Economics and The Public Welfare

Chapter 44

Branch Banking versus Unit Banking

In view of the mortality among small banks in the decade of the 1920’s, legislation was proposed in early 1930 calling for branch banking throughout Federal Reserve districts. The present writer opposed this plan in the Chase Economic Bulletin of May 8, 1920, and was subsequently called before the House Committee on Banking and Currency, which was considering the legislation. One question under consideration was whether branch banking would move money to the local community from the head office, or away from the local community to the head office. The answer to the Committee was that this varied. In France, before the first World War, the branch banks had been largely bond houses, selling bonds which originated in Paris to local depositors, and making very few local loans, except for the discount of bills of exchange. In Canada, on the other hand, there had been complaint from the Eastern Provinces that too much money had been taken away from the cities of the East to lend to the agricultural Provinces of the West. There was no general rule.

The view was maintained that a system of unit banking gave, on the whole, a better adaptation of banking facilities to local needs than the branch bank system did.

Mr. Anderson:1 How are you going to adapt the number of offices, the number of paying tellers’ windows, and so forth, the facilities, to the needs of the community?

When the thing is done locally it is at least locally studied and decisions made locally. Sometimes they overdo it. They have overdone it in North Dakota and they have overdone it in Iowa and a great many rural communities in this country; too many little banks where fewer and bigger banks would have been more useful and would have survived. But I think we have done it better in this country, judging it from an American angle, than many foreign countries have done it.

In Holland there was, in 1919-20, competition between two great banking institutions that filled the villages with branches, unprofitable branches. They had to pull up, close them out, in a good many cases.

Here is the picture in England. In the business part of London you go about the streets; there is a bank office on every corner, almost. You go into a branch. You are often the only man there, the only customer there. You go in to cash a check under a letter of credit and the officer of the bank has lots of time to talk to you. He is glad to see you. He is a little bored. I do not mean that this is true of all of them, but of a lot of them. I think they have too many there. I think it is not profitable. I think it involves needless overhead.

What about it in the provinces? I will give you some illustrations in the provinces.

For your records, Mr. Chairman, I will give you an unsatisfactory document as to form, but fairly satisfactory as to the information. Having to prepare this in great haste, I simply had sheets torn out of the British Bankers Almanac and Year Book (published by Thomas Skinner & Co., London), giving the locations of the banks throughout Great Britain and Ireland. Then I had some clerks get me the populations of the cities and towns as far as possible. They worked rapidly and their population figures may not be exactly right in some places. The population figures are written on the margin and in pencil.

I have not gone through it all myself, but here are some samples. Abbots Langley, a town of 3,400 people. Here are the complete banking accommodations of Abbots Langley: Barclays Bank, (Ltd.) open on Thursday; Lloyds Bank (Ltd.) open on Thursday. There are the banking accommodations of this town of 3,400 people.

Mr. Strong: Open one day in the week?

Mr. Anderson: One day in the week; yes, sir.

Mr. Strong: If anybody wants to do any business with the bank on any other day, he finds on the door, “We have gone fishing.”

Mr. Anderson: They have not gone fishing.

Mr. Strong: But there are no other accommodations.

Mr. Anderson: They have gone to another town. There is a crew of bankers. They work six days in the week; sometimes in one town, sometimes in another town.

Mr. Strong: They go around from one town to the other?

Mr. Anderson: Yes, sir.

Mr. Strong: If a man wants banking accommodations, he waits until they get back?

Mr. Anderson: Yes.

Mr. Strong: Fine!

Mr. Anderson: Amondsbury; this is in Gloucester. Twenty-two hundred people. The National Provincial Bank is open on Friday.

Abertillery, 22,000 people. That is what the figures on my margin show and I raise a question as to whether that figure is right, because it looks incredible. I should like to have your committee, if you are interested in this, have an independent check made of these population figures. They were hastily got by clerks, working under time pressure. [A later checking with Hammond’s World Atlas shows the population of Abertillery to be 38,805. It is in Monmouthshire, England, near the border of Wales.]

Mr. Sieberling: I would like to have you give us the proximity to larger towns where they can get banking facilities all the time.

Mr. Anderson: I regret I cannot.

Mr. Sieberling: You can see that is important.

Mr. Anderson: It is, and if I had had time, I would do it. . . . Barclays, Lloyds, Midland, and National Provincial, open on Monday.

Mr. Strong: In a town of 22,000?

Mr. Anderson: I say, the thing is so startling, I want you to make an independent check of the population figures there. . . .

Here is an Irish town, Carrick Fergus, 4,208 people; Tuesdays and fair days, the Belfast Banking Co. . . .

Before I leave that, let me say another thing. Here are some very little places that have something. Here is Allonby, 450; the Midland Bank (Ltd.), Tuesday, October to June, and Tuesday and Thursday, July to September.

There are some very small ones that have something that probably would not have anything if it were not for the branch banking system. I think we may learn something from that.

I think that branch banking, perhaps centered about a county seat, with little offices in small places that could not afford independent banks, is worth studying. . . .

I do not want to see good bankers disappear from the smaller communities. I think that it is a good thing to have strong, trained, independent bankers, interested in the local community, stay in the local community. As I have traveled about meeting bankers in this country, meeting bankers in Europe—there are extraordinarily able bankers in the financial centers of Europe, but you go into the branches away from the head office, and you do not find bankers of the caliber that you find in cities of the same size in the United States, where they are independent men handling their problems and masters of their own banks.

I believe that the country would lose a very important influence making for good business, for initiative, for business education, not right away but in the course of time, if we change from the general system of unit banking to the general system of branch banking away from the city of your head office. . . .

The causes of these failures I do not find in things that have any particular concern with the question of branch banking on the one hand or unit banking on the other.

The first and foremost cause was the great boom of agricultural prices and land values before 1920, the collapse of agricultural prices and land values following 1920, and the adverse conditions in agriculture that have since continued.

The second great cause is real estate speculation in the period since 1920 in certain important sections of the country, notably Florida and some adjacent States. . . .

What about branch banking during that same period and exposed to these same causes? You had in Georgia, and running into Florida, as I remember, a chain, which went down, which would have gone down if it had been a group, which would have gone down if it had been a branch banking system.

In Canada, the Home Bank, and the Merchants Bank with 400 branches, went under from these same causes.

In Denmark, a great bank with branches widespread, went under.

The Banque Industrielle de Chine in China collapsed with its notes out, bringing disaster all over that great country.

The Banca di Sconto in Italy, with a great head office and big branches in the big cities, with little branches in the smaller cities, all went down together at one time. That is a fearful thing. . . .

Nothing in the experiences of the years since 1930 when this testimony was given has seemed to call for modification of the position then taken. Widespread branch banking in a country that is used to it works well, under normal conditions. Our American unit banking system, except for the microscopic banks, has worked well under normal conditions. Neither system can go unharmed through great World Wars, or through Governmental and central bank abuse of credit. A radical change in this country from the unit banking system to which we have been accustomed, to nationwide branch banking, or branch banking throughout Federal Reserves districts, could easily make us very grave problems of readjustment. Where an American State wishes to have branch banking systems within its own borders, it has the right to do so, but there should be no Federal legislation which would force the hands of the State in the matter. Where an American State has a well-developed system of branch banking it should not be advised to reverse its policy, though even there the survival of strong unit banks is eminently desirable.

• 1This point will be discussed at length in Chap. 34.