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they could not take them over. Three months later the cashier and the president of the Bank of Santa Maria went again to Los Angeles, saw Mr. Stern and his associates, and repeated the offer and it was accepted."

That was the first branch bank that the Pacific Southwest took over, and they took it over because it was offered to them and they conducted it on a high grade and there is no criticism in it. That is one of the methods probably referred to by Mr. Johnson when he referred to

same methods. The CHAIRMAN. I have a somewhat natural curiosity about Mr. Sartori. When you mentioned him last he was on the verge of going to jail. What happened to him?

Mr. FITZGERALD. In the mandamus proceedings, Mr. McNerny demanded that he furnish all the correspondence he had with Mr. Johnson on the banking business, and he refused, and Mr. McNerny threatened him with jail. I do not know whether he is in jail yet or not.

Senator Glass. If he is in jail, do you think we can get him out ? Mr. FITZGERALD. I do not think you could.

Senator Glass. Is there any other evidence to show that there was any attempt to break the Santa Maria Bank by the Bank of Italy?

Mr. FITZGERALD. No, sir; they went down, sold out and quit the business, and that was confirmed by a telephone conversation with the president of the bank, which I had before I left for here. They took their three best men away and paid them a very large salary above what they were getting, and sent them out to get the business from the bank.

The CHAIRMAN. Senator Edge has to leave now for an important engagement. Senator Glass and I have to be on the floor, and we have agreed to give Mr. Day an opportunity to be heard, and we will be glad to consult with you gentlemen about a further session if you can not conclude now.

Mr. FITZGERALD. I think I can finish in a few moments. You have before you the advertising of the Bank of Italy. There (exhibiting) is their deposit lists you use when you come in to make a deposit, on which they state their branches, and sometimes an ocular demonstration is better than describing it. They state there just where those branches extend to. It is not quite up to date.

Now you have already had, I know, before you the Bank of Italy Corporation and its statements of the holdings of stocks. The difference between this statement which I want to hand

you
for

your observation is that this summarizes the holdings. This states that they hold miscellaneous bank stocks of California to the value of $3,567,887. I would not be surprised that there are some gentlemen here at this hearing that, when they go back, will find their bank gone. They hold foreign bank stocks of the value of $6,468,879.

I am not sure that any of the branch banks doing a branch-bank business would at all resort to the same method of getting a bank that was resorted to in the Santa Maria case. I know a number of those gentlemen and I do not think they would do that. They might. However, I think they would prefer to tickle your nose and while you were sneezing, take away your bank. I think that would be more likely their method if they indulged in it at all.

That statement is summarized there and it gives every concern. The Bank of Italy owns the East River Bank in New York. I understand that it owns some banks in Europe, but with them we are not so much concerned.

Something was said here the other day as to whether chain banks were not worse than branch banks. I am free to confess I think so. I{think the chain-bank system is a bank system that can do a lot of injury; that is, as I understand chain banks, independent banking places, but controlled by the same corporation.

I think also, gentlemen, that the State of California will take care of this situation when they get to it. But what we plead for in the meantime is that we not be left to let the Bank of Italy or any other bank proceed further and take, during all this interim, these little banks that are struggling for existence.

It has been suggested while I was here that there might be a fear on the part of some of those charged with the high duty that all Senators are trying to administer to the affairs of the country in the best way for everyone, that a question of interfering with State rights might be involved in this proposition. It might not add one way or other to the discussion, but I have been a stickler for States' rights since I cast my first vote. I have never changed. I can not see how the Congress of the United States can not govern who may go in or out of the Federal reserve system without interfering with States' rights in any respect, because this very act provides that the Federal reserve can not take the paper or rediscount paper

of

any bank in the Federal reserve system that loans beyond a certain amount of capital, and that would be interfering just the same, though I can not understand that it does. But waiving that and saying possibly there is a State's rights invaded, I have never known of anyone, no matter how much he advocated States' rights, who would go to the extent of saying that the rights should be sustained even to the extent that that State, through its policy or the policy of those doing business there would be permitted to destroy any arm or any branch of the National Government.

Mr. Drum made a very clever--and he always does—play that we came into the national-bank system upon a guarantee and that to change that system would be violating the guarantee.

The CHAIRMAN. I just want to interrupt you a moment. I want to consult the convenience of the gentlemen present. This is our problem, and I should like to have your help in solving it: At noon we have to be in the Senate, and will be occupied for the rest of the day. It so happens that I personally have to be up in Western Pennsylvania to-morrow and the next day and central Pennsylvania on Washington's Birthday. I will not be able to be back here until Tuesday. So, after 12 o'clock to-day, any part of this hearing that is not concluded must, as far as I am concerned, stand over until Tuesday of next week.

Mr. FITZGERALD. If we finish before 12, will that be satisfactory?

The CHAIRMAN. I want to call your attention to the fact that several gentlemen have indicated å desire to say something-Mr. Hinsch and Mr. Dawson wish to speak very briefly, and we promised them that they should have an opportunity.

Mr. FITZGERALD. I will close in a few minutes. I could say much more, but I think I have touched the high points.

The CHAIRMAN. You have been so helpful that we dislike very much to stop your more extended remarks.

Mr. FITZGERALD. I could stay over until Tuesday if it was necessary. But coming to Mr. Drum's statement of their coming in under a guaranty, the guaranty under which he claims they came in is warded this way, and I am incorrect in this I want to be corrected, as I have never attempted to gain a point where there is nothing in it by misstating anything. But the State banks came in under this wording, “Subject to the provisions of this act and to the regulations of the board made pursuant thereto."

That is the guaranty claimed by those banks, and if I understand Mr. Drum's contention aright, that puts this Congress in the position that it can not change the present system. All right. I will ask, in return, gentlemen of the committee, when that guaranty, if it is a guaranty and a lasting one, was made to the State banks, was there no guaranty reserved to the creatures of your own creation, the national banks? Was there not some latent equitable guaranty that would awaken the moment any banks in those States attempted to destroy the national banks? It seems inconceivable to me that you gentlemen could not amend it or change it.

Now, in conclusion-I will not go to the other matters--I can only sum up in one word what I have said. We ask you, for the benefit of the banks that are struggling for existence and I mean by that not that they will go out unless they are forced out or bought outI ask you if you can, in accordance with your high sense of duty to the country, pass the McFadden bill with section 9 as it is and if you wish to amend it, we have no objection so as to say that section 9 would permit banks to come into the Federal reserve with the branches they have to-day. In fact, we do not object to most any amendment to that with the feeling that we could get immeidate relief. We ask you not to send us back to California to say to the people of the State that the Congress will not give us that relief. I ask you not to relegate us to the position of the superintendent of banks, but relieve us as far as you can, and then we have to fight out our own salvation afterwards in the State of California, but with the help you can give us in this we go back forearmed, and I will say to you, we will make a fight.

The CHAIRMAN. We appreciate your statement, and inasmuch as you have been hampered by lack of time at the end of your statement, you may be assured if you submit to us a memorandum of brief extension of your remarks, that it will be given very careful consideration by the committee.

Mr. FITZGERALD. I nearly always speak extemporaneously, but I thank you very much for that courtesy.

STATEMENT OF HON. FRANK B. FLINT, ON BEHALF OF THE MERCANTILE TRUST

OF SAN FRANCISCO, AND OTHERS

CO.,

Mr. FLINT. Mr. Chairman and members of the committee, I desire to comment, for a moment, on certain branch banks that have not been mentioned so far.

Mr. Drum has described the Bank of Italy, covering the entire State, and another group that covers what might be called the metropolitan area and then the Pacific Southwest Trust & Savings Bank, that has branches in the territory tributary to the financial and business center of the city of Los Angeles. All the banks thus far mentioned are members of the Federal reserve system. There are other banks that have not been mentioned that are quite as important and dominating factors in this controversy, as I see it, outside of the system.

The CHAIRMAN. You say those four banks for which you and Mr. Drum speak are members of the systein?

Mr. FLINT. Yes, sir.
The CHAIRMAN. I understand the Bank of Italy is also.

Mr. Flint. Yes, sir. I am addressing myself to those branch banks organized under the State law that are not members of the system.

The CHAIRMAN. I was going to inquire whether any subsidiaries of the Bank of Italy are members of the Federal reserve system,

Mr. FLINT. I should like to meet that situation as I come to it in my presentation.

The Bank of Italy corporation, as I understand it—and I have not analyzed it--is a New York corporation.

The CHAIRMAN. Somebody so stated here.

Mr. FLINT. I so understand it. That has no relation to branch banking. As I understand it, they own stock in two or three banks in the city of New York and practically dominate them, and they also own stock in banks in New York State, Ohio, and other places. The CHAIRMAN. That is, this holding company?

Mr. FLINT. Yes, sir. But I can not see what relation that has to branch banking. It is my contention that branch banking is not the dangerous thing; it is the holding company; in other words, if you did not have a law in our State permitting branch banks, this Bank of Italy corporation could have acquired each one of the banks that are now branches of the Bank of Italy, through a holding company. If we are proceeding on the assumption that we should not have branch banks, but that this should be brought about by holding companies—which I do not agree to-then it appears that you should approve or disapprove of the holding company scheme because it not only reaches the State of California but reaches four or five States of the Union, according to the statements made to-day.

Senator EDGE. Where it is permitted? You contend it can go anywhere, do you not?

Mr. FLINT. Yes; in other words, they could go into your State and acquire all State banks in your State as they did in California, except that they would hold them through a holding company instead of through the branch bank system.

As to the situation as to the banks outside of the system that will not be affected by this legislation: The Hellman Commercial Trust & Savings Bank, according to data I have here, has resources of about $82,000,000, and the California Trust & Savings Bank, $77,000,000—banks that are not connected directly or indirectly with the Bank of Italy.

The CHAIRMAN. They are State banks not in the Federal reserve system and the figures you have given are their resources, respectively?

Mr. Flint. Yes. We have here representatives from several banks in the same city, the Citizens National Bank and the Merchants National, and the Farmers and Merchants' National Bank, and the aggregated resources amount to approximately $150,000,000. These two outside banks represent as much in resources as the three national banks. They are competitors of the Security Trust & Savings Bank and the Pacific Southwest Trust & Savings Bank. By passing this bill you place a premium on their staying out of the system and a penalty on us for staying in the system.

Senator EDGE. A leading question naturally develops, then, that if we do not pass any bill of this kind or a bill for the purpose of meeting this situation, as the majority of the House apparently feels exists, how many other banks will go out of the system who are now members of the Federal reserve system?

Mr. Flint. I do not think any one.
Senator EDGE. That, of course, is the real fundamental question.

Mr. Flint. In other words, Senator, as I view it, there are no banks in the State of California that have

gone Senator EDGE. I did not mean California. We have to look beyond California.

Mr. FLINT. Yes; I think you have to take a broader view than that. I would say that granting the relief the national banks desire—that we are all in favor of. We do not come here antagonistic to any legislation except-

Senator EDGE. I am speaking about what banks we would lose.

Mr. FLINT. I do not think there has been any one who said you would lose any banks.

Senator EDGE. If this legislation is not passed in any form and we do not give our present members some municipal rights for branch banks

Mr. Flint. I think that ought to be granted.

Senator EDGE. I understand you approve of that, but not the limitations.

Mr. FLINT. I do not approve of placing a penalty on us.

Senator EDGE. Without further and greater powers than at the present time?

Mr. FLINT. Yes; so as to meet our situation. We are confronted, in branch bank operations, with the free hand possessed by our competitors, while our hands are tied by reason of the fact that we saw fit to go into the system when it was organized.

There is one other matter I desire to comment on, and I am rather reluctant to extend my remarks for the reason Mr. Drum has covered the ground quite fully. I would just like to observe at this time that you want to keep in mind that all of the gentlemen who are here are our competitors and whatever defects we have certainly have been pointed out to this committee and I should like, for a moment, to comment on some of the good things we have done.

Mr. Vaughn, of Fresno, called attention to what took place at Fresno and how evil the branch banking system had been in his community. That is remarkable if I selected a place to illustrate where we had performed a great service, I would select Fresno. It is a shock to find we have not been given credit for rendering service in Fresno. Mr. Vaughn comments on two matters. First, he criticises our action after taking over the Valley Bank at Fresno,

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