Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-11-20
DEBATE ONBANK|NG'
CHANGES REVIVED.
Recent Failures in South
Show Chain System in
UnfavorabIe Light.
BY CHARLES F. sPEARE.
nirnatch to The Star.

Special Dispatch to The star.
NEW YORK, November 20.-The sus-
pension this week Of a large number
Of inter-related or chain banks in the
South has brought up again for active
discussion the relative merits Of the
two modern tendencies in American
banking those where control
In group of banks Is held by a parent
company which purchases a stock in
terest in individual banks, and branch
banking, in which one strong metro
poljtan institution establishes in its own
territory or in outlying districts or
throughout State its own Offices.
This subject was holly discussed at
the 1929 convention of the American
Bankers Association in San Francisco,
and at that time the advocates Of chain
banking were In the aScendency. Since
then chain banking has had a test Of
its strength under normal conditions,
both in business and in security mar
kets. This it has met unsatisfactory
in some sections Of the country, as in
the South, but successfully where the
system has progressed farthest, as in,
the Northwest.
Do Not Admit Failure.
Advocates Of chain banking are not
willing today to admit that this sys-
tenn has failed, even though the sus-
pensions OF some large and some small
cnalns IN the South seem to point to
the contrary. Quite q few OF the men,
Ders OF the individual chain banking
systems that have suspended appear to
be entirely solvent, but have antici-
pated trouble arising out Of their as
ISOLATION with weak banks rather than
from their own internal conditions.
This Is apart from the situation in Ten
nesSee, where the ramifcations of the
Caldwell failure have been so wide as
70 destroy confidence in institutions
sound.
The chain banking fever ran high At
about the same time that the formation
OF investment trusts and trading COR
porations was In progress on a large
scale, and cancellations of all kinds
were beingS Effected among industrial
and public utility corporations. Pro-
motors found popular response for the
shares Of bank holding companies.
These were placed with the public at
extravagent figures, based on the state
ments OF anticipated earnings Of the
constituent body of local banks taken
under control Of a holding company. In
many cases the price paid for the local
bank was regarded as much out Of line
with its book value and with its normal
average earnings. This fact has since
been reflected In the severe depreciation
in the stock Of some Of the popular
proprietary companies that went out
and bought banks with lavish hand.
Had the panic in stocks not come
when 1t did it Is quite probable that
many more chain banking systems
would have been established. Promot-
ers were setting up capital structures
for proposed chains when the break In
securities developed. It was their in
tention to extend the chain banking
systems on q considerable scale in New
York State and in New Jersey. Owners
and executives in small banks through
out the country were in an anxious
state Of mind, not knowing when they
would find that control Of their insti-
tutions had passed TO some outside and
unfriendly interests.
Effect Of Failures.
It IL regarded as somewhat siRnifi-
cant that In the case Of the Tennessee.
Kentucky and Arkansas banks that
have suspended in the last few weeks
less effort seems to have been made by
the Federal institutions than when
similar conditions have developed In
the recent past, as, for instance, when
runs occurred on Florida banks.
Advocates of branch banking are
frank to say that the conditions that
have arisen In the group banking field
are those which they had anticipated
when real test developed. They be-
lieve that the recent episodes In the
South will give greater weight in Con-
greSs to efforts to legislate in favor Of
branch banking, and expect to see the
question brought up actively at the
next session. Controller Of the Cur
rency John w. Pole Is one Of the
strongest champions Of branch banks
privileges for national banks and has
stated his views very clearly on this
subject in frequent public addresses.