Speech

MA,. \ '{f V / " C COPY ) ' "BRANCH BANKING- BEFORE THE CIV7L WAR" C ^^ l - Address to be Delivered by Edmund Piatt, Vice Governor of /f the Federal Reserve Board, Before the National Bank Section, ^ New York State Bankers Association at Ithaca, New York, . . June 22, 1925. 6» Branch banking has sometimes been called un-American, ana it is of course true that in every other conroercial nation, including Canada, and Australia.} branch banking is the rule while in the United States it is the exception. It may be interesting to take a look into the history of the e^ly days of banking in the United States to see whether this has always bSSn true- Apart from-the two United States banks which were each in ex- istence for 20 years, and the second of which went cut of existence as a National institution in IS36, banking before the Civil War was carried on by state ban 1:3 and by a few private banks- Lists of incorporated banks were Published from time to time, and one needs only to glance at them to see t at in some sections of the country, particularly in the West and South - Qctions which have always prided themselves on their Americanism - branch anking was very much in evidence, was in several the states the rule, rather thsn the exception. The Bankers' Magazine for February 18US has a list of "Bfmks of the United States" from which we find that in Ohio out of 48 banks, 29 were inches of the Ohio State Bank. Indiana lists 17 branches of the State ^ >nk of Indiana and no independent banks, Missouri had one bank and 5 branches, Kentucky 3 banks and 13 branches, Tennessee 3 bank3 and 17 branches, Vir6inia 6 banks and 30 branches, North Carolina k banks and lU branches, South pi -1 . ^^rclina 12 banks and 2 branches, Georgia 13 banks and 7 branches, elaware 5 banks and 3 branches and Alabama 2 banks and k branches. Illinois, Iowa, Mississippi, Florida and Arkansas cajne under a special JUL 7 1964 / 'XERO > COPY f -2- ' X-U359 heading as "States and Territories without Banks", while Wisconsin had one bank 3nd ^Chigaa four. It may therefore be said that so far as banking had developed in the West branch banking was the rulo, and was general also ln tile Sout'n- Uo branches were listed in the eastern 3tatcs, excepting two ln the state of Now York - The Bank cf Utica is listed as having a branch ) a Canandaigua, end the Ontario Bank of Canandaigua had a branch in Utica, mv o were two branches in Maryland - branches of an Annapolis bank,-and ap- pear to have been two in New Jersey, though they are not listed as branches. The list of banks of the United states in June I860, published in the era Magazine of that year makes a similar showing, the ugh Illinois ap- Paars vvitn 75 banks (only cue of which was in Chicago), Iowa with 13, all cf v/cre branches of the State Bank oflowa, and not only Mississippi, and •^l 0 r i d 1 a> but Kansas, Nebraska, and Minnesota come on the scene with a few banks '&souri at this time had k2 banks, c-f which 33 were classed as branches; N°W Ycrk's two branch banks shewn in the 1SUS list had disappeared in » _ fact the Legislature of New York had on April 12, lsUs, passed n ^ndrnent to the Free Banking Act which ha3 been generally regarded as P roh i> < i. • branch banking, Pennsylvania had passed a similar amendment in IS50 ap^ T , . •Legislation against branch banking had been passed atabout the same time in r.r^ , , nr wassacnusetts and in Connecticut. On,a t*t? ys •> 1 j. that has puzzled me considerably i3 the question - Why did these east«T» ni 8tat03 prohibit branch banking? What motives pronpted the bondmen ts? r> « , r Lr' Da.vis R. D-uwey in his "State Banking Before the Civil War" makes the statement that the New York amendment of 18^3 was "duo to a fear tha t h oanks in large cities might monopolize the profits cf note issue rganizing branches in small inaccessible towns and thus threw obstacles XERO COPY i -3- X-U359 in the way of easy redemption of bills", but the evidence he gives in a foot-note support3 a very different View - that country banks, sometimes organized in small inaccessible towns, issued their notes and transacted such other business as camo in their way through branches or agents in the im- portant cities, evading redemption cf their notes in-the cities by referring holders to the remote towns where the sc-called principal offices were located, ... New York v/0rd "branch" does not appear in the/amendment, which provides that all banking associations or individual bankers, organized unier the pro- visions of the act passed April IS, IS38 * * * shall be banks of discount «md POoit as well as of circulation and tho usual business of banking of said associations or individual banker shall be transacted at the place where such inking association, or individual banker shall be located." Millard Fillmore WaS at that time Controller cf the State of New Ycrk and in a circular dated ,.ay 2. 1SU8, announcing that the amendment was now the law and would r enforced, says: "A practice had grown up under the general banking lav/, of establishi- ng banks in obscure places, in remote parts of the state where little or no Imsiness was done, with a view of obtaining a circulation merely, yT no other business, This circulation was then redeemed in How °r A1kany by tho agents of tho bank, at one-half of one per cent. ond again put in circulation without being returned to the bank, oreby enabling the bank to redeem its own paper at a discount, and then again put in circulation in the same place where it was redeemed. The ^ojec-o of the present law appears to be to bread: up that practice, and 0 ensure obedience to its requirements, the legislature have enacted that president and cashier shall in every report made to this office, state their business has been transacted at the place required by that a.ct, and that such report shall be verified by their oaths". Bankers' Magaaino, June lS^S, Vol, 2, page 7^. This explo.ins the amendment, and shows that it was directed not against genuine branch banking, but against wild cat circulation banking. The amond- ont required that every bank organised under the general banking law mast be a bank of ^iscoiTnt and deposit as well as of circulation", and that its usual Usiness - its loans as well as its note issues - mast be made in the place 'XERO; XERO - U - . - x-^353 •J«HfUd , _ u oertifioate I h ave net boon able to find the slightest-evidence that the large well- s abliahed banks in New York City had evrer attested to»organize branches in ceaaxble towns", as Dr. Dewey implies, and I think it is reasonably ear that the city banks not only did not oppose the amendment, but were in f aVQy Qj> J . it. Certainly there was no agitation of the subject of branch banking oefore th^ -n o - passage of the amendment, such as would, surely have been the case if it had been passedi, at the instance of the country banks, or through fear of the n°POlization of note issues by city banks. It is difficult to find any refer- ence to tv> ^Q amendment in any of the publications of the day. It slim i ^ bank w furthermore be noted that this so-called anti-branch/amendment -Plied only to the "free banks" and not to the Safety Fund Banks, of which there USrQ about SO -in •m operation at that time, including several large city banks. .An dmwnt t0 tha Saf°ty Fund Act, passed on the same date as the so-called anti- amoidinent to the Free Banking Act, expressly mentions branches. "But in ail , where a bank has a branch located at another place". The fact that the rigk'. of c o' a^f ety Fund Banks to operate branches was confirmed at the same time free banks were prohibited from transacting their usual business in any aco than that named in their certificate is direct evidence that there Was opposition of consequence to branch banking, and no fear of banking rn°n0P°ly th^ou h branches. g ranch banking nevertheless scarcely existed in New York in 1SUS, and it d-Oes not a?Poar from the lists published that 'any of the Safety Fund banks had b^chen at thv- * Aav, vime. The lists are doubtless not complete and are not con- ^lusivQ evidence as to the existence of branches. Thore had been some branch ^anting i - n T ao„v fork State at an earlier date, mostly by country banks. Not much XERO COPY - 5 - X-^359 1 nf" ^maticn is cbfinable about it from banking histories, but I know that the •Mi ddl *n * latrict one of t^l early ba_nks in Poughkeep^ie, had a branch in > an through local histories scmo references can be obtained to branches °ther country banks. These were apparently found unprofitable and were nearly aU givon ^P long before 1^3. y .one bank in Now York City ever had a branch outside the city, so far as Can find out, and that was the Bank of the Manhattan Company, which in 1811 had rdnCh ln Pou6tts:eepsie and One in Utica. There appears to be no record as to just when these branches were given up,but it was almost certainly long before ^d before the Manhattan Bank became a Safety Fund Bank. Banking except in the largest cities Was in the early days mostly note issue g, «na tne efforts of the legislatures were directed towards the enactment Of Ig^ - yw s to secure the redenption of notes. Every imaginable expedient was tried somewhere in +>, n tne United States. The State of New York, cut of the turmoil, pro- duced two 1l aws which were destined to be widely copied - one of them in the National "Ri V " ' r"nanS A°t. These were of course the Safety Fund Act of 1829 and the Cell! p^Q TTr* T% -ree Banking Act of I83S. Certain of the Western and Southern States devcio ^ ^ eqUally somi<i and perhaps rather'better systems through branch banking. the Q f°rt was to produce systems which would make the note issues sound, and n°tes of the "Sank of Indiana, of which Hugh McCulloch was the President, v/er e as sound as those of any of the big banks of New York City. The same was trUG °f the Bank of Ohio, p , S'ln elenn<ents of sound banking seem to have bean recognized in such systems lS VVniCh Were lost sight of when all the State banks were reorganized, as anks with notes secured by United States bonds. The feeling was that °ssentini c banking problems had been solved when a uniform and sound system of - 6 - x-i+359 banknotes had. been secured. The note holder was protec ted by specially segre- > gated assets. Depositors were for the time forgotten, and had less protection than before. The Bank of Indiana and similar institutions obtained security for their n°tes through good management and through a wide spread of risks so that they could not be vitally affected by disaster in any one community. These are as esoontial for the security of depositors today as they were for note holders in ^Q days. Banks to be safe mast be large enough to afford good manage- ment and must have opportunity to loan their funds over a territory wide Gnotlgh include persons engaged in a variety of industries.

Edmund Platt (1925, June 21). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19250622_platt

@misc{wtfs_speech_19250622_platt,
  author = {Edmund Platt},
  title = {Speech},
  year = {1925},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19250622_platt},
  note = {Retrieved via When the Fed Speaks corpus}
}