Expansion of Branch Banking

Report Outline
States' Rights Issue in Banking
Free Banking vs. Branch Banking
Branch Banking Under National Bank Act
Recent Expansion of Branch Banking
Special Focus

States' Rights Issue in Banking

Persistent reports, current for the last three months, that the administration will seek a wide expansion of branch banking privileges for national banks at the present session of Congress have not been confirmed to date by the introduction of an administration bill—and have been denied by Marriner S. Eccles, chairman of the Board of Governors of the Federal Reserve System. The reports have been accepted by independent bankers, however, as accurately reflecting the desires, if not the immediate purposes, of federal banking authorities and have led to active organization by state banking officials to resist any liberalization of present federal laws governing the establishment of bank branches.

The branch banking controversy dates back a hundred years—to Jackson's war on the Second Bank of the United States. It involves the fundamental issue whether banks chartered by the central government shall be permitted to operate branches in states which prohibit or restrict the operation of branches by state-chartered institutions. Independent bankers believe that precipitation of the Supreme Court contest, involving the question whether state or federal law shall be supreme within the borders of the states, has rendered the time inappropriate for a new move in the field of branch banking. They believe also that, once the larger issue has been decided, the administration will press for passage of an amendment to the federal banking laws authorizing interstate branch banking by national banks, perhaps limited to “trade areas” or Federal Reserve districts, perhaps extended to the country as a whole.

Opposition to Extension of Branch Banking

A call to arms was sounded by C. F. Zimmerman, president of the First National Bank of Huntingdon, Pennsylvania, and “champion extraordinary of states' rights in banking,” in an address, November 11, 1936, before the Adams County (Pennsylvania) Bankers Association. He had been informed, he said, that an Eccles branch banking bill had been prepared and was ready for introduction. “Independent unit banks must win in the near future or they will be shackled more and more until they are eventually destroyed.” When the bill was touched off, Zimmerman said, the American Bankers Association would be confronted with the question “whether leadership for American banking is prepared to knock trade-area branch banking for national banks into the proverbial cocked hat or whether we shall permit the group bankers and the branch bankers to take us for a ride.” The Louisiana Bankers Association had been warned by William S. Elliott, vice-president of the Bank of Canton, Georgia, as early as April 15, 1936, to “keep on the watch against possible action by Congress to widen the powers of national banks.”