Evening star., 1932-12-11
Vital Issue in Glass Bill Dis
cussed by Official of New
York Bank.
RESERVE DISTRICTS HELD
NATURAL TRADE AREAS
Future Strength of Financial In
stitutions Rests Largely in
Hands of Reserve Board.
BY EDWARD C. STONE.

Leading bankers here. as in every
city and town in the United States, are
eagerly awaiting the fate of the So
called Glass banking bill which is slated
for consideration by Congress during the
coming week. President Hoover declares
that banking reforms should be adopted
during the present session and points to
the bank failure record of the last two
years as the reason demanding mme-
diate action.
Hosts of bankers and legislators favor
reforms, but they dc not know just how
drastic the changes should be. Better
protection of depoSitorS Is, OF course, the
chief goal to be attained.
The Glass bill has multiple angles,
extension of branch banking being one
OF the most vital points at issue. Dill
ferent parts of the country take entirely
opposite views. So controversial Is the
subject that the last convention of the
American Bankers Association referred
the matter to the national bank saw
ings, State and trust company divisions.
During the last week Pierre Jay,
chairman of the board Of the Fiduciary
Trust Co., New York, declared branch
banking to be "the only fundamental
remedy for the demonstrated weakness
Of unit banking, particularly in smaller
places" His views are so interesting
and timely that some excerpts are pre-
sented here.
Admits Change in Views.
like many other supporters Of unit
banking" said Mr.. Jay, recent events
have forced a change in my views and
I now feel that, to become an effective
instrument of national policy, branch
hav chnI11d ha r1nrT11iftad IN de-
velop under conditions most favorable
to its success. These conditions in
volve area and supervision.
Under the banking bill now before
Congress, national bank may estab-
lish branches anywhere within the
limits of its own State and within con-
tiguous territory so miles outside, This
area, while tremendous step In ad-
vance, still savors of half-heartedness.
If we are willing to go this far we
might better recognize at the outset
that State lines are usually political,
rather than economic, and that we
shall soon have to amend the law to
permit branches over more natural
trade areas, as ex-Controller Pole re-
Gently recommended.
"To shut our branch banking up In
48 separate compartments, as If 1t were
something we feared Is to ignore the
experience of all the other countries
of the world where, as far as I know,
there is no territorial restriction. This
does not mean that I would contem-
plate for the United States, even for
the distant future, branch banking
which covered the entire country. Dis
tance and sectional feelings are against
1t; proper diversification does not re-
uuire it, and, obviously, there must be
some limits. But surely all VIII agree
that q State-plus so miles-will in
many cases prove limitation that has
elements of unsafeness.
Reserve Districts Natural Areas.
"In States Overwhelmingly agricul-
tural, for example, State lines as limit
will render it difficult to attain that
fundamental requisite of branch bank
tng-a diversified portfolio. The limits,
1t seems to me, should be sufficiently
wide and, more than this, sufficiently
elastic, to permit of sound diversified
ton.
"The II Federal Reserve districts ap-
proximate natural trade areas, In spite
Of some arbitrarineSs, and they appear
to me to be the most practicable limits
from which to work. But the Federal
Reserve Board, which, under the pro-
posed bill, is to authorize all branches,
should, 1t seems to me be empowered
to allow branches to overstep district
lines when necessary to cover trade
areas or to assure diversification.
This would reduce maximum branch
banking areas from 48 to II, without,
however, placing any limits on the num-
Der of cities from which branch bank
ing might proceed.
Would Regulate Consultations.
t'Widespread branch banking intro
duces into the structure the possibility
not Of more bank failures, but of larger
failures. The banking bill wisely pro-
vides that the establishment Of every
branch shall be subject to the approval
OF the Federal Reserve Board. This
places both properly and squarely upon
the Federal Reserve Board and banks
the primary responsibility for the
sound development of branch banking.
1T seems important that they should
also have authority to prevent weak
State institutions with branches from
becoming members of the Reserve sys-
TEN by conversion into or consolida-
ton with national banks. Whether the
branch banking institutions which are
permitted to develop shall be strong and
sound or shall merely represent cross
section Of existing unit bank manage
ment depends, in the main, upon the
standards which the Federal Reserve
Board sets up as a guide for its action
and the rigidity and ruthlessness with
which it declines to authorize branches
for any bank whose past record and
policies have not been sound and safe, u
Mr. Jay concluded.