Evening star., 1933-03-13
BY H, ]. ]. SARGENT.
Special Dispatch to The Star.

Special DlSpatCn 10 ne StdT.
LONDON, March 13 N.ANA).-
"You know, as well Is do, the defects
of our ver-individualized banking sys-
tenn and the need for reorganization
which is long overdue. shall only
say, therefore. that, as one who has had
a long experience in American banking,
I am fully confident that this is a
temporary crisis and that American
banking will profit by the reforms that
will undoubtedly come as the result OF
the difficulties through which we are
passing at present"
When Ambassador Mellon uttered
these words in a speech in London re-
Gently they suggested themselves as a
useful opening to a dispatch seeking to
explain Just why no bank has failed in
England since 1920. when one, minor
Institution, closed its doors.
If the question is put to London
bankers-why is it that in 10 years Of
steadily intensifying trade depression
there have been no bank crashes in
England, whereas in the United States
many banks have failed since 1929, the
answer is invariably that in England
the type of bank which fails in Amer
lea. the small local bank, operating
alone and with no backing but its own
resources, does not exist.
The old local banks, usually family
institutions, which abounded in the
English provinces in large and small
cities a generation ago. have all been
peacefully eliminated by absorption in
one or other of a dozen or SO great
banks with hundreds, and in some cases
thousands, of branches which hold be-
tween them practically all the money
Of the country. That there should be
thousands of separate banks IN Amer
lea is incomprehensible to English
bankers.
Every Village Served.
England is well served with banks.
There Is not a sizeable village which
has not a branch of at least one of the
big five" Usually there are two. The
branch, of course, attends to local busi-
ness but it is not local bank. Behind
it are all the resources of the entire
institution.
The big flve," that is Barclays,
Llcyd's, the Midland, the Westminster
and the National Provincial Banks, do
business on such an enormous scale
and they figure so largely in the ma
tional calculations that panic cannot
come near them.
The most nervous depositor knows
that if any Of his money is not safe in
the keeping of one Of the big five, 1t
is not safe anywhere. II one Of
these institutions failed. it would
cause an unims ginable catastro-
phe and the public is rightly con-
vinced that neither the state nor the
other big banks would allow such a
thing to happen. England could no
more afford to allow one of these great
banks which hold the small mans
money to crash than she could afford
to lose a war.
It is for this reason that there has
not been bank failure in Britain
since Farrow's bank closed in Septem-
ber, 1920. For the same reason.
although the sudden announcement
that the country was going OIL the gold
standard on September 81, 1881. pro-
foundly shocked England, the banks re-
ceived the news without even tremor.
No one doubted that they would meet
their obligations, even although they
might be forced to pay them in cur
rency deprecated by nc fault OF their
own.
seventy branches in London and other
towns and a capital of $4,000, 900. 1t
failed in a year. not of depression but
of active speculation and over-confi-
dence. Its disappearance lent strength
to the prevalent financial doctrine in
England that banks. like individuals.
should not live alone.
Strong Control Credited.
This principle Of the big bank with
hundreds of branches, so well estab-
lished in the public eye that 1t is inn
mune from panic, Is the main diff
ference between the British and Amer
ican banking systems. 1t is not con-
tended that British methods in detail
are superior to American or that they
differ very much fro mthem. British
banks are subject to no special laws
compelling them to maintain definite
ratio between the amount Of their de-
posits and their reserves. Their policy,
Voluntarily adopted. Is w. maintain .