Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-09
BRANCH BANKING
EXTENSION ASKED
Controller Pole Urges Com
mittee TO Study Trade
Center Idea.

Congress is urged by Controller of
the Currency John w. Pole in his an
nual report to authorize a committee
composed of the Secretary of the Treas
ury, the governor of the Federal Re-
serve Board and himself, to map out
the trade areas of cities considered to
be the commercial centers of the coun-
try, and permit national banks to ex-
tend branches within such areas.
Remedial legislation along this line is
of great present Importance, Mr.. Pole
said, in view of the latest available
figures which show ti,2t up to october
81, $780, no less than TAI banks with
deposits of $500 ,000 have closed their
doors as compared to a total of 522 SuS
pensions with deposits of 5000, 100000
during the like period last year.
Nearly 90 per cent CT the failures have
occurred in the agricultural States of
the South, Middle West ana West. while
in the more denSely populated industrial
areas of New England and the Eastern
and Pacific Coast States. where a greatS
err diversification of business is possible,
the number of failures has been negiigi-
bic, Mr.. Pole said.
Would Help Many Banks.
The essential weakness OF rural bank
ing as it new exists lies In the danger
Of its complete dependence upon just
one economic activity. There is an in
sufficient economic diversification of
its loan portfolio. This objective can be
attained in branch system OF banking
which taps a number OF different types
of security.
It has been suggested that proper di-
VeTsifiCation can be obtained through
the purchase of investment securities
on the general market. This procedure
faces two obstacles. 1t presupposeS a
technical equipment which the rural
bank does not possess and it would
draw the funds of the bank in too great
a proportion away from the local field
Of the banks operations to the detri-
ment of its legitimate borrowers.
A highly important advantage pos
ssSsed by branch banking over group
banking, Mr.. Pole pointed out, is the
adaptability of the former system for
extension into the most remote ham
let's.
Danger in Group Banking.
It does not seem desirable to give
sufficiently broad branch banking
powers to national banks to enable
them to embrace in a single branch
system the entire geographical area now
embraced by several of the larger group
banking systems. Group banking in the
main is in capable hands and includes
some of the best managed banks in the
country. However, the field of group
banking Is now open to every type Of
operator or promoter who may be able
to purchase bank stocks. This consti-
tutes a source of potential danger.
In order to facilitate the supervision
of group banking in those cases where
the Federal Government has any re-
sponsibility. it is desirable that no ma
tional bank should be permitted to
become a constituent of such a group,
except upon condition that all other
banks in the group also are national
banks.
Cautioning against the policy of
Withholding from national banks the
power to cross State lines with branches
in those cases where the trade area of
the city clearly does not cross the State
line, Mr.. Pole declared that under such
a policy the whole theory and plan of
establishing in the rural communities
a well rounded and sound branch bank
ing system would be broken down.
More Power for Congress.
Any advantage which might accrue to
the national banking system through
trade area branch banking around
those cities situated near State bound
airy lines could fittingly be taken by
Congress as an opportunity to strengthen
its control over a Nationwide system
of commercial banking, such as was
established under the original bank act,
Mr.. Pole said.
That the disparity between the State
and national systems is pronounced is
evidenced by the fact that whereas in
1886 the national banks held IS per
cent of the total commercial banking
resources of the country, the latest COM
piled figures indicate that this proper
ton has now shrlnk to less than 40
per cent.
1t had been hoped that the McFad-
den act would reclaim many important
banks which had left the national sys-
tenn to operate under State charters,
Mr.. Pole said. However, new advan-
tages brought about by legislative and
judicial action in the States with re-
spect to trust business were followed by
assertions from the national charter in
favor of those offered by the States.
The term trade area should be defined
to embrace the regional flow of bust
ness and trade to and from cities con-
sidered commercial centers and State
boundary lines should not be cohsid-
cred in determining the territorial limits
f. ID1T1