Finance and Banking

Continued from page 640, preceding acquire and operate branches within the limits of the city where the head office is established. An amendment to the law is now proposed that would permit national banks to have branches if they are located in the same county as the head office. Of course in all the present circumstances, general branch banking for the United States, like, for instance, the metric system or the single tax, is as yet an academic rather than a practical question. But the branch-bank system does seem to be growing in favor, and some time perhaps America may decide to do its banking in a large way, as it does nearly everything else.

It is strange how banking here has lagged behind other forms of commercial activity. The need of efficiency and low costs has created great corporations out of many smaller concerns in all those enterprises which produce and distribute the things which, like money and banking, are the daily requirements of the people. The work of providing light, heat, food, clothing, means of transportation and communication is all done on a great scale; yet, with few exceptions, the banks remain in cld-fashioned, inefficient isolation, each one working for itself in a narrow groove. The banking resources of this country on a per capita basis are nearly double those of Great Britain, and in actual bank capital and assets American banks have over three times the amount possessed by banks in the United Kingdom. The ratio of American bank earnings to resources has been steadily decreasing. In view, then, of the greater world power and usefulness of British banking, it seems evident that more can be accomplished by a uniform and efficient system and those qualities developed therefrom than by the mere possession of greater capital inefficiently. employed.

It is interesting to speculate upon the achievements that would be possible to American banking if its funds were fully mobilized and efficiently applied. To illustrate, suppose all the banks were will

ing to adopt the branch system and that laws permitted them to do business anywhere; assume that the twenty-five thousand banks and trust companies were merged into, say, two hundred and fifty head offices; this number would avoid any suspicion of monopoly. of monopoly. Let the two hundred and fifty banks have an average of one hundred branches each. The individual banks now have average capital and surplus of, say, $148,000. If formed into two hundred and fifty banks, the average capital and surplus would increase to $14,800,000, and in flexibility and power to conduct the business of the country the gain would be immense. As it is now, the law limits advances to any one borrower to ten per cent. of a bank's capital and surplus. Thus the average loan cannot exceed $14,800, and important borrowers must of necessity deal with a great many banks. But, if there were only two hundred and fifty institutions, the loan limit would increase to $1,480,000, and, indeed, Section 5200, which imposes the limit, might safely be removed from the statutes. The applicant for insurance seeks the strong underwriter, and customers naturally prefer the strong bank which is able to care for depositors as well as for borrowers.

The economies possible under a system of a few hundred banks with thousands of branches are incalculably greater than in twenty-five thousand independent con

To suggest only a few, consider the saving of administration expenses, salaries, directors' fees, purchase of investments, supplies, books, stationery, and checking credits; the advantages of uniform accounting, the reduction in cost of government supervision, and the book credits that could be substituted for remittances. Branch banks in serving small communities work under proportionate. expense and pay their way without resort to usury, which is more than can be said of all the independent banks in the United States. Banks in small places would not find it necessary, as the average national bank now does, to lock up more than thirty-six per cent. of capital in bank

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premises in order to show a solid front to depositors. For instance, the average investment of national banks in bank premises is $42,000, while in Canada the average per bank office is only $16,000.

Branch banking is like diversified farming: all is not staked on one crop, the eggs are not all in one basket. It promotes a natural flow of surplus funds from the depositing to the borrowing communities. If depression, lack of confidence, and withdrawals of deposits make earnings poor in one region, this will be offset by the incoming funds and good times in places where other branches are established. The branches promote trade by bringing widely separated business people in touch with one another. The men who are at the head of branch systems become interested in the development of the whole country; their vision is broadened, and their outlook is national, not local. Branches at home would be the very best places to train men to manage branches abroad. In short, from the point of view of all concerned-the public, the customer, and the banks-arguments favoring the branch system are almost numberless. Only two more are suggested. Without prolonging this article by outlining the reasons, it may be asserted that an American discount market will never attain a really commanding position until a well-established system of foreign branches is working for it; and the success of the movement to revive trade drafts in the United States is to a large extent dependent upon a well-established system of domestic branch banks.

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