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CHAIRMAN. NOW, for instance, this bank failure in New York ved more, from the point of resources and deposits, than a State full of little banks like we have down in my country. is what I want to develop.

POLE. Yes; to distinguish between the banks which have we might call additional offices within the metropolitan area, ranch banks, which reach out into small towns and rural comies, Mr. Chairman.

CHAIRMAN. Yes; I appreciate the distinction there or I I do.

POLE. Because one might be called a branch banking system the other might be called a bank which has additional offices. CHAIRMAN. Yes; I follow you there, and I would like for figures to show the losses, year by year, as far as your figures been completed-the losses to the depositors, of course, and I in the national system.

POLE. Of course, we must take into consideration that the majority of the failures, which situation we are trying to corre State banks.

CHAIRMAN. Yes; I am not unmindful of that; but what I ving to get at, first, is the national system. I mean, this bill not touch the State systems directly, except the State banks tre members of the Federal reserve system. Of course, I that we should not figure the State system in our calculaand I am sympathetic with any sound plan that will embrace ate banks and take care of depositors in State banks, but my es not contemplate that. My bill attempts to deal with the al banks and the State banks that are members of the Federal ? system.

POLE. Well, Mr. Chairman, I am very much afraid that if re to put in a system of guaranteeing deposits in national and member banks the withdrawals from the non-member banks be so great and so important in amount as to cause some of o fail.

CHAIRMAN. Well, the Federal reserve system, of course, pertate banks to join if they are in condition to join.

POLE. That is true, but we must remember that we have almost many nonmember State banks as we have combined national ate member banks.

CHAIRMAN. In the Federal reserve system?

POLE, Yes.

CHAIRMAN. Yes: I understand that.

POLE. So that it is conceivable that, in a system of bank guarof deposits, the deposits might be drawn from those 13,700 in such amounts, before they could ever get undercover in deral reserve system

CHAIRMAN. I appreciate that a State bank that did not join deral reserve system would be at some disadvantage unless pened to be a bank whose standing in the community was at the people had proper confidence in it. Of course, in a bank as to which the public is lacking in confidence would self in difficulty if it had a national bank, or a State bank the street from it, where we had the deposits safe for deposThat is quite true and must be recognized, but I am starting

with this proposition upon the idea that we ought to make the national system a popular and safe banking system; it is the national system with which Congress is authorized to deal; it is the system created by Congress, for which we are responsible.

And we have come upon a time when that system, as we all agreeyou and I, and, I suppose, everybody else-is not serving the country as the country is entitled to be served by its banking system.

Mr. POLE. I fully agree with you, Mr. Chairman, except that our system of banking is not a national system, not a State member system, but it is a dual system of State and of national banks. It is a dual system under which the banking business is being conducted. to-day.

The CHAIRMAN. Of course, if the Federal reserve system were made attractive to the public, we would inevitably make it attractive to the other banks that are not members.

Mr. POLE. Yes.

The CHAIRMAN. And we will, of course, induce many banks to join who would never have joined, and that is desirable, is it not!

Mr. POLE. I should say that to guarantee the deposits of 7,500 banks, with the possible result of closing 13,700 banks, would by no means be a remedy for the present banking situation.

Mr. STEVENSON. But the door is open for all of those others to get in: they are not prevented from coming in, unless they are not in such condition that they can get in. If they are in such condition that they can not get in, they are not being properly operated, and it is almost the time to discourage people from continuing to put their money in them. That is the way it looks to me.

Mr. POLE. I agree with you on that.

Mr. STEVENSON. Then there is another thing that I wanted to remark on just a while ago, which Judge Brand was asking about: What would become of the little banks under the branch system? What would become of the little bank after one of the big banks put one of its branches alongside of it, whether that big bank can fend ten times as much to one borrower as the other, and your reply was that it would probably have to go out of business. Now, the same thing confronts you on either road you take.

Mr. POLE. Those small banks, Mr. Stevenson, which were not oper ated successfully, would undoubtedly be absorbed by the bank; and no bank would be permitted to go down by unfair competition, by establishing a branch next door or across the street from an inde pendent bank, unless there were a real need for additional banking facilities in that community.

The CHAIRMAN. Well, your branches, Mr. Pole, would not be limited to the banks that are to be created; but you are going to authorize some banks already created to engage in branch banking: and the question is, which one of those banks in question in that city are you going to let do it?

Mr. POLE. It is going to be under strict administrative control, Mr. Chairman.

The CHAIRMAN, Yes; but those are questions which are going to confront the administrator,

Mr. POLE. Yes; and I think no administrative officer would permit a bank to come in and, by unfair competition, deliberately run a bank out of town. I think they would more likely absorb that bank

terms as would be entirely agreeable to it. That has been ory in the Northwest, where many banks, which would have ise failed, but have had enough good assets to take care of abilities, have been taken into one of the big corporations nd the community has been saved, when, otherwise, it would sulted in great disaster. That has taken place in scores of

S.

STEVENSON. Speaking of the limitations that the administrauld put on these banks that established branches, I know of a aity, a good, substantial community of about 5,000 people, 3 got banks that are not satisfactory and are not, according to rs of the mercantile interests, properly serving them, and, in n to that, they are not successfully run, apparently, and the are becoming dissatisfied. Now, it comes to the administrad they say: We want you to let this big bank of New Orleans anch here, because, in the first place, there are times when we rger loans than these banks can make; and in the next place, not satisfied that they are safe, the management is not satisand we want you to allow them to put a branch over there It would be very hard for the administrator to say: “Well, not going to help you; we are not going to let them put a there; because, if we let them put one there, these other are put out of business "; and that would be just as bad as ranteeing of deposits of some other bank and putting them usiness.

'OLE. If a bank is not a safe place for the deposit of funds, we looking so much to the well-being of the banker himself, but epositors, and if the bank is not being properly conducted, it e absorbed or closed, because, eventually, it is bound to create bance in that community.

TEVENSON. And if these other banks were not conducted sucv, so conducted that they are eligible to get into the Federal system, or become national banks, why do you not think it hat they be absorbed or go out of business?

is great difficulty in either road you take.

BRAND. Will there be a disposition, Mr. Pole, on the part of inistration, if they could, to come to some satisfactory arent with the new branch bank and the bank there already? OLE. Undoubtedly that would happen. Without doubt, that appen. When the McFadden Act was passed, it was the alk that there was going to be, within the cities, branches on rner, and there was going to be a scramble for property; but of that kind ever happened. It was, I think, orderly comvery orderly competition, with a very beneficial effect. RAND. I started to ask you a while ago for information, if e got figures with reference to the failed banks which are ot belonging to the Federal reserve system?

LE. Yes.

RAND. I am not talking about the national banks.

OLE. I am talking about the failed banks and the amount ts in each one of those failed banks.

RAND. The nonmember State banks.

OLE. The nonmember State banks; yes.

Mr. STEVENSON. Well, we have been, heretofore, for quite a number of years, importuned to take this step, and that step, to induce all of the banks to get into the Federal reserve system, and stop the banks from withdrawing from the Federal reserve system, and surrendering their national charters, and get out of the system, and all that sort of thing. Now, when we are proposing a series of proposi tions here that would tend to put every sensible banker in a frame of mind to come right in and take a national charter, then we are met with a proposition that it might hurt some of the State banks. Now, there is not anything to keep them from coming in, if they are worthy.

Mr. POLE. Well, there might be a capital requirement, or there might be a possibility that they could not put their loans in shape. or they could not get their real estate paper adjusted to make them eligible. There might be a number of reasons, Mr. Stevenson, why they could not qualify, irrespective of whether or not their solvency were involved.

Mr. STEVENSON. Well, if the real estate is worth what they have got in it, they can usually get from under it.

The CHAIRMAN. We have passed a law to let everybody borrow on anything they have got, if they can satisfy the Federal Reserve Board and the officials of the loaning bank.

Suppose we meet again at 3 o'clock this afternoon, and finish with Mr. Pole.

Is that all right?

Mr. STEVENSON. Yes: that will be all right.

(Thereupon, the committee adjourned until 3 o'clock p. m. of the same day.)

AFTERNOON SESSION

The CHAIRMAN. While we are discussing branch banking I want to ask you to incorporate in your statement a review of the different failures of banks operating branches, or banks that control groups or chains of banks. I am informed, or I have gained the impression somewhere, that in the ninth Federal reserve district an organization of banks, a group system of banks, has sprung up, that is strong enough to control the election of the directors of the Federal reserve bank in that district. Is that true!

Mr. POLE. I do not think so at the present time.

The CHAIRMAN. Well, has not it at least reached the point where it might be treated as a probable development!

Mr. POLE. Theoretically, I think it might.

The CHAIRMAN. Then, if that is true, Mr. Pole, we are in a situation that might, before a great while, endanger the independence of the Federal reserve system as it now exists,

Mr. POLE. Not under the branch bank system.

The CHAIRMAN. I mean, with reference to this particular matter. Mr. POLE. With reference to a group-holding corporation, there is a possibility of such a development.

The CHAIRMAN. There is a possibility

Mr. POLE. Of such a thing developing, yes.

The CHAIRMAN. Now, in that connection, Mr. Pole, how is it that a group of banks might become strong enough to take control of a district Federal reserve bank!

POLE. Because these individual banks, or the stock of these al banks might be controlled by a holding company. And, ding company had control of enough independent banks, it ly would control the vote in that particular district. HAIRMAN. So that a reduction in the number of independent aturally increases the possibility of developing a control large to dominate a Federal reserve district?

POLE. Not at all. On the contrary, it decreases, because, as dependent bank goes out, a vote goes out-but each branch not an independent bank, and a branch of a central bank

ave no vote

HAIRMAN. I understand.

POLE. There would be one vote for one bank, which would >arent bank.

CHAIRMAN. But is not this true, that the larger a bank is, e independent it is of the Federal reserve system?

'OLE. I think to that I would say yes.

CHAIRMAN. Then, the fewer the number of banks, and the their resources the less necessity there is for the Federal system; is not that true?

POLE. That is a question I would not like to answer without It consideration, because it is a pretty technical question that asking me.

CHAIRMAN. Well, if a bank has sufficient resources and power over a large per cent of the banking organization and activone State, would not you say that that bank has pretty approached the point where it does not need the Federal bank as a general proposition?

POLE. I would say that things have not got that far yet. It ivable that a bank might be large enough and strong enough it would not need the facilities of the Federal reserve bank, Federal reserve system is designed not only for the large ut for the small ones as well.

CHAIRMAN. The Federal reserve system was really set up to support and to be supported by the large, highly scattered, dent, unit banking system, was it not?

POLE. That was the system in vogue which it was made to odate, Mr. Chairman.

HAIRMAN. That was the thought and the philosophy.
OLE. Yes.

CHAIRMAN. Well, now, does it not necessarily follow that, system is supplanted by group banking, or chain banking, system in which a few large banks do the business, operate mall communities through branches, instead of small indebanks, that you have gotten away from the necessity and of the Federal reserve system?

POLE. I do not foresee any possibility of such a thing, and t know that anybody is advocating it; I am certainly not. HAIRMAN. I understood you to say this morning that under nch banking plan, the large banks, or a limited number of anks in a city, would establish branches throughout that terrind that any competing bank in that city, would, probably, or later, have to go out of business.

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