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"BRANCH BANKING- BEFORE THE CIV7L WAR"
C ^ ^
l
-
Address to be Delivered by Edmund P i a t t , Vice Governor of /f
the Federal Reserve Board, Before the National Bank Section,
New York State Bankers Association at Ithaca, New York,
.
June 2 2 ,
^
.
1925.
6»
Branch banking has sometimes been called un-American,
course true that in every other conroercial nation,
ana it is of
including Canada, and
Australia.} branch banking is the rule while in the United States it is the
exception.
e
^ly
bSSn
It may be interesting to take a look into the history of the
days of banking in the United States
true
-
to see whether this has always
Apart from-the two United States banks which were each in ex-
istence for 20 years, and the second of which went cut of existence as a
National institution in I S 3 6 , banking before the Civil War was carried on by
state ban 1:3 and by a few private banks-
L i s t s of incorporated banks were
Published from time to time, and one needs only to glance a t them to see
t
a
Q
t in some sections of the country, particularly in the West and South -
ctions which have always prided themselves on their Americanism - branch
anking was very much in evidence, was in several the states the rule,
thsn
rather
the exception.
The Bankers' Magazine for February 18US has a list of "Bfmks of the
United States" from which we f i n d that in Ohio out of 48 banks, 29 were
inches
of the Ohio State Bank.
Indiana l i s t s 17 branches of the State
^ >nk of Indiana and no independent banks, Missouri had one bank and 5 branches,
Kentucky 3 banks and 13 branches, Tennessee 3 bank3 and 17 branches,
Vir
6 i n i a 6 banks and 30 branches, North Carolina k banks and lU branches,
South pi
-1 .
^ ^ r c l i n a 12 banks and 2 branches, Georgia 13 banks and 7 branches,
e
JUL 7
1964 /
laware 5 banks and 3 branches and Alabama 2 banks and k branches.
I l l i n o i s , Iowa, Mississippi, Florida and Arkansas cajne under a special
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-2-
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X-U359
heading as " S t a t e s and T e r r i t o r i e s without B a n k s " , while Wisconsin had one
b a n k
3 n d
^Chigaa
four.
I t may therefore be said that so f a r as banking had
developed in the West branch banking was the r u l o ,
Sout n
and was general
also
ln
tile
ln
the state of Now York - The Bank cf U t i c a is l i s t e d as having a branch
a
Canandaigua,
' -
Uo branches were l i s t e d in the eastern 3 t a t c s ,
excepting two
)
end the Ontario Bank of Canandaigua had a branch in U t i c a ,
mv
o were two branches in Maryland - branches of an Annapolis bank,-and appear to have been two in New Jersey,
though they are not l i s t e d as branches.
The l i s t of banks of the United states in June I 8 6 0 , published in the
er
a Magazine of that year makes a similar showing,
Paars vvitn 75 banks (only cue of which was i n Chicago),
v/
•^l 0 r i da
cre branches of the S t a t e Bank oflowa,
Iowa with 1 3 , a l l
and not only M i s s i s s i p p i ,
cf
and
1
> but Kansas, Nebraska, and Minnesota come on the scene with a few banks
' & s o u r i at t h i s
N
the ugh I l l i n o i s ap-
°W
Y c r k
»
's
time had k2
two branch banks shewn in the 1SUS l i s t had disappeared
_ n fact
^ndrnent
banks, c-f which 33 were c l a s s e d as branches;
the L e g i s l a t u r e of New York had on A p r i l
12,
lsUs,
in
passed
to the Free Banking Act which ha3 been g e n e r a l l y regarded as
P roh i> < i. •
branch banking,
Pennsylvania had passed a similar amendment
IS50 ap^ •Legislation
T, .
against branch banking had been passed atabout
time in r.r^nr, ,
wassacnusetts and in
On,a t*t? ys •>
these east«T»
n i
bondmen ts?r
8
r>
Lr
the same
Connecticut.
1
j.
that has p u z z l e d me considerably i3 the question - Why did
t a t 0 3 p r o h i b i t branch banking?
'
in
«
,
Da.vis R. D-uwey in his
What motives pronpted the
"State Banking B e f o r e
the C i v i l
War"
makes the statement that the New York amendment of 18^3 was "duo to
a
fear tha t h
oanks in large c i t i e s might monopolize the p r o f i t s cf note
r
g a n i z i n g branches in small inaccessible
XERO
COPY i
issue
towns and thus threw obstacles
-3-
X-U359
in the way of easy redemption of b i l l s " , but the evidence he gives in a
foot-note support3 a very different View - that country banks, sometimes
organized in small inaccessible towns, issued their notes and transacted such
other business as camo in their way through branches or agents in the important c i t i e s ,
evading redemption cf their notes in-the cities by referring
holders to the remote towns where the sc-called principal offices were located,
... New York
v/0rd
al
"branch" does not appear in the/amendment, which provides that
l banking associations or individual bankers, organized unier the pro-
visions of the act passed April IS, IS38 * * * shall be banks of discount «md
POoit as well as of circulation and tho usual business of banking of said
associations or individual banker shall be transacted at the place where such
i n k i n g association, or individual banker shall be located."
WaS
at
that
dated r,.ay 2 .
time C o n t r o l l e r cf
Millard Fillmore
the State of New Ycrk and in a circular
1SU8, announcing that the amendment was now the law and would
enforced,
says:
"A practice had grown up under the general banking lav/, of establishing banks in obscure places, in remote parts of the state where l i t t l e
or no Imsiness was done, with a view of obtaining a circulation merely,
yT
no other business,
This circulation was then redeemed in How
°r
A1
k a n y by tho agents of tho bank, at one-half of one per cent.
ond again put in circulation without being returned to the bank,
oreby enabling the bank to redeem its own paper at a discount, and then
again put in circulation in the same place where i t was redeemed.
The
^ojec-o of the present law appears to be to bread: up that practice, and
0 ensure obedience to its requirements, the legislature have enacted that
president and cashier shall in every report made to this office, state
their business has been transacted at the place required by that a.ct,
and that such report shall be verified by their oaths".
Bankers'
Magaaino, June lS^S, Vol, 2 , page 7 ^ .
This explo.ins the amendment, and shows that it was directed not against
genuine branch banking, but against wild cat circulation banking.
The amond-
ont required that every bank organised under the general banking law mast be
a
bank of ^iscoiTnt and deposit as well as of circulation",
and that its usual
Usiness - its loans as well as its note issues - mast be made in the place
'XERO;
XERO
- U •J«HfUd
u
,
oertifioate
. -
x-^353
_
I h
ave net boon able to find the slightest-evidence
s
that the large well-
abliahed banks in New York City had evrer a t t e s t e d to»organize branches in
ceaaxble towns", as Dr. Dewey
implies, and I think it is reasonably
ear that the city banks not only did not oppose the amendment, but were in
f aVQy Qj> J .
it.
Certainly there was no agitation of the subject of branch banking
oefore th^ -n o
- passage of the amendment, such as would, surely have been the case i f
it
had been passed,
i at the instance of the country banks, or through fear of the
n
° P O l i z a t i o n of note issues by city banks.
It is d i f f i c u l t
to find any refer-
ence to tv>
^ Q amendment in any of the publications of the day.
It slim
i
w
^
bank
furthermore be noted that this so-called anti-branch/amendment
-Plied only to the "free banks" and not to the Safety Fund Banks, of which there
USr
Q about SO -in
•m operation at that time, including several large city banks.
dmwnt
t0
tha
Saf
° t y Fund Act, passed on the same date as the so-called anti-
amoidinent to the Free Banking Act, expressly mentions branches.
,
ail
.An
where a bank has a branch located at another p l a c e " .
"But in
The fact that
the rigk'. of coafety
' ^
Fund Banks to operate branches was confirmed at the same
time
free banks were prohibited from transacting their usual business in any
ac
Was
o than that named in their c e r t i f i c a t e is direct evidence that
there
opposition of consequence to branch banking, and no fear of banking
rn
°n0P°ly
r
th
^ o u g h branches.
anch banking nevertheless scarcely existed in New York in 1SUS, and it
d-Oes not
a
b
^chen
?Poar from the l i s t s published that 'any of the Safety Fund banks had
at thv* Aav, vime.
The l i s t s are doubtless not complete and are not con-
^lusivQ
evidence as to the existence of branches.
Thore had been some branch
^anting i n -T
ao„v fork State at an earlier date, mostly by country banks. Not much
XERO
COPY
- 5 -
X-^359
1 nf"
^maticn
•Mi ddl
i s c b f i n a b l e about i t from b a n k i n g h i s t o r i e s ,
> an
one of t ^ l early ba_nks i n Poughkeep^ie,
g i v o n
had a branch
^P long before
These were apparently found u n p r o f i t a b l e and were nearly
1^3.
y .one bank in Now York C i t y ever had a branch outside the c i t y ,
n f i n d out,
rdnCh
ln
in
through local h i s t o r i e s scmo references can be obtained to branches
°ther country banks.
Ca
the
*n *
latrict
a U
but I know that
Pou
so f a r as
and that was the Bank of the Manhattan Company, which in 1811 had
6tts:eepsie and One i n U t i c a .
There appears
to be no record as to
just when these branches were given u p , b u t i t was almost certainly long before
^ d
before the Manhattan Bank became a Safety Fund Bank.
Banking except in the largest c i t i e s Was in the early days mostly note
issue
g, «na tne efforts of the l e g i s l a t u r e s were directed towards the enactment
Of Ig^y
-ws to secure the redenption of notes.
Every imaginable expedient was tried
somewhere in
+>,
n
tne
Un
i t e d States.
The State of New York,
cut of the turmoil,
duced two 1laws which were d e s t i n e d to be w i d e l y copied - one of them in
National "Ri V
r n a n
"
S
A
e q U a l l y
Q
the
n
f
somi<i
Certain of the Western and Southern
of
States
and perhaps r a t h e r ' b e t t e r systems through branch banking.
° r t was to produce systems which would make the n o t e issues sound,
°tes
the
" '
These were of course the Safety Fund Act of 1829 and the
°t.
Cell! p^Q TTr*
T%
-ree Banking Act of I 8 3 S .
devcio
^
^
pro-
the "Sank of I n d i a n a ,
and
of which Hugh McCulloch was the P r e s i d e n t ,
v/er
e
trUG
as
sound as those of any of the big banks of New York C i t y .
The same was
° f the Bank of Ohio,
p ,
S ln
'
elenn
<ents of sound banking seem to have bean recognized in
such
systems
lS V V n i C h
W e r e
los
t
sight of when a l l the State banks were reorganized, as
anks with notes secured by United States bonds.
The f e e l i n g was that
°ssentini
c
banking problems had been solved when a u n i f o r m and sound system of
- 6 -
banknotes had. been secured.
gated assets.
x-i+359
The note holder was > protec ted by specially segre-
Depositors were for the time forgotten,
and had less protection
than before.
The Bank of Indiana and similar institutions obtained security for
n
their
° t e s through good management and through a wide spread of risks so that they
co
u l d not be vitally affected by disaster in any one community.
These are as
esoontial for the security of depositors today as they were for note holders
in
^Q
days.
Banks to be safe mast be large enough to afford good manage-
ment and must have opportunity to loan their funds over a territory wide
Gnotl
gh
include persons engaged in a variety of industries.
@FedFRASER