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AdOO OM3X >\Y t ' 1 l) <' l i A./' * h / V'" , < i X-6432vx. '• V4r,. , „ a b s t r a c t o? ADDRESS AT VfKARTOU SCHOOL 0 ? FIMC3 Tuesday, December 3, 1 9 2 9 , by Edmund P i a t t / , Speaking i n f e r n a l l y "before the tanking classes of the Wharton School of Finance, afternoon, under the auspices of Professor Karr, December 3rd, Tuesday on the subject "Banking L e g i s l a t i o n Past and P r o s p e c t i v e , " w i t h some reference to the causes of bank f a i l UreS , 1 9 2 0 ^deral t0 illusive, Reserve Board, Mr. 3 d m n d P i a t t , Vice Governor of the s a i d that the banking l e g i s l a t i o n of this country, state and n a t i o n a l , might be treated by a s a t i r i s t Amorist in such a way as to show that we as a nation have mani- • nested rather l e s s f i n a n c i a l ^eat commercial n a t i o n s . bedded i n i t s constitution, sacredly f i x e d for a l l or common sense Our largest than the people of other state once had firmly im- where it was doubtless regarded as time, a prohibitory amendment e a n i 2 a t i o n of banks. forbidding I n those days the good people of the ate of Texas regarded banks as rather worse than saloons, mUSt st t e or and it admitted that some of the banks of the o l d days of wildcat a t e banking were p r e t t y bad. !7e made a good early start under abls leadership of Alexander Hamilton towards a national cen- banking system, a n d it is i n t e r e s t i n g to note that the F i r s t of the United States had to be wound up and l i q u i d a t e d i n 1811 lar Sely because of opposition from the city which is today the fl «ancial th center of the United States and perhaps of the world. The cnarter b i l l f a i l e d i n the U n i t e d States Senate i n 1811 because of opposition and vote of George Clinton of New York, and Clinton • • auOO Od3X j IOM3X X-6432 was "backed by cone of the leading barkers and financiers of New York City, including John Jacob Astor. Luring the years that followed we had a second Bank of the United States 1816 - 1835, but until the Civil War brought the National Banking Act busi- ness most of the time was under the tremendous handicap of a fluctuating local state bank note currency, with the notes issued in one state or even in one city almost always at a discount i f presented elsewhere. In How England, New York and Pennsylvania the state banks were generally pretty strong and reliable and were organized under reasonably sound general acts, while in the older southern states banks continued to be specially chartered by the legislatures and were, tions. therefore, usually large, strong institu- In the newly formed western states the " f r e e barking" idea, which started in New York, ran w i l d and resulted in every sort of banking experiment, most of them disastrous. In Indiana for some years there was both the best banking system and the worst almost side by side at the same time. A good deal of our tanking legislation has been restrictive rather than constructive, and the great constructive measures that have been passed by the Congress of the United States, National Banking Act and the Federal Reserve Act, such as the were passed for the purpose of correcting the most glaring defects of an individual, local, unit banking system without recognition of the fact that ^ch of the trouble was due to the local unit system i t s e l f . n e e d no v ' is t0 rera °ve Y7hat some of the restrictions i n the present laws so as to allow some development towards a better system.' The OU3X X-6432 - 3 - McFadden Act of February 1927 went a l i t t l e way toward removing unnecessary r e s t r i c t i o n s but the changes were of b e n e f i t mostly to city banks. The UcFadden Act prevents country banks even i f located in a d j o i n i n g towns from pooling their resources. Of the 4513 bank f a i l u r e s reported to the Federal Reserve Beard from 1221 to 1927 i n c l u s i v e , 63 per cent were banks with a capital of $ 2 5 , 0 0 0 or l e s s and 61 per cent were of banks located i n towns of less thai 1 , 0 0 0 inhabitants, Piatt, which may be taken, s a i d Mr. "as conclusive evidence that the American e f f o r t vide banking f a c i l i t i e s in very small places to pro- by means of very small u n i t banks is a f a i l u r e and cannot be made to succeed except when a l l surrounding economic conditions are favorable. Too often economic conditions have been unfavorable - crop failles, local industrial neighborhood i t s e l f f a i l u r e s or merely the f a i l u r e of the to grow." from the address of Mr. Bank of Decatur, Mr. P i a t t quoted with approval Clyde Hendrix of the Tennessee Valley Alabama, at the meeting of the American Bankers' Association i n San Francisco, the following: "Every banker is acquainted with the aopallin,^ mort a l i t y record of the small unit banks located i n purely agricultural t e r r i t o r y . 2To doubt, the lack of proper management and dishonesty account for a small percentage of such f a i l u r e s , but in the main the wholesale, colossal number of small bank f a i l u r e s can properly be charged to the system i t s e l f . " 31118 • s a i d Mr - Piatt, Comptroller of is substantially the Currency, *ore severe r e s t r i c t i o n s , r the b e l i e f of the present "who is recommending as a cure not or more elaborate supervision, o l a x a t i o n of some of the present but a r e s t r i c t i o n s upon banking so OfcOX 1 ' —— - 1 OM3X. fOil^A X-6432 that a gradual change of the system i t s e l f can take place - a change by which some of the small unit hanks may ce merged with "banks i n other places so as to provide larger hanks, with funds sufficient to provide good management, and covering a territory wide enough to insure a diversification of loans and investments." "Just what form the Comptroller's recommendations to Congress may take, just what limits he may propose - for he is not in favor of unlimited or nation-wide branch barking - will not be made known until his annual report goes to the'speaker of the House of Representatives about the middle of the present month. He has arrived at his conclusions not only as the re- sult of long experience as a bank examiner and as the head of the supervisory forces of the United States Government, but as the result of careful study. In my opinion he is on the r i ^ i t track and deserves full support not only from economists and students of banking, but from business men and bankers," Mr. Piatt made no reference during the course of his address to the recent stock market panic except to remark that while the year 1929 up to the close of October has recorded 521 bank suspensions as compared with only 375 during the sane period of 1928, no suspensions or failures have been attributed to the recent stock market panic up to date. °een i n Practically a l l suspensions have too West and South, and the banks are mostly so small as to have l i t t l e or no effect upon the general financial condi- tion of the country. . digressed from his main subject long enough to refer to AcJOO OM-JX AcJOO ;OiJ3X. D X-S432 the development of the b i l l market, or market for b a k e r s ' ances during the present year. accept- "For the f i r s t time since the Federal Reserve System was established," he said, "the bill market has during this year been standing on its own feet without any nursing by the Federal reserve banks. Early in the year the rate at which Federal reserve banks purchased b i l l s from member banks or from dealers was placed above the Federal reserve rediscount rate, with the result that investors, including banks, institu- tions and individuals began to purchase b i l l s because of the attractiveness of the rate. 2,lore recently, investors have been outbidding the Federal reserve banks and have been taking the new b i l l s in spite of very low rates. This may be due to the fact that some of the corporations and individuals who had been loaning money on call in the stock market are now buying b i l l s . . .
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