The Bismarck tribune. [volume] (Bismarck, N.D.) 1916-current, 1924-06-21
A DANGER no THE FEDERAL
RESERVE SYSTEM

The course of national banks
| during the six months before Con-
gress meets again will be interest
ing to watch. How many OF them
will resign their national charters
and become state banks in order to
enjoy the branch banking priVi-
lcees which are denied them by the
present banking laws?
Congressman McFadden, co-au-
thor of the McFadden- Pepper bill,
rightly declares that the failure of
Congress to pass the bill means
that the federal reserve system is
ia jeopardy. This is so because
no banks except national banks are
compelled to belong to the federal
reserve system. If national banks
continue to he handicapped by
their inability to establish branch
banks to compete with the branch
"s maintained by state banks, a
natural result will be a further de-
crease in the number OF national
banks and consequent weakening
OF the stability OF the federal re-
serve system.
The McFadden-Pepper bill con-
ta;ns two principal provisions:
First, no member OF the federal
reserve system, whether 1t be a
state or national bank, is allowed
to open new branches outside the
city in which the home bank is sit
uated. Inasmuch as most large
state banks are members of the
federal reserve system and wish to
remain so, this provision would
discourage the opening of branches
outside the home cities OF the banks
concerned.
Second, If a national bank is sit
uated within state in which
branch banking Is allowed, the
bank is permitted to operate
branches within the corporate lin
It's OF the city In which it is stu
ated, and it's branches are permit
ted the same rights as the branches
of the state banks. If the state
should later enact legislation re-
stricting the branch banking Oper-
ations of state banks, the national
bank would be subjected to the
same restrictions
Thus it Is evident that the bill
would not give privileges to nation
al banks but would remove some |
Of the disadvantages under which |
national banks operate when COM
peting with state banks and their
branches. These handicaps are |
now so great that already, in large
cities where state banks are al |
lowed to have branches, many ma !
tlonal banks have surrendered their |
charters.
AS state banks, their membership
in the federal reserve system is no
longer compulsory. Thus the sys- |
TEN loses that permanent charac-
ter which is it's principal asset.
r~"o annnoh national banks which
become state banks usually remain
members of the federal reserve |
system; but with the increase of |
branch banking, a group OF branch
banks within a state might well be-
come more powerful than the fed
eral reserve system within that
state, as has happened in Califor-
MIA. If this were the case through
out the country, the federal re-
serve system would be enormously
" eakened.
The federal reserve system is
the foundation of our financial
1t provides elastic cur
lency. 1t supplies mobile credit
1t prevents panics. 1t is general
|y agreed that, except for the fed
eral reserve system, the country
would have suffered a serious panic
in 1921.
Few sound economists have any
good word to say for branch bank
ng. Regardless OF what it has ac-
ed in certain countries, it
IS contrary to the whole American
theory of the banking business.
Destruction OF the entire branch
system. with equity to all
involved, would be happy con-
summation for the country.
But at present it is not feasible;
md the best we can do is to enac:
he McFadden-Pepper bill, which
v Ould prevent state banks which
ire members of the federal reserve
system from opening new branches
outside their home cities, and
would remove some of the disad-
yantages now suffered by national
,anks. This course is vital to the
of the federal reserve
'vstem.-Chicago Journal of Com
nerce.