Branch, Chain, and Group Banking HEARINGS BEFORE T H E COMMITTEE ON BANKING AND CURRENCY HOUSE OF REPRESENTATIVES SEVENTY-FIRST CONGRESS SECOND SESSION UNDER H. Res. 141 AUTHORIZING THE BANKING AND CURRENCY COMMITTEE TO STUDY AND INVESTIGATE GROUP, CHAIN AND BRANCH BANKING APRIL 23, 24, AND 25, 1930 VOLUME 2 Part 8 UNITED STATES GOVERNMENT PRINTING OFFICE JC0136 W ASH ING TON: 1930 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis COMMITTEE ON BANKING AND CURRENCY LOUIS T. M cFA D D E N , Pennsylvania, Chairman JAMES G. STRONG, Kansas. OTIS W IN GO, Arkansas. RO BER T LUCE, Massachusetts. H E N R Y B. STEAGALL, Alabama. E. H ART FENN, Connecticut. CHARLES H. BRAND, Georgia GUY E. CAM PBELL, Pennsylvania. W . F. STEVENSON, South Carolina. CARROLL L. B E E D Y, Maine. T . A LA N GOLDSBOROUGH, MaryUn i JOSEPH L. HOOPER, Michigan. A N N IN G S. PRALL, New York. GO DFR EY G. GOODWIN, Minnesota. JEFF BUSBY, Mississippi. F. DICKINSON LETTS, Iowa. FRANKLIN W. FORT, New Jersey. B ENJAM IN M . GOLDER, Pennsylvania. FRANCIS SEIBERLING, Ohio. MRS. RUTH PRATT, New York. JAMES W. DU NBAR, Indiana. P hilip G. T h o m pso n . Cifrk n Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Exhibits of— Pa«« Hon. John W. Pole, Comptroller of Currency_________________________ 1013 Lord, Robert O., president Guardian Detroit Union Group, Detroit, Mich__________________________________________________________ 1037,1131 Rand, George F., president Marine Midland Corporation, Buffalo, N. Y__________________________________________________________ 1174, 1201 m Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis APPENDIX E x h i b i t A THE DEMAND FOR PROFESSIONAL BANK MANAGEMENT Address by J. W. Pole, Comptroller of the Currency, before The Ohio Bankers Association at Columbus, Ohio, February 12, 1929 The last two decades have witnessed a remarkable development in the volume and in the variety of the banking business. Demands for financial services unheard of by the last generation are now required to be met by banking institutions. The old simple form of banking in which the banker relied almost entirely upon his personal knowledge of his customers is no longer adequate to meet the present day situation. We need only refer to the history of banking in the State of Ohio for an illustration. In the year ending June 30, 1908, there were 990 banks of all classes in operation in this State. These had total aggregate resources of about $952,000,000. Twenty years later, for the year ending June 30, 1928, there were 1,051 banks of all classes but with aggregate resources of $3,377,- 000,000. Thus while the number of banks in the State of Ohio has remained almost stationary the banking resources are nearly four times as great. This means that the officers of these banks have had nearly four times as much business thrust upon them as they had 20 years ago. Nor do these figures for resources tell the whole story because they do not take into account the tre­ mendous growth of the trust business now in the hands of these banks nor of the investment securities which they buy for sale over their counters The State of Ohio may be taken as an index of the development of banking through­ out the United States, for here are represented every type of banking from those banks situated in the outlying agricultural districts to those in the most congested* commercial and indusrial centers. Twenty years is an extremely short time in the history of a State or a nation. The remarkable increase in growth of the banking business within that time can be taken as an indication of the trend toward a future growth in even greater volume. Another 20 years should see the banking resources of this State exceed $12,000,000,000. It takes no gift of prophecy to make this pre­ diction. We are still a very young country and the full force of our economic vitality has yet to be, developed. Our population will greatly increase, our cities' become larger and larger and our rural population denser than it is to-day. There will be further expansions and intensifications of industrial activity. Our world commerce, already at imposing figures to-day, must be regarded as almost in its infancy. The very economic necessity of the situ­ ation will bring agriculture up to a higher point of efficiency. And any state­ ment as to the future of transportation and communication must seem ex­ travagant beginning as we are with transportation by air at great speed over vast distances and communication through the air by radio. All of these developments will be reflected in the expansion of banking re­ sources for our banks are the handmaids of progress, supporting, sustaining, and serving in an essential capacity every forward economic movement. There was a time in this country when almost any person of average intelli­ gence could aspire to become a banker without any special previous training. It may be said that it was the. original theory of the law that any group of citizens had a right to form a banking corporation. The old-fashioned banker was primarily a custodian and a lender of money. If he possessed a natural shrewdness of mind and a strong character he was likely to succeed. In the local community he was the dominant financial figure. He had opportunities 1013 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 1014 BRANCH, CHAIN, AND GROUP BANKING to make money outside of his banking business. He became financially inter­ ested in the local street car company, in the light and power company, in the gas works, in the ice plant and in other such enterprises in which local capital participated. These opportunities are also fast disappearing not only because modern banking requires all of the energy and attention of the banker but also because these local forms of public utilities are fast giving way before the economy and efficiency of great central organizations operating through local branches and there is no local financing. Some banks of this did type still remain in existence but they must be regarded now as survivals of a financial era which has passed. Modern banking is a highly complicated and technical business, and it is exemplified primarily by the city banks which have been compelled to meet the varied financial demands of commerce and industry. It is in these com­ mercial centers that the competition in all lines of business is so keen as to compel the utmost economy in operation and the most efficient management control. Out of the experience of these city banks there has developed in the United States a fairly definite opinion in financial circles as to what constitutes sound banking. This standard of bank management has not been theoretically arrived at by any manner of means. It has grown up through hard-knocks until finally the best method has been found to meet a given situation. Let us pass briefly in review some of the principal features of modern bank­ ing. First let us take the loans and discounts. The old-fashioned character loans have almost disappeared. This does not mean that character is not a valuable asset in the transaction. It simply means we are no longer in the pioneer stage of our civilization. We have reached a stable development where the instrumentalities of credit are ample. Great emphasis now is laid upon adequate credit information and analysis. Nothing is left to chance, guess­ work or favoritism. This credit information is often obtained as a result of the most skillful scientific investigation, involving the study of plants, machin­ ery, cost accounting, estimates of future operations, financial history, personal reports on management, personnel and the like. The bank must be in a posi­ tion not only to acquire but to comprehend and digest the most technical in­ formation and data concerning its customers. In this country where every variety of business operation is carried on by corporations, the bank must be generally familiar with corporate organization and management in the field of production, manufacture, transportation, and distribution, for the simple reason that it is to the banks that these corporations must turn for advice and assistance in financing their operations. Commercial banking therefore re­ quires a fundamental knowledge of every process of commerce itself. Now let us look at the business of buying and selling investment#securities by banks. This is largely a postwar development. It is welL known that the Liberty loan campaigns during the war served to educate the public at large in making small investments In sound securities. The tremendous commercial expansion in this country following the war has been financed in increasing volume through the issuance of investment securities in which the general public is invited to invest. It is natural that the banks should participate in this development because their customers turn to them for advice. The amendment in the McFadden Bank Act of 1927 has added impetus to the movement to make the banks distributors of the best type of investment securities. This means that the modern bank must be equipped with the proper instrumentalities to deal with this new financial development. It imposes a grave responsibility upon the banks which in turn requires them to create the facilities for a comprehensive and accurate knowledge of the various issues of securities which from time to time come upon the market.