Business & Finance: National Branch Banks

A ruling by Attorney General Daugherty stated that national banks might have branches in the cities of their location, but such branches could only accept deposits and cash checks, and not lend money or purchase securities.

This sudden ruling threw into a quandary such New York City national banks with branches, as the City, Mechanics’ and Metals, Chase, Chatham and Phenix. Subsequently it was discovered that the Attorney General’s ruling covered only branch banks established since 1917; this relieved bankers’ minds.

The Attorney General’s dictum was apparently an outgrowth of the strong sentiment in the American Bankers’ Association last year against branch banking; its alleged purpose was to strengthen the Reserve System. Such legislation is, however, distinctly dangerous to this very purpose, since national banks must compete with state banks, and if state charters allow more latitude than national, existing national banks will convert into state banks, as the Irving has recently done. The privilege of issuing banknotes yields so little profit to a national bank, that its surrender is not a serious consideration.

Governor Crissinger of the Reserve Board called attention to the spreading tendency of national banks all over the country to surrender their charters and become state institutions, and to the danger which this development holds for the Reserve System, which is, of course, based upon the national banking system He neglected to add, probably with no little self-restraint, that one great reason for the drift to state charters is the constant government interference with national banks through continued tinkering with the Federal Reserve Act by Washington politicians.