The Coolidge examiner., 1936-02-14
WOULD PROTECT
BANKING FIELD
IN RURAL AREAS
American Bankers Associa-
tion Would Combat Return
of Excess Number of Banks
CITES LAX CHARTER
POLICIES IN THE PAST
Finds a Chief Cause of Bank
Failures Was Too Many Banks
Existing Sound Banks Serv-
ing Communities Well

NEW YORK. = Existing sound
banks, especially the small banks
in the rural districts which are serv.
ing their communities well, should
be protected from any return Of the
over-banked local conditions caused
by former lax chartering policies,
which were mainly to blame for the
unfavorable failure record of the
past, says the Economic Policy Com.
mission of the American Bankers
Association. This is brought out in
a report covering an investigation
by the commission of bank failures
and chartering policies.
"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 struc.
ture which finally collapsed with the
Bank Holiday in March 1888"
Robert V. Fleming, president of the
association, says in a foreword.
"Over-production of banks, liter.
ally by thousands, over many years
in the face Of insistent warnings not
only from bankers and others who
| recognized the danger, but even more
so from the mounting records of
bank failures themselves, is clearly
shown to have constituted as a whole
one of the greatest single economic
errors in the history of the Nation"
A Recurrence Feared
He refers to fears of a recurrence
of over-banking recently expressed
by Federal banking authorities, to
the powers given the Federal Deposit
insurance Corporation by the pro-
vision of the Banking Act of 1885
over the admission of banks to mem
bership in the insurance fund, to
strengthened state laws and to the
policies now being followed by both
national and state supervisory au-
thorities aimed to safeguard the ma.
tion against over-banking.
"But sound laws and conscien.
tieus officials are not of themselves
always sufficient safeguard in any
| field of our complex national life un.
less they have the active support of
public opinion" he adds. "It is the
purpose Of the American Bankers
| Association to aid in marshaling
public opinion in support of both ma.
tional and state supervisory authori-
ties in their efforts to strengthen and
protect the banking structure"
The Economic Policy Commission
summarizes its findings as follows:
The facts show a distinct causal
relationship between the over-char-
tering of banks and the abnormal
bank failure conditions that pre-.
vailed from 1920 to the bank holiday
in 1888. 1t is desirable that studies
be made on the basis of experience
to develop standards governing the
number of banks.
Such a study would embrace the
question whether banking facilities
can best be supplied to the rural dis
tricts 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 pro
tected from any return of the over
banked local conditions caused in
the past by lax chartering policies.
Banking Officials Queried
IAN inquiry among state com.
missioners shows a preponderant
opinion against increasing materi.
ally the number Of banks, coupled
with the fact that present laws give
them sufficient discretion to prevent
4 repetition Of errors of the past.
Under prevailing abnormal con
ditions, with the Federal Government
extensively exercising loaning pow.
ers 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 struc.
ture even with it's present reduced
numbers, finds it difficult to support
its existing capital investment and
operating personnel.
These are new factors, intensity
ing the need for highly prudent and
restrictive chartering policies. We
urge the retirement of the Federal
Government from the banking bust
ness as normal conditions warrant"