Our feeling is frankly this, that it will be less of a detriment to the Federal reserve system if it gets early notice of the withdrawal of banks which already have, as these gentlemen have stated, a considerable portion of interest in the twelfth district. It would be possibly easier to accept their withdrawal, if they found it necessary at this time, than it would at some later time when their interest was very considerably larger; and, in fact, I do not think that there is any doubt in these gentlemen's minds that if they succeeded in establishment to the point of success that they hope, they do not mind whether there is any Federal reserve system or not. It will not be necessary; the Federal reserve system is not necessary in Canada. They have got all the things there that the branch bankers want now.

There was one little instance that I forgot, touching upon what I should think would affect the safety of the branch banking system. After this conference that we had at former superintendent Dodge's office, my vice president met the Pasadena managing director, of the Los Angeles bank; and said, "I am glad you and Jim got your differences fixed, because, after all, you know we do not want a great many branches in Pasadena, because it is the undivided profit account that we are all thinking about."

Now, this branch manager is paid a lot of money. He is a pretty high salaried man; he is a very prominent man in our community; and you would expect him to have the interests of his own institution at heart. His answer was, 66 Oh, undivided profits; that is something for the stockholders to worry about." All he was, was head of the local bank, with all the independence that can be guaranteed by the branch bank system to a local manager. His idea of the "undivided profit account" was something for the stockholders to worry about. That is the danger of striving for size.

We have a feeling still in the old fashioned unit system that the undivided profit account is something for the president of the bank to worry about, and if we had any officers that did not think so we would do without them.

There was one other point that I omitted when I was speaking about rates: When the two banks that have been taken over in Pasadena by these two branch banks, were independent banks, we had considerable difficulty in our trust company with the competition. There were men in charge of each of them that seemed to think it was good business to do a trust business for nothing so as to get business for the other departments of the bank. We have not had any more trouble with the rates of our trust company since branches came into Pasadena, because they immediately raised the rates from 21 to 3 per cent, and we are all getting along fine now.

That also has been a good thing for us. I do not know whether the public would feel that it was what the people wanted or not. I think it is good business, but it is not the kind of business that we have been hearing about. In fact, to sum up, I would like to tell a story, if I may. The anxiety of the branch bankers for the welfare of the public, and particularly for the welfare of the national bankers, reminds me of the Americans who visited a town in the north of Scotland, called Scapa Flow. They saw a fine monument there and went up to read the inscription. It ran something thus: "Erected

through the generosity of the citizens of Scapa Flow from a part of the funds found on the bodies of three dead sailors." [Laughter.]

Mr. ELLIOTT. Mr. Chairman, at some time I would like the privilege of making a few remarks in regard to interest rates, inasmuch as my bank was mentioned in these figures given by Mr. Macdonnell. Mr. WILLIAMS. I would like to ask the gentleman one question that I asked a previous witness, and that is whether or not in his judgment a real danger exists in a State like California, for instance, where state-wide branch banking is allowed, that it will ultimately develop into a banking monopoly between a half dozen leading banking institutions?

Mr. MACDONNELL. I have not any doubt of it.

Mr. WILLIAMSON. You think that is the tendency?

Mr. MACDONNELL. Yes, sir.

Mr. FENN. Similar to Canada?

Mr. MACDONNELL. Yes, sir.

Mr. WINGO. What do you think Congress can do to stop it? Assuming that we should stop it, what could Congress do in that direction?

Mr. MACDONNELL. Our feeling is that this bill comes as near stopping it as any of which we have been able to think. It is true that this bill will to an extent result in a certain amount of monopoly, principally to one of the banks whose representative is not here the Bank of Italy. Possibly if there is any good in the system of branch banking those who were pioneers in that system and stepped a little faster than the others might correctly be entitled to a certain little preferment even at that. If the branch bankers think that branch banking is a good thing, those banks who have gone the farthest with it, before the public objected to it seriously enough to stop it where it is, are entitled to the advantages they have already won. We have not come here with the idea that it was possible to do what is in common parlance called "unscramble" the whole branch bank system, or turn the clock back. But we do not agree with the suggestion made by the gentlemen who represent branch banks that national banks be also allowed to do a state-wide branch banking business. I am president of a national bank, but I do not want state-wide national branch banking. I do not think it is the best system for the country. But I do not think at the same time that the people will get any opportunity to express their approval any more than they have had in California to date. It is not a question of the choosing of the people when these banks become large any more than it was the choosing of the people that other corporations became large. They did not choose the condition; they woke up and found it.

Mr. WINGO. That is what I had in my mind. I do not know whether sections 8 and 9 will check this or not. I do not know whether there is anything Congress can do to check it.

Here is the thought I have got in my mind, whether wise or unwise: We seem to be an era of consolidation, and if branch banking is profitable to men who want to engage in it and they are permitted to engage in it to any extent, their influence will sooner or later break down any barriers that are merely statutory, either by direct action or by indirection; and you are left with this conclusion, which you

can not escape, that whenever the thoughtful men of any business in America make up their minds in a very large measure that a certain course is a wise course and honest course and sound course they have their way sooner or later about their business, and the laws of necessity, economic laws, after all, are stronger and more powerful and more persistent and more effective than either the wisdom or dictates of Congress; is not that true?

Mr. MACDONNELL. I think so; yes.

Mr. WINGO. Just what could we do if we decided we wanted to stop it? You do not believe sections 8 and 9 are going to stop the growth of branch banking, do you?

Mr. MACDONNELL. I d not say that it will have the complete effect we might desire in California; it would, however, have a pretty considerable cumulative effect or general psychological effect, considering the whole of the United States.

Mr. WINGO. Will not the immediate effect be the establishment of a large number of branches by banks who do not now have them? Mr. MACDONNELL. Within cities?

Mr. WINGO. Within cities. Is not that the object of the bill, to permit banks who have not got the branch-bank privilege in their cities now, national banks, to immediately meet competition of other national banks who come under the law of 1865, or have branches under the law of 1865? Is not the object of this bill to permit those banks to meet this competition-and that is urged as a very present necessity; and if that is, will not immediately a large number of branch banks be established within the corporate limits of every large city in the United States? And then, will it not follow that these men honestly believing in it-let us not assume now, for the sake of argument, that they have all the selfish purposes you may suggest and you are fearful of: let us assume they are mindful of the undivided profit account. A great many men really believe that branch banking is fine for the stockholders, and that it is an ideal evolutionary process of our banking structure. They believe that, and that added to every bany that has branches will naturally believe that the thing they are engaged is all right, that it is wise; and they will extend that influence: and will not pressure be brought on States that do not now permit branch banking to get them to amend their laws, so that State banks can have branch banks in the cities, and so that the national banks can? Whereas now in the States where State banks do not have branches, if some man offers a bill to authorize State banks to have branches, the influence of the national banks immediately is exerted upon that legislature to prohibit it.

But if you enact this bill, you have the influence of the national banker in the cities, and they are the big influence with the legislators-I do not mean improper influence; I mean perfectly proper, because generally the big banker in the large cities and larger communities has got his position by reason of character, integrity, and ability to command the respect of thoughtful men, and naturally they will have great influence with the members of the legislature; and will you not have the two forces then joining to amend the laws of those States which do not now permit branch banking, so that you will have, in a short period of time, every State in the Union permitting branch banking. The cities are growing larger and larger all the time, becoming the centers of banking, so that you can

reasonably expect that within a short period of time that the majority or the overwhelming percentage of the bank capital of America will be engaged in branch banking; is not that the logical effect of this very bill, if we pass section 8?

Mr. MACDONNELL. Mr. Wingo, my feeling is this: That there is a distinct difference in principle between branch banking that is widespread and the mere allowing banks to have branches within a radius anywhere from which the customer can easily come to the head office. It is not only a difference of degree; it is a difference in principle. I regard a bank in a town, say, of 50,000 that has two or three branches as a unit bank; I do not regard it as a branch bank; it is, on the other hand, an office where every customer who wants to talk credit in any important way can come, as he always has come, to the ranking officers and discuss it, and bring his own problems to them, although he may for the purpose of convenience make his daily deposits and that sort of thing at one of the branches.

We have in our little town of Pasadena-our California towns. are spread out rather widely for the population-a population of about 60,000 to 70,000 people. We have already had people come to us and say, "Can you not put a branch out in our neighborhood? It has got so hard to come down to the front door of the bank, because we can not get a place to park our automobiles, that we will have to go some place else."

We received a charter to do business in Pasadena when it was a city of 5,000 population. The city has grown and we have grown. We feel it is perfectly proper that we should in a city of 60,000 be able to give at least as good facilities as we did when it was 5,000. Mr. FENN. That is, to have branches in the true sense?

Mr. WINGO. Then, assume it is true. now does it not mean this much: The population of the cities is growing more and more rapidly than the population of the country. Your country population is dwindling. We had over a million farmers in 1923 to leave the farm and go to the city. Business is going to be done, the great bulk of it, inside the city limits of the cities of the land. Now, if you go ahead and authorize these branches-and you contend it is still unit banking-it means that in a few years' time the overwhelming majority of banking operations in America will be done. by banks that have branches, even though they may be within the city and properly a part of one unit, as you said. Will not that be true?

Mr. MACDONNELL. Yes; it will means this

Mr. WINGO. Will not this also follow: Will they not then come in and say, "Here, our community has expanded. Congestion is great." Industrial banks no longer exist inside the corporate limits to a very great extent. A great many cities have industrial cities that are separate and distinct municipalities that you can not tell where the main city begins and where the industrial village or city commences. But they maintain a separate municipality. Then will not these bankers come along and say, "Here, is a box factory; here is a wagon factory." We will just take the city of Fort Smith. Here is South Fort Smith [indicating], a separate and distinct municipality. The corporation line is an invisible line there. The street car runs across the boundary, and I do not know where it

is. I could not tell you it is. But they are separate municipalities. The City National Bank of Fort Smith as that industrial city of South Fort Smith grows will need a branch in South Fort Smith a great deal more than it will need it out in the northeast and residential part of the city. We will say one of the directors of this bank is a director of this wagon factory in South Fort Smith. He used to handle the wagon factory and went into town and he is acting vice president of the Merchants National Bank. That is the Merchants National Bank business out there. And they say, "Why should not we be permitted to put a branch out there in that industrial city?" If it is right to permit it within the corporate limits, why is it not right beyond, because is not the thing you are fighting a business unit, not bound by municipal boundary lines? Your argument goes to the industrial group communities, does it not? Your argument is, "Here, we are in the center of a city of industry, not of political lines." When they come to us with that argument will we not have to do that, when the same bank comes along and says, "Mr. Wingo, I think you ought to amend this law. We ought to have a branch over in the city of Van Buren," which is just across the bridge over in another county.

The river separates the two municipalities. You can not tell where Fort Smith ends and Van Buren begins, except somebody has told you the river is the line. Street cars run right on to the main street of Van Buren, and the banks on the main street of Van Buren are nearer to the heart of Fort Smith than some of the outlying communities and stores in Fort Smith, and they will say, "You ought to amend this law so we will have a branch bank across the river in the heart of Van Buren, where the gas smelters are." The big business is over there. When they want their pay roll made up and their checks cashed, they have to get in a car and drive across the river. "Why not let us have a branch over there?" Will not that argument be sound, and will it not mean, if we follow that to its logical conclusion, that we will be going beyond the municipality and we will be fixing the unit a given number of miles suggested by somebody beyond. Will not that be the natural evoluntionary process of this movement?

Mr. MACDONNELL. I think, Mr. Wingo, that there will be difficulties in special instances as there have been in making the districts, for instance, of the Federal reserve bank. But, taking it by and large, and not knowing the particular geography of those cities

Mr. WINGO. That applies to several cities I might think of.

Mr. MACDONNELL. My thought is this: Let us leave the question for a moment of the good or bad even for the people in that city across or that district across the river, but take the man who is living in a small town and has a bank 20 or 25 miles from your city. Is not that going to be a good thing for him? It is going to build up city correspondents to whom he can go that will be worth while, that will have all the advantages of size that is claimed by the branch bankers for their system. Instead of having a city of 10 banks, no one of which is quite big enough to help him sufficiently, you will allow what are really unit banks inside cities, and I admit the particular instances in which it may be difficult to decide that territory: but you will have strong, powerful, independent American bankers in the cities to whom the country banker can go, and you