The midland journal. (Rising Sun, Md.) 1885-1947, 1936-01-03
WOULD PROTECT
BANKING FIELD
IN RURAL AREAS
American Bankers Association
Announces Purpose to Conn
bat Return Of Excessive
Number of Banks
CITES LAX CHARTER
POLICIES IN THE PAST
Finds Chief Cause of Bank Failures
Was Too Many Banks-Existing
Sound Banks Serving
Communities Well


NEW YORK. - Existing sound
banks, especially the small banks in
the rural districts which are serving
their communities we'll, should be pro-
tected from any return of the over
banked local conditions caused by
former lax chartering policies, which
were mainly to blame fol the unfavor-
able failure record of the past, says the
Economic Policy Commission of the
American Bankers Association. This is
brought out in report covering an in
vestigation by the commission of bank
failures and public policies in charter
ing banks.
"The Commissions study gives an
impressive revelation of how great a
part mistaken public policies in the
chartering of banks played in creating
the unsound banking structure which
finally collapsed with the Bank Holiday
in March 1885," Robert V. Fleming,
president of the association, says in a
foreword.
"Over-production of banks, literally
by thousands, over many years in the
face of insistent warnings not only
from bankers and others who recog-
nized the danger, but even more so from
the mounting records Of bank failures
themselves, is clearly shown to have
constituted as whole one Of the great
est single economic errors in the history
of the Nation"
A Recurrence Feared
He refers to fears of recurrence of
over-banking recently expressed by
Federal banking authorities, to the
powers given the Federal Deposit In
surance Corporation by the provision of
the Banking Act of 1885 over the admis-
sion of banks to membership il the in
surance fund, to strengthened state
laws and to the policies now being fol-
lowed by both national and state super
visory authorities aimed to safeguard
the nation against over-banking.
"But sound laws and conscientious
officials are not of themselves always
sufficient safeguard in any field of our
complex national life unless they have
the active support of public opinion"
he adds. "It is the purpose Of the Ameri-
can Bankers Association to aid in mar
shaling public opinion in support Of
both national and state supervisory au-
thorities in their efforts to strengthen
and protect the banking structure"
The Economic Policy Commission
summarizes its findings in part as fol-
lows:
"The facts show distinct causal re-
lationship between the over-chartering
of banks and the abnormal bank fail
ure conditions that prevailed from 1920
to the bank holiday in 1888. 1t is desir-
able that studies be made on the basis
of experience to develop standards gov
erning the number of banks or the vol
ume of bank capital which can be sue
cessfully operated.
"Such a study would embrace the
question whether banking facilities can
best be supplied to the rural districts by
small unit banks or by branches from
banks of substantial capital in larger
centers. Existing sound banks, which
are serving their communities well
should be protected from any return of
the over-banked local conditions caused
in the past by lax chartering policies.
Banking officials Oueried
can inquiry among state bank COM
missioners shows a preponderant opin-
ion against increasing materially the
number of banks, coupled with the fact
that present laws give them sufficient
discretion to prevent repetition OF the
grave errors of the past.
"Under prevailing abnormal condi'
tions, with the Federal Government ex-
tensively exercising loaning powers In
competition with the banks, and with
industry itself so largely supplied with
funds as to render it to great degree
independent of normal bank borrowing,
the banking structure even with its
present reduced numbers, finds 1t diff
cult to support its existing capital In
vestment and operating personnel.
"These are new factors, intensifying
the need for highly prudent and re-
strictive chartering policies. We urge
the retirement of the Federal Govern
ment from the banking business as
rapidly as the return of normal bust
ness conditions warrant"