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92 FEDERAL RESERVE BULLETIN FEBRUARY 1938 GROUP BANKING IN THE UNITED STATES A group system1 comprises separately in- as amended;3 (2) a holding company which corporated banks, with or without branches, would be a "holding company affiliate" if the which are owned or controlled, directly or Reconstruction Finance Corporation did not indirectly, by a corporation, business trust, own preferred stock in the subsidiary banks; association, or other similar organization. and (3) what is regarded generally as a bank Chain banking is similar to group banking group even though there is technically no except that control is held or exercised by an "holding company affiliate" as defined in secindividual or a group of individuals. tion 2(c) of the Banking Act of 1933. Some of the characteristics and features Systems classified as banking chains are of group banking were described in the fol- not included in the tabulations since satislowing statement at a Congressional hearing: factory data relating to them are not avail"Group banking is the name that has come into able. The distinction between a chain and common usage for this step in the evolution of the a group is not always clear and in specific inAmerican banking system, which has developed ex- stances the decision as to whether a number tensively in the Northwest, prompted by a need to of banks operating under joint ownership or meet a definite change in economic conditions. Group banking is not simply chain banking under another control should be classified as a group rather name. Chains of banks under common ownership or than a chain was a close one. common control, usually of a single individual, have A large amount of the data relating to existed for generations, the majority stockholder or stockholders simply exercising that natural right group banks was obtained from information to supervise the operations of all the corporations in compiled in connection with applications for which their holdings represented controlling inter- voting permits filed by holding company ests. Chain management generally reflected a single affiliates with the Board of Governors of the dominant individual. Group banking, on the other hand, is the association of a number of corporately Federal Reserve System. independent institutions within a single holding company for mutual advantages, the group being built around one or more large banks of a territorial nature and its management resting in the hands of the banking interests of the territory served." 2 EXTENT OF GROUP BANKING Group banking includes banks of all classes and sizes and has developed in practically every section of the country. It varies, however, in the extent of its development in different areas and in the pattern of organization and development of individual groups. On the basis of statistics as of December 31, 1936, there were 52 groups comprehending 479 banks and 1,326 banking offices with loans and investments of $5,460,000,000 and deposits of $6,840,000,000.4 These groups The banking groups which have developed in the United States have followed no standard pattern. Some groups have been developed within the framework of a corporation or business trust formed for the purpose of owning bank stock. Many of such groups have been organized by interests identified with some large banking institution which came to be known as the "key" bank of the 1.—BANKS IN GROUPS AND ALL INCORPORATED group. In other cases, and in States in which TABLECOMMERCIAL BANKS, DECEMBER 31, 1936 banks may own stock, the groups have developed around State banks which themselves Num- Loans and Deposits Number of investthouowned the other banks in the groups. Not bankber of ments (in (in sands of ing banks thousands all of the groups, however, include any one dollars) offices of dollars) bank which may be termed a "key" bank. Scope of survey.—Tabulations and compi- All incorporated commercial lations used in this survey are limited to banks in the United States 14, 929 18,157 38, 904, 029 $49, 869, 319 i 479 5, 458, 413 6, 841,027 1,326 groups each of which had three or more Banks in 52 groups of banks in banks as of December 31,1936. They include Percentage groups to total banks 3.2 7.3 14.0 13.7 groups of three or more banks controlled by (1) a "holding company affiliate" as defined i This figure includes only incorporated commercial banks and exsuch institutions among others as trust companies without dein section 2(c) of the Banking Act of 1933 cludes posits, industrial and Morris Plan banks, etc. 1 Official statistics on group banking have been confined to groups comprising 3 or more banks. 2 Statement of Lyman E. Wakefield, Vice President, First Bank Stock Corporation of Minneapolis, Minn., U. S. Congress, 71st, 2nd Session, Hearings before the Banking and Currency Committee, House of Representatives, April 1930, p. 904. 3 See p. 98. 4 Included in the group figures are a few comparatively large banks which dominate the group rather than being subsidiarybanks. If the deposits of these banks were eliminated, the aggregate amount of deposits involved would be decreased by approximately $2,100,000,000. 93 FEDERAL RESERVE BULLETIN FEBRUARY 1938 embraced 3.2 percent of all commercial banks and 7.3 percent of the banking offices, which held 14 percent of the loans and investments and nearly 14 percent of the deposits of all banks in the United States. Table 1 shows these figures in detail. Table 2 shows that national banks constituted a larger proportion of the banks in groups than all of the other classes of banks combined. TABLE 2.—CLASSES OF BANKS IN 52 GROUPS, DECEMBER 31, 1936 Loans and investments (in thousands of dollars) Class of bank Number of banks National... __ __ State member Nonmember insured Nonmember non-insured 285 43 138 13 _ _ . Total 479 Deposits (in thousands of dollars) $3, 936, 429 $5, 062, 937 1,134,139 1, 321, 674 404, 523 335, 646 51, 893 52,199 5, 458, 413 6, 841, 027 in contrast with the distribution of all commercial banks as of December 31,1935, which indicated that about 40 percent of all such banks had loans and investments of less than $250,000 and less than 3 percent had loans and investments of more than $10,000,000. Size of groups.—From the point of view of the number of banks controlled the groups vary in size considerably, as is shown in table 4. Of the 52 groups covered in this study, each consisting of 3 or more banks, 33 groups each had from 3 to 5 banks, 8 each had from 6 to 9 banks, and 11 each had 10 or more banks. TABLE 4.—GROUP SYSTEMS CLASSIFIED BY NUMBER OF BANKS IN SYSTEM, DECEMBER 31, 1936 Size classification—number of banks in each group 3 4 ... 5 6 ._ 7 9 10 11 12 13 14 16 18 20 78 92 Loans and Number Number of investments Deposits of banks (in thousands (inof thousands groups controlled dollars) of dollars) 19 5 9 3 4 57 20 45 18 28 9 10 11 12 13 14 16 36 20 78 92 $523,150 187, 326 894, 214 111,535 245, 047 29, 935 171, 505 1, 313, 541 54,961 500,201 84, 252 206, 830 442, 283 79, 946 301,105 312, 582 $681,496 280,097 1,007, 990 149,005 381, 458 63,083 221, 769 1,488, 462 61,199 687, 854 102, 644 275, 432 518, 223 100,886 411,660 409, 769 Size of banks in groups.—Banks in groups vary in size from those with less than $100,000 of loans and investments to some of the largest in the country. Table 3 shows that 41 percent of the group banks had between $500,000 and $2,000,000 of loans and investments and 39 percent of them had $2,000,000 or more. Loans and investments, and deTotal 52 479 5, 458, 413 6, 841, 027 posits, however, were concentrated in the larger banks in the groups, 70 percent being in the 22 largest banks. BRANCH BANKING AMONG GROUPS Only 6 percent of the group banks had A considerable amount of branch banking loans and investments of less than $250,000 exists among banking groups. As shown in each, while 13 percent had loans and invest- table 5, 69 of the banks in groups operments in excess of $10,000,000 each. This is ated 847 branches; 580 of these branches were outside of the head office cities of the TABLE 3.—NUMBER OF BANKS IN GROUPS AND THE parent banks of which 441 were in nonconAMOUNT OF THEIR LOANS AND INVESTMENTS, AND DEPOSITS, CLASSIFIED BY SIZE OF BANK, DECEMBER tiguous counties. 31, 1936 Size group—loans Num- Perber cent and investments of of (in thousands banks total of dollars) Loans and investments (in thousands of dollars) Percent of total Deposits (in thousands of dollars) Under $100 100-149 150-249 250-499 500-999 1,000-1,999 2,000-4,999 3 9 17 70 102 93 83 38 42 22 1.9 3.6 14.6 21.3 19.4 17.3 7.9 8.8 4.6 $181 1,211 3,476 26,120 75, 317 134,129 251, 916 257, 991 874, 673 3, 833, 399 .1 .5 1.4 2.5 4.6 4.7 16.0 70.2 $268 1,737 4,844 35, 038 93, 807 168, 577 324, 412 331, 027 1,121, 695 4, 759, 622 Total 479 100.0 5, 458, 413 100.0 6, 841, 027 5,000-9,999 10,000-49,999 50,000 and over Percent of total .1 .5 1.4 2.5 4.7 4.8 16.4 100.0 TABLE 5.—NUMBER OF BANKS AND BRANCHES OR ADDITIONAL OFFICES IN GROUPS, AND LOCATION OF BRANCHES OR ADDITIONAL OFFICES, DECEMBER 31, 1936 Group banks operating branches 69 Branches or additional offices operated by group banks 847 In head office city 267 Outside head office city 580 Head office county 43 Contiguous counties 96 Noncontiguous counties . . . . 441 Group banks not operating branches 410 Total banking offices operated by groups.. 1,326 94 FEDERAL RESERVE BULLETIN FEBRUARY 1938 TABLE 7.—NUMBER, LOANS AND INVESTMENTS, AND DEPOSITS OF BANKS I N GROUPS AND ALL INCORPORATED COMMERCIAL BANKS BY STATES AND BY GEOGRAPHIC DIVISIONS, DECEMBER 31, 1936 Loans and investments Number Jtate and geographic division Ratio of Groups All banks in with head groups to office in (in banks thousand all banks State All banks Banks in groups New England: Maine New Hampshire Vermont M assachusetts Rhode Island Connecticut 70 65 77 202 26 120 3 4 21 3 3 10.4 11.5 2.5 Total 560 34 752 393 1,103 Middle Atlantic: New York New Jersey Pennsylvania— Total ___ -- East North Central: Ohio - --Indiana Illinois A/Tichiffan Wisconsin Total West North Central: Minnesota Iowa North Dakota South Dakota Nebraska Kansas Total South Atlantic: Delaware Maryland District of Columbia.._ Virginia West Virginia. North Carolina South Carolina Georgia Florida Total East South Central: Kentucky Tennessee ______ Alabama Mississippi Total West South Central: Arkansas Louisiana Oklahoma _ _ Texas Total Mountain: Montana - . Idaho Wyoming Colorado New Mexico Arizona Utah Nevada Total . _ Pacific: Washington Oregon California Total Total United States (percent) 4.3 6.2 B a n k s in groups s of dollars) Deposits Ratio of Ratio of All Banks in banks banks in in groups groups (in banks thousand s of dollars) to groups to all banks all banks 8,646 8,262 (percent) 4.8 11.0 2 1 1 75,181 106,246 1, 440, 476 272,510 436, 458 625,180 107, 444 29, 567 6.1 6 2, 511, 825 40 9 40 5.3 2.3 3.6 5 3 6 2,248 89 4.0 698 502 882 471 603 14 11, 229 8,685 (percent) 5.5 10.2 43.4 39.4 6.8 203, 710 84,889 105, 518 1, 875, 367 307,130 548, 393 883, 797 128, 598 36,178 47.1 41.9 6.6 779,099 31.0 3,125,007 1,068, 487 34.2 11, 651, 684 1,411,172 4,012, 266 471, 445 60,366 988,942 4.0 4.3 24.6 14, 308, 513 1, 736, 292 4, 702, 310 533, 481 77, 773 1,118,860 3.7 4.5 23.8 14 17,075,122 1, 520, 753 8.9 20, 747,115 1, 730,114 8.3 2.0 1 84, 252 4.9 4.6 .2 3.6 1 6,262 214, 206 .6 30.9 2, 218,409 803,031 4,033,028 1,430,468 863,966 102, 644 1 22 1, 711, 536 597,444 2,962, 468 1,046,074 693, 874 7,662 284,117 .5 32.9 3,156 37 1.2 2 7,011, 396 304, 720 4.3 9, 348, 902 394, 423 4.2 688 657 673 196 191 435 707 86 5 7 27 15 10 12.5 .8 1.0 13.8 7.9 2.3 3 679, 563 458,137 1,005, 527 57, 766 67, 263 236,510 267,055 419, 815 43, 550 119, 401 25, 691 28, 303 54, 615 61.8 9.5 11.9 44.5 42.1 23.1 890, 519 613, 589 1,441, 406 71,639 91,486 336,998 420, 245 564,842 54, 570 196,165 32, 709 35, 686 81, 556 63.4 8.9 13.5 45.7 39.0 24.2 3,547 150 4.2 6 2, 771,821 691,375 24.9 3,865,882 965, 528 25.0 9,347 99, 830 116,180 9.6 33.0 52.7 166,819 622, 390 334,044 573, 311 281, 749 410,742 155, 215 424, 444 334,490 16, 682 145, 702 182, 455 10.7 34. 3. 54.5- 3, 303, 204 344, 839 10.4 253 630 351 403 50,091 160, 304 10.7 31.8- 180,954 1 1 2 1 46 187 22 323 187 211 149 282 158 1 17 24 .7 6.0 15.2 2 4 141, 959 477, 623 229, 767 442, 205 214,359 291,138 97, 305 302, 433 220, 396 1,565 42 2.7 6 2, 417,185 225, 357 9.3 434 315 218 208 6 22 1.4 7.0 1 3 369,541 350,092 199, 471 129 799 40, 787 111,688 11.0 31.9 1,175 28 2.4 4 1,048, 903 152,475 14.5 1, 467, 637 210,395 14.3 . 470, 504, 287, 205, 222 146 403 882 10 1.1 2 107, 993 310, 201 282, 733 871, 446 94,116 10.8 179, 871 463,100 424, 709 1, 347,357 123, 616 9.2 1,653 10 .6 2 1, 572, 373 94,116 6.0 2,415,037 123, 616 5.1 119 53 58 151 41 14 59 10 26 7 3 21.8 13.2 5.2 1 52, 095 24, 864 2,195 56.9 38.2 5.7 53.9 39.9 5.9 11.9 10.0 3 54, 883 15,112 52.6 67.3 138, 210 96, 692 64,443 337,483 53, 709 76, 383 145,060 32,011 74, 475 38, 538 3,817 7 1 91, 630 65,110 38, 364 203, 808 32, 763 52,096 104,416 22, 464 81, 590 22, 607 56.2 70.5 505 44 8.7 4 610, 651 149,149 24.4 943, 991 221,027 23.4 183 92 245 24 4 17 13.1 4.3 6.9 5 3 335, 203 215,166 3, 334, 384 82,773 74, 355 1,384, 241 24.7 34.6 41.5 452, 328 285,841 3,914, 375 111, 109 91,906 1, 579,583 24.6 32.2 40.4 520 45 8.7 8 3, 884, 753 1, 541, 369 39.7 4, 652, 544 1, 782, 598 38.3 14, 929 479 3.2 52 38,904,029 5, 458, 413 14.0 49, 869,319 6,841,027 13.7 95 FEDERAL RESERVE BULLETIN FEBRUARY 1938 Of the 847 branches among groups 607 The 15 States where the proportion (more were in States permitting branches on a than 25 percent) of loans and investments State-wide basis and 227 were in States re- controlled by banks in groups was largest stricting branches as to location, as is shown were Massachusetts, Rhode Island, Wisconin table 6. A few years ago most of the sin, Minnesota, North Dakota, South Dabranches among groups were in States re- kota, Georgia, Florida, Tennessee, Montana, stricting branches as to location. Recent Idaho, Utah, Nevada, Oregon, and California. changes in laws relating to the operation of Table 7 shows in detail the number, loans and branches have increased the number of States investments, and deposits of banks in groups permitting branches on a State-wide basis. and all commercial banks by States. Extent of areas of operation.—Banking TABLE 6.—BANKING OFFICES OF BANKS I N GROUPS, groups may be divided into State and regional BY GROUPS OF STATES, DECEMBER 31, 1936 systems. Forty-two groups operated banks within the limits of a single State and 10 Number operated in more than one State. Forty-five Total States classified according to bankBanks law (June 1, 1936) regarding operated within the confines of a single Feding Branch operbranch banking Banks eral Reserve district, 5 operated in two disoffices ating offices branches tricts, and 2 operated in three districts. Table 8 shows the groups classified by the State-wide branch banking per693 number of States and the number of Federal 26 607 86 mitted 443 227 216 40 Branches limited as to location.. Reserve districts in which they operated and Establishment of branches pro143 the number of banks and banking offices oper2 6 hibited 137 No provision in law regarding 47 ated by them. 7 1 40 branch banking Total—All States 479 69 847 GEOGRAPHIC DISTRIBUTION OF GROUP BANKING 1,326 TABLE 8.—GROUP SYSTEMS CLASSIFIED BY THE N U M BER OF STATES AND FEDERAL RESERVE DISTRICTS I N W H I C H THEIR BANKS OPERATED, DECEMBER 31, 1936 Banks belonging to groups are located in Number of States in which group operated banks many sections of the country. Only sixteen States—Vermont in New England; Dela_._ ware, Maryland, District of Columbia, Vir- 21___ . ginia, West Virginia, and North Carolina in 34 the South Atlantic division; Alabama, Mis- 5 sissippi, Arkansas, Louisiana, and Oklahoma 7 . in the South Central division; Kansas in the Total West North Central division; Colorado, New Mexico, and Arizona in the Mountain diviof Federal Reserve districts sion—were without any reported banks in Number in which group operated banks groups of 3 or more. States with the largest number of banks (20 or more) in groups were 1 Massachusetts, New York, Pennsylvania, 2___ 3 Wisconsin, Minnesota, North Dakota, FlorTotal _ ida, Tennessee, Montana, and Washington. Number Number Number of bankof groups of banks ing offices 42 4 3 1 1 1 245 38 15 11 78 92 491 76 43 522 84 110 52 479 1,326 Number Number Number of bankof groups of banks ing offices 45 5 2 343 41 95 1,113 95 118 52 479 1,326 96 FEDERAL RESERVE BULLETIN Intrastate group systems—number of towns and counties served.—Table 9, giving the 42 intrastate groups classified according to the number of towns and counties in which banking offices were operated by them, shows that 7 of the groups served only 1 town each and that 35 others served from 2 to 29 towns each. It shows also that the operations of 16 groups were each limited to 1 county and that the others served from 2 to 20 counties each. TABLE 9.—INTRASTATE GROUP SYSTEMS CLASSIFIED BY THE NUMBER OF TOWNS AND COUNTIES IN W H I C H THEIR BANKING OFFICES OPERATED, DECEMBER 31, TABLE 10.—INTERSTATE GROUP SYSTEMS CLASSIFIED BY THE NUMBER OF TOWNS AND COUNTIES IN W H I C H THEIR BANKING OFFICES OPERATED, DECEMBER 31, 1936 Number Number Number of bankof groups of banks ng offices Number of towns in which banking offices operated 3. _ 6 8 13 18 19 25 73 97 1936 _ _ Total Number of towns in which banking offices operated 1 . 2 3 4 5 6 7 8 9 10 11 12 13 14 19 21 _ 29. Number Number Number of bankof groups of banks ing offices • Total 7 6 4 3 7 3 1 1 1 1 1 2 1 1 1 1 1 24 18 16 13 33 16 7 6 9 3 3 16 16 14 13 20 18 25 28 17 14 53 19 24 17 9 17 14 37 28 26 58 24 81 42 245 491 Number of counties in which banking Number Number Number of bankof groups of banks ing offices operated offices 1 2 3 4 __ 5 6 7 8 11 12 13 20 FEBRUARY 1938 . . Total 16 7 3 2 5 2 1 2 1 1 1 1 56 26 14 9 43 13 4 29 3 16 14 18 78 30 17 34 123 13 14 33 14 28 26 81 42 245 491 3 3 7 7 10 18 5 78 92 11 8 6 8 19 28 23 27 84 110 522 10 234 835 Number of counties in which banking Number Number Number of bankoffices operated of groups of banks ing offices 3 5 7 13 14 16 22 67 83 86 _. . _ _ _ _ Total 1 1 1 1 1 1 1 1 1 1 3 3 7 7 10 18 5 78 11 92 8 6 8 19 28 23 27 84 522 110 10 234 835 Size of towns in which banking groups operated.—Table 11 shows that 90 percent of the banks and 90 percent of the branches operated by group systems were located in towns of 1,000 or over. Branches operated by banks in groups were concentrated in large towns to a greater extent than the banks, 44 percent of the branches being in towns of 100,000 population and over. TABLE 11.—NUMBER OF BANKS AND BRANCHES IN GROUPS BY SIZE OF TOWN OF LOCATION, DECEMBER 31, 1936 P o p u l a t i o n of t o w n Interstate group systems—number of towns and counties served.—Table 10, classifying the 10 interstate group systems according to the number of towns and counties in which banking offices were operated by them, shows that 6 groups each had banking offices in from 3 to 19 towns, 1 in 25, 1 in 73, 1 in 97, and 1 in 311 towns. It also shows that 6 of these 10 groups operated in from 3 to 16 counties each; that 1 operated in 22 counties, 1 in 67, 1 in 83, and 1 in 86 counties. 1 1 1 1 1 1 1 1 1 1 U n d e r 250 . 250-499 500-999 - - 1,000-2,499 2,500-2,999 3,000-4,999 . . 5 000-5,999 6,000-9,999 10,000-24,999 25,000-49,999 50,000-99,999 100,000-499,999 500,000 a n d over Total Number Number of of banks branches Percent of total Banks Branches 1 8 37 62 24 44 25 40 79 37 19 79 24 10 22 51 113 22 58 16 55 56 27 45 131 241 .2 1.7 7.7 12.9 5.0 9.2 5.2 8.4 16.5 7.7 4.0 16.5 5.0 2.6 6.0 13.3 2.6 6.8 1.9 6.5 6.6 3.2 5.3 15.5 28.5 479 847 100.0 100.0 1.2 FEBRUAKY 1938 FEDERAL RESERVE BULLETIN ORIGIN AND DEVELOPMENT OF GROUP BANKING The early development of group banking is obscured because of the failure of early records to distinguish between group and chain banking. Banking literature indicates that group banking was discussed to some extent as early as 1892-1902 as a form of banking but there is no record of the organization of group systems during that period. Chain banking, however, developed considerably in the two decades prior to 1920 and in some respects may be considered as the antecedent of group banking. A few examples of group banking appear to have existed prior to 1920 but extensive development was a product of the late 1920's (1927 to 1930). In this period financial companies were developed on a broad scale in the field of banking to acquire control through stock ownership of corporately independent banking institutions. Many of the principal groups now in existence were established during this period. As of December 31, 1931, there were 97 groups of 3 or more banks each operating a total of 978 banks with loans and investments of $8,716,000,000. Of these 97 groups, 34 were described as leading examples of the group movement, each having 6 or more banks and loans and investments of $25,000,000 or more. A total of 674 banks with $6,301,000,000 of loans and 1investments was included in these 34 groups. FEDERAL REGULATION OF GROUP BANKING 97 report for 1930, however, he pointed out that it was his view "that group banking should be brought under the visitorial powers of the Federal Government in those cases where membership in the group is composed in whole or in part of national or State member banks of the Federal Reserve System" and said that legislation to this effect seemed to be necessary in the public interest. Four bills dealing with group banking were 3 introduced in the House in January 1930. On February 10, 1930, the Committee on Banking and Currency of the House of Representatives was empowered "to make a study and investigate group, chain, and branch banking during the present session of Congress." 4 Hearings were held by the House Committee from February to June 1930. In the latter month Senator Glass introduced in the Senate the first of a long series of bills which led up to the Banking Act of 1933 and which included provisions relating to bank holding companies. The Banking Act of 1933 recognized group banking and provided for its partial regulation. The Banking Act of 1935 contained certain minor amendments but made no fundamental change in the legislation on this subject. To provide a means to regulate group banking, section 5144 of the Revised Statutes was amended to provide that stock of a national bank controlled by a holding company affiliate shall not be voted unless such organization first obtains a voting permit from the Board of5 Governors of the Federal Reserve System. Section 9 of the Federal Reserve Act was amended to require a State member bank affiliated with a holding company affiliate to obtain and file with the Board an agreement that such organization shall be subject to the same conditions and limitations as are applicable in the case of holding company affilitates of national banks under section 5144. Section 5144 provides that the Board may grant or withhold a voting permit as the public interest may require. It further provides that in acting upon an application for a permit— In 1926 the Federal Reserve Board "addressed a letter to Congressman McFadden recommending that there be incorporated in the pending McFadden bill certain provisions designed to secure adequate information regarding national and State member banks which are closely related in management, operations, or interests to other banking institutions and, in particular, to afford some check upon the abuses2 frequently occurring' from chain banking." These suggestions, however, were not adopted by Congress. Prior to 1930, the Comptroller of the Cur- ". . . . the Board shall consider the financial conrency made but little comment concerning dition of the applicant, the general character of its group banking in his annual reports. In his management, and the probable effect of the granting 1 As of December 31, 1931, there were 176 chain banking systems with 3 or more banks operating a total of 908 banks with total loans and investments of $926,733,000. 2 Statement of Governor Roy A. Young of the Federal Reserve Board before the Banking and Currency Committee of the House of Representatives, U. S. Congress, 71st, 2nd Session, Hearings under H. Res. 141, March 18, 1930, Vol. 1, Part 4, pp. 442-43. S U. S. Congress, 71st, 2nd Session, H. R. 7966, H. R. 8005, H.4 R. 8366., and H. R. 8367. XL S. Congress, 71st, 2nd Session, Hearings under H. Res. 141, Vol. 1, Part 1, p. 1. 5 Under an amendment contained in the Banking Act of 1935, no voting permit is necessary to vote in favor of placing a bank in liquidation or action pertaining to liquidation. 98 FEDERAL RESERVE BULLETIN FEBRUARY 1938 reports must be published by the banks in the same manner as their condition reports. It will be noted that the law deals only with The conditions prescribed by the law are "holding2 company affiliates." That term is designed (1) to authorize the examination defined as including of the holding company affiliate, simultane- ". . . . any corporation, business trust, association, ously with banks affiliated with it, by ex- or other similar organization— aminers authorized to examine such banks; "(1) Which owns or controls, directly or indi(2) to authorize the examination of any bank rectly, either a majority of the shares of capital of a member bank or more than 50 per centum controlled by the holding company affiliate, stock of the of shares voted for the election of both individually and in conjunction with directorsnumber of any one bank at the preceding election, other such banks; (3) to authorize a require- or controls in any manner the election of a majorment that individual or consolidated state- ity of the directors of any one bank; or ments of condition of such banks be pub- "(2) For the benefit of whose shareholders or all or substantially all the capital stock of lished; (4) to require that after June 16, members bank is held by trustees. 1938, the holding company affiliate possess a member "Notwithstanding the foregoing, the term 'holding and/or acquire out of earnings a "reserve" company affiliate' shall not include (except for the of readily marketable assets and maintain purposes of section 23A of the Federal Reserve Act, as amended) any corporation all of the stock of which such "reserve"; (5) to make officers, direc- is owned by the United States, or any organization tors, agents, and employees of the holding which is determined by the Board of Governors of the company affiliate subject to the same criminal Federal Reserve System not to be engaged, directly penalties for false entries as officers, direc- or indirectly, as a business in holding the stock of, or or controlling, banks, banking associations, tors, agents, and employees of member banks; managing (6) to require the complete divorcement of savings banks, or trust companies." the holding company affiliate from "securities The last paragraph of the definition was companies" within five years from the date by section 301 of the Banking Act of of its application; and (7) to require the added 1935, in the light of experience in administerholding company affiliate to declare dividends ing the law. It made it clear that an organionly out of actual net earnings. As to most zation such as Reconstruction Finance of these matters, the law requires that the Corporation needthe not obtain a voting permit. holding company affiliate execute agreements However, its principal purpose was to prowhen it applies for a voting permit. vide a means by which the voting permit reThe law further provides that, after afford- quirements might be made inapplicable to ing the holding company affiliate an oppor- "accidental" holding company affiliates, ortunity to be heard, the Board may revoke a ganizations which came within the terms of voting permit if it shall appear that the hold- the definition but not within its intent and ing company affiliate has violated any of the purposes. As of December 31, 1936, the provisions of the Banking Act of 1933 or of Board had made the prescribed determinaany agreement pursuant to section 5144. tion with respect to 91 organizations, most Revocation of its voting permit subjects the of which had previously applied for voting holding company affiliate to certain penalties. permits. While the facts have varied greatly, Entirely apart from the provisions relat- it may be said that the basic consideration ing to voting permits, section 23A of the throughout has been whether the organizaFederal Reserve Act places certain restric- tions were engaged in group banking such as tions upon extensions of credit by a member the law was intended to regulate. Thus, in bank to its holding company affiliate and the great majority of the cases the organizaupon the bank's investments in, or advances tion in question has controlled only one bank. against, stock or obligations of the holding Procedure on voting permit applications.— company affiliate. Also, other provisions of Following the enactment of the Banking Act law1 require national banks and State mem- of 1933, the Board received applications for ber banks to obtain and file with the Comp- voting permits from a large number of holdtroller of the Currency and the Board, re- ing company affiliates. In handling such apspectively, reports of their holding company plications the Board found it necessary to affiliates as of the same call dates as condition adopt the practice of issuing limited voting reports are rendered by the banks. Such permits from time to time in many cases, de- of such permit upon the affairs of such bank, but no such permit shall be granted except upon the following conditions..." 1 Section 5211, Revised Statutes ; section 9, Federal Reserve Act. 2 Section 2 ( c ) , Banking Act of 1933. FEBRUARY 1938 FEDERAL RESERVE BULLETIN 99 f erring action concerning general voting per- group bank suspensions are available by years mits pending the development and analysi for the seven years 1930 to 1936. Informaof information, the completion of reorgani- tion as to suspensions prior to 1930 is not zation plans, or the correction of unsatisfac- available separately for banks in groups as tory conditions.1 A large percentage of the distinct from those in chains. applications was disposed of without the Decrease in groups, 1931-1936.—Between granting of general voting permits. While December and December 31, 1936, some general voting permits were granted the number31,of1931 banking groups which was earlier, it was not until December 1935 that reported decreased from 97 52. The charthe issuance of such permits to a substantial acter of this change is shownto in table 12. number of major holding company affiliates was authorized. Since the initial rush in TABLE 12.—CHANGES IN THE NUMBER OF BANKING 1933 and 1934, relatively few applications GROUPS BETWEEN DECEMBER 31, 1931 AND DECEMhave been received. BER 31, 1936 It has been a common practice for the Board to authorize the issuance of voting Number permits, both limited and general, subject to Banking" groups, December 31, 1931 97 conditions. It is now the Board's policy to Banking groups as of December 31, 1931, disrequire, as a condition to the issuance of any solved, decreased below defined size, or not congeneral voting permit, that the holding com- sidered group for other reasons, 1932-1936... 55 pany affiliate execute a comprehensive standgroups operating both on December 31, ard agreement designed to require the main- Banking 1931 and December 31, 1936 42 tenance of a sound financial condition and Banking group counted as one December 31,1931 proper policies and practices by the holding and counted as two groups December 31, 1936 1 company affiliate and its affiliated banks dur- Banking groups organized, increased to defined ing the life of the permit. The agreement size, or now considered group on basis of new 9 was prescribed in substantially its present information, 1932-1936 form in December 1935, prior to the issuance Banking groups December 31, 1936 52 of general voting permits to the major holding company affiliates. Of the 52 groups which appeared in the statistics for December 31, 1936, 42 were CHANGES AND SUSPENSIONS IN BANKING listed on December 31, 1931, one was added GROUPS dividing a group into two, and 9 other new During the past decade changes have taken by ones were added. These 9 new groups are place in the number of active groups and included in the current list because of inforwithin the groups themselves. Among the mation not previously available, because the important changes has been the dissolution of of associated banks was increased to many group systems because of suspensions number 3 or more since December 31,1931, or because of constituent banks, because of conversions groups were newly organized by conversion of the constituent banks into branches of from chains or otherwise since December 31, other banks in the groups, or for other rea- 1931. sons. There also have been important changes The 55 groups disappeared from the stawithin the groups which are still in operation because of conversions of some banks into tistical records of groups between December branches, because of mergers between and 31, 1931 and December 31, 1936 for a variety among banks within groups, because of dis- of reasons. The dissolution of some resulted position of group banks to outsiders, and oc- from the insolvency of the holding company because of suspensions, or from the fact that casionally because of suspensions. Data showing changes and suspensions for the group banks were consolidated with a key the entire period 1927 to 1936 are not avail- bank and operated as branches. Others have ble. Information for groups, as distinct from been omitted from the current compilation chains, was compiled for December 31, 1931 because they consist of less than three banks, and for December 31, 1936. Statistics of or because the systems are no longer considered groups on the basis of information now A limited voting permit authorizes the voting of stock of a bank only at a designated meeting or at a meeting or meetings available. Combination of a number of facheld within a designated period of time and only for purposes tors has operated in some cases. A classificastated in the permit, whereas a general voting permit authorizes the voting of stock of a bank at all meetings and for all purposes. tion of reasons which were compiled from the 1 100 FEDEKAL RESERVE BULLETIN FEBRUARY 1938 best information available is presented be- Some of the banks are in independent operlow: ation with the same or new names; others are in an affiliation of only two banks which for Insolvency of holding company because of suspensions 24 statistical purposes does not constitute a Conversions of banks into branches 17 group. Some of the affiliations were reduced Reclassified as being not a group on the basis of to two banks or were eliminated by the susadditional information 7 pension of banks in the group or their conDissolution of group and sale of banks 7 version into branches. Total 55 Changes in banks in active groups.—The 42 groups which were in operation both on December 31, 1931 and on December 31, 1936 were operating 611 banks on the first date and 443 banks on the second date. The change in the number of banks between the two dates is accounted for in table 13 below. TABLE 13.—CHANGES IN THE NUMBER OF BANKS B E TWEEN DECEMBER 31, 1931 AND DECEMBER 31, 1936 IN 42 GROUPS OPERATING BOTH ON DECEMBER 31, 1931 AND ON DECEMBER 31, 1936 Number of active banks, December 31, 1 9 3 1 . . . . 611 Decreases: Suspensions 3 Conversions to branches 88 Mergers, absorptions, consolidations, and voluntary liquidations 55 Affiliation with groups terminated 43 Reclassifications 6 Total decreases 195 SUSPENSIONS OF BANKS IN GROUPS, 1930-1936 In the period 1930-1933 there were 200 suspensions of banks belonging to 39 groups. There was one suspension of a bank belonging to a group in 1934 and none in 1935 or 1936. These 201 suspensions of group banks during the seven years accounted for $1,115,916,000 of loans and investments and $1,011,360,000 of deposits. By geographic area.—Over one-half of the suspended group banks were located in the East North Central and West South Central States. Suspensions in the East North Central States accounted for almost two-thirds of the loans and investments of all group banks which suspended. This concentration was the result of two very large bank suspensions in Detroit, Michigan. These two banks accounted for nearly one-half of the loans and investments, and deposits of all group banks suspended 1930-1936. Table 14 shows group bank suspensions by geographic areas. Increases: Banks acquired by groups and suspended banks reopened 27 TABLE 14.—SUSPENSIONS OF GROUP BANKS BY GEOGRAPHIC REGIONS, 1930-1936 x Number of active banks, December 31, 1936 443 Suspended banks Percent of total Num- ber Forty-five percent of the gross decrease Loans Loans of Region of banks in these groups was accounted for and Deand Degroups Num- invest- posits Num- in- pos- inby the conversion of banks into branches. ments vest- its volved (In thousands of ments Such conversions were concentrated in States dollars) which changed their laws since 1931 so as to New England 654 $125, 950 10.4 13.7 12.5 5 allow the operation of banking branches or Middle Atlantic. 2117 $152, 44, 205 38, 609 8.5 4.0 3.8 9 10 East No. Central. 55 695, 219 657, 859 27.3 62.3 65.0 so as to extend the areas in which branches West 28, 611 25, 654 5.0 2.6 2 2.5 Central 10 could be organized. Six groups which were South No. 3 20, 499 14, 040 1.5 1.4 1 1.8 Atlantic _„ 10 88, 275 78,994 5.0 7.9 4 7.8 So. Central.. still in operation in 1936 accounted for 69 of East 48, 164 37, 935 24.9 4.3 3.8 5 West So. Central. 50 11 9,903 9,839 9 2 5 5 1 0 Mountain the 88 banks converted into branches. 24 28, 386 22, 480 11.9 2.5 2.2 6 Pacific Total 201 1,115,916 1, 011, 360 100.0 100.0 100.0 Disposition of banks in dissolved groups.— 2 40 Of the 367 banks controlled by the 55 groups No group banks suspended in 1935 or 1936. which disappeared from the group statistics 12 Suspensions occurred in the same group in two or more geographical areas in some cases. The total eliminates the duplications. between December 31, 1931 and December 31, 1936, 190 were eliminated directly or indirectly by suspensions, 100 converted to The States with the largest number of branches, and 34 were merged, absorbed, con- group bank suspensions 1930-1936 were solidated, or voluntarily liquidated. Arkansas, Michigan, Illinois, Washington, 101 FEDERAL RESERVE BULLETIN FEBRUARY 1938 Massachusetts, and Idaho. These six States accounted for 64 percent of all group bank suspensions during this period. Michigan accounted for about 60 percent of the loans and investments and of deposits of group banks involved in suspensions during the same period, owing to two large suspensions in Detroit. By years.—Table 15 shows the 201 suspensions of group banks by years. There were 91 suspensions in 1933 compared with 109 in the three preceding years, one in 1934, and none in 1935 or 1936. The group bank suspensions during the seven years involved $1,011,360,000 of deposits, over three-quarters of which were accounted for in the year 1933. accounted for almost 70 percent of the deposits of all group banks which suspended 1930-1936, as a result of the two large national bank suspensions in Detroit. TABLE 16.—SUSPENSIONS OF GROUP BANKS BY CLASSES, 1930-1936x National State member Nonmember Loans and investments (in thousands of dollars) Deposits (in thousands of dollars) 57 12 132 $735,692 125,150 255,074 $694,787 100,472 216,101 201 1,115,916 1,011, 360 Number Class of bank _ Total i No group banks suspended in 1935 or 1936. TABLE 15.—SUSPENSIONS OF GROUP BANKS BY YEARS, 1930-1936x Suspended banks Year 1930 1931 1932 _ 1933 2 1934 . 1935-36 Total Loans and DeNum- investposits ber ments (In thou sands of doll ars) Percent of total Number of Loans groups and Num- ininDeber vest- posits volved ments 6 $117,332 $104,007 76,830 70, 646 52,127 39, 562 861, 847 788, 538 7,780 8,607 26.4 10.4 17.4 45.3 .5 10.5 6.9 4.7 77.2 .7 10.3 7.0 3.9 78.0 .8 7 9 29 1 201 1,115,916 1,011,360 100.0 100.0 100.0 3 40 53 21 35 91 1 By size of bank.—For the group banks which suspended in 1930-1936 deposits averaged $5,030,000. Of the 201 banks, 85, or 42 percent, had loans and investments of $1,000,000 or more. The suspensions in 1930, however, included many small banks so that only 19 percent of the suspended group banks in that year had loans and investments of $1,000,000 or more. Table 17 presents details of group bank suspensions by size of loans and investments. TABLE 17.—SUSPENSIONS OF GROUP B A N K S , BY SIZE OI* LOANS AND INVESTMENTS, 1930-1936* 1 No group banks suspended in 1935 or 1936. 2 Includes 8 banks with $13,610,000 of loans and investments and $9,141,000 of deposits which suspended between January 1, 1933 and March 15, Percent of total Suspended banks 1933; 6 licensed banks with $26,870,000 of loans and investments and $22,342,000 of deposits which suspended between March 16, 1933 and Size group—loans and December 31, 1933; 44 banks with $700,760,000 of loans and investments Loans Loans and $650,300,000 of deposits not licensed following the holiday and sub- investments (in thousands investand Num- and of dollars) sequently placed in liquidation or receivership; and 33 banks with ments (in Numinvestber ber $120,607,000 of loans and investments and $106,755,000 of deposits not thousands ments licensed by June 30, 1933 but licensed at one time or another after that of dollars) date. s Suspensions occurred in the same group in two or more years in .1 10.0 $1, 271 Under $100 several cases. The total eliminates the duplications. .2 7.5 1,820 100-149 .4 11.4 4,524 150-249 11.9 .7 8,308 250-499 16.9 2.2 23, 977 500-999 13.4 3.5 39, 314 1,000-1,999 12.4 6.9 76, 941 2,000-4,999 6.0 7.5 83, 646 5,000-9,999 9.5 34.6 386, 471 10,000-49,999... 1.0 43.9 489, 644 50,000 and over By class of bank.—Of the 201 group banks which suspended during 1930-1936, 132 were nonmember banks, as shown in table 16. About two-thirds of the suspensions of national banks in groups occurred in 1933 among banks which were not licensed following the banking holiday. National banks Total 201 1,115,916 i No group banks suspended during 1935 or 1936. 100.0 100.0