in banking, with reference both to the decline in number of banks since 1921 and to the growth of competition from nonbank financial institutions. I am happy to give my further views on this question for such use as you may deem proper.

The decline in number of banks from an all-time high of approximately 31,000 in 1921 to the current level slightly in excess of 14,000 banks has long been the subject of comment. As you are aware, the characteristics of this decline, as well as its causes and meanings, have many facets, all of which require detailed and thoughtful analysis. My staff is presently involved in making such a study, which I hope will be of interest to you and to other members of the committee when it is completed. In the meantime, it seems to me that several observations are worthy of consideration with respect to these questions.

When the decline in the number of banks between 1921 and 1958 is viewed by years it becomes immediately apparent that the largest part of that decline occurred during the 12 years ending with 1933. In that earlier period the number of banks dropped by approximately 52 percent; since 1933 we have had a comparatively minor downward adjustment in the total number of banks, amounting to 9 percent, or less than four-tenths of 1 percent per year. Bank suspensions, which averaged 600 per year during the prosperous years of the 1920's and reached catastrophic proportions during the depression, were responsible for the loss of approximately 14,000 banks by the end of 1933. With the reestablishment of banking stability after 1933 the number of bank suspensions rapidly declined and has become almost negligible within recent years; correspondingly, the rapid decline in number of banks also came to an end. Thus the decline in number of banks which appears so startling when 1958 is com. pared with 1921 is revealed as primarily attributable to bank failures reflecting the agricultural difficulties of the 1920's and the great depression of the early 1930's.

The only other major cause of banks ceasing operations during the years since 1921 has been absorptions, consolidations, and mergers, which were responsible for the loss of more than 8,000 banks to the banking system during this period. But here again the number of absorptions seems to have been intimately related to the unstable banking conditions of the 1920's and the depression of the 1930's. Our data show that at least 5,300 of the total number of bank absorptions since 1921 took place prior to 1934. During the 6 years of the 1920's for which we have data, the number of bank absorptions, consolidations, and mergers averaged almost 500 per year, while during the 4 subsequent depression years the annual average approached 600 per year. On the other hand, with the stabilized banking conditions which have prevailed since 1933, the number of absorptions has been comparatively small, averaging about 120 per year. In no year since 1933 has. the number of absorptions, consolidations, and mergers exceeded the number of such transactions during a typical year of the 1920's, let alone the number occurring during the depression years of 1930-33.

There seems little question that with the decline in number of banks there has resulted some increase in banking concentration. Because of this, and in view of the somewhat larger numbers of bank absorptions within recent years, we are supporting most vigorously legislation such as S. 1062, which will provide bank supervisory agencies with authority to pass on all absorptions, consolidations, and mergers coming within their respective jurisdictions, and to consider, among other factors, the effect on competition of a proposed absorption, consolidation, or merger. Nevertheless, we believe that it is possible to overstate the extent to which competition has declined in banking, particularly so when only a simple comparison of number of banks in 1921 is made with number of banks in 1958. I hope that my comments above may help to put the decline in number of banks in proper perspective.

With respect to competition from nonbank financial institutions, it is, of course, a fact that such institutions are today competing vigorously with banks, particularly for savers' funds and in the acquisition of certain types of assets. At your request, I am enclosing a table showing changes in the number and assets of several such kinds of institutions for selected years since 1935.

We are also enclosing tables showing the number of banks and branches and an analysis of the changes therein during the period 1934–58.

I trust these comments will be of interest.

Sincerely yours,

Enclosure.

JESSE P. WOLCOTT, Chairman.

Number and assets of credit unions, life insurance companies, and savings and loan associations, selected years, 1935–57

1 Source: "Statistical Abstract of the United States," 1958, p. 462; 1950, p. 417; for 1957, from Bureau of Federal Credit Unions.

2 Source: "Statistical Abstract of the United States," 1958, p. 476. Data for 1957 furnished by Bureau of the Census, U.S. Department of Commerce.

Source: For 1935, "Statistical Abstract of the United States, 1950," p. 407; for 1940-56, "Statistical Abstract of the United States," 1958, p. 460; for 1957, "Savings and Loan Fact Book," 1958, p. 44.

4 Complete data on number of branches of all savings and loan associations at dates shown above are not available. For 1957 a Federal Savings and Loan Insurance Corporation tabulation shows 915 branch office of associations members of the Federal Home Loan Bank System.

Number of banks, and analysis of changes in number of banks, United States (continental United States and other areas), 1934–58

1 As shown in annual reports for the indicated years, with the following exceptions: 1941 as revised and shown in the annual report for 1942, p. 68; 1935 as revised and shown in the annual report for 1936, p. 100; 1934 as revised and shown in the annual report for 1935, p. 35 and p. 48.

2 Mostly new banks, but includes a few previously operating financial institutions which became banks of deposit.

3 Net decrease as a consequence of absorptions, consolidations, and mergers (excluding cases involving financial aid by the FDIC).

4 Includes insured and noninsured banks suspended and neither succeeded nor reopened, plus the net decrease in number of insured banks attributable to absorptions facilitated by FDIC aid. Includes revisions in classification and changes discovered in years subsequent to their occurrence.

Source: Annual reports of the Federal Deposit Insurance Corporation, 1935–57, and unpublished data for 1958.

Number of branches, and analysis of changes in the number of branches, United States (continental United States and other areas), 1934-58

1 Data as published in indicated annual reports, with the following exceptions: 1941 as revised and shown in the annual report for 1942, p. 69; 1935 as revised and shown in the annual report for 1936, p. 100; 1934 as revised and shown in the annual report for 1935, p. 35 and p. 146.

2 Includes a small number of branches replacing banks relocated or placed in liquidation or receivership and facilities established in or near military or other Federal Government installations.

3 Includes facilities discontinued at military or other Federal Government installations.

* Includes revisions in classification and changes discovered in years subsequent to their occurrence.

Source: Annual reports of the Federal Deposit Insurance Corporation, 1935-57, and unpublished data for 1958.

The CHAIRMAN. Are there any questions?

Senator BENNETT. No questions.

Senator FREAR. Mr. Chairman, I want to say that I concur in the remarks made by the chairman regarding the last paragraph of section 7 of the Clayton Act. Just a minute ago I had written a little memorandum to see if I could not secure the history on that paragraph, because I am sure it is very interesting and I only know it partially. And then too I have been interested in States rights, as mentioned by you on page 11 of your statement and that the chairman brought But in addition to having the rights of States observed, I also want them to assume the responsibilities. When there is a State officer who declares whether a merger shall take place or not, and if he states that a merger should not take place, I want to be certain that you people will not override him.

out.

I really think that that is a great asset in the operation of your commission as well as what will take place under the proposed legislation.

Mr. WOLCOTT. I assume that is why we wrote into the Federal Deposit Insurance Act originally there should be no discrimination between the State banks and the national banks, to preserve the dual banking system. And we have all been very, very jealous of that situation.

Senator FREAR. Right. Of course, I know something of your record in the past too, Mr. Chairman.

The CHAIRMAN. Thank you very much. You have been a very helpful witness.

Senator MUSKIE. May I ask one or two questions?

The CHAIRMAN. Yes.

Senator MUSKIE. Again this is just to clarify my own understanding of the tests.

Is it your view that larger size is more likely to be desirable in the banking field than in the commercial or industrial field?

Mr. WOLCOTT. No, or at least, not necessarily. It might result that better service to the community can be given by a larger bank. Essentially through these mergers, the consequence is the resulting bank is a larger bank than existed before.

Senator MUSKIE. What you are saying is that less emphasis should be given to size in the banking field than in other fields?

Mr. WOLCOTT. Not exactly. I do not think any of us can agree upon a definition of a large bank as opposed to a small bank.

Senator MUSKIE. I think you have stated that case very well, and I am simply trying to pinpoint your meaning.

Would this be a fair statement, then, that in your judgment competition could be reduced more substantially in the banking field than in other fields consistent with the public interest?

Mr. WOLCOTT. I believe it is possible and probably probable it could be done in certain instances.

Senator MUSKIE. Would you prefer not to see either of these bills enacted into law?

Mr. WOLCOTT. Well, I surely would not be in favor of the bill, S. 1004, you mentioned being enacted into law.

I have taken the attitude that this bill, S. 1062, should definitely be enacted because it meets all of the purposes by safeguarding the factors which we set up which must be considered before we insure a bank and it adds this other feature which I think probably is quite desirable in addition to the factors which are already set up in lawthat the appropriate agencies shall also take into consideration as to whether the effect thereof may be to lessen competition unduly or to tend unduly to create a monopoly. Those are in addition to the factors contained in the existing law. That can be worked out very nicely and I think would accomplish a very worthwhile and advisable purpose.

Senator MUSKIE. Do you feel that the view of the Attorney General on mergers in the banking field would tend to be colored too much by his experience with the antitrust laws applicable to other fields of enterprise?

Mr. WOLCOTT. I would think so. We are dealing here in banking which is entirely within an isolated field. It is peculiar to banking, peculiar to a field that so many of the agencies of the Government and so many of the experts in other fields for that matter do not deal in every day, and they are not proficient in it.

Senator BENNETT. Mr. Chairman, may I refer my friend from Maine to the text on page 7 of the statement of Mr. Gidney in which he quoted from the record made by Mr. Barnes when he was before the committee, in which Mr. Barnes says, in effect, that he has no

choice. He is limited entirely to the question, "Does it substantially lessen competition?"

He may not under the Clayton Act take any other things into consideration.

Senator MUSKIE. Under existing laws?

Senator BENNETT. Yes. So that if he were brought into the banking picture, if he were given the sole authority with respect to mergers, he would not be able to take into consideration anything except the one factor: Does it substantially lessen competition?

Senator MUSKIE. I was thinking of the suggestion of the Senator from Alabama, Senator Sparkman, that the Attorney General's participation under S. 1062 should be mandatory.

Senator BENNETT. That would be the only basis on which he could participate, I would think. Under his present responsibility he may not look at anything except the question of substantially lessening competition.

If he were brought into this picture under S. 1062 on a mandatory basis, all he could say to these people is, "I think it substantially lessens competition; therefore, I must object to it."

Senator MUSKIE. Even though the test under S. 1062 were different than that?

Senator BENNETT. That is right. That is what I would be afraid might eventuate if he were brought in.

Mr. COBURN. Might I suggest, Senator Muskie, that we had a situation in your State about 3 years ago or 4 years ago where we had a bank in a bad asset condition, largely due to the general economic condition then prevailing in that community. We accomplished, in effect, a merger transaction whereby another institution took over the deposit liability. It was almost an overnight operation.

If we had had to wait for an opinion from the Attorney General, for him to become familiar with the facts, it could not, in our opinion, have been consummated.

And these situations occur on not infrequent occasions where the Corporation takes some action in lending financial assistance to a bank that is in financial difficulty.

In discussing this at the time that this legislative proposal was written, the Department has always said that under the International Shoe case which is one of the landmarks of the Clayton Act interpretation, when a firm or a corporation is in an insolvent condition the Clayton Act does not apply. And that was the conclusion in the Shoe case. But the representatives of the Attorney General's Office conceded that the bank in question had not gone down the road toward insolvency quite far enough to come within the application of the International Shoe case.

So I suggest to you that there are many times when transactions must be handled with expedition that would not justify waiting for an opinion of the Attorney General.

Senator MUSKIE. You think that three agencies could get together much more expeditiously than four?

Mr. COBURN. Yes, because the other agencies are familiar with the considerations. They understand the problems that are presented. Yes, I have no doubt.