, competition is the best thing we know of and, if we had competition which took our business away from us. we would probably have to quit and go out o f that community. We never have had that experience yet. Mr. L u c e . I might say, Mr. Wakefield, that your admirable state ment covered most o f the questions I wanted to ask, but there are one or two questions I would like to ask, particularly in the case o f the shifting o f funds. We are constantly told in the discussions o f this subject that either holding companies or branch banking or any other form o f amalgamation will inure to the disadvantage o f the smaller communities and wTill shift funds to the great centers, notably New York and Chicago. In the first place, will you tell us what actually happened, so far as your own experience shows, during the period o f the great inflation last summer, when money rose as high as 9 per cent in New York? Mr. W a k e f i e l d . Well, our situation was just this: Some o f the banks in our group had funds which they loaned on call in New York. The First National Banks o f St. Paul and Minneapolis were loaning money largely on account o f the grain situation and our own dis counts were running very high, comparatively; so that at no time during that period did we have any surplus funds. We were, most o f that time, borrowers at the Federal reserve bank and at no time during that period did we have a dollar o f the funds o f those two big banks loaned in New York on call, although we could have made double the rate we were getting by putting it there. Mr. L u c e . H o w was it in the case o f the bank in Fargo, for example ? Mr. W a k e f i e l d . That did not. Mr. L u c e . Suppose it had surplus funds, did those reach New York last fall? Mr. W a k e f i e l d . I f they had had surplus funds, they possibly might have loaned; but at that time we had not yet taken complete control o f all o f these banks and could not regulate or control or direct their loaning, and some o f them did have—I know that— all through the period surplus funds loaned in New York. Mr. L u c e . O f course, what I am driving at is to try to find out whether the holding company or branch bank tends to send money to the spot in the country where the best return can be received for it, to the detriment o f local industries requiring funds? Mr. W a k e f i e l d . N o; I am positive that does not happen, because it would be the poorest thing we could have happen. You must remember this, that nobody is obliged to do business with a certain BRANCH, CH AIN , AND GROUP BANKING 933 bank, and the bank recognizes its responsibility to the business of its community. It must. It does not make any difference what their selfish motives might be, the fact remains they must take care o f that business or they can not keep it. And during the period you describe, o f all o f this inflation, the banks that I know of were loaning money at a fixed arbitrarily low rate to business people, and borrowing money to furnish to them instead o f trying to shift it down to where they could make a profit. Now, then, you are speaking of loaning money on call in New York. There come periods, seasonal periods, in the banking business when every bank may find itself temporarily long on money. Nearly all the banks in this country are paying interest on deposits, and the banker can not sit with that money idle, and the logical and reason able place for him to loan it is to loan it on call in New York City, because he can get it back at the moment he wants it. In the history o f the country there never has been a time, except a very brief period at the opening o f the war, when money loaned on call could not be returned at once and immediately. As it is at present, this happens to be right now the time when there is perhaps a greater freedom o f money than usual, and there is a considerable amount o f it which is loaned in New York on call, and at a very low rate because o f the fact there is so much money looking for any price to cover its cost. Mr. L u c e . The argument we most hear here might be illustrated by taking at random Fargo, which comes in my mind: It is urged that if some man is starting in business and desiring to establish some new industry, the success o f which is always problematical, and should go to the Fargo bank in such a period as that of last August and ask for a loan, the centralized banking system would say to itself, “ We can get a sure thing by loaning this money in New York at 8 per cent; we are not sure this fellow is going to make good, and it is better to send that money to New York at 8 per cent than it is to run any risk with the hope o f getting 6 per cent.” Mr. W a k e f i e l d . The man that felt that way about it would not stay in business long, would not stay in the banking business very long, because there is not any banker I know anything about who does not take the keenest interest in any business that is going to be con ducted and developed in his territory, and he will go just as far as his business judgment will permit to take care o f that thing. Bank ing business is competitive, and if he does not do that he will lose that business; his bank will become known as an institution that is not taking care of the local people and they will go to his competitor. I have not the slightest fear o f that sort of thing developing. Mr. L u c e . Possibly others of us do not, but that charge is made and must be met. Carrying that a bit further, it is urged, under the unit-banking system, the president of the local bank has that very keen heart factor at work for the safety o f his own institution and the maintenance o f his own business and preservation of his position o f influence in the community Now, by such a change as you have brought, the banker has lost some part of his personal anxiety; he no longer depends upon the business o f that bank for the safety of his own fortune; he is now dependent upon the pros perity o f a large group of banks; and it is suggested that you have thereby diminished his own zeal, caution, prudence, enterprise, and 934 BRANCH, CH AIN, AND GROUP BANKING interest in the community; in other words, that all amalgamation tends to destroy local initiative, courage, hope, zeal, and all the other good things involved in it. What do you say to that ? Mr. W a k e f i e l d . I would say this: That under the system we are operating our group banks up in the Northwest—I do not know about them anywhere else—it is just exactly the contrary to the thing you have described. I f there is any man out there running a bank who thinks he is through or that he has been relieved o f any responsi bility, we are going to find it out very soon and he won’t remain there very long; because in every case we are stockholders o f the First Bank Stock Corporation, the success and profits o f which are dependent upon each individual unit being successful and making money and going ahead, and that can not be accomplished without that particular institution looking after its territory and taking care of its local business to the limit. Mr. L u c e . Y ou th in k th e p re sid e n t w o n ’t g o o u t o n th e g o l f lin k s a n y m o r e d a y s o f th e m o n th a fte r th a t c h a n g e th a n b e f o r e ! Mr. W a k e f i e l d . I am dead sure he won’t ; and perhaps a good deal less. Mr. L u c e . N o w , it is furthermore urged that under chain-banking systems there is an inevitable favoritism to borrowers. Mr. W a k e f i e l d . I do not know what that means. I have never known o f favoritism to borrowers. Mr. L u c e . Well, that is the allegation; that, for example, somebody controls your system. It is the story o f all human enterprise that there is some one man at the middle o f the thing whose judgment dominates. Now, the allegation is made, under those circumstances, that central man, whose word goes, if he has a prejudice in favor of mining, for example, or against mining, will in the first place favor one particular group o f borrowers against another; or, going beyond that, if he has a prejudice within the mining group, he will through his influence turn the money to the advantage o f one man and the disadvantage o f another man. That charge is being made all the time in the discussion o f this subject— that concentration conduces to favoritism. Mr. W a k e f i e l d . Well, I do not know. I have never come in con tact with anything o f that sort. I have been president o f the First National Bank o f Minneapolis for some time. Perhaps I might be considered to be the fellow who could do something like that, some thing such as you describe concerning the bank; but I would hesitate to try to do anything like that with the group o f officers in the bank and directors that are in touch with the business o f that institu tion and following it all o f the time. And besides that, it would be the poorest business judgment any man could exercise; and most of us like to think we are going to exercise good business judgment. Mr. L u c e . Very well. Now, turning to another phase o f the sub ject : You know, o f course, the proper committee o f the House is at present investigating the subject o f holding companies in railroad stocks; there is a demand that we investigate holding companies in public-service corporations and very strong and able men have writ ten in the magazines, notably, Professor Kipley, describing what is going on in the way of pyramiding securities and intimating or arguing that harm would come to the country. Now in uniting these BRANCH, CH AIN , AND GROUP BANKING 935 bank stocks, there is nothing standing in the way o f some super holding company getting a majority o f the stock o f your group, is there ? Mr. W a k e f i e l d . I think it would be practically impossible; but, at the same time, of course there is no way we could prevent stock holders selling their stock and finally finding out that it might be controlled by somebody. I wish there were. Mr. L u c e . D o you think there would be harm if some second Mr. Insull got into the banking field and got control through this par ticular method ? I want to bring out-----Mr. W a k e f i e l d . I will make this statement: I have thought of that a good deal. The purposes of our organization are primarily based upon the desire to have institutions up there that are big enough to take care of the present-day types o f business and which are owned and operated by the people living practically within the territory served. Now we have recognized and I have had the ques tion asked by others as to what would prevent some super holding company, such as you describe, stepping in and taking possession and control o f our group o f banks and our institutions, possibly we will say in New York—that is what most people try to talk about; they seem to think that just the use of the word “ W all Street” is sufficient. Now my opinion is th is: In the first place, I do not think it ever will happen; I should dislike very much to see it happen. On the other hand, if it did happen, and anyone in the organization in New York came out and acquired, through purchase, the controlling interest of the First Bank Stock Corporation, I do not believe there could be any change in policy or any change in degree o f service rendered to the communities, or any real practical difference ever made in the conduct o f the business; because the business is competi tive in that territory and, if any New York institution attempted to operate it against the interests of that terriory, they would destroy the value o f the thing they had purchased. And I do not believe it would ever happen, because I think any one that did acquire it would be anxious to protect the value o f the holdings and earnings o f the thing they purchased, rather than to buy it and destroy it. Mr. L u c e . I rather think you are right, but a large number o f people discussing this question think you are wrong. Mr. W a k e f i e l d . I know it. Mr. L u c e . S o we must try to find out how to meet their argu ments, because it is urged, under such circumstances, our banker, Mr. Insull, will then have command o f such enormous aggregations o f capital that he can— well there are those who say he can ruin the whole United States. Mr. W a k e f i e l d . Well, that could not be. because anybody who finds themselves in a position of having control of that kind, if they are going to keep it at all, must carry on those businesses the way they should be carried on, or else they destroy the very thing they acquired. Mr. L u c e . Another argument raised against the form of organi zation you have established is—and I do not use the word with any invidious significance—that it is slippery; it gets out from under the tax laws, it gets out from under the banking laws; that the 936 BRANCH, CH AIN , AND GROUP BANKING holding-company idea is not that o f openness with the capacity for examination and comprehension which the branch-banking system presents. And, by the way, before you answer I would say that you have not yet quite made clear to me why you have thought the holding system to be superior to the branch-banking system, Mr. W a k e f i e l d . The reason I feel it is superior at the present time is because o f the fact that it permits continued operation of unit banks. Mr. L u c e . That is, the nominal operation; the banks still look like unit banks? Mr. W a k e f i e l d . Are unit banks. Mr. L u c e . W ell, let us see. As I said yesterday, power is the test all the time of what a thing is; not the looks of it, not the name or appearance, or mask under which it works, but power is the test. Now the power, in the case of your banks, has been con centrated in the Twin Cities; you dominate; that is what you wrent into it for—to dominate. Mr. W a k e f i e l d . A ll right. Mr. L u c e . And I do not say that any criticism ought to be made. Mr. W a k e f i e l d . Dominate it for the benefit o f the territory in which it is operating. Mr. L u c e . And for your own profit. Like every business man, you have the double concern of doing somebody else a favor and bringing to yourself a gain. I am a business man myself. Mr. W a k e f i e l d . In answer to that, if you are a business man, then you know mighty well that our form o f set-up has shared the prosperity of our big banks with a tremendously greater group of people, and there is not any more money to be made by the indi vidual that did own stock in the First National Bank of Minneapo lis under this system than there was under the old holding. Mr. L u c e . I grant you; but let us get back to the question of why a somewhat obscure, tenuous, and hazy form o f organization like a holding company is, in your judgment, superior to a definite, clear, open, above-board form o f branch banking. Mr. W a k e f i e l d . Eventually it may not b e ; but the thing we have done was the result of absolute necessity under the conditions that prevailed. It is the only means to-day whereby any one could step in legally and present to this territory banking institutions that the public have confidence in ; it is the only means there is. Now, then, possibly—probably— a branch-banking system, properly determined as to area, may develop and be the solution o f it all; but, for the time being, with the public habits and training relating to the oper ation o f a unit bank, the directors and officers of which are living in their community—they are at home— it is so strong that it would be destructive and disastrous to make any change in that. Mr. L u c e . W ill you make a little clearer why any provision on our part for branch banking would, under those circumstances, imperil your own institution? Mr. W a k e f i e l d . Oh, it would not; and I have said before we would be perfectly willing that such provision should be made, and perfectly willing to meet whatever competition is developed,for u s; but we do not want it made upon the basis which is intended immedi ately to destroy and put out o f business the group system. I f a BRANCH, CHAIN, AND GROUP BANKING 937 branch bank law were passed to-day, we probably would be the first people to be out in some o f these communities making use o f it. Mr. L u c e . One other phase o f the subject: When one of the banks in your group has an excess o f funds, what do you advise them to do with the excess? Mr. W a k e f i e l d . That depends upon the conditions prevailing. If, as I described awhile ago, we had some other section that was needing money and did not have it, if we could make good loans there, we would certainly advise that other bank to buy some of those loans. Mr. L u c e . Would you advise them under any circumstances to buy securities ? Mr. W a k e f i e l d . Oh, yes. There is a certain amount, a reasonable amount, of marketable securities that are almost essential in any bank. Mr. L u c e . It has been brought out in our hearings there is a marked tendency to turn banking from what we used to think its proper function—commercial loans—to investment securities. What is the situation in your district in that regard ? Mr. W a k e f i e l d . Well, banking and the use o f money must, always keep up with the times, and if conditions change, so that one type of loan disappears, some new development comes in and takes its place. Take your installment-selling business to-day: The loans to those large corporations that are furnishing funds to carry installment contracts are a substantial factor in banking loans to-day. They did not exist 10 years ago. Money is always seeking the opportunity to take care of development and will always abandon and disappear from businesses that have passed by the need o f it. Mr. L u c e . Y o u see no objection, then, to permitting banks to go into the investment business; that is, you see no harm in the tendency o f bankers to become investment bankers ? Mr. W a k e f i e l d . I think the banker to-day must be familiar with the investment banking business if he is going to operate successfully. M r . L u c e . I s there a n y a tte m p t m a d e in y o u r d istric t to im ita te o r to fo llo w th e eastern e x a m p le in g i v in g sp e cial p ro te ctio n to s a v in g s d e p o sito rs? Mr. W a k e f i e l d . Well, we have laws covering that in our State institutions that are especially designed to protect the savings de positors. The national bank does not have any special—there is no special provision regarding savings deposits in national banks. Mr. L u c e . W hy should not there be? Mr. W a k e f i e l d . I think the proper banking structure does not require any. There is nobody operating banks that intends to lose any savings deposits. Mr. L u c e . Oh, not intend to; but we find sometimes in the East, in spite of good intentions, they sometimes do, and we have passed stringent laws preventing the intermingling of funds. Mr. W a k e f i e l d . I think any law o f that kind extending to the general banking structure would be disastrous. I think it would be a great disadvantage to the banking business and absolutely unnec essary. Mr. L u c e . Well you impugn the judgment of the legislators of rny State very seriously in your statement. Mr. W a k e f i e l d . That may be true; but I still feel that way about it. 938 BRANCH, CHAIN, AND GROUP BANKING Mr. L u c e . A s I have before pointed out in these hearings, we have a law that is very strict that there must be a solid brick wall without any aperture-----Mr. W a k e f ie l d . You are from New York? Mr. L u c e . I am from Massachusetts—between the savings bank and the national bank; because in so many instances have the officers in the national banks been able to lay their hands on the funds of the savings banks. Mr. W a k e f i e l d . Oh, you mean between the same institution* the same crowd operating the two types of institutions ? Mr. L u c e . I mean we go so far as to prevent the two banks from having any physical access to each other. Mr. W a k e f i e l d . Yes; but your national banks in Massachusetts can receive deposits for savings accounts? Mr. L u c e . They have been coming to do so, lately, and it is per haps part of my job here to bring to the attention of this committee what we think is the safe and prudent course in that matter. Mr. W a k e f i e l d . I think, if you are looking after the best interests o f your people up there, you won’t try to interfere with the national banks taking savings deposits. Mr. L u c e . W e are very proud o f our mutual savings bank system-----Mr. W a k e f ie l d . So are we, and we have some very fine ones. Mr. L u c e (continuing). Yet we feel the mutual savings banks may interfere with the national banking system. Mr. W a k e f i e l d . I think one o f the worst things that could hap pen would be to require that all savings deposits should be deposited m mutual savings banks; because, when so deposited, they are then available for only one purpose, that is, investment in a very limited type o f security and, o f course, unavailable for the good o f the gen eral business o f the country. Mr. L u c e . Well, my own community differs completely from you, sir. I think that is all the questions 1 want to ask. Mr. F o r t . Mr. Wakefield, there has been some question about the valuation o f stocks for the purpose of an organization like yours. Bank stocks customarily sell in the market away in excess o f th«ir capital, surplus, and undivided profit book value, if they are soundly maintained, do they not? Mr. W a k e f i e l d . Yes. Mr. F o r t . And in the fixation o f the value at which a bank stock sells, for example, the extent o f the assets and services that it has as a fiduciary are always figured in the prospective earnings from them, are they not? Mr. W a k e f i e l d . Yes. Mr. F o k t . And also the rate of earnings o f the capital, which would be fixed by the proportion o f deposits to capital ? Mr. W a k e f i e l d . Yes. Mr. F o r t . Also the value of any special service that the bank may have created which produces earnings? Mr. W a k e f i e l d . Yes. Mr. F ori<. A ll o f those things are reflected in the price, so that the preparation of a formula that could be absolutely uniform would be very difficult, would it not? BRANCH, CHAIN, AND GROUP BANKING 939 Mr. W a k e f i e l d . I do not think you could develop one that would apply the same in any large number of cases. Mr. F or t . A bank with a very small capital and surplus value might have trust estates, earnings on which would make the stockmarket value a very high one ? Mr. W a k e f i e l d . There are always some unusual conditions in every institution. Mr. F o r t . We had a case in my own State where the sale of the bank was set aside because the selling board of directors had filed a consent to the substitution of another trust company for themselves as trustee under a large estate, and our court held that in itself made the whole transaction o f fixing price fraudulent. Mr. W a k e f i e l d . That meant the deprivation o f an income piece o f business from the institution. Mr. F or'T. Yes; which was in no way reflected in the capital, surplus, and book value. Mr. W a k e f i e l d . Yes. Mr. F ort . D o you feel, however, if we are definitely, either by failure to legislate or by legislation, to consider group banking as a definite national policy we should in any way regulate the price bases in which banks should be taken into the group ? Mr. W a k e f i e l d . N o , sir; I do not. I do not see where there can he any possible reason for even any discussion of it. Mr. F ort . Y o u do not feel there is any hazard, speaking generally now, of individuals who are substantially controlling in a group company purchasing a lot o f small banks at deflated values and put ting them into holding companies at high values ? Mr. W a k e f i e l d . I do not believe—if there is anybody going to do a thing like that they are not serious in the business; they are doing it for a stock-jobbing proposition and manipulation. Mr. F ort . Exactly. Well, should there be no restriction o f any kind o f a possibility of that in anything that touches the funda mentals o f the Nation as banking does? Mr. W a k e f i e l d . I think the court would protect anybody that was mixed up in anything like that amply under the present law. Mr. F o r t . Has not that been going on, as a matter o f fact, actually in taking over the branches o f some banks, in some sections o f the country ? Mr. W a k e f i e l d . Not that I know o f; I have never heard o f any. Mr. F o r t . We hear rumors o f these things, without ability to prove them, that banks have been bought, small banks, by large banks from their own insiders, at highly inflated values, for the purpose of establishing branches. Mr. W a k e f i e l d . I do not know where that could happen; it could not happen in our neighborhood. Mr. F o r t . A nd you would have no suggestion of any way in which we could protect against it? Mr. W a k e f i e l d . I think the public are amply protected to-day. Mr. F o r t . In setting up your plan, were any banks forced in. forced to join your organization by any competition or threat o f competition locally? Mr. W a k e f i e l d . Never. 940 BRANCH. CHAIN, AND GROUP BANKING Mr. F o r t . That, however, is a real possibility in a company such as yours, if people chose to use it, is it not ? Mr. W a k e f i e l d . I do not think it is a possibility to-day. I can not think or have not been able to think of a single case where an influence o f that kind could have been used with any result what ever. Mr. F o r t . Not e ven if you h a d first acquired, we will say, in a small town—I see you have in some minor cities two and three banks in your group; the purchase o f the first o f those banks could be used to afford special accommodations o f one sort and another? Mr. W a k e f i e l d . No. I will tell you how that works: W e have two banks down there in Austin, Minn. That happens to be the town where I first started in the banking business—southern Minne sota. The First National Bank o f Austin was the one for which I first worked. That was owned by the Banfield family down at Austin and was a very successful and good bank. I never even had a conversation with them about that bank, believing they would not want to let go of i t ; it had been in the family for very many years. The Austin National Bank, in Austin, was saved a few years ago from closing by voluntary contribution from Mr. Hormel, o f the George A. Hormel & Co.. whose business is located in that town. He found the bank was going to close and stepped in and put $275,000 into it and kept it open, which gave him the ownership o f the bank, a business in which he did not want to be engaged. They came to us and wanted us to buy that bank. A few weeks later, the Banfields came up to me and told me they thought the consolidation of those two banks down there would really put that town on the map and make it a worth-while institution and they wanted to come in with us. The Northwest Bancorporation did not have a bank in Austin and I rather expected they would acquire the First National Bank until the owners came voluntarily and asked to be put into our institution. The banks will be consolidated later. Since the Northwest Bancorporation has acquired the third bank in that town. Mr. F o r t . Please get this very clear, Mr. Wakefield: I do not mean to suggest or to intimate that you have done that thing up to date. I think, on the contrary, your and Mr. Decker’s organizations have done a very fine job for the Northwest territory; but I am talking in general terms, throughout the United States. Mr. W a k e f i e l d . I see what you have in mind. Let me say ‘this-----Mr. F o r t . N o w taking your very illustration o f Austin, if there are two banks there and you step in and take one, is it not very easily possible that you can, through your greater facilities and other things, competitively force the other bank, willingly or unwillingly, to join your chain? Mr. W a k e f i e l d . W e are occupying a great many towns where there are banks not connected with us in existence, and we have a most harmonious arrangement in those towns. I have not heard o f a single case where there has been anybody even suggesting there was any thought or any possibility o f that sort o f thing happening, Mr. F o r t . Well the possibility is there in the power, is it not? BRANCH, CHAIN, AND GROUP BANKING 941 Mr. W a k e f i e l d . I think it is. I thing we could go out and just simply raise the deuce in a town and possibly put a bank out of business; but I think it would be the poorest policy on the part of our organization of anything they could do. M r . F o r t . Y ou c o u ld p u t it ou t o f bu sin ess or fo rc e it to accep t an e x c h a n g e o f stock w h ic h , in the first in stan ce, it w a s n o t w illin g to acce p t ? Mr. W a k e f i e l d . I rather doubt that. O f course, if we were the only fellows working, we might be able to do something like that. Mr. F o r t . The same thing has been done since the passing o f the McFadden bill, by placing a branch of the larger bank in the im mediate neighborhood of the smaller unit bank and the smaller unit bank has felt that the part o f prudence was to sell out, rather than to continue to buck the competition o f the larger organization. Mr. W a k e f i e l d . O f course, that would have to be in a territory where branch banking was permitted. Mr. F o r t . Exactly; but is there any difference in principle as to the possibility o f operation between your system and the branchbanking system? Mr. W a k e f i e l d . Well, I think there is very much difference. Mr. F o r t . W hy? Mr. W a k e f i e l d . Because our institution differs in that each bank continues its corporate existence, with a group o f officers and com plete legal organization and must have a real, substantial business to warrant its going in. It would be an entirely different thing to open up a little office here with practically no expense and go ahead and do business. Mr. F o r t . Well, one o f the services you can give in a town, and a proper and needed service, undoubtedly, arises from the fact that the local bank has only a 10 per cent loaning limit ? Mr. W a k e f i e l d . Yes. Mr. F o r t . And there may be very desirable accounts in that town that need larger accommodation. You can permit the deposit to remain with the small local bank, the whole deposit, but can grant accommodation from your First Minneapolis, can you not? Mr. W a k e f i e l d . Absolutely, and do. Mr. F o r t . That would be rather destructive to the other local bank, would it not? Mr. W a k e f i e l d . N o; because the old methods o f doing business are still in existence, and wherever it has been the case in any town, where there is a business located that is substantial and their loan requirements have been above the legal limit o f the local bank, the local bank has made an arrangement for those people to go to some central bank somewhere and secure additional accommodations, and they are now getting them. Mr. F o r t . And, in a great many instances, they are getting them also from two or three local banks ? Mr. W a k e f i e l d . Yes, in some cases. Mr. F o r t . Instead o f going to out-of-town people ? Mr. W a k e f i e l d . Yes, in some cases, they are. Mr. F o r t . Now I asked a question or two yesterday o f Mr. Decker in regard to branch banking, on which I want your views as a banker. Can you see any justification for the branches of the banking 942 BRANCH, CHAIN, AND GROUP BANKING system, if we are going to authorize them, paying different rates to depositors on the same class o f deposits in different branches ? Mr. W a k e f i e l d . W ell that would require consideration o f the pol icy o f operating1the branch bank. I do not know what the answer is, but my first impression would be you would absolutely be required to have a uniform rate; you could not vary those rates. While your funds would, be in one place, I do not see just how you could do it. Mr. F o r t . W e have in my State savings banks paying as high as 4% per cent, credited monthly in some towns; we have other towns where the credit is semimonthly, at 4 per cent, or below. I f we were to have this trade-area branch banking, the branch going into the town where the local banks were paying 4% , would either have to pay that or* get no business, would it not— other things being equal as to the solidity and solvency of the banks ? Mr. W a k e f i e l d . W ell one of the most definitely destructive tend encies in banking competition is that o f attempting to pay rates on money greater than really warranted by good sound business judg ment. Mr. F o r t . O f course, some mutual savings banks have accumu lated surplus enough, which belongs to their depositors, does it not? Mr. W a k e f i e l d . That is true. Mr. F o r t . N o w should the branch-banking system be permitted to compete with local banks on interest, or should the rates be uni form throughout the system ? Mr. W a k e f i e l d . I do not think anything ought to be done that would prevent competition,— free competition. Now you are speak ing o f the surplus— Mr. F o r t . W ould that include the right to go into a community where the banks were paying 4 per cent and to offer 4% for the branch-banking system ? Mr. W a k e f i e l d . W ell I do not believe competition would be that way. Mir. F o r t . W ould it not be, in order to attract deposits, in the first instance ? Mr. W a k e f i e l d . Oh, no. I think the tendency would be to lower the rate; because any one who has been in the banking business long knows you can not attract money to you that way and hold it, but that you have to keep it. Mr. F o r t . Unless you first force out all competition. Mr. W a k e f i e l d ! It does not make any difference, whether there is open competition there, or not; money won’t go at unfair rates; it will find some other source o f use. You are speaking o f the surplus o f mutual savings banks ? Mr. F o r t . Yes. Mr. W a k e f i e l d . The committee must keep in mind this, that the mutual savings bank is a nontax-paying institution and, in consider ing the difference between the two types o f institutions, just remem. ber that the tax of the State and National Banks is a very subsantial item o f expense. Mr. L u c e . Might I correct you in one particular: That is not true in my State. Mr. W a k e f i e l d . In mutual savings banks? BRANCH, CHAIN, AND GROUP BANKING 943 Mr. L u c e . Our savings banks pay a tax of one-half o f one per cent on their deposits. Mr. W a k e f i e l d . But how does that compare with your National Bank tax ? Mr. L u c e . Well, our national bank system has been thrown into confusion by the action o f this particular committee, much to my sorrow. [Laughter.] Mr. F o b t . Then you do not feel, if we are going to authorize any branch banking, that we ought to attempt to have anything to say about the uniformity of the rate, or competitive rate, or anything else? Mr. W a k e f i e l d . No; I think it would be a mistake. Mr. F o r t . We ought to leave it entirely to the working out of the system as it is? Mr. W a k e f i e l d . Yes. Mr. F o r t . N o w , I said a while ago one o f the bases of calculation o f the value o f bank stocks is the relation o f deposits! to capital, the usual rule, I think, being there ought to be about 10 per cent as a maximum. Mr. W a k e f i e l d . About 10 times. Mr. F ort . Ten times? Mr. W a k e f i e l d . Yes. Mr. F o r t . A system such as yours giving a secondary security in the public mind to the bank in which they deposit, would be able, would it not, to secure deposits in greater volume than the public would generally think appropriate for banks o f their capital, if they had no such secondary security? Mr. W a k e f i e l d . W ell the facts are that in comparison between the capital requirements that anybody has ventured to even suggest as being adequate o f a branch banking system, and the actual capital investment under a group system, we could operate with the same deposits we have to-day, as branch banks, taking any basis I have ever heard of, on a very greatly reduced capital investment. Mr. F o r t . Mr. Wakefield, I am trying to talk general principles and do not question what you gentlemen are doing; I am trying to get at the fundamentals o f this question for general use. Now, what I am trying to get at is whether such a system as yours, with a sec ondary line o f defense, will not perhaps open the door to the banking business o f America being carried on with a less capital investment than it is now required to have ? Mr. W a k e f i e l d . Well, one o f the disadvantages of the group sys tem is that it can not do that; that it does require a complete capital structure for each institution, based upon the business in that com munity. Mr. F o r t . So that, as between these two, if we regarded less capital in banking as a desideratum, would it not be better off under the branch system than it would under the group system ? Mr. W a k e f i e l d . I f you want to reduce the capital required? Mr. F o r t . I f we want to reduce it. Mr. W a k e f i e l d . I think that is true. Mr. F o rt . Now, the reduction phase is o f interest only in order to reach small communities than can not earn on a large capital ? 100136— 30— von 1 pt 8--- 11 944 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f i e l d . The what? Mr. F o r t . The reduction phase o f the capital position—that is, the idea that possibly we might want to reduce the capital anywhere—the reduced capital requirement is o f interest only in order to reach those sections which can not earn on the present capital requirement ? Mr. W a k e f i e l d . I do not understand just exactly what you have in mind. Mr. F o rt . Here is what I mean: I f the branch system can operate on a less capital per volume o f deposits than the group system, then it can afford to install branches or teller windows in places where a unit bank could not afford to be set up ? Mr. W a k e f i e l d . Surely; in those small towns where to-day the capitalization o f an individual unit requires an investment there and an operation that is unprofitable, it is the only means o f going into that community. One of the reasons why a branch could go in there is because it would not be required to have the capital invest ment. Mr. F ort . But that would not apply to your group system ? Mr. W a k e f i e l d . No; that stops the group system. (The committee thereupon took a recess until 2.30 o’clock p. m.) a f t e r recess The committee reconvened pursuant to the taking of the recess, Hon. E. Hart Fenn presiding. STATEMENT OF I . E. WAKEFIELD— Resumed Mr. W a k e f i e l d . Mr. Chairman, may I have permission to further explain a little visit Mr. Strong and I had this morning, in which he was discussing my attitude or expression o f opinion that we did not need to devote a great deal o f time to protecting borrowers? Mr. F e n n . I think so. Mr. W a k e f i e l d . And he replied to me something along this line— my associates have called my attention to a condition in the record that might be misunderstood— he made the reply, “ Then you are in favor o f looking after the rich fellow and letting the poor fellow look after himself.” Mr. W i n g o . N o w , Mr. Chairman, I think, if that explanation is to be made, Mr. Strong ought to be here. Mr. Strong, so far as my recollection is concerned, made no such statement as that. Mr. W a k e f i e l d . It is perfectly agreeable to me. Mr. F e n n (presiding). Then let us let it rest there. Mr. F or t . Mr. Wakefield, you have spoken very interestingly o f the greater desirability to the bank o f local loans over call-money loans. Is it the custom in your territory to expect local borrowers to maintain deposits with the bank bearing some relation to the amount o f their borrowings? Mr. W a k e f i e l d . In most cases lines o f credit are granted upon the basis o f deposits only. Mr. F o r t . So that, where you make a local loan, you get a deposit, say, o f 20 per cent normally as an average o f the amount o f the loan and a maintained balance? BRANCH, CHAIN, AND GROUP BANKING 941 Mr. W a k e f i e l d . Your 20 per cent we do not know anything about. Mr. F o r t . You hope for it, but do not get it? Mr. W a k e f i e l d . We would like to get it, if we could, but we do not get it. Mr. F o rt . Ten per cent? Mr. W a k e f i e l d . Well, there is not any set figure, and, in many cases—you take these small banks in the country—many loans are made to people that practically have no balance. Mr. F o r t . Small loans, though? Mr. W a k e f i e l d . Yes. Mr. F o r t . But when you come to your larger loans-----Mr. W a k e f i e l d . They are usually based upon a corresponding business. Mr. F o r t . So that one o f the direct advantages that is bound to come to a bank that does maintain that policy o f local loaning is an increase o f deposit accounts? Mr. W a k e f i e l d . Yes. Mr. F o rt . And the ordinary banker, from purely cold-blooded motives, in a time when he has a demand for money locally, knows that he is going to get more money to loan by loaning locally than he will by loaning on call in New York? Mr. W a k e f i e l d . Absolutely. The deposits of every bank come from the community where the bank is located, and, unless the bank carries on and helps the individuals and institutions of that com munity, it is defeating its own growth and development. Mr. F o r t . S o you do not believe there is any serious danger of starving local borrowers for the purpose of taking advantage o f the call-loan rate in any section o f the country ? Mr. W a k e f i e l d . I am positive that there is not. Mr. F o r t . On the other hand, there are some places where the bor rowing demand does not equal the resources o f the bank, are there not ? Mr. W a k e f i e l d . That is true. Mr. F o r t . And those banks turn to the call-loan market, rather than to investments, as their only means o f utilizing their funds ? , Mr. W a k e f i e l d . Or to the purchase o f commercial paper in the open market, or to the purchase o f acceptances, that type of thing. Mr. F o r t . N o w , you have not expressed any opinion that I have heard to-day in regard to the merger o f banks. I notice, as I said earlier, that you have in some of your small cities two and three and in some cases, I think, four banks in a single tow n: Is it the policy of such an institution as yours to maintain all of those local units, or is it your plan ultimately to merge them ? Mr. W a k e f i e l d . It is the plan ultimately to put them all together. Mr. F o r t . Y ou feel, then, the effect o f your operations will be ultimately to reduce the number of banks ? Mr. W a k e f i e l d . Yes. Mr. F o r t . O f course, where you own all of the stock, or substan tially all of the stock— I say you ; your corporation—the question o f the price at which a merger is effected is o f slight importance, I mean the price at which the stock o f the different banks is taken into account in the merger. Mr. W a k e f i e l d . In a merger? 946 BRANCH, CHAIN, AND GROUP BANKING Mr. F o r t. Yes. Mr. W a k e f i e l d . N o; where we own the stock of both banks, it is just the assets that are merged, and the business is merged without any regard to price. Mr. F o r t . Have you any views on how far such holding companies as yours and the Northwest Bancorporation, for example, ought to be allowed to merge ? Mr. W a k e f i e l d . No. I do not know whether there is any spot— I am satisfied o f this, in a territory such as we are occupying, that it would be a great misfortune, in my opinion, if anything were ever done to eliminate the competitive situation that exists there. Mr. F o r t . Then since competition is, in your judgment, as I think it is in that o f practically this entire committee, if not all o f it, a desirable factor where it can be maintained, would we be doing, in your judgment, what we should not do if we tried to find ways and means o f maintaining competition? Mr. W a k e f i e l d . N o ; I think you would be justified. Mr. F o r t. You have said that it is, and o f course we all know that it is, whether the securities are listed or not, always possible that the control o f an institution such as your corporation could be bought if so] J the price. Mr. F o r t . It would not be sound policy for the Nation to permit the control o f the banking within any Federal reserve district to get into one hand, would it? Mr. W a k e f i e l d . I do not think there would be any danger o f that, because if it did it would be a temporary situation. Unquestionably there would be competition come into a situation o f that kind. Mr. F o r t . There might in the larger cities; there would not in the smaller ones. Mr. W a k e f i e l d . W ell, for instance, i f the Northwest Bancorporation and our corporation should see fit to merge, you can not make me believe it would take 60 days for somebody to be in the field setting up a competitive institution. Mr. F o r t . Y o u mean a competitive group institution such as yours ? Mr. W a k e f i e l d . Y es; or, i f branch banking were in existence, competing branch bank. M r . F ort. Y ou do not think such an institution as th a t w ould find any excuse to p u t a bank into some o f those sm aller tow ns when the local bank w as already sufficient ? Mr. W a k e f i e l d . I do not think there is going to be—in the little towns such as I have described this morning, I do not think there is ever going to be any competition in those towns; because I do not think there can be. Mr. F o r t . W ell by “ little towns,” you mean, perhaps a different thing from what I mean. Mr. W a k e f i e l d . A town where there are four or five or six hundred depositors. Mr. F o r t . I mean a town o f four or five or six thousand people. Mr. W a k e f i e l d . Oh, I think those towns are big enough for two banks. BRANCH, CHAIN, AND GROUP BANKING 947 Mr. F o r t. But if you have one and the Northwest Bancorpora tion has the other and you consolidate the ownership of the two corporations, even without formal consolidation-----Mr. W a k e f i e l d . I think there would be another bank in that town. Mr. F o r t. Y o u do? Mr. W a k e f i e l d . Yes. Mr. F o r t. That, however, would rest with the comptroller and the State authorities? Mr. W a k e f i e l d . Yes. Mr. F o r t. And there would have to be proof of the need, would there not? Mr. W a k e f i e l d . That is not going to be difficult to supply, the need o f competition in a substantial town, is it? Mr. F o r t. I do not know. How do you operate your organiza tion, in view o f the provisions o f the Clayton law on directorates? Mr. W a k e f i e l d . You see we have no—our directorates in each of those banks are entirely different people ; there is no one connected with the First Bank Stock Corporation who is either an officer or a director o f the group o f institutions of any o f them. Mr. F o r t. There is n ot? Mr. W a k e f i e l d . No. Mr. F o r t. That confirms as a policy what some o f us have be lieved, namely, that if we are to permit any group ownership, we should insist upon at least a majority o f the directorates being local. Mr. W a k e f i e l d . Oh, yes. Mr. F o r t. In each bank. Mr. W a k e f i e l d . Yes. M r. F ort. Y ou would feel that is a sound policy? Mr. W a k e f i e l d . Well, it is our policy. Our policy is that the officers and directors o f the banks in our group are 100 per cent local people. Mr. F o r t. S o that you feel-------Mr. W a k e f i e l d . Mr. Fort, Mr. Washburn corrects me to this ex tent: You asked me about the directorates? Mr. F o r t . Yes. Mr. W a k e f i e l d . O f course, there are officers o f the individual banks who are directors o f the First Bank Stock Corporation. Mr. F o r t . Oh, I understood that. Now, how do you handle this situation: Your directors, if you have taken all of the stock over in the First Bank Stock Corporation, your local directors have no actual capital stock ownership in the bank o f which they are directors ? Mr. W a k e f i e l d . They are required to buy ; a man is required to buy the number o f shares to qualify as a director, which he owns outright. Mr. F o r t. He buys them through you? Mr. W a k e f i e l d . Yes. Mr. F o r t. Y o u would have to keep some string on them so that he can not resell them if he is out as a director, would you not ? Mr. W a k e f i e l d . W e try to. Mr. F o r t . I suppose you are advised as to whether that is strictly legal ? Mr. W a k e f i e l d . Well, we have used good attorneys, I think. 948 BRANCH, CHAIN, AND GROUP BANKING Mr. F o r t . But the maximum, then, o f the director’s liability o f individual loss through mismanagement is his holding o f that minor amount o f qualifying shares—say, 10 shares ? Mr. W a k e f i e l d . Oh, in our case, where we have directors, they are substantial owners o f stock in the First Bank Stock Corporation. Mr. F o r t . But that loss that may result through local misman agement is pretty widely cushioned "by the holding o f the first bank stock ? Mr. W a k e f i e l d . Yes. Mr. F o r t . S o that you have not the same protection, quite, that the ordinary bank has where their directors, as they do in most cases, actually own control o f these smaller banks ? Mr. W a k e f i e l d . Were you here when I described our method? Mr. F o rt . Part o f it; not all o f it. I happen to be on the Rules Committee and had to attend a meeting of that committee, and I want to say, apologetically to the committee and the witness, my absence was occasioned by the fact I had to attend another com mittee meeting. Mr. W a k e f i e l d . I think I showed we have been keeping track o f that and followed that thing, so that that responsibility is complete. Mr. F o r t . A ll right; I won’t ask you to go back over that. Now, you have said, and Mr. Decker said—I think you have said; I know he did— that we should be very slow to pass any legislation on this general subject, because o f a lack o f sufficient information on which to proceed at the present time. It seems quite clear from your description of your set-up that a properly-managed group (and it sounds as though your management was entirely proper) might be a very considerable public value and relatively small public injury, but it is a fact, is it not, Mr. Wakefield, the plan does open itself, under improper management, to grave dangers ? Mr. W a k e f i e l d . Well, I am glad you mentioned that point, be cause I would like to state right here our feeling is that if this development, this type of group banking, is to continue, it ought to be accompanied by a provision for supervision of the holding com pany and the whole institution, and examination and control by the comptroller’s office, just the same as the bank is now. And that ought to be done; we are anxious that it be done, because o f the fact we recognize the weakness you have just described and the possibility that somebody may, possibly, try to start a group of banks, not with the intention o f handling them in the interest of the community, but as a mean o f making money out o f the transfer o f stock, or something else, and which, in case they did and there was a failure of that sort o f institution, would be extremely injuri ous to us. Mr. F o r t . And have you any special regulations in mind that we should consider the adoption of as relating to group banking, other than that of inspection and supervision? Mr. W a k e f i e l d . I have not gone far enough in the consideration o f that topic to formulate a definite proposal. I think we could; I think we could work out a set o f regulations that might be very beneficial, if given time. Mr. F o r t . My own feeling is that nobody can advise this com mittee so well as to what we ought to do, to guard against dishonest BRANCH, CHAIN, AND GROUP BANKING 949 or improper management, as an honest man running a thing prop erly; because he can see the hazards much more clearly than we can see them. Mr. W a k e f i e l d . I a m quite sure, if we were requested to do it, w e could develop a set o f suggestions. Mr. F o r t . I, for one, would be delighted if you would do so and submit them to the committee— at your leisure, I mean. I do not know there is any objection to that. We are not going to settle this thing to-morrow and pass a law the day after. Mr. W a k e f i e l d . Yes. Mr. F o r t . It is a fact, Mr. Wakefield, is it not, that the larger an institution becomes, the more completely the management in everything but policy passes to the chief executive head and out o f the hands o f the board o f directors, whether it is banking or any other form o f industry? Mr. W a k e f i e l d . That depends on two or three factors, I think, Mr. Fort. Where you have a very large board of directors o f any big corporation, especially a bank, it is not possible to keep all o f that board intimately in the affairs o f the bank; but that is usually covered by the formation of an executive committee, or management committee, which is a smaller group of directors, who do have access to the affairs almost daily o f the ordinary bank, and do keep in very close touch with them. I do not believe a single individual, no matter how big the institution may be, actually goes off and formulates all o f the policies and uses his own judgment without advice and consultation. Mr. F o r t . N o; I said the matters o f policy are for the board; but, after the policies are once settled, the executive o f an institu tion such as this you are managing has very wide discretion. Mr. W a k e f i e l d . And responsibility. Mr. F o r t . And can wreck or make the institution pretty much before his board knows very much o f one thing or the other about it. Mr. W a k e f i e l d . I do not think that would be true in a bank. Mr. F o r t . W ell it has been almost if not quite true in some. Mr. W a k e f i e l d . Well, it would not be true in the banks I am familiar with. Mr. F o r t . D o you think the 10 per cent loan limit is big enough for all essential banking purposes? Mr. W a k e f i e l d . Y es; I do. Mr. F o r t . With the modern shift o f banking from commercial paper to collateral loans, should we consider, particularly in a group system like yours, or branch system, the limitation o f the amount that might be loaned on a single collateral; that is, we will say, on United States Steel stock? Mr. W a k e f i e l d . That is a new thought to me. That is, you might have a dozen different loans, all with the same collateral. Mr. F o r t . Yes. Mr. W a k e f i e l d . In a total amount equaling considerably more than 10 per cent ? Mr. F o r t . The average banker makes his loan on collateral, with out regard to the name o f the maker. Mr. W a k e f i e l d . There is a question in my mind whether a definite legal restriction might not cause some confusion or difficulty in certain cases. 950 BRANCH, CHAIN, AND GROUP BANKING Mr. F o rt . Well, I am thinking particularly o f the unlisted local stocks. Mr. W a k e f i e l d . O f course, there again you have to go back to the fact that if the management o f the bank, the people in charge o f making loans, do not use good judgment, I do not believe you can make legislation that is going to furnish a substitute for man agerial capacity and ability to run institutions that ought to exist in good banks. Mr. F o r t . I agree there; but, at the same time, we have put 10 per cent limit on the individual loans. Mr. W a k e f i e l d . Yes. Mr. F o r t . Because we felt we ought not to allow the power to the individual who was a bad banker to go beyond that. The ques tion is whether we should not parallel that with reference to the collateral, with the developments in modern banking. Mr. W a k e f i e l d . I could not answer that offhand. Mr. F o r t . In such an organization as yours should we permit cross loans on collateral; in other words, should your First National Bank o f Minneapolis make collateral loans based on the stock o f the First Bank Stock Corporation ? Mr. W a k e f i e l d . I do not think any bank owned by a holding com pany such as ours should be permitted to loan a dollar on the stock o f the holding company. I think it is just the same thing, in effect, as though you took the First National Bank of Minneapolis and permitted it to loan on the stock o f the First National Bank, which has never been done. Mr. F o r t . H o w about affiliated corporations and things o f that sort— the same rule ? Mr. W a k e f i e l d . The same rule. Mr. F o r t . Nor should the affiliated corporation be allowed to loan on the bank stock, should it ? Mr. W a k e f i e l d . No. Mr. F o r t . And in places where ownership o f stocks is permitted by banks or trust companies, ownership for their own account of stock in other banks or trust companies, cross ownership ought not to be permitted there, should it ? Mr. W a k e f i e l d . We do not have any of it; we are not permitted to do that. Mr. F o r t . N o; but there are a great many places where they are. Mr. W a k e f i e l d . I do not understand just howr that would work. Mr. F o r t . In my own State a bank may own stocks more freely, for instance, than a fire insurance company, with less restriction on the type o f stock that may be bought. Assuming that one trust company owns the stock of another trust company, it should not be permitted that the second trust company should own stock in the first? Mr. W a k e f i e l d . I do not think that one trust company—that a trust company ought to be permitted to own stock of another trust company. Mr. F o rt . Nor to loan on it ? Mr. W a k e f i e l d . No—well, yes. Mr. F o r t . I mean nor loan on it if it were affiliated in any sense, directly or indirectly? BRANCH, CHAIN, AND GROUP BANKING 951 Mr. W a k e f i e l d . Yes. Mr. F o r t . I think that is all. Thank you very much, Mr. Wake field. Mr. B e e d y . Did you testify as to the par value of your shares in the holding company? Mr. W a k e f i e l d . Yes; I described the entire thing. Mr. B e e d y . And what was the par value ? Mr. W a k e f i e l d . $ 2 5 . Mr. B e e d y . And when you exchanged stock in banks which you took over for shares in your holding company what was your method of ascertaining values ? Did you cover that ? Mr. W a k e f i e l d . I covered that with Mr. Strong, and I guess some body else asked me all o f those questions. Mr. B e e d y . Did you trade in your holding stock-company shares as o f on the basis ox $25 per share. Mr. W a k e f i e l d . Yes. Mr. B e e d y . Irrespective o f what the market value might have been? Mr. W a k e f i e l d . Yes. Mr. B e e d y . And have you fixed upon any method o f attempting to approximate a uniform return on the investment to all share holders ? Mr. W a k e f i e l d . N o . The situation existing in one bank that was taken in was entirely different from that in another, and the arrange ment was an attempt to be absolutely fair under all the circum stances with the people that held the stock. Mr. B e e d y . But the conditions were so diverse it was practically impossible to approximate an equal return on the investment? Mr. W a k e f i e l d . Yes. Well, Mr. Beedy, we have had cases of where we have taken banks, where the stockholders o f that bank not only waived their capital and surplus accounts but put up additional cash to guarantee the deposits that were taken over, and then turned around and bought stock in the holding company. Mr. B e e d y . Y ou testified about the ownership of stock in the hold ing company by directors. I presume you were talking about direc tors in the holding company? Mr. W a k e f i e l d . No. Mr. B e e d y . Directors in the various banks? Mr. W a k e f i e l d . Directors in the various banks. Mr. B e e d y . Are you familiar with the legal requirement as to ownership ? Mr. W a k e f i e l d . In a bank? Mr. B e e d y . Yes. Mr. W a k e f i e l d . Yes. Mr. B e e d y . And you said you were attempting to keep some strings on this stock held by directors. W ill you explain that to us ? Mr. W a k e f i e l d . W e have not any string on that stock that could be enforced, because you can not make it. Mr. B eed y. That is, all this stock in the holding company that is owned by the directors is owned as of their own right. Mr. W a k e f i e l d . Absolutely, in the holding company; but what you are referring to, really, is the qualifying shares that a man has in the individual bank. Mr. B e e d y . Y e s ; th a t is it. 952 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f i e l d . And those shares which he has to qualify as a director in that bank, if it were attempted to enforce any agreement and he did not want it enforced, we could not do it. Mr. B e e d y . That is, you have no legal hold on those shares ? Mr. W a k e f i e l d . No legal hold on those shares whatsoever. Mr. B e e d y . But may have a moral hold on them ? Mr. W a k e f i e l d . We have a gentleman’s agreement. Mr. B e e d y . That is all. Mr. G o o d w i n . I just want to ask a few questions, Mr. Wakefield, in reference to country banks. The farm-mortgage loan business has practically disappeared from the country banks as an item o f profit and revenue? Mr. W a k e f i e l d . I think that is true. Mr. G o o d w i n . Loaning under the McFadden act, national banks are permitted to loan on village property, both business and home property ? Mr. W a k e f i e l d . Up to a certain amount. Mr. G o o d w i n . Up to a certain amount ? Mr. W a k e f i e l d . Yes. Mr. G o o d w i n . Those kinds o f loans are rather precarious, are they not, in this particular day, when chain stores are entering the field o f commercial enterprise in the small towns and villages throughout our State and other States? Mr. W a k e f i e l d . Well, Mr. Goodwin, it has been my observation, as far as values in the small towns are concerned, the chain-store unit has sort of strengthened the market and made a little rise in values there. Mr. G o o d w i n . But the country bank is a little timid about loaning on village property, as a rule, within the bounds o f safety ? Mr. W a k e f i e l d . Yes; they have to be rather conservative, due to the fact there is but little of a market in a small country town for houses and other pieces of real estate. Mr. G o o d w i n . The par clearance o f checks has also reduced the revenue o f country banks to some extent ; at least, those who are members o f the Federal reserve ? Mr. W a k e f i e l d . Yes; but that has been partially corrected. Mr. G o o d w i n . Now, what other avenues are there left for the country bank, out o f which it can make a profit, so that it can exist ? Mr. W a k e f i e l d . Practically the only thing left is the privilege of doing a commercial banking business; that means receiving deposits and loaning those in a commercial way and making a return. Mr. G oodwti n . Has it been your experience that the ordinary country banker is sufficiently familiar with the value o f bonds so that he can make a loan and safe investment ? Mr. W a k e f i e l d . I think it has been very perplexing to the country banker who has found it necessary to buy securities, due to the fact o f his unfamiliarity with them and his lack o f a source o f his own through which he could secure the right kind o f information con cerning them. Mr. G o o d w i n . And through your organization you are in a position where you can advise the members of your group as to what invest ments, in the way of bonds, are safe and can prudently and profitably be made? BRANCH, CHAIN, AND GROUP BANKING 953 Mr. W a k e f i e l d . We have an expert bondman and a department in the central office o f our corporation, charged with the responsi bility o f buying all bonds that may go into the bank and with the responsibility o f having those checked up concerning conditions that may make it advisable to move them out, at all times, and that is all that department has to do. It is not engaged in buying or selling bonds, or marketing them; its job is to use all of the statistical and other information which we possess, and expert knowledge, to buy the right kind of bonds for our banks. Mr. G o o d w i n . It has been suggested in the line o f Mr. Luce’s questioning this morning, in regard to favortism. that there may be institutions or individuals who may be entitled to credit but who can not obtain credit because of conflicting interests that they have in reference to some o f the stockholders or directors o f a holding company. Is there anything to that intimation ? Mr. W a k e f i e l d . Y ou have used the words “ holding company,” Mr. Goodwin, and I have had that same expression made concerning an individual bank. The same thing would be true. In my experi ence, I have never known o f a case of where a stockholder or director of an institution, particularly a banker, where he was interested in a line in competition with some other man doing business with the bank, where we have had any suggestion that we should not go right along and take care o f the other fellow. And it would not be povssible to have that in your organization; if it were, that man would not be a good director. Mr. G o o d w i n . It also has been suggested that contractors who employ union labor have been discriminated against. Have you found any such situation in your experience ? Mr. W a k e f i e l d . I never heard—I never knew, myself, whether a man employed union labor or not, so far as the contracting business was concerned. Mr. G o o d w i n . I think that is all. Mr. L e t t s . Mr. Wakefield, your company is incorporated, of course ? Mr. W a k e f i e l d . Yes. Mr. L e t t s . Under what law? Mr. W a k e f i e l d . Delaware. Mr. L e t t s . Y ou said this morning something about going down to Delaware, because you could avoid difficulties with respect to the inheritance tax. Mr. W a k e f i e l d . That is true. Mr. L e t t s . And you said something about double liability—if you organized in Minnesota, you would be subject to the double liability ? Mr. W a k e f i e l d . Yes, sir. Mr. L e t t s . I s that true as to the holding company ? Mr. W a k e f i e l d . It is true as to any company not a manufacturing corporation in Minnesota. Mr. L e t t s . I see. However, by going to Delaware, you neverthe less have retained the corporate entities as you found them with respect to the banking units? Mr. W a k e f i e l d . Oh, ab so lu te ly . Mr. L e t t s . Y ou have not reorganized them in any way ? Mr. W a k e f i e l d . Oh, no. 954 BRANCH, CHAIN, AND GROUP BANKING Mr. L e t t s . And, for the most part, I suppose the banks connected with you in Minnesota are organized under the laws o f Minnesota? Mr. W a k e f i e l d . No. Out o f the 91 banks, 67 o f them are national banks. There are some State banks; the balance are national banks. Mr. L e t t s . It will be your purpose from time to time to take State banks as well as national banks into your organization ? Mr. W a k e f i e ld . W e have not hesitated to take a bank, State or Na tional, and have up to date continued the same corporate existence that it had before; but in cases where it was necessary, with one ex ception, to organize a new bank, that has been a national bank; and that one case where it was necessary and we did not have a national bank was where it would have necessitated carrying it over the week end, and there was one day in there and we could not wait to have the charter granted in Washington. Mr. L e t t s . Y o u are authorized to do almost any kind of business, are you not ? Mr. W a k e f i e l d . Well, sir, I have not read what the lawyers put into the powers o f that corporation; but I imagine they wili let you do almost anything. Mr, L e t t s . A nd you have up to date proceeded to conduct a bank* ing business through these various units ? Mr. W a k e f i e l d . Yes, sir. Mr. L e t t s . And you have your securities corporation ? Mr. W a k e f ie ld . Yes. We have a securities company. The capital and surplus in the securities company amounts to seven and a half million dollars. Mr. L e t t s . And you have a financing company called the First Bancredit Corporation ? Mr. W a k e f i e l d . Yes. That is a small finance company which was organized to loan money to people building new homes, small homes, and is handled in this manner—that there are certain lumber dealers out through that territory who want to furnish the materials for somebody who is going to build a house, and they will take a second mortgage on the monthly payment plan. Then if their statement is satisfactory and they guarantee that to us we advance them the money. Mr. L e t t s . And is that agency through which your customers are permitted to finance the purchase o f automobiles? Mr. W a k e f i e l d . N o ; we do no automobile business. Mr. L e t t s . Nothing like that? Mr. W a k e f i e l d . No. Mr. L e t t s . Or household devices ? Mr. W a k e f i e l d . Well, we do expect to do that; as that business grows, as we can find the places to do that business, we are going to do some. Mr. L e t t s . O f course, and what you call the Bank Credit Cor poration-----Mr. W a k e f i e l d . The First Bank Credit Corporation. Mr. L e t t s (continuing). Is an organization designed to do just that sort of thing ? Mr. W a k e f i e l d . Yes, sir. Mr. L e t t s . D o you expect to do any insurance business ? Mr. W a k e f i e l d . No. BRANCH, CH AIN, AND GROUP BANKING 955 Mr. L e t t s . Life, accident, fire, or otherwise? Mr. W a k e f i e l d . No. Mr. L e t t s . Y o u c o u ld ? Mr. W a k e f i e l d . No ; the banks—some o f our banks in the country have been for years agencies for insurance companies; but you meant, when you said, “ to do an insurance business,” to organize an insur ance company and run it ? Mr. L e t t s . I mean a place for issuing policies o f any kind. Mr. W a k e f i e l d . Oh, no; absolutely not. Mr. L e t t s . Or operating agencies, or anything o f that kind? Mr. W a k e f i e l d . No. Mr. L e t t s . N o w , y o u h a v e been in existen ce ab o u t e ig h t m o n th s , have you ? Mr. W a k e f i e l d . Yes; just about. Mr. L e t t s . And during that time you have acquired 91 banks? Mr. W a k e f i e l d . Ninety-one banks. Mr. L e t t s . And amassed a large capital, o f course ? Mr. W a k e f i e l d . Yes. Mr. L e t t s . It is your purpose to enlarge, to grow ? Mr. W a k e f i e l d . We want to stay right in the field and fill it as fully as possible. Now, what that will involve I do not know. Mr. L e t t s . The Northwest Bancorporation is two or three months older than you ? Mr. W a k e f i e l d . Yes; six months, probably. Mr. L e t t s . And they have been equally successful, I take it? Mr. W a k e f i e l d . I think so; at least equally. [Laughter.] Mr. L e t t s . I see there is a very friendly relationship between you gentlemen, and I am glad to see that, o f course. How long would it takes your organization and the Northwest Bancorporation to con trol the financial life and activities o f the Federal reserve district in which you are located ? Mr. W a k e f i e l d . I do not think they could ever do it. Mr. L e t t s . You do not think it would be possible, even if you might desire, eventually, to become a monopoly in that regard ? Mr. W a k e f i e l d . N o; I do not. I feel very sure that it would not be possible. Mr. L e t t s . From the standpoint o f returns to your stockholders, would it be desirable if you could ? Mr. W a k e f i e l d . No; it would be destructive. Mr. L e t t s . W hy do you say that ? Mr. W a k e f i e l d . I say that for this reason, that if any operation o f that kind ever took effect, there is plenty o f the business, what we call choice business o f the territory, that would leave us and go right out into Chicago, or somewhere else. W e are constantly in com petition, in the banking business, with New York, Chicago, and other centers. Mr. L e t t s . Have you been approached to go into an amalgama tion which would cover the country? Mr. W a k e f i e l d . W e have never had one suggestion or word from anybody in the world indicating or discussing a matter o f that kind. Mr. L e t t s . When one sees how quickly you have grown, to such proportions, it makes us wonder just how long it might require a group of men to exercise a very great influence over the activities 956 BRANCH, CH AIN , AND GROUP BANKING o f the whole country by joining hands. That is the reason I am asking that question. Mr. W a k e f i e l d . W e have never heard o f it. Mr. L e t t s . Y o u now have about eight banks in Minneapolis? Mr. W a k e f ie l d . Y ou say “ we have?” Mr. L e t t s . Yes. Mr. W a k e f i e l d . Yes. Mr. L e t t s . And six in St. Paul ? Mr. W a k e f i e l d . I th in k so. Mr. L e t t s . How many does the Northwest Bancorporation have in Minneapolis; can you tell me ? Mr. W a k e f i e l d . They have more; I think nine. Mr. L e t t s . H o w many do they have in St. Paul ? Mr. W a k e f i e l d . One bank. Mr. L e t t s . A ll told, can you tell us how many there are in the two cities? Just approximately. Mr. W a k e f i e l d . In the two cities? Mr. L e t t s . Yes. Mr. W a k e f i e l d . Just about 50 banks—27 in Minneapolis and 23 in St. Paul. Mr. L e t t s . You have not gone into Iowa? Mr. W a k e f i e l d . No, sir. Mr. L e t t s . Y ou are confining your activities within the Federal reserve district? Mr. W a k e f i e l d . Yes; it has been our policy to do that. Mr. L e t t s . That is a present policy, o f course, and one which may be changed at any time. You are quite young. Mr. W a k e f i e l d . I will have to have some pretty good argument advanced before that policy is changed. Mr. L e t t s . Have you found it advisable to adopt that as a policy ? Mr. W a k e f i e l d . Well, I do not know that I can answer that question fully. I will say this, that we are not seeking to have con trol over or responsibility for a particular sized institution or any thing o f that sort. W e do feel our obligation to the particular terri tory we are in and we have felt that we had all the responsibility that we want within the territory that we are covering. Mr. L e t t s . How is that responsibility fixed? the trade conditions ? Is that because of Mr. W a k e f i e l d . N o; I would not say that. You take the terri tory that the Northwest Bancorporation has gone into. It has a very close contact with our territory. Mr. L e t t s . Y o u speak of your responsibility. What responsibility do you have in respect to Montana ? Mr. W a k e f i e l d . W ell, we are in the position, in our group, o f having the large banking interests on our hands out in that territory. Mr. L e t t s . I s that because o f investments out there or business ? Mr. W a k e f i e l d . Because it is in the ninth Federal reserve district, Mr. L e t t s . That is rather arbitrary from your point o f view, is it not ? Mr. W a k e f i e l d . I explained this morning the ninth Federal re serve district, under the set-up, did cover pretty well the territory under the flow o f banking business, back and forth. Mr. L e t t s . W ill it be your policy to serve the smaller communities by branches? You have suggested that that, in your judgment, is BRANCH, CH AIN , AND GROUP BANKING 957 the proper way to serve the smaller community, and I am wondering whether, in deliberating upon your policy, you have deemed it nec essary for you to render that service ? Mr. W a k e f i e l d . Our policy would be to go just as far as the law will permit in supplying the right kind o f banking facilities in the territory in which we operate. I f it is a branch-banking system, we will do it. We will go just as far as the particular system will justify that we go. Mr. L e t t s . You, of course, in allowing these banks to affiliate with you, have only taken the strong banks, and I think that is proper because you want your venture to be a success, of course. Mr. W a k e f i e l d . You are mistaken. There are 19 banks which we have taken which required a complete recapitalization. That does hot mean that they are strong banks. Mr. L e t t s . Were those ones with which you started out originally? Mr. W a k e f i e l d . N o ; those banks were strong. Mr. L e t t s . Then, what actuated you to take in these weak banks ? What was the purpose behind it? Mr. W a k e f i e l d . Just this: That if we could, without loss, take over a situation where there was bound to be a closing and a liquida tion o f a bank and tying up o f the deposits o f that town, I feel certain that we have rendered that community a tremendous service if we have been able to work with the stockholders and directors o f that bank which was going to close, and provide a means where a new bank was created, and kept those funds, as liquid deposits, in those communities. Mr. L e t t s . And you saved those? Mr. W a k e f i e l d . Yes, sir; and that was the main part o f this or ganization—to attempt to arrest the tying up o f banking deposits and keep them in the community. Mr. L e t t s . The Northwest Bancorporation shares with you that responsibility ? Mr. W a k e f i e l d . Yes, sir; and have done a lot of it. Mr. L e t t s . Have they done their part in preventing disasters ? Mr. W a k e f i e l d . Absolutely; they are on the job every day. Mr. L e t t s . Now, how can you decide whether a given responsi bility is yours or the other fellow’s? Mr. W e k e f ie l d . It is usually decided automatically by this fact: I f that bank has for many jrears been our customer-----Mr. L e t t s . Then it is your problem? Mr. W a k e f i e l d . Yes, sir; and we go there and try to take care of it. Neither one of us is running into those things head over heels, you understand. Mr. L e t t s . I understand that, and I can see just what you are try ing to explain. When you have a choice in the matter you only take in strong banks; but when it is necessary to save a situation in the territory, you go to a bank in distress ? Mr. W a k e f i e l d . Yes, sir. Mr. L etts. That is often done whether you are in a group or otherwise? Mr. W a k e f i e l d . We could not do that without the group system. I f we were just operating our bank, all we could do is make some loans and carry them as far as possible. 958 BRANCH, CH AIN , AND GROUP BANKING Mr. L etts. In this way, it permits you to reorganize it and put it on a firm basis ? Mr. W a k e f i e l d . Yes, sir. Mr. L etts. I thank you very much. I think that is all. Mr. S e ib e r l in g . Mr. Wakefield, you said that the principal reason why you were incorporated under the laws o f Delaware was on ac count o f the inheritance tax ? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . I assume you do not know that under the Federal law you are allowed credit up to 80 per cent of the Federal tax for all taxes paid in other States? Mr. W a k e f i e l d . I am talking about the conflict of State in heritance taxes. Mr. S e ib e r l in g . You can not get out o f the State inheritance taxes, because you are incorporated in Delaware. Mr. W a k e f i e l d . A ll right; what State are you from? Mr. S e ib e r l in g . I am from Ohio. Mr. W a k e f i e l d . Do you own stock in a corporation? I f you own stock in Minnesota, Minnesota is going to collect inheritance tax on that stock. Mr. S e ib e r l in g . I am going to get credit for that on my Federal tax. Mr. W a k e f i e l d . But you are going to pay Ohio’s tax, too. Mr. S e ib e r l in g . And I will get credit for that on the Federal tax. The fact-you are incorporated in Delaware does not cost your stock holders a cent less for Federal taxes than if you were incorporated in Minnesota. Mr. W a k e f i e l d . Well, all I know is that our attorneys, who looked into the original set-up, insisted that we be not incorporated in Minnesota. Mri S e ib e r l in g . It is true that you get credit up to 80 per cent for all inheritance taxes paid to the States on your Federal tax, Mr. W a k e f i e l d . That is a legal question about which I am not competent to talk. I am not a lawyer. The statement I have made is the judgment o f the attorneys we had to look over the situation, and I am quite sure if you will take the individual cases and look them over you will find it is a serious situation. Mr. S e ib e r l in g . But assuming my statement to be true, and that you get credit up to 80 per cent on your Federal taxes for taxes paid in other States, your reason that you advance for incorporating in Delaware falls, does it not ? Mr. W a k e f i e l d . I do not think that allowance on the Federal tax compensates for the situation. Mr. W in g o . In those States that have reciprocity, you would get the benefit o f that. Minnesota, of course, is not a reciprocity State. Mr. W a k e f i e l d . W e have a very difficult situation there in that respect. Mr. S e ib e r l in g . Y ou do not think the escape o f the double lia bility is any feature o f your organization? Mr. W a k e f i e l d . That particular thing, in the discussions at the time of our organization, when it was being arranged, would have been accepted if we had our choice out there. BRANCH, CH AIN, AND GROUP BANKING 959 Mr. S e ib e r l in g . Y ou never said to the stockholders who were coming into your organization that they would be relieved from double liability? Mr. W a k e f i e l d . Never. Some groups that have formed have de liberately provided for double liability. I f we had it to do over again, we would provide for it. Mr. S e ib e r l in g . Y o u have not put into the record a statement o f your First Bank Stock Corporation. Mr. W a k e f i e l d . Only just what is there in the statement. Mr. S e ib e r l in g . Y ou h a ve n o t p u t in a fin a n c ia l state m e n t. Mr. W a k e f i e l d . There is not any. Mr. S e ib e r l in g . Y ou certainly must have a financial statement o f the holding company. Mr. W a k e f i e l d . It is not active. It does no business. Mr. S e ib e r l in g . I have a statement o f the issued stock or assets. Mr. W a k e f i e l d . I think I have that right here. I think I ha ve a copy o f it here, and if we have it, we shall be glad to put it in. Mr. S e ib e r l in g . H o w much stock have you issued o f your holding company ? Mr. W a k e f i e l d . It is stated in the record this morning—3,016,000 shares. Mr. S e ib e r l in g . A t $25 a share, how much would that be ? Mr. W a k e f i e l d . $75,000,000, approximately. Mr. S e ib e r l in g . With that $75,000,000, you have purchased $54,000,000 of capital stock, surplus, and undivided profits in these sub sidiary banks? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . Y ou were discussing this morning a bank th a t was in great difficulty in a city o f 3,000 inhabitants, and the deposi tors were there to get their money when you arrived on the scene, but you did not state how much stock you gave those stockholders for their bank. Mr. W a k e f i e l d . W e did not give them any. They put up $200,000 in cash. Mr. S e ib e r l in g . And gave you the bank? Mr. W a k e f i e l d . Yes; sure. Mr. S e ib e r l in g . H o w many other banks were given you in th is organization ? Mr. W a k e f i e l d . Not very many, but there have been several cases where that has happened. Mr. S e ib e r l in g . About how m a n y ? Mr. W a k e f i e l d . I can not tell you. Mr. S e ib e r l in g . Then, this bank that you had given to you, how do you carry that on your books ? Mr. W a k e f i e l d . W e put in $150,000 in cash. We capitalized a new bank and assumed the deposit liabilities o f that bank and after the stockholders had put up $200,000 in cash, we figured it may cost us $50,000 in losses, before we get out. Mr. S e ib e r l in g . Y ou made them guarantee the debts ? Mr. W a k e f i e l d . U p to th a t p o in t — $ 2 0 0 ,0 0 0 . Mr. S e i b e b u n g . When you take over banks not insolvent, but almost insolvent, you escrow the stock delivered for debts ? 100136— 30— vol 1 pt 8--- 12 960 BRANCH, CH AIN , AND GROUP BANKING Mr. W a k e f i e l d . Not unless there is further need for security o f the paper in the bank at the time it is taken over. Mr. S e ib e r l in g . Y ou want to be sure that all o f the assets o f the bank are good when you take them over? Mr. W a k e f i e l d . W e are not crazy and we would simply not go out and throw the money over the transom in order to get possession o f a bank. Mr. S e ib e r l in g . Y ou do not pay anything for good will? Mr. W a k e f i e l d . Wherever there is anything coming for good will, it is included. Mr. S e ib e r l in g . H o w d o y o u e stim a te th a t? Mr. W a k e f i e l d . Based upon the earnings o f the bank, its capital and assets. Mr. S e ib e r l in g . Have you ever considered good will in taking over any bank? Mr. W a k e f i e l d . Almost always. Mr. S e ib e r l in g . Have you sold any o f your stock in the market since you organized the corporation? Mr. W a k e f i e l d . I stated that this morning; it is in the record. We sold 200,000 shares to the public originally at $47.50 a share and 32,000 shares to officers and employees in the various banks in the group at $42.50. Mr. S e ib e r l in g . Y o u issued it to the original banks on the basis o f $25 a share ? Mr. W a k e f i e l d . On an agreed basis, but it was $25 par value stock. Mr. S e ib e r l in g . When you agreed on the original value o f the bank, you paid them at the rate of the par value for your stock? Mr. W a k e f i e l d . I explained that this morning. The First Na tional Bank o f Minneapolis, at the time this corporation was formed— our stock was selling for $220 per share. We received four shares of $25 each par value for 1 share o f our stock. Mr. S e ib e r l in g . Y ou took the market price? Mr. W a k e f i e l d . N o; we took what we considered to be a fair basis of exchange based upon the assets and earnings o f the bank regardless o f the market value of the stock, because i f that stock is worth that price in the market, as First National Bank stock, and it is put in on a fair and equitable basis all the way through, it ought to have an appreciation in value as First Bank stock that would ap proach it, at least. The fact is it has not. Mr. S e ib e r l in g . W ould that price, if the stock was sold to the public, be a higher price than the price you took it over at? Mr. W a k e f i e l d . It was a lower price than the price existing at that time on the First National Bank stock. Mr. S e ib e r l in g . What time was that? Mr. W a k e f i e l d . It was in late August. Mr. S e ib e r l in g . Y o u took your stock at $55 a share? Mr. W a k e f i e l d . That is about it. Mr. S e ib e r l in g . And you sold to the public at $43? Mr. W a k e f i e l d . A t $47.50. Mr. S e ib e r l in g . I believe you stated this morning that there were some sections in the ninth Federal reserve district that had too many banks ? Mr. W a k e f i e l d . I do not think there is any question about that. BRANCH, CH AIN, AND GROUP BANKING 961 Mr. S e ib e r l in g . That is, the communities will not support all the banks they have? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . And some o f them have to go out of business? Mr. W a k e f i e l d . I think that is true. Mr. S e ib e r l in g . That is not a very good thing for the com munity ? Mr. W a k e f i e l d . It is a very bad thing to have too many banks. Mr. S e ib e r l in g . I think you also stated there were many com munities that should have banking facilities that do not have them? Mr. W a k e f i e l d . I stated that there were 145 communities where there used to be banks and there are none now. Mr. S e ib e r l in g . And you think one o f the difficulties in organiz ing a unit bank in those cases is the fact the Federal farm land banks and the joint-stock land banks loan on mortgages in these communities ? Mr. W a k e f i e l d . That is one o f the difficulties; yes, sir. Mr. S e ib e r l in g . What is the banking business that those com munities need that they have not got ? Mr. W a k e f i e l d . Just a place where the local people can go and deposit their money, cash checks and do a little banking business. Mr. S e ib e r l in g . And borrow money on mortgages? Mr. W a k e f i e l d . It may be that that ought to be done. I have great faith in the future o f farm mortgages. A t the pres ent time they are in disrepute, but you can not make me believe that our basic type o f security in our territory is forever going to be in disrepute. I think the time is coming when the farm mortgage willl have as good a standing as it had in the past. Mr. S e ib e r l in g . We appropriated $500,000,000 to lend farmers on grain or loan associations, with grain securities. We have appro priated $150,000,000 already. Since they have that money avail able for their associations and they have the other instrumentalities available for farm mortgages—and then we have appropriated an other $7,000,000 to lend for individual purposes when needed, by the Secretary of Agriculture—what more could the people need back in those communities? Mr. W a k e f i e l d . I think all that type o f appropriation is really ineffective. It is not doing the average farmer any good what soever. Mr. S e ib e r l in g . Don’t you think that the functions of postal sav ings could be expanded so that in those far-off communities where no one can organize a bank successfully and yet where they need banking facilities these few needs that they have could be taken care of ? Mr. W a k e f i e l d . I think it would be an ineffective and cumber some and an undesirable attempt. Mr. S e ib e r l in g . I f the law provided that the money that was de posited in the postal savings should be deposited in the banks in the ninth Federal reserve district—money taken in the ninth Federal reserve district should be deposited in the banks o f the ninth Federal reserve district— would that make any difference? Mr. W a k e f i e l d . I think the law does permit that and it is largely done, but in all cases it requires the banks to go and buy either State or Government bonds and deposit those in Washington to cover the 962 BRANCH, CH AIN , AND GROUP BANKING amount o f the deposits they have from postal-savings banks, which means that that fund, if you have a small town where the postalsavings money is in the form of postal-savings deposits, is not avail able for loans and never can be. Mr. S e ib e r l in g . They can be made available for deposits for use in connection with checking ? Mr. W a k e f i e l d . I think if you are going to ask the Government to become responsible for the savings of the people through the postal savings of the people, they must be protected in the manner they are. Mr. S e ib e r l in g . Y ou say these communities need banking facilities which neither you nor any other organization can afford to furnish. What do you think we should do for them? Mr. W a k e f i e l d . I say if permission were given to banks in the country to put offices in the small towns where the public could come and borrow money and deposit money, it would meet every require ment needed and do it in an intelligent and desirable way. Mr. S e ib e r l in g . That could only be done by branch banking ? Mr. W a k e f i e l d . That is true. Mr. S e ib e r l in g . You think some form of branch banking should be adopted in order to take care of those needs? Mr. W a k e f i e l d . I think some form o f branch banking, as far as those towns are concerned, is absolutely essential. Mr. S e ib e r l in g . Should branch banking be limited to the towns where there are no banks ? Mr. W a k e f i e l d . I do not think it would be possible for Congress or for the State legislatures to set up a regulation o f that kind. I think the permission to put branches in the towns would have to be left to the superintendent o f banks or the comptroller, in his discre tion. I think any other method would run into conflict and difficulty and work a hardship on some community. Mr. S e ib e r l in g . Y ou think if the Comptroller o f the Currency had charge o f it and took supervision over it, it would be proper to permit branch banks to be put in the trade areas in those places where banking facilities are not developed? Mr. W a k e f i e l d . I think the comptroller is entirely competent to exercise that supervision. Mr. S e ib e r l in g . Y ou spoke about the deflation period in your statement this morning. As a matter of fact, after 1920, many indus tries that suffered this same deflation that the farmers did either reorganized or put bond issues on their plants, paid their obligations and went on, but the farmer was unable to do that ? Mr. W a k e f i e l d . That is true. Mr. S e ib e r l in g . And consequently the banks have had to carry the loans while their securities have depreciated in value over a long period o f years ? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . N o w , many found themselves in difficult circum stances, practically insolvent, and you have organized your group plan to go out and take over these banks, some for nothing and others for such terms as you can agree upon, so as to reorganize the banking facilities o f your Federal reserve district. Is that correct? Mr. W a k e f i e l d . Not quite. Mr. S e ib e r l in g . What is there incorrect about it ? BRANCH, CH AIN, AND GROUP BANKING 963 Mr. W a k e f i e l d . Well, there is an inference or two in your state ment which is incorrect. In the first place, I will state again that the only interest we have in having banks in our territory is in order that there may be institutions there which have the confidence of the public and with which they are willing to deal, and which are ready and competent -and willing to take care of the banking needs of the community served. There is no other motive or purpose in it. Mr. S e ib e r l in g . Your venture is very profitable in that these banks have a very valuable good will. Here is a bank that has been in operation for many years. It may be practically insolvent; never theless, it has a tremendous good will. You can take their assets over and have them guaranteed by responsible people and have the banking business conducted by competent people. Mr. W a k e f i e l d . But in every case we have figured a percentage value to the owners of the banks for the deposits that were turned over, which we have tried to give them in compensation for any good will that might exist there. Mr. S e ib e r l in g . Do you agree with Mr. Decker that if proper banking facilities were furnished out in your community it would do more good than any other kind of relief that could be given to the agricultural district's ? Mr. W a k e f i e l d . I agree with him that it furnishes the basis for constructive development and prosperity, and without it you can not have any such thing. Mr. S e ib e r l in g . Then, of course, you agree that the banking facili ties are very important ? Mr. W a k e f i e l d . Absolutely important. Mr. S e ib e r l in g . Now, I did not quite understand what you meant this morning when you said that the borrower needed no protection. I assume you have not been a borrower very much in your life? Mr. W a k e f i e l d . Yes, I have. Let me illustrate what I have in mind. There have been rare cases, in my opinion, when there have been developments started which the banks were not ready to assume responsibility fo r ; that, they have been untried. I have in mind one very practical illustration. A few years ago there came into existence a widespread development of installment selling. Every manufac turer and merchant found he could increase his sales and produc tion could be increased through the use of installment buying. It was some years before the banks were willing to assume the responsi bility of lending upon that class o f security. What happened? Almost immediately great corporations were formed with substan tial capital to undertake to furnish that money that was needed for those purposes, regardless of the banks. Mr. S e ib e r l in g . Talking about automobile finance companies and so forth now? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . What rates o f interest do they charge ? Mr. W a k e f i e l d . It does not make any difference what the rates o f interest are. Mr. S e ib e r l in g . Is not the borrower interested in that? Mr. W a k e f i e l d . Yes, sir; but the cost o f credit is usually gauged by the amount and type o f risk involved in the transaction. 964 BRANCH, CH AIN, AND GROUP BANKING Mr. S e ib e r l in g . I f you are going to make a man a loan at all, you are not going to make the loan unless you think the principal is reasonably safe? Mr. W a k e f i e l d . In a bank; yes. Mr. S e ib e r l in g . I f a man is entitled to a loan at all, is he not entitled to it at a reasonable rate o f interest ? Mr. W a k e f i e l d . It depends upon what the loan is for and what his situation is. Mr. S e ib e r l in g . What do you mean by that? I f you are going to make a loan at all, why is he not entitled to a reasonable rate o f interest ? Mr. W a k e f i e l d . The word “ reasonable ” is to be associated with or defined with the type o f credit you are extending and a rate o f interest that is reasonable on one form o f credit may be unreasonable on another. Mr. S e ib e r l in g . Y ou think a man who is greatly in need o f money ought to pay more for it than the man who does not need it so much? Mr. W a k e f i e l d . I want to get set with you. Mr. S e ib e r l in g . A ll right; let us get set. Mr. W a k e f i e l d . The banking business has been developing in the larger communities all the time. Up in our country, on account o f that fact and because we have recognized the development o f that situation, we understand fully if the smaller bank is to be eliminated and can not prosper the large bank must step in and furnish the facilities to the small man. He must do it not entirely upon a deposit basis, either, but the large bank must be in a position to take care o f the small people, and we have done everything we could to take care o f them, even to the extent that two years ago, recognizing that responsibility that we have, we formed what we call a personal loan department in our bank, through which we loan to small individuals, without any other connection with the bank, up to $500 on an indorse ment basis. Mr. S e ib e r l in g . What per cent do you charge on that ? Mr. W a k e f i e l d . Six per cent, and we are losing money on it. I regard it, however, as one of the best things we do. Mr. S e ib e r l in g . Y ou do not think the borrower is entitled to a n y protection under the la w ? Mr. W a k e f i e l d . Certainly I d o ; but I say I think he is protected under the law in every way I can think of. Mr. S e ib e r l in g . What rate o f interest do they pay on these mort gages you referred to? Mr. W a k e f i e l d . Onr usury laws permit 8 per cent, Mr. S e ib e r l in g . But what rate do they pay ? Mr. W a k e f i e l d . I do not know. Mr. S e ib e r l in g . What rate do you pay when you take them over? Mr. W a k e f i e l d . I do not know. I am not active in the corpo ration. Mr. S e ib e r l in g . Do they buy them at a discount ? Mr. W a k e f i e l d . That is a very small company and handles a very small business. Mr. S e ib e r l in g . I w a n te d to g e t th e fa c ts. Mr. W a k e f i e l d . I do not know. Mr. S e i b e r l i n g . I s there anybody here that does know ? BRANCH, CH AIN , AND GROUP BANKING 965 Mr. W a k e f i e l d . No; but you can rest assured o f this, that they get a charge on that business that pays the cost o f operation and a return on the money. I do not know what the rate is. Mr. S e ib e r l in g . Mr. Decker referred to banks yesterday as com parable with public-service corporations. Do you agree with him in that? Mr. W a k e f i e l d . I have never been able to find a basis of com parison myself. Mr. S e ib e r l in g . Y ou would not think it would be proper for the ticket agent of the Baltimore & Ohio down here, if he found a man had to go to New York to-night to charge him $5 or $10 more for his ticket than if he could wait until to-morrow ? Mr. W a k e f i e l d . I do not understand that question, Mr. Seiber ling. Mr. S e ib e r l in g . Does not the Government do more for the banks than it does for any other business in this country ? Mr. W a k e f i e l d . I do not think so. I think the banks do a tre mendous amount for the Government every day in the year. Mr. S e ib e r l in g . For the Government? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . Well, the banks operate with the money that belongs to the people, do they not? Mr. W a k e f i e l d . Now, do you want to get into an involved discus sion of the theories of banking? Mr. S e ib e r l in g . Do not your deposits come from the people ? Mr, W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . Even the very money you are lending back? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . Are they not entitled to get that money on a reasonable basis? Mr. W a k e f i e l d . I c la im th e y d o. Mr. S e ib e r l in g . H o w much money have you made with this cor poration of yours since you organized it ? Mr. W a k e f i e l d . Which corporation? Mr. S e ib e r l in g . Your holding company. Mr. W a k e f i e l d . The First Bank Stock Corporation? Mr. S e ib e r l in g . Do you get out monthly statements ? Mr. W a k e f i e l d . We get statements every day. Mr. S e ib e r l in g . How much money are you making? Mr. W a k e f i e l d . I do not know, but last year, on the basis o f operation of each unit, for the full year, the earnings o f this cor poration would be approximately $7,800,000 from all sources. That is approximately $2.40 a share on the capital stock. Mr. S e ib e r l in g . That is the bank you took over ? Mr. W a k e f i e l d . Yes, sir; the whole group. Mr. S e ib e r l in g . But, as a matter o f fact, what have you been making since you took them over? Mr. W a k e f i e l d . Less, because it is a low-money period right at the present time. Mr. S e ib e r l in g . Y ou do not think any money went from the ninth Federal reserve district to New York during the high call-money period ? Mr. W a k e f i e l d . I do. 966 BRANCH, CH AIN, AND GROUP BANKING Mr. S e ib e r l in g . Do you know o f any banks that borrowed from the Federal reserve bank and sent it to New York? Mr. W a k e f i e l d . I am quite sure they did not do that in our district. Mr. Mr. S e ib e r l in g . You do not know of any? W a k e f i e l d . No, sir. S e ib e r l in g . Y o u think it is all right to Mr. have a call-money rate o f 25 per cent? Mr. W a k e f i e l d . I think the best sort o f regulation and the best indication to the general public o f pending difficulties are secured through the fluctuations o f the call-money rate in New York. Mr. S e ib e r l in g . But you do not answer my question. Mr. W a k e f i e l d . I think it is perfectly proper that the rate should go to 25 per cent if the situation warrants it. Mr. S e ib e r l in g . And very much higher? Mr. W a k e f i e l d . So m u c h h ig h e r th a t th e y w o u ld n o t use it. Mr. S e ib e r l in g . Y o u th in k it sh o u ld g o t o a n u n lim ite d a m o u n t? Mr. W a k e f i e l d . Yes, sir. I think any attempt to fix that rate would be to the detriment of the good o f the entire country. I think that is the one mark we have to watch as showing pending danger, and if the public had paid attention to the call-money rate on the New York market in the last two years, they would not have been stung in the stock market like they were. Mr. S e ib e r l in g . Do you think there should be any machinery in New York or any other place that could put the money so high that they can make the people pay more interest than the usury laws o f the States permit? Mr. W a k e f i e l d . That period was one o f the highest c a ll m o n e y rate periods that we have h a d in this country. I know that it h a d no influence whatever upon the banking resources in our section being diverted to New York in order to get that high rate. Mr. S e ib e r l in g . You know it did draw a vast amount of money to New York? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . Then where d id it come from? Mr. W a k e f i e l d . From individuals and not from the banks. Mr. S e ib e r l in g . But they had to take it out o f the banks ? Mr. W a k e f i e l d . Probably some did. Mr. S e ib e r l in g . And diverted it to New York? Mr. W a k e f i e l d . Yes, sir. Mr. S e ib e r l in g . And to the extent that that was done you did not have that money available to lend in your district ? Mr. W a k e f i e l d . W e took care o f every requirement in our district. Mr. S e ib e r l in g . Where did you get the money with which to do that? Mr. W a k e f i e l d . From the Federal reserve bank. Mr. S e ib e r l in g . And that money you loaned back to your cus tomers, who took it and sent it to New York and loaned at 15 and 25 per cent in New York? Mr. W a k e f i e l d . I think, as a customer of our bank, it is not oui business to know what they do with their money. Mr. S e ib e r l in g . Do you think the Federal reserve bank should be the instrumentality that permits the New York Stock Exchange to get 25 per cent for its money ? BRANCH, CH AIN, AND GROUP BANKING 967 Mr. W a k e f i e l d . I do not think your premises are correct. Mr. S e ib e r l in g . Did it not work out that way ? Mr. W a k e f i e l d . I say I do not think your premises are correct. Mr. S e ib e r l in g . You can not control your customers? Mr. W a k e f i e l d . Their money; no. Mr. S e ib e r l in g . It is their money ? Mr. W a k e f i e l d . Yes. Mr. S e ib e r l in g . They pulled it out of your bank and sent it to New York? Mr. W a k e f i e l d . I do not know as they pulled it out, but they did not deposit it. Mr. S e ib e r l in g . Some of them pulled it out ? Mr. W a k e f i e l d . I really doubt it. Mr. S e ib e r l in g . Did not some o f your large corporations lend money in New York on call? Mr. W a k e f i e l d . Very few. I think perhaps three or four million dollars was loaned that way in our entire territory. Mr. S e ib e r l in g . And you had to go to the Federal Reserve Bank and borrow money to take care of the banking requirements o f your community? Mr. W a k e f i e l d . W e did at some times. Mr. S e ib e r l in g . And you did that because you needed it in the ninth Federal reserve district ? Mr. W a k e f i e l d . But do you think because we had to go and bor row money from the Federal reserve bank, that we ought to fix it so that the fellow who gets the money must deposit it in our banks? Mr. S e ib e r l in g . The high call money took the money out o f your banks and drew it to New York? Mr. W a k e f i e l d . I think it did in some instances. Mr. S e ib e r l in g . And, to take care o f that money that was drawn to New York, you had to go to the Federal reserve bank to get the money with which to carry on your business ? Mr" W a k e f i e l d . I think that is somewhat true, but think o f this: W e were passing through a period when there was this inflation in New York of stock prices, and one of the real cures for a situation o f that kind, is not to fix it arbitrarily so that it can not be carried on for a certain period, but i f the public would accept the warning o f the rate, then it would take care of itself. Now, they went blind for a certain period and would not accept any warning. Mr. S e ib e r l in g . The result was a tremendous crash in this country that affected the industrial situation and labor productivities. Mr. W a k e f i e l d . I do not think the crash has really resulted in affecting business very much. Mr. S e ib e r l in g . That is your opinion, that it has not affected business ? Mr. W a k e f i e l d . My opinion is that that is not the main cause o f business conditions to-day. Mr. S e ib e r l in g . The result is that the Federal reserve bank indi rectly furnished a large amount of money for speculation in New York, and they could not help themselves under the system that exists. 968 BRANCH, CH AIN, AND GROUP BANKING Mr. W a k e f i e l d . To an extent, I think, that may be so, but the Federal reserve system functioned in a most admirable way all through that period, in my opinion. Mr. S e ib e r l in g . Do you think there should be some machinery set up somewhere so as to prevent the rates going so high? Mr. W a k e f i e l d . No, sir; I think the best thing we have in the country to-day is the absolutely free play of the rate on the New York call-money market. I think this: I f there had been a limited rate fixed in New York City for call money, above which the price could not go, I think the stock exchange situation would have gone on considerably longer and the crash would have been far greater. Mr. S e ib e r l in g . That theory you get from certain classes in New Y ork and other places? Mr. W a k e f i e l d . I do not live in New York. Mr. S e ib e r l in g . But suppose we had a limit that would not have drawn the money to New York, and they could not speculate with it, would there have been that great speculation ? Mr. W a k e f i e l d . W hy, money is going to New York at 3 and 4 per cent to-day faster than before when the high rates obtained. Mr. S e ib e r l in g . They have no use for the money in your district that they have left in the banks ? Mr. W a k e f i e l d . There is very little demand for money to-day. Mr. S e ib e r l in g . You think business is all right? Mr. W a k e f i e l d . Yes, sir; fundamentally. Mr. S e ib e r l in g . But there is no use for money in the country % Mr. W a k e f i e l d . I f you want to get me onto the business situ ation-----Mr. S e ib e r l in g . No; but what do you think caused the business recession ? Mr. W a k e f i e l d . The business recession at the present time? Mr. S e ib e r l in g . Yes. Mr. W a k e f i e l d . Well, we start out and go through a period in this country every once in a while of very rapid production and acceler ated sales and high tension o f business and run until we overdo all those things. This very factor of this new instrument o f installment buying that I have been speaking of, was one o f the main sources o f increas ing purchases on the part o f the public. The first suit o f clothes I bought was a $10 suit on which I paid $2 down and $2 a month. So I am in favor o f installment buying. Mr. S e ib e r l in g . I have one better than that in connection with the first suit I bought. Mr. W a k e f i e l d . The people were inexperienced with that type of facility. During the few years that have passed they have gained that experience and to-day, instead of having three or four or five contracts running at once, they are not going to be in quite the pinched condition from the exercise o f the privilege of installment buying they have been in the past, and so they have shut down buying. Mr. S e ib e r l in g . I can not take any more time. I have taken too much already. But you do not believe in usury laws, do you ? BRANCH, CH AIN , AND GROUP BANKING 969 Mr. W a k e f i e l d . Yes, sir; I d o . Mr. S e ib e r l in g . But you do not believe they should apply to the New Y ork Stock Exchange? Mr. W a k e f i e l d . I think we need in this country a free market in the country of the type o f the New York call money market because it is the finest barometer that exists in this country to-day, if people will watch it. Mr. S e ib e r l in g . That is all. Mrs. P r a t t . Mr. Seiberling’s questions seem to express objection to the fact that people drew their money out of a bank or took their money and invested it as they chose. That is the individual’s right, is it not? Mr. W a k e f i e l d . It is. Mrs. P r a t t . And would not, in your opinion, any legislation to prevent the individual from doing fust that very thing, be a type of legislation which this country seems to object to as affecting personal privilege and personal rights? Mr. W a k e f i e l d . I think I have covered that, Mrs. Pratt, in my statement that, in my opinion, there should be never any attempt of that sort. Mrs. P r a t t . Would not that be legislation infringing on personal privilege ? Mr. W a k e f i e l d . Absolutely. Mr. L u c e . I understand that Mr. Wakefield is going to come back in the morning, and so I will adjourn the meeting until to-morrow, but will ask the indulgence o f the committee, inasmuch as I have to be at another committee meeting to-morrow morning, to ask one question at this time which I would have asked during my time, if this document had been before me. I observe from his list that you have two banks in Austin, Blue Earth, Little Falls, and Mankato, Minn.; Aberdeen and Gettysburg, S. Dak.; and Helena, Mont. Now, there are two of these places— Gettysburg, S. Dak., and Blue Earth, Minn., of which probably I should have been informed, but, in fact, I never heard o f before, indicating possibly they are not both of them metropolises. [Laughter.] Mr. W a k e f i e l d . Those banks will be consolidated. Mr. L u c e . H o w does it com e th a t y o u are m a in t a in g tw o b a n k s in a n y p la c e ? Mr. W a k e f i e l d . We are not, in those cases that you mention there. It will take those two banks put together to make a bank that is justified, and they have already been consolidated. Mr. L u c e . It is not your intention to maintain two banking offices in those places? Mr. W a k e f ie l d . No, sir. Mr. S e ib e r l in g . Before we adjourn, is this financial statement to go into the record? Mr. W a k e f i e l d . Yes. (The statement referred to is here printed in full as follows:) 970 BRANCH, CH AIN , AND GBOUF BANKING A n n u a l R eport of F ir s t B a n k S t o c k C o r p o r a t io n , M i n n e a p o l is , S t . P a u l F e b r u a r y 18, 1930. To the Stockholders of the First Bank Stock Corporation: Since the la st rep ort to stockholders cov erin g the operation s o f y o u r co rp o ra tion, the F irs t B an k Stock C orp ora tion ’s system o f banks has been progressively exp and ed and at the close o f the fiscal year, D ecem ber 31, 1929, it includ ed 85 affiliated institutions all situated w ith in the boundaries o f the ninth F ed era l reserve d istrict. A ll units o f the grou p are being m ain tained at a high point o f op era tin g efficiency, p rov id in g their com m unities w ith the m ost a d equ ate ban king and cred it fa cilities, and a fford in g th eir d ep ositors a m axim u m degree o f security. T h e operation s o f the group are also being reflected in restored confidence* throu ghou t the te rrito ry and a consequent firm er fo u n d a tio n fo r stabilized con d u ct o f general business. W e are n ow con cen tra tin g our attention upon the developm ent o f the co ord in a ted a ctiv ities o f the group m akin g a vailable to the tra d e areas and cu stom ers o f each unit th e greater fa cilitie s o f the system as a w h ole. In exp and ing the F irs t B ank S tock C orp ora tion system w e are m ain ta in in g the p osition o f a fford in g op p ortunity to the independent bank upon its ow n v olition to affiliate w ith the corporation, and new affiliations are b eing a ccom plish ed only upon this basis. The grow th o f the group is evidence that th e independent banker recognizes the benefits to be derived by a ssocia tion w ith y ou r corporation . N egotiations fo r the affiliation o f a num ber o f a d d itional banks are now p ending and w ill be announced fro m tim e to tim e. balance sheet O f the F irst B an k S tock C orp ora tion 's authorized ca p ita liza tion o f 10.000,000 shares o f a p ar va lu e o f $25, there w as outstand ing upon D ecem ber 31 a total o f 3,016,870.57 shares. The condensed balance sheet o f the corp o ra tio n o f th a t d a te f o l l o w s : C ash on h a n d __________________________________________________ B ond s and com m ercia l p a p er---------------------------------------------------B ills receivable_________________________________________________ A ccoun ts receivable____________________________________________ $1,8 50 ,0 9 2 . IT 3.165, 574. 79 2. 775,170.10 117,115. 76' T ota l quick assets___________________________________________ F u rn itu re and fixtu res________________________________________ S to c k s __________________________________________________________ A ccru ed interest ( n e t ) ________________________________________ 7, 907,952. 82 8, 572. 92 114, 949,863. 92: 9 ,5 0 6 .1 1 122, 875. 895. 77 L ia b ilitie s : C apital__________________________________________________________ Surplus and undivided profits_________________________________ D ividen d payable Jan. 1, 1930_________________________________ 75, 421, 764. 39 46,698, 6 16.49 755,514. 89 122, 875, 895. 77 N o t e .— T he item “ stocks ” represents the valuation at the tim e o f purchase o f ou r equities in the affiliated corporations. In arrivin g at the purchase p rice a ll fa cto rs tending to establish the goin g-con cern value o f these corp ora tion s w ere considered and final acquisition w as accom plished upon a very con serva tive basis. In view o f the fa c t that all purchases w ere m ade upon valuations established w ithin recent m onths, no effort has been m ade to revalue them f o r purposes o f this report. T he m anagem ent feels that the true value o f these prop erties is con stantly increasing. A con solid ated statem ent o f the banks and com panies con trolled by the corporation appears on page 4 o f this report. e a r n in g s W e have obtained from each bank in the group an earnings statem ent f o r the entire yea r 1929, and w here the bank w as not in operation fo r the fu ll year, its incom e has been ca refu lly estim ated. B ased on these figures, the 971 BRANCH, C H AIN , AND GROUP BANKING a n n u al net op era tin g profit a ccru in g to the corporation, a fte r d educting all expenses and taxes, w ill am ount to $7,282,652.04, or $2.4139 per share o f our stock. It is n ot to be u n derstood that these earnings h a ve a ctu a lly been received by the co r p o r a tio n ; nor w ill they be received hereafter. I t is the p o lic y o f you r officers to ask dividends fro m the several banks only sufficient to m eet ou r ow n d ividend requirem ents, and to allow the excess earnings to rem ain in the several banks in the fo rm o f surplus or reserves, thus con tin uously strengthen in g the com ponent parts o f the entire organ ization . T he rate o f earnings as at present determ ined is a p p roxim ately 2 y2 tim es d ivid en d requirem ents. It m ay be o f interest to note that the earnings o f the JBlrst N ational B an k o f M inneapolis and F irst N ational B an k o f St. Paul, independent o f their respective subsidiaries and affiliates, are o f them selves m ore than sufficient to m eet the entire dividend requirem ents o f the corp oration . FUTURE EARNINGS T he general low erin g o f interest rates throu ghou t the cou n try w ill un d ou b ted ly a ffect banking profits f o r 1930, but it is hoped that this w ill be offse t b y oth er con sideration s, o f w h ich the prin cip a l are as f o l l o w s : ( a ) T he benefits o f grou p operation, w h ich have scarcely as yet had tim e to m ake them selves felt, should be reflected from n ow on in exp and ed activities throu ghou t the entire system . W e are d eveloping the fa cilitie s o f ou r units in the credit, investm ent, and tru st fields, thus in creasing their earning capacity, a n d at the sam e tim e a re accom plishing econom ies throu gh the cen tral clearance fu n ction s o f the corporation . (&) P rior to affiliation w ith the corporation, the unit banks operated on a n excessive reserve basis, due to the financial uneasiness w h ich p revailed throu ghou t the d istrict, and this n a tu ra lly tended to reduce operatin g profits. B ack ed by the com bin ed strength o f the organization, it w ill n ow be possible f o r the un it banks to operate on a n arrow er reserve basis w ith a resulting increase in profits. ( o ) T hat group ban king is ra p id ly in creasing public confidence in the m em ber banks is a lready apparent, and this m ust inevitably b rin g about an in crease in deposits. ( d ) P rospects are excellen t fo r substantial profits fro m our tw o division al subsidiaries, F irs t S ecurities C orp oration and F irst B an credit C orporation. T h ese com panies did n ot becom e op erative in the group until recen tly and the ea rnings report fo r 1929, therefore, does not reflect th eir fu ll possibilities. T h e F irst Securities C orp oration w as established w ith a ca p ita l and surplus o f $7,500,000 and took over the investm ent business fo rm e rly handled b y F irst M inn eapolis Co. and F irst St. Paul Co. and is extending its service through ou t the group. T he F irst B an cred it C orp oration is the successor to th e Lum berm an’ s A ccep tance C orporation o f C hicago and con du cts a specialized financing business in th e con struction fields. Its ca p ita l structure o f January 1 totals $1,101,000. DIVIDENDS T h e b oard o f d irectors has d ecla red the second q u a rterly d ividend o f 25 cents per sh are payable A p ril 1 to stockholders o f record M arch 15. T h is is at the annual rate o f $1 per share. TERRITORY SERVED A s o f D ecem ber 31, 1929, 60 cities w ere served by affiliates o f the corporation, as fo llo w s : State M innesota__________ __________________ _______________________ _____________ _ M ontana....................................................................................................................................................... North D akota..................................................................................................................................... South D akota......................................................................................... .................................................... M ichigan....................................................................................................................................................... Num ber of cities Num ber of affili ates 21 11 15 10 3 42 13 15 12 3 60 85 972 BRANCH, CH AIN, AND GROUP BANKING CAPITAL-STOCK DISTRIBUTION T h e stockholders o f the F irst B an k S tock C orp ora tion are distrib u ted geo g ra p h ica lly as fo llo w s : M inn eapolis------------------------------------------------------------------------------------------------------St. P a u l________________________________________________________________________ M innesota ( ou tsid e o f T w in C itie s ) ----------------------------------------------------------------M ich ig a n ______________________________________________________________________ M on tana_______________________________________________________________________ N orth D a k ota _________________________________________________________________ South D a k ota ----------------------------------------------------------------------------------------------------W iscon sin _____________________________________________________________________ O th er S tates------------------------------------------------------------------------------------------------------- 6 ,7 5 3 2 ,3 4 5 3 ,2 0 1 383 987 892 516 446 596 T o ta l___________________________________________________________________ 16,119 INDEPENDENCE OF U N IT S T here has been som e uninform ed criticism o f group banking based upon the cla im th a t the variou s banks com posing the group have sacrificed their inde pendence and that their operations, including their loca l loans, are directed fro m the head office o f the corporation. T h is is absolutely untrue. T h e several ban ks a re corporately ju st as independent as they w ere b efore they becam e affiliated w ith the corporation. T hey are operated and directed b y lo ca l m en fo r the benefit o f the com m unities w hich they serve and fro m w h ich they derive their business. N othing has changed but the stock ow nership and the rem edy f o r inefficiency is ju st what it w as before, nam ely, rem oval fro m office b y the stockholders. On the other hand, each unit bank receives the benefit o f cooperation w ith the other units and it is the fu n ction o f the head office to cen tralize and im prove this cooperation and the advantages w h ich m ay be d erived therefrom . W e look fo rw a r d to a year o f substantial progress and w e w ou ld rem ind each stockholder that he can contribute thereto by d irecting business to our banks w henever he has an opportunity to do so. R esp ectfu lly subm itted. P. J. X jE E M A N , Tice President and General Manager. Consolidated statement December 31, 1929, first bank stock corporation group Invested capital Deposits Total resources MINNESOTA. Minneapolis: First National B a n k ........... ............................ First Minneapolis T rust C o______________ First Minneapolis C o . . ................. ................ Minneapolis-Trust Joint Stock Land B a n k _______ _____________________________ Minnehaha National B an k _______________ Bloomington Lake National B ank........... Produce State Bank......................................... Hennepin State B ank..................................... St. Paul: First National B an k ________________ _____ Merchants Trust C o ________________ _____ First St. Paul C o .............................................. Grand Avenue State B an k........................... Farmers <fc Merchants State B an k ............ First Veterans State B a n k ..................... .. Security State B a n k _______________ ______ First Bancredit Corporation_____________ Alexandria, Farmers National B a n k ................ A u stin : A ustin National B a n k .................................... First National B a n k ........................................ Benson, National B ank of Benson.................... Blue Earth: Farmers National B an k................................. First National B a n k ..................................... .. $11, 613,170.30 2,400,000.00 3,697,842.47 667,169.93 121,562.17 263,424.16 136, 617.18 123, 725. 89 $97,796,613.27 $122,159,177.19 23,070,838.90 26,510,493.24 4,484,010.33 1, 622,346.14 2,103,852.36 1,175,329. 84 568,162. 77 5,073,272.16 1,848, 564.10 2,570,425. 25 1,318,672.85 ; 693,141.87 i 11,046,408.05 1,180,802. 25 5,134,119.53 52,100. 58 79,155.93 112, 709.01 97,056. 58 601,227. 54 126,592.60 92,742,783.83 7,405,146.16 985,291.10 114,567,233.34 ; 9,364,875.63 6,045,885.61 575,157.47 983,426.82 : 381,161.52 911,842.51 2,251,120.30 1,125,208.11 140,616.51 315,388.90 74,428.03 1,770,728.93 2,462,236.36 150,266.52 1,968,928.28 I 2 ,894,680.49 ' 224,694.55 j 80,865.72 44,301.19 573,388.25 714,570.19 ! 518,548.59 1 519,641. 67 893, 204.16 262, 200.00 802,255.10 462,997.40 BRANCH, CHAIN, AND GROUP BANKING 973 Consolidated statement December 81, 1929, first bank stock corporation group— C ontinued Invested capital Per cent controlled Deposits T otal resources $3,113,015.13 $3,407,891.15 65,000.00 1,398,073.22 904,173.91 952,565.83 1,483,958.54 64.50 100.00 100.00 100.00 100.00 100.00 Min n e s o t a — continued Brainerd, First National B ank............................ East Grand Forks, Minnesota National Bank. Fairm ont, First National B a n k ....... ................... Graceville, First National Bank.......... . ............. Heron Lake, First National B an k...................... Litchfield, State Bank of Litchfield_____ _____ Little Falls: American National B a n k ............................... Peoples State B a n k ........................................... M an kato: First National B a n k......... .......................— M ankato Loan & Trust C o ........................... N orthfield, Northfield National Bank & Trust C o__________ _______ ________ __________ Owatonna, First National B a n k ......................... Pipestone, Pipestone National B a n k ................ Red W in g , Security National Bank & Trust C o ................................................................................. Rochester, First National Bank.......................... Sauk Centre, Merchants National B an k ......... Spring Valley, First National B a n k ................ Willraar, Security National B an k...................... $217,934.12 65,000.00 139,298.24 52,818.83 87,277.64 152,069.15 1,203,774.98 814,784.88 824,288.19 1,312,412.65 151,003.52 38,124.61 1,506,012.36 391,087.76 1,771,225.36 429,913.67 51.00 100.00 321,595.64 120,183.24 3,680,254.11 29,350.23 4,152,204.82 151,421.32 100.00 100.00 167,062.51 136,743.21 110,119.47 1,038,574.26 1,822,635.08 1,071,481.97 1,314,896.69 2,059,378.29 1,196,743.01 100.00 100.00 100.00 166,121.01 383,951.54 09,741.92 107,441.70 127,706.62 1,383,294.71 3,712,470.88 1,153,048.02 1,208,156.61 95,376.56 1,556,626.46 4,316,266.15 1,298,420.07 1,365,598.31 223,083.18 100.00 100.00 100.00 99.20 100.00 325,000.00 504,307. 79 1, 328,185. 55 789,936.87 81,714.90 4.223,760.78 2,742,696.50 21,193, 524.53 12,360,038.83 1,074,527. 51 4,748,760.78 3,310,704.14 22,776,710.08 13, 304,975.70 1,156,242.41 100 86.67 100 100 100 511,241.66 425,924.88 264,824.81 200,229.19 244.571.48 300,858.95 407, 037.22 42,908.24 4, 598,307.33 3,629,737.33 2,664,621.61 1, 331,251. 32 3,097,919.92 2,827,842.49 4,435,804.06 619,607.71 5,209,548.99 4,158,981.65 2,954,446.42 1,531,480.51 3,372,979.87 3,158,701.44 4,944,461.86 662,515.95 99.67 99.10 100 100 100 98.66 100 100 337,400.91 76,028.04 66, 385.30 66,015.48 3, 988,635.34 712,472.67 677, 299.38 292,267.96 4, 526,676.96 807,690.49 748, 684.68 412,996.15 99.4 95 100 90 334,732. 77 40, 369. 30 2, 552,937.39 535,114. 23 3,006,134.08 583, 234.17 61.4 100 268,122.80 102,174. 55 66, 749.95 139, 083.10 39,812.53 58,595.03 117,326.72 54,464.66 138,350.71 860, 512. 76 803,360.42 662,885.29 1,456,042.79 429,888.50 357,880.46 665,822.78 389,301.98 1,162,518.30 1,136,758.88 930,534.97 762,418.05 1,604,181.18 495,113.13 435,635.49 814,541.94 471,909.31 1,361,068. 53 99.37 100 77 100 100 100 50.4 100 89 209,863.46 103, 247.61 61,509.01 48,281.14 50, 258. 27 114,672.26 77,472.90 173,632.30 49,656.08 57,073. 65 165,687.09 3,380,282.33 834,623.83 433,697.33 436,399.21 617,157.22 847,936.40 532,183.70 1,126,243.51 300, 665. 27 288, 532. 79 1,959, 275.07 635,844. 50 944,780.11 525,690.02 515,509.10 681,869.82 1,017,603. 66 641,888.65 1.299,875.81 350,321.35 372,306.44 2,151,140.45 98 100 100 100 100 100 100 100 100 100 100 MONTANA Billings, M idland National B an k ....................... Bozeman, Commercial National B eek............. B u tte, Metals Bank & Trust C o ........................ Great Falls, First National B a n k ...................... Havre, M ontana National B a n k ......................... Helena: American National B a n k .. .......................... National Bank of M o n tan a........................... Montana Trust & Savings B a n k ............. Lewistown, National Bank of Lewistown____ Livingston, National Park B a n k ...................... M iles C ity, First National Bank........................ Missoula, Western M ontana National B a n k . Shelby, First State B a n k ...................................... NORTH DAKOTA Bismarck, First National B an k ........................... Cando, First National B a n k .._______ ________ Cavalier, Merchants National B a n k - ............... Cooperstown, First National Bank___________ Fargo, Merchants National Bank & Trust C o ..................... ............................................................ Glen Ullin, First National B a n k......................... Grand Forks, Red River National Bank & Trust C o------- ---------- -------------------------------------H arvey, First National B an k............... ................ Hebron, First National B a n k ......... .................... Jamestown, National Bank & Trust C o........... Lidgerwood, First National Bank_______ _____ N ew England, First National Bank__________ N ew Rockford, First National B an k _________ Rolla, First National B a n k .................................... Valley C ity , National Bank of Valley C i t y ... SOUTH DAKOTA Aberdeen, Aberdeen National Bank & Trust C o ....... .................................................................... Aberdeen, First Street Savings Bank.............. Clark, Clark C ounty National Ban k................. Gettysburg, First National B an k ................. .. G ettysburg, Potter Cou nty B an k ....................... Highmore, First National B a n k ......................... L em m on, First National Ban k............................. M iller, First National B an k .................................. Ree Heights, First National B a n k ...................... St. Lawrence, First National Bank........ ............ Vermilion, First National Bank & T rust C o .. 974 BRANCH, CHAIIT, AND g r o u p b a n k i n g Consolidated statement December 31, 1929, first bank stock coi'poration group— Continued Invested capital Deposits Total resources Per cent controlled MICHIGAN Calum et, First National B a n k ............................. Hancock, First National B an k ............................. Laurium , First N ational B ank............................. $509,893.32 243,176.71 185,465.45 $3,873,524.14 3,122,788.47 1,767,082.66 $4,628,417.46 3,456,705.18 2,072,632.86 T o ta l..................................................................... 50,105, 720.13 359, 594,273.24 446,915,233.70 A lbert L ea, M in n .: Freeborn C ou nty National Bank & T rust C o............................................................. North Side State Bank..................................... Forsyth, M o n t., American National B a n k ... W ind om , M in n ., First National Bank_______ 130,000.00 55,897.48 36,781.89 120,119.10 421,246.10 699,670.62 426,898.96 1,255,644.80 556,077.15 777,001.88 463,689.24 1,462,423.75 T o ta l........................................................ ............ 50,448,518.60 362,397,733.72 450,174,425.72 97.8 99 98.2 .............. SUBSEQUENT ACQUISITIONS O T H E R ASSE T S O F F IR S T B A N K S T O C K C O R P O R A T IO N AS OF D E C E M B E R 100.00 72.00 88.00 96.90 31, 1929 Cash on hand........... ........................................ ......................................................................................................... $1,850,092.17 Bonds and commercial paper. ........................................................................................................................... 3,165,574.79 Other investm ents............... ................................................ ..............— .............................................................. 90,501.35 Bills receivable. ........................................................................ ............................................................................... 2,775,170.10 Accounts receivable........................................................................................................................... ...................... 117,115.76 Furniture and fixtures ...................................................................... — ........................ ........................................ 8,572.92 N e t interest earned not collected - - ................................... ..............................................- ............................ 9,506.11 T o ta l............................................ ................................— ..................- ........................................ .................. F ir s t Bank Stock 8,016,533.20 C o r p o r a t io n o f f ic e r s C. T . Jaffrey, ch airm an o f the board o f d ir e c t o r s ; G eorge H . P rin ce, p r e s id e n t; Lym a n E. W ak efield, vice p re s id e n t; L y le W . Scholes, v ic e p re s id e n t; R . C. L illy , vice p resid en t; A . M cC. W ashburn, v ice president and gen eral c o u n s e l; P. J . Leem an, v ice president and general m a n a g e r; E . C. K ibbee, v ice p re s id e n t; A . E . W ilson, secretary and co m p tro lle r; M. M. H ayden, t r e a s u r e r ; M. A . C ooley, assistant secretary and assistant treasurer. d ir e c t o r s Shreve M. A rch er, president, A rcher-D aniels M idlan d Co., M inneapolis. Ju lian B . B aird , president, F irst S ecurities C orporation , St. P aul. J. C. B assett, ch airm an o f the board, A berdeen N ational B an k & T ru st Co., and president, F irst State Savings B ank, A berdeen, S. D ak. R u ssell M. B ennett, m in eral lands, M inneapolis. F. R . B igelow , president, St. P aul F ire & M a rine In surance Co., St. Paul. John W . B la ck , president, John W . B la ck Co., M inneapolis. R a lp h B u dd, president, G reat N orthern R a ilw a y Co., St. P aul. E. L. C arpenter, president, Shevlin, C arpenter & C larke Co., M inneapolis. F. A. C ham berlain, ch airm an execu tive com m ittee, F irs t N ation a l B an k in M inneapolis. H ovey C. C larke, Shevlin, C arpenter & C larke Co., M inneapolis. Fra n klin M . Crosby, vice president, General M ills ( I n c .) , M inneapolis. N. P a u l D elander, v ice president, F irst Securities C orp oration , St. Paul. S. W . D itten h ofer, president, D itten h ofer R ea lty Co., St. P aul. C harles D on nelly, president, N orthern P a cific R a ilw a y Co., St. Paul. L. O. E vans, general counsel A nacond a C opper M ining Co. E. T . F oley, president, F o le y B ros., St. P aul. H a rry P . G allagher, president, N orthw estern C onsolid ated M illin g Co., M inneapolis. b r a n c h , c h a in , a n d g k o u p b a n k in g 9*75 C harles W . G ordon, president G ordon & Ferguson ( I n c .), St. Paul. T h eod ore W . G riggs, president G riggs, C ooper & Co., St. Paul. W illia m H am m , jr ., v ic e president, T heo. H am m B rew in g Co., St. Paul. Isa a c E. H ansen, v ic e president T h e F irs t N ational B an k o f St. Paul. H a rry J. H a rw ick , secretary-treasurer, M ayo Clinic, R ochester, Minn. John H . H auschild, president C harles W . S exton & Co., M inneapolis. H o ra ce M. H ill, president Janney, Semple & Co., M inneapolis. L. W . H ill, chairm an o f the board, T h e F irs t N ational B an k o f St. Paul.. t L ou is K . H ull, president W estern P a cific L a n d & T im ber Co., M inneapolis. C harles G. Ireys, vice president-treasurer, R ussell-M iller M illin g Co., M inneapolis. H ora ce H. Irvin e, pine lands an d lum ber, St. Paul. C. T. J affray , presiden t M inneapolis, St. P aul & Sault Ste. M arie R a ilw a y Co., M inneapolis. John Junell, Junell, Oakley, D riscoll & F letcher, attorneys, M inneapolis. Charles O. K alm an, K a lm an & Co., St. P aul. J. J. K alm an, president K alm an Steel Co., St. Paul. C ornelius F. K elley, president A naconda C opper M ining Co. W illia m P. Kenney, v ic e president, G reat N orthern R a ilw a y Co., St. Paul. H o ra ce C. K lein, m an aging partner W ebb P ublishing Co. St. Paul. P. L. Leem an, v ice president, F irst N a fo n a l B an k in M inneapolis and vice presiden t and general m anager, F irst B an k Stock C orporation. R . C. L illy , president the F irst N ational B an k o f St. Paul. C. B. L ittle, president F irst N ational Bank, B ism arck, N. Dak. A . C. L oring, presiden t P illsb u ry F lou r M ills Co., M inneapolis. Jam es M ae N aughton, president Calum et & H ecla C onsolidated C opper Co., Calum et, Mich. Sum ner T . M cK night, president S. T. M cK nigh t Co., M inneapolis. T . A. M arlow , p residen t N ational Bank o f M ontana, H elena, M ont. B . V. M oore, vice president, F irst M inneapolis T ru st Co., M inneapolis. J. A . Oace, v ice president, the F irst N ational B an k o f St. Paul. E. B . Ober, president M otor P ow er E quipm ent Co., St. Paul. A. F . P illsbury. v ice president, P illsbury F lou r M ills €<>., M inneapolis. C. S. P illsb u ry , vice president, P illsb u ry F lou r M ills Co.. M inneapolis. J. S. P om eroy, vice president F irst N ational B an k in M inneapolis. F. M. Prince, ch airm an o f the board, F irst N ational B an k in M inneapolis. George H . Prince, ch airm an the F irst N a tion a l B ank o f St. P aul, and presi d ent F irst B an k Stock C orporation. G eorge W . R obinson, president T ri-S ta te T elephone & T elegrap h Co., St. P aul. John D. R ya n , ch airm an o f the board, A n acond a C opper M ining Co. F re d W . Sargent, presiden t C hicago & N orth W estern R a ilw a y Co. H . A. Scandrett, president Chicago, M ilw aukee, St. P a u l & P a cific R ailroa d Co. Sam Stephenson, president F irs t N ational B ank, G reat Falls, M ont. M artin L. Thom pson, chairm an o f the board, F irst N ational B an k & T ru st Co., V erm ilion, S. D ak. L. E. W akefield, president F irst N ational B an k in M inneapolis. E . C. W arner, president E. C. W a rn er Co., M inneapolis. A . McC. W ashburn, vice presiden t and general counsel, F irs t B an k Stock C orporation, M inneapolis. R o b e rt W . W ebb, presiden t F irst M inneapolis T ru st Co. and ch airm an o f the board, F irst Securities C orporation. F . B. W ells, vice president, F. II. P ea vey & Co., M inneapolis. S tuart W . W ells, presiden t W ells-D ick ey Co., M inneapolis. F . E. W eyerhaeuser, lum ber, St. Paul. R . M. W eyerh aeu ser, lum ber, St. Paul. W . D. W illa rd , vice president and m anager, F irst N ational B ank, M ankato, M inn. F red erick E. W illia m son , presiden t C hicago, B urlington & Q uincy R a ilro a d Co. D. N. W inton, presiden t the Pas Lum ber Co., M inneapolis. J am es E. W ood ard , presiden t M etals B an k & T ru st Co., B utte, M ont. 100136— 30— v o l 1 pt 8 --------- 18 976 BRANCH, CHAIN, AND GROUP BANKING Mr. W in g o . I should like to have it understood that I will be allowed a few minutes to-morrow afternoon to question the witness. (Discussion off the record.) Mr. L u c e . The committee will stand adjourned until 2 o’clock to-morrow afternoon. (Whereupon at 4 o’clock p. m. the committee adjourned to meet at 2 o’clock p. m. on Thursday, April 17, 1930.) BRANCH. CHAIN, AND GROUP BANKING THURSDAY, APRIL 17, 1930 H o u s e o f R e p r e s e n t a t iv e s , C o m m it t e e o n B a n k in g a n d C u r r e n c y , Washington, D. C. The committee met in the committee room, Capitol, at 2.15 o’clock p. m., Hon. E. Hart Fenn presiding. Mr. F e n n . The committee will come to order. STATEMENT OF L. E. WAKEFIELD— Resumed Mr. F e n n . Mrs. Pratt, when we closed last evening you were cut short; you had not finished your inquiry. M r s . P r a t t . I sh a ll ta k e o n ly tw o o r th ree m in u te s. Mr. F e n n . Y ou have that opportunity now, and Mr. Dunbar f o l lows and then Mr. Wingo. Mrs. P r a t t . Mr. Wakefield, I do not profess to be a banker, and for that reason I have no preconceived notions for or against the subject under discussion here; but I do wish to state that I have been very greatly impressed by the way in which you and Mr. Decker have handled the banking situation in your part o f the country, and unquestionably you seem to have solved many o f the problems there which we have under contemplation here for possible legislation; but the fact is that such men as you and Mr. Decker might not always be in control. What I wanted to ask was whether you felt that these holding companies— for instance, such a holding company as yours-— should be subjected to the same rigid inspection as the banks ? Mr. W a k e f i e l d . We feel very strongly on that point that the comp troller’s office should have the right to come in and examine our hold ing company or any o f the institutions in the holding company. Mrs. P r a t t . Y o u fe e l t h a t th a t w o u ld r e a lly be a s a fe g u a r d ? Mr. W a k e f i e l d . I do. I think there should certainly be some regulation and some restrictions put upon that type o f business. W e want that for our own benefit. Mrs. P r a t t . I do not know whether this is a proper question, and, if it is not, do not answer it; but do you feel that such holding companies should invest their funds in speculative stocks ? Mr. W a k e f i e l d . N o; I do not. My own view on this is contrary to some others; my own view is that no banking institution as such should invest in common stocks o f any nature. Mrs. P r a t t . Just one more question. I think you stated that you were not as yet able to handle the banking situation in the smaller towns; at least, that you had not attempted to do so, and that you felt 977 978 BRANCH, CHAIN, AND GROUP BANKING that would be more appropriately covered by branches of State banks—I think you used the word “ State.” Mr. W a k e f i e l d . I f I did, it was inadvertent, because I did not intend to say branches o f State banks. Mrs. P r a t t . A t the time I noted it down, because I wondered if you were opposed to any form o f national-bank branch banking. Mr. W a k e f i e l d . Not at all. I believe that that privilege should be granted to national banks. Mrs. P r a t t . Do you feel that a national branch-banking system extending over a fairly wide area tends to establish in this country too much o f a paternalistic system ? Mr. W a k e f i e l d . N o; I do not. Our position 011 the method o f solving the difficulties that exist is in harmony, to a certain extent, with the suggestion made by the Comptroller o f the Currency and the Governor o f the Federal Reserve Board, except that we approach that topic from a reverse angle. Our belief is that if we are to have branch banking, it should be permitted originally from the outside in and not thrust upon the people from the center out into the country. In other words, taking this town o f Austin that I spoke of, the first national bank there might properly be authorized to do a branchbanking business within its territory, its vicinity, in the smaller com munities, and eventually that might develop into a situation where it would be perfectly feasible and acceptable to the public that it become a branch of some system within a certain trade area. Mrs. P r a t t . D o you think that such a national bank, with branches established in the smaller communities, might become part o f the group system, so that eventually your group system would absorb the whole? Mr. W a k e f i e l d . Eventually the group system might be converted into a branch system, if that became the thing that it was decided ought to be done. Mrs. P r a t t . I think that is" all. Mr. F e n n . Thank you, Mrs. Pratt. Mr. Goldsborough, you are next on the list, if you wish to interro gate Mr. Wakefield. Mr. G o l d s b o r o u g h . Mr. Wakefield, I have here Barron’s for April 14, and it has a leading article by Ernest T. Clough, which is headed “ Group Banking Sweeps the Country.” As I understand it, your organization and that o f which Mr. Decker is president have been in existence each for less than a year? Mr. W a k e f i e l d . The Northwest Bancorporation has been in exist ence about 13 months and our present set-up about 9 months. Mr. G o l d s b o r o u g h . This article, in table No. 4, gives the North west Bancorporation as having 98 banks in its group and the First Bank Stock Corporation as having 100 banks in its group. Has your group 100 banks ? M r.W AK EF iEL D . N o ; about 91. Mr. G o l d s b o r o u g h . Have you ever had as many as 100 ? Mr. W a k e f i e l d . It may be that they would get that figure from the fact that possibly in the total operation there may have been 100 banks involved, remembering that in some cases there have been two or three banks put together to make one at the time o f the acquisi tion, or a couple o f them consolidated. BRANCH, CHAIN, AND GROUP BANKING 979 Mr. G o l d s b o r o u g h . Mr. Decker’s statement was, as I remember it, that the first thing which was done, some four banks he named agreed on this set-up, but after a little while the movement became accelerated and, instead o f having to suggest to the banks they come in—instead of the suggestion going from the holding company to the bank, very often it would come from the bank to the holding company, and, as I understand, that was also your experience ? Mr. W a k e f i e l d . It was very much so in both cases. Mr. G o l d sb o r o u g h . The territory within which you and the North west Bancorporation are operating is a territory through which the banking experiences o f the last 10 years have been tragic ? Mr. W a k e f i e l d . That is true, I think. Mr. G o l d sb o r o u g h . I think Mr. Decker, in speaking o f Cavalier County, in one o f the Dakotas, stated there were some 26 banks when this difficulty started, and there are only 5 or 6 now in existence afterwards? Mr. W a k e f i e l d . Yes. Mr. G o l d s b o r o u g h . That the rest had been forced to close. I think he also stated in this Cavalier County the original capital— that is, the deposits o f these banks before their failure took place— was around $5,000,000 for the 26 banks. Prior to the deflation period—that is, prior to 1921— were the banks, on an average, throughout the territory in which you operate as small as that would indicate ? Mr. W a k e f i e l d . Y e s; in the State o f North Dakota, where Cava lier County is, they had one bank in 1920 for every 752 population. Mr. G o l d s b o r o u g h . That is a very interesting observation. As far as you know, had this banking situation in North Dakota prior to 1920 been o f a sudden or a gradual growth? Mr. W a k e f i Ul d . It had been rather gradual, over quite a period o f years. Mr. G o l d s b o r o u g h . It is obvious, do you not think, that one bank, with its building and general overhead, for less than 1,000 popula tion, is too much under any banking system ? Mr. W a k e f i e l d . Y es; and in some cases even 1,000 population I do not think would supply anywhere near-----Mr. G o l d s b o r o u g h . I fully agree with you on that. Is it not more nearly true that one bank for every 2,500 or 3,000 is entirely adequate? Mr. W a k e f i e l d . I think you are correct. I have never made a careful study myself to determine a population basis for banks. Mr. G o l d s b o r o u g h . The business, o f course, in the territory cov ered by the population would have a great deal to do with it. Mr. W a k e f i e l d . There certainly is a point there beyond which it is undesirable to g o ; it is simply destructive when you begin to have competition. Mr. G o l d s b o r o u g h . N o w , the natural result o f the very distressing condition which the Northwest Territory went through was, of course, that the people were more amenable than they ordinarily would be to suggestions as to changes in the banking situation ? Mr. W a k e f i e l d . I think that is true, based on this fact, that they were ready to welcome any arrangement that they felt would be sound and safe and do the thing that they wanted to have done. 980 BRANCH, CHAIN, AND GROUP BANKING Mr. G oldsboroug h . Now, do you believe the people who allowed such a number o f banks to grow up in North Dakota prior to 1920 would, in so far as banking is concerned, have a very clear concep tion o f what is sound banking? Do you not think a people o f that kind would welcome almost anything which appeared to give relief? Mr. W a k e f i e l d , I think that they have given that topic much greater thought and that they probably have a better understanding to-day than they did when the times did not call for their thought on it. Mr. G o l d s b o r o u g h . Do you not think that in any line o f endeavor, when a movement begins to gain momentum there is a tendency to try to get on the band wagon, as it were, whether it be in banking or in any other activity? Where there seems to be a movement on foot, do you not think there is a tendency, irrespective of every other consideration, to become panicky and desirous o f getting on the band wagon? I do not know o f any other way to express it which con veys my meaning more clearly. Mr. W a k e f i e l d . I do not think that is always true. I think there may be a tendency o f that kind, but I think it is accompanied in business by rather clear consideration and judgment in connection with what is best to do. Mr. G o l d s b o r o u g h . I notice in this article the statement is made that-----I f the un it bank did not a lly its e lf w ith the p o w e rfu l city in stitution, w ou ld it find its e lf playin g a. lone hand against great odds, w ith the neig h b orin g unit bank g leefu lly a d vertisin g its strength as a m em ber o f the X Y Z corp oratioa , w ith tota l resources o f so m any hundreds o f m illion s o f d olla rs? Do you think there is any vitality in that observation ? Mr. W a k e f i f x d . I think in the territory that I am familiar with that the matter has been handled in such manner that the sound unit bank has not been unfairly prejudiced in the public mind. Mr. G o ld sr o r o u g h . Mr. Wakefield, you do not have it in mind, do you, that either at this time or ultimately your organization will not do what other organizations have done since the beginning of time, endeavor to get the advantage o f its competitor ? Mr. W a k e f i e l d . W hy, I have in mind that in the operation o f our institution we are going to serve the public to the fullest possible extent, with the very idea of making that service of such value and attractiveness that we will get all the business that can come to us. Mr. G o l d s b o r o u g h . But you think that would continue to be the condition if competition were eliminated? Mr. W a k e f i e l d . I never expect to see it eliminated. Mr. G o l d s b o r o u g h . Y ou say you never expect to see it eliminated, which would seem to me to be an unusual observation, an unusual point of view, but it seems to parallel an observation you made, I think, yesterday, that you did not understand what was meant by favoritism to one possible borrower over another, that you did not have any conception o f what that meant. I think that fairly states what you said, and if it does not you can correct it. Mr. W a k e f i e l d . That is correct; and in my experience in business I have never known o f a thing o f that kind to exist, nor do I know to-day of any area in the banking business in this country that has not very strong, substantial competition. BRANCH, CHAIN, AND GROUP BANKING 981 Mr. G o l d s b o r o u g h . Do I understand you to say you have never known o f an instance where a borrower has been favored over another, where everything else was equal? Mr. W a k e f i e l d . Do you mean in the ordinary business transac tion ? Mr. G o l d s b o r o u g h . Yes. Mr. W a k e f i e l d . What do you mean by “ borrower ” ? Mr. G o l d s b o r o u g ii . I mean a borrower from the bank. Mr. W a k e f i e l d . Y ou mean, supposing there were two grain men doing business with us, both equally good, would there be any chance of favoring one over the other? Mr. G o l d sb o r o u g ii . Any business. Mr. W a k e f i e l d . In any business doing business with the bank, equally good ? I have never known o f a case. Mr. G o l d s b o r o u g ii . Y ou have never known o f a case? Mr. W a k e f i e l d . Never; and I do not think it would be possible to happen. It might happen in some bank-----Mr. G o l d s b o r o u g ii . A il I have to say is that your experience is different from that o f everybody else I have ever heard or. Mr. W a k e f i e l d , I am running a bank, and that is the way I run mine. Mr. G o l d s b o r o u g ii . I am not running one, but I am a director in three, and I have had some experience. I remember— and I am going to base a question on this observation—that in my county there was at one time only one bank, and I remember very distinctly if anybody wanted to start in a business which was in competition with those who were in control of that bank, they could not b o rr o w any money from it. Tiiat condition has been cured by competition, and that is the only way it was cured. I remember in an adjoining county, Talbot, there used to be only one bank and that exact condition existed, which ultimately brought another institution into the county; but when you say you never knew o f an instance o f that, you surprise me very much. Mr. W a k e f i e l d . My own judgment is that the very instance you have recited is evidence that their shortsighted policy in running that original bank without competition brought about the cure for At, because it did bring competition, Mr. G o l d s b o r o u g ii . I know, but the very interesting thing to me is your statement that you never knew of anything o f that kind going on in a banking institution. Mr. W a k e f i e l d . I n e v e r d id . Mr. G o l d sb o r o u g h . It is done every day, my dear sir, in every bank in the United States except yours. Mr. W a k e f i e l d . I f any banks are doing that kind o f business, I do not know o f them, and I do not believe they could keep the busi ness very long if they did. Mr. G o l d s b o r o u g h . You can not keep the selfish instincts o f the boards o f directors down. Mr. W a k e f i e l d . No, sir: but the most selfish instinct of a board of directors is the building up of the business of the institution in which they have made their investment. Mr. G o l d s b o r o u g h . Not necessarily, because in this country bank ers are not bankers; they are business men who are drafted to be 982 BRANCH, CHAIN, AND GROUP BANKING come directors o f banks because o f their influence in the neighbor hood. Mr. W a k e f i e l d . Y ou had better send them up to Minneapolis and we will educate some o f them. Mr. G o l d s b o r o u g h . That is the universal situation in this country. It may not be in Minneapolis, but I have no doubt that the Min neapolis boards o f directors of banks are made up o f prominent business men, just as they are elsewhere. Mr. W a k e f i e l d . They are, but I have never known o f a case where one o f those business men has ever interfered or ever requested that there be interference with the taking care o f competitors in the same line o f business as theirs, where the request o f the competitor was justified. I f they did, we would not have them for directors. Mr. G oldsborotjgh . That is a ver}7 ideal condition which I am sure exists nowhere else on earth, because it is contrary to human instincts. Mr. W a k e f i e l d . I can not agree with you on that. Mr. G o l d s b o r o u g h . It is like King Canute, trying to sweep back the ocean. O f course, i f your theory were correct, is it not true we would not have to have any banking restrictions at all; we could simply say, “ You are all-wise and you are absolutely honest; now, go to it and benefit the public ” ? You would not have to have any restrictions at all; that is where your theory would lead to. Mr. W a k e f i e l d . I do not think it would go quite that far. Mr. G o l d s b o r o u g h . I see. In your organization, do you borrow on the stock that you own in the constituent banks ? Mr. W a k e f i e l d . W h o ? Individually? Mr. G o l d s b o r o u g h . No ; this corporation. The First Bank Stock Corporation owns the stock o f these constituent banks. Mr. W a k e f i e l d . Yes; but it never has borrowed a cent, and I do not expect it ever will. Mr. G o l d s b o r o u g h . But it has the right to borrow, like any other owner o f property would have such a right. Mi'. W a k e f i e l d . Y es; i t c o u ld b o r r o w . Mr. G o l d s b o r o u g h . It could take that stock and borrow on it and then it could take the proceeds and buy common stocks on margin, and it would not be doing anything illegal; you would not be vio lating the law if you did that. Mr. W a k e f i e l d . Y es; and somebody would be unwise if they did it. Mr. G o l d s b o r o u g h . N o , no; you misconceive the purpose o f my question entirely. Mr. W a k e f i e l d . Y o u are asking a hypothetical question. Mr. G o l d s b o r o u g h . N o; I am not asking a hypothetical question at all. We are not interested as a legislative committee in whether you are honest or dishonest, or in whether you are wise or unwise. Those are matters with which the authorities whom you deal with and the public with which you deal are concerned, but as a legisla tive committee we are not interested in that. What we are interested in is whether or not the proposition is economically sound. Mr. W a k e f i e l d . Yes, sir. Mr. G o l d s b o r o u g h . And that is the onhr thing we are inter ested in. BRANCH, CHAIN, AND GROUP BANKING 983 What I am asking you is whether or not, under your setup, you could not borrow on the stock that you own and take the proceeds o f that borrowing and buy common stocks on margin. Mr. W a k e f i e l d . Certainly. Mr. G o l d s b o r o u g h . And you could do it legally, could you not ? Mr. W a k e f i e l d . Certainly. Mr. G o l d sb o r o u g h . Without violating the law? Mr. W a k e f i e l d . Certainly. Mr. G o l d sb o r o u g h . Do you think you ought to have that right? Mr. W a k e f i e l d . I would think it would be a great mistake if there were ever any attempt to say by legislation how the owner of an individual piece o f property might use it or what he might do with it. Mr. G o l d sb o r o u g h . Even though he is the absolute owrner-----Mr. W a k e f i e l d . Yes. Mr. G o ld sb o r o u g h (continuing). O f all of the stock in a banking institution? Mr. W a k e f i e l d . Yes. Mr. G o l d sb o r o u g h . Do you want to correct that statement? It is perfectly all right to do it. Mr. W a k e f i e l d . I do not want to correct it. Mr. G o l d sb o r o u g h . That is rather an astonishing statement. How do you distinguish, as a practical proposition, between one of your constituent banks and a branch bank? Mr. W a k e f i e l d . They are entirely different. Mr. G o l d sb o r o u g h . O f course, von have absolute control of the institutions, and the mother bank has absolute control of the branch banks. What are the differences? Mr. W a k e f i e l d . The First Bank Stock Corporation owns the stock of the First National Bank at Austin, and the First National Bank at Austin is a separate corporate institution, capitalized and officered there in Austin, and its board o f directors and its management are there in Austin, with absolute control. The only supervision we have over that bank is exactly the same as the individual stockholders have had in the past and do always have as owners o f the stock. Mr. G o l d s b o r o u g h . But you own all the stock. Mr. W a k e f i e l d . Yes, sir; a n d so was a ll o f the stock owned before. Mr. G o l d s b o r o u g h . But you do not get all of the stockholders to net cohesively. Mr. W a k e f i e l d . And that is the reason this is much more effec tive that we have a live, active stockholder that is watching that bank. Mr. G o l d s b o r o u g h . Do you not control that bank just as abso lutely as the home bank controls any of its branches in a branch banking system? Mr. W a k e f i e l d . No. I f we had a branch bank down there under the branch-banking system, we would have no capital investment in that town. Mr. G o l d sb o r o u g h . W hy is that true of necessity ? Mr. W a k e f i e l d . Because, we will say, that the First National Bank o f Minneapolis was authorized to have branches, and it would be capitalized the required amount as a single bank; it would have an office or a branch in Austin managed, by a manager. 984 BRANCH, CHAIN, AND GROUP BANKING Mr. G o l d sb o r o u g h . W hy does that have to be the system? Mr. W a k e f i e l d . I have never heard o f any other system o f branch banking. Mr. G o l d sb o r o u g h . We have been told by Governor Young and by Mr. Pole that the branch banks do not have to lose their individuality at all. Mr. W a k e f i e l d . I read Governor Young’s testimony and Mr. Pole’s testimony and I do not remember reading that statement. Mr. G o l d s b o r o u g h . Y ou say that, as far as you know, there is no branch-banking system which provides for local boards o f directors and local capital to control the branches ? Mr. W a k e f i e l d . N o . Mr. G o l d s b o r o u g h . It may be very interesting to you to know that there is a branch-banking system in Maryland with 21 branches, which has no parent bank and no branch bank; each bank stands on exactly the same level, but they each support the other. In other words, there is a general capital set-up involving all the banks, and when a new bank is started the community is canvassed for the purpose o f getting the stock which is to go into that institution and that institution is put on its feet with that stock and the board o f directors is elected locally. Mr. W a k e f i e l d . Is that local bank, then, a separate corporation ? Mr. G oldsborough . N o, indeed. Mr. W a k e f i e l d . I do not understand that a set-up o f that kind, as I have been familiar with branch banking in my experience, is typical branch banking. Mr. G o l d s b o r o u g h . I do not know that it is typical branch bank ing, but it is perfectly conceivable to have a branch banking system where you have your local directors, if you want it that way. You do not have to have just a local manager. Mr. W a k e f i e l d , i o u can do most everything. The question is whether it is the right thing to do. Mr. G o l d s b o r o u g h . Then I will ask you this: I will ask you whether you do not think that in a branch banking system the con stituent banks should be autonomous ? Mr. W a k e f i e l d . I think that in a branch banking system the cap ital structure should have a relationship to the deposit liability and should be based upon that and that only. Mr. G o l d s b o r o u g h . Y ou can not conceive, as a business man, o f a branch banking system where the capital is so divided up that each institution has the responsibility o f earning dividends on a certain proportion o f that capital which is locally owned and where the board o f directors is exclusively local and where no outside board o f directors has anything to do with it at all ? Mr. W a k e f i e l d . I do not think that that is branch banking. Mr. G o l d sb o r o u g h . What would you call it? Mr. W a k e f i e l d . That is group banking. Mr. G o l d s b o r o u g h . No ; that is not group banking: that is, it is not the kind of group banking we have been hearing about for the last three days. Now, Mr. Wakefield-----Mr. F o r t . Before you leave that subject may I give you an illus tration o f that same idea that has now taken place in New Jersey? BRANCH, CHAIN, AND GROUP BANKING 985 Mr. G o l d s b o r o u g h . Yes, sir. Mr. F o r t . In the setting up o f branches in my home city of New ark since the passage o f the McFadden bill, they have largely taken over old banks and converted them into branches, but have retained the old boards of directors as advisory boards of directors in those branches, and in every case I understand that the local advisory board o f directors passes on the loans that are made to the customers o f that branch, subject, however, to supervision from the main office. That is somewhat similar. They have been taking stock in the parent bank in exchange for their own holdings of stock in the bank that sold out. Mr, W i n g o . Do you mean from among the local stockholders? Mr. F o r t . They were all in the city of Newark under the McFadden bill, but 1 bank in Newark has absorbed 7 or 8 other Newark banks and made them branches o f the major bank, and they retained the old boards of directors as advisory boards in charge o f the affairs or the business done at the branch, which has supplanted the old local neighborhood bank. M r . W i n g o . But his illustration was, if I got the set-up-----Mr. F e n n . Does Mr. Goldsborough yield? Mr. G o l d sb o r o u g h . Yes. Mr. W in g o (continuing). That the parent bank was in Baltimore and had brancnes scattered over Maryland towns, whereas the set-up you have in mind would be that the local stockholders of the Balti more bank, living in this village here, would among them select an advisory board and run that branch ? Mr. F o r t . It might be that way, yes; it is possible, but they would have to be supervised, of course, from the central office. Mr. W i n g o . Purely advisory? Mr. F or t . Yes. Mr. W a k e f i e l d . I think that has been done in many cases—in most cases, where a bank has absorbed other banks and made them branches, but the fact remains that after that absorption, the capital structure is in the one bank, and that the board of directors and the officers o f the one bank are absolutely running that branch, without any-----Mr. F o r t . These boards o f advisory directors have to retain stock in the parent bank, and therefore have a direct financial interest in the way they operate their branch. Mr. W a k e f i e l d . That is true; but that advisory board can not be put together down there so that it has any real authority over the business of that bank. Mr. G o l d s b o r o u g h . W hy can it not? Mr. W a k e f i e l d . Because the law does not allow it. Mr. G o l d s b o r o u g h . It does in Maryland, and it has worked for 30 years, and each one o f those banks is autonomous and nobody knows which is the parent bank. Mr. W i n g o . I th o u g h t th a t w a s c h a in b a n k in g . Mr. G o l d sb o r o u g h . N o; that is not chain banking. You will have it described to you on the 22d o f this month. O f course, there is theoretically a parent park at Cambridge, because it was the first bank, but, as a matter of fact, the local banks are absolutely autonomous— absolut ely. 986 BRANCH, CHAIN, AND GROUP BANKING Now, in a recent statement o f Mr. InsulPs, in which he was dis cussing holding companies, he made this very significant statement: “ The ability o f the holding company to help depends largely on its ability to act without restrictions, other than those in an ordinary private business.” Is that your view ? Mr. W a k e f i e l d . I am not familiar with what is involved in that statement by Mr. Insull, because o f his entirely different problems. Mr. G o l d sb o r o u g h . W ould that be your statement in connection with your holding company ? Mr. W a k e f i e l d . N o; I have expressed myself before this com mittee and, in response to Mr. Fort, I have agreed to attempt to set up a formula of supervision and restriction. Mr. G o l d s b o r o u g h . I know, but you have said you wanted to be examined, for instance, by the comptroller or by the banking authori ties, which was very commendable;. but you have also said, as I understood you a few minutes ago, that you did not think the con duct o f your business ought to be interfered with any more than the conduct-----Mr. W a k e f i e l d . In connection with that borrowing problem you described. Mr. G o l d sb o r o u g h . Yes. Mr. W a k e f i e l d . My answer to that is based upon this: As far as I am concerned, I would be perfectly willing that a regulation should be prescribed that would prevent our institution ever going out and placing those stocks and borrowing money. On the other hand, I think the principle involved in an attempt to do that would be entirely wrong to American business. Mr. G o l d s b o r o u g h . In other words, you think your holding com pany which has to do only with banks ought not to be encumbered with the same restrictions as are the ordinary banking institutions? Mr. W a k e f i e l d . I do not think that you can. There is 110 restric tion that says that if you own bank stock you can not borrow money on it, and I do not think } tou can pass or fix any regulation governing a company of that kind and interfering with the general business structure. Mr. G o l d s b o r o u g h . D o you think the ordinary safeguards which experience has taught us should be placed around banking institu tions are right or wrong? Mr. W a k e f i e l d . Eight, absolutely. Mr. G o l d sb o r o u g h . N o w , if they are right, why should not those same restrictions be placed around an organization which in effect is nothing in the world but the parent bank o f a branch banking system ? Mr. W a k e f i e l d . A ll right; I think they should, but there is not at the present any restriction o f the kind that you described. Mr. G o l d s b o r o u g h . N o w you say that you think they should have them ? Mr. W a k e f i e l d . I think they should have the same restrictions that are placed upon present banking institutions. Mr. G o l d s b o r o u g h . Could present banking institutions borrow money on stock that they own and buy common stock with it ? Mr. W a k e f i l d . The stockholders of a present banking institution can borrow money on the stock that they own. BRANCH, CHAIN, AND GROUP BANKING 987 Mr. G o l d s b o r o u g h . But the institution itself ? Mr. W a k e f i e l d . The First Bank Stock Corporation is in effect an individual stockholder o f the banks. It is not in the banking business. It is the owner of stocks o f the banks. It does no banking business. Mr. G o l d s b o r o u g h . Does no banking business— and yet it controls 91 banking institutions? Mr. W a k e f i e l d . Y o u might individually own the control o f a bank; would you welcome a law that said you could not take your bank stock and pledge it as collateral? Mr. G o l d s b o r o u g h . N o; I would not welcome it. Mr. W a k e f ie l d . Do you think it should be done? Mr. G o l d s b o r o u g h . I would expect it to be done, or expect to be put out o f business. Mr. W a k e f i e l d . No; you would not; you would want it left to your judgment as to what you did with your property, because wiiat you did with the stock in that bank is not going to affect the bank itself. Mr. G o l d sb o r o u g h . Not going to affect the bank itself? Mr. W a k e f i e l d . No. Mr. G o l d sb o r o u g h . The conduct o f your institution absolutely controls the very breath that the directors o f those banks breathe, and yet you say they exist independently o f you ? Mr. W a k e f i e l d . Well, we are not getting anywhere in a conversa tion of this type. Mr. G o l d s b o r o u g h . Well, if you do not care to answer my ques tions it is absolutely all right. Mr. W a k e f i e l d . I would like to answer them. Mr. G o l d sb o r o u g h . Just simply say so if you do not want to. Mr. W a k e f i e l d . But you have gone into a line o f conversation which is all theoretical. Mr. G o l d sb o r o u g h . Theoretical? Mr. W a k e f i e l d . My first answer to you is that I have never had any notion o f anybody having any intention in any group company o f going out and pledging its stock to buy common stocks on margin, and I do not think it has ever been done. Mr. G o l d sb o r o u g h . Every law is based on a theoretical condition, is it not, if you want to control something that might happen? Mr. W a k e f i e l d . In spite o f any law made governing banks, if there is somebody that is absolutely foolish and crazy enough to go and bust his bank, he can do it. Mr. G o l d sb o r o u g h . But you are not in favor o f regulating it? Mr. W a k e f i e l d . I certainly am. Mr. G o l d s b o r o u g h . Y ou are in favor o f just letting the personal equation be the entire guide ? Mr. W a k e f i e l d . No, sir. The argument we are in is one concern ing the right o f the owner o f stock to use his stock in banking at all. Mr. G o l d s b o r o u g h . It is very interesting to get that point o f view, because I do not think the committee in the previous hearings has gotten that impression from your testimony. Mr. W a k e f i e l d . I do not know what impression you are referring to. Mr. G o l d sb o r o u g h . What I am referring to is this—one o f the things I am referring to—that this committee, in my judgment, 988 BRANCH, CHAIN, AND GROUP BANKING from what I know o f the committee and from what they have said to me, would not begin to stand for a position taken by a holding company which controls banks exclusively that it should be allowed to do business without the same restrictions being placed around its business as are placed around other banking institutions. J&r. W a k e f i e l d . I agree with you absolutely, but there is not any restriction placed around a banking institution that says that a stockholder o f that institution can not borrow money on his stock. Mr. G o l d sb o r o u g h . W ell, will you explain what that has to do with the question I have been asking you ? In your case, your cor poration owns all o f this stock. Mr. W a k e f i e l d . It is the stockholder. Mr. G o l d s b o r o u g h . I say that, but yet, in effect, it is in the bank ing business because it absolutely controls these banks. Mr. W a k e f i e l d . It is in the banking business exactly as any stockholder o f a bank is in the banking business. Mr. G o l d sb o r o u g h . We will not get anywhere if that is the way you feel about that. Let me ask you another question: You, or either you or Mr. Decker, and maybe both o f you, have contended that these constituent banking institutions still have the same local pride that they had when they were owning their own stock locally ? Mr. W a k e f i e l d . Yes, sir, Mr. G o l d s b o r o u g h . Now, as I understand it, these directors have to own a certain amount of the stock of a bank in order to qualify? Mr. W a k e f i e l d . Yes, sir. Mr. G o l d s b o r o u g h . But, as a matter o f fact, they do not own it at all, because you put such restrictions around them that if they attempt to dispose of the stock, it puts them out of business. Mr. W a k e f i e l d . They own it outright, absolutely; they paid their money for it and have received the dividends on it. Mr. G o l d sb o r o u g h . Did you not say yesterday that they could not sell it? Mr. W a k e f i e l d . N o . I said there is no way you could set up a n agreement that would hold water whereby you could force them to sell it. Mr. G o l d s b o r o u g h . By which you could force them to sell it ? Mr. W a k e f i e l d . Prevent them from selling it or offering it. Mr. G o l d sb o r o u g h . Did you not say that you made every attempt-----Mr. W a k e f i e l d . I said we had a gentleman’s agreement. Mr. G o l d sb o r o u g h . Y ou did not use that expression. Mr. W a k e f i e l d . I used that expression. Mr. G o l d sb o r o u g h . I did not hear you. Go ahead; you had a gen tleman’s agreement-----Mr. W a k e f i e l d . That if they are going to leave us, they will sell the stock back to us, not to somebody else. Mr. G o l d sb o r o u g h . Do you mean to say that their minds, in deal ing with their customers, have the same freedom of action as they would have if they were actually controlling their own institution ? Mr. W a k e f i e l d . I can not understand why there should even be question of that kind asked. Mr. G o l d s b o r o u g h . I do not believe you do, from the testimony. a BRANCH, CHAIN, AND GROUP BANKING 989 Mr. W a k e f i e l d . A director of any institution, a man who directs or that becomes a director o f a bank knows what kind o f an obliga tion he has assumed, and it has been my observation that they under stand that fully and the past history o f banks has made it obvious to directors of that class of institution that they did have obligations, and I think those who are directors of banks understand fully that they are taking responsibilities when they become directors. The old day, when it was just an honor to be a director o f a bank, has passed, and the man who is a director o f a bank to-day in our country knows mighty well he is assuming as obligation of responsibility in taking that position. Mr. G o l d sb o r o u g h . But did I suggest that he did not have any such feeling as that ? Did I ask you any question that had any rela tion to what you have just said? Mr. W a k e f i e l d . You just asked whether the directors felt their responsibility. Mr. G o l d s b o r o u g h . I asked whether they have the same freedom of action as they would have if they were not simply vassals. That is what they are. Mr. W a k e f i e l d . You are malting the statement that they are. Mr. G o l d s b o r o u g h . I am making the statement upon all the facts you have given us as to your set-up. Mr. W a k e f i e l d . You have assumed a conclusion concerning those facts which is incorrect. Mr. G o l d sb o r o u g h . My dear sir, you have only been in existence for 8 months and your competitor for 13 months, and no second ary reaction has had time to show itself at all. You do not know, and I do not Ioioav , and nobody else knows, what the result o f this sort o f a set-up is going to be as time goes on. What I am trying to find out, and what the committee is interested in, is whether or not this terribly rapid growth ought to be stopped until we find out what it is. This is a serious discussion, and I am not primarily concerned in personal equations, but that has been practically the only thing which has been discussed around this table for three days. This committee is entirely convinced o f the business integrity, o f the wis dom, o f the foresight, of the energy, and everything o f that kind o f the present set-up o f these organizations. There is no criticism o f anything o f that kind, but what we are trying to get at are the 66guts ” o f the economic structure that is being built up. That is what we are after. Now, Mr. Wakefield, you agree, do you not, that equality o f eco nomic opportunity is the thing we all should try to facilitate ? Mr. W a k e f i e l d . I f you will explain that, elucidate that-----Mr. Mr. G o l d sb o r o u g h . You W a k e f i e l d . No. G o l d sb o r o u g h . You do not know what I mean by that? Mr. have never known, then, o f an individual or a business organization to be squeezed out by a group o f bankers, or anything o f that kind? Mr. W a k e f i e l d . It ha s not been true in my experience. Mr. G o l s b o r o u g h . That has not been true in your experience. As far as your experience goes— and I am perfectly sincere in this ques tion—banking everywhere as you have known it has been conducted in an absolutely fair way? 990 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f i e l d . The prime motive back o f every successful bank ing institution-----Mr. G o l d sb o r o u g h . I d id not ask you th a t. Mr. W a k e f i e l d . A ll right. Mr. G o l d sb o r o u g h . I did not ask you about successful banking institutions, as you have based your whole argument on your faith in this institution of yours and on the fact that there have been a great many institutions that were not successful, and both you and Mr. Decker began with this long story, which was a true one, and a very proper one for you to give, o f the conditions in your territory and the bank failures which had led up to this structure. O f course, if we had not had unsuccessful bankers, we would not have group banking, branch banking, or chain banking, and this committee would not be considering them. So you do not understand what I mean by equality o f economic opportunity ? Mr. W a k e f i e l d . Y ou would have to make a much longer explana tion than that in order that I might answer it. Mr. G o l d s b o r o u g h . A ll right. Now, in view of the fact that these two great institutions in the Northwest have been built up in 13 months’ time, and in view of the fact that they constitute an abso lutely unchartered sea in so far as banking is concerned, do you not believe as a citizen, and not as a successful banker, not as one who believes himself useful— and I believe you are useful, too, in this exigency down there-----Mr. W a k e f i e l d . Thank you. Mr. G o l d s b o r o u g h . But, as a citizen, do you not believe that the least this committee can do is to stop that growth right where it is until we can find out what is going to be the result o f that sort o f a set-up ? Mr. W a k e f i e l d . There are two factors or two things in your state ment which I shall have to refer to before I answer your question. The first is that this big thing that you described as having been built up in a year was in existence and was nothing more than a joining together o f those institutions that were in existence. It has not been created. Those banks were there operating, and then, in answer to your question, I think that any legal restriction upon our operations at the present time would be extremely detrimental to the best interests o f the territory in which we are operating, and very disastrous. Mr. G o l d s b o r o u g h . Well, I did not mean in that question to sug gest that for the present your set-up was to be interfered with, or that any institution which you now control should be, or that any attempt should be made to dissociate that institution from your organization, but my question was this, whether or not you do not think, in view o f the fact that this holding-company system o f bank ing is so novel and has had such a rapid growth within the last two years— and that covers the Transamerica, too, within that 2-year period—it ought to be stopped where it is until we can find out what is going to be the ultimate result o f that sort o f banking ? That is my question. Mr. W a k e f i e l d . The only answer I can make to that, Mr. Golds borough, is what has been said previously, and that is that in my BRANCH, CHAIN, AND GROUP BANKING 991 opinion, and I think in the opinion of everybody that is involved in the problem o f banking to-day, there should be, if we are to have group banking, restrictions and regulations to govern that business, and there is not anybody that would welcome those any more than we would. Mr. G o l d s b o r o u g h . I th in k th a t is a ll. Mr. F e n n . Mr. Wingo. Mr. W in g o . I shall not ask many questions, Mr. Chairman. A ll o f your stockholders live within your Federal reserve district, do they not? Mr. W a k e f i e l d . A ll except 500. It is in that tabulation. Cut o f 16,000, there are but 500 that live outside of the ninth Federal reserve district. Mr. W i n g o . Are any o f those very large stockholders ? Mr. W a k e f i e l d . I could not tell you exactly that the number of shares o f stock involved is, but it is a very small proportion o f the total. As a matter o f fact, this might be interesting, that it would take— I do not know just how many, but I know it would take hundreds o f stockholders, o f the larger sockholders, added together to make any where near a control o f it. Mr. W i n g o . But the greater portion o f your stockholders, both in number of individuals and in the number of shares they hold, are directors in your unit banks, are they not ? Mr. W a k e f i e l d . Not directors, because we have 16,000 stockholders. Mr. W i n g o . They are either directors or patrons o f your insti tutions ? Mr. W a k e f i e l d . Yes. Mr. G o l d sb o r o u g h . May I ask one more question? How many directors have you in your holding company? Mr. W a k e f i e l d . Sixty-seven. Mr. G o l d sb o r o u g h . That is all. Mr. W i n g o . The point I had in mind was that I think the record will show that the great majority o f your stockholders, both as to number and volume o f stock held, are local ? Mr. W a k e f i e l d . Yes. Mr. W i n g o . That they are around these different units that com pose your system and that the holding company controls as part o f their group. Mr. W a k e f i e l d . Very largely so. Mr. W in g o . Have you had a stockholders’ meeting since you or ganized ? Mr. W a k e f i e l d . Yes. Mr. W in g o . Where was that held? Mr. W a k e f i e l d . In Minneapolis. Mr. W i n g o . H o w many were present in person, if you re c a ll, approximately ? Mr. W a k e f i e l d . Just about 100 stockholders that came in. Mr. W i n g o . H o w many o f your different banks were represented in that meeting? Do you recollect whether there was a stockholder from every community present ? Mr. W a k e f ie l d . No ; I am quite sure there was not. 100136— 30— v o l 1 p t 8 ----------14 992 BRANCH, CHAIN, AND GROUP BANKING Mr. W in g o . Under your charter, under the laws o f Delaware, you may hold your annual stockholders’ meeting elsewhere than in the State of Delaware? Mr. W a k e f i e l d . Yes, sir. Mr. W i n g o . And you intend to hold your stockholders’ meetings at the head office in Minneapolis, I presume ? Mr. W a k e f i e l d . Either St. Paul or Minneapolis. Mr. W i n g o . In other words, you are going to hold them within your local territory? Mr. W a k e f i e l d . Yes, sir. Mr. W i n g o . I suppose that a large part o f your stock was repre sented by proxies at that stockholders’ meeting ? Mr. W a k e f i e l d . Yes, sir Mr. W i n g o . In other words, about the customary situation existed with reference to the meeting o f your stockholders as would with an ordinary corporation o f that sort? Mr. W a k e f i e l d . That is true. However, in this case the presence o f about 100 stockholders was a greatly increased representation o f stockholders present as compared with my experience in operating the First National Bank, when it was rare that more than two or three outside stockholders would come. Mr. W i n g o . D o different banks in your group lend on the stock o f your holding corporation ? Mr. W a k e f i e l d . Some loans have been made, but those loans are being absolutely taken out o f the bank. My purpose at the present time is that no loans should be made. I expressed myself yesterday that it should be legally restricted so that a loan on the stock o f the holding company could not be made from a bank owned by the holding company. Mr. W in g o . Well, under the law one o f your constituent banks— I will call them that— can lend to one o f its customers who own stock in your First Bank Stock Corporation, the parent company? Mr. W a k e f i e l d . A t the present tim e; under the present law. Mr. W in g o . Under the present law one o f those constituent banks can make a loan, with the collateral being the stock o f the parent company ? Mr. W a k e f i e l d . That is true. Mr. W i n g o . But you say it is the policy o f those who are now managing your parent corporation to restrict that, and you feel it would be proper as one o f the restrictive provisions in any law that we passed to prevent that? Mr. W a k e f i e l d . I do. I think it is absolutely wrong. Mr. W i n g o . Well, if you did not do that you would have possi bilities o f pyramiding and it would be very dangerous. Mr. W a k e f i e l d . Surely. Mr. W in g o . There is some confusion in the minds o f some mem bers of the committee, and especially among some o f the bankers wTho either sat here in the room or read some o f the hearings, as to what is the distinguishing characteristic of a group bank as com pared with a chain bank. W ill you give us for our information what your conception o f the difference is ? Just what is group bank ing and what is chain banking ? How can you distinguish the two ? Mr. W a k e f i e l d . I think there is a confusion in the general under standing, and possibly there is not any absolutely accurate descrip BRANCH, CHAIN, AND GROUP BANKING 993 tion which can be made. My experience has been and my thought and my understanding was that chain banking was such a thing as that which we have always criticised and been looking out fo r; a certain group would start in and form an individual bank, put it in operation and begin to do business, and then they would decide to put a bank at another point and would let the people that put up the money for the stock o f the first bank capitalize the second one. That is the general impression I have o f what I used to think was chain banking until I began to read these hearings, but I have discovered that there is a wide difference o f opinion about what chain banking means. Mr. W i n g o . Y o u are not the only man who has been confused from reading these hearings. Well, now, what would you class this? I just noticed this recently, and frequently you have something right under your nose for years and all of a sudden you will notice the significance o f it, and I noticed this since these hearings started: That the name of one gentleman has appeared on three different letters that have come to my office from three different banks; he happens to be president o f each one of three State banks. There are three or four gentle men who are interested in all three of those banks, and yet they are separate corporations in separate towns, two o f them in one company and another in another county. Would von call that a group banking or a chain banking system? Mr. W a k e f i e l d . I do not know. I f that particular individual owned the control of all o f those banks, personally I should think that it is not group banking as we are talking about it to-day. Mr. W i n g o . I had always understood before this hearing started that a chain bank was where the parent corporation owned and con trolled the stock o f several constituent banks, and that a group bank was where there was a group o f individuals that owned and con trolled the stock o f a group of banks. ISTow I seem to be in error or. rather, that conception does not seem to be the one some o f von gentlemen have. Mr. W a k e f i e l d . This conception that I just expressed to you of a chain bank was the one we always had in our minds up tfiere as representing chain banking, and we are always anxious not to be thought o f in that same lot, and so we chose to call ourselves group bankers. Mr. W i n g o . The only distinction is that you wanted to get away from what you regarded as an evil, of having the parent bank go to the head of another bank and saying, “ We want to buy the con trol o f your bank,” or “ We wTant you to tie up with us, and we will lend on your stock” ; in other words, they would pyramid that way, and the distinction you want to make is that you are not that kind o f a chain ? Mr. W a k e f i e l d . That is it. That may not be fair, to make that statement in connection with what is now thought of as chain bank ing, but I say it has all been discussed and muddled up. Mr. W in g o . It is hardly worth the time to discuss that any fur ther on account of the limited time. I am afraid we have made the confusion worse than we found it—I mean that I have, not you. Now, what is to prevent one o f your national banks— that is, a constituent bank— from doing this: The national-bank examiner 994 BRANCH, CHAIN, AND GROUP BANKING comes in and examines it and says, u Here is some paper that I do not think ought to be in here; you will have to take this paper out.” W e will take, for illustration, these two banks that you have in Potter County, S. Dak., at Gettysburg; one is the First National Bank and the other the Potter County Bank. Mr. W a k e f i e l d . They have been consolidated. Mr. W i n g o . A ll right; use them as illustrative. One is a State bank and the other a national bank, and we will assume that they are still in existence. While they are still in existence, the nationalbank examiner comes into the First National Bank o f Gettysburg and says, u You have to take this paper out o f here.” They say, “ A ll right.” Then they will step across the street to the Potter County Bank and say to them, “ W e have got to get rid o f this ”-----Mr. W a k e f i e l d . But the Potter County Bank won't take it. Mr. W i n g o . Then within a week or 10 days along comes a State bank examiner, and he goes into the Potter County Bank and says? “ You have some paper here you have got to get rid o f.” So they will then again step across the street and pass it over into the First National Bank. Is there anything to prevent that under existing law ? Mr. W a k e f i e l d . Not under the law ; but the thing that would pre vent it would be the directors o f the Potter County Bank; they would not receive it from the other bank, in my opinion, and what I have said before is this, that I think that if a group bank system is operated and it has national banks, that that fact ought to author ize the comptroller to make examinations o f any bank that it owns. State or national. Mr. W in g o . In other words, you are getting into this situation with your banks: You have practically the same set-up as a Federal reserve bank. Now, that Federal reserve bank, under the law, has a right to check up on the member bank, even if it is a State bank % Mr. W a k e f i e l d . Yes. Mr. W i n g o . I f group banking is to continue, such as yours, do you think in any legislation we may enact there should be some restrictive legislation? I can conceive o f occasions arising where a man will say that the national bank examiner does not understand the situation and where a State bank examiner will say the thing is perfectly right and that the national bank examiner is wrong; in other words, you might have something else besides improper prac tices, and, in order to protect the system, do you think there should be some restrictive legislation ? Mr. W a k e f i e l d . I think there should be authority given to the comptroller’s office to examine every unit o f any group operated* regardless of whether it is State or national. Mr. W i n g o . The question has been asked: How would Congress be able to say that a State bank must submit to that examination? Mr. W a k e f i e l d . I do not know, but I have an idea that if we are operating a group with members o f the Federal reserve system in that group, that fact in itself could be a basis for requiring the privilege o f an examination. You understand we always pay for the examinations, anyway. Mr. W i n g o . In asking that question—the question was suggested to me—the thought occurred to me that we could find some way. BRANCH, CHAIN, AND GROUP BANKING 995 One way would be that we could provide that no national bank could belong to a group system whose stock is held by a corporation that did not agree to submit to an examination by the comptroller, or by our taxing power, or the use of the mails. There are many different ways we could use to make it effective. I f all these differ ent constituent banks of yours were national banks, o f course, that question would be obviated, would it not ? Mr. W a k e f i e l d . Yes. Now, if trade area or Federal reserve district branch banking were permitted for your territory, the probabilities are that you would transform your system into a branch bank system, would you not ? Mr. W a k e f i e l d . I th in k w e w o u ld be o b lig e d to. Mr. W in g o . Y ou could not avoid it, could you i Mr. W a k e f i e l d . Not within a reasonable time. Mr. W in g o . In the first place, it would be to your advantage from the standpoint o f economic operation ? Mr. W a k e f i e l d . I think it would. The only thing I have in mind is that until the time comes when the public is ready for that sort o f system, I would be a litttle bit concerned about trying to force it on the various large communities. Mr. W i n g o . What I was trying to do was to detect the trend, and I know o f no way o f getting the trend of business in any line than to get the reaction o f the leaders in that particular business. Now, while I do not believe in anything except the independent unit banks, I have gotten old enough to know I must face conditions and not theories. You feel, then, that the natural trend would be such that not only from force of competitive necessity, but the very practical considera tion of economic administration would lead you gentlemen to trans form your system into a branch-banking system? Mr. W a k e f i e l d . I think that is true. Mr. W i n g o . Even if we do not change the law, is it or is it not your opinion that the independent unit banks will continue to dwindle, both in importance and number? Mr. W a k e f i e l d . In the small towns, I think they will. Mr. W i n g o . Take the larger towns; take the cities where they have branch banking: Has not the experience been that the branchbanking systems are eliminating the independent unit banks? First, is the decrease in the granting of charters to independent unit banks, and then the competition has gradually caused independent unit banks to sell out and become branches of a larger system, not always because unfair methods are used—I am not trying to get into an argument over that; I am simply discussing the natural trend and assuming always proper methods are used—but I know in some in stances, without any effort made to drive an independent unit bank out o f the city, the directors and stockholders o f the unit bank have gotten together and concluded that they had better become a branch o f a larger bank. For illustration, I understand the Riggs Bank here in this city have taken over one or two unit banks in the city that afterwards became branches. So the natural tendency in the city is to do that, as well as in the smaller towns? 996 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f i e l d . Perhaps I can answer that by giving the history o f our own city. Our State now has a law prohibiting a bank oper ating in the State o f Minnesota, from operating branches, even within the city. A few years ago that restriction did not exist. There was no law to that effect. A t that ime— I was not then con nected with the bank— our bank bought outlying banks and con verted them into branches. We have three operating to-day that were established before the legislature passed the law prohibiting further branches. To-day, we can not establish branches outside of our main office, but in spite of that, the number o f individual banks in the city has steadily decreased. There are less now than there have been at any time, and the interesting factor in connection with that is this, that each year, some time during the year, we are waited upon by a delegation of citizens from some improvement association or from some section o f the town, with the request that we put an office out there. They explain they have a growing trade center and want banking facilities and ask us to put them there. O f course we can not do it. Mr. W i n g o . I want to get your reaction 011 the present trend of banking organization, just assuming that we did not change the law, but stood pat— to use an expression I have heard used, some times: Take my State, for instance, that does not permit branch banking. We have some branches, but at the present time we do not permit branch banks to be established. Nevertheless, there has been a gradual decrease in the number o f banks and in the importance o f those individual unit banks, and a growth in chain or group banking. For illustration, I know o f one group that, until recently was con trolled by one man mainly, a man o f high character who commanded the respect o f the business world. A bank would get into trouble in a small town. They knew he was president of, or through his business associates, controlled banks, and so the citizens would wait on him and say, “ We wish you would take over this bank.” In two or three instances, they appointed a committee, after the bank was closedj to wait on him and ask him to take over the bank or become the head o f a reorganized bank. The last time I made inquiry about that, the comptroller suggested that in that group or chain, there were 55 banks. That has been built up by that kind of process more than any desire o f his to build up a chain. His chief business has been insurance, but he has developed into this other. Now, that natural trend in my State is further accentuated almost week by week. I notice in my State where two banks in some of the smaller communities— and that means outside o f the four or five cities, like Little Rock, Fort Smith, and Pine Bluff—there is a con solidation o f two banks where perhaps both of them were apparently doing very well, and in some instances, I would hear it whispered under cover that we had a consolidation of bank A and bank B be cause bank A got in bad shape and “ We took it over.” I find that process goin<2; on in my own State, and is not that the natural trend in your section? Mr. W a k e f i e l d . Yes. sir; and the superintendent o f banks of the State of Minnesota has been privately and constantly advocating the consolidation of banks and units into bigger units, in order that BRANCH, CHAIN, AND GROUP BANKING 997 the small units may be built up to a size that will enable them to go ahead properly. Mr. W i n g o . They have reached that conclusion, but naturally these things have influenced it, such as changed conditions like par ex change on checks, and the elimination o f exchange on remittances on checks that come in. There are many reasons why the banking busi ness has become not only less profitable, but, in some instances, al most impossible for them to' make enough to pay their expenses. Then, in other instances, there is the attraction o f larger banks offering greater facilities and better service which has taken their business away from them by gradual accretions, so that they found they could not longer exist. Mr. W a k e f i e l d . I think that comes primarily from the natural development of the age and the country, and this fact being worked out: In the early days, in the past history o f our territory, a small bank could secure very high rates for money that they were loaning, and gradually, as those people grew in size (that is the customers and borrowers of those small banks) they discovered they could go on to some place else and borrow the money at the current market rates, if their credit was substantial. So, I think the banking business gen erally is coming nearer to a uniform level o f rates charged and service rendered, which means that unless there is a sufficient amount o f com mercial banking business at a point, it can not justify or pay the expenses o f an organization at that point. Mr. W i n g o . Then I have noticed this: It is not only true in my own district, but I have been told it is true in other sections of the coun try, that with the improved highways and motors, villages— and by that I mean the great mass o f smaller towns—in a large number of instances are being destroyed by the people moving to the county seat, 01*the metropolis due to the fact that, with improved highways and motors, a point 25 miles away is nearer now than the local village bank used to be formerly, 5 miles away. Mr. W a k e f i e l d . There is no question but that the east of transpor tation and the development o f good roads has changed the habits of the people o f the country. They now prefer to go to the place where there is a good moving picture and where the stores are better and different, rather than stop at the little village where they used to transact their business. Mr. W i n g o . Yes; I know that is true. I can meet at a movingpicture house in my town people who come there in cars from towns that I know are 50 miles away— people that I know. You have stated that if we did not pass any laws at all, that was the natural tendency and it meant the ultimate extension of these large branch banks into the smaller towns. Suppose that we should believe in the independent unit bank and would put a restraining order in the statute that would prevent the organization of any more branch banks in the United States: What effect do you think that would have upon the maintenance of these independent unit banks in these small towns ? Mr. W a k e f i e l d . I am afraid that would result in a considerable diversion o f the banking business into the State systems, following along the lines of the recommendation o f our own superintendent of banks, that the legislature authorize State banks, within certain areas, to take care o f the situation with branches. 998 BRANCH, CHAIN, AND GROUP BANKING Mr. W i n g o . Suppose all the States followed the suit o f the Fed eral Government: Do you think that business would be sufficiently profitable to maintain small independent unit banks in the small communities? Mr. W a k e f i e l d . N o , sir; I think you would force closings in those towns. Mr. W i n g o . And that would force those people to go further to get to an independent unit bank? Mr. W a k e f i e l d . Yes, sir; I think so. Mr. W i n g o . N o w , some question was asked about your capital stock liability, but I believe you said, as far as you are concerned, you are perfectly willing that there should be 100 per cent liability on that stock. Mr. W a k e f i e l d . Yes, sir. Mr. W i n g o . But, as a matter of fact, the First Bank Stock Cor poration is liable under the law o f your State to a 100 per cent assess ment on the stock o f the constituent banks owned ? Mr. W a k e f i e l d . Yes, sir. It goes further than that. We would not last a minute if we had an occasion where the liability in connec tion with that individual bank was greater than the capital stock o f that bank, and we did not supply it. W e would be out o f business. Mr. W in g o . I do not believe I care to ask any further questions. I thank you very much, Mr. Wakefield. Mr. B u s b y . H o w many systems of group banking are there in the ninth Federal reserve district? Mr. W a k e f i e l d . O f group banking? Mr. B u s b y . Yes. Mr. W a k e f i e l d . I do not know just how to answer that. There are, of course, the two— the Northwest Bancorporation and our selves— which are the large ones. There are others. For instance, J. W . Black Co. are interested in a group o f banks. Mr. B u s b y . O f about how many? Mr. W a k e f i e l d . I think 10 or 12. I can not be accurate about that. There are two or three cases where there are individuals who have a group o f banks and are operating them. There is the Isaac Haz lett group. I forget how many banks he has. That has been in existence for many years. Mr. Otto Bremmer, o f St. P aul; I do not think he is a controlling stockholder, but he is a stockholder in a large number of banks in that territory. Mr. B u s b y . H o w m a n y in th a t group? Mr. W a k e f i e l d . About 75. Mr. B u s b y . And the Hazlett organization has about how many ? Mr. W a k e f i e l d . Probably 10 or 15 banks in the Hazlett group. Mr. B u s b y . And the First Bank Corporation has, I believe you said, 91? Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . And the Northwest Bancorporation-----Mr. W a k e f i e l d . I think they said they had 98. Mr. B u s b y . D o you know how many banks are operating in the ninth Federal reserve district ? Mr. W a k e f i e l d . T w o th o u sa n d tw o h u n d re d a n d f if t y , Mr. B u s b y . T w o thousand two hundred and fifty ? BRANCH, CHAIN, AND GROUP BANKING 999 Mr. Mr. W a k e f i e l d . Yes, sir. B u s b y . S o th e re are a b o u t 3 0 0 o f those b an k s th a t are in the g r o u p sy s te m ? Mr. W a k e f i e l d . I think that would be about right. Mr. B u s b y . What is the attitude o f the independent banks and bankers toward your group system in the territory in which you operate in competition with them? Mr. W a k e f i e l d . We have at the present time practically—well, I would say there was 60 per cent o f those banks that are independent banks who are customers of the First National Bank o f St. Paul and the First National Bank of Minneapolis. They are our friends and customers. Mr. B u s b y . Customers to what extent and in what sense ? Mr. W a k e f i e l d . They carry deposits with us and transact their business with us. Mr. B u s b y . Does that mean that you have amicable leanings toward them and their business operations and that you are ready to cooperate and coordinate your efforts where there is need o f assist ance for them on your part ? Mr. W a k e f i e l d . Always. Every year we loan those banks large amounts o f money. Mr. B u s b y . O f those independent banks—you say 60 per cent are your customers-----Mr. W a k e f i e l d . And the other 40 per cent, of course, there is a duplication in that 60 per cent. Some do business with the North western National Bank in addition to doing business with our two banks. Mr. B u s b y . H ow about the other banks that are not customers o f yours ? Mr. W a k e f i e l d . They are all customers o f ours, or of the other groups. Mr. B u s b y . A ll o f th e 1 ,9 5 0 t h a t are n o t in y o u r sy ste m s are th e c u sto m e rs o f y o u r s y ste m s, a n d th e r e fo r e so m e w h a t d e p e n d e n t on y o u r sy ste m s f o r b a n k in g assistan ce in tim e s o f n e e d ? Mr. W a k e f i e l d . The Twin Cities banks have been the depositories of the banks in the ninth Federal reserve district for many years. Mr. B u s b y . N o w , what is the Twin Cities bank? Mr. W a k e f i e l d . The Twin Cities banks—they are the banks lo cated in Minneapolis and St. Paul. Mr. B u s b y . Y ou do not mean individual banks? Mr. W a k e f i e l d . Yes. Mr. B u s b y . What are the names o f the individual banks ? Mr. W a k e f i e l d . Well, there is the First National Bank of Minne apolis, the Northwestern National Bank o f Minneapolis, the Mid land National Bank of Minneapolis, the Metropolitan National Bank of Minneapolis, and the Marquette National Bank of Minneapolis. In St. Paul they have the First National, the American National, the Empire National—I can not remember them all. Mr. B u s b y . That is sufficient to illustrate. You mean to say, in other words, that St. Paul and Minneapolis are the banking centers for the ninth Federal reserve district and to those centers all the banks o f that district come for banking contact ? Mr. W a k e f i e l d . That is right. 1000 BRANCH, CHAIN, AND GROUP BANKING Mr. B u s b y . Since you liave organized these two very powerful, extensive and active groups of banks under the holding corpora tions, St. Paul and Minneapolis are even more the centers of financial operations in that district ? Mr. W a k e f i e l d . It is probably accentuated to some extent. They have always been centers, however. Mr. B u s b y . Is there not considerable dependence on your and the other banking groups— more than there was before? Mr. W a k e f i e l d . N o: but there is just as much. When one o f those banks in the country needs help, they come straight to us. Mr. B u s b y . They feel you are operating in the banking field as a friend to the other banks, as well as to secure business and make profits out o f your enterprise ? Mr. W a k e f i e l d . Our relations, as far as I know them, with those customer banks are cordial and are as complete as always. Here is an instance that occurred the other day. There was a farmers and merchants bank in Winette, in the oil district in Mon tana. They came to us a while ago and talked about joining up with us. That negotiation was not completed, and the bank closed. After it closed, the stockholders and depositors that represented the whole group o f Winette, met and prepared a petition which was printed in the Winette paper, a copy of which I have here, in which they petitioned the First Bank Stock Corporation to come out there, and they said that they, as individuals, would raise whatever money was required to pay out the poor paper in the bank, if we will come and organize and open a bank there. Mr. B u s b y . What was their purpose in doing that ? Mr. W a k e f i e l d . It is pretty well described in this statement [exhibiting]. Mr. B u s b y . In a few words-----Mr. W a k e f i e l d . They describe their location, the fact that the nearest bank east is 98 miles and the nearest bank west is 26 miles; that it is the county seat, and they feel they ought to have a bank there. Mr. B u s b y . They have no hope of getting a return o f their stock— in other words, they have lost monej^? Mr. W a k e f i e l d . They, as citizens o f the town, are willing to put up the money to get us in there. Mr. B u s b y . It is more of local business pride than the advantage they may derive ? Mr. W a k e f i e l d . Yes. sir. Mr. B u s b y . In establishing a bank there, you assume no responsi bility whatever for any errors committed in the banking operations at that place ? Mr. W a k e f i e l d . That process would have to be this: It would mean you would have to organize a new bank and take over such assets as acceptable and assume the deposit liabilities o f the old bank. Mr. B u s b y . Y o u described your stock operations yesterday in regard to organizing your holding company. I f I remember cor rectly, you stated you had $22,000,000 in assets and you exchanged that for $30,000,000 in stock in the holding company. Mr. W a k e f i e l d . Yes, sir. BRANCH, CHAIN, AND GROUP BANKING 1001 Mr. B u s b y . Wliat did the $8,000,000 difference between the $22,000,000 as assets and the $30,000,000 in stock, represent ? Mr. W a k e f i e l d . It represented a situation like this—at that time if you owned 1 share of First National Bank stock, you could sell it for $220. Mr. B u s b y . Yes. Mr. W a k e f i e l d . We had no desire to attempt to capitalize the holding company to take over the stock at its then market value, because we felt if the holding company took it over it should show at an appreciated value in the holding company's stock. So we fig ured a basis which seemed fair and agreeable of $100 of the stock of the holding company for each share of the stock of the bank. Mr. B u s b y . A s a matter o f fact, the four shares in the holding company were worth on the market more than $100? Mr. W a k e f i e l d . Yes; at that time the market put them up equal to the bank stock—practically $55 a share. Mr. B u s b y . $ 2 2 0 f o r the fo u r sh a res? Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . What did th e $8,000,000 represent ? Mr. W a k e f i e l d . Capital value in the set-up. It is not a matter that you can figure any way you want to. Mr. B u s b y . I s not this the situation: You fellows were setting up the holding company and determining the size o f shares and par values and the exchcange ratios, and the $8,000,000 represented a margin of safety more than anything else, did it not? Mr. W a k e f i e l d . No; that thought never came in. I know how it was done. It represented delivering shares o f the stock in the hold ing company which would be an equivalent to the thing that the fellow owned before he got it. Mr. B u s b y . At the time you gave the figures I figured that the actual market value of the four shares o f the holding company’s stock you would receive would just about equal the market value of your bank stock, per share, and that the $8,000,000 was what we would commonly term 44water.” Mr. W a k e f i e l d . A ll right. The market value-----Mr. B u s b y . What do y o u sa y about that feature o f it, before w e leave the $8,000,000 ? Mr. W a k e f i e l d . We do not regard it as water.. It is done-----Mr. B u s b y . I understand how it was done, but water in a stock transaction represents an issue back o f which is no economic value or back of which you have no assets, or to represent which you have no assets. Mr. W a k e f i e l d . Watered stock, as the term is used, has usually represented a set-up of stock that has been sold at a price which included the water. In this case it was not sold to the public. It was given to the people who owned the stock originally. You might say that $220 a share for the First National Bank stock would have a lot of water in it. Mr. B u s b y . No. Mr. W a k e f i e l d . T h a t $ 8 ,0 0 0 ,0 0 0 represen ted g o o d w ill an d e a r n in g p o w e r o f th a t b a n k . Mr. B usby. That is the most p u t it. su b sta n tia l basis on w h ic h vou could 1002 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f ie l d . That is the sound basis. Mr. B u s b y . Did you assign that basis to it when you issued it? Mr. W a k e f i e l d . That was the basis—earnings, capital assets, good will and prospects o f that bank, and deposits. Mr. B u s b y . Outside o f good will, you had collected in stock of equal value to the amount that you had involved in your banks? Mr. W a k e f i e l d . Collected what? Mr. B u s b y . In getting stock in your holding company o f equal value for all of the assets you had in your banks, outside o f the good name of the bank. Mr. W a k e f i e l d . Let us get this picture in this way: You are an individual and you want to buy some stock-----Mr. B u s b y . Pardon me just a moment. I can not examine you if you insist on directing questions to me all o f the time. Mr. W a k e f i e l d . I am making a statement to you. I am an indi vidual and want to buy some stock in the First National Bank o f Minneapolis. I pay $200 a share for it because I believe it is worth it. I have bought it at a price which includes the future prospect and earning power and good will of that bank, have I not? When we set up our holding company, we did not do that literally, because we did not want a capitalization that represented any such market price. W e believed the market price was higher than it should be. We capitalized it down close to the asset value, giving consideration to all those things. Mr. B u s b y . Take the original question: I f the $8,000,000 repre sented your good name largely, you still had that in your old banking institutions, did you not ? Mr. W a k e f i e l d . Y es; and have it yet. Mr. B u s b y . There was no necessity of paying the holding com pany, because you set up a holding company, or taking any shares of the holding company you set up because your bank had a good name in the banking field, was there? Mr. W a k e f i e l d . Well, now---- Mr. B u s b y . B u t you do not answer my question. You insist on explaining something else. I f you were in a court, there would be objection to your answer and you would be directed to answer “ yes ” or “ no.” Mr. W a k e f i e l d . Y ou do not ask questions that I can answer “ yes ” or “ no ” to. You ask me questions to which I object to saying “ yes ” or “ no.” I can not say “ yes ” and-----Mr. B u s b y . Then you can s&y “ no.” Mr. W a k e f i e l d . And I do not want to say “ no,” because that would not be correct. Mr. B u s b y . Then, we will quit. Mr. W a k e f i e l d . Let me explain this to you: In our stock transac tion the stock went to the stockholders o f the bank. There was nothing involved except an exchange o f stock. Mr. B u s b y . And the bank remained as it was? Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . And it took the same good name it had ? Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . And continued practically uninterrupted, as if no hold ing company had been organized? BRANCH, CHAIN, AND GROUP BANKING 1003 Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . That being the case, I can not see the reason for extending to the persons who had formerly owned the bank stock that had turned it over to a holding corporation—I can not see the advantage o f giving those same persons $8,000,000 in shares o f the holding corporation, when all the shares o f the holding corporation had been paid for by the bank stocks, dollar for dollar. Mr. W a k e f i e l d . A ll right. In no case where we have taken over a bank, even though it was a bank that was, as some one suggested yes terday, given to us, have we failed to recognize in the price paid for that bank a percentage value o f the deposits of the bank. I f that was recognized in the deposits o f the bank in Minneapolis, it would have almost covered the $8,000,000. Mr. B u s b y . What did the holders o f the bank stock give for the $8,000,000? Mr. W a k e f i e l d . They gave their stock in the First National Bank, which they could have sold for twice that amount. Mr. B u s b y . Well, they got twice that amount. They got $22,000,000. Mr. W a k e f i e l d . N o; they got stock in the holding company. Mr. B u s b y . In the holding corporation ? Mr. W a k e f i e l d . Yes. Mr. B u s b y . I see why you fellows are good bankers. Now, you say those banks out there can not make money where they are operating as individual banks ? Mr. W a k e f i e l d . It is becoming more difficult for them under present conditions. Mr. B u s b y . W hy can’t they? Mr. W a k e f i e l d . Well, there is a point—in order to operate a bank you have to have a capital structure which is set by law; how much that shall be. You have to have vaults, a place to do business, and have to have a group o f officers. Mr. B u s b y . Y es; I know that. Mr. W a k e f i e l d . A nd you have to pay taxes on that capitaliza tion. Unless that bank is at a point where the deposits are particu larly large so that they can earn all those costs and a return on the investment and a sufficient margin to cover losses, they can not operate successfully. Mr. B u s b y . Well, a bank with $500,000 in deposits is not an unusual bank, is it? Mr. W a k e f i e l d . I f you were here all the time, you heard me tell about a lot that were very much less. Mr. B u s b y . In my section, banks with $25,000 and $50,000 capital frequently have $750,000 in deposits. Mr. W a k e f i e l d . That is not true in our section. Mr. B u s b y . That is not so ? Mr. W a k e f i e l d . No. Mr. B u s b y . And yet there is all that money described by the gen tleman who represented the Northwest Bancorporation as being in the country and lying out in hidden places, available for them if they have a bank in which people have confidence. Mr. W a k e f i e l d . That is what we are trying to do, get that money. 1004 BRANCH, CHAIN, AND GROUP BANKING Mr. B u s b y . Don’t you think that the bank failures in that section of the country are due to the deflation in land and agricultural com modity values? Mr. W a k e f i e l d . That has been an important factor, but it has been accompanied by a change in conditions and a change in banking trend that has taken place. Mr. B u s b y . A few days ago I checked over the report o f the comp troller—Mr. Pole— and I found that in nine o f the States lying in the Central Northwest section, comprising about 14% per cent o f the population, you had 56.2 per cent o f the bank failures o f the country, or 56i4 per cent o f the 4,925 banks that failed between 1921 and 1929. Do you know, as a resident of that section, that the securities taken by the banks— such as lands, livestock, wheat, and other agricultural products—have practically ceased to be a safe form o f security or collateral to offer for loans ? Mr. W a k e f i e l d . No, sir; that form of securities and the deflation o f the agricultural situation was an important factor in closing banks. There is no question about that. But this type o f security is taken and being taken to-day in a manner perfectly sound and safe, and is the best security you can get on earth. Mr. B u s b y . I f your banking system had gone into this same field in 1921 and remained there through this inflated period, don’t you think it would have been seriously crippled, even though it had the judgment o f men behind it that your corporation has behind it? Mr. W a k e f i e l d . No, sir; I do not. I know of any number of in stances where men ran banks in that territory side by side with others that failed. Mr. B u s b y . What would have been your policy toward making loans—what do you think would have saved those banks? Mr. W a k e f i e l d . A n intelligent basis o f credit. Mr. B u s b y . Y o u would have refused credit to some that the other banks extended credit to? Mr. W a k e f i e l d . I think I would not have made loans the same way. Mr. B u s b y . Mr. Young, Governor o f the Federal reserve system, stated that i f many o f those banks had applied for membership in the Federal reserve system in 1917 and 1918, that he estimated as many as 2,500 banks that later failed would have been taken into the Federal reserve system on what they understood about them and about judging bank’s assets at that time. Mr. W a k e f i e l d . I do not think that-----Mr. B u s b y . Y o u have understood better than that ? Mr. W a k e f i e l d . I think that is probably true; but remember, the basis upon which a bank might become a member o f the Federal reserve system at the time he described was on the condition o f the assets as of that time. Mr. B u s b y . Do you not think that, with all o f the bank crashes and the financial upheavals that have come about in the last few years, including the recent stock-market crash, you are exceedingly opportune in coming forward with your group-banking system at this time; so much so that you can put it over better now than at any time prior to this, and you will be better able to put it over now BRANCH, CHAIN, AND GROUP BANKING than when things have gotten back to a normal basis? Do you not think that is the situation ? Mr. W a k e f i e l d . That is partly true; yes. There is no question but what there is a change in sentiment based upon this fact, that the thing that the public wants in our territory is banking facilities in which they have confidence and which they believe will take care o f them in a proper banking way. Mr. B u s b y . I am going to get through in a little bit. W hy is it that your bank can thrive and make money with other banks are failing? A fter all, that is the thing we are trying to find out. Mr. W a k e f i e l d . I think, as Mr. Decker said—and I would like to repeat— there are two factors involved in that, and one is man agement. Mr. B u s b y . Y o u have to have something to manage. What I am talking about is the concrete application ox your business principles to instances. Mr. W a k e f i e l d . I know o f no occasion in our territory where it has failed. Mr. B u s b y . What is so different in your case that the other banks can not get hold o f ? Mr. W a k e f i e l d . Nothing. Mr. B u s b y . Can you give us a detailed explanation of how you get dividends on the things that they handle but out of which they can not get dividends? Mr. W a k e f i e l d . A large part o f the difficulty is based on the ability o f the community in which the bank is located to furnish the business to make it a success. Mr. B u s b y . I agree that if a bank is located in a place where there is no business it can not thrive. Mr. W a k e f i e l d . Yes; and you must remember that there has been a great shift in business. M r . B u s b y . How m u ch d iv id e n d s does y o u r h o ld in g c o rp o ra tio n pay? Mr. W a k e f i e l d . One dollar per share. Mr. B u s b y . I s that dollar rate a fixed amount ? Mr. W a k e f i e l d . It is always determined by the board o f directors, based upon the earnings of the bank. Mr. B u s b y . Are all your dividends declared through your holding corporation ? Mr. W a k e f i e l d . Yes, sir. The banks individually declare the dividends, and they declare that dividend to its stockholder, which is the First Bank Stock Corporation. It is from the receipt o f those dividends that the corporation pays its dividends. Mr. B u s b y . What becomes o f the remainder o f the dividends from those banks? Mr. W a k e f i e l d . It is put into the reserve o f the banks. Mr. B u s b y . Your system has not existed long enough to build up satisfactory reserves in these group banks in every instance ? Mr. W a k e f i e l d . No; some banks have not been permitted to pay any dividends. They have held all earnings in order to build it up. Mr. B u s b y . They get a dividend on the holding-company stock, just as the more prosperous banks get? Mr. W a k e f i e l d . The stockholders do. 1006 BRANCH, CHAIN, AND GROUP BANKING Mr. B u s b y . What is the best dividend that could be paid if all earnings were declared and none were passed to surplus ? Mr. W a k e f i e l d . That would always be a fluctuating amount. Based upon the experience o f the last year—that is, giving credit to each individual unit for its earnings for the year—the total earnings o f the group were $7,300,000, approximately, and the payment in dividends was $3,000,000— equivalent to $2.41 a share as the average gross earnings o f the institution. Mr. B u s b y . I f you run along for a few years, and have the same success you have had, you will be able to increase your dividend payments on your holding company stock quite materially, will you not? Mr. W a k e f i e l d . W e should be able to do that if we can maintain those earnings. Mr. B u s b y . I notice that quite a number o f you gentlemen who are directors in the holding corporation are directors in the sub sidiaries o f that organization. Mr. W a k e f i e l d . Not bank subsidiaries. Mr. B u s b y . I mean your trust companies. Mr. W a k e f i e l d . We have a trust company operated in Minneapolis. Mr. B u s b y . I notice some of them are presidents o f railroads and directors. Mr. W a k e f j e l d . That is true. Mr. B u s b y . N o w , is it not a fact that your financing corporation will be more lenient toward an application for financing from some o f its subsidiaries, than from outsiders ? Mr. W a k e f i e l d . What do you mean-----Mr. B u s b y . For instance, if a railroad wants to borrow money-----Mr. W a k e f i e l d . I wish we could make some o f those railroads apply to us. They do not do it. Mr. B u s b y . Where do they put their bonds or stocks? Mr. W a k e f i e l d . In New York and Chicago. Mr. B u s b y . Y o u fellows are too careful, I imagine, for them. Mr. W a k e f i e l d . W e would like to get it, but those are old associa tions, and we can not get them. Mr. B u s b y . A man who wants credit looks out for himself—that is what you stated, is it not? Mr. W a k e f i e l d . I said he usually gets credit according to the justification for his receiving credit. Mr. B u s b y . Do you not think credit is very uncertain as to whom it will favor? Mr. W a k e f i e l d . It is my experience that credit favors the fel low-----Mr. B u s b y . Have you not heard the proverbial expression that a fellow takes his hat in his hand and goes out to borrow money to meet his obligations ? W e saw a man going through here the other day from an Okla homa bank to New York hunting finances, and I think we find men doing that all the time, trying to get money, where they have plenty of assets. Mr. W a k e f i e l d . They always get it, do they not ? Mr. B u s b y . Well, I have not seen them all, but I do not think so. Do you have any suggestions in regard to the thought that credit is inclined to come together and form a monopoly ? BRANCH? CHAIN, AND GLIOUP BANKING 1007 Mr. W a k e f i e l d . It is my honest opinion that credit is the last thing in the world that any one in the world will get a monopoly on. Mr. B u s b y . The New York Times, a few days ago, published a list o f 12 banks in the world, 5 in the United States and 3 in New York, that had combined assets of more than $20,000,000,000, which is a fourth more than all the gold and silver in the world. Do you call it credit combining, where banks-----Mr. W a k e f i e l d . W hy, the Chase National Bank, o f New York, has total assets to-day amounting to twice the total resources o f our entire Federal reserve district. Mr. B u s b y . I understand it is about $3,000,000,000. Mr. W a k e f i e l d . But that is not a monopoly o f credit, although it furnishes very acute competition. Mr. B u s b y . Bringing all o f the banks that are embraced in this Chase National Bank together, in forming that gigantic merger— is not that a combination o f credit ? Mr. W a k e f i e l d . Well, ves; it is. Mr. B u s b y . I f you get enough combinations like that, together, so that you would have a combination representing thirty-five or forty billion dollars o f banking credit, would you not be approach ing a monopoly ? Mr. W a k e f i e l d . Yes; if you could do that, but it would not exist for more than about two weeks. Mr. B u s b y . I s there any law preventing that ? Mr. W a k e f i e l d . I do not know that there is. Mr. B usby. D o y o u n o t th in k th e re o u g h t to b e a la w to p re v en t th a t ? Mr. Mr. W a k e f i e l d . N o. B u s b y . D o y o u not th in k i f th e y c o n tin u e d to b r in g in th e b ig g e s t b a n k s an d th e n b r in g to g e th e r s till b ig g e r b a n k s , t h a t it w ill b e co m e d a n g e ro u s ? Mr. W a k e f i e l d . They wrill have an unending job on their hands. Mr. B u s b y . D o you not think there is a limit to the credit to be issued in a country where the total assets o f the country are limited to $300,000,000,000? Mr. W a k e f i e l d . I do not think there is a way to do that. Mr. B u s b y . D o you think there could be any more credit possible than would bear a proper relation to the assets o f the country ? Mr. W a k e f i e l d . I do not think there is any way in which anyone can ever go to work and put a ring around the credit o f this country. Mr. B u s b y . D o you know anything o f the rumors in the banking world to the effect that certain South American countries came to big New York banks negotiating loans and had to pay individuals, who spoke for those countries, securing the loans, millions in commissions in order to get a hearing at the hands o f the bankers? Mr. W a k e f i e l d . I know that there are in New York various groups that are constantly in keen competition for financing o f that type. Mr. B u s b y . That is not m y question at all. Mr. W a k e f i e l d . W ell, I do not know. I never heard o f it. Mr. B u s b y . Do you not know that it is rumored that one o f the South American countries came to New York and borrowed $40,000,100136— 30—vol 1 pt 8-- 15 1008 BRANCH, CHAIN, AND GROUP BANKING 000 and a certain gentleman who negotiated that loan, kept $12,000,000 o f it that the South American country never did get and never will get, for commmissions for handling the big loan o f the South American country? Mr. W a k e f i e l d . I have been in the bond business and business relating to it a great many years, and it sounds almost impossible. Mr. B u s b y . Y ou never heard o f it ? Mr. W a k e f i e l d . N o , sir. Mr. B u s b y . Do you not think that if these trust subsidiaries were taken away from your holding company, that one o f its chief sources of income would be cut off ? Mr. W a k e f i e l d . No. Mr. B u s b y . Y ou heard Mr. Decker tell about making $2,800,000 by a stock manipulation within his own Northwest Bancorporation— selling it to an underwriting syndicate and then proposing to buy it back at about $3,000,000 less than they sold it for, because he said he put over a good piece o f merchandising ? Mr. W a k e f i e l d . That w a s a perfectly proper and regular busi ness transaction. Mr. B u s b y . D o you think banks should be tied up with an organ ization that puts that over? Mr. W a k e f i e l d . There were no banks connected with it . The underwriters o f that stock agreed to underwrite 150,000 shares. They agreed to underwrite 150,000 shares o f that stock, which was offered to the stockholders at $72 a share, and, on the proportion o f that stock which they were obliged to take and pay for, they were supposed to get at $70. That was $2 a share commission for assum ing the responsibility o f underwriting. Mr. B u s b y . Assuming the responsibility is what I am getting at. Mr. W a k e f i e l d . They assumed that responsibility and those un derwriters lost the difference between $54 and $70 a share, which they paid for it. But the corporation itself had no thought except the thought o f selling its capital stock. Mr. B u s b y . Under former banking practices and the purposes o f banking, that kind o f transaction was entirely outlawed, was it not ? Mr. W a k e f i e l d . Never. It was never—there was never a time when it was not perfectly legitimate for banks, or anyone else. I f our bank wanted to increase its capital stock, there would not be anything wrong with it, or unusual. Mr. B u s b y . D o you not feel that that type o f business is un desirable ? Mr. W a k e f i e l d . Not that type; that type is all right. Mr. W i n g o . I am not sure about this and possibly those who read the record may not be sure. As I understand, these under writers, while, in this particular case they suffered a loss, if their judgment had been sustained, they would have made a profit? Mr. W a k e f i e l d . Yes; o f $2 a share. Mr. W i n g o . In other words, their faith in the future price o f that stock proved to be unfounded ? Mr. W a k e f i e l d . That always happens in the underwriting busi ness. You can not guess right always. Mr. W i n g o . This was a customary underwriting transaction ? Mr. W a k e f i e l d . Yes, sir. BRANCH, CHAIN, AND GROUP BANKING 1009 Mr. B u s b y . I want to ask you what those same underwriting organizations do with that stock in placing it on the market? Mr. W a k e f i e l d . In this case they sold it and took their loss. Mr. B u s b y . What was their purpose to do with it ? Mr. W a k e f i e l d . The purpose was to sell it and make the differ ence in the price at which it was bought and the price at which it was sold. Mr. B u s b y . Was it listed on the Chicago and New York exchanges? Mr. W a k e f i e l d . Yes, sir; it was. Mr. B u s b y . And the people did not take it ? Mr. W a k e f i e l d . No, sir; because the market went off. Mr. B u s b y . What do you think about the idea ultimately, through the W orld Bank for International Settlements, of there growing up a superfinaneial organization that will not only control credits in foreign countries, but in America? Mr. W i n g o . You are going to infringe on Mr. McFadden’s copyright. Mr. W a k e f i e l d . That is beyond my-----Mr. B u s b y . What is your idea o f the original reparation bonds, to the amount of $300,000,000 that are to be taken over by the Bank o f International Settlements, being placed on the market o f this country through the New York banks, and subscribed by the American people? Mr. W a k e f i e l d . I am not well enough informed as to the set-up and what is going to be offered, to make any expression. Mr. B u s b y . What do you think o f the Federal reserve banks buy ing Government bonds and bankers bills in sufficient quantity to force credit, unasked for, into the banking field o f more than half a billion dollars, within the last 30 days ? Do you think that is a thing to be desired now, when money is easy and no one wants money? Mr. W a k e f i e l d . I am not familiar with just what the Federal reserve has done, but I am a great believer in the Federal reserve system. Mr. B u s b y . So am I ; but do you think we need a great amount of credit thrown on the market when money on call is around 2 and 2y2 per cent; when it is so easy nobody cares for it, and the Federal reserve forces it on the banking institutions of the country and in competition with them for the business that is available in these depressed times? Mr. W a k e f i e l d . I do not know. It may be entirely justified. I f that would act as a means of stimulating business, it may be very desirable. You are getting out beyond my depth. Mr. B ij s b y . I am afraid I am not. I am afraid I am getting out beyond where you want to go. Do you not think it would be a very helpful factor in the disposition o f $300,000,000 of German repara tion bonds, if there was a lot of easy money when they arrived here ? Mr. W a k e f i e l d . Yes; I presume so. I do not think that we in this country can completely disassociate ourselves with world con ditions any more. Mr. B u s b y . I understand. This is a sort o f winding up swing. We have been talking about everything else, and I thought- we might as well take a crack at that. 1010 BRANCH, CHAIN, AND GROUP BANKING Mr. F o r t . I have just a few questions I should like to ask you in connection with matters that have been brought up since I ques tioned you. In regard to the question o f the propriety o f your institution, the F'irst Bank Stock Corporation, borrowing, it might happen in some stage of the game when banking conditions were particularly dis turbed that you might have to borrow on your assets through your inability to sell further amounts of your own stock in order to get cash to protect some bank? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . Banks are permitted to borrow on collateral, are they not? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . There is no distinction between what you can do and a bank can do, under the law ? Mr. W a k e f i e l d . That is true. The question was whether we should borrow to buy stocks on margin. Mr. F o r t . Banks borrow to protect their investments by loans and other methods at times ? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . And they borrow from the Federal reserve bank very frequently ? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . Your purpose being to purchase bank stocks, you may be justified in some instances in borrowing to make that purchase? Mr. W a k e f i e l d . Yes, sir. Mr. F ort'. In some of these groups I see a reference to the per centage of total outstanding stock owned by the corporation, which runs, in some cases, up to 100 per cent ? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . That is impossible if your directors own qualifying shares ? Mr. W a k e f i e l d . We included the qualifying shares as originally being in our possession. Mr. F o r t . In connection with Mr. Goldsborough’s questioning to day, I have looked back to your testimony o f yesterday when I was questioning you on the power o f your corporation to regain from any director the stock you sold to him. You did not use exactly the same language yesterday, namely, that it was a gentleman’s agree ment. You said that you had tried, with the best lawyers you could get, to tie it*up. Mr. W a k e f i e l d . But found it was impossible from a legal view point. You will find that in there somewhere. Mr. F o r t . Y o u m a y h a ve m e a n t th a t, b u t th a t is n o t w h a t y o u sa id . Mr. W a k e f i e l d . I said it somewhere. Mr. F o r t . Not in the questions I asked you. I have the record here and the question and answer you made are as follows: I will read your answer. They are required to buy; a man is required to buy the number of shares to qualify as a director, which he owns outright. BRANCH, CHAIN, AND GROUP BANKING 1011 Then I asked y ou : He buys them through you? Mr. W a k e f i e l d . Yes. Mr. F ort. Y ou would have to keep some string on them so that he can not resell them if he is out as a director, would you not? Mr. W a k e f i e l d . W e try to. Mr. F ort. I suppose you are advised as to whether that is strictly legal? Mr. W a k e f i e l d . Well, we have used good attorneys, I think. Mr. W a k e f i e l d . Then, read on further. Mr. F o r t . That is all. Mr. W a k e f i e l d . There is another »place where I said something about that. Mr. F o r t . I did not happen to he in the room when that remark was made. I thought you should have a chance to amplify on that if it is not exactly what you intended to say. In your group, do you interchange information as between the banks for the passing of credit lines between individual borrowers? Mr. W a k e f i e l d . Yes. sir. Mr. F o rt . That is for the purpose o f checking up the borrower's own statement ? Mr. W a k e f i e l d . Yes, sir. Mr. F o rt . D o you fix the total credit line for the entire group? Mr. W a k e f i e l d . In the purchase of commercial paper we do. Mr. F o r t . I think we talked yesterday concerning individual bor rowers who might want to borrow from local bank A and local bank B both. Assuming they were both members o f the First Bank Stock Corporation, would the First Bank Stock Corporation fix the total credit line which might be extended to an individual by all the banks in its group ? Mr. W a k e f i e l d . I think we would. That has not come up, but, I think, we should pass on what we will loan to different borrowers through our banks. Mr. F o r t . There was one question I asked Mr. Decker, but I find I did not ask you. What is your judgment as to the desirability of uniformity of bank ing code. State and National? Mr. W a k e f i e l d . I think it would be beneficial. Mr. F o r t . And that code should adhere to the stricter form of ^banking regulations, rather than the more lax ? Mr. W a k e f i e l d . Yes, sir. Mr. F o r t . And we would be justified, in your opinion, in such steps as we might take to endeavor to bring the entire banking system of the country up to the highest possible standard o f sound banking? Mr. W a k e f i e l d . Yes. I would not want to say, offhand, that the strictest form would be the better form, if that form would appear unreasonable. I f it was along national banking lines-----Mr. F o r t . One further question in reference to your cross-examina tion on the basis of your organization’s exchange o f stock: It would be absolutely true, would it not, if you took simply the asset value— that is, capital, surplus, and undivided profits, divided by the total number of shares outstanding in each bank, and use that as the basis o f your stock exchange, you would be putting too high a price in some •cases, and too low a price in others, because o f the total disregard of the intangible, such as good will ? 1012 BRANCH, CHAIN, AND GROUP BANKING Mr. W a k e f i e l d . That is true. Mr. F ort. S o, it is not water to include the good-will item, but it is necessary in order to preserve an equitable adjustment o f value as between different banks ? Mr. W a k e f i e l d . Yes, sir. Mr. F ort. Suppose your First Bank Stock Corporation was organ ized on a nopar stock basis, the same purpose would be reached by simply fixing the taking over o f the other banks on the basis of so many shares o f nopar stock? Mr. W a k e f i e l d . That is tru£. Mr. F ort. That is a modern method of capitalization in a great many instances, is it not? Mr. W a k e f i e l d . Yes, sir. Mr. B u s b y . I want to remind you, apropos o f my cross-examina tion, that you are making the statements and all you are getting from the witness is 44yes ” or 44no.” When you put words in his mouth he can answer “ ves ” or 44no.” But when I asked some questions that required him to use the words he could not answer for me. Mr. F ort. Well, you might call me the counsel for the defense. [Laughter.] On the distinction Mr. W ingo was asking you about between chain' and group banking, it has seemed to me that the word 44chain ” * implies interlocking links and that that means ownership by one bank itself o f another bank, or ownership where the stock is locked in loans in one bank to own another bank, rather than any system o f ownership where either an individual or a group o f individuals or a corporation, as in your case, owns the stock, which we would call group banking. Is that the distinction you have in mind ? Mr. W a k e f i e l d . That is the old common conception o f group banking, but I think there are some people who control banks along; slightly different lines that we call group banks. Mr. F ort. Namely, when the stock is owned by one bank in an other bank, or stock is owned by a group o f individuals in more than one bank, they borrowing from one to buy the other. In your judgment is that type o f chain banking either sound or defensible ? Mr. W a k e f i e l d . I think it is very undesirable. Mr. F ort. That is m y ow n idea. Mr. F e n n . The committee will stand adjourned until next Tuesday. (Whereupon, at 4.25 o’clock p. m., the committee adjourned to meet at 10.80 o’clock a. m., Tuesday, April 22, 1930.)
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