oped the committee did not believe and it was therefore led to the abandonment of all thought of attempting a plan of banking reform based upon the conception of large privately managed institutions operating unrestrictedly and with great numbers of branches. This conclusion did not, of course, imply any belief that the adoption of other features of the Canadian system which seemed applicable and could be easily grafted upon our own system was undesirable. It was a conclusion relating simply to one of the general ideas underlying the structure of Canadian banking."

BRANCH BANKING INCOMPATIBLE WITH NATIONAL SYSTEM

It will be noted that in the opinion of Mr. Glass and his committee, an opinion almost unanimously supported by the Congress, a branch banking system is wholly incompatible with the national banking and Federal Reserve system as established. The national banking system is a system of single unit institutions locally managed and controlled. The Federal reserve system provided for the marshalling and utilization of reserves for these single unit, locally controlled, national banks, and the single unit, locally controlled, State banks which might come into the Federal reserve system by and through "duly qualified institutions (to wit, the Federal reserve banks) which shall act primarily in the public interest and whose motives and conduct shall be so absolutely well-known and above suspicion as to inspire unquestioning confidence on the part of the community." It was held, and properly, in the above quotation from the report of the Federal reserve act that it would not be possible to introduce a branch banking system "into American banking without a very extensive and vital modification of banking legislation and of conditions in the United States." Attention was called to the fact that the introduction of a branch system would almost necessarily have meant the abnadonment of the idea of free banking," and "that the power of establishing branch banks if widely exercised by large national institutions would have entailed the contracting of the number of independent banks in the United States and a corresponding limitation of the perfect freedom of competition which exists to-day."

The decision then wisely made that branch banking as a feature of the national banking system was not only unwise but would prove destructive to the system, has been abundantly justified by our experience, and whatever may be said in favor of a branch banking system in the States, separate and apart from the national system has no essential or conclusive_bearing upon the question of branch banking within the national system. It is conceivable that a state branch banking system might operate with more or less success wholly outside and independent of the national system, but as was stated in the report which I have quoted, such a system could not be engrafted upon or introduced into the national system without the abandonment of the free, independent, unit banking of that system. The two theories and practices of banking can not operate as a part of the same system. The national system can not prosper or exist half branch and half individual unit banks. The two systems are wholly dissimilar in principle and in practice both as to management and control and in the essentially important matter of the marshalling and distribution of reserves. The one, the national system, partakes of the characteristics of American life and practice in its local control and embodies the tremendously important feature as Mr. Glass stated it in his report "for the holding of reserves by duly qualified institutions which shall act primarily in the public interest.” The other, the branch banking system, has as its dominant features absentee management and private and monopolistic control of reserves.

EMERGENCY CHARACTER OF THE LEGISLATION

It is urged by those who are opposed to section 9 of the McFadden bill and are in favor of allowing the continued establishment of state-wide branch banks by State banks within the Federal reserve system, and the continued admission of State banks into the Federal system as they may apply without regard to the number of branches they may have, that there is no necessity for action at this time; that there is no urgency about the matter; that we should allow things to drift along to some indefinite period when it is assumed that all concerned may possibly be in agreement as to what should be done. The vast majority of those concerned, including bankers, businessmen and officials charged with responsibility under the national banking law are in agreement as to what should be done and in agreement on the proposition that what should be done, should

be done promptly if we are to avoid irreparable injury to our national banking and Federal reserve systems and to the great body of the public which they

serve.

The principal note of dissent comes from a comparatively few in a limited territory who desire at one and the same time the benefits to themselves, as they see it, of the extension and enlargement of the branch banking systems which they have established and the advantages and privileges of membership in the Federal reserve system. In addition to these directly interested parties there is a small body of those who study and examine banking and financial questions largely or wholly from the standpoint of theory and who are prone to confuse the theory of branch banking as a separate and distinct system with the very practical question of branch banking as a part of the Federal system which was established and has been maintained on the theory, policy and practice of individual, single unit, banks in connection with a reserve system established in the general rather than individual interest.

The situation is one demanding immediate action. No good purpose can be served by delay, but infinite harm may result from such delay. Beyond all question and controversy the American people are not disposed to establish a national system of branch banking which would result, in the language of the report above quoted, in a "profound modification, not to say transformation, of the basic ideas upon which the national banking system has been developed." The country is overwhelmingly opposed to a plan of national banking referred to in the report which I have so frequently quoted "as one based on the conception of large privately managed institutions operating unrestrictively and with great numbers of branches." That being true, it is the duty of all who are interested in maintaining the national system to aid in declaring clearly and definitely by statute that it is to continue to be the kind of a system its authors intended to establish and which the American people approved,

EFFECT ON FEDERAL RESERVE SYSTEM

It has been suggested that if this declaration is made, if the spirit and purposeof the Federal reserve act is crystallized into law, some institutions will leave the Federal reserve system and that others that might be inclined to seek the benefits of the system would, under these circumstances, decline to do so. While it would, of course, be regrettable if by any chance the proposed legislation should take out or keep out of the Federal reserve system institutions which might otherwise remain in or join the system, it would be infinitely more regrettable if we should fail to take the action which is essential to maintain the national system as one of independent banks with publicity controlled reserves and thus invite a condition of inequality and dissimilarity of status, privilege, opportunity and practice which in the end, if it did not utterly destroy, would at least tremendously muddle, confuse, and weaken the national system.

AS TO STATES RIGHTS

It has been urged by some that what is proposed in section 9 constitutes an unjustifiable interference with the authority of the States in the establishment and management of banking institutions. That such is not the case is understood and admitted by practically everyone who has given the matter careful consideration. There is no purpose or intent and no provision of interference with the authority of the States in the establishment of banks and banking systems. Section 10 of the Federal reserve act authorizes State banking institutions to become stockholders in Federal reserve banks, and on page 42 of the report to which I continue to refer, it was stated: "It has been plain, however, that inasmuch as State banks are organized under different codes of legislation it would be unfair to permit banks to become stockholders in the reserve banks and to enjoy the advantages open to national banks which are stockholders unless such banks were subject to practically as high a standard of banking requirement as the national banks with which they compete." As was pointed out by Mr. Charles W. Collins, Deputy Comptroller of the Currency, in his admirable book on The Branch Banking Question: "There is nothing in the bill which would restrict any nonmember bank in any way. State legislators, State executive officials, and the State banks remain free to pursue their own banking policies." On the other hand, it having been deemed wise to establish a national banking system, the Federal Government has beyond all question and without any shadow of interference with the rights of the States the authority to fix

the conditions under which State banks may enter into and enjoy the privileges of the national system. There is not only no interference with any right or interest of the States, but as was stated by Mr. Glass in the above quotation, it would be unfair to admit State banks into the enjoyment of the privileges of the Federal system without requiring them to conform to the basic requirements laid upon the national banks which are members of that system by compulsion. It would in fact be more than unfair. It would be entually destructive of the national system.

URGENCY OF THE LEGISLATION

There are many features of the McFadden bill the wisdom and urgency of which are quite beyond serious question, and this, in my opinion, is true of no section of the bill quite so much as it is true of section 9. The provisions of that section are not only wise, sound, and just, and essential to the maintenance of the national system in accordance with its spirit and purpose, in harmony with American ideas and ideals of a national system, but they are in the nature of emergency provisions demanded by conditions existing in certain sections and localities which can not be left to develop, even temporarily, if we are to maintain the national banking and Federal reserve systems in strength and influence and in accordance with the theories on which they were established.

ADDENDA

The McFadden bill as it passed in the House of Representatives sets up a new and more restrictive definition of eligibility for membership in the Federal reserve system. It would make ineligible for membership all nonmember banks operating branches outside the home city in States which now permit such branches by "law or regulation." These States and the number of banks which would be made ineligible except on the condition of giving up their outside branches are:

Several of these States, including Alabama, Arkansas, Florida, Indiana, New Jersey, and Washington do not now permit the establishment of branches, and some others do not permit new branches beyond city limits. In Pennsylvania recent branches are of limited power.

TELEGRAMS RECEIVED URGING PASSAGE OF MCFADDEN BILL, INCLUDING SECTION 9

Marysville Savings Bank, Marysville, Calif.

Sutter County First National Bank, Yuba City, Calif.

First National Bank, Madera, Calif.

W. F. Morrish, First National Bank, Berkeley, Calif.

First National Bank, Mountainview, Calif.

Bank of Yolo, Woodland, Calif.

First National Bank of Oceanside, Oceanside, Calif.

First National Bank of Banning, Banning, Calif.
Puente Savings Bank, Puente, Calif.
First National Bank, Puente, Calif.

Sebastopol National Bank, Sebastopol, Calif.
Bank of Mill Valley, Mill Valley, Calif.
First National Bank of Oceanpark, Calif.
Agricultural Interests, Petaluma, Calif.
Petaluma Savings Bank, Petaluma, Calif.
A. F. Tomasini, Petaluma, Calif.

Farmers & Merchants National Bank, Mountain View, Calif.
First National Bank of Cloverdale, Cloverdale, Calif.

G. P. Lovejoy, postmaster, Petaluma, Calif.

Sonoma County National Bank, Petaluma, Calif.

George P. McNear, feed dealer, Petaluma, Calif.

S. G. Gambonini, dairying interests, Petaluma, Calif.

R. T. Davies, central committeeman, Fullerton, Calif.

The ACTING CHAIRMAN. The subcommittee will now adjourn subject to call of the chairman.

(Whereupon, at 1.30 o'clock p. m., the committee adjourned.)

CONSOLIDATION OF NATIONAL BANKING ASSOCIATIONS

WEDNESDAY, FEBRUARY 24, 1926

UNITED STATES SENATE,

SUBCOMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The subcommittee met, pursuant to call of the chairman, at 10.45 o'clock a. m., Senator George W. Pepper presiding.

The CHAIRMAN. Mr. Rathje, you may proceed with your statement. Please give your full name and your position.

STATEMENT OF WILLIAM J. RATHJE, VICE PRESIDENT CHICAGO AND COOK COUNTY BANKERS ASSOCIATION, CHICAGO, ILL.

Mr. RATHJE. Mr. Chairman, this is a delegation from Illinois and Wisconsin. Mr. I. N. Powell and Mr. W. J. Rathje are from Chicago and the two gentlemen from Wisconsin are Mr. Fisher and Mr. Wells.

We have come here, Mr. Chairman, to urge the importance of sections 8 and 9, which were originally known as the Hull amendment, and which seek to control the spread of branch banking. This has been a live issue with the banks for a great many years, and especially in the last five years. It has come up before the American Bankers Association at least twice and before many of the State organizations, and in each case resolutions have been passed in opposition to a spread of branch banking.

We have looked upon branch banking as tending to monopolization in finance, and that for this country it is not well adapted. We believe that if branch banking should be established in this country it' would soon take the place of the independent banks, and would be ruinous to 30,000 banks that have now been established throughout the country, with the exception of the very large ones..

Now this is a rather broad statement but we can see how the tendency has been in Canada, for instance, where now only seven banks survive out of a great many that were first established.

The sections as they have been put into this bill

Senator GLASS. You mean seven parent banks in Canada, do you not?

Mr. RATHJE. Seven banks all told. The others are all branches.
Senator GLASS. That is what I say, seven parent banks?
Mr. RATHJE. That is correct.

The sections 8 and 9 that have been written into this bill, we believe are entirely fair to all the banks who have now established branches, because it does not seek to uproot anything that has thus far been done except that in the State of California, if section 9 is

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