that we did not continue the bank at Kerman and Biola, and stated that two new banks had been started after we had taken over the branches and abandoned them, and that we had committed a great wrong to the community.

I remember the conditions under which the banks at Kerman and Biola were acquired. I am not a banker. I am an attorney but I know the facts in these matters by being attorney for the banks. I know that by analyzing the business handled by these two branches, we did not feel we were justified in continuing their operation. It would mean a loss and there were other banks near enough to these places to permit of service being afforded the people. I do not find the Bank of Biola in this book, but I call attention to the figures of this bank. The Bank of Kerman organized a little over a year ago with a capital of $25,000. It now has resources, after a year, of $216,000. It would appear to me that no bank could exist, with this business. At any rate, we reached the conclusion, as a matter of safety, we should no longer continue the branch there.

Senator GLASS. The simple fact is that you bought a bank and, after a limited experience, found it was a bad bargain and gave it up, which you had a right to do.

Mr. FLINT. Yes, sir. Second, he comments on the lack of assistance that that community. I notice, from reading the statement of his bank, the First National Bank of Fresno, that it has a capital of $200,000 and resources of $3,359,000.

I have not the figures before me of a late date, but at hearings before the committee of the House it was stated that there is not a branch bank in the San Joaquin Valley that has not loaned thousands of dollars more than the deposits they received in the community. San Joaquin is one of those valleys where the farming industry has not been profitable the past few years. Values have gone down and our bank has been conservative in making loans in that valley, but to say we have not been liberal in making those loans is not justified, and our loans have actually increased rather than diminished during that period.

But that is not the important thing. They have two crops in that community; one is wine grapes. That crop does not require money since the Volstead Act.

Senator EDGE. You say they not require money now?

Mr. FLINT. They sell them so rapidly.

Senator EDGE. I understood they were selling seven times as many grapes now as beofre the passage of the Volstead Act.

Mr. FLINT. That is what I intended to convey.

Senator EDGE. In other words, the grape juice commission has increased?

Mr. FLINT. Yes, sir.

Senator GLASS. I suppose most of those grapes go to New Jersey? Senator EDGE. No; we raise our own grapes.

Mr. FLINT. The dominant crop is raisins. We financed, directly and through our correspondents, this crop to the amount of $13,500,000 at one time. If there is any local bank that could do that I do not know where it is.

Senator GLASS. If you did not do that, what would they have done? Mr. FLINT. I do not know. No local bank did it; that is a certainty. Our correspondent did participate in that underwriting,

but I do not say that the Pacific Southwest Trust & Savings Bank financed it.

As far as nonresident ownership is concerned, there is not a single branch of our bank that I know of that has not as large a stock ownership in the community, as our competitor the unit bank. There is not a single branch of our bank that I can think of that has not as substantial a board of directors representing the merchant, business, and farming class as our competitor. There is not a single branch of our bank that has not had at its head either in the person of the former president or vice president of the unit bank we acquired or a man from the community who does not stand as high as the head of our competitor bank.

Senator EDGE. Is that the policy of this large system, the Bank of Italy, to have the local stock held by local people?

Mr. FLINT. Yes; in other words, we differ from the Canadian system in that respect.

Senator GLASS. Do you give consideration to the character of men who are put in charge of your branches?

Mr. FLINT. Very careful consideration.

Senator GLASS. Do they, in turn, give consideration to the character of persons who want to borrow your funds?

Mr. FLINT. It is left entirely to the local representatives.

Senator GLASs. It has been suggested here that the element of character disappears entirely in the matter of branch banking.

Mr. FLINT. I should like to place on record the statement that the local board of directors of every branch, compares favorably with the local board of directors of the unit bank; in other words, it is our policy to have as high a local board as it is possible to get, taking the local board of directors of the acquired bank.

Senator GLASS. The suggestion of the disappearance of the character element in the branch banking system was submitted to the director of the Canadian banking system by Mr. Platt of the Federal Reserve Board and he seemed very much amused at the statement and wrote a very specific contradiction which I have among my papers.

Senator EDGE. You developed that the Bank of Italy has a holding company in its various branch banks and that was the form of their national organization. How is it operated, so that the stock would be distributed locally? What is their financial scheme?

Mr. FLINT. It is this: Assume there is a bank in Pasadena. We buy the bank and instead of paying money we exchange their stock for ours.

Senator EDGE. Suppose there is no local bank.

Mr. FLINT. Under our law we can not start a branch. There may be a few exceptions, but they are not consequential. Unless we keep in touch with the local situation, through the man who is at the head of our organization, the branch would fail. What we are striving to do in our branches is to have the public served and have the confidence of the public in that community. We can not have that unless our management both at the head of the organization and the local board of directors, meets with the confidence and approval of the people of that community, and it is just as local as

if the old organization was going on, and it is just as much in touch with the community.

Senator EDGE. Have your boards passing on loans the same power to pass on applications for loans without referring them to higher authority?

Mr. FLINT. Generally; yes. In other words, the operation is like this, the head of the bank in one of the larger cities goes at least every two weeks to the head office and he discusses his problems with one executive committee. His general program is set up there and the amount of money required. I consider one of the great assets of branch banking the ability to finance any kind of crop in a community, whether raisins or citrus fruits or what not. The local bank is unable to finance the crop. In the first place the local bank lends all the money it has and then borrows from the Federal reserve and then from its correspondent bank. We know, by asking the branch manager in advance what will be his demands for cotton, beans, or sugar in his locality, to make up our budget, and that is what I consider the gist of the matter. We know he will be called on for so much in June or July, and we know what amount of money we will have to advance for the crop here and elsewhere, and we keep it distributed properly. If that were not done the local bank would have a hard time when they are harvesting the crop, and after that demand is over and there is a surplus of money in that locality, through our branch system we send it to another locality to harvest another crop. That I consider a great asset to us in the West.

Senator EDGE. As a matter of fact, the branch banks have no power-and I am not saying it is a wise power-but as a matter of fact the local board has not the power to grant a loan, has it?

Mr. FLINT. Yes.

Senator EDGE. It has?

Mr. FLINT. Yes.

Senator GLASS. You select men of that skill and experience in making loans, do you?

Mr. FLINT. Yes, sir; and we have just as strong a man at the head of our branches as these gentlemen in our competitive banks. Perhaps, looking at all of these gentlemen present, I should say outside of the gentlemen present, and as to the board of directors, in many instances it is the same board of directors as they had before we acquired the bank, we try to strengthen that board as much a

we can.

The CHAIRMAN. You were about to explain the set-up of these branches and I was not informed as to whether, when you acquired a bank for the purpose of making it a branch, you maintained its corporate organization and operated it through stock control or other form of relationship or whether you took over its assets and assumed a direct ownership and operated it as though it were a colonial branch of your establishment.

Mr. FLINT. The latter is correct. We take over the assets and the only difference is we place the old directors in charge as an advisory board and in most instances take the president of the institution and make him the local director of that institution.

Senator GLASS. And where advisable, distribute the stock in that community.

Mr. FLINT. Yes, sir; that is our desire, because if we can not do that we are not likely to succeed. We make an effort, to get local stockholders.

The CHAIRMAN. The stock that the local man takes is the stock of the parent institution.

Mr. FLINT. Yes, sir.

Senator GLASS. Speaking of absentee ownership of banks, I suppose you noted in the report of the New York Clearing House, $1,346,000,000 belonging to interior banks had been used in stock exchange operations in New York. Would not you call that species of absentee banking?

Mr. FLINT. I should; and I say to the people at home that if they do not have a branch banking system, a large part of their money will be in Wall Street, whereas now they finance their crops with that * money.

You can not escape the fact that there is an honest difference of opinion as to whether branch banking is right or wrong.

I want to say this, that you could not find a more intelligent looking body of men than our competitors who appear here to-day. If anybody thinks, with the branch-banking system we are walking over these gentlemen, you are making a mistake. They all say that they they are not disturbed about us; that they are going along very successfully gaining every day. Every unit banker has said that. We do not want to eliminate the unit banker. We want them. Nothing could be more fatal to us than to have the unit banker go out of business.

I will say we have no controversy, as far as I know, with any banker in any community that we are in. I know of no place where there is bad feeling. I do know that in every community where we have a branch that our competitor feels that we are helpful in carrying a part, if not a large part, of the burden in that community and, in many instances, where the local account is with our competitor, we gladly help by carrying the burden where they can not do it and we get our benefit from the improvement in the conditions in the community as a whole, and I say that in a State that has the diversity of crops that we have in California, that we are very helpful.

Just one word about one matter that has been repeated here a number of times and then I have finished, and that is about uncontrolled branch banking. That does not apply to our State. We are controlled under our laws and under the direction of a superintendent of banks. I agree with what one gentleman said, that if you did not have any banking laws there would be banks that would be run sanely, soundly, and safely. I will say that this is true as far as the branch banks are concerned and also true as to banks like Mr. Rossetti's bank, or Mr. Day's bank, they would be run just as safely, soundly and sanely if they did not have a superintendent of banks. The bank act is simply to control those who do not do a safe banking business. And for that set of bankers these laws are enacted.

I should dislike to see a branch bank system that would eliminate the unit banker. I should dislike to see an uncontrolled branch banking system. The system set up in our State, with the system of control we have, is a real benefit to the people of our State.

STATEMENT OF J. BABNEY DAY, REPRESENTING THE CALIFORNIA DELEGATION OF UNIT BANKERS AND NATIONAL BANKS

Mr. DAY. I just desire to speak a few minutes, and I will say all I have to say in connection with this matter. I represent the Citizens National Bank of Los Angeles and the Citizens Trust & Savings Bank and am chairman of the California delegation of unit bankers. and national bankers, who are in favor of the McFadden bill.

I want to say that the two banks I represent, the Citizens National Bank of Los Angeles and the Citizens Trust & Savings Bank of Los Angeles, were established some 36 or 37 years ago, and they now have total assets amounting to $15,000,000.

We have seen during the past several years encroachments-especially in the past two or three years-the encroachments of the larger banks. We have tried in our feeble way to assist the smaller bank, but it has been brought definitely to us that we should do even more than that, and for that reason Mr. Rossetti and I have gladly come here to say a word in favor of the McFadden bill.

I would say that since the Federal reserve act came into being our bank has met the reasonable requirements of our customers. I think that is true of all the banks in San Francisco and throughout California, and it is practically true all over this country the exception of certain parts of the country that have been so economically affected, and in this section you will not find any branch bankers because they do not work in that territory.

I want to say our relations with the large State banks of California are most cordial; we are good friends, Mr. Flint and Mr. Drum, and myself. Far be it from me to say a word against their institutions, which are considered strong and powerful. but I must say that some of my other friends look with some degree of alarm upon placing in the hands of a few men the banking power of the State of California or any State of this Union because you can not get away from the fact that it is a monopoly.

I have only one concrete illustration that in my judgment, as to the branch banks of California, we do not need any more of them. Some months ago we were approached by a customer of ours, who operates a very good bank, but a small one, in the middle section of the State. He came to me with the suggestion that he would like to borrow $100,000. His bank was small, as I say, but well managed. I asked him to tell me why he needed $100,000; at that time of the year when the crops were not moving. He said, "the branch banks. of our city"—and I want to say that none of our friends here have trespassed, and this does not refer to the bank represented by Mr. Flint or that represented by Mr. Drum-he said, they sent men over the country and called the loans, many of them, many of which they are unable to meet. He said that some of them were Swedes, that they knew they were good, but they did not have the money to pay, but they will pay. He said:

We can use $100,000 very well, because these men have come to us and we will have to help them.

We extended to him the $100,000, and it was paid when the crops began to move.