BRANCH BANKING IN THE UNITED STATES Material prepared for the inforraation of the Federal Reserve System "by the Federal Reserve Committee on Branch, Group, and Chain Banking Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Members of the Committee E. A, Goldenweiser, Director, Division of Research and Statistics, Federal Reserve Board, Chairman Ira Clerk, Depaty Governor, Federal Reserve Bank of San Francisco M. J. Fleming, Deputy Governor, Federal Reserve Bank of Cleveland L. R. Rotmds, Deputy Governor, Federal Reserve Bank of New York E. L. Smead, Chief, Division of Bank Operations, Federal Reserve Board J. H. Riddle, Executive Secretary and Director of Research The Committee was appointed February 2o, 1930> "°7 the Federal Reserve Board M• . to assemble and digest information on branch banking as practiced in the United States, group and chain hanking systems as developed in the United States and elsewhere, the unit banking system of the country, and the effect of ownership of bank stocks "by investment trusts and holding corporations J1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis LETTER OF TRANSMITTAL To the Federal Reserve Board: The Committee on Branch, Group, and Chain Banking transmits herewith a history and statistical analysis of branch banking in the United States. The statistical series in this volume in most instances end with the year 1931• Respectfully, E« A. Goldenweiser Chairman Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Page growth and Distribution of Branch Banking in the United States 1 Branches of State and National Banks 4 Geographic Distribution of Branches 7 Distribution of Branches by Size of Town 19 Classification of Branches ^oj Size of Bank or Branch System 22 Sianmary 27 Branch Banking before the Civil War 29 Early Branch Banking in New York and New England 29 First and Second Banks of the United States 32 State Bank Branch Systems 38 Branches in the Southern States 44 Branch Banking and the National Bank Act 47 Free Banking 49 Prohibition of Branch Banking 52 Provisions of the Act Prohibiting Branches 53 Amendment to Permit Branches of Converted State Banks 61 No Mention of Branches in Congressional De­ bates 65 Effects of the National Bank Act 67 Stommary 68 Movement for Branch Banking, 1892-1902 71 Branch Banking among State Banks 99 Growth of City Branches 99 New York 100 Massachusetts 103 Ohio 105 Michigan 106 General Features of Urban Branch Banking 109 Intercity Branch Banking 111 Bearing of State Bank Branches on the Controversy 112 The McFadden Act 117 The Policy of the Federal Reserve Board 119 The policy of the Comptroller of the Currency 128 The St. Louis Case 137 The McFadden Bill 139 Effects of the Act 152 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS (Cont'd) Page The 01 ass Bill and Branch Banking 155 The House Hearings, 1930 156 Glass Bill, 1932 164 Opposition to the Glass Bill 170 State Laws 176 Scope of Survey and Sources of Information 181 Sources of Information 182 Terminology 182 Changes in Laws of Individual States 184 Alabama 184 Arizona 185 Arkansas 186 California 186 Colorado 186 Connecticut 186 Delaware 187 District of Columbia 187 Florida 187 Georgia 188 Idaho 188 Illinois 189 Indiana 189 Iowa 190 Kansas 191 Kentucky 191 Louisiana 192 Maine 192 Maryland 192 Massachusetts 193 Michigan 193 Minnesota 193 Mississippi 194 Missouri 194 Montana 195 Nebraska 195 Nevada 196 New Hampshire 196 New Jersey 197 New Mexico 197 New York 197 North Carolina 198 North Dakota 198 Ohio 199 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS (Cont'd) Page Oklahoma 199 Oregon 199 Pennsylvania 200 Rhode Island 202 South Carolina 202 South Dakota 203 Tennessee 203 Texas 203 Utah 203 Vermont 204- Virginia 204 Washington 205 West Virginia 205 Wisconsin 206 Wyoming 207 Interstate Branches 20J Summary of State Laws 209 IX Organization and Operation of Branch Systems 211 Relations to Communities Served 215 Credit Policies 217 Operating Economies 22U Branches and Capital 225 Public Attitude toward Branches 22S X Suspensions of Banks with Branches 23O Appendix 2U2 Bibliography 2^9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CHAPTER I SROWTE AND DISTRIBUTION OF BRANCH BANKINS IN THE UNITED STATES Branch hanking was not uncommon in the United States prior to the Civil War, Following the passage of the National Bank Act in 1853, however, public policy became committed to the unit banking system* With banking corporations limited in general to one office, the kind of concentration which builds on branch offices was barred. From the end of the Civil War until around 1900 there was very little branch banking in the United States* The majority of State banks and their branches in existence prior to the Civil War -*M«H«MiMr converted into unit national banksj, «? failed as a result of the conflict, or liquidated as a result of the tax imposed on their note issues by the National Bank Act* With the growth of deposit banking, however, which gradually supplanted issue banking, the number of State banks began to increase towards the end of the century, and the development of present day branch bank­ ing in the United States may be said to date from approximately that time. In 1900, according to the best information available, there were only about 119 branches in existence* A gradual growth brought the number to 735 in 1915, after which the increase was accelerated so that by 1920 there were 1,281 branches* During the next ten years the number nearly trebled to 3,518 in 1930. In 1931 the suspensions resulted in a decrease in the number of branches as well as of unit banks. The thirty-one year movement is illus­ trated in Chart 1* The greater part of the growth through 1930 was among branches lo­ cated within the same city as the head office of the bank operating them; at the end of that year roughly two-thirds of the branches in the country were in the city of the head office. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - CHART 1 BRANCHES Of BANKS IN THE UNITED STATES NUMBER NUMBER 3500 3500 3000 2500 2000 1500 1000 500 WOO 1905 1910 1915 1920 1925 1930 1935 Number of branches of State and national banks in the united States, 1900-1931. From 1900-1920 the figares are for five year intervals, but from 1920-1931 they are annual* Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3- Table 1 - Number of Branch Systems and Somber of Branches in the United States, 1900-1931 [ Numbei• of branches 1 Number of 1 In i Outside Year^ ) banks with j head office i head office !Total 1 branches city city 1900 87 25 91+ 119 1905 196 135 215 350 1910 292 271 277 i 548 1915 397 435 i 350 ! 785 1920 530 77? 508 ; 1,281 1921 5^7 904 ! 551 • 1.^55 1922 610 1,156 i 645 1,801 1923 671 1,327 727 2,054 1924 706 1,51^ 783 2,297 1925 719 1,724 800 2,524 1926 743 1,877 824 2,701 1927 73? 1.958 95U 2,912 192S 77* 2,140 996 3.136 1929 | 763 2,273 1,076 3.3^9 1930 ! 750 2,387 1,131 3,518 June 1931 ' 722 2,299 1,164 3,463 Dec. 1931 j 677 2,176 1,158 3.334 (l)Por the years 1900 to 1923, inclusive, the figures are not as of any uniform month. For 192*+ they are as of June, for 1925 and 192$ as of December, and for 1927 to 1930» inclusive, they are as of June* Note: This and following tables give revised figures for the years 192U-1930f inclusive, on the basis of addi­ tional data received since the preparation of previous summaries of branch banking by the Federal Reserve Board, Furthermore, mutual savings banks and private banks reported as operating branches have been omitted. Mutual savings banks thus excluded numbered 72 at the end of December, 1931, with 112 branches and loans and investments of $4,090,606,000. Private banks excluded numbered k on the same date, with 5 branches and loans and investments of $2,859*000. Where comparisons in these tables are made with all active banks, private and mutual savings banks have likewise been eliminated from the active bank figures. The number of banks operating branches, as shown in Table 1, increased from 87 in 1900 to 677 in December, I93I. Since the decline Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 4 - in the number of banks operating branches from 1928 through the three succeeding years was not accompanied by a corresponding decrease in the number of branches, it is apparent that the movement does not indicate an abandonment of branch banking, but rather a concentration of it in the hands of fewer banks. Branches of State and National Banks, - Prior to 1922 the develop­ ment of branches was limited almost entirely to State banks, as shown by Chart 2. Occasionally a State bank with branches was converted into a national bank and retained its branches, or was absorbed with its branches by a national bank. The growth in the number of branches of national banks from this source was slow, however, and in 1921 there were only 72 branches of national banks compared with 1,383 branches of State banks.