known, must never be forgotten. "Anti-slavery was the child of the Christian faith." Philip Brooks, Lyman Beecher, Harriet Beecher Stowe what would abolition history be without them and their kin? The Quakers were a bulwark of abolition, and late in the struggle many of the sects of the North refused to follow further their brethren in the South. Abolition societies were organized in Christian churches and supported in largest part by Christian men and women. It is declared that the Protestant clergy and membership of the Protestant churches in the free states practically elected Lincoln.147 These indeed were glorious efforts and beyond all praise. It is only to be regretted that these deeds and sacrifices through decades were robbed partially, often completely, of their efficacy by the practice of fellow "Christians," and that emancipation was forced to come at the price of a terrible conflict and fields of blood.

147 Wilson, op. cit., p. 723.

BRANCH BANKING IN THE UNITED STATES.

GEORGE W. HINES.

Howard University.

I

INTRODUCTION.

For more than fifty years there has existed in the minds of many bankers and business men grave doubt as to the advisability and even the validity of a national bank establishing branches. An increasing number of branches are being established, however, by national banks absorbing state banks and turning them and their branches into branch offices of the national bank. Twenty-two states permit trust companies and state-chartered banks to have branches. It is alleged that national banks are finding greater and greater competition, because such states as Ohio, Michigan, California have permitted state institutions to have branches. In order to meet this competition the Comptroller has given a liberal interpretation to the National Banking Act, and has authorized national banks to open additional offices in states that permit branch banking.

Economic changes have recently brought about the discussion as to the feasibility of the development of branch banking. The proposition is of more than academic interest, in that it deals with a new doctrine that a bank should take its business to the people as other business enterprises have done. Since 1916, when the American Bankers Association passed a resolution condemning branch banking in any form, the press has carried certain propaganda favoring branch banking. This resolution has never been reversed, altho many attempts to reverse it have been made. The issues involved have aroused much public discussion since the 48th annual convention of the American Bankers Association in October, 1922. Magazines devoted to banking, finance and to economic research, as well as the daily press, have presented various views. The disputants have aligned themselves into groups: viz., those who support the claim of economic expediency in the estab

1 Commercial and Financial Chronicle, Oct., 1922, p. 125.

lishment of branch banks; those who contend that nothing could be more disastrous for the common welfare than to have centralized finance; and those who claim not to favor branch banking, but who want the same privileges for national as well as for state banks. The issues are not clear at all. Much confusion exists as to branches limited to the same city, state-wide systems or even a national system, such as that of Canada.

It is my purpose in this paper (1) to trace the development of branch banking in the United States; (2) to set forth, as far as possible, the arguments for and against branch banking in the United States; (3) to relate the experiences of the various states where the movement has progressed; (4) to arrive at some conclusion in the light of the investigation.

II

THE PRE-CIVIL WAR PERIOD.

FEDERAL EXPERIMENTS.

The First Bank of the United States.

In a report dated December 14, 1790, made in obedience to an order of the House of Representatives, Alexander Hamilton, the first Secretary of the Treasury, submitted a plan for the establishment of the First Bank of the United States. Hamilton admitted in his report that there might be some advantages in the branch plan, but his original plan of the bank did not contemplate the establishment of branches, and the clause providing for them was inserted against his will. It is said that the idea was suggested by a study of the Bank of England. Some argued that branches would afford more general accommodation and lessen the danger of a run on the bank. Others argued that mismanagement of any branch might endanger the interest of the whole system. Wolcott, who was consulted, favored the branch plan; and a majority of the stockholders assenting, it was adopted on a plan suggested by him. Experience demonstrated the safety and wisdom of the branch system and Hamilton's doubts were dispelled, for he urged the opening of a branch at Alexandria, Va., in 1794.3

It seems that the charter of the First Bank of the United States

2 Holdsworth, John Thom., Banking in the U. S. Before the Civil War, p. 36. Ibid., pp. 36, 40.

gave the directors permission to establish offices of discount and deposit only in any part of the United States. It was not supposed at first that such permission would be utilized. Immediately, however, the directors decided to open branches at New York, Boston, Baltimore, and Charleston. "The plan provided that the directors of the parent bank should appoint annually not less than nine directors for each branch, a majority to constitute a board. The directors of the main bank appointed the cashiers of the several branches; the directors of the branches appointed their own president, tellers, and clerks, but the sureties of the latter were subject to the approval of the directors of the Bank of the United States.

"It was provided that the part of the capital which consisted of United States stock (bonds) should not be divided, but the branches could discount upon such part of the specie capital as the directors should apportion to them and 'with such part of the deposits as shall be lodged with them' as the branch directors should deem safe and expedient. All notes issued at the branches were to be signed and countersigned by the president and cashier of the parent bank, to be payable at the branch issuing them and to be delivered to the cashier of the branch, who was required to give duplicate receipts for them, one to be lodged with the president of the parent bank, the other with the president of the branch. All notes unfit for circulation were to be canceled by the president and directors of the branch and immediately transmitted to the directors of the main bank, where they were to be credited to the branch. Each branch was required to send to the mother bank a weekly statement of conditions-debits and credits, notes issued, and cash on hand. The continuance of the branches was to be at the pleasure of the directors of the main bank."5

The parent bank at Philadelphia went into operation with a capital of $4,700,000; while the capital of the branches was as follows: New York, $1,800,000; Boston, $1,700,000; Charleston, $600,000; Baltimore, $600,000; Norfolk, $600,000; Savannah, $500,000; New Orleans, $300,000; Washington, $200,000, making a total of $10,000,000.

The directors of the First Bank appointed a committee to confer once a week with a similar committee of the Bank of North America for the purpose of communicating freely upon the business of both, of preventing improper interference with each other, and of promoting

4 Dewey, Davis R., State Banking Before the Civil War, National monetary Commission, Vol. 4, p. 136.

5 Holdsworth, John T., Banking in the U. S. Before the Civil War, pp. 36-38. Ibid., pp. 37-38.

the accommodations of the citizens. The banks made settlements and exchanged notes daily. Similar cooperation existed with the Bank of Pennsylvania as well as between the New York branch and the Bank of New York.7

Since the charter of the bank set forth no stipulation that the Government should deposit public funds in the bank and its branches or transfer such funds from one part of the country to another, an arrangement was made between the Treasury and the bank whereby the benefit of the exclusive deposits was the condition of the service. The successive Secretaries of the Treasury left the public deposits with the bank in exchange for the services rendered by the latter in transmitting government funds and in accommodating the Treasury with loans when called upon. Gallatin said of the arrangement: "They place instantly our money where we want it, from one end of the Union to the other, which is done on the tacit contention of our leaving our deposits with them."8 No interest was paid on government deposits.

It seems to be admitted that the bank did not accept the notes of its branches in payment from its customers. This fact furnished ground for a part of the criticism which was made in 1811.9 The criticism above was also made of the Bank of Pennsylvania concerning the transaction with its branches.

It was conceded that the Bank of the United States, by virtue of its large capital and the amount of specie it always carried; had regulated the discounts and note issues of the state banks, compelling them to preserve a just proportion between their liabilities and actual funds. It was claimed that by virtue of its large resources and its numerous branches the First Bank of the United States was able to equalize the benefits of large loanable capital throughout the country and to relieve any sudden pressure in trade much more effectively than the state banks were able to do.10

The Second Bank of the United States, 1816.

Perhaps the most characteristic and most essential feature in the plan of the first and second banks of the United States was the possession of branches. Through these branches efficient control over state banks was accomplished; accommodation in discounts throughout the

7 Ibid., p. 40.

• Ibid., p. 59.

Dewey, Davis R., State Banking Before the Civil War, National Commission, Vol. 4, p. 136.

10 Holdsworth, John Thom., Banking in the U. S. Before the Civil War, p. 92.