I want to say a few words regarding the admission of the state-wide branch bankers into the Federal reserve system who are here to-day charging bad faith on the part of Congress if they should pass any legislation which would prevent them from exercising their charter and statutory rights as State banks. They contend that they entered the Federal reserve system animated by war patriotism and with assurance from the Federal reserve board that no charter or statutory rights would be disturbed, contending that they had a perfect right to establish further branches in California outside of the city where their home office is located, and that the restrictions in section 9 of the McFadden bill would limit these rights to the city where the head office is located.

Gentlemen, this contention carries with it the applied assumption that State-wide branch banking is authorized in California with no limitation or restrictions. Such, however, is not the case. Branch banking in California exists to-day only through usage and not under any direct law. Let me read the section of the California bank act. This section states that a branch may be only established by first obtaining the written approval of the superintendent of banks for the opening of such branch office, which written approval may be given or withheld in his discretion, and shall not be given by him until he has ascertained to his satisfaction that the public convenience and advantage will be promoted. I ask these gentlemen what vested right they claim under this section, the title to which is vested entirely on the discretionary power of the superintendent of banks, in whom the people of the State of California in their wisdom invested with these powers and which, we are proud to say, he has used to the best advantage.

Naturally, one of the conditions on which the State-wide branch banks were admitted was the condition that they would engage in conservative banking and be subject to the regulations of the Federal Reserve Board and subject to the provisions of the Federal Reserve Act and regulations made pursuant thereto.

As to their joining the Federal reserve system as a war measure let us examine this question. The records show that the California State banks did not enter the Federal reserve system until the spring and summer of 1919, and if my memory serves me right, the war ended in November, 1918, with the signing of the armistice. I believe that any guaranty which Mr. Drum claims was made as a condition of their admittance to the Federal reserve system should not be considered as a perpetual agreement, otherwise Mr. Drum is here asking Congress to perpetuate a monopoly upon the American people. We should also remember that every corporation is a creature of the law and is amenable to the law, and that every agreement made by the Federal Reserve Board is subject to review and revision by Congress, otherwise it is against public policy.

In this regard national banks of the Federal reserve system are subject at all times to a change of legislation in the Federal reserve act, which has been amended, I believe, 18 times. They are compulsory members of this system, while the State banks, which Mr. Drum represents, are only voluntary members and can, on six months' notice, withdraw from the Federal reserve system. As a member of this wonderful Federal reserve system I feel that any legislative action that would change conditions of membership, no imposition

is imposed on its members. Any guaranty or law heretofore made can not be continued in perpetuity, as the conditions of life and the changing tides of time are constantly bringing about new conditions in America. These conditions must, of necessity, be met as they arise, and who of us would dare make legislation that could not be changed or amended by future legislation?

Mr. Drum dramatically exclaimed near the close of his argument that the public was not here, that the public was not represented. I believe Mr. Drum has overlooked the fact that the American public is here, and that the American public is represented as no other interests are represented. Every Senator and every Congressman is a representative of his State or congressional district, and they represent the American public. How else can the people be represented in our republican form of government?

Mr. Drum has asked the query in his argument why legislation was not sought in California by the national bankers who are here in attendance to-day, and stated that the national bankers should not appear in Congress to try and obtain the necessary legislation but should appeal to the State Legislature of California for relief.

The Congress of the United States is charged with the duty of enacting nation-wide legislation, fair to all the 48 States, and to define a nation-wide policy for the Federal reserve bank. This is perfectly just and wise, otherwise we would have 48 kinds of national legislation regarding banks. National banks must come to Congress for necessary relief and legislation as it is only here that suitable legislation can be enacted for their relief, and it is our firm belief that this McFadden bill affords us the legislation we are seeking and that section 9 which limits branch banking to the city in which the bank is located is the only safeguard which the American people demand and which would prevent further State or nation-wide branch banking that now threatens the existence of the national banking system and the Federal reserve bank. I am saying this with full knowledge that Professor Willis in his learned discourse had not the touch of the common people or their interest in his mind when he made this research, but was rather here trying to hypnotize this committee by powerful propaganda and to insinuate that big business and monopoly is not as bad as the picture that has been painted. Might I quote the words of Andrew Carnegie when he said "The bigger they grow the more vulnerable they become." It is the same with firms as with nations. Scattered possessions are not in it with a solid, packed, concentrated force. Chief Justice Taft stated that there is usually a limit beyond which economy of management ceases and combinations that continue beyond this point. This very fact shows the intent to monopolize and not economize and we contend that this situation has been reached in California.

In closing I want to answer the contention of Mr. Drum in which he said that no legislation had ever been initiated in California. I want to call Mr. Drum's attention to the Baker bill and to the meetings of the legislative committee in 1923 which he will no doubt recall. On this occasion Mr. Drum made nearly as lengthy an address as he did here to-day urging the legislative committee and the independent unit bankers in attendance to withdraw legislation and agree on some policy which might be put into effect, and I will admit that his arguments were so plausible that the independent bankers withdrew

the Baker bill and all the other legislation then pending and relied on the discretionary powers of the superintendent of banks who stated that a de novo rule, which had long been in existence in California and had been recognized by former superintendents of banks, would be considered by him in administering the California bank act, and everyone present agreed that this rule was for the best interest, not only of the banks, but of the people of the State of California. The superintendent of banks in 1923, as the result of these long and earnest discussions, in which the superintendent of banks, the executive committee of the California League of Independent bankers, and the legislative committee of the California Bankers' Association participated, formerly promulgated this rule and has subsequently adhered thereto. This rule has been satisfactory to all unit or branch bankers, and with the exception of the Bank of Italy and its affiliated institutions, it has proven satisfactory to all the banks of which we have any knowledge. This de novo rule had been followed as a general policy by previous superintendents of banks, even though not formerly enunciated. It was not a new rule or a new principle but merely the formulation as a rule of a principle which previous superintendents exercised in their discretion in determining whether or not the public convenience and advantage would be promoted by granting a branch. This rule has been the general policy since the bank act was established in 1909 and provides that the superintendent of banks will not permit the estabment of branches outside of the city of the head office except by purchase of or merger with an existing bank in such outside city or town. Opposition was made to this general policy at the last session of our legislature and bills were introduced which would take away from the superintendent his discretion in this matter. The legislative committee and the executive council of the California Bankers' Association disapproved of this legislation. The superintendent of banks likewise vigorously opposed it and it was defeated in the legislature.

The legislative committee of the California Bankers Association, believing that this general policy or de novo rule was a safe and sound policy and was entitled to the support of all banks, whether national banks or State banks, or whether they were State banks or unit banks, asked the California Bankers Association at their meeting in Santa Barbara on May 21, 1925, to express their approval or disapproval, and a resolution was unanimously adopted expressing their unqualified indorsement and approval of the de novo rule.

Gentlemen, you will thus see that California has, in fact, through this rule the same limitations in the establishment of branches as that provided for in the McFadden bill, namely, the city limits, and the only difference is that the de novo rule permits the purchase or merger of banks which have been organized or existing for more than three years and which are located outside of the city where the purchasing bank is located. It is under this last clause that the branch banking in California is undertaken. Banks are purchased and merged with a parent bank and thus become a branch in the state-wide branch banking system. These mergers, however, would be prohibited under the McFadden bill. It is the duty of Congress to pass a uniform national banking bill and to establish a uniform policy regarding branch banks. We have this uniform national bank act

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and branch bank-policy in the McFadden bill, and we feel that through the McFadden bill the American people, who have in the independent or unit system of banking a system as free from monopoly as can be devised, will be protected. We urge the adoption of the McFadden bill as the direct means of preserving this great American unit banking system, comprising 30,000 banks in America, and giving the national banks certain relief to which they are entitled as they are the bulwark upon which the Federal reserve system is built. The CHAIRMAN. The committee will stand in recess until 10 o'clock to-morrow morning.

(Whereupon, at 4.35 o'clock p. m., an adjournment was taken until to-morrow, Thursday, February 18, 1926, at 8 o'clock a. m.)