Evening star., 1916-07-19
MORE EXPLICIT RULES
TO GUIDE DIRECTORS
FeIeral Reserve Beard Amplifies Its
Views on Substantial Competi-
tion Between Banks.
Clearing House May Consider Pro
rcsed Legislation Today-Lanston
Shares Were Lower.
BY I. A. FLEMING.

The federal reserve board has ex-
randed its views on competition be-
tween banks. . very important subject
p 4: this time when thousands of busi-
ne.s men holding positions on the di-
: re, tories of two or more banks are
being called upon to make their deci-
sions as to whether they resign posi-
.ioas OF pat it up to the federal reserve
board On the proposition of the banks
with which they are connected being
competitive or non-competitive.
TIE board realizes the difficulty that
will surely he met in the determination
as to competing banks and has issued a
circular letter to federal reserve agents,
wherein il seeks to guide the latter in
their investiga gat;ons as to competitive
and non competitive institutions.
The circular follows:
Two banks engaged in the same
character Of business (for eXample).
where both receive commercial deposits
and make commercial loans, would be
regarded as substantially IN competl-
tion If their fields of activity extended
over the same geographical territory. If
not carried on in the same geographical
territory. then although engaged in the
same kind of business, they would not
necessarily he regarded as substantial
ly in competition
Again. II they conducted their oper-
ations III the same place. but because
OF their small size in relation to the
total banking activities Of the locality,
and because of the fact that they did
not deal with the same class of Gus
TONERS. the cessation OF competition
between them might from the public
viewpoint be uRimportant; they would
not necessarily be considered in sub
stantial competition. Or if their oper-
ations were conducted in the same
locality, but the character of business
differs fundamentally for example.
where one does only an essentially COM
mercial business, where the other does
only an essentially trust company or
fduciary business) such banks need
not be regarded as essentially in sub
stan.ial competition.
1t is. therefore, necessary to con-
slider the scope or extent of territory
that banks operations cover and the
character and kind of business that it
engages in. Size measured by aggre-
gate resources Will constitute one of
the factors to be considered. bank
with Sl09, 900 resources will seek
Investments in larger area and of a
more diverse character than a bank of
S5.e00.0e0 resources, and SO might come
into competition with banks some dis
tance away. beyond the borders of the
City where it is located
For example. a bank in New York
might come into substantial competi-
tion with a bank in Chicago if both
was engaged in the same class of buSi-
ness and both had become so large as
to be more than local institutions.
When the operat tions of two banks
cover a common territory from geo.
graphical standpoint it is necessary to
consider carefully the business engaged
In very large proportion of the
member banks do a commercial bank
ing business; the volume of this buSi-
ness within the territory covered by
the operations Of the banks in question
becomes very important factor. In a
city of 100000 inhabitants any two
banks engaged in commercial bank
ing business to any great extent will
naturally come into substantial compe-
tition, whereas in city of 100000
Inhabitants the operations of one bank
might be substantially confined to the
wholesale district only, while those of
another might be confined to the retail
district only, and so might be nom
competitive in sense that an in
crease or decrease in the business of
one would affect the other"
With this explanation before them
ohcers and directors of all member
banks in the federal reserve system
holding dual positions may make their
own decisions as to the legality of their
position, and then submit to the arbi-
tration of the federal reserve board.
Clearing House Meeting.
The Washington Clearing House As
eociation is TO hold its regular month
ly meeting this afternoon. 1t is prob
able that the proposed legislation to
divert dormant accounts in banks, after
three years to the District and to do
likewise with the contents of safety
deposit boxes that have not been
opened for three years will come IN
Tor consideration, although bankers are
generally Of the opinion that both
measures will be defeated in the SEN
ate.