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A meeting of the Federal Reserve Board was held in the office of the Federal Reserve Board on Wednesday, November 7th, at 11:10 a.m. PRZSENT: Governor Crissinger Mr. Platt Er. Hamlin Er. Miller Er. James Er. Ounnindham Er. Dawes Er. Eddy, Secretary. The minutes of the meting of the Federal Reserve Board held on liovernber 6th were read and approved. Letter dated November 5th, from the Governor of the Federal Reserve Bank of Boston, with respect to previous correspondence between the Board and the Blackstone Canal National Bank of Providence, Rhode Island, concerning certain bankers' acceptance transactions. Referred to Cornsel for preparation of a reply. Letter dated November 5th, from the Governor of the Federal Reserve Bank of Boston, transmitting a report from the Havana Agency of that bank for the week ending October 31, 1923. Ordered circulated.. Letter dated November 5th, from Deputy Governor Bullen of the Pederal Reserve Bank of Boston, quoting from a letter received from the Ilavana Agency of that bank, with respect to an inquiry received by the Atlanta Agency from the Cuban Treasury Department as to whether said Agency Would redeem mutilated United States currency. Referred to Committee on Cuba,. 11/7/23 -2.- Letter dated. rovember 5th, from the Governor of the Federal Reserve Bank of Boston, conveying inform9.tior received by him to the effect that the Manager of the Havana Agency of the Federal Reserve Bank Of Atlanta had quoted the National City Bank of New York a rate of 1 4.00 per thousand for a cable transfer, for which the National City Bank intended to make pa1m3nt in gold coin. Referred. to Committee on Gabs. Memorandum dated. November 7th, from the Secretary of the Board requesting approval of action taken in dismissing Ira H. Stowat messenger, as of the close of business November 30, 1923. Approved. • Letter dated November 3rd, from the Chairman of the Federal Reserve Bank of Atlanta, transmitting and recorarending approval of the arplication of the First National Bank of Montgomery, Alabama, for perMission to accept drafts and, bills of exchange up to 1005 of its capital and surplus, under the provisions of Section 13 of the Federal Reserve Act. Approved, The Committee on , r.amination rerorted on the matter referred to it at the meeting on November 6th, namely, letter dated October 31st from the Chairman of the Federal Reserve Bank of San Francisco, enclosing a commu.nicat ion from the Vice President of the Pacific Southwest Trust and. Savings Bank, with respect to the action of that institution in pur- 11/7123 chasin the assets of the First ::ational Bank of Lindsay, California; the Committee reporting that in view of the facts and ciraumstances surrounding the case, the Vice President of the Pacific Southwest Trust and Savings Bank is justified and correct in his statement that their action in the matter is not such as to involve the permission of either the State Banking Department or the Federal Reserve Board. Upon motion, the report of Committee was approved. The Governor brou,fht up the matter docketed as special order busizless for today's meeting, namely, the supplementary report of the Pension Committee to the Federal Reserve Board, transmitted in the letter of the Chairman of the Committee dated November 30th. After a discussion as to the power of the Federal Reserve Board and the Federal Ileserve banks to enter into the plan proposed and the advisability of their so doing, 11r. :Mier moved that the Chairman of the Committee be advised that the Board has considered the sanplementary report , and that nothing should be Oone looking toward putting the plan into effect under the laws of the District of Columbia, as recommnded on page t4 of the report, and further that the Committee will be advised in he course 'hen the Board has reached a conclusion with respect to the plan, as a whole, and whether it approves or disapproves. Carried. LIr. Hamlin moved that the question of the merits of the plan be laid on the table until after the forthcoming Governors' Conference. Carried. The Committee on Examinations reported on the matter referred to it at the meeting on October 30th, namely, the formulation of a policy to -4- 11/7/23 be followed by the Board with respect to the further extension of branch banking in the United States. The Committee, not being in agreement as to the nature of its recommendations, submitted a majority report, signed by Messrs. Dawes and James, and a minority report, signed by 1:r. Platt, which follow: Majority Report The Examination Committee herewith submits to the Federal Reserve Board a resolution accompanied by an opinion as to its legality by the Counsel of the Board, upon whic:h it recommends immediate and favorable action. The substance of this resolution has been a matter of long and intensive study by all of the members of the Federal Reserve Board and the Board should be, therefore, in position to express itself and to take a definite stand on the subject. The Committee desires to submit the following reasons for recommending this resolution which lays dawn certain general principles for the guidance of the Board in acting upon the individual cases presented to it. The organization of the Federal Reserve System was possible because of the power of the National Government to enforce the t its inception it was pricooperation of the national banks. tion, imposed upon the excoordina of ntality marily an instrume ip of the Federal membersh full the but system, isting national are organized under Which banks of composed now is System Reserve 49 different governmental authorities, operating through the National Bank Act and the banking laws of the 48 different states. The intent of the Federal Reserve kct is necessarily to compromise and reconcile the operations of the banks under those 49 different sets of laws, since a rigid and technical adherence to a detailed formula would make the Federal Reserve System impracticable of operation. Recognizing this principle the Federal Reserve kct provided for the supervisory control of the operations of the member banks by the Federal Reserve Board and clothed this Board with certain discretionalupoers over the member banks in order that, amongst other things, it should have the duty of seeing that the "corporate powers exorcised are consistent with the purposes of ct". If a bank or a group of banks is engaged in a form of bankinc or in practices Which are prejudicia to the successful opera- this t's ) -5- 11/7/23 tion of the system, the Federal eserve Act permits, and. indeed rejuires, that the Federal Reserve Board c'qould assert its authority to compel conformity on the part of such member banks to the f-andamontal principles upon which the Act is based., as well as to the specific provisions thereof° ":ithcrat passing upon the question as to whether or not branch banking is in its fundamentals antagonistic to the Federal Reserve System, the fact is indisputable that certain i,:ember Banks are privileged in a practice which is definitely forbidden to other Member Banks and very naturally, has resulted in unfair corr2etition. :This disadvantage applies with special force to the National Banks which, in the opinion of two Itttorneys General, have not the rijit to indulge in any form of corporate activities beyond the limits of the city or town in which the bank is located. It is the opinion of your Corr:Atte° that the unlimited extension of the practice of Branch Banking will give to banks operating under liberal State Charters such competitive advantages over the unit banks which are members of the Federal Reserve System, as to impair rraterially their usefulness, if it, in fact, does not ultimately result in their extinction. Your committee believes that it is clearly the duty of the Federal Reserve Board to lay down a policy to the general end that all banks, National and State, may operate for the good of the System, and that the :pod of the System cannot be subserved by the operation within it of a group whose activities must essentially endanger the very existence of another group° "A house divided. against it self cannot stand." The responsibility to effect an adjustment on fair, broad, general lines is a very great one, and one which this Board cannot evade by a technical interpretation of the law which is not based. upon sound principles of equity. It is, in the opinion of your committee, the duty of the Board to lay down principles upon which member banks may operate with a proper regard for the good of the System, and to establish a basis for a fair adjustment as between the different member banks which compose it. 7.'hether National or State, no bank should enter or continue in the System which is not willing to waive such of the privileges granted. to it by the Act under which it is incorporated as nny be inconsistent with the general purposes of the organization to which it belongs. It is the duty of the Federal Reserve Board to prescribe the basis for this compromise and. in so doing to insist on the terms which may be necessary in order that () ) -6- 11/7/23 the com6ensating advantages of membership in the System may be secured. It is manifestly unfair for the Board in its current activities to refrain from notifying the members as to such general principles it will consider in carrying out such adjustments. It is unfair to permit a member bank unwittingly and innocently to engage in a course which may, without warning, meet with the criticism and prohibition of the Board. Therefore, the Committee submits the attached resolution and urges favorable action on the part of the Board to the end that the =miners of the System may know to what extent they will be limited in their activities in this important matter of branch banking, upon which the Federal :eserve Act expresses itself only by implication. It is the opinion of the committee that, in certain specific instances, the interests of its members rejuire at the present time a clear and definite statement as to the limitations and the privileges viLich will be recognized. It is necessary and only fair that those mo:/bers which are engaged in this form of banking should be notified in advance of the extent to which their activities may be carried on within the System and that those member banks which are forbidden by law or have not as a matter of policy engaged in branch banking should know the extent to which other member banks may be permitted to compete with them within the System and the terms of such competition. It is the opinion of the Committee that the resolutions prepared offer as fair and reasonable a basis of compromise as is practicable under the Present laws, both State and National. It will be observed that in recognition of the conditions which may exist in certain localities the State member banks would not be affected by this declaration of principle in the operation of full branch banking powers within the limits of the city in Which the parent bank is located and in contiguous municipalities, and that this privilege is not impaired and denied them in spite of the fact that National Banks may, under the law, engage in only limited activities beyond the four walls of their banking house, and those only within the limits of a single municipality. This resolution does not give the National Banks facilities equal to those of the meffier banks operating under the laws of certain states. It does, however, in the opinion o: the Committee, relieve the National Banks from the competition of state banks operating from headquarters in remote localities. The Committee does not contend that it places the State meMber banks and the National Banks -7- 11/7/23 System, in certain states on a basis of equality in the the as far as going as but it regards the resolution produc in permit State, and present laws, both rational ecuity te Comple ment. ing a condition of equitable adjust either State can be established only by the modification of or rational laws, or perhaps both. e It is the opinion of the Counsel of the Federal Reserv the g passin Board that the Board acts within its rijhts in The Committee, in preparing resolution herewith submitted. ted this resolution, has recognized that the action advoca e Let, touches upon a vital principle of the Federal Reserv that and the fundamentals of American banking. It believes the of n opinio ble its action will be sustained by the favora g sentibankin and general public, the legislative authorities, a matter in that r, ment. It recognizes as undesirable, howeve ary of such basic importance, its action be considered as arbitr date the that ended or precipitate. It is, therefore, recomm for the operation of this policy should be set forward until have a February let, 1.924-, in order that the member banks may and ions, provis its reasonable time to adjust themselves to l or curtai to desire that if, in its wisdom, Congress should -)rcised a::. as Board e Reserv to enlarge the powers of the Federal so bedo to unity opport an under this resolution they may have fore it can be put into effect. Respectfully submitted, Committee on Examinations. (3igned) Henry M. Dawes, Chairman George R. James. Aesolution. W1EIR4AS, under the terms of the Federal Reserve Let nation e Reserv l Federa the of s member al banks are reLluired to become may beSystem and cannot withdraw therefrom, while State brnks rom at theref aw may withdr and come members by voluntary choice • will, and, d 'HERELS, the Federal Reserve Act contemplates a unifie ipartic can banks al banking system in 7hich State and Nation pate on a basis fair to both, and, wmams, State banks in certain States have been permitbranch bankted by law or regulation to engage in State-wide l Statutes Federa the by ing while national banks are restricted —8— 11/7/23 from establishing branches or offices beyond. the limits of the city in which the parent 1:calk is located, and, 7=1.1111.S, the Board believes that this results in an inequitable situation rich renders it impossible for l national and. State banks to exist together in the Federa Reserve System on a fair competitive basis =less the powers of State and national member banks to engage in branch banking are reconc iled, and, 71-MIMA.S, in the interest of the successful administration of the Federal Reserve System, it appears necessary and desirable to confine the operations of member banks within reasonable t errit orial limit s, and, M.RMS, the Federal Reserve Board is authorized by the Federal Reserve Let to prescribe conditions under which Resapplying State banks may become members of the Federal , erve System 1T07, TIIEREFOMi, BE IT RESOLVED, that the Board continue hereafter as heretofore to require State banks applying for admission to the Federal Reserve System to agree as a condition of membership that they will establish no branches except with the permission of the Federal Reserve Board; BE IT F1rnTH22 RISOLVLID, that as a general principle, State banks with branches or additional offices outside of the corporate limits of the city or town in which the parent banks aro located or territory contiguous thereto ought not be admitted to the Federal Reserve System except upon condition that the;; rolin,iuish such branches or additional offices; FURTLIER RESOLVED, that, as a general. principle, 1 BL, State banks mhich are meMhers of the Federal Reserve System ought not be remitted to establish or maintain branches or additional offices outside the corporate limits of the city or town in whi -_h the parent bank is located or territory contiguous thereto; B: IT :MUTER IESOLVED, that in acting upon individual applications of State banks for admission to the Federal Reserve System and in acting upon individual applications of State banks which are menibers of the Federal Reserve System for permission to establish branches or additional offices, genthe Board, on and after February 1, 1924, will be guided erally by the above principles; B2 IT FURTIMR. Ili:SOL7D, that the term "territory contiga city uous thereto" as used above shall mean the territory of the with ide inc or t own whose c orpo rat e limit s at some point co -9- 11/7/23 corporate limits of the city or town in which the parent bank is located; 13::: IT :JUR= RESOLVED, that this resolution is not intended to affect the status of any branches or additional offices established prior to February 1, 1924, either those of banks at the present time members of the Federal Reserve System or those of banks subsequently applying for membership in slid System, (Signed) Henry M. Dawes, Chairman qeorge R. James. Minority aport. The resolutions submitted in the report of the majority ions are based upon the assumpof the Committee on .1xaminat Federal Reserve Board to deny the of duty tion that it is the to exercise any of the right the member to any state bank thot appear to give it a charter state powers granted in its in competition, even thow.;h banks national marked advantage over the advantage of the to be may powers the exercise of these and even though the located are banks the communities in which the soundest bankwith e accordanc in powers, themselves, may be ing principles. If the Federal Reserve Board Should adopt this attitude and pass the resolutions proposed with relation to branch banking, it would be tantamount to an attempt to force the state banks to conform to the national banking laws and would be a complete reversal of the position the Board has taken, not only in the matter of branch banking but in all maters touching competition between state and national banks where the practices of the state banks have been deemed to be sound banking. The Board's annual reports from the organization of the Federal Reserve System bear witness to the fact that the Board has always taken a progressive position. It has not soa;ht to repress and hold back state banks from the exercise of sound banking privileges, but has always recommended amendments to the National Banking Act, or the Federal Reserve Act broadening the powers o: the rational Banks. Excepting the Act of 1900, which was chiefly an effort to increase the attractiveness of the note-issuing privilege, • 11/7/23 -10m thaujit it also provided for national banks with a minimu laws capital of25,000, very few chances were made in the Fedthe e of passag the to prior banks affecting national eral Reserve Let. State banks by the abolition of their note issuing privilege through the 10 per cent tax, made effective in 1866, were reduced from 1562 in 1860 to 247 in 1838, and almost all of the surviving 247 were in the eastern financial centers where deposit banking had begun e to assume considerable proportions. Lon;.; before the passag the passed and ken overta had they Act of the Federal Reserve National Banks in nu..lbers, and the chief increase had taken place not in the financial centers but in the agricultural west. ITor was the increase confined to small banks. During the ten years 1899 to 1909 state banks with a capital above .50,000 increased in practically the sime numbers and at a rauch greater percentage than national banks. (Barnett "State Banks and Trust Companies", 222-223). The fact is that nation comof types n certai to ly narrow very al banks had been held mercial banking, and nearly all progress in banking had been made by state banks, which steadily gained as the note issuing monopoly of the national banks became of less and less importance. The Federal Reserve Act provided not only for the banding together of national banks in a cooperative system but it also liberalized the National Banking Act by adopting some of the best features of some of the best State banking legislation - notably in the recognition of a difference between time deposits and demand deposits in reserve requirements. It contained an attempt to allow, the exercise of certain trust powers to national banks, and provided that the larger national banks might establish foreign branches. Not long after the Federal Reserve System was organized the attention of the Board vas directed to the fact that the competition of the state banks had not lessened and to the losses among national banks which were constantly being converted into trust companies, but instead of endeavoring to prevent state bank members from azercisin: trust powers the Board recommended and in fact prepared a bill for amendment to the 2ederal.Reserve Act broadening Section 11 (R) so that national banks mijht exercise trust powers. This was passed in 191:;0 The effort of the Board has been to make the national the banking system as inclusive as possible, but it has at bank state member the to add to ntly same time sought consta I 11/7/23 -11- ship and has not attemted to restrain state bank members from the exercise of proper tanking powers enumerated in their charters. It has been actuated by desire to benefit the business interests of the country rather than the interests of any particular group of banks. The Board favored the amendments of 1917, which provided that state banks might be admitted to the system retaining their charter ri,:hts, and an examination of the correspondence that preceded the admission of the California state banks maintaining branches ;Aal show that they were clearly admitted with the understanding that their charter right to such branch extension as should be found consistent with sound banking would not be denied. Several times the Board as well as the Controller have recommended that national banks should be given branch banking privileges within the states where branch banking is remitted by state law, and the Board at one time recommended that national banks should be given branch banking privileges within city limits without regard for state law. This was at one time recamended also by the Federal Advisory Council. The Board in 1916 and 1918 recommended the enactment of a bill providing for branch banking within county limits, or within a radius of 25 miles from the parent bank. If, now, the Board reverses itself and attempts to restrict state banks throuj;h the right to impose conditions when they apply for membership it will be in effect attempting to make state banks conform to the National banking act, and become practically national banks, so far at least as branch banking is concerned. Limited branch banking within municipal limits has recently been extended the national banks through new regulations from the Comptroller, following a more liberal interpretation of the 1= by the Attorney General. If the Board had any reason for believing that branch banking beyond city limits must necessarily be unsound there would be ground for the complete reversal of its position but the majority report does not claim that it is unsound and apparently has abandoned the assumntion that it is contrary to the Federal Reserve Act. S -ch claims, in fact, could not be sustained by the Federal Reserve Board at this time. Branch banking beyond city limits has existed in the Federal Reserve System since its organization, in national banks as well as in state banks, and the National banking act, itself, has since 1865 provided for branch banking through the authorization for the conversion of state banks with branches into national banks. State-wide branch bank- 11/7/23 11 -12- ing is authorized in a nunC,,er o: southern states and in the state of Rhode Island, and limited branch banking, either by counties or in districts contiguous to cities, Is authorized in a number of other states* Before the Civil -:ar and the passage of the National banking act branch banking was common throughout the Thst and South* Nearly every western state before 1860 had developed systems of state-wide branch banking and some of these systems, as in Indiana and Ohio, were notably successful* In some states as many as 40 branches were maintained and these state-wide systems might all have been brought into the national banking system under the Act of 1.865* It cannot be maintained, if one may judge from the history of state banking in the United States, that branch banking necessarily imLlies the destruction of unit banking* The two existed side by side in Ohio and in other middle western states, as well as in the South, before the Civil :,ar, and in the southern states branch banking has lly authorizmade comparatively slow progress even where ed by law. It is undoubtedly true, as the majority report says, that in branch banking beyond city limits certain member banks are engaging in a practice which is definitely forbidden to other metber banks. This at once raises the ,luestion whether there is good reason to continue to forbid the plactice to the other member banks* Unless the Board is willing to take a retrogressive, repressive position in a matter printtrily of competition between two classes of banks, and without regard to the public convenience and the interests of the co -runities served, it should in my opinion instruct the Committee to vA3rk out regulations which will guide and direct the extension of branch banking in California withott attempting to deny all further extensions, and to that end full consideration should be given the letter of October 8, 1923, addressed to the Board by the responsible executive officers of three of the largest State ban:1s engaged in branch banking in that State, That letter appears to me to present frankly a sound basis for such regulations. Economic developments, such as the recent growth of branch banking in California, do not take place without a mason, and should not be arbitrarily repressed by any governmental body. They should rather be studied and guided with the purpose of determining whethcr they may not represent a real advance in American banking* 11/7/23 —3.3- Branch banking lr.s been reco-;nized by the foremost authorities on banking in the United States as a natural method of extending banking facilities to small communities, as presenting opportunities for diffusing business risks over larger areas than at present with a gain analagous to that which such diffusion brir..,;s to insurance, and as having the advantage of ability to nr.ke loans from a common fund of capital and deposits in accordance with the unequal and varying demands of different industries and sections served. 'here is reason to believe that the agricultural sections of the United States wild be far better served, and with the deposits of the farmers much more adequately safeguarded, under systems of branch banking, whether limited to counties or state wide, than at present. California is trying the experiment, and no evidence has so far been presented to show that it is not serving the people of the State well. (Signed) Edmund Platt. Mr. Dawes moved that the report of the riljority of the Committee be adopt ed.. 1.1r. Hamlin moved that the minority report be substituted for the tnaierity report. Thereupon ensued a discussion of the two reports, various members of the Board expressing opinions as follow: Mr. Hamlin "I think we all understand that the original policy of the Board as to the adniis:3ion of State banks with branches and the acquisition of new branches, aaepted in the early stages of the System, was adopted only after the greatest (5,f care and consideration of law and facts. That original policy the other aa:07 was reversed by the Board. I do not quoc.ition at all the right of any J3c3ard to reverse any policy it believes to be wrong, but the question to my had litd is "Is the new policy right, is it v:arranted by law". The policy we however, resolution, majority The law. by warranted was already laid down "hIch we are now discussing, was originally based on the claim that, as a -14- natter of law, unlimited branch banking was inconsistent with the Spirit of the ?ederal 2eserve Act. row, as Mr. Platt has brou2:ht out, that claim has boon abandoned in the present resolution. The CommittoD does not rely on that at all. If it did rely on that, should say that the report of the Committee was logical, and if correct in law, which however, I deny, that it would be our duty to overthrow the former 7)olicy of the Board. I feel strongly that this' resolution should begin with the clause "Be it enacted", because it is the closest approach to legislation which we ever proposed to lay do:n without authority from Congress. It is a legislative act to prevent unfair competition. The Committee states that unless conflicting powers of State and national banks are reconciled, it will be impossible for the System to o on. It proposes to reconcile the powers of the State banks with the powers of the national 'banks by taking away from the State banks powers given by their charters, under the Claim that we have the right to do that under our power to lay dawn conditions. The Attorney ,leneral has advised us that State banks can enter our System with interlocking directorates free from the limitations of the Clayton Act. ':Iould any one contend that we could lay down the condition that State banks must ;ive Up that right as a condition to admission to the System. Yet that richt is not half as important as the right to establish branches. If the assugmtion of power on the part of the framers of the majority repolt is correct, it would be within the power of our Board to igrose as a condition of admission that all applicant State banks must waive and agree never to exercise any power however sound from a banking 1-7oint of view, which national be,nks are not 1)ermitted to exercise by law, ;urely no such power was ever ,granted to our Board by Congress. In my opinion, this Board has no power to impose any condition exceTA such as is expressed in the Federal Reserve :Let, or necessarily imDliod from its language. I do not object to the condition requiring consent of the Board to the establishment of now 'branches but feel certain that such consent or refusal must be based on the laxvixai;e expressed or necessarily implied in the let, and that refusal based on a dislike or distrust of branch banking generally, apart from the financial condition of the Parent bank and the proposed branch, is an unlawful assunrtion of power. I believe firmly that if t;le spirit of this resolution is carried out by the Board, it will be a terrible blow to the agricultural interests, at least, of California, I think agriculture, in California, at least, is greatly benefited by the branch banks which can give larger loans than the unit banks and I can't see that the unit banks have been, up to the present time, at lost, injured from having branches side by side. Mere e 11/7/Z -15- has been no reduction in rates except in oioneer districts and in no Other way can branches of State banks dan-orously injure national banks by way of corlpetition• This rosolution is inconsistent. It lays down a principle Of action for the future, but it is careful to say that as to every bank in ! . alifornia or the country, that has branches today, their branches are not to be affected. In other words, we propose.to j.ve a monopoly to the banks of California that have had the good fortune to get in under the wire. ?heir monopoly is to be protected, but no new banks who haven't gotten under the wire can come in, and i use tho very =rds of the resolution, - "Unless they relin-iuish such branor additional offices" z:s they now have. That will subject the Board to severe and just criticism. The Comittee also leaves open the date until february, 1924. I am afraid it is danGorous. It is going to invite a flood of applications. I may ho wrong about that. The Committee did that I suppose to make the resolution less stringent than it would otherwise a7,pear to be. This, in brief, is my feeling about the resolution. I think we have no -oauer to put into effect such a resolution but I am not saying there ought not to be some change in the laws of California. 13rsonally, I think it mi ht be well to make those laws more specific and not give so much power to the banking superintendent. That however, is a question to be determined by the people of California. he have here already a letter from three of the larger banks layirr; dawn certain principles very mush like those in our resolution. I think in time all banks might voluntarily come in. Men we would hpve no reason for adopting such a principle. This is a bad time to put out this resolution. I think we should leave the vinolo matter to Congress and I am sure it will feel bound to take it up and do something about it. I think it lacula bo much better for the Board to hold this up until we see what action, If any, Congress is going to tak3. Congress has full power to determine tais question in so far as it relates to the Federal aoserve System. In my opinion, this 4uestion is for the determination of the state of California or the Congress of the United States ftnd is beyond the lawful power of the federal aoserve Board." Cunzii :hara. "Mat same policy should be established that will serve to direct the Federal -Jeserve Board in its actions toward State Bank momberships in the system, especially, such State institutions conducting Branch Banking, seems advisable; and I deem it my duty as a Member of the "Board to assist in any effort that is made to establish such a policy for the guidance and direction of its momborships in the system. The necessity of a strong and loyal memberaAp should be our first consideration and every effort should be put forth to establish a Membership in the system that can function. with due regard to the law 10 ) 11/7/23 -16- under which it receives its charter and in conformity to the spirit of the Federal Reserve ct and without advantage or special privilege to any member insofar as it is humnly possible to avoid it. The Federal Reserve .ct makes nembership mandatory on the part of :ational Banks chartered under the National Banking while it permits voluntary membership by Banks and Trust Companies chartered under the laws of their respective states, with s-ecific -provisions that such State Banks and Trust Companies are privileged to retain all of their charter rights and powers subject only to such regulations as the Federal Reserve Board may prescribe. Here we have a condition under which we undertake to develop and maintain a nationwide system of Federal Reserve Banks to furnish an elastic currency to afford means of rediscounting paper and providing a more effective supervision o;: banking in general and whose stability and efficiency is dependent upon a strong and loyal membership which we are endeavoring to maintain by conceding statutory rights to one member received throllgh liberal Sta,e Charter while compelling membership from the other with restricted Charter Rights and privileges under a Federal Statute. This is a most practical demonstration of "a house divided against itself", and in accordance with divine prophecy, it must fall. That two member barks in substantial competition in a given co..minity can continue to serve the conmunity efficiently under such unequal and divergent privileges, appears to me to be impractical and illogical and it becomes very clear to no as I Observe the experiences of such banks, that as a natural conseouence the unit Member Bank with its restricted privileges under Federal Charter is operating at a great disaivanLage as compared with its competitor vile retains more liberal Charter Rights. This kind of competition is unfair as a general rule, but when considered from the standpoint of the compulsory membership imposed on National Banks as aainst the voluntary membership of State Banks, especially those operating ith 3ra2Ich Bank privileges, the plan becomes alarming in that it sugests the thought of great impairment in its usefullness and efficiency, if not the possible extinction its Of the National Bank, or, possibly, an has happened in certain cases, Bank Llember absorption and conversion into a Branch Bank of the competing Operating under a State Charter with the privilege of Branch Banking. To my mind there is no great element of strength to the is system under the present status of its me.lbership. Its tendency privileges uneolual the of to divide the Member banks into factions by reason time in might which under which they function as members of one system certain members. engender a spirit of disloyalty on the part of By the adoption of the Committee Resolution, it would give to the country due notice of the proposed policy by which the Board s, will, in the main, be guided from and after the date of 5_ts effectivenes 11/7/23 -17- and serve the further purpose of directing the attention of Congress to the question and permit the Congress, if it so desires, to mke maaning such amendments to the 4:.c t as will clearly define the real Resolution Committee the which Let and intent of that part of the Undertakes to clarify. objections 2he above stz.3.tanent does not exehaust all of the above does the but ion, considerat I entertain to the question under on the "aye" voting in judgment state the reason that directs my Commit t ee Rose lut Governor Urissin-er. the report "Before putting the motion made by Mr. Dawes to adopt I desire. Com.littee, ion 1-.1:caminat the of members nlade by a majority of the for any to say that in my opinion it would be a very difficult thing principles Counittee of this Board to draw regulations or to lay down the approval or rules on the branch baric problem that would meet with Of the entire Board. in opposition to I am probably the pioneer member o47 the Board the system of banking that has grown up in the State of California. At the time when this question was first raised, it is my recollection, the Bank of Italy had only fifteen branches, and that it was making I pointed out my application for four or five more. At that time, have additional objections to the Bank of Italy being permitted to California was of State the that were then branches. Lly objections then had permitted Unable to properly supervise the banking system that it in the Bank of Italy to build up, and that the Federal Reserve Bank was Federal the no position to examine or supervise the system. That ,...hen it was Italy, of Bank g the supervisin as out itself Reserve Bank held develop to thereby misrepresenting the facts. That %%hen it 7.11 permitted holding in and a system of branch banking that it could not supervise, proper sup.erout to the public that this branch bank system was having the public upon vision by the Federal Reserve Bank, was really a fraud and should Board, and should not be countenanced by the Federal Reserve branches the not be permitted to go on. I accord.ingly voted az,ainst then, other branch Which the Bank of Italy then sought to establish. e7,ime against voted ly consistent banking systems have started up, and. I have developed be should such systems because I did not believe that there supervised in the any systems of banking which could not be properly int crest of public policy and the people. banking systems I was then and am now of the opinion that these Reserve Federal the ult irately become dangerous and a menace to Caliof State the of 21Ystem, as well as to the general banking system and for banking, branch fornia, and in other states where 'hey might develop branch of system any extending that reason I have persistently voted against 11/7/3 -18- banking that I felt could not be mapervised either by the tate, or Pederal Reserve Bank. 2he report of the Committee and the resolution presented on this occasion by the Committee, does not meet my views about the banking System in California, or elsewhere. '71-,e report of the Comlittee is to iv Mind very well written and presents a strong ease--one that recaires legislation. I am not in accord with the viavs laid down by our counsel in this case. I do not believe that it states the law. While I think we have the right to impose certain conditions and to make them effective, doubt whether we have so fall a right as to say that we could exclude all banks from coming into the system for the reason that they had branches. To ray mind, this raises a very grave legal question. I do say, however, that we have clearly the right to oR.ose a system of banking which may hL sound now, but which may have tendencies to develop along unsound lines. I am not in accord with several things in the resolution, but on the thole, lam in accord with the principle that we should, at least for the time being, bring to a halt branch banking in the United States, especially its development outside of the city limits. I am saying this because I can not agree with all of the things I find in the report. Yet, I am of the opinion that we should atop branch banking until we can get such legislation as either will sustain us or will provide for ade ,uate supervision * Of a stz., ..ts-wide or nation-wide system of branch bankin_:. I do not believe wo can do this on the ground that national banks are not afforded the Keme facilities as state banks. I am quite clearly of the opinion that Congress, by its legislation amending the Federal Reserve Act, has in effect doomed the national banking system, and put it in a posit-ion where it will have to ultimately go by the wayside, unless Congress comes to its rescue by Lmendmcnts to the Federal Reserve Act or National Bank Let, or both, that it my be protected and given new vitality. Those reTarks are made so that my reasons will be consistent With my fonnervotes. I had hoped the cluestion of regulations would come up on the determination of whether or not we would admit DIM° bank into the system with branches, or come up on the question of approving additional branches for one of the isting branch bank systems. In either case, should have voted in the negative, as heretofore. I am going to support the resolution offered by the Committee, not because I believe it is sound in principle or law, but because I feel the time has come when we must bring a halt to the narthex extension of branch banking, and especially state-wide branch banking until we have legislation clarifying our duties as members of the Federal Reserve Board, and providing for ade_luate surervision by the state authorities and by Federal Reserve Banks". Mr. Miller. Mr. Miller reserved the right to make a statement in explanation Of his position, adding that the statanont would be filed at his convenience in the Beard's records but he desired that a reference to it should be included in the minutes. „ 11/7/23 -19- Mr. n':_ralin's motion to substitute the minority report for the the moribers voting raajorit'y report, 1.) einc put by the char, :as lost follov:s: ovc.rnor Orissiner, "no" Mr. James, "no" Ur. Cunninham, "no" 1.7..r. Dawes, "210 It 1.1r. :7Tlatt, "aye" 1,1r. Hamlin, ."aye" Lir. Miller, "aye" :Dawes' motion to adopt the majority report, chair, beilig put by the carried, the manbers -,zotirv2.as fol1cr.vs: Governor Criss ir,;or, "aye" ::r. James, aye'' Cunnin::ham, "aye" Mr. A.-Lwes,. 'aye' :r. Pkt, "no' "no" :.:r. . Hama in, "no" Mr. :lam].in moved immediate t ion o the rra jor it y rcnort, v:ith the statio-ent that it was adopted by a majority vote of the T!oard. Carried, 1:r. Miller voti/,:; 'no". Mr. James moved that puhlication of the minority report also be authorised. Carried, Lir. Dawes votin: "no". ,- ?he Connit ee on t ions rr,-)o.rt ed favorably upon the matter rofer.red to it at the mceti:K; on October 30th, Timely, letter dated October 18th, from the Federal :Zeserve ?ent at')an Francisco, transmit',,inL7 the applicat ion of the Valley :3ank of Ihoen1::, ,..rizona, for permission to 11/7/23 take over the assets of the First National Bank of Glendale, and assume its liabilities, 0eratin;-; it as a branch of the Valley Bank. mittee based its recommendation on the fact that alTroval of the applica- tion was recommenled by the Federal Reserve L],"ent at UO an Francisco, and the following statement made by R. _1;. Moore, President of the Valley a J3 The Com, in c. letter addressed by him to the Governor of the Federal Reserve 1k Of Jen .1.ancisco, under date of Octob,_.r 17, 1920: . "In ex-olanation of mr reason for wantin to take the bank over, I mi:ht state that last fall, I think about the first of :ovember, the rational Bark 1::aminer called an assesszient in order to talc: care of bad loans; the stockholders wore unable to pay the assessment because they had previously ;one the limit with assessment s. The LD-4rieopa Credit CorporLtion, Tich is awned by some of the 13::,n':s in :Phoenix and this valley, purchased the bank stock for „:50,000, and used the money to charge off the bad loans. 'Be have boon trying to find a purchaser for the bank, but so far have not been successful. The raricopa Credit CorporLtion desires to dispose o: the bank and they have accepted our yroposition to purehase it." 211e Board's Committee was of the opinion that the circumstances Upon 'which the application is based are e;:ceptional, and warrant favorable action on the application. Upon motion, the report of the Committee was adopted and the application or the Valley Bank was a- 1-)roved, Governor Crissinger voting "no". Report of the Committee on .:-'117.a:nin; tionson the matter referred to it On :Tovel:iber 1st, namely, telegram dated October 31st, from the Federal Reserve Agent at Jan Francisco, recommndins approval of arrangements for the IllorL;or under state charter of the 'Bells-Fargo 'revada 7Zational Bank and the 11/7/o Union Trust Coml)any, a nomber bank, both in San Francisco, and the continued operation of both offices, one as head office and the other as branch; the Committeerecommendin al-Tr oval of the arraneent s. Upon mot ion, the mat ter was _laid on the table to . be considered at the meet in; on 7ednesday, lovember 14th. C:::I2Fs: Dated, November 6th, Bated, :Toy emb r 6th, Dat ed, November 6th, Dated, November 2nd, Dated, rovember 6th, -=omme-ndin, ; - clianos in stock at Federal Reserve Banks, as set forth in the jar:Mary Minute Book of this date. Approved. LocomendinL; a: :o-,Tal of the application of La'. Cosriff to serve at ,he :am() t inc as direcJ. tor and. officer of the Continental 2Tat °nal Bank, salt Lake City, of the First :at ional Bank, Caldaal, Idaho, and of the First :at ionc.1 Bank, prov ado Recommendinsi approval of the application of Isaac M. Frank to erve at the same time as director of 7.he Bank of itt sburL;h, , Pit t sbur L7:1, and of to I:1,;hland :at onal Bank, Pit t sbur,2h, 4, -pproved. Aecommondinf approval of the application of Ur. Henry J. :ellen to :erve at the ckline time as lirector of the Central tate Bank, Jos ::Loinos, of the Pella rational Bank, Pella, Iova, :-md of the Central Crust Company, Des Moines, Iowa. Lpproved o Recommendinz approval of the application of Mr. Charles Hoffr.-Ln to serve at the oa e time as director of the Jefferson 2rust aly, Hoboken, M.J. and of the First rctional B .)ecaucus, 4proved. Ale meet in:; ji turned 4Dproved: / Govorno
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