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The American Bankers Association: Its functions and major policies

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The American Bankers Association: Its functions and major policies

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Content THE AMERICAN BANKERS ASSOCIATION:
ITS FUNCTIONS AND MAJOR POLICIES
A Thesis
Presented to
the Faculty of the Department of Economics
The University of Southern California
In Partial Fulfillment
of the Requirements for the Degree
Master of Arts
by
Ralph Kun Wang
June 1948
UMI Number: EP44684
All rights reserved
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..........B ^ H J ^ _ _ W A N O ...............
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and approved by a ll its members, has been
presented to and accepted by the Council on
G raduate Study and Research in p a rtia l fu lfill
ment of the requirements fo r the degree of
MASTER OF ARTS
Dean
Date....
Faculty Committee
Chairman
FOREWORD
The present study, as the title indicates, undertakes
to make a general survey of the functional development and
major policies of the American Bankers Association. At
first sight, the narration of the organization and an analy
sis of a certain institution may seem to show favoritism
and narrow-mindedness, but a careful consideration would
disclose that no study of the American banking system would
be complete without a comprehensive knowledge of the means
by which the independent bankers of the United States func
tion under the peculiar economy of the country. It is
believed by the writer himself that a study of the activities
of the bankers in the United States develops a better under
standing of the entire credit structure and banking system in
each particular period. It results also in an appreciation
of the basic factors which have contributed to brings about
the success of the present economy in this country. Further
more, since the organization of the Association is the
largest of its kind known to the world, a study on how such
a tremendous and voluntary institution carries on its works
to influence the whole economy is helpful in an under3tanding
of the functioning of American democracy. However, since
the activities of the Association cover a wide range of
iv
subjects pertaining to banking, and since the scope of a
thesis is limited, only the major issues of the Association
since World War I are here presented.
In endeavoring to furnish a systematic and historical
account of the most important phases of the American Bankers
Association, the writer has drawn upon his data directly
from the Association in New York City. He was also privi
leged to make use of the library of the Los Angeles Chapter
of the American Institute of Banking. Some data were ob
tained as a result of his interviews with officers of the
Association at Los Angeles.
In the preparation and improvement of the treatment,
great indebtedness is due to Professor Roy L. Garis, of
the University of Southern California, for his invaluable
suggestions and recommendations, Appreciations are also
due to Professor Clyde William Phelps and Dr. Edwin Ding,
of the same institution, for having read the entire text.
It was through their useful comments and advice that the
present study was undertaken.
TABLE OP CONTENTS
CHAPTER PAGE
PART I
ORIGIN AND ORGANIZATION
I. ORIGIN OP THE AMERICAN BANKERS ASSOCIATION. . . . • 2
II. ‘ STRUCTURE AND ORGANIZATION OP THE
ASSOCIATION.................................. 6
Membership............. 6
Structure............................... 8
Organization......... 10
The National Bank Division.................... 10
The State Bank Division......................12
The Savings Division. . . .......... 14
The Trust Division......................... 16
PART II
FUNCTIONS AND MAJOR POLIGIES
III. BANK MANAGEMENT AND OPERATIONS.................... 33
IV. UNIT VERSUS BRANCH BANKING........................ 47
V. COOPERATION WITH FEDERAL AND STATE LEGIS
LATION / . 52
VI. ATTITUDE TOWARD GOVERNMENT LENDING AGENCIES . . !. 63
Vi
CHAPTER PAGE
VII. IMPACT OF THE POSTAL SAVINGS SYSTEM............ 77
VIII. POLICY AND AGRICULTURE........................ 81
IX. PUBLIC RELATIONS.............. 84
X. THE INSURANCE AND PROTECTION.................. 92
XI. THE WAR EFFORT.................................. 100
XII. THE ANTI-INFLATION PROGRAM.......................110
XIII. SUMMARY AND CONCLUSION.......................... 116
BIBLIOGRAPHY.................................. 122
PART I
ORIGIN AND ORGANIZATION
CHAPTER I
ORIGIN OF THE AMERICAN BANKERS ASSOCIATION
The origin of the American Bankers Association is
traceable to 1875 when the two bank cashiers of St. Louis
started the idea of organizing an association for all the
bank cashiers of this country. The story goes that these
two bankers, by the names of Edwar C. Breck, cashier of the
Exchange Bank, and James T. Howenstein, cashier of the
Valley National Bank of St. Louis, were deeply impressed
when they were passing through a library hall where a large
meeting was being held in behalf of an amendment to the
Constitution of the United States for granting suffrage to
women. Thoughts occurred in the mind of one banker who said
to his comrade:
If women can get together, talk over their
sorrows and then get recognition, why can*t bankers
get together and through organization and coopera
tion accomplish what we desire right now— overcoming
the panic and providing for the resumption of specie
payment ?*•
This suggestion received the hearty approval of the
other banker; and they began to conduct active correspondence
with bankers all over the United States. At first all they
American Bankers Association: Present Day Banking
(New York: American Bankers Association, 1948), p.
3
had in mind was the formation of an association for the
cashiers of all the banks, simply for the purpose of making
each other’s acquaintance, talking over matters of concern
to all bank cashiers, and trying to leave a ’ ’ green spot** in
the pathway of the past so as to make it a pleasure to look
upon. They had no intention whatsoever of changing any
banking law or making any innovation in existing governmental
regulation of banking and business in general.
The invitation they sent out suggesting such an
organization was accepted by cashiers of forty-one banks
and several banking companies in twenty-nine states. This
led the sponsors to expand the organization to include all
bank officers. A general agreement was reached among them
selves that a formal association of all the bankers in the
United States should be organized, the first convention to
2
be held at Saratoga Springs, New York, on July 20, 1875.
The first convention was duly held, and at this
meeting it was decided to elect a vice-president for each
participating state, the idea being to set up a bankers
association also in each state, as an integral part of the
Association. All the participating bankers had a common
viewpoint on the belief that a permanent organization would
2 Ibid., p. 299
4
be productive of much good from a business and social stand
point and could also develop an esprit de corps beneficial
to all American bankers. Indeed, the banks and bankers, al
though representing one of the important interests in this
country, had hitherto no general organization, in which to
discuss subjects relating to their common interests. It
should also be noted that while the Association thus came
into existence in a natural manner, other social factors also
motivated the American bankers to form such an institution
for cooperative and organized action. Aside from internation
al political and economic events, the bankers of this country
were at that time faced with such problems as the fluctuating
price level, taxation on banking capital, the function of
resumption of specie payment--all these contributed as causes,
urging them to seek a better means of securing a common good.
One year after the first meeting, the Association had
its second convention at Philadelphia in 1876. At this
convention the permanent status of the Association was
established* A Constitution for the Association was passed,
the declaration of which reads as follows:
In order to promote the general welfare and use
fulness of banks and financial Institutions and to
secure uniformity of action; to obtain the practical
benefits to be derived from personal acquaintance and
from the discussion of subjects of importance to the
banking and commerical interests of the country, and
especially in order to obtain the proper consideration
5
of questions regarding the financial and commercial
usages, customs and laws that affect the banking
interests of the entire country, and for protection
against crime, we submit the following constitution
for the American Bankers Association*...3
In addition to the adoption of the Constitution, the
Association also established its permanent headquarters in
the City of lew York and a branch office in Washington, D.C.
Since the Association came into existence, the General Con
vention has been held regularly each year at different
metropolitan cities.
s
American Bankers Association: Official Lists,
American Bankers Association (New York: American Bankers
Association, 19^7), p. 83.
CHAPTER II
STRUCTURE AND ORGANIZATION
OF THE ASSOCIATION
I. MEMBERSHIP
Membership in the American Bankers Association may
be granted to any banking institution of the United States.
Any National bank, State bank, savings bank, trust company,
private banker, banking firm, or branch of any such insti
tution, any chapter of the American Institute of Banking,
and the Secretary of any State Bankers Association situated
within the territories of the United States or its depen
dencies, may become a member of the American Bankers Asso
ciation upon application. The power to approve or dis
approve such application is vested in the Administrative
Committee of the Association. Membership is of three types:
active, special and associate. Active membership is granted
to all commercial banking institutions. The Federal Reserve
Banks, the Federal Land Banks and the Federal Intermediate
Credit Banks may become special members; but such banks,
with the exception of the Federal Reserve Banks, are not
entitled to voting power; nor are they bound by resolutions
or declarations of policy of the Association. Banks and
7
bankers situated elsewhere than within the territories of the
United States and her dependencies may become associate mem
bers which have all the privileges of active membership but
receive no protective benefits and do not have the right to
vote. Banking institutions situated in the District of
Columbia, Alaska, Hawaii, Peurto Rico, the Philippines and
the Panama Canal Zone are regarded as possessing the same
status as other State institutions.
Annual dues for membership are collected by the
Executive Manager of the Association! and as is the common
practice of an institution, the non-payment of dues after a
certain time results in a forfeiture of membership. The
amount of the dues varies with the nature and capital struc
ture of each member. For the American Institute of Banking,
Secretary of State Bankers Association and banking branches
without separate capital, the fee Is $15.00. For special
and associate members and savings banks without capital, the
dues vary from $15.00 to a maximum of $1,000.00, as fixed in
the rate schedule of the Constitution. Dues vary from $15.00
to $5,000.00 for active members, the rate being regressional
on the basis of the total capital and surplus of each member
bank.'**
1 American Bankers Association: Official Lists, American
Bankers Association (New York: American Bankers Association),
p . 1 1 1 .
8
Suspension of membership may result for cause by a
two-third vote of the Executive Council. In such event, the
accused member must have had due notice and an opportunity to
defend itself or himself.
II. STRUCTURE
The supreme authority of the Association is the
General Convention. Each year a convention is held at such
time and place as the Executive Council deems appropriate.
Special sessions may be called upon request in writing of
one-third of the membership of the Association, or three-
fourths of the members of the Executive Council. The Conven
tion is presided over by a President elected at the last
Convention. Delegates to the Convention are required to
vote in person and no delegate Is entitled to represent more
than one member bank.
When the General Convention is not in session, the
administrative work of the Association is conducted by Its
Executive Council which consists of twelve members who are
appointed by the President of the Association and of members
elected in each State on the basis of the Association's mem
bership in that State. The twelve members appointed by the
President have office for the term of one year, while the
members elected by the States serve for a period of three
9
years. The Executive Council elects a Manager and a Treasurer;
and it also exercises general supervision and control of the
employment and removal of other officers and clerks. Under
the control and direction of the Convention, the Executive
Council administers the resolutions of the Convention and
takes charge of the actual business of the Association. The
Council also has the power to create, amend and enforce the
By-laws of the Association. Should the Association have to
forego its Convention, as in the case of war or other emer
gency, the Executive Council undertakes to function for the
Association during such emergency. In such event, the Council
is empowered to nominate, elect and install a President for
the Association and to do all other acts authorized to be
done and performed by the General Convention. The Executive
Manager not only takes charge of the general business manage
ment, but also keeps close contact with the activities of
the Association and of all Commissions, Councils and Divisions.
Upon request, the Executive Manager furnishes any information
to members and to the General Convention. He also acts as
the chief budget officer of the Association.
Subject to the direction of the General Convention and
the Executive Council, the Administrative Committee is vested
with the power of managing the affairs of the Association,
the Convention and Executive Council meetings. ' The Adminis-
10
tratlve Committee is made up of seventeen members, comprising
(1) the three living and most recent past presidents, the .
president, the vice-president, and the Treasurer of the
Association; (2) the respective presidents of the National
Bank, Savings, State Bank, and Trust Divisions, the respec
tive Presidents of the American Institute of Banking; and
(3) elective members of the Executive Council from Federal
Reserve districts not represented on the Committee. The
function of the Administrative Committee is to execute all
other matters not performed by the Executive Council and to
supervise all Divisions and Commissions of the Association.
The Committee also has the power to employ or to suspend for
cause the subordinate officers.
III. ORGANIZATION
The main body of the Association is composed of the
following Divisions and Sections:
1. The National Bank Division. The National Bank
Division was organized in 1915, after the passage of the
Federal Reserve Act. The Division has two major functions.
In the first place, it seeks a solution to specific problems
and difficulties encountered by member banks in their daily
transactions; and on the second point, it endeavors to make
general reports and studies for its members. It is not only
11
watchful for ways to serve all national banks, but also to
protect their interests through its contact with the Govern
ment. In rendering general service to all the national
banks collectively, the works of the Division cover a wide
range of activities. The Division prepares, from time to
time, tables and statements of interest to all member banks,
as the need arises. Information furnished by the Division
comprises data on loans and discounts that will assist
national banks in determining their loan and discount poli
cies; analysis of investments showing the trend of securities
held by all national banks; Federal and State laws regulating
loan and investment policies for national banks; the movement
of banks out, and Into the Federal Reserve System; and other
innumerable matters pertaining to the operation of national
banks.
The administration of the Division is vested in a
President, a First Vice President of the Division and an
Executive Committee of twelve members. These members should
come from the twelve different Federal Reserve Districts.
Each State whose banks are members of the Division may elect
one representative as the Vice President of the Division.
Such Vice Presidents act as advisers to the Executive Committee
but are not entitled to vote. Each President and First Vice
President for a period of one year following the expiration
12
of their terms, are to be members ex officio of the Execu
tive Committee. Each year the Division holds its annual
meeting at the same time and at the same place of the General
Convention.
2. The State Bank Division. The State Bank Division
was established in 1916. With its members scattered in towns
and counties in every State, the Division assumes the tremen
dous task of working to promote the best interests and to
serve all the State banks in meeting their needs and strength
ening their positions. Since its establishment, the Divi
sion has kept abreast its work on the major objectives of
bringing about a greater degree of uniformity and consistency
in State bank legislation and bank operation. In view of
the disadvantages of branch banking, the Division has spared
no effort to defend the dual banking system and to combat
any measure that would take from States their rights to con
trol the banking business in State boundaries. The Division
has been successful in the establishment of a working rela
tionship among the banking departments of the various States.
It was through the endeavor of the Division that the competi
tive advantage of the postal savings system has been removed
to some extent. Other contributions of significance made by
the Division have been the analysis of checking account costs,
and the comparative operation ratio of resources and liabil
13
ities of State banks. The Division*s public policies hav©
exerted, a great influence upon the legislation of various
States. Upon the recommendation of the Division, State bank
commissioners have been given greater power over the issuance
or denial of charters for new banks and the liquidation of
insolvent banks. In many States, a banking board has been
established as an advisory body to the State bank commissioner.
Definite regulations governing the duties and responsibilities
of bank directors and officers have been created, and the
borrowing power of bank directors from their own bank has
been limited. With the abolition of double liability of
State bank stocks, legislation for a fair taxation of bank
shares has been enacted. With the cooperation of the General
Council of the Association, the Division plays an important
part in the enactment of the Uniform Bank Collection Code.
Furthermore, the Division has been working incessantly to
wean people away from unwise speculation.
The administration and organization of the State Bank
Division is quite similar to that of the National Bank
Division— the administrative power being vested in a Presi
dent, a First Vice President and an Executive Committee of
twelve members. Each State is entitled to elect to the
Division a Vice President to participate in the annual meet
ing of the Division without voting power. The President and
14
Vice President of the Division, for a period of one year
following the expiration of their terms, are to become ex
officio members of the Executive Committee of the Division.
3. The Savings Division. The Savings Division came
into existence in 1902. The primary purpose of this Division,
aside from the promotion of thrift, is to render its best
service to member banks in all phases of savings operations
in banking institutions. Each year the Division tindertakes
to make a study of savings deposited in all types of banks.
It has been the policy of the Division to point out to member
banks and the public, the trend of business and Industrial
activities which may affect investments and banking. The
Division also conducts studies and surveys of the operation
and competitive status of building and loan associations and
the Federal savings system. The tabular statement, a yearly
issue of the Division, contains comments as well as detailed
information about savings deposits and the number of deposi
tors in all the banking institutions of the United States.
This statement has proved to be so helpful and valuable that
it is reproduced by the United States Department of Gommerce
in its annual report. Performing as one part of the educa
tional program of the American Bankers Association, the
Division initiated the movement of school savings banking.
The annual report on school savings, published by the Division,
15
is the only report of its kind ever produced in the United
States•
With regard to the techniques in savings operations,
the Division has worked out for all banking institutions some
simplified and uniform methods for the computation of interest
on savings deposits. It also helped to develop the home
budget and personal money management programs.
The Division also studies the use and location of
time deposits in banks so as to secure the following informa
tion:
a. The relative volume of time deposits and demand
deposits in cities of different size and various types of
trade areas.
b. The difference between the turnover of savings
deposits in different trade areas and accounts of different
sizes; and the reasons for such differences.
c. The relationship between the interest paid on
savings deposits and earnings received by banks on appro
priate type of assets.
d. The extent to which savings deposits are used
to finance banking operations.
In addition to aiding interchange of bank information
among banks, the Savings Division is continuously inculcating
the doctrine of thrift among the people.
16
The organization of the Savings Division has a simi
larity to that of the National Bank Division. The President,
the Vice President, and the Executive Committee of the Divi
sion of twelve members, are in charge of the general affairs
in the administration of the Division. The President and
Vice President are to become members ex officio after their
office terminates. An annual meeting of the Division is held
when and where the General Convention takes place.
4. The Trust Division. The Trust Division is composed
of ten standing committees, which, functioning in a coordina
ted and constructive way, seek to help trust institutions in
obtaining new business and offering advice and suggestions
2
for the improvement of internal management. The Division
was more active in the prosperous years from 1920 to 1929
when National banks were so fervently interested in establish
ing trust departments. Under the sponsorship of the Division,
regional and nation-wide conferences were held, with the
purpose of providing opportunities for trust men to discuss
current problems in trust business. As a result of these
2
The Committees of the Division are designated as
follows: (1) Costs and charges, (2) Federal legislation, (3)
Fiduciary legislation, (4) Liability insurance for fiduciaries,
(5) Relations with the Bar, (6) Relations with life under
writers, (7) Taxation, (8) Trust education, (9) Trust informa
tion, and (10) Trust policies.
17
conferences, the Division published the book entitled A State
ment of Principles of Trust Institutions, - which serves as a
guide for those engaged in trust business and for general
information to the public. The principles of this statement
were accepted by the Government as the voluntary code of
trust institutions; and in June, 1936, It was Incorporated
into Regulation F, (Trust Powers of National Banks), and
was issued by the Board of Governors of the Federal Reserve
System.
With the successful development of trust departments
in the banking institutions in the early thirties, the Board
of Governors of the Federal Reserve System and the Comptroller
of the Currency began to show interest In this new banking
activity. In 1934, both the Board of Governors and the
Comptroller of the Currency gave the Division opportunities
for offering advice in regard to new trust department examina
tion procedures. The trust Indenture bill of the Securities
Exchange Commission was made workable through the cooperation
of the Division.3
Since its establishment in 1896, the Division has been
active in trying to maintain the friendly relationship between
trust institutions and lawyers; and to make uniform trust laws
3
American Institute of Banking: Bank Administration
(New York: American Institute of Banking, 1940), p. 503.
18
for all the States* The Division's publications are numer
ous , of which the American System of Trust Business is the
most popular one. Other publications are mostly used as
textbooks in the American Institute of Banking.
The Executive Committee of the Division consists of
fifteen members, who, in cooperation with the President and
Vice President of the Division, conduct the administrative
affairs within the Division. Like the other Divisions, the
Trust Division has advisors elected by each member State as
Vice Presidents. They participate in the annual meeting of
the Committees but are not empowered with the right of
voting. The Executive Committee of the Trust Division is
different from that of other divisions in its organization.
The Committee is divided into three classes of equal members,
designated as the First, Second and Third class. The First
class members hold a term of one year; the Second, two years;
and the Third, three years.
In addition to the above four Divisions, the American
Bankers Association also comprises within Its organization
the following two Sections;
1. The State Secretary Section. Organized in 1910,
and composed of the secretaries of State Bankers Associations,
it is the duty of this Section to form a link between the
State Bankers Association and the integral parts of the
19
American Bankers Association. It is also the work of the
Section to help its members in the adoption of the methods
and policies which have been approved at the general conven
tion of the Association.
In 1934 a nation-wide survey was made on the techniques
of the management of state bankers associations by this
Section; and the result of such a survey, together with other
bulletins and reports has been released by the Section.
Particular attention was given to such problems as state
legislation to regulate service charges, float, rate on per
sonal loans, usury laws, and other measures.
The Section is under the direction of a President, two
Vice Presidents, a Secretary, a Board of five members, and
Committees on Investment portfolios, state bankers associa
tion management, and state legislation.
2. The American Institute of Banking. The Institute
was formed in 1900 and was organized as a section of the Asso
ciation in 1908. With its position parallel to the State
Secretary Section, the Institute constitutes a major part of
the Association. While the status of the Institute should
thus be first pointed out, details concerning its organiza
tion and function are presented in a later chapter. The
creation of the Institute was one of the major policies of
the Association.
20
The four Divisions and two Sections, as stated above,
form the permanent constituent parts of the American Bankers
Association, However, the President of the Association,
according to the By-laws, may appoint annually from the mem
bership the personnel of the Commissions listed below for
specific duties. Members of the Commissions thus appointed
serve until the expiration of the terms for which they are
respectively appointed, and are transferable from one com
mission to another at the discretion of the President upon
the approval of the Administrative Committee of the Associa
tion,
1, The Agricultural Commission. For the purpose of
promoting bank services to farmers, the Agricultural Com
mission was organized. Consisting of representative bankers
from each Federal Reserve district, the Commission has as
its first aim made persistent efforts to arouse the country
bankers to a sense of their duties and responsibilities to
the agriculture of the nation. Various meetings conducted
by the Commission have been held between bankers and farmers
who are thus enabled to understand the services of a bank;
and better relationships are thus established among them.
Members of the Commission are chosen to attend the agricultur
al committees of the State Bankers Association; and in co
operation with the State committees, programs and outlines of
21
activities are worked out. Usually, the Director of the
Commission appears at the State conventions.
The Commission has several publications, among which
the most recommendable are: ’ ’ Factors Affecting the Farm
Credit,” "Protecting Investment Value in Land,” and ’ ’ Crops
for Safe Farming.” All these booklets are distributed by
the State banks to their farmer patrons.
2. The Bank Management Commission. As provided in
Section 5 of the By-laws of the Association, the duties of
the Bank Management Commission are "the study and prepara
tion of material having to do with problems of practical
bank management, operation, and interbank relationship which
may be of interest and advantage to the members of the Asso-
4
ciation.” The outstanding activities of the Commission
have been the promotion and organization of city and regional
clearing house associations, standardization of bank state
ment forms and operating materials such as checks, drafts
and other instruments of a similar nature. The Commission
has also published a number of booklets on different subjects
and techniques in bank management, and all of them have been
regarded as guide books for banks and bankers. Of all its
4
Ibid., p. 511.
22
publications, the book entitled Statement of Principles of
Commercial Banking is probably the most recommendable one
in the field of commercial bank management. Equally valuable
is the Statement of Principles and Standards of Investment
for Commercial Banks, which deals with the policies of sound
bank investment and problems of analyzing bank investments.
The Commission al3o carries on extensive correspondence with
banks and bankers throughout the country in discussing and
answering various management problems which arise in bank
operations.
The Commission is composed of sixteen members; nine
of them are appointed by the President of the Association,
and the other seven members are the Vice Presidents of the
four Divisions and two Sections (who serve ex officio), and
the last living ex chairman of the Commission.
The Economic Policy Commission. Composed of
twelve members, appointed by the President of the Associa
tion, this Commission gives consideration to questions in
volving money and currency, public finance, the economic
policy of the Government and other matters of economic
importance to banking. According to the By-laws of the Asso
ciation, the Commission is an advisory body to other bodies
or officials of the whole institution.
The Economic Policy Commission usually makes indepen-
23
dent Investigation into all matters concerning the economics
of banking. Its recommendations and findings are reported
to the Administrative Committee, the Executive Council or
the General Convention. With its office at Washington, D.C.,
the Commission operates full-time under the direction of
its secretary.
The Commission has made an intensive study of the
problem of group and chain banking and the guaranty of
deposits. Other activities consist of discussion on probable
duration of low interest rates, the banking situation after
each economic panic and surveys on current banking condi
tions. Among the recent studies of the Commission have been
researches on governmental relationship of central banks
throughout the world, and a survey and analysis of the capital
markets of the United States. The Commission also takes upon
itself the duty of presenting twice a year an analysis of
current business trends, particular reference being made to
the effect of Government policies on banking. Other studies
of the Commission include such subjects as the Federal
Reserve System, the question of chartering member banks, the
problem of instalment finance and other credit policies.
4. The Commerce and Marine Commission. The function
of this Commission is manifold. Its major objectives, how
ever, have been the study on development of United States
24
foreign trade, the encouragement of home production and
other financial and governmental activities that tend to
affect materially business in general. In addition, the
Commission makes intensive research studies pertaining to
transportation, international commerce and finance, trade
barriers, brokers’ loans, corporate security issues, indus
trial recovery and taxation.
The Commission is composed of fifteen members, five
of whom serve a term of three years; another five, two years
and the remainder, one year. The chairman of the Commission
is appointed by the President of the Association from among
its members.
The By-laws of the Association provide for six perman
ent committees, serving as auxiliaries to the Executive
Council. They are:
1. The Finance Committee. Its six members are chosen
from the Executive Council. With the Vice President of the
Association as Its chairman, the Committee prepares audits
of the Association’s book for the fiscal year and approves
all the items in the budget. An estimate of the revenue and
expense for each unit within the organization of the Associa
tion is prepared and presented by the Committee at each
annual meeting of the Executive Council.
2. The Committee on Federal Legislation. Members
25
of the Committee are appointed by the President of the Asso
ciation from the membership of the Executive Council, The
chairman of the Committee is an _ex officio member. It is
the function of this Committee to take charge of the considera
tion of the Federal statutes that affect the rights, powers
and privileges of the members of the Association, The By
laws stipulate that "as occasion may rise, the Committee on
Federal Legislation may recommend to the Executive Council,
the Administrative Committee or the General Convention
drafts of proposed statutes for their approval and shall
urge the enactment by Congress of approved drafts,.,,H The
Committee is, therefore, to protect the legal rights of the
members of the Association in Federal legislation,
3* The Federal Legislative Council. The Council has
a larger membership whieh is composed of the following mem
bers :
a. Members of the Committee on Federal Legislation.
b. One member from each State other than those re
presented in the Committee on Federal Legislation.
c. Presidents and Vice Presidents of the four Divi
sions and two Sections of the Association,
5
Article IV of the By-laws of the American Bankers
Association.
26
d. The Vice Presidents of the Association and of
the Trust, Savings, National Bank and State Bank Division
in each State.
The Chairman of the Federal Legislation Gouncil is
also the Chairman of the Committee on Federal Legislation.
The Council acts as the auxiliary of the Committee on Federal
Legislation and is subject to the direction and guidance of
the Committee. In other words, the Council is to assist the
Committee, and also takes action in favor of, or in opposi
tion to, national legislation on subjects directed by the
Committee on Federal Legislation.
4. Committee on State Legislation. The twelve mem
bers of the Committee on State Legislation are appointed by
the President of the Association, subject to the affirmation
of the Executive Council or the General Convention. The
Chairman of this Committee, after the termination of his term,
becomes an ex officio member. Similar to the duties of the
members of the Committee on Federal Legislation, the members
of the Committee on State Legislation take charge of the
consideration of matters affecting the rights and privileges
of the members of the Association. It may also make recommen
dations to the Executive Council or the General Convention
for drafts of proposed statutes and urge the enactment of such
statutes through state legislation. The Committee also exe-
27
cutes the resolutions upon matters concerning state legisla
tion or state legislative policy adopted by the Executive
Council, the Administrative Committee and the General Con
vention.
5. State Legislative Council. The organization of
the State Legislative Council is quite similar to that of the
Federal Legislative Council. The membership of the Council
is composed of all the members of the Committee on State
Legislation; one member of the Executive Council or one mem
ber appointed by the President, from each state; the Presi
dents and First Vice Presidents of the Divisions and sections;
and Vice President of the Association, and of the Trust,
Savings, National Banks and State Banks divisions in each
state. The Chairman of the State Legislative Council is also
the chairman of the Committee on State Legislation.
The function of the State Legislative Council is to
assist the Gommittee on State Legislation in the execution of
the letter’s resolution and to perform other duties as the
latter or the Executive Council or the General Convention may
impose upon it.
Tk® Organization Committee. This Committee is
charged with the task of extending membership of the Asso
ciation. It also gives the first consideration to complaints
28
against any member of the Association and makes recommenda
tions accordingly, before the case is sent to the Executive
Council of the Association.’ Rules for the presentation and
hearings of charges are also made by the Committee.
In addition to the six permanent committees, as stated
above, there are two other Councils which operate under the
direction of the Executive Council of the Association. Al
though they are regarded as possessing the same status as
the six permanent committees, nevertheless, they perform a
far more important function in the promotion of the public
policies of the Association. These two Councils are:
Public Relations Council. It goes without
saying that as quasi-publlc institutions, banks rely greatly
upon a sound public relations policy for the success of their
business. In view of the important bearing of public rela
tions upon banks, the Association established this Council,
the function of which is to conduct a nation-wide publicity
campaign for educating the people in making greater and more
intelligent use of banks. It also advises member banks
relative to the establishment and promotion of better public
relations programs.
The eleven members of the Public Relations Council are
appointed by the President of the Association from the member
ship of the Executive Council, or from the general membership
29
of the Association. Within the Council, a committee of
three members is set up to take charge of matters in respect
to public education. One member of the committee is the
chairman of the Public Relations Committee in the American
Institute of Banking. Each member of the Council serves a
term of one year but may be re-appointed by jthe President
of the American Bankers Association.
2. The Insurance and Protection Committee. Another
feature In the organization of the American Bankers Asso
ciation Is the provision for bank Insurance and protection.
The Insurance and Protection Committee undertakes the duty
of providing means of preventing and suppressing criminal
operations against banks. The work of the Committee has
been so successful that in its record of fifty-five years of
operation, bank crimes have been materially reduced. This
is shown In the fact that non-member banks of the Associa
tion have been subject to many more criminal operations than
member banks. The Committee also assists the constituted
authorities in the extraction and prosecution of bank
criminals when such help is needed. The Committee fs monthly
publication, HThe Protective Bulletin,t ! is duly published
and sent to every member bank and to some of the selected
arresting officers. In the Bulletin are found many articles
30
on th© discussion of crime prevention and information re
garding the latest and most effective methods and machinery.
The Committee also promotes the interests of member banks in
their relation with insurance underwriters, the use of proper
forms of fidelity and blanket bond and other insurance con
tracts . The Committee also furnishes the members, to the
best of its ability, with services and information with
respect to insurance and protection. The By-laws provide
that the Committee be empowered to control the Association’s
activities pertaining to the identification, arrest and pro
secution of any person attempting to cause loss by crime to
any member of the Association. The eleven members of the
Committee are appointed by the President of the Association
at the close of each Convention. Other details and character
istics of the Committee will be discussed in a later chapter
of the present treatment.
ORGANIZATION OP THE AMERICAN BANKERS ASSOCIATION
ADMINISTRATIVE COMMITTEE
National
Bank
Division
State
Association
Secretary
Savings
Division
Finance
Chapters
Journal
Banking
Trust
Division
GENERAL CONVENTION
EXECUTIVE COUNCIL
State Bank
Division
Corres
pondence
Course
Graduate
School of
Banking
Public
Relations
Council
Bank
Managers
Commission
Committee
on State
Legislation
Federal
Legislation
Council
Economic Policy
Commission
Commerce &
Marine Com'
mission
Committee
on Federal
Legislation
Insurance &
Protection
Council
American Institute
of Banking
State
Legisla
tion Council
Committee
on Orgau
ization
PART II
FUNCTIONS AND MAJOR POLICIES
OF THE
AMERICAN BANKERS ASSOCIATION
CHAPTER III
BANK MANAGEMENT AND OPERATIONS
The foregoing chapters having outlined the present
structure and organization of the American Bankers Associa
tion, it is now our purpose to generalize the inceptions
which the Association has brought into the various aspects
of the American banking system. As a matter of fact, since
its organization the American Bankers Association has made
substantial contributions to the whole economy of this
country. It being infeasible to cover all of its activities
within the limited scope of our present treatment, our study
has been made only of those issues which are comparatively
important in American banking.
Of all the major policies of the Association, the fore
most one has been in the field of bank management and opera
tions. The National Bank Division and the State Bank Divi
sion have made efforts to achieve the common goal of pro
viding a more uniform and efficient system in bank manage
ment. Their efforts were especially fruitful in the early
nineteen thirites, when so many banks were forced to close
their doors. In response to the needs arising out of bank
ing developments In 1929, the American Bankers Association
conducted several regional bank management conferences, as a
34
result of this the Bank Management Commission was established*
At these regional conferences helpful and practical programs
were worked out to assist in the solution of the problems of
bank management and administration, especially those of
country banks. The causes of bank failures, as determined by
information obtained from the State Banking Departments of the
forty-eight States, were found to be attributable as follows:
incompetent management, 30 per cent; local real estate and
agricultural conditions, 28 per cent; dishonest officials,
3 per cent; hysteria, 13 per cent; and shrinkage of potential
market for bank service, 26 per cent.'*' In view of these
causes, special studies were made by the Association of the
problems such as loan administration policies, the diversifi
cation of loans, the adequate precentage of primary and
secondary reserves and other relative measures. The Bank
Management Commission endeavored to illustrate to the members
how to maintain a bank*s assets in a sufficiently liquid
manner in order to meet the legitimate demands of its cus
tomers under all business conditions. Other studies were
also made of the problems of a simplified system of account
analysis and service charges. A survey of bank operating
ratios was also made on the basis of the size and geographi-
1 American Bankers Association: Reports of the 57th
Convention (New York: American Bankers Association, 1931),
p. 58.
35
cal sections of the member banks, which set forth a scale
for bankers to measure the operating expenses of their
institutions. The Commission also conducted a systematic
campaign for the enlargement and extension of all clearing
house facilitiesincluding credit bureaus, clearing house
examinations, methods of computing interest, and uniformity
of rules and regulations. The Commission has been active
in stimulating the nation-wide adoption of a standard size
for checks, drafts and other similar instruments. The
standardization of form and size of checks has resulted not
only in an immense saving of time, but of check manufacturing
costs to banks. Other activities of the Commission included
the fostering of the Uniform Warehouse Receipts Act, the
standard form of financial statements for banks and contrac
tors; and the promotion of closer interbank relationships
by voluminous correspondence with thousands of bankers.
In line with all these activities, the Association
also published a number of booklets and pamphlets dealing
with the practical procedures in bank management and opera
tions. Among the outstanding publications, the following
booklets are of practical value to American bankers:
Survey of Bank Operation Ratios
Loan Administration Policies
Profit and Loss Operations
36
Secondary Reserve and Security Buying
Uprofitable Practices and the Remedy
Does the Account Pay?
Duties and Qualifications of Executive Officers
Credit Department Organization for both Large
and Small Banks
Man Power in Banking Institutions
Practical Bank Analysis and Installation of
Measured Device Charge
Regional Clearinghouse Associations
City Clearinghouse Associations
Bank Management by Budget and Accrual
Investment Policies of Banks.
Prom time to time, the American Bankers Association
has endeavored to throw Its entire strength into the task of
bringing about a measure of better bank administration
throughout the whole country.
In addition to the publications mentioned above, the
Association is conducting a nation-wide clearinghouse opera
tion. Originally organized by city banks for the sole pur
pose of facilitating the exchange of checks, the clearing
house has expanded into an association for the clearance of
banking ideas and the mutual solution of practical problems
of bank operation. To comply with the objectives of a
clearinghouse, each bank is obliged to conform to certain
37
regulations as to the time and manner of making exchanges
and settlements. Rules have been established governing the
handling of checks, such as the return of unpaid checks,
guarantee of endorsement and correction of errors, etc* For
the settlement of possible disputes, officers are chosen
whose decision the members agree to accept. The clearing
house thus becomes the channel through which the united
efforts of banks in a city find expression.
Another phase of the outstanding work of the Associa
tion in the field of bank management and operation has been
the attempt to attack high operating costs.
A further recent achievement of the Association in
bank management has been the use of check routing symbols.
Cooperating with the Federal Reserve authorities, the
American Bankers Association worked out a system of routing
checks, the purpose of which is to simplify their handling.
By means of this system, the handling of checks has been
sped up; with a good deal of time saved in the presentation
and payment, or the return of unpaid checks in the process
of collection through the Federal Reserve System.
The American Bankers Association has always conducted
its research in bank management and operations in conformity
with the changes in the economy of this country. At the
beginning of the nineteen thirties, banks were not interested
38
in lending small sums to individuals, and in the larger cities
checking accounts were available only to those customers who
could maintain large balances. This condition, however,
changed in the early part of the nineteen forties when banks
began to be more active in making loans to consumers, also
personal loans, and financing instalments for automobiles,
household appliances, etc. Bankers also found it profitable
to render such services as no-minimum-balance-checking
accounts, money order, and remittance checks. Instead of
waiting for business to come to them, bankers have been
actively going after their business and have been ’ ’ merchan
dizingf f their operations in recent years. They have come
to realize fully that the conducting of customers relations
programs designed for the promotion of a better understand
ing between customers and themselves are matters of prime
importance.
Up to 1947 the American Bankers Association’s efforts
in bank management include the following:
1. To work out a simplified procedure for the com
putation of Federal Deposit Insurance assessments, that Is,
to find out a method by which all figures to be used in
the calculation can be readily secured from the general
ledger, and to reduce the task of computing the float.
2. To design a postal money order payable at any
39
post office outside of Federal Reserve cities. The new
postal notes may be handled through banks without collection
problems in their handling.
3. To revise a cost account manual and to compile
helpful operating procedures, short-cuts and suggestions to
be sent to member banks.
It has been a significant fact that the American
Bankers Association has in many ways aided its member banks
In the operation and maintenance of savings and trust depart
ments. In its incessant effort to arouse member banks’
interest in the trust business by means of problem discussion
and explanation of practices, National banks have been en
abled to conduct their business satisfactorily and profit
ably. It has been a function of the Savings Bank Division
of the Association to collect, compile, and distribute in
formation of past experience and to advance the most impor
tant items by developing standard methods for member banks.
The Division has been more successful in promoting indus
trial savings, as is shown by various facilities existing
between industrial employees and the savings banker. In a
social sense, the industrial savings banking methods are
valuable in stabilizing labor turnover. The Division has
also been careful in watching the sale of fraudulent securi
ties to small investors. Particular studies have been made
40
of the investing of savings. The Division made great contri
butions in the early nineteen thirites when bond prices
greatly dropped. The Division has sought to give aid both
in supplying counsel to many banks and also to individual
investors. Under the Banking Act of 1933, the Federal
Reserve Board classified savings deposits as 1 1 funds accumula
ted for bona fide thrift purposes,” and the exceedingly large
savings deposits in member banks were classified as demand
deposits. Accordingly, the American Bankers Association
made studies of this classification with a view to enabling
member banks to determine the nature of the funds offered to
them. The Banking Act of 1933 Is lauded by member banks in
its merit of preventing Interest on demand deposits.
The American Bankers Association also guides its mem
ber banks in handling real estate mortgages. The problems
of standardization of costs and time in the placing of mort
gages and foreclosures have received the special attention
of the Association. Its effort in this field has served to
integrate savings and mortgage financing Into a sound mort
gage structure in this country. The encouragement of savings
deposits by the American Bankers Association had a substan
tial bearing in winning World War II. On the one hand, the
promotion of thrift greatly strengthened the control over
the inflationary trend; and, on the other, it supplemented
41
the program of the United States Treasury in selling the
War Bonds.
The investigation made by the American Bankers Asso
ciation in 1947 indicated that a million and a half pupils
in 3500 schools had carried savings accounts with thirty-
three banks, the amount of the savings totaling about forty
2
million dollars. A survey made in 1947 shows that 77 per
cent of the banks in the United States accept savings de
posits. Prom the viewpoint of the bankers, savings accounts
are a good source of earning. It is profitable, because:
(1) a savings account is usually not subject to constant
withdrawal as is true of demand accounts; (2) the reserve
requirement of 6 per cent for savings deposits is less than
that for demand deposits; and (3) insurance protection from
the Federal Deposit Insurance Corporation includes also
savings deposits.
Another phase of activity so successfully conducted by
the American Bankers Association as regards the operation
and management of commercial banks has been the service it
has rendered to trust companies and trust departments In
national banks. The great augmentation of personal and
corporate income In the United States, as evidenced in the
2
American Bankers Association: Present Day Banking,
1947-1948 (New York: American Bankers Association, 1947),
p. 171.
42
increase of money paid by the insurance companies, has made
possible the.flourishing business of trust companies and
trust departments of commercial banks. At an early stage in
the development of the trust business, bankers encountered
the problem of determining proper service charges. Pear
existed in the minds of the general public that the naming
of a trust company to administer an estate was a more ex
pensive method than the appointment of an individual. It
became the responsibility of the American Bankers Associa
tion to make known to the public the benefits to be derived
from a corporate fiduciary agent and to work out uniform
service charges suitable for all trust -institutions through
out the country. The standardization of service charges not
only strengthened the good will of the public toward trust
companies and banks, but also discouraged the practice of
‘ ’shopping for trust service.” It has been the deliberate
opinion of the American Bankers Association that, before
opening a trust department, a bank must give serious considera
tion as to their liabilities and exacting responsibilities.
Indeed, fiduciary service can never be successfully rendered
as a sideline. Unless properly staffed with a trained
personnel and a tested system, a bank should not offer its
service in the trust field.
Through various regional conferences and the publica-
43
tion of trust literature, the American Bankers Association
has assisted trust companies and banks in developing efficient
trust administration methods and sound institutional poli
cies. In 1933, the American Bankers Association prepared a
“Statement of Principles of Trust Institutions.1 1 This sets
forth the functions of trust institutions, the acceptance
of trust business administration and the operation of,the
trust department. Due to its great value, this statement
became Regulation F. (1936) of the Board of Governors of
the Federal Reserve System. The chief aim of the Regulation
is to enable all trust institutions throughout the country
to ascertain whether their procedures are in conformity with
the Statement. Since the establishment of a special staff
of examiners in each Reserve Bank to examine trust depart
ments of state-chartered members of the Federal Reserve
System has been provided, more uniformity has been added
to the operation of trust institutions. In addition, the
Federal Deposit Insurance Corporation and the Reconstruc
tion Finance Corporation include trust departments in their
supervisory activities. The American Bankers. Association
has sought to establish proper relations between trust
institutions and attorneys, the American Bar Association,
and life underwriters.
During World War II, the trust activities of the
44
American Bank Association were directed toward help to the
men and women in the Armed Forces, and to their families and
to civilians engaged in war production. In the Trust Divi
sion of the Association, a Veteran Affairs Committee was
appointed which made a wide study covering the desirability
of accepting appointments on behalf of veterans. According
to the statistics made by the American Bank Association,
during 1947 the American trust institutions handled more
business than in any previous year. Trust institutions have
been increasing in number and their assets also show a
steady rise. The growing demand for trust services has been
partly due to the rise in the number of individuals accumu
lating modest-sized estates, and partly due to the complex
investment problems of the average person. Trust advices
are sought not only by the wealthy, as was the case in pre
war years, but also by small manufacturers, wholesale and
retail executives, and other professional men. All these
developments show the trend that people are seeking to pre
serve their accumulated earnings as a financial security for
continuing benefits for their families. In 1947, a total of
1504 national banks were doing trust business. The
Comptroller of the Currency also disclosed that as of Decem-
3 Ibid., p. 192.
45
bar 31, 1945, 153,833 Individual trusts, with assets aggre
gating $15,764,829,270, were administered by 1504 national
4
banks. The 1945 figure indicated a 10 per cent increase
over the year 1941 In number of trusts administered, and a
rise of 64 per cent in the volume of trusts' assets under
g
administration. Gross earnings of the trusts department
of national banks in 1945 were $40,761,000, as compared
with $37,390,000 in 1944 and $32,810,000 In 1941, or an
increase of 24 per cent from 1941 to 1945. The Trust Divi
sion of the American Bankers Association also reveals that
trust investments by national banks In 1941, 1944, and 1945
were diversified as follows:
1945 1944 1941
(Dec. 30)
Per cent Per cent Per cent
Bonds 67.18 64.47 69.43
Stocks 23.46 25 .25 32.45
Real Estate Mortgage 2.80 3.29 6.56
Real Estate 3.86 4.21 7.24
Miscellaneous 2.70 2.78 4.23
100.00 100.00 100.00
4 Ibid., p. 196.
5 Loc. cit.
46
The Trust Division of the American Bankers Associa
tion is now working with strenuous efforts on matters per
taining to the operation of trust departments such as forms
and procedures for interest audit and checking performance,
agenda and minutes for investment reviews of trust acts,
suggestions for the preservation and destruction of trust
records, and the use of common trust funds to small trust
institutions, etc.
CHAPTER IV
UNIT VERSUS BRANCH BANKING
The most controversial issue discussed in the Con
ventions of the American Bankers Association has been that
of. unit and branch banking. In presenting the bankers*
viewpoint pertaining to this problem, mention must first be
made of the McPadden Act of 1927 which is probably the most
important revision of the national banking law since the
passage of the Federal Reserve Act.
The most drastic modification provided by this Act is
the removal of some of the handicaps under which National
banks have been competing with State banks. Before the
enactment of the Act, the number of National banks was less
than half that of the State commercial banks, and their
position was, therefore, weaker than that of the latter. The
Act equalizes the powers of National banks and State banks in
the matter of branch banking. The aim of this Act, however,
is not to encourage branch banking, but rather to permit
National banks to dnjoy the same rights as State, banks in
branch banking. While the law thus placed National banks on
the same legal status as State banks, in no case could a
National bank operate branches outside of the city in which
48
the parent bank is located. (However, under the provisions
of the Banking Act of June 16, 1933, state-wide branch
banking by National banks is permitted in those states which
permit State banks to have branches throughout the State.
Originally, the McPadden Bill was accompanied by the
Hull Amendments which confined home city branch banking by
National banks to those states that authorized their State
banks to have branches at the time of the approval of the
Bill. The National Bank Division of the American Bankers
Association recommended that Congress enact the Bill into
law, with the following restrictions:
1. National banks in any State were allowed to
establish branches only within the corporate limits of the
municipality in which the bank was located.
2. In States where the State banks were not allowed
to have branches, the National banks would also be devoid of
rights of establishing home city branches.
3. AftSr the enactment of the Bill, a State bank
which established branches beyond the corporate limits of
the municipality, should not be allowed to enter or retain
its membership in the Federal Reserve System.
1 Roy L. Garis, Money, Credit and Banking (New York:
The Macmillan Company, 1934), p. 624.
49
4. When a State bank converted or consolidated into
a National bank, or when several National banks consolidated,
their branches should not be allowed to retain their exis
tences .
Concerning this resolution of the National Bank Divi
sion, there arose in the 1927 Convention of the American
Bankers Association, at Los Angeles, a heated debate as to
whether or not the Hull Amendments should be retained. Those
in favor of the Amendments argued that unless they were
passed, a foot-hold would be left for branch banking in those
states where branches were not permitted to exist. Others,
who opposed the Amendments, contended that the McFadden Bill
without the Hull Amendments would prevent the spread of
branch banking. The debate was followed by a vote, with a
majority for the resolution without the Hull Amendments.
The American Bankers Association, therefore, stood to sup
port the enactment of the McFadden Bill without the Hull
Amendments •
The McFadden Act covers three meain points:
1. Indeterminate Federal Reserve Bank and National
bank charters.
2. The placing of National banks on an equal footing
with the State banks.
3. Permitting National banks to have branches In
cities of 25,000 people and over in States where only the
50
State banks were allowed to have branches, and at the same
time placed a strict limit on the future establishment in
the Federal Reserve System of branches outside of the home
city.
The problem of group and chain banking again received
discussion in the 56th Convention of the American Bankers
Association in 1930. As a result, a resolution was reached
that unit banking was a typical American system as contras
ted with the banking systems of other countries. It was
believed by members of the American Bankers Association that
unit banking was not only adaptable to a diversified commun
ity life in the United States, but also was a protection
against the risk of banking power concentration and monopoly.
Meanwhile, It was declared by the Association that it fully
supported the autonomy of the laws of each State with regard
to banking practice. In the establishment of branch banks,
no other classes of banks should enjoy greater rights than
those banks chartered by individual State authorities.
After another heated debate at the Boston Convention
in 1937, the position of the Association was strengthened
with regard to the dual system of banking. It was made clear
that the Association was opposed to any proposal or device
looking toward the establishment of branch banking privileges
across State boundaries, directly or indirectly. In the
51
1938 Convention at Houston, the Association reaffirmed the
same position. The bankers contended that only by adopting
a dual banking system could communities be built up rapidly,
because such a system has always encouraged individual
initiative, skill and resources which are the primary factors
contributing to the growth and prosperity of the dynamic
capitalistic economy of this country.
In 1931 and 1932 Conventions respectively the Asso
ciation passed the following resolution:
"Resolved, by the American Bankers Association, that
we view with alarm in the establishment of branch banking
in the United States and the attempt to permit and legalize
branch banking; that we hereby express our disapproval of
and opposition to branch banking in any form by State or
National banks In our nation...."
"Resolved, that we regard branch banking, or the
establishment of additional offices by banks, as detrimental
to.the best interests of the people of the United States.
Branch banking is contrary to public policy, violates the
best principles of our government and concentrates the credits
of the nation and the power of money in the hands of a few."^
g
American Bankers Association: The Answers of the
American Bankers Association (New York: American Bankers
Association, 1941), p. 94.
CHAPTER V
COOPERATION WITH FEDERAL AND STATE LEGISLATION
It has been the traditional policy of the American
Bankers Association to seek close cooperation with Federal
and State authorities in legislating laws affecting banking.
The Committee on Federal Legislation and the Federal Legisla
tive Council of the Association, as we have seen in the
previous chapters, have been playing an active role in con
nection with important subjects, and have as occasion re
quired made personal appeals to members of the various com
mittees in Congress* It has been a common practice of the
officers of the General Counsel of the Association to pre
pare, at the close of each Congress, for the Committee on
Federal Legislation and for all members a summary of the
legislation affecting banking which has just been passed dur
ing that Congress. The office of the General Counsel of the
American Bankers Association in Washington has undertaken
the task of looking into legislation on banking. The Washing
ton legal staff of the Association daily examines and ana-
lizes new bills introduced in Congress, the rulings of the
Comptroller of the Currency, the Treasury Department and
other relative bureaus. The office of the General Counsel
53
is asked frequently to keep in touch with the individual
problems of banks pending before the various Government
agencies. The office has been in reality a clearinghouse
for information on Federal legislation and rulings. This
phase of the office’s work is so arranged that the Committees
of the Association are kept informed at all times on every
bill introduced which has even the slightest application to
banking. Current reports on developments in Washington are
also sent to the secretary of the Association as often as
important legislative or administrative action occurs.
Bulletins in summary form on Federal legislation are, from
time to time, distributed to the entire membership of the
Association. The office of the General Counsel has often
been called upon to interpret provisions of the National
Banking Act, the Federal Reserve Act, the Federal Deposit
Insurance Law and many other Federal statutes for the bene
fit of the members.
Although the scope of the present treatise is limited
to the major issues of the Association after 1920, it is
deemed desirable, in the discussion relating to legislation,
to trace back a little further to the time when the Federal
Reserve Act was enacted into law.
It is true that the American Bankers Association made
no direct efforts in the enactment of the Federal Reserve
54
Act* Its attitude toward the Federal Reserve System, how
ever, has been cooperative and one of vindication. In many
ways, the Association has induced its members to join the
System. Most members of the Association recognize that the
System not only provides a more elastic currency, useful in
times of monetary panic and indispensable in times of war,
but it also performs the function of a central banking insti
tution in the mobilization of bank funds and in the direction
of bank credit policy. There were only two notable occasions
in which the Association disapproved the policy of the
System. The first instance which received the disapproval
of the Association was the intention of the Board of Gover
nors of the Federal Reserve System to establish two Federal
Reserve Banks In Cuba. The Association declared that such
a measure would take the risk to which central banks exposed
themselves by venturing across the national boundary. The
establishment of Reserve banks abroad would also involve legal
and political complications. This opposition justified the
keeping of the Reserve banks at home.
The second instance to which the American Bankers Asso
ciation was opposed was the means by which members of the
Board of Governors of the Federal Reserve System are nomina
ted. The Association was of the opinion that the Board had
been charged with an extraordinary responsibility. The
55
appointment of the members of the Board by the President,
the Association argued, might well involve the System in
politics. Also, the members thus appointed might not be
bankers by profession and training. Furthermore, the Asso
ciation suggested that the Board should be permitted to elect
its own Chairman and Vice-chairman, instead of promoting or
demoting individual members according to the President’s
preference. Again, the major function of the Comptroller
of the Currency should be transferred to the Board so that
a simplified and uniform system of examinations might be
obtained.
In view of the fact that some State banks were hesi
tant in joining the Federal Reserve System, the Association
in 1925 made a survey of the attitude of the State banks
toward the System, i.e., to find out the causes that deterred
them from becoming member banks. The survey was made through
the medium of a questionnaire. This proved to be a very
valuable document and it received very favorable comments,
both from members and officials of the Reserve Banks. In the
same year, the State Bank Division of the American Bankers
Association also held a conference with the Governors of the
Federal Reserve System with a view to determining how a
better understanding might be brought about between the State
banks and the System. The Board of Governors expressed its
56
gratification at the good results obtained from this source,
particularly in the free and candid expression by State
banks of criticism of the System, which afforded opportunity
for the correction of misapprehensions and misunderstandings.
The Association advocated the perpetuation and per
manent existence of the Federal Reserve System in the United
States banking structure. At the Golden Anniversary Conven
tion of the Association, held at Atlantic City, New York, in
1925, a resolution was passed to the effect that the twelve
Reserve Banks should be rechartered indeterminately, and
only to be terminated by the action of Congress, rather than
only for twenty years as originally provided for by the
Federal Reserve Act. Members of the Association contended
that the extension of the charters of the Reserve Banks would
eliminate the doubts and uncertainties of the bankers through
out the country. It was the unanimous opinion of the mem
bers of the Association that the Federal Reserve System
renders an invaluable service for the development of a sound
American banking policy.
Another highlight of the American Bankers Association
in the field of law-making has been its efforts to secure
the passage of the Negotiable Instrument Act of 1896. Be
fore this uniform law was drafted, the provisions in the
law of negotiable instruments varied in the different States;
57
and sometimes they were found to even be contradictory to
each other. With the joint efforts of the American Bar
Association, the American Bankers Association recommended
the Act which provides a uniform law governing negotiability.
This uniform law serves as a yardstick of fundamental impor
tance to the credit structure, in that many controversies
have been avoided and complicated problems solved. More
over, frauds, which have not infrequently occurred in
banking transactions, have been thus prevented to a great
extent. The negotiable instrument law thus suggested by
the American Bankers Association covers bills, notes, checks,
and all negotiable instruments. While the negotiable instru
ment law is the independent statutory enactment of each State
where enacted, its rules are the same in all States. The
Act provides for the needed uniform standard so that the
banker who purchases papers coming from any other State may
know what he is acquiring. The Act governs the matter of
consideration, the liabilities of endorsers, the rights of
the holders, the presentment for payment and proceedings
upon dishonor.
The passage of the Uniform Warehouse Receipt Act of
1906 was attributable to’the efforts of the American Bankers
Association. The Act, for the purpose of making warehouse
receipts fully negotiable, requires that goods and chattels
58
must be deposited as a lien to negotiable warehouse receipts.
The Uniform Bills of Lading Act of 1909 was fostered
by the American Bankers Association. The Act makes order
bills of lading fully negotiable. It provides uniformity in
conflicting laws in the various States relating to bills of
lading; and legalizes in statutory form certain customs
which have grown out of the enormous. commercial and finan
cial dealings with order bills of lading as instruments of
credit.
A number of other State banking laws of importance
came into existence upon the recommendation of the American
Bankers Association. These laws were adopted in a large
measure by most of the States. While an enumeration of
these laws is desirable here, limitation of space permits
no detailed description of each one of them. Chief among
these banking laws suggested by the American Bankers Asso
ciation are:'1 '
1. Uniform Sales Act (1906), passed in 35 States.
2. Slander and Libel of Bank Act (1907), passed
in 41 States.
3. Competency of Bank and Corporation Notaries
Act (1908), passed in 27 States.
American Bankers Association: Present Day Banking
1947-1948 (New York: American Bankers Association, 1948),
p. 237.
59
4. False Statements for Credit Act (1909), passed
in 40 States.
5. Uniform Stock Transfer Act (1909), passed in
39 States.
6. Deposits in Trust Act (1910) passed in 37
States.
7. Payment of Forged or Raised Check Act (1910),
passed in 37 States.
8. Burglary with Explosive Act (1913), passed in
37 States.
9. Non-payment of Check Through Error Act (1914),
passed in 23 States.
10. Deposits in Two Names Act (1915), passed in
44 States.
11. Forwarding Check Direct to Payor Act (1916),
passed in 35 States.
12. Saturday Afternoon Bank Transaction Act (1917),
passed in 19 States.
13. Check or Draft Without Funds Act (1919), passed
in 39 States.
14. Uniform Fiduciaries Act (1919), passed in 20
States.
15. Adverse Claim to Bank Deposit Act (1921),
passed in 23 States.
16. Time Limit on Stop Payment Act (1922), passed
in 31 States*
17* Lien of Federal Judgments: Filing and Recording
Act (1923), passed in 42 States.
18* Payment of Stale Check Act (1923), passed in
26 States,
19. Uniform Principal and Income Act (1924), passed
in 14 States.
60
20. Robbery with. Dangerous Weapon Act (1925),
passed in 28 States.
21. State Arbitration Act (1925), passed in 15
States.
22. Negotiability of Interim Certificates Act
(1926), passed in 3 States.
23. Federal Tax Lien Regulation Act (1926), passed
In 38 States.
24. Final Adjustment of Statements of Account Act
(1927), passed in 12 States.
25. Bank Collection Code (1929), passed in 19
States.
26. Fictitious Payee Act (1931), passed in 10
States•
27. Repeal of Double Liability of State Bank Stock
holders (1935), passed In 43 States.
28. Uniform Trust Receipt Act (1936), passed In
25 States.
29. Holiday Bank Transactions Act (1938), passed
in 7 States.
30. Non-Member Bank Reserve Act (1942), passed in
21 States.
After the Banking Holiday in 1933, the American
Bankers Association began to have an increasing interest in
Federal legislation. In that year the Association created
as an integral part of its organization a Committee on
Banking Studies. This Committee was to have the sole duty
of making s tudies of important Federal banking legislation.
The Committee, in coordination with the Administrative
Committee, the Interim Committee and the Committee on Federal
61
Legislation, presented to Congress recommendations of
legislation in the field of banking. Important recommenda
tions were made to Congress by the Association under the
title of a Proposed Banking Act of 1935. Before submitting
the proposal to the House, the Association issued to its
members the complete text of the various provisions of the
Act for their study. The proposed act was introduced into
Congress by Senator Glass.
The task of the Association of analyzing and assisting
in presenting testimony on banking and financial legislation
during and after World War II became more complicated.
During the War, legislation affecting banking was largely
designed to secure uniformity. The bhnking laws passed at
the end of the War dealt in a large measure with the scope
of controls and government financing measures. Other laws
in the early years of the post-war period were those pro
viding benefits for veterans and broadening the loaning power
of the Government Agencies, such as the Federal Land Banks,
the Export-Import Bank, etc. In recent years, legislative
proposals have dealt with loans to foreign nations, credit
extension and guarantees for small business, housing, mini
mum wages, rent control and other subjects, all of which
have been of great Interest to business, industry as well
as to banking. The diversity in recently enacted and pending
62
legislation has produced a need for closer work among the
various committees of the Association* This need can be
illustrated by such facts as the presentation of testimony
to Congress favoring the $3,760,000,000 loan to Great
Britain, the advice and suggestions given to the Secretary
of the Treasury about the post-war management of the public
debt, and other testimonies offered to Congress on the
numerous emergency housing measures. All these examples
illustrate the fact that Federal and State legislative
authorities usually obtain from the American Bankers Asso
ciation suggestions on matters concerning money, credit and
banking.
CHAPTER VI
ATTITUDE TOWARD GOVERNMENT LENDING AGENCIES
In the previous chapter we have noted a brief out
line of the cooperation of the American Bankers Association
in the enactment of Federal and State legislation. In other
words, we have cited how bankers in this country have been
able to exert their influence In government legislative
policies. However, under the recovery program of the New
Deal administration of the nineteen thirties, bankers in
this country began to feel that they were facing a new prob
lem, that is, competition from Government lending agencies
on the one hand, and Government interference with the bank
ing structure, on the other. The salient feature of the
Banking Act of 1933 waa the establishment of the Federal
Deposit Insurance Corporation. Members of the American Bank
ers Association regarded this corporation as a scheme to
effect direct interference in the field of banking. National
banks and trust companies were opposed to the guaranty sys
tem, because they would have to pay assessments to cover
losses sustained by the failure of other banks. Small banks
also had an unsympathetic attitude toward the scheme because
they thought the law would bring them into the Federal Reserve
64
System which they might prefer not to join*
Some bankers feared that since a guaranty plan had
been tried and had failed in several States after 1907, the
deposit guaranty law might repeat the old mistakes on an
even larger scale. They did not think it was justifiable
to assess strong and well-managed banks to cover the losses
of poor banks. Such a plan, they argued, would put a premi
um on careless and unsafe banking methods. So the guaranty
of deposits was the topic of virtually every speaker at the
Convention of the Association in 1933. The representative
of the Government, Comptroller O’Connor, speaking to the
Convention, emphasized that whether distasteful or not, the
law must be obeyed. Jesse H. Jones, Chairman of the Recon
struction Finance Corporation, also addressed the Convention
thus: ’ ’ Those of you who think you are to get rid of
deposit insurance at the next session of Congress simply do
not know your Congress.... " • * • Eugene R. Black, Governor of
the Federal Reserve Board, also said: "As far as the Board
o
is concerned, it is the law."
In spite of the explanations from the Government
officials, the Convention passed the following resolution:
"The 59th Annual Convention of the American Bankers
Association," The Bankers Magazine, (New York: American
Bankers Association), October 1935, pp. 389-390.
2
Ibid., p. 390.
65
"We recommend to the national Administration at
Washington that it seek means for postponing the initiation
of deposit insurance....
"The American Bankers Association hereby records its
deliberate judgment that the dangers involved in attempting
to initiate at the beginning of 1934 the provisions for
deposit insurance contained in the Banking Act of 1933 are
genuine and serious. It holds that the whole project for
deposit insurance embodied in that law should be reconsidered,
and it reiterates its conviction that the postponement of the
first phase of the project is of first importance."
Another feature of the Banking Act of 1933, the
separation of commercial and investment banking, also met
with the opposition of the bankers of this country. The
bankers denied the use of their excessive resources for specu
lative purposes. They argued that the eventual decline of
security price in 1929 was caused by funds wholly outside of
the control of banks and that the overexpansion of mercantile,
installment and real estate mortgage credit was likewise
beyond their scope. They declared that to control the credit
operation of the member banks, was to control the economic
destiny of the people.
3
Ibid., p. 390.
66
These attacks on the Administration reached their
climax in the 60th Convention of the American Bankers Asso
ciation in 1934. The opposition surprised both the leaders
of the Association and the President of the United States;
and it was reported that it caused Mr. Law, President of the
American Bankers Association to pay a hurried visit to the
White House on the night of the Convention, in an attempt to
smooth things over. As a consequence, President Roosevelt
came to address the delegates of the Convention. In his
speech, President Roosevelt said:
In its relation with the bankers, the purpose of
the Government should be threefold.... First, to
promote the confidence of the people In banks and
banking in view of the important service that banks
and banking may perform for the people as a whole.
Second, to make this confidence a real and living
thing by assisting banks to render themselves useful
and worthy of this confidence through wide super
vision. A third purpose now offers itself, and I wish
with all earnestness to press this point tonight.
Government should assert Its leadership in encourag
ing not only the confidence of the people in banks but
the confidence of the banks in the people. In March,
1933, I asked the people of this country to renew their
confidence In banks. They took me at my word. To
night I ask the bankers of this country to renew their
confidence in the people of this country. I hope you
will take me at my word.
Wealth grows when men cooperate; but it stagnates
In an atmosphere of misunderstanding and misrepresen
tation. It is not the spirit of partisans, but part
ners, that America has progressed. The time is ripe
for an alliance of all forces intent upon the business
of recovery. In such an alliance will be found business
and banking, agriculture and industry, and labor and
capital. What an All-American team that Is
^ ”60th Convention of the American Bankers Association,*’
op. cit., p. 639, December 1934.
67
In 1936, the Committee on Banking Studies of the
American Bankers Association made a thorough investigation
of the situation after passage of the Banking Act of 1935,
with the aim of conducting a survey of Government lending
activities and their relation to banks. The Committee's
study was directed toward such essential facts of the
agencies, as the origin of their lending funds, the return
to be received by the Government, the qualified borrowers
for such funds, and the general policies of the Government
in lending the money.
As a result of the study, it was tinderstood that the
Government lending agencies were of three categories, namely,
farm agencies, home mortgage agencies, and other agencies.
The first type, or the corporate organization, receives capi
tal partly from the Government issues, bonds or other obliga
tions guaranteed by the Government for the purpose of secur
ing additional funds from the public. The second type, or the
cooperative organization, derives its initial capital from
the Government. Those who want to borrow from this agency
are required to purchase s tocks in proportion to the amount
of their loans. The third type operates with funds appro
priated by Congress or allocated by Executive order, the
funds being supplied by some other agencies. As a general
rule, the first and third types are emergency agencies;
68
while the second type is permanent in character*
All the agencies, according to the survey of the
American Bankers Association, are subsidized by the Govern
ment. The forms of subsidization are various. One is the
appropriation from Congress of large sums without paying
dividends to the Government or its capital stock (notably
the Reconstruction Finance Corporation). The second form
is the appropriation from Congress either to pay the expense
of these agencies or to compensate for extensions of princi
pal and interest payments and reduction of interest rate
legislated by Congress itself. The third form of subsidiza
tion is the guarantee of principal and interest of securi
ties by the Treasury. Most of these agencies are free from
ordinary Federal corporate income tax, and such exemption is
another form of sudsidy.
The various agencies under the three categories men
tioned above are as follows:
1. Farm Agencies
a. The Federal Land Banks — twelve in number, co
operatively owned and managed under government supervision.
Loans are made on farm mortgages.
b. The Federal Farm Mortgage Corporation -- wholly
government owned. It makes Land Bank Commissioner first
and second mortgage loans.
69
c. The Federal Intermediate Credit Banks — twelve
in number, entirely government owned and managed. They make
loans and discounts to Production Credit Associations,
Regional Agricultural Credit Corporations, Banks for Coopera
tives, other financial institutions and cooperative associa
tions .
d* Production Credit Associations — cooperatively
owned and managed by the Government.
e. Central Bank for Cooperatives at ?/ashington —
having twelve District Banks for Cooperatives, with their
stock being held by the Government.
f. Federal Gredit Unions — cooperative in character
and managed under Government supervision. Interest rates
are determined by each union subject to the maximum allowed
by the Federal Credit Union Act.
g. Farm Credit Administration -- a direct lending
agency, making emergency crop and feed loans. This agency
has a broader lending activity, the description of which
would be beyond the scope of our present study.
Home Mortgage Agencies
a. The Federal Home Loan Banks — twelve in number,
the majority of the stock held by the Government and the
remainder owned by home mortgage institutions. Loans are
70
made to home mortgage Institutions only.
b. Federal Savings and Loan Associations -- mutual
in character and managed by local officers under supervision
and, sponsorship of the Government. The Federal Savings and
Loan Insurance Corporation, wholly government owned,' Insures
share accounts held by investors In insured institutions.
It is not a lending agency.
3. Other Agencies
a. The Reconstruction Finance Corporation — Govern
ment owned and managed.
b. The Reconstruction Finance Corporation Mortgage
Company -- owned and operated by the Reconstruction Finance
Corporation.
c. The Disaster Loan Corporation — also created and
operated by the Reconstruction Finance Corporation.
d. The Electric Home and Farm Authority — operated
in relation to financing installment sales of domestic house
hold electrical appliances, farm equipment and radios.
e. The Export-Import Bank of Washington — Government
owned and directed, making disbursements under loans, dis
counts and acceptances purchased.
f. The Rural Electrification Administration — loans
being made for the construction and operation of generating
71
plants, electric transmission and distribution lines, or a
system for furnishing electric energy to persons in rural
areas not receiving central station service.
g. The Farm Security Administration -- established by
the Department of Agriculture, makes loans to individuals
for rehabilitation purposes and for permanent improvements,
and to individuals and groups for cooperative purposes.
h. The United States Maritime Commission — loans
made for ship construction, operation and reconditioning.
i. The Federal Emergency Administration of Public
Works (P.W.A.) — operated with funds appropriated by
Congress.
It was argued by the American bankers that only under
the most exceptional circumstances should the Government
engage in the operation of credit institutions. In the
competition between government and private capital in these
agencies, the matter of interest rate charges has become the
crux of the issue. Under the Banking Act of 1935, banks
can make real estate loans on a twenty-year amortization
basis, and only in this phase can the commercial banks
compete with the Federal Land Banks. Government investment
In national, savings, and loan associations Is putting public
funds into competition with savings and other banks In home
construction. Government construction of low cost housing
72
in slum clearance is also regarded by the bankers as competi
tion with private capital. Bankers are opposed to Govern
ment investment in enterprises connected with or similar to
the Tennessee Valley development, because they consider a
planned economy to be in conflict with American free enter
prise. With regard to credit for housing, the objection is
directed more to the matter of low interest and lending
conditions. Due to the artifically low interest rates,
banks find that they cannot compete with the Government agen
cies in long term loans, except in those classes of loans
which are not within the scope of the Government system. In
short term loans the Governments interest rates are usually
lower than current bank rates. Furthermore, Government
interest rates are more or less uniform throughout the coun
try, while bank rates, suited to local risks and special
conditions, must naturally vary. Again, banks cannot compete
with the Government agencies in that the additional risks
the Government may run in districts where credit risks are
high, can be covered by lower risks in other districts of
the country. Bankers think that the Government credit agen
cies are already too far committed, particularly in the major
features of farm and home building credit. So the American
bankers looked upon Government banking as not only competi
tive, but also illogical. In an article entitled ’ ’ History
73
Marks the Boundary Between Government and Banking,” the
author, Mr. Allan Herrick, made an historical narration of
5
the failures of a series of government banking organizations.
Mr. Herrick pointed out that in the past all the large cen
tral (public) banks of Europe have failed, with the excep
tion of the Bank of Russia which was successful under
government management in the reign of Alexander II. The
Bank of Prussia, under Frederick the Great, for example, was
first owned by the government, but had to be turned back to
its private shareholders on account of its being unable to
keep pace with the needs of the country’s industrialization.
In England, Charles II took the reserve of private banking
firms, but was led to the conclusion that the Bank of
England should be organized as a private institution. Now
in Russia, banking is a government monopoly* ”0f the various
criticisms of the plans of Marx,” writes Mr. Herrick in the
same article,
the one most difficult for him to meet was the
charge that many of the features of the new scheme
had already been tried by society and found wanting
.... Both the Plymouth and Jamestown colonies in
America were founded oh communistic principles and
both had failed miserably until these principles
were abandoned.®
5
Allan Herrick, "History Marks the Boundary Between
Government and Banking,” American Bankers Association Journal
July, 1934, p. 68.
6
Loc. cit.
74
Mr. Herrick also mentioned a list of state-owned banks in
the United States, and all of them resulted in liquidation.
They failed because their managements lacked a sense of
individual responsibility. He concluded that "government
banking is an idea that has been tried, found impracticail
and abandoned.... Government banking is a conception that
7
leads to political exploitation."
In recent years, due to the efforts of the banking
leaders, tinder the guidance of the American Bankers Associa
tion, some public officials began to examine the entire field
of government credit structure. Chief among them was former
President Hoover, who questioned the validity of even the
long-established government credit projects. Marriner S.
Eccles, recent Chairman of the Board of Governors of the
Federal Reserve System, stated his reasons to the Banking
and Currency Committee of the House of Representatives, as
to why he considered the liquidation of the Reconstruction
Finance Corporation and other government lending agencies to
8
be desirable. The American Bankers Association also finds
the Wagner-Ellender-Taft Bill objectionable. The Bill, passed
7
Ibid., p. 69.
8
American Bankers Association: Present Day Banking
1947-1948 (New York: American Bankers Associa-fcion, 1948 J,
p. 49.
75
by the 79th Congress, aims at establishing the National
Housing Agency as a permanent institution. This Bill, in
the opinion of the Association, is a threat to the sound
ness of mortgage lending as well as a further incursion of
government into the field of private financed housing.
Again, the loan provisions of the Bill, making easy credit
available to prospective home owners, strengthens the influ
ence of inflation.
The Tobey Bill, which permits the Federal Reserve
Banks to guarantee loans advanced by private credit institu
tions to 90 per cent for a period of ten years, was also
strongly opposed by the American Bankers Association in
its 1947 Convention, on the ground that such easy credit,
no matter how it benefits new small business men, would
create undue hardship to those already in operation. The
Association also points out that government guarantee of
loans would affect small business which constitutes 95 per
cent of the economy of this country. Small business should
be maintained as free enterprise. Dependent upon the govern
ment and controlled by it, small business would no longer be
able to flourish. The 1947 Convention of the American
Bankers Association passed a resolution which includes the
following statements:
During the emergencies of the depression and war,
a number of new methods were employed to finance
76
business, including direct lending by the Government
and government guarantee of loans • With the coming
of peace and a return to more normal conditions, these
special financing methods need reconsideration because
they present several serious dangers.
Loans and loan guarantees by governmental and semi-
governmental agencies are in reality subsidies favoring
certain groups of borrowers. They impose a further
burden on the tax-payer at a time when the Government's
budget must be drastically reduced and they encourage
unsound and Inflationary lending.
In the interest of the national economy, this Asso
ciation continues to oppose further extension of govern
mental or semi-governmental lending or guarantee of
loans and favors a drastic reduction of the Govern
ment's wartime and emergency powers.
The country’s banking system and other private credit
agencies have the resources, the know-how, and the will
to supply to business, large and small, the credit it
requires and should have.9
9
Ibid., p. 50
CHAPTER VII
IMPACT OP THE POSTAL SAVINGS SYSTEM
The Postal Savings System in the United States was
established in 1911* The System was primarily designed to
meet the needs of persons to whom banks were inaccessible,
to encourage thrift, and to act as a supplementary agency
to banking institutions. The need for such a system was
evidenced by the fact that in 1909 there was only one bank
for every 279 square miles in the United States; while there
was a post office for every fifty square miles.1 It was the
intention of the United States Government to establish
savings facilities in sections where no bank existed. The
system has also been helpful to the nationals of other coun
tries who were used to such a system in their own countries.
Since the enactment of the law setting up the System, funds
deposited in the Postal Savings System are guaranteed by the
United States Government. The rate of interest to be paid
to depositors is 2 per cent and the funds are re-deposited
in a member bank of the Federal Reserve System, which pays
2% per cent interest. The limit of deposits for one person
is up to $2,500.00, with interest, although another $1,000
can be deposited without Interest.
^lyde Kelly, United States Postal Policy (New York:
D. Appleton and Company, 1031), p. 179.
78
At the early stage of the operation of the Postal
System a large number of depositors were nationals of other
countries. Later on a majority of the depositors were
American citizens. It was also found by the bankers that
not infrequently post offices in remote areas, where banks
found it unprofitable to operate, do not accept postal sav
ings deposits. On the contrary, in large and .densely-popu
lated cities where banking service has been adequate for
the financial needs of the community, the post office
affords opportunity for postal savings. Thus, members of
the American Bankers Association began to feel the competi
tive impact of the Postal Savings System.
Prior to the Banking Act of 1933, banks that received
deposits from post offices could re-deposit these funds in
the form of bonds in Washington as security. Bankers thought,
therefore, that the receipt of postal deposits would in no
way enable them to serve the community at large. The estab
lishment of the Federal Deposit Insurance Corporation, insur
ing deposits in banks up to $5,000, eliminated the necessity
of the banks depositing bonds In Washington against the first
$5,000 of postal savings deposited in their institutions.
It has been the opinion of the bankers that postal
savings deposits tie up the idle funds of the community and
thus interfere with the development and up-building of the
79
areas where funds are needed for such purposes. In some
States a greater part of local deposits are postal savings,
with only a small percentage re-deposited in the banks of
that area.
In 1933, at the meeting of the Executive Council of
the Association, a resolution was adopted that should the
United States Government enact laws for deposit insurance in
banks, the Postal Savings System should be abolished.
Special efforts were exerted by Mr. Melvin Rouff, former
president of the Texas Bankers Association, who made a visit
to Washington and did effective work in pointing out to
Congress the menace of the Postal Savings System to American
banking institutions. However, since 1933, sixteen bills
have been Introduced in Congress extending and enlarging the
Postal Savings System as to sums that could be deposited,
as well as providing for checking accounts. The American
Bankers Association pointed out to Congress the lack of
necessity and the danger attendant upon the enactment of
this type of legislation. In 1935, the Savings Division of
the American Bankers Association also indicated that the
interest rate established by the trustees of the Postal
Savings System, the Postmaster General, the Secretary of the
Treasury, and the Attorney General, and charged banks on
postal savings, equals, or Is even greater than, the maximum
80
rates permitted by the Board of Governors of the Federal
2
Reserve System on savings deposits in banks. In other
words, the Federal government is paying to postal savings
depositors a rate of interest higher than that at which money
can be borrowed In the open market.
A review of the Postal Savings System reveals that
It has been a helpful device to meet the needs of the immi
grant people in the United States. The popular distrust of
banks engendered by the holocaust of failures In the nineteen
thirties strengthened the position of this System. However,
since the establishment of the Federal Deposit Insurance
Corporation, the existence of the Postal Savings System can
be justified only in areas where banking facilities are not
available to the public.
^ American Bankers Association, Reports of the 71st
Convention (New York: American Bankers Association, 1935),
p. 10.
CHAPTER VIII
POLICY ON AGRICULTURE
Bankers in this country have been deeply concerned
over the great importance of agriculture to the general
welfare of the public; and their attention has never drifted
away from the development of this basic industry. Various
resolutions have been passed at the Conventions of the
American Bankers Association, with recommendations in favor
of a nation-wide educational program worked out by the State
Bankers Association and the Agricultural Commission of the
Association. Although farm credit has received considerable
attention from the Federal Government since 1933, as evi
denced by the establishment of the Farm Credit Administra
tion, nevertheless, the American Bankers Association has been
in a position to strengthen commercial banks located in
agricultural areas to meet the short term credit needs of
many farmers. The primary aim of the Association in creat
ing the Commission of Agriculture was to bring about this
goal. In formulating programs and plans of work, the Ameri
can Bankers Association has sought the collaboration not
only of the Agricultural Committees of each State Bankers
Association, but also of the colleges of agriculture of the
82
various States, especially in the task of securing agricul
tural information. In order to get the full benefit of such
collaboration, the American Bankers Association has carried
out extensive field work, such as the conducting of special
group meetings, short courses and tours. In addition to
the monthly publication t f Banker-Farmer,M the Bulletin of the
Agricultural Commission was published each month and distrib
uted to the agricultural committee of each State, to country
bankers and to all extension forces of the colleges of agri
culture in the respective districts. Problems are discussed
in these publications relative to the utilization of farm
products, the growth of cooperative marketing in the United
States, factors making for success in marketing organiza
tions, and suggestions which bankers consider will aid the
marketing organizations.
The policies adopted by the American Bankers Associa
tion relative to agriculture may be summarized as four in
number:
1. To promote better public and customer relations
with farmers.
2* To aid in the improvement of economic and social
conditions in rural communities.
5. To foster a better understanding by bankers of
the relation between agriculture and the economic welfare
83
of the nation.
4. To keep banking practices adjusted to agricul
tural needs.
Each year several agricultural conferences are held,
the purpose of which is to diagnose the agricultural situa
tion in order to discover what the pressing agricultural
problems are and to consider in what way the banks can help
in their solution.
CHAPTER IX
• PUBLIC RELATIONS
As quasi-public financial institutions, banks must
perform their proper duties so as to earn the high regard
and esteem of the community* They should not only have
an efficient internal organization and management, but must
also maintain external contacts and carry on activities
that would foster a good feeling in the community. Since
banks deal with millions of people, it is the collective
approval of millions of customers that permits these banks
to exist; and quite often legislative actions reflect what
the public thinks about banks and banking. Good public re
lations rest upon good personnel relations in daily trans
actions, because banks* services are mostly conducted face-
to-face with customers. Hence, successful banks lay pri
mary stress upon the training of bank employees, especially
the tellers and representatives who*make direct contact with
the public. Even the bank lobby and rooms are designed and
furnished to create a plesant environment for their custom
ers .
To achieve the afore-mentioned purpose, the American
Bankers Association has rendered invaluable aid to its mem
bers through its various departments, such as the Public
85
Relations Council, the Advertising Department, the News
Bureau, the Banking magazine, etc.
The Public Relations Council has a continuing pro
ject of gathering all available data on the state of public
opinion relating to banking, and conveying their information
and suggestions to member banks on how to meet the problems.
In the early nineteen twenties, the activities of the Public
Relations Committee were devoted to the development of econom
ic articles through the medium of daily and weekly news
papers. The materials which the American Bankers Association
sent to the press have comprised complete transcriptions of
proceedings, brief news relating to the Association and all
phases of its activities, among which are the following:
1. To enable the public to have a better understand
ing of the works of the Association.
2. To educate the public in proper ways to carry
on their banking relations, such as the correct handling of
checks,, the use of bank services, and so forth.
5. To warn banks and the public against the operation
of crooks, and to make their fraudulent activities more
difficult through exposing their methods.
4. To Inculcate a spirit of thrift and a wider use
of savings banks.
In all these connections the Association has cooperated
86
with the press in accurately reporting matters of contro
versial discussion developed in various conventions of the
Association. As a means of gauging the result of the public
ity efforts of the Association, a restricted press clipping
service has been conducted.
In 1934, the Public Relations Council was established.
Its work proved to be very effective during World War II,
especially in urging member banks to assume the responsibil
ity as agents in promoting the sales of War Bonds. Thousands
of pamphlets were distributed to the public, besides hundreds
of addresses were broadcast over the radio. The Council is
a service organization with two major functions: first, to
provide materials and to suggest methods which banks could
employ to enlist the support of their customers and the pub
lic generally in the war effort; second, to arouse, educate
and direct public opinion toward an intelligent appreciation
of the multiple social and economic values of chartered
banking. In a real sense, every activity of the American
Bankers Association Is closely related to bank public rela
tions. This is especially true In the post-war period.
Bankers found that post-war social and economic conditions
presented the bank management with difficult problems in
personnel administration and public relations.
The Interest of the American Bankers Association in
87
conducting an educational program for all its members has
had a parallel development with other activities of the
Association. Bankers realize that banking education is one
of the intangible items not shown on the balance sheet of
the bank. In 1890, the Association appointed a committee to
encourage bankers and business men to help the higher educa
tional institutions establish schools of commerce and finance.
The Committee organized several schools similar to the
Wharton School of Finance, at the University of Pennsylvania.
In 1900, the American Institute of Banking came into exis
tence. In 1935, the Graduate School of Banking was estab
lished. In the fall of 1898, the Minneapolis Bank Clerks’
Association was organized, the purpose of which was to train
the bank employees in that city. The work of the Minneapolis
experiment proved so successful that the example was followed
by other cities like Buffalo, Louisville and St. Louis. In
the 25th Convention of the American Bankers Association,
chapters of the American Institute of Banking (A.I.B.) were
set up in various large cities throughout the United States.
Each chapter of the American institute of Banking has its own
government, within the limitations set by the By-laws. Each
chapter is to carry on its educational program in accordance
with the requirement of the national organization. Local
activities are financed in part from membership dues, and in
88
part by contributions from local banks and clearinghouse
associations.
The American Institute of Banking undertakes the work
of training bank officers and employees. Textbooks for the
students are mostly prepared and revised by the Institute.
The American Institute of Banking also initiated the Group
Study Plan which was devised to meet the needs of towns too
small to support a regular chapter. As these groups grew
in number in almost every State, the educational opportun
ities offered by the Institute are being carried to the door
of every country banking Institution in America. It is be
lieved that the extent of the Institute’s influence on Ameri
can banking will depend upon the degree to which its educa
tional facilities are utilized by people in country banks.
With the termination of World War II, the American
Institute of Banking has been approved by the Veteran Admin
istration as a correspondence school. Moreover, 150 chapters
in thirty-two States have been approved by the Veteran Ad
ministration for the training, of veterans for bank jobs
under Title II of the Servicemen’s Readjustment Act of 1944.
In 1947, the American Institute of Banking had 221 chapters
and 143 study groups. Each chapter’s educational program
is subject to the supervision of the National Educational
Director. The Graduate School of Banking, conducted at
89
Rutgers University in New Jersey, is an extension of the
educational program provided for by the American Institute
of Banking. Upon completion of the required courses of
three resident sessions of two weeks each, a student is
awarded a diploma issued jointly by the University and the
American Institute of Banking. Students are confined to
those who are: (1) Institute graduates who were bank offi
cers; (2) Institute graduates who held positions equivalent
to those of bank officers; and (5) bank officers with
Institute courses or their equivalent credit.
The American Institute of Banking also provides other
educational facilities in collaboration with other universi
ties. Among these universities are the School of Banking at
the University of Wisconsin, sponsored by the central states
conference of the State Bankers Association; the Pacific
Northwest School of Banking at the University of Washington,
Seattle; the University of North Carolina; and the Univer
sity of Florida. Other short conferences are also held In
universities, for the discussion of problems in bank manage
ment and operation.
In 1925, the American Bankers Association established
a Foundation for Education in Economics, In commemoration
of the 50th Anniversary of the American Bankers Association.
The funds of the foundation, amounting to $500,000 are used
90
as loans to students of Economics and banking in leading
colleges and universities throughout the United States. The
funds of the foundation were raised by quotas allocated to
each State and by contributions from individual bankers and
from the Association itself. Under the administration of a
board of trustees, the Foundation is restricted in its in
vestments by the law governing trust funds in the State of
Hew York. The total of scholarships awarded each year is
limited by the amount of interest received, less five per
cent of the volume of the loans awarded to provide reserve
against loss. Loans to qualified students vary from $100.
to $500 each year with a slight interest charge to prevent
over-due payments. The loans are paid back on a monthly
installment basis, after the student leaves school. In
order that the money might be of most immediate value in aid
ing students at this most difficult time, the awards have
been limited to students of senior grade. In 1935, the Board
of Trustees of the Foundation set aside $150,000 to be used
for the granting of loan scholarships of $150. each to bank
officers qualified to attend the Graduate School of Banking.
Another essential means by which the American Bankers
Association promotes its relations with the general public
has been the publication of the magazine "Banking.” This
magazine, as an official publication of the Association,
91
serves banking by presenting for use and ready reference
interpretation of business problems and the experience of
banks in those matters which are vital to their well-being.
The magazine also performs a great function to thousands of
its readers as a source of information on activities in the
field of banking. The convention issue of the magazine is
probably the most important one as regards the public rela
tions of the Association. Through its advertising depart
ment, ’ ’ Banking" also maintains close and helpful relations
with the manufacturers of equipment and supplies and with
business firms generally, particularly in the building and
insurance fields. The present subscriptions to the magazine
number about 32,000, of which one-half are non-American
Bankers Association subscribers.
The post-war development of the magazine is noteworthy.
Important surveys and projects have always been initiated by
the magazine for the benefit of the entire banking business.
In cooperation with R. L. Polk and Company, the magazine
made a series of surveys showing what people are thinking
about banks. ’ ’ Banking" publishes not only technical problems
encountered in present day banking, but also articles of com
mon knowledge for the instruction of the public on how to use
bank service. The magazine serves as a link to bring about a
better understanding between the Association and the out-side
world.
CHAPTER X
THE INSURANCE AND PROTECTION
.The protective work of the American Bankers Associa
tion is carried on by the William J. Burns International
Detective Agency, which furnishes protection through a net
work of offices in the United States and Canada. The Pro
tective Committee of the American Bankers Association, co
operating with the Agency for the prosecution and extraction
of bank crimes, has devised ways and means for the prevention
of bank robbery, forgery, and other professional bank crimes
within the financial institutions. The American Bankers
Association has insistently urged banks to install modern
detective equipment and procedure within their premises.
When this is done to the satisfaction of the American Bankers
Association and the William J. Burns Detective Agency, a
certificate is issued to the bank. The certificate thus
issued entitles the bank to discounts of 10 per cent in their
premimum paid to underwriters for burglary and robbery in
surance In excess of $5,000. The installment of such pre
ventive devices includes bank-resisting enclosures, daytime
locking devices, silent automatic alarms and a tear gas
system.
93
The American Bankers Association points out that since
1923 a majority of hank robberies in this country have oc
curred in a relatively few States, such as California,
Mississippi and Missouri valley States. The Association’s
records also show that non-member banks suffered greater
losses than member banks of the Association. This evidences
the protective advantages enjoyed by member banks. Upon
the suggestion of the Association, the 73rd Congress enacted
into law several bills which were destined to penalize the
following crimes:
1. Robbery of member banks of the Federal Reserve
System.
2. Transportation of stolen property in interstate
or foreign commerce.
3. Extortion by the use of the telegraph, telephone,
radio or oral message transmitted interstate.
Since the passage of these laws, persons perpetrating
robberies are subject to trial in the Federal Courts. The
jurisdiction given the Federal Government greatly streng
thened the police power. Since 1891, the American Bankers
Association has published the ’ ’ Protective Bulletin” which,
besides furnishing information concerning the prevention of
bank crimes, makes public the methods employed by crooks who
specialize and concentrate their talents upon banks.
The effectiveness of these protective devices is
proved by the gradual elimination of bank criminals, as
1
shown in the following table.
ARRESTS OP BANK CRIMINALS FROM 1924 to 1946 BY
THE BURNS AGENCY AND BY LOCAL, STATE AND FEDERAL AGENCIES
• To
Augus t 31 Total Burns Agency
Forgers Bandits Burglaries
Total Arrest
Burns only
Total Arrest
incl. Burns
1924-1937
incl. 2,236 974 99 3,309 5,867
1938 77 11 0 88 158
1939 113 4 0 117 176
1940 85 0 2 91 154
1941 59 0 1 60 79
1942 55 0 0 55 71
1943 42 0 0 42 56
1944 37 0 0 37 42
1945 37 0 0 37 45
1946 34 0 0 34 68
2,775 993 102 3,870 6,716
1
American Bankers Association, Present Day Banking,
(New York: American Bankers Association), 1947, p. 245.
95
In the event of a holdup, burglary, crime of forgery,
checking-raising swindle, or any other case that would cause
loss to the bank or injury to bank officers or employees,
the member bank is required to notify the nearest office of
the William J. Burns International Detective Agency or the
American Bankers Association. "The Association will at once
use its best efforts to apprehend the criminals regardless
of the amount involved or whether the perpetrator of the
crime Is a professional or an amateur." However, the Asso
ciation does not investigate any loss arising out of the
internal fraudulent practice of the bank itself.
Throughout its history the service rendered by the
Insurance Committee of the American Bankers Association to
its members has been of an outstanding nature. Since the
nineteen twenties, banks In the United States have been
availing themselves of the service by presenting to the
Committee burglary, fidelity and blanket bonds both for
inspection and assistance in adjusting claims against Insur
ance companies. Instance after instance, the American Ban
kers Association has pointed out claims against insurance
companies which had not been discovered by the banks them
selves. The service thus rendered by the Association has
American Bankers Association, Constitution and By-
Laws of the American Bankers Association (New York: American
Bankers Association, 1946), p. 131.
96
been greatly appreciated by banks and their attorneys. The
Association also drafted the model form of a blanket bond
which harmonizes with the laws of the various States and
which is also acceptable to the surety companies. The Asso
ciation tried its best to have its form clear and certain
in its protection, and consonant with sound underwriting
principles. The Association’s copyrighted Burglary and
Robbery Policy of 1931 is the only form approved by the
National Bureau of Casualty and Surety Underwriters for in
surance by its member companies to banks. The burglary and
robbery policy covers losses occasioned by damage to safe,
vault, furniture, building, non-negotiable instruments, all
of which are not covered by the blanket bond.
As a result of the controversy that often occurs be
tween banks and insurance companies over the premium rate
on fidelity and blanket bonds, the American Bankers Associa
tion prepared a tentative draft of a model law which gives
state insurance supervisors jurisdiction over the insurance
rates and forms of contracts, for the purpose of preventing
discriminatory practices and rates. In 1935, the surety
companies and insurance agencies endeavored to have two
bills enacted into law by the 73rd Congress. One of these
bills would deny banks insured by the Federal Deposit'-
Insurance Corporation the right to place insurance with
97
■underwriters not licensed in their respective States. The
other bill would require national banks to place insurance
on the fidelity of employees only from insurance companies
duly qualified by the State. Since these bills met the
opposition of the Association, banks now could still exercise
an "open market” insurance. The By-laws of the Association
provides that the Insurance Committee of the American Bankers
Association has the duty of advancing the interests of the
members in their relations with insurance companies, includ
ing the procuring of reaisonable premium rates, the adoption
and use of proper forms of fidelity bonds, burglary policies
and other insurance policies. The American Bankers Associa
tion would like to have the insurance companies in a State
of competition for business. The Association is opposed to
any plan or legislation whereby competition would be stifled
at a uniform rate of premium among the competitors. The
Association has not overlooked the defects of having insur
ance protection rest largely in the hands of a small group
of casualty and surety companies. Under the Banking Act of
1935, the Federal Deposit Insurance Corporation may require
any insured bank to provide protection and indemnity against
burglary, defalcation, and other similar insurable losses.
Upon refusal to comply with these requirements, the Federal
Deposit Insurance Corporation may contract for such
98
protection and indemnity and add the cost to the assessment
otherwise payable by such bank*
The American Bankers Association spared no effort in
securing broader coverage of insurance and the reduction of
premium rates. Because of the variety of a bank’s activities,
the Association has enabled its members to make use of prac
tically all types of insurance. These range from life poli
cies written on employees or for borrowers or trust clients;
Insurance covering crops and livestock or commodities in
storage, fire and property damage on building, burglary,
robbery and forgeries. Through the endeavors of the American
Bankers Association in 1941, the H A A (C) blanket policy
written by the London Lloyd1s was made generally broader in
coverage and lower In cost than the broadest bond issued by
the domestic insurance companies. In 1942 the American Ban
kers Association cooperated with the Federal Government In
the creation of the War Insurance Corporation as a substi
tute for the War Damage Corporation. This new devise pro
vides reasonable protection against loss or damage to
personal property which may result from enemy action. The
Association secured for its members this additional protec
tion which extends to the same hazards as the War Damage
Corporation contracts, that Is, damage and destruction re
sulting from enemy attack including any action taken by naval
99
or air forces of the United States in resisting enemy attack.
In 1946 the Association succeeded in raising the quality of
registered mail insurance and the Lloyd’s Bankers and Triist
Company’s Policy. The surety companies were urged to pro
vide safe depository insurance to commercial banks. In the
meantime, substantial reductions In registered mail and
express Insurance rates were secured from the postal office.
CHAPTER XI
THE WAR EFFORT
It is reasonable to assert that a ¥/ar-time economy
causes multiple problems in commercial banking. Certainly
this proved to be the case for American bankers during World
War II. In the midst of the War, bankers in this country
were faced with the problems of scarcity of equipment and
supplies, shortage of manpower and a tremendous increase of
daily work. Yet members of the American Bankers Association
felt it was their duty to associate themselves with the job
of financing the War. Their activities covered a much wider
range of work than in peace-time. Many problems were added,
such as taxation, farm credit, consumer credit legislation,
control of manpower and "ration banking." The Ration Bank
ing Committee of the American Bankers Association worked
together with the Office of Price Administration in simpli
fying the program, eliminating unnecessary banking proce
dures and bringing about uniform policies and planning.
In 1941, the War Savings organization was created in
the United States. The American Institute of Banking mobil
ized on a nation-wide scale a quarter of a million bank
employees to assist the Treasury in the sale of Defense
101
Savings .Bonds and Stamps. Special educational programs were
set up for the training of the employees in the techniques
of bond selling. It was this far-sighted project that en
abled the United States to have an active and efficient
machinery for the floating of government securities even
when Pearl Harbor occurred.
In conjunction with the Board of Governors of the
Federal Reserve System and the President of the twelve
Reserve Banks, the American Bankers Association offered its
full support In the national defense program. The National
Defense Loans Committee of the American Bankers Association
was set up accordingly. In each Federal Reserve district a
committee was organized to convert a peace-time economy into
a defense-program economy. These decentralized regional
organizations were charged with the duty of familiarizing
bankers with the process of lending on Government contracts
for supplies and plant facilities. Banks were ready to be
called upon for loans to finance rearmament orders. They
were also ready to advise customers relative to the procedure
of bidding for financing and executing Government contracts.
The efforts which the American Bankers Association
dedicated to the National Defense Program were embodied in
two parts: The Committee on Treasury War Borrowing and the
Committee on War Bond Drives. Although the activities of
University of Southern Californ.a Library
102
these two committees varied, they provided a liaison both
between the Treasury1s War Finance Committee in each State
and the State Bankers Associations. Seven War Bond Drives
were conducted by the American Bankers Association during
World War II, in its efforts to help the Treasury to meet
the quota. In cooperation with and supplementing the work
of other selling agencies in this country’s vast war finan
cing machinery, the Association’s endeavors were directed
toward a personal convass of every possible customer. Two
features characterized the mechanics of these campaigns.
First, banks were urged to set quotas for themselves both
on assets and employee basis. Second, banks in each locality
were required to make regular reports so that results could
be made, checked and progress measured. The American Bankers
Association, together with its State Bankers Associations,
designated one banker In each state to be the head of the
Drive to cooperate with his state War Finance Committee. In
each bank, special War Loan Accounts were provided, as a
means of making payment for Government securities sold and
for its customers who subscribed the securities through the
bank. When the depositor subscribed to Government bonds, it
was simply a transfer from private deposits to a Government
deposit on the bank’s books; and when the Government drew
down the bank’s deposits, it meant only a temporary reduction
103
in aggregate deposits, because the Government would promptly
spend the money, which, in turn, came into the hands of some
other depositors. So theoretically, the mechanics of selling *
the War Bonds had no effect upon the funds of the banks.
War Loan Accounts required no reserve and were not subject
to the assessment of the Federal Detective Insurance Corpora
tion. Thus the Government program of war financing carried
with it a large increase in deposits, especially in those of
the agricultural areas.
The American Bankers Association urged its member
banks to assume their war responsibilities by complying with
the following program:'*'
A. Financing the War
It is the duty of the banks —
1. To encourage thrift and discourage spending so as
to accumulate funds for war.
2. To push vigorously the sale of defense savings
bonds and stamps and tax anticipation notes.
3. To subscribe Treasury issues suitable for banks.
4. To help maintain a broad and dependable market
for Government securities.
♦
5. To advise with the Treasury and the Federal Reserve
System in planning Government fiscal policies.
"The Banker in War Time," Banking Magazine* March,
1942, p. 79. ° °----
104
B. Aid to War Production
It is the task of the member banks —
1. To assist small business with war orders.
2. To finance war industry both in plant expansion
and In current operations.
5. To participate with Federal financing agencies
when the job extends beyond proper banking scope.
4. To advise with business customers In converting
plants to war use, in dealing with Government agencies, and
in other war problems.
5. To lend to the farmer and distributor for the
"Food for Freedom" defense program.
6. To scrutinize non-defense loans with care and to
discourage expenditures which might compete with war produc
tion for material or labor.
c* Keeping the Economic Machine Running
It is the responsibility of the banks —
1. To provide for business and government deposits,
checking, transfer, and payroll facilities, on a new and
large scale.
2. To sell and distribute vast numbers of defense
bonds and stamps.
3. To cooperate with the Treasury in dealing with
105
foreign funds.
4. To offer special services for men in the armed
forces.
5. To help Interpret Government to business and busi
ness to Government that they may work together with under
standing and unity.
House In Order
To play his part effectively the banker*s own house
must be kept in order. It is his duty —
1. To maintain the quality of his bank’s assets.
2. To husband his resources through a prudent policy
of reserve and dividends.
3. To practice as well as preach the gospel of work
and save.
E. Jn the Community
As a citizen of his community the banker, who is not
himself callad into the armed services, had special obliga
tions —
1. To share with others responsibility for the success
of Red Cross and United Service activities and civilian
defense.
2. To make local', state, and national bankers’ organ
izations effective agencies in the Nation’s service.
106
3. To help the public understand war taxes, war
restrictions, rationing, price controls, and other war
measures which depended for their success upon public co
operation and public morale.
Responding to the Government financing and lending
aids, bankers in this country contributed their best part
in the prosecution of the War. Their efforts may be summar
ized from the following angles:
- * - • Treasury Finance. The American Bankers Associa
tion did its best in supporting the Treasury in the distri
bution of war bonds offered to the public. More than 85 per
cent of all the Defense Bonds were sold through the members
of the Association. It assisted the Treasury in putting the
long-term bonds with corporations, insurance companies,
estates and other investors. Meanwhile the Association also
persuaded its members to purchase large amounts of bills,
certificates of indebtedness, notes and short-term bonds
suitable for investment. Banks did their patriotic duty in
carrying a fair share of Government obligations in their
portfolios. Usually, the banks purchased bonds against the
trend of the market, or when it showed a tendency to decline.
Thus they provided a stabilizing influence upon the market.
2. War Production Credit. Through the assignment of
the Claims Act of 1940, the Regulation V of the Federal
107
Reserve System, a large amount of credit was extended to
contractors and suppliers who were furnishing the needed
munitions for war. Through the technique of Government
guaranty of such loans, banks enjoyed a good record in help-
expedite the war program.
3. Agricultural Credit. The timely efforts of the
American Bankers Association were helpful in urging member
banks to extend credit to farmer's so that there was no little
disruption on the home front. The "Food-for-Freedom1 1 pro
gram of 1942 proved to be a success. The efforts of the
Association received the wide support of farmers, agricul
tural leaders and others concerned with the unprecedented
task assigned to American farmers and the related food
industries. The price guarantees provided to farmers were
a potent factor in bringing about a quick expansion of most
lines of farm production. Many prudent farmers, who ordinar
ily used little or no credit, expanded their operations
through the wide use of farm credit. On the other hand,
country banks urged farmers not to use bank credit only, but
to produce more, to pay off their debts, to create savings,
and to buy war bonds.
In addition to the above, the Association encouraged
its members to do the following things:
1. Handle various phases of payroll operations
108
for the Army, Navy and War production plants.
2. Finance war housing projects by modernizing
old properties for the accommodation of war workers.
3. Cooperate with the Office of Price Administration
in rent control measures. The registration forms of houses,
apartments and other dwellings in defense rental areas were
placed in the hands of the banks for distribution. The Asso
ciation also worked jointly with the Office of Price Adminis
tration to carry out the ration coupon banking. The arrange
ments provided that after December 28, 1942, ration banking
and "ration check" be used exclusively in transactions between
suppliers, wholesalers, and retailers of sugar and gasoline.
Under this program the Government contemplated the nation
wide use of banks in the clearing of coupons for sugar and
gasoline. This was done at the banks or at a branch of a
bank at which the business men carried checking accounts.
In each rationed community only one account could be opened
by each business man.
4. The control of foreign funds.
5. Furnishing payroll cash for all Army and Navy
posts outside of cities where there was a Federal Reserve
Bank or branch. About 500 posts were established for pay
roll requirements during the War.
As a result of its efforts and activities as described
109
above, the American Bankers Association was able to create
a perfect mesh of the gears of association machinery to
assist in bringing the World War II to a victorious con
clusion.
CHAPTER XII
THE ANTI-INFLATION PROGRAM
The American bankers deny that they have had any
part in the responsibility of creating the post-war infla
tionary situation. The real cause of inflation, they argue,
is due largely to governmental deficit and war financing.
In their opinion, continued government expenditures in excess
of revenue and government financing of large exports, not
offset by imports, contributed to the increased high costs
and to the expansion of bank credit. According to their
contention, bank credit is only the symptom, and not the
real cause of inflation. The curtailment of the inflationary
trend requires the coordinated efforts of not only govern
ment but also labor, industry and that of the individual.
Mr. Dodge, President of the American Bankers Association
points out that in playing their part toward the checking of
the inflationary influence, banks need selective and effec
tive inaction. Selective inaction means that credit should
be granted only when it adds to the supply of consumption
goods. He emphasized that the future welfare of the American
economy depends upon production.
Members of the Association declared that they would
voluntarily fight the trend of inflation. The Association
Ill
made its first announcement *of an anti-inflation program in
January, 1948. In February, a series of cross-country sec
tional conferences were held in Columbus, Ohio. Officials
of the Association look upon the program as a cooperative
effort of the members to meet a national need.
The so-called anti-flation program of the American
Bankers Association consists of four major issues, which the
Association requests all of its members to convert into a
uniform action. According to the program, the first thing to
be done is the restriction upon commodity and inventory loans
for the hoarding of essential goods in anticipating higher
prices. The entire membership of the Association is advised
to contract the type of credit that adds materially to the
demand for those goods that are still scarce in supply.
Instead, loans should be made for productive purposes only.
Only those producers who are now producing are entitled to
receive loan accommodations from members of the Association,
so that the machinery for the production of essential "goods
may be functioning at maximum levels. The Association also
warned its members of the danger of pyramiding debts on the
part of the debtors.
In the field of consumers’ credit control, the Asso
ciation advised that a large down payment and the shortest
possible terms are necessary measures. Mortgage loans not
112
for urgent or essential buildings should be discouraged,
till labor and building supplies are in greater abundance.
Furthermore, qualitative control of credit should be
exercised. The nature and amount of loans to be granted to
individuals should be directed into sound and productive
purposes. Farmers should be encouraged to build up the
full productivity of their farm land so that the production
of food may be augmented. They should also be urged to pay
off their existing debts out of their present high income,
on the one hand, and to build up their financial reserves
through the ownership of Treasury bonds and savings deposits
on the other.
The Consumer Credit Committee of the American Bankers
Association fought for the abolition of the Regulation W,
because such a regulation had been outmoded at the end of
the War. The Committee suggested that Congress should elim
inate the war-time controls that hampered the functioning
of the private enterprise system. Such a control was infla
tionary; because if the terms imposed are too severe for
most people to buy needed consumer goods, they would be
forced to sell their war bonds to purchase such goods.
In compliance with President Truman’s recommendation
to Congress on November 17, 1947, the Board of Governors of
the Federal Reserve System proposed to Congress two specific
113
measures for the restraint of bank credit expansion:
1. Permanent restoration of the power to the Board
for the administration of Regulation ,W.
2. Legislation to empower the Board to increase
deposit reserve requirements to as high as 51 per cent for
central reserve cities on demand deposits and 15 per cent
for time deposits. These secondary reserves, the Board
stated, should be kept either in cash or short term govern
ment obligations. A bill for the restoration of Regulation
W was introduced into Congress in 1947. This, however, was
opposed by the American Bankers Association on the ground
that such a scheme would be impractical in view of the fact
that each bank should be operated in such a way as to meet
the needs of the particular community it serves. No percent
age of short-term government obligations could be fairly
applied to all banks. They further objected to the bill,
due to the fact that such a plan would empower the Board to
judge for the boards of directors of the 25,000 banks in
this country regarding the employment of their funds. Such
a measure, they argued, would mean the socialization of
banking.
The members of the American Bankers Association are
of the opinion that the Board of Governors of the Federal
Reserve System has already possessed ample powers of credit
114
control which have not been used to their fullest extent.
More powers to the Board are not necessary. The Association's
Credit Policy Commission believes that only by a voluntary
program of cooperation on the part of the nation's banks could
the current inflationary forces be curbed under the present
circumstances *
The increasing of the reserve requirement to 51 per
cent in central reserve cities, as proposed by former
Governor Eccles, also met the opposition of the Federal
Advisory Council. Mr, Robert V. Fleming, President of the
Riggs National Bank of Washington, D.C., pointed out that, as
of June, 1947, all the commercial banks had made smaller
loans based on their deposits than they made in December,
1937. He also contended that inflation has been due to the
high price level and to high wages. The Advisory Council
also pointed out that "to a large extent, the growth of loans
is a direct result of Government policies. For example, an
increase of nearly 4 billion dollars in the real estate loans
by insured commercial banks since the end of the War re
flects directly the purchase of Federal Housing Administra
tion and Government Insurance mortgages in the housing pro-
grarn."
American Bankers Association, "Banking,” January,
1948, p. 38.
115
At the invitation of the Secretary of the Treasury in
1947 the Committee on Government Borrowing of the American
Bankers Association convened for several times in Washington
to discuss Treasury financing matters. The Association
recommended that in order to check inflation, Government
expend!tures should be reduced, the budget balanced, and the
floating of short-term debt be placed among institutional
and individual investors rather than on commercial banks.
The re-distribution of the debt to non-bank investors would
reduce bank deposits and lessen the inflationary dangers.
It would also reduce the risk of floating a large public
debt. It is therefore the contemplation of the Association
that the cooperative voluntary control of credit on the part
of the banks, together with the restraint of Government
deficit financing and huge expenditure, would suffice to
curb the post-war inflationary tendency in this country.
CHAPTER XIII
SUMMARY AND CONCLUSION
An historical review of the major policies of the
American Bankers Association reveals a record of unsur
passed service to the banking structure of the United States.
With more than 15,000 banking institutions, diversified in
nature and scattered as they are in this country, it is,
indeed, desirable that there should be a cohesive factor to
coordinate the policies and activities of all the commercial
banking institutions as a whole. This is especially a
matter of necessity in a country where a dual banking system
and a free competitive economy exist. It Is undeniable that
In our modern highly-developed financial system, failure
caused by mis-management of a single bank may prove to be
serious to the whole economy. Sound bank management, however,
can best be obtained through the interchange of bankers'
experiences arising out of their actual business operations.
In other words, technical problems involved In banking can
only be solved by men of experience in that field.
Ttfhile the Federal Reserve System has been recognized
as an outstanding feature in the American banking system, it
should be mentioned that the System embraces only two-thirds
117
of the commercial banks as its members, for there are some
5,000 banking institutions still remaining outside of the
organization. The administrative and supervisory duties of
the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation and the Banking Depart
ment of each State, are limited under general laws. The
responsibility of handling all the special problems encoun
tered by each of Its members falls, therefore, upon the
American Bankers Association. Since its establishment, the
American Bankers Association has been able to cooperate with
the Government in Its economic policies on the one hand, and
to promote the general welfare of the banking fraternity on
the other.
. In contrast to the Canadian Bankers Association as a
project of legislation, the American Bankers Association was
born of a natural growth and is joined by its members on a
voluntary basis. At the present time, however, it represents
96 per cent of the American banks and 99 per cent of the
financial resources of this country. It has been a conglomera
tion of the best thoughts of American banking intelligencia.
Furthermore, as an unincorporated and non-prifit-making insti
tution, the Association is more appropriate than other cor
porates In Its function to secure the common interest of all
the members and to obtain the best possible solution to the
118
collective problems in American banking. Again, the Associa
tion is national in scope, being supported by the state
associations which, in turn, are formed as the main body of
their city, county, and district units* The Association
serves no special group or regional interest, but rather
all who are engaged in the business of banking. It is,
therefore, an association by the bankers, for the bankers
and of the bankers.
With the development of its nearly 75 years of history
the Association has been well organized and its work covers
all aspects in the field of banking. Each division of the
Association serves each particular type of bank transaction.
Each line of banking practice is advanced through the
officials’ efforts and the annual decisions of each divi
sion.
In the field of bank operation and management, through
the National and State Banking Divisions, the Association
has devoted its attention particularly to the problem of
interbank relations and problems concerning the competition
among member banks, and of bank thoughts on practically all
management policies and political aspects of banking. Chief
among the contributions of the Association In the line of
bank operation and management, has been the conducting of
the regional conferences for State Bankers Associations and
119
the clearinghouse, the survey of bank operating ratios, loan
and investment policies, the operation of savings and trust
business in member banks, the freeing of banking from
partisan political influence, and the preserving of unit
rather than branch banking. Along with the changing poli
cies adopted by industry and commerce, the American Bankers
Association has been able to make adjustments and improve
ments in the methods of operation of member banks to meet
the current situation. It has been the aim of the Associa
tion to work out more uniform systems and procedures among
banks, more research and analysis and more standardization
of bank operations as well as supervision.
As to the Association's achievements in legislation,
in addition to its efforts and assistance in bringing about
the Federal Reserve Act of 1913, success has been attained
in fostering the passage of uniform banking laws, such as
the Negotiable Instrument Act, the Bill of Lading Act, the
Warehouse Receipt Act and other measures which contribute to
the efficiency and safety of American banking. In many
other instances, Federal legislation on banking has resulted
from - the recommendations and suggestions of the Association.
The Association has spared no efforts in seeking to
protect its members from competition resulting from the activ
ities of Government lending agencies and the postal savings
120
system. It also helped some of the falling banks during
the depression of the nineteen thirties. The Association
has also been successful in establishing a better under
standing between the banks and the public. The American
Institute of Banking, with its chapters in all metropolitan
cities throughout the country, provides an extensive educa
tional program not only in the Graduate School of Banking,
out of which come many promising bankers, but also for the
community at large. The publication of voluminous booklets
and pamphlets providesmaterial for professional study and
research data for students of banking in colleges and uni
versities. The magazine "Banking" affords valuable chron
ological records of the American banking system.
During its 45 years record of the Insurance and Pro
tection Department, the American Bankers Association has been
noted for its efforts in the apprehension of bank crooks,
and the full protection of its members, as demonstrated by
the fact that member banks are enjoying the full protection
of insurance and the Association's protective sign.
It was through the assistance rendered by the Associa
tion to the United States Treasury that billions of dollars
worth of Government War Bonds were sold to the public; and
the whole-heartedly support of the Association to the Govern
ment was attributed as a principal factor in winning the
121
victory in World War II. It is true that the Federal Reserve
System provides an elastic currency serving the nation in
times of war, but it was the Association which, by directing
its members in their contact with the public, carried out
the gigantic work of selling the War Bonds to the average
American investor.
With the teimination of the War, there remains another
major work for the Association to perform -- the fighting of
inflation. Realizing the dangers of inflation, the Associa
tion is willing to play Its full part In qualitative, as well
as quantitative credit control. Its’ anti-inflation program
has gained widespread public approval.
To conclude,the history of the Association has shown
development, growth and adjustment in meeting the changing
and expanding conditions in the United States.
BIBLIOGRAPHY
BIBLIOGRAPHY
A. BOOKS
American Institute of Banking, Bank Administration* Hew
York: American Institute of Banking, 1940.
American Bankers Association, Present Day Banking, 1947-1948.
New York: American Bankers Association, 1948.
_______, Reports of Annual Conventions (1875-1947) of the
American Bankers Association.
_______, The Answers of the American Bankers Association.
New York: American Bankers Association, 1941.
_______, Activities of the American Bankers Association.
New York: American Bankers Association, 1942.
_______, Constitution and By-Laws of the American Bankers
Association. New York: American Bankers Association,
1946.
Garis, Roy L., Money, Credit and Banking. New York: The
Macmillan Company, 1934.
Kelly, Clyde, The United States Postal Policy. New York:
D. Appleton and Company, 1931.
Westfield, Roy, Money, Credit and Banking. New York: The
Ronald Press, 1947.
B. PERIODICALS
Banking Magazine. New York: American Bankers Association.
Bankers Monthly, Chicago.
Los Angeles Banker. Los Angeles: American Institute of
Banking.
The Banking Law Journal. Cambridge: Bankers Publishing
Company.
124
American Banker (Daily). New York.
The Industrial Banker. Indiana: American Industrial Bankers
Association.
Burroughs Clearing House. Detroit, Michigan.
The Commercial and Financial Journal.
What the American Institute of Banking Is. A pamphlet
published by the American Bankers Association, 1947.
Herrick, Allan, ’ ’ History Marks the Boundary Between Govern
ment and Banking,” American Bankers Association
Journal, 1934.
UnfcMsfty o, Southom c.lif»mia L : b r . r

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Creator Wang, Ralph Kun (author)

Core Title The American Bankers Association: Its functions and major policies

Degree Master of Arts

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag business administration, banking,economics, general,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Garis, Roy L. (committee chair), Ding, Edwin (committee member), Leonard, Joy L. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-435732

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