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ured merely by comparisons of population and number of banking offices. At best, a very large population per banking office is merely prima facie indication of possible inadequacy; conversely, a very small population per banking office is merely prima facie indication of possible overbanking. The wide variations in population per banking office disclosed by the general statistical analyses emphasize that evaluation of individual community situations is necessary to determine adequacy of banking facilities. This should take into account such matters as banking services already available in the community, accessibility of banking offices in nearby communities, lending facilities provided by nonbank financial institutions, economic situation of the community, and density of population.

In a private enterprise system, it is reasonable to suppose that when there is a need for an additional banking office, an opportunity for profit from its operations, and the legal requirements can be met, attempts will ordinarily be made to fill the need. In other words, establishment of new banks and branches-the number of which has been quite numerous in recent years-results from the operation of a demand and supply relationship, as in the case of other businesses, with due regard to filling the demand with facilities which meet the necessary legal requirements. It might well be found, however, that there are some genuine cases of inadequacy stemming from requirements which are unnecessarily restrictive, e.g., capital requirements. There are also persistent reports that, in some regions at least, the raising of capital, either in order to organize a new bank or to strengthen the capital position of an existing bank, is quite difficult. The problems involved may be sufficiently important to warrant special study. Replies to the questions addressed by the Subcommittee to the Comptroller of the Currency and the State Bank Supervisors, requesting analyses of action taken during the last 10 years on applications for the chartering of new banks and branches, doubtless will throw a good deal of light on the demand and need for additional banking facilities. The replies of the Presidents of the Federal Reserve Banks on the question of adequacy or inadequacy of banking facilities in their respective districts also will shed light on this subject.

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Concrete suggestions as to remedial steps which might be taken, in the event cases of inadequacy are found, would depend on the nature of the inadequacies-where, to what extent, and why they exist. Pending such detailed determinations, the suggestions outlined below are of necessity somewhat general. They treat separately the primary types of banking services: credit-granting services and deposit and check-cashing services.

Credit-granting services.-The skill and success with which the bank lending function is performed is perhaps the most important factor in the safety of depositors' and stockholders' funds, the profitability of a bank, and its very existence. Of equal or greater importance is the part played by lending facilities in the healthy development of any community; wise mobilization and utilization of community resources through the medium of banks is vital to economic growth.

3 These analyses are to show the number of applications filed for bank charters, branch permits, and bank mergers, the number granted, and the number rejected by principal reasons (including existence of adequate banking facilities) for rejection.

4 The lending rather than the investing phase of the credit-granting function is of especial interest here since that is the phase most directly concerned with the community in which a banking office is situated.

On a broader scale, the strength of the banking system as a whole and the economic welfare of the country depends in large measure on the skill with which the lending function is performed.

This phase of banking requires competent and experienced personnel even at a small banking office, since it involves passing on a variety of applications for loans in addition to providing the routine and valuable depositary services. The kind of management and personnel needed to lend money safely and soundly, together with the required capital protection, cannot be provided unless the banking office transacts enough business, primarily in the form of loans, to produce earnings sufficient to meet expenses, losses on loans and investments, taxes, and dividends, and to provide additions to surplus for the further protection of depositors.

The banking crisis of the early thirties demonstrated that, in addition to capital requirements, certain other important though less tangible requirements are needed if a healthy private banking system is to be maintained. Federal law, therefore, now requires the Comptroller of the Currency before granting a newly organized national bank a permit to commence business, the Federal Deposit Insurance Corporation before insuring a nonmember State bank, and the Board of Governors of the Federal Reserve System before admitting a State bank to membership, to consider "the financial history and condition of the bank, the adequacy of its capital structure, its future earnings prospects, the general character of its management, the convenience and needs of the community to be served by the bank * *" Similar considerations are required or are given to the establishment of branches.

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While such requirements clearly should not be abandoned in order to provide additional banking facilities, it would be appropriate and desirable to revise the specific and onerous dollar capital requirements for the establishment of branches by national banks and State member banks. At present, a member bank must have a capital stock of at least $500,000 (except in States that have a population below 1,000,000) to establish even one branch outside the head office city even though its location is adjacent to the city; this requirement applies no matter how small the bank or how limited the functions of the branch. If this specific and unrealistic requirement were relaxed, some additional banking facilities might be provided in States where branch banking is permitted. No reduction appears warranted in the present $50,000 minimum capital requirement for the organization of a national bank, particularly since the average deposit liabilities of banks are now about four times as high as they were when this minimum was prescribed. In this connection it should be noted, as mentioned earlier, that there are persistent reports that in some regions bank capital is diffcult to raise. It may be that in such regions greater assurance of adequate profits on investment is needed if capital is to be attracted into the banking business.

Deposit and check-cashing services.-Statutory capital requirements for the organization of national banks and for admission of State banks to Federal Reserve membership are not differentiated on the basis of powers granted or functions performed. Thus, the law gives every national bank the same powers, except trust powers for which separate application has to be made. The same thing is true in general of State-chartered banks, though in many States there

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are two or more kinds of State banks with different powers and requirements, such as State commercial banks, trust companies, stock savings banks, mutual savings banks, and industrial banks.

One exception, however, is of special interest if more adequate facilities for deposit and check-cashing services are needed. In South Carolina, provision has been made for limited-function banks known as cash depositories. Such depositories are empowered only to receive and pay out deposits (both demand and time), and to render services incidental to the depositary function, such as selling bank drafts and cashiers' checks; they are allowed to make reasonable charges for these services; they are not permitted to make loans except for the account of their customers; their deposits must all be held in the form of cash or its equivalent, or be invested in United States Government securities or, up to 25 percent of deposits, in South Carolina State or municipal securities or cotton producers' notes eligible for sale to the Commodity Credit Corporation. The capital stock requirement for a cash depository is only $2,500, compared with a minimum of $25,000 for a State bank in South Carolina. The number of these depositories has declined from 39 in 1935 to 23 in 1950, and their deposits have increased from about 2 to 8 million dollars. Experience in South Carolina, over the years, has been that several cash depositories have converted to regular State banks, presumably reflecting growth of communities to a size where full-power banks could be supported.

If other States or the Federal government authorized similar depositories, it would help to meet the need (if there is any such need) for limited-power banking facilities, i. e., without lending powers. Provision could be made for establishment of such depositories only in communities where full banking services are lacking, and for their discontinuance when a full-power banking office is established in the same community. Obviously, less skilled and less expensive personnel would be required in such limited-power banks than in banks with full-fledged lending powers, with a resultant better chance of profitable operations in places where a full-power bank cannot be supported. The situation is somewhat similar in so far as branches are concerned. Federal law makes no differentiation on the basis of functions. Thus, a branch whose operations are of a strictly limited nature through the choice of its parent bank is subject to the same capital requirements as a full-fledged branch doing all kinds of credit business. The National Bank Act defines the term branch as including "any branch bank, branch office, branch agency, additional office, or any branch place of business at which deposits are received, or checks paid, or money lent." 6 To establish even a limited power branch outside of the city in which the parent bank is located, a national bank in most States must have a capital stock of at least $500,000. The same definition and capital requirements apply to

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5 Capital requirements apply, however, only to branches located outside the parent bank's head office city.

6 The act specifically exempts "a seasonal agency in any resort community" within the head office county; no capital requirements are prescribed with respect to such an agency. Limited-power banking facilities at military and Government establishments, provided by the Treasury Department by arrangements with banks designated as its depositaries and fiscal agencies, are not branches and therefore are not subject to the branch capital requirements prescribed for member banks. There were 156 such facilities on December 31, 1951.

State member banks; and the same definition, though no capital requirements, applies to insured nonmember banks.

Although Federal law does not differentiate between branches on the basis of powers or functions, some State laws do so. In some States both full and limited power branches are recognized, while in others only the limited power type is permitted. For example, in Arkansas, Iowa, New Mexico (prior to 1951), and North Dakota, where branch banking as such is prohibited, provision has been made for the establishment and operation of limited-power offices, commonly termed receiving and paying stations. The laws of Wisconsin had a similar provision, and at the end of 1950 most of the 151 branches and offices in that State were of the limited-power type. This law, however, was amended in 1947 to prohibit the further establishment of even this limited type of branch office.

It seems obvious that additional depositary and check-cashing facilities could be provided if the existing specific capital requirements for the establishment of branches of national and State member banks were relaxed, at least with respect to the establishment of banking offices whose functions would be limited to the receipt and payment of deposits, etc. It should be understood that national banks would not be permitted to establish such offices unless and until State banks in a given State had corresponding authority. Such an office (of either a national or a State member bank) should not be authorized without reasonable assurance that capable personnel would be available for handling whatever operations it was authorized to perform, and that the office, in due course, would operate at a profit.

Consideration might be given to even further extension of limitedpower banking. Appropriate specific provision might be made in Federal and State laws for the establishment of part-time depositary facilities. Such an office could transact business for a short period every day or on specified days; or, offices at several different locations could be manned by one personnel force on designated days during the week. Consideration might even be given to mobile banking facilities which would transact banking business in given communities at fixed times; such facilities are provided in some foreign countries. These forms of part-time banking facilities might present serious problems from both practical and legal standpoints, but the ideas might be explored if genuine inadequacies in banking facilities are found to exist and additional facilities cannot profitably be provided otherwise.

TABLE XXVII.-Population per banking office and percentage change therein by geographic division and State, 1920-501

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1 Computed from basic information in Tables XXVIII and XXIX. See footnotes to these tables.

2 Minus sign denotes decrease.

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