compcurr_1954

NINETY-SECOND ANNUAL REPORT

OF THE

Comptroller of the Currency

1954

WASHINGTON : 1955

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

TREASURY DEPARTMENT

Document No. 3196

Comptroller of the Currency

For sale by the Superintendent of Documents, U. S. Government Printing OfficeWashington 25, D. C. - Price $1.75


LETTER OF TRANSMITTAL

TREASURY DEPARTMENT,OFFICE OF THE COMPTROLLER OF THE CURRENCY,

Washington, D. C, June 15, 1955.SIRS: In accordance with the provisions of section 333 of the United

States Revised Statutes, I have the honor to submit the followingreport covering the activities of the Bureau of the Comptroller of theCurrency for the year 1954.

Respectfully,RAY M. GIDNEY,

Comptroller of the Currency.THE PRESIDENT OF THE SENATE.THE SPEAKER OF THE HOUSE OF REPRESENTATIVES.


ANNUAL REPORTOF THE

COMPTROLLER OF THE CURRENCY

A moderate contraction in business activity from the 1953 highpoint was in progress at the opening of 1954. This movement hadits origin with the cutback in defense spending, the curtailment ofinventories, and the depressed condition of agriculture in some areas.The downward trend came to a halt during the first quarter of 1954and following a period of little change, in the fourth quarter activitymoved upward, and total production and employment improved,stimulated by the automobile and related industries.

The affairs of the 4,796 national banks which comprise the nationalbanking system continue in excellent condition as reflected by thegeneral soundness of their managements, assets, capital strength,earning capacity, and liquidity. At the close of 1954, the totalassets of national banks amounted to $116 billion, a gain of $6 billionfor the year. Their total deposits were $106 billion, an increase of$5 billion during the year. Approximately 50 percent of the bankingresources and deposits in the commercial and savings banks of theNation were held by national banks. Exclusive of 528 State-charteredmutual savings banks with total resources of $29 billion, the 9,064State-chartered commercial banks and trust companies had totalassets of $87 billion, or about 43 percent of all commercial bank assets.

The total loans held by all national banks on December 31, 1954,reached a new high of $40.4 billion through an increase of $2 billionduring the year. Investments in obligations of the United StatesGovernment increased $4 billion to an aggregate in such investmentsof $39.5 billion. Municipal, corporate, and special revenue bondinvestments increased $785 million during the year to $9.2 billion.

The national banking system continued to maintain adequateliquidity as evidenced by cash and balances due on demand fromcorrespondent banks in the amount of $25.7 billion and United StatesGovernment obligations of $39.5 billion or an aggregate of $65.2billion, which is equal to 82} percent of demand deposits and 61 }percent of total deposit liabilities at the close of 1954.

Consistent with the essential objective of the Comptroller of theCurrency that adequate capital structures be maintained in thenational bank system, 142 banks completed capital increase programsin 1954 involving the sale of new shares which yielded $227 millionof additional funds to strengthen their capital structures. Theshareholders of national banks approved 323 dividends payable incommon stock having a total par value of $79.3 million during theyear. In the 9-year period commencing with the year 1946 and endingwith 1954, 1,329 national banks completed new capital sale programswhich supplemented their capital funds by $782 million.

On December 31, 1945, the national banking system had total re-sources of $90.5 billion, and total deposits of $85.2 billion which were


2 REPORT OF THE COMPTROLLER OF THE CURRENCY

protected by total capital structures and reserves of $4.7 billion.Nine years later at the end of 1954, total resources were $116 billion,total deposits $106 billion, and aggregate capital structures and re-serves amounted to $8.7 billion. The increase in capital structuresand reserves of national banks amounting to $4 billion over the9-year period was effected as follows:

[Figures in millions of dollars]

Year

19461947 _ - .1948 .19491950 . . . .1951195219531954

Eetainedearnings

325269230270308259302298441

2,702

Net increasein reserves

for baddebts andvaluationreserves

0)0)

1218088943833

107

561

Newcapital

sales

51192819

1111539381

227

782

Total

376288379369507506433412775

4,045

1 Reserves for bad debts authorized late in 1947 and commenced generally in 1948. Valuation reserve

figures not available for these 2 years.

It is significant that the added capital protection provided bynational banks over the period set forth above increased 85 percentwhile total resources and deposits increased 28 percent and 24 per-cent, respectively. While the character and composition of bankassets underwent a marked change from a large concentration inobligations of the United States Government amounting to 57 per-cent of total assets, and a moderate loan volume equal to 15 percentof total assets, to the present percentages of 34 percent and 35 per-cent, respectively, and somewhat larger amounts are now invested inmunicipal and corporate bonds, it is apparent that the managementsof a great majority of all national banks have recognized and forth-rightly met the responsibility to maintain their banks on a properlycapitalized basis. This is further evidenced by the fact that thenational banking system's $8.7 billion of capital funds and reservesis the equivalent of $1 of capital protection to cover the potentialrisks involved in each $5.27 ($5.43 at the close of 1953) of loans,municipal and corporate bonds, and other assets remaining after de-ducting from its $116 billion of total assets, $71 billion of cash or itsequivalent, United States Government obligations, and loans or por-tions of loans guaranteed or insured by Federal Government agencies.

Assets in the national banking system considered by national bankexaminers to contain substantial or unwarranted elements of riskrepresent only a nominal amount in relation to the protection offeredby capital structures and reserves. The amount involved is substan-tially less than the total of reserves for bad debts.

In April 1954, the Internal Revenue Service issued supplementalMimeograph No. 54-55, applicable to taxable years after December31, 1953, permitting the use of an alternative method for computingthe allowable reserve for bad debts that may be established andmaintained by transfers from gross earnings by banks employing the


REPORT OF THE COMPTROLLER OF THE CURRENCY 3

reserve for bad debts method of accounting. While the alternativehas been beneficial in many cases, it does not fully satisfy the needsof the banking system to enlarge in a very moderate degree its capac-ity to assume greater risks, particularly those risks involved in loan-ing funds to smaller and less well-established business concerns.The new alternative formula permits each bank to key its reserve forbad debts to its own loss experience for any consecutive 20 years'period following the year 1927, and this is an improvement over theoriginal formula based on a loss experience covering the most recentconsecutive 20 years. Both of the existing formulas, by reason oftheir being tied into the loss experience of the individual bank, per-mit the largest reserves to be established by those banks which suf-fered the greatest loan losses in the past, usually 20 to 25 years ago.Thus the bank that suffered the heaviest losses many years ago is, ineffect, rewarded today by being permitted to establish the largestreserves for bad debts.

There is need for a bad-debt reserve formula, not related to theloss history of the individual bank or groups of banks, but based uponthe sound premise that a normal proportion of loss must be expectedin the business of lending and such losses should be regarded as alegitimate business expense against which a reasonable initially tax-free reserve should be established. A suitable and soundly based for-mula would permit banks to create and maintain reserves by trans-fers from gross earnings at a rate of ){ percent per annum until asuitable ceiling is reached without reference or as an alternative to aceiling based on previous or current loss experience. To accomplishthis it is believed that legislative action would be necessary.

At the end of 1954, 2,594 national banks were maintaining reservesfor bad debts totaling $548 million. These banks held gross loansaggregating $36.5 billion, or 90 percent of all of the loans of the 4,796banks in the national banking system. The total of reserves forbad debts amounted to 1.5 percent of the gross loans of the 2,594banks maintaining such reserves.

The national banking system continues to meet its full share ofresponsibility to care for the essential credit needs of the nation.Gross loans and discounts in all national banks reached $40.4 billionat the end of 1954, having fluctuated moderately from the close of1953 through the third quarter of 1954, but the advance of $2.4'billion in the last quarter was more than two and one-half times thatfor the same period in 1953 and slightly above the expansion for thefourth quarter of 1952. Modest fluctuations occurred in the volumeof commercial and industrial loans during 1954, the year-end levelstanding at $16.5 billion, with the entire $2 billion expansion in grossloans distributed throughout other major categories, the most sig-nificant gain, $1 billion, occurring in loans secured by real estate.Loans to brokers and dealers in securities gained $312 million, or 30percent, and amounted to $1,356 million at the year end.

Expansion of less than 2 percent occurred during the year in thevolume of installment credit, repair, modernization, other install-ment, and single-payment loans which reached a level of $8.2 billionin the national banking system on December 31. Retail automobileinstallment paper continued its decline begun in the fourth quarterof 1953 and after inconsequential gains in the second and fourth



quarters of 1954, the volume at the year end reached $2.4 billion.The total of all installment credit in the Nation although fluctuatingwithin $1 billion during 1954, stood at $22.4 billion on December31, of which $8.6 billion, or 38.4 percent, was held by commercialbanks as compared to 40 percent in 1953. The national bankingsystem alone held $5,781 million of strictly installment loans toindividuals which, after adjustment for nonconsumer-type obligationsand hypothecated deposits representing payments on such loans,constituted 58 percent of all installment credit loans held by com-mercial banks.

The total national expenditure for all new construction, publicand private, rose from $35.3 billion in 1953 to $37 billion in 1954.Residential building accounted for slightly more than half of the total.Public construction costs in 1954 amounted to $11.5 billion. Newdwelling units started during 1954 numbered over 1.2 million, up10 percent from 1953, second only to 1950, and 1.1 million units wereactually constructed in 1954, the sixth consecutive year in which1 million or more homes were placed under construction. Theaggregate cost of new construction and modernization was $54billion. These activities continued stimulation of a generally heavydemand for real estate mortgage loans and the total real estatedebt passed $113 billion in 1954 for a gain of more than 12 percentin 1 year.

In the national banking system, loans guaranteed by the Veterans'Administration rose 10 percent over the prior year to a total of $2,125million on December 31. This gain was exceeded by conventionalloans not insured or guaranteed by FHA or VA which increasednearly 14 percent to a total of $3,085 million. Federal HousingAdministration loans gained $168 million to a total of $2.4 billion.Total loans secured by residential properties totaled $7.6 billion atthe year end, an increase of $731 million, or 10.6 percent for 1954,as compared to 6.37 percent for 1953. All loans secured by realtyadvanced 11.6 percent to a total of $9.8 billion at the close of the year.

The gross investment of the national banking system in UnitedStates Government obligations, direct and guaranteed, expanded $4billion during 1954 to $39.5 billion. A trend toward slightly longermaturities is reflected by the expansion of 136 percent or $8 billionin the 5- to 10-year group to a total of $13.9 billion, a reduction of$1.2 billion, or 8.2 percent, in bills, certificates of indebtedness, andnotes, to a total of $14 billion, and a contraction of $3.3 billion or33 percent in bonds maturing in 5 years or less to a total of $6.9billion. United States Government bonds maturing in 10 to 20 yearswere up only $576 million at the end of 1954 to a total of $3.3 billion.

Obligations of States and political subdivisions held by the nationalbanking system continued to increase, and at the end of 1954 thegross amount was $7 billion, up $1 billion, or 14 percent. Otherbonds, notes, and debentures held fairly close to $2 billion throughoutthe year.

The volume of special revenue bonds issued during 1954 to financetoll roads and bridges throughout the Nation rose sharply. In otheryears the Comptroller of the Currency has been asked to rule uponthe eligibility of infrequent issues of this type for investment bynational banks. Eligibility of such issues is dependent upon their



conformity with the provisions of the Investment Securities Regula-tion of the Comptroller of the Currency, promulgated pursuant toUnited States Revised Statute 5136 (Title 12, U. S. C , sec. 24).

Even though national banks hold in their portfolios only smallamounts of toll road and bridge revenue obligations, most of whichhave maturities up to 40 years, because of the heavy expansion inthis type of financing, in 1954 it became necessary for the Comptrollerto consider 14 separate issues that aggregated $2,375,800,000. It isof interest to note that in January 1954, there were 720 miles of tollroads operating and 600 more miles were opened during the year.Another 1,400 miles of such roads are under construction or financedby bond issues.

The credit worthiness of general obligations of States and mu-nicipalities, corporate issues, and special-revenue municipal authoritybonds held in national bank investment portfolios continues high.

The trend toward the combination of banks into larger unitscontinued in 1954; during the year, 121 national banks absorbed 58national and 66 State banks, and 40 State banks absorbed 41 nationalbanks, by means of consolidation, merger, and purchase. Thefollowing schedule contains pertinent details of these transactions:

Consolidations or mergers with and into national banks[Dollar figures to nearest 100,000]

Absorbed national banksAbsorbed State banks

Number

3028

58

Totaldeposits

437.4

923.2

1, 360. 6

Total bookvalue

capitalstructure

35.871.4

107.2

Continuing banks

Consolidated or merged into 29national banks.

Consolidated or merged into 26national banks.

Purchases by national banks

Absorbed national banks-.Absorbed State banks

283866

331.2146.4477.6

29.712.842.5

Purchased by 28 national banks.Purchased by 38 national banks.

Consolidations, mergers, sales of national banks with and into or to State banks[Dollar figures to nearest 100,000]

National banks absorbed

National banks absorbed

Number

12

2941

Totaldeposits

110.6199.2

309.8

Total bookvalue

capitalstructure

8.518.4

26.9

Continuing banks

Consolidated or merged with 11

Purchased by 29 State banks.



Conversions

State banks converted intotional banks.

National banks convertedState banks.

na-

into

11

2

13

146.414.1

160.5

10.9.6

11.5

11 national banks.2 State banks.

The shareholders of the 58 banks consolidated or merged with andinto 55 national banks received cash and book value stock of thecontinuing banks aggregating $109,055,260, or $1,759,909 in excess ofthe aggregate book value of the assets which those banks contributedto the mergers or consolidations. This excess amounted, on the aver-age, to approximately 0.14 percent of the aggregate deposits acquiredby the continuing banks. On a fair valuation basis, the shareholdersof the 58 absorbed banks contributed assets having an estimated value,in excess of liability to creditors, of $112,300,020 and received cashand fair value stock of the continuing banks aggregating $114,255,972,or $2,955,952 in excess of the aggregate fair value of the assets whichthose banks contributed to the mergers or consolidations. This differ-ence is accounted for through fair value appraisals of fixed assets (bankpremisesfurniture and fixtures), bond appreciation or depreciation,allowances for pension fund adjustments, excess reserve for taxes, etc.This excess amounted, on the average, to approximately 0.22 percentof the aggregate deposits acquired by the continuing banks.

The shareholders of the 66 national and State banks that werepurchased by 66 national banks received $52,618,344 in cash, or$10,052,017 in excess of the book value of the selling banks7 aggregatecapital structures. This amounts, on an average, to 2.1 percent ofthe selling banks' deposit liabilities. It should be noted that in suchtransactions the payment frequently covers assets having value inexcess of book value, and the records of the Comptroller's office revealthat the actual premiums paid amount to about $7% million, ratherthan $10 million as noted above on a book value basis.

While the number of consolidations, mergers, and sales is relativelysmall when compared to the total number of banks, these "mergers"to use the term most often applied to these transactions as a wholewere a significant factor in banking during 1954, and have receivedwide publicity. For these reasons the views and policies of theComptroller's office toward mergers are set forth here.

In dealing with mergers, consolidations, or purchases, we feel thatit is our duty under the law not to have a fixed policy, either in favoror in opposition, since we believe that the law requires us to weighthe merits of each individual case, after determining that it may legallybe effected, in deciding whether our approval should be given. Theone exception to this, of course, is the very rare class of cases (at leastin recent years) in which the consolidation of a very weak bank witha stronger institution is necessary to protect the banking public. Inall other cases, it is our job to pass upon the proposals which arebrought to us by the management of the banks concerned. When ourapproval is requested for a merger or consolidation, we considerwhether the proposal is fair and equitable to the stockholders of thebanks, whether the resulting institution will be capably managed,soundly capitalized, and in a sound asset condition, and whether there



is adequate reason of any kind as to why the merger or consolidationshould not be permitted. We could not properly carry out our respon-sibilities if we had a prejudice for or against mergers generally.

It should be noted that when national banks combine with othernational banks or with State banks, they do so pursuant to specificstatutory authority; in other words, Congress has specifically grantedto national banks the power to consolidate and merge with otherbanks. The power to consolidate under national charter was firstgranted by Congress in the act of November 7, 1918.

For many years after 1918, while national banks could consolidatewith other national banks, and with State banks under a nationalcharter, they could not consolidate directly with State banks underState charters; it was necessary, if a national and State bank wishedto combine and operate under a State charter, for the national bank toliquidate and dispose of its business to the State bank.

This situation was changed by the act of August 17, 1950, which issometimes called the "two-way street" law. Under the law permittingconsolidations under a national charter, the approval of the Comptrol-ler of the Currency is required. Our approval, however, is notrequired for consolidations or mergers into a State-chartered institu-tion under the "two-way street" law. Since 31 States have passedlegislation providing for such consolidations, and permitting Statebanks to consolidate with national banks under national charterwithout the approval of any State official, it is now possible in thoseStates for a national bank to leave the national system by consolida-tion, merger, or conversion, without the approval of the Comptrollerof the Currency. The passage of this law permitted 43 consolidationsof national banks with State banks under State charter from the timeof its passage on August 17, 1950, until December 31, 1954. Duringthis same period there were 62 consolidations and mergers of Statebanks with national banks under national charter.

Another recent addition to the national banking laws also broadenedto some extent the power of national banks to combine with otherbanks. Section 1 of the act of July 14, 1952, provides for "mergers"of national banks or State banks into national banks. This law wasdesigned for use in cases in which a large bank is absorbing a muchsmaller bank, and the procedure prescribed differs from the proceduresfollowed in usual "consolidations" under the earlier law in thatdissenting shareholders of the "receiving association"the large bankwhich is absorbing the smaller onedo not have the right to receivethe value of their shares in cash. However, two-thirds vote of theshareholders of each bank is required. There were 22 mergers underthe procedure prescribed in this law from its passage to December 31,1954.

We mention all of these laws to give some indication of the legalclimate in which we in the Comptroller's office operate. On the onehand we have, in the various consolidation and merger statutes, clearindication that Congress believes that transactions in which bankscombine are, at least in some circumstances, necessary and warranted.On the other hand, we are aware that a general policy of Congressagainst mergers and consolidations which substantially lessen competi-



tion or tend to create monopoly has been expressed in the Clayton Act.And, perhaps most important, we must examine each proposal whichcomes to us for approval in the light of what we consider to be ourprimary dutythe duty to exercise those powers granted to the Comp-troller in such a way as to promote a strong and sound banking system,and one which will grow with American business and industry so thatit can provide the financial services necessary for the continued growthof our economy.

We have no doubt that the mergers and consolidations which havebeen approved by our office in recent years have been in strict compli-ance with the law, that they have not tended substantially to reducecompetition or to create monopoly, and that they have resulted inindividual banks and a banking system better able to serve the com-munities affected and the country as a whole. So far as it is possibleto generalize, we believe that the effect of the mergers upon whichwe have had to pass has been to make for more rather than lesscompetition.

There have been some who have viewed with misgivings the sub-stantial reduction in the number of individual banks in the UnitedStates during the last 30 years, from 28,257 in 1925 to 14,388 as ofDecember 31, 1954. This reduction has resulted from conditions andpressures both within the banking system itself and in the economyas a whole.

The greatest reduction occurred, of course, between 1926 and 1939.As we look back on those years now, we can see that a part of thebanking troubles which we experienced then were the result of an"overbanked" situation in the country. There is little doubt thatthere were just too many banks for the banking business and manage-ment talent available, and this condition resulted in large numbers ofbank failures even in times when the country was generally prosperous.We are certain that none would care to return to a type of situationin the banking industry which contributed to the problems with whichwe were faced in 1930 to 1933.

The period between 1940 and 1949 saw 544 unit banks go out ofexistence in consolidations, mergers, and sales involving nationalbanks. However, the total number of banks remained relativelystable at'about 15,000. Beginning in 1950 the number of mergersincreased, and since that time 440 commercial banks have beenabsorbed in transactions which involved national banks, plus anumber of State-chartered banks that were absorbed by other Statebanks.

From January 1, 1950, to December 31, 1954, the Comptroller'soffice approved the acquisition by national banks of 157 other nationalbanks and 177 State-chartered banks through consolidation, merger,or sale, and saw 106 national banks absorbed by State-charteredbanks after approval by the governing State banking department.The following table shows the number of banks which have beenabsorbed since 1950, and their total resources:



Data on consolidations, mergers, purchases and sales, and conversions1950 to Dec.SI, 1954

Numberof banks

501592

1575910

108177

4264

106

4401122

Type

National banks consolidated with and into other national banks..- - _National banks merged with other national banksNational banks purchased by other national banks _ .

Subtotal _State-chartered banks consolidated with and into national banksState-chartered banks merged with national banksState-chartered banks purchased by national banks

Subtotal __ -_ __ - __-National banks consolidated or merged with State-chartered banksNational banks purchased by State-chartered banks - - _

Subtotal - - - - _-_State banks merged, consolidated, or purchased with or by other State-chartered

banks. (Data not available to Comptroller).Totals for absorbed banks in transactions involving national banks

National banks converted into State-chartered banks _-State-chartered banks converted into national banks - _ -- _ .__ .

Totalresources

(Millions)$799

155958

1,912

1,419161562

2,142

1,175602

1,777

5,831132235

This is a fairly large number of banks, yet the 440 institutions whichhave been absorbed represent only 3 percent of the total number ofbanks operating today.

The reasons for this recent trend of mergers, consolidations, andsales can be generalized to some extent, but it should be rememberedthat particularly where very large banking institutions are the prin-cipals, it is sometimes not possible to apply general reasons to thesituation, and specific study is necessary. However, it might behelpful to review generally some of the reasons for the desire of banksto merge or consolidate, and to list some of the basic reasons why theowners of many of the absorbed banks have been willing and eveneager to sell out, merge, or consolidate with other banks.

1. Top management problems have been among the most importantreasons. In many banks the advancing age of officers, and failure toprovide successor management, has resulted in mergers. In others,the managing owners have wished to retire from the banking business.

2. Prices or terms have been offered which the shareholders havefound most attractive. These prices or terms have been equal tobook value of the assets, and in many cases have been on a fair-valuebasis plus a premium. This has been a particularly strong factorbecause the stocks of many banks have a limited market, and sellat prices below book value. The yield from dividends has not beenvery attractive, and this has adversely affected the market price ofthe shares. This has been caused not so much by poor earnings asby the need to augment capital structure from retained earnings.

3. Smaller banks have joined forces in order to provide more effec-tive competition to nearby large institutions.



4. The failure of some banks to compete on an aggressive andprogressive basis has caused their banks to be left behind by com-petitors from the standpoint of growth, earnings, and service to thecommunity.

5. The inability of some smaller banks to meet the borrowing needsof the community, which are generally larger today than formerly,has made them wish to become parts of larger organizations.

6. In many cases local business or industrial concerns which wereof major importance to a small-town bank have been sold to largeconcerus which have their banking ties in big cities. In these casesthe small bank usually receives a smaller percentage of the bankingbusiness of the concern, and sometimes finds it advantageous tocombine with a larger bank.

7. Fringe welfare benefits and increased compensation availablefor officers and employees from the potential absorbing bank havecaused management to back many mergers.

It is also necessary to examine the motives of the continuing banksin these transactionsthe reasons why some banks have desired orconsidered it necessary to consolidate or merge with, or purchaseother banks. To some extent these motives overlap with the reasonsgiven for the banks which are selling, or merging their businesses intothe continuing bank, but we believe that the most important reasonsof the purchasing or acquiring banks are these:

1. The need to obtain banking offices in adjoining areas in order toobtain to a fuller extent the benefits of volume or retail banking; thatis, serving large numbers of individuals and small businesses whoseaccounts and loans are relatively small.

2. The need or desire to obtain banking offices in areas where theycan serve to better advantage the business which they already have.The postwar movement of population out of our large cities and thedecentralization of industry have been responsible for this.

3. The need for larger loaning limits, and more available depositsto loan. This need has been caused by the general growth of industryas a whole.

4. Keen competition with other banks, and the normal urge to excelin expansion, growth, and earnings.

5. Desire for earnings. The above four factors are related to thispoint.

It is not our belief that rising costs and inferior earnings are theprincipal cause of the current trend of bank mergers, or that this hasbeen a major contributing factor. It is necessary to go back to the1920's to find better earnings per thousand dollars of resources thanbanks generally have enjoyed during recent years. We do not meanto say that bank earnings are highthey are liot. But they havebeen as good or better during the period since 1950 than at any timesince 1929.

In approving the consolidations in all cases in which the absorbingbank was a national bank, we have carefully considered the applica-tion of the principles set forth in section 7 of the Clayton Act. Webelieve it to be a result of the present healthy state of competition inAmerican banking that in no case have we felt that a transactionformally before us for approval has required that we withhold ourapproval because its effect might be substantially to lessen compe-



tition, or to tend to create a monopoly in banking in the competitivearea affected.

The number of operating banks in the United States on December31, 1954, was 14,388, and the total number of banking offices, 20,916.It is our belief, based on close observation and long acquaintance withthe activities of banks, that banking competition has become moreand more effective over the years in bringing about availability ofcredit at suitable rates. This, it seems clear, is a most importantconsideration in measuring the state of competition in banking. Thepertinent question which we must answer is whether a merger tendsto lessen the availability of credit to worthy seekers of credit. Webelieve that the mergers which have occurred have not done so.

Furthermore, we must not lose sight of the fact that commercialbanks, such as the national banks which come within the jurisdictionof the Comptroller's office, now have competition in a highly impor-tant degree from other financial institutions, particularly mutual sav-ings banks, savings and loan associations, and life insurance com-panies. On December 31, 1954, the commercial banks of the countryhad assets of $203 billion, 528 mutual savings banks had assets of$29 billion, and 6,030 savings and loan associations had assets of$31.7 billion. The assets of life insurance companies are, of course,very, very large. The mutual savings banks, the savings and loanassociations, and the insurance companies are strong competitors inthe field of real estate lending and for the savings funds of our people.The life insurance companies are also strong competitors for largecommercial loans, particularly those of longer term.

Taking all factors together, we believe the conclusion is unavoidablethat credit facilities are more readily available to borrowers, large orsmall, than ever before. Competition between banking institutionshas increased rather than diminished in recent years, and has beensupplemented by increased activities of other lending agencies. Itcontinues to be active and effective.

Applications for permission to establish 383 de novo branches, and149 branches growing out of the consolidation, merger, and sale ofbanks with and to national banks were received by the Comptrollerin 1954. Preliminary approval was given to 396 of these applications,95 were denied, 21 were withdrawn, and 20 were in process of investi-gation. Eliminating the withdrawn and in process of investigationapplications, 72 percent of the fully processed de novo branch applica-tions received during 1954 were approved. The 149 branch applica-tions growing out of consolidations, mergers, and sales of banks withand to national banks were approved and represent a continuance ofthe existing banking units absorbed in the respective transactions.

Branch applications preliminarily approved during 1954 and prioryears resulted in the establishment of 367 operating branch bankingoffices during the year. On an average, there is a lapse of 6 monthsbetween the time preliminary approval is given by the Comptrollerand the actual establishment of the branch as an operating unit.These 367 branch offices include the continuance by absorbing na-tional banks of 191 offices at the locations of previously existing



national and State-chartered banking units (head offices and branches)involved in consolidations, mergers, or purchases, and 176 de novobranch offices established at locations where banking services were notconveniently available, including 52 bankless communities, or to sup-plement banking services in areas where additional banking units wereconsidered to be warranted and necessary.

At the end of 1954, 507 national banks located in 35 States, the Dis-trict of Columbia, Alaska, Hawaii, and the Virgin Islands were operat-ing 2,929 branch banking offices. The States in which branch bank-ing plays an important role are as follows:

State

Numberof nationalbanks op-

eratingbranches

22213499

28172

446319

Number ofbranches atend of 1954

5282638551736

11512315

11629047

State

Numberof nationalbanks op-

eratingbranches

Number ofbranches atend of 1954

Arizona iCalifornia iConnecticut i__._Idaho iMaine iMaryland 1Massachusetts-..MichiganNevada 1New JerseyNew YorkNorth Carolina 1

OhioOregon 1Pennsylvania..Rhode Island i.South CarolinaTennesseeUtahVirginiaWashington l

TotaL

1391252243451681856

161

411 2,606

1 Statewide branch banking permitted.

The Comptroller of the Currency has pointed out on several occa-sions that his office does not have a bias in favor of or against branchbanking. In this field, it is the duty of the Comptroller's office tooperate in accordance with the wishes of the people of each State,since Congress has made the powers of national banks to establish andoperate branches dependent upon the laws of each State. At the endof 1954, 35 States permitted branch banking, 15 of them on a statewidebasis and 20 on a restricted or limited area basis. The remaining 13States prohibit branch banking either through specific statutes or thefailure to enact enabling legislation.

States prohibiting branch banking, i. e., Colorado, Florida, Illinois,Kansas, Minnesota, Missouri, Nebraska, New Hampshire, Oklahoma,Texas, West Virginia, Wisconsin, and Wyoming, include several thatare densely populated, so it cannot be said that branch banking is aconcomitant of population density. Neither can it be said that it isthe result of any other unusual banking need in a specific State orStates. The residents and legislatures of certain States have consideredbranch banking as a desirable development in banking, and those ofother States have taken an opposite view.

The two largest cities in the country, New York City with branchbanking and Chicago without it, provide an interesting contrast.New York City (limited to the five boroughs) is served by 111 banks,including 53 mutual savings banks, and 618 branches, or a total of729 banking units and branch offices. Chicago is served by 74 unitbanks with no branch offices. Using 1950 census figures, New YorkCity has one banking office to serve each 10,825 of its population,Chicago one banking office for each 48,931 of population. One obvious


REPORT OF THE COMPTROLLER OF THE CURRENCY 13conclusion that may be drawn from this is that what is considereddesirable and necessary in the way of banking offices in one State islooked upon differently in another State. It is believed that compe-tition is just as keen for the available banking business in the city ofChicago as it is in New York City. However, several basic differencesdo exist. It would appear that more convenient banking services areavailable to residents of New York City because of the larger numberof banking offices made possible by branches. The greater activityin New York, and in other branch bank States, in consolidations,mergers, and sales of banks is made practicable through the ability toestablish branches where offices of the absorbed banks were previouslylocated. Chicago has a large number of "currency exchanges" whichthe general public relies upon rather heavily to cash checks againstpayment of a fee fixed by the State. New York City, because of itslarge number of banking offices, finds the existence of such currencyexchanges to be less necessary. Despite these interesting and possiblynot too important differences, the credit and general banking needs ofthe two huge cities are believed to be adequately served.

Competition among and between banks has given rise to a greaterthan normal number of branch applications prompted very heavily bythe competitive factor. Many of the 95 denied branch applicationscome, at least in part, within the framework of this factor. Competi-tion is necessary and has a rightful place in many and perhaps allbranch applications, but not to the point where it may lead to unsoundand unprofitable branch offices.

It is significant to note what has happened during the past 30 yearsby comparing the number and type of banking units in States whichpermit branch banking on a statewide or limited area basis withbanking units in those States which prohibit branch banking, andrelating this comparison to the number of people served per bankingunit.

States permitting

Arizona:N u m b e r of all b a n k s . _ . _ ___ _ .Number of branches

Total banking units.__ _Number of all banking units in relation to

populationCalifornia:

Number of all banks . __ _Number of branches _.

Total banking units._ ._ . _ __ _Number of all banking units in relation to

population __ _Connecticut:

Number of all banksNumber of branches

Total banking unitsNumber of all banking units in relation to

population

Statewide branch banking

June 30,1924

6320

83

1 per 4,000

675538

1,213

1 per 2,800

222

222

1 per 6,200

Dec. 31,1934

1718

35

1 per 12,400

283804

1,087

1 per 5,200

20010

210

1 per 7,700

Dec. 30, 1944

1228

40

1 per 12,500

206830

1,036

1 per 6,700

19716

213

1 per 8,000

Dec. 31, 1954

1380

93

1 per 8,100

1711,088

1,259

1 per 8,400

177107

284

1 per 7,100

35064255-



States permitting Statewide branch bankingContinued

Delaware:Number of all banksNumber of branches


population _ __Idaho:



populationMaine:

Number of all banksNumber of branches.


population .Maryland:



populationNevada:

Number of all banksNumber of branches.


populationNorth Carolina:

NnTnber of all bfvnlcsNumber of branches


populationOregon:



populationRhode Island:

Number of all banks..Number of branches


populationSouth Carolina:


Total banking units...Number of all banking units in relation to

population,.

June 30,1924

6118

79

1 per 2,800

177

177

1 per 2,400

15047

197

1 per 3,900

25088

338

1 per 4,300

34

34

1 per 2,300

61866

684

1 per 3,700

2771

278

1 per 2,800

4521

66

1 per 9,200

41120

431

1 per 3,900

Dec. 31,1934

4913

62

1 per 3,800

6326

89

1 per 5,000

10458

162

1 per 4,900

20191

292

1 per 5,600

105

15

1 per 6,100

21668

284

1 per 11,200

10630

136

1 per 7,000

3535

70

1 per 9,800

13620

156

1 per 11,100

Dec. 30,1944

4213

55

1 per 4,800

4640

86

1 per 6,100

9763

160

1 per 5,300

18496

280

1 per 6,500

914

23

1 per 4,800

227139

366

1 per 9,800

7169

140

1 per 7,800

3545

80

1 per 8,900

14624

170

1 per 11,200

Dec. 31,1954

3634

70

1 per 4,500

3864

102

1 per 5,800

9389

182

1 per 5,000

160169

329

1 per 7,100

822

30

1 per 5,300

224302

526

1 per 7,700

48137

185

1 per 8,200

1877

95

1 per 8,300

15173

224

1 per 9,500


REPORT OF THE COMPTROLLER OF THE CURRENCY

States permitting Statewide branch bankingContinued

15

Vermont:Number of all banks _ _ _ . . . _ _ .Number of branches


populationWashington:



population _

June 30,1924

105

105

1 per 3,400

3817

388

1 per 3,500

Dec. 31, 1934

9812

110

1 per 3,300

20431

235

1 per 6,700

Dec. 30, 1944

8018

98

1 per 3,700

12894

222

1 per 7,800

Dec. 31,1954

7222

94

1 per 4,000

111183

294

1 per 8,100

States permitting limited area branch banking

Alabama:Number of all banksNumber of branches-


population..Arkansas:



populationGeorgia:



population _[ndiana:



populationIowa:

Number of all banks __Number of branches


populationKentucky:



population... _

June 30,1924

36219

381

1 per 6,200

4853

488

1 per 3,600

65653

709

1 per 4,100

1 1088

1,116

1 per 2,600

1,692

1,692

1 per 1,400

61212

624

1 per 3,900

Dec. 31,1934

22216

238

1 per 11,100

2375

242

1 per 7,700

32727

354

1 per 8,200

54839

587

1 per 5, 500

66395

758

1 per 3,300

43925

464

1 per 5,600

Dec. 30,1944

21720

237

1 per 12,000

21318

231

1 per 8,400

29325

318

1 per 9,800

49972

571

1 per 6,000

640156

796

1 per 3,200

39231

423

1 per 6,700

Dec. 31, 1954

23433

267

1 per 11, 500

23122

253

1 per 7, 500

38650

436

1 per 7,900

478150

628

1 per 6,300

663162

825

1 per 3,200

37162

433

1 per 6,800


16 REPORT OF THE COMPTROLLER

States permitting limited area branch

OF THE CURRENCY

bankingContinued

Louisiana:Number of all banksNumber of branches _ _ _ _.


populationMassachusetts:



populationMichigan:


Total banking units _Number of all banking units in relation to

populationMississippi:


Total banking units-Number of all banking units in relation to

populationMontana:


Total banking units .__Number of all banking units in relation to

populationNew Jersey:



populationNew Mexico:



populationNew York:



populationNorth Dakota:



population

June 30, 1924

25193

344

1 per 5, 200

44898

546

1 per 7,100

770332

1,102

1 per 3,300

35725

382

1 per 4, 700

248

248

1 per 2,200

47921

500

1 per 6,300

76

76

1 per 4,700

1,120362

1,482

1 per 7,000

687

687

1 per 900

Dec. 31,1934

14953

202

1 per 10,400

405144

549

1 per 7, 700

486134

620

1 per 7,800

21335

248

1 per 8,100

123

123

1 per 4,400

427117

544

1 per 7,400

42

42

1 per 10,100

922661

1,583

1 per 8,000

206

206

1 per 3,300

Dec. 30,1944

14954

203

1 per 11,600

383152

535

1 per 8,100

428176

604

1 per 8, 700

20249

251

1 per 8, 700

111

111

1 per 5,000

378127

505

1 per 8, 200

416

47

1 per 11,300

828704

1,532

1 per 8,800

15325

178

1 per 3,600

Dec. 31,1954

172100

272

1 per 9,900

365293

658

1 per 7,100

429336

765

1 per 8,300

19784

281

1 per 7,800

110

110

1 per 5,400

330241

571

1 per 8, 500

5222

74

1 per 9, 200

6891,074

1,763

1 per 8,400

15423

177

1 per 3,500



Slates permitting limited area branch bankingContinued

17

Ohio:Number of all banksNumber of branches

Total banking units - _ __ ._Number of all banking units in relation to

population __Pennsylvania:

Number of all banksNumber of branches -


population.-South Dakota:



population.. _Tennessee:

Number of all banks _-__ _. ___Number of branches - -


populationUtah:

Number of all banksNumber of branches. ._


population.

Virginia:Number of all banksNumber of branches-

Total banking units __

Number of all bankin? units in relation topopulation.. . .

June 30,1924

1,107203

1,310

1 per 4,400

1,65098

1,748

1 per 5,000

553

553

1 per 1,200

56953

622

1 per 3,800

116

116

1 per 3,900

52345

568

1 per 4,100

Dec. 31,1934

706166

872

1 per 7,600

1,136107

1,243

1 pel 7,700

2121

213

1 per 3,300

33246

378

1 per 6,900

5810

68

1 per 7, 500

32969

398

1 per 6,100

Dec. 30, 1944

682169

851

1 per 8,100

1,044118

1,162

1 per 8, 500

16442

206

1 per 3,100

29252

344

1 per 8, 500

5713

70

1 per 7,900

31275

387

1 per 6,900

Dec. 31, 1954

637340

977

1 per 8,100

866419

1,285

1 per 8,200

17051

221

1 per 3,000

297122

419

1 per 7,900

5433

87

1 per 7,900

316142

458

1 per 7,200

States prohibiting branch banking

Colorado:Number of all banks - _ ___ .Number of branches .


populationFlorida:

Number of all banksNumber of branches __


population

June 30, 1924

342

342

1 per 2,700

2991

300

1 per 3,200

Dec. 31, 1934

161

161

1 per 6,400

156

156

1 per 9,400

Dec. 30, 1944

141

141

1 per 8,000

1731

174

1 per 10,900

Dec. 31, 1954

161

161

1 per 8,200

2261

227

1 per 12,200



States prohibiting branch bankingContinued

Illinois:Number of all banks -Number of branches


population _.Kansas:



population-Minnesota:



population..Missouri:



populationNebraska:



populationNew Hampshire:



population-Oklahoma:



populationTexas:



populationWest Virginia:



population

June 30,1924

1,906

1,906

1 per 3,400

1,293

1,293

1 per 1,400

1,42211

1,433

1 per 1,700

1,612

1,612

1 per 2,100

1,1002

1,102

1 per 1.200

123

123

1 per 3,600

808

808

1 per 2,500

1,533

1,533

1 per 3,000

350

350

1 per 4,200

Dec. 31,1934

882

882

1 per 8,600

743

743

1 per 2, 500

6896

695

1 per 3,700

710

710

1 per 5,100

4372

439

1 per 3,100

1131

114

1 per 4,100

412

412

1 per 5,800

947

947

1 per 6,200

182

182

1 per 9,500

Dec. 30,1944

833

833

1 per 9,500

619

619

1 per 2,900

6736

679

1 per 4,100

594

594

1 per 6,400

4072

409

1 per 3,200

1073

110

1 per 4,500

382

382

1 per 6,100

834

834

1 per 7,700

178

178

1 per 10,700

Dec. 31,1954

910

910

1 per 9,600

602

602

1 per 3,200

6806

686

1 per 4,300

600

600

1 per 6,600

419

420

1 per 3,200

1103

113

1 per 4, 700

384

384

1 per 5,800

921

921

1 per 8,400

183

183

1 per 11,000



States prohibiting branch bankingContinued

Wisconsin:Number of all banksNumber of branches


population ___

Wyoming:Number of all banks - . . .Number of branches


population

June 30,1924

9939

1,002

1 per 2,600

116

116

1 per 1, 700

Dec. 31,1934

62494

718

1 per 4,100

60

60

1 per 3,800

Dec. 30,1944

559141

700

1 per 4,500

56

56

1 per 4,500

Dec. 31,1954

558150708

1 per 4,900

53

53

1 per 5,500

District of Columbia (districtwide branch banking



population.. . __

June 30,1924

461965

1 per 6,700

Dec. 31,1934

223052

1 per 9,400

'permitted)Dec. 30,1944

2130

51

1 per 13,000

Dec. 31, 1954

1749

66

1 per 12,200

Contrary to the popular belief that people residing in States wherebranch banking is prohibited are served by fewer banking units, thefigures reveal they have proportionately more banking units to servetheir needs. At the end of 1934, 6,116 banks and 103 branches in the13 States presently prohibiting branch banking served an average of5,333 people per banking unit. A five-percent reduction in the numberof unit banks, exclusive of branches, occurred in these States duringthe 20-year period through 1954, and the remaining 5,807 banks and161 branches were serving 6,566 people per banking unit. The 14States which permit statewide branch banking had 1,722 banks and1,221 branches at the end of 1934, or one banking unit for each 6,591people. At the end of 1954, these same States were served by 1,320banks (a 23-percent reduction) and 2,447 branches (a 100-percentincrease), and the 3,767 total banking units were serving 7,676 peopleper unit. The 21 States which permit limited area branch bankinghad 8,182 banks and 1,750 branches at the end of 1934, or one bankingunit for each 7,020 people. At the end of 1954, these 21 States had7,201 banks (a 12-percent decrease) and 3,759 branches (a 115-percentincrease), and the 10,960 banking units w e^re serving 7,463 people perunit.

During the past 20 years, the 13 States prohibiting branch bankinghave experienced a 5-percent shrinkage in the total number of unitbanks. The 14 States permitting statewide branch banking haveexperienced a 28-percent increase in the total number of bankingoffices during this period, and the 21 States permitting limited areabranch banking have experienced a 10-percent increase in the totalnumber of banking offices. Despite the increased number of bankingoffices in the 35 Statesjpermitting branch banking, as compared to a



decrease in the number of unit banks during the past 20 years in Stateswhich prohibit branch banking, the latter continue to have morebanking offices per thousand of population than is the case in thebranch bank States. The principal answer rests in the fact that popu-lation growth has been more rapid in those States where branch bank-ing is permitted.

It is clear in the figures set forth above that where branch bankingis permitted, particularly statewide branch banking, the number ofunit banks is decreasing, as a general rule, and the increased bankingneeds of an expanding population are being met by the establishmentof branches. At the end of 1954, 6,206 branch offices were operatingin the 35 branch-bank States, as compared to 2,971 branch offices at theend of 1934. The unit banks operating in these States decreased innumber from 9,904 to 8,521 during this same period. There was adecrease in the number of unit banks in the 13 States prohibitingbranch banking during this 20-year period from 6,116 to 5,807, or 309fewer banks (5 percent shrinkage). It would seem that the 1,383fewer unit banks in the 35 branch-bank States cannot be attributedsolely to branch banking, but in all probability some 800 or 900 banksthat have gone out of existence would not have done so except forbranch banking. Moreover, the 3,235 additional branches estab-lished since the end of 1934 would have resulted in the organization ofa lesser number of unit banks if branch banking had been prohibited.

None of the remarks made herein should be construed as favoringor opposing branch banking. They are strictly factual commentsdesigned to acquaint the Congress with the background, trend, andpresent position of branch banking in the Nation's banking picture.Many areas would be without banking services if it were not possibleto establish branches which are less costly to operate. Branchbanking is making inroads into the number of unit banks, but itprovides, in many instances, a ready market for the sale of banks thatwould otherwise have a very limited market.

The pros and cons of branch banking are many, but the factremains that it is the privilege of the several States to decide whetherit should be permitted or prohibited.

The comparisons made in the above comments have been limited tothe period between 1934 and 1954. The country was overbanked in1924, but much of this had been corrected by 1934. The 1924statistics have been incorporated largely to show the position at thattime with the situation as it exists today.

The following sumary of the 176 de novo branch offices of nationalbanks that opened for business in 1954 is of interest, particularlyfrom the standpoint that it reveals 29 percent of the new bankingoffices were created to serve formerly bankless communities:Description: Number

In cities with population less than 5,000 (includes 34 communitiesthat were bankless prior to the establishment of a branch) 48

In cities with population from 5,000 to 25,000 (includes 12 communi-ties that were bankless prior to the establishment of a branch) 38

In suburban areas of large cities (includes 6 communities that werebankless prior to the establishment of a branch) 15

In cities with population from 25,000 to 50,000 25In cities with population of over 50,000 50



Thirty-five firm applications to charter new national banks wereconsidered by the Comptroller's office during 1954. The applicationswere received from groups of individuals residing in 19 differentStates. After careful investigation and study, 20 of the applicationswere approved and 15 denied. The most common reason for theinability of the office to approve a larger percentage of the new charterapplications centered in an inadequate need of the community orarea for an additional bank |with resulting poor prospects for itsprofitable operation.

The earnings of national banks were satisfactory for the year 1954.The greater than normal net asset losses (after allowing for all bondprofits and recoveries) of $151 million suffered in 1953 were recoupedin 1954 to the extent of $149 million. Both figures were greatlyinfluenced by losses on securities sold (1953) and profits on securitiessold (1954).

Net earnings from operations, in relation to year-end total resourcesand capital funds, were slightly less in 1954 than they were in 1953,largely because of an increase in operating expenses accompanied bya slight decrease in operating earnings. Nevertheless, operatingresults were satisfactory, and when combined with net asset recover-ies and bond profits, after allowing for all asset losses, the nationalbanking system was able to pay $300 million in cash dividends, or areturn of 3.70 percent on year-end total capital funds (3.88 percenton average capital funds for the year), and retain $547 million toaugment capital funds and reserves.

The schedule set forth below incorporates full details on this subject,plus a comparison with earnings for the year 1928, which is of interestin relation to current-day earnings results. (An additional detailedcommentary on 1954 earnings appears elsewhere in this report.)Earnings, expenses, etc., of national banks for the years ended Dec. 31, 1928, 1950,

1953, and 1954["Indicates amounts in millions of dollars]

1928 1953 1954

*Total assets at close of year*Total capital accounts at close of year* Gross earningsPer $100 of assetsPer $100 of capital funds

*Gross expenses-Per $100 of assetsPer $100 of capital funds

*Net earnings from operationsPer $100 of assetsPer $100 of capital funds

*Net asset losses or recoveries (including bond profits, etc.)1Per $100 of assetsPer $100 of capital funds

*Taxes (income)Per $100 of assetsPer $100 of capital funds

*Net profits before dividends.-.Per $100 of assetsPer $100 of capital funds

* Cash dividendsPer $100 of assetsPer $100 of capital funds

Retained earnings_Per $100 of assetsPer $100 of capital funds

30,2593,6841,351$4.47

$36. 69988

$3.27$26. 83

363$1.20$9.86-72

-$.24

291$.96

$7.90195

$.64$5.30

96$.32

$2.60

97,2406,3292,193

$34. 651,337$1.38

$21.13856

$.88$13. 52

+26+$.03+$41

256$.26

$4.04626

$.65$9.89

230$.24

$3.633 396$.41

$6. 26

110,1177,4103,068$2. 79

$41. 411,845$1.68

$24. 901,223$1.11

$16. 51-151

-$.14-$2. 05

466$.42

$6.28606

$.55$8.18

275$.25

$3.713 331$.30

$4.47

116,1518,1043,226$2.78

$39.811,996$1.72

$24. 631,230$1.06

$15.18+149

+$.13+$1.84

532$.46

$6.56847

$.73$10.46

300$'.26

$3.703 547$.47

$6. 761 Exclusive of transfers to and from reserve for bad debts and other valuation reserves on loans and securi-

ties but including net losses charged to these reserves.2 Total taxes included with gross expenses. Income taxes not called for separately.3 Includes funds transferred to reserve for bad debts and valuation reserves less the amount of assets

charged off against such reserve accounts. Includes $88 million in 1950, $33 million in 1953, and $106 millionin 1954 transferred to effect a net increase in reserves for bad debts and valuation reserves. (Taxes wouldhave absorbed a fair portion of these amounts had the transfers not been made.)



Legislation Proposed

In the 1953 Annual Report of the Comptroller of the Currency itwas stated that the Comptroller had under consideration a legislativeproposal that would provide elasticity to the requirement of thepresent law that all national banks be examined twice in each calendaryear by permitting the Comptroller, in his discretion, to waive onesuch examination in justified cases. The legislation would provide,however, that examination of a particular bank may not be waivedmore frequently than once during each 2-year period beginning Janu-ary 1, 1955. This legislation would also permit the Comptroller toassess the expenses of examinations upon the banks in proportion totheir assets and resources upon any date or dates selected by him,rather than on the dates of examination, and would provide that theannual rate of assessment shall be the same for all banks examinednot more than twice in 1 calendar year. Banks examined morefrequently than twice will be assessed in addition the costs of theadditional examinations. This legislation has now been drafted andtransmitted to Congress with a recommendation that it be enacted.

In the 1953 Annual Report of the Comptroller of the Currency itwas stated that proposed legislation had been drafted which wouldamend section 24 of the Federal Reserve Act (1) by permitting na-tional banks to make amortized mortgage loans having a maturityof longer than 10 years but not in excess of 20 years, provided theterms are such that the installment payments are sufficient to amortize100 percent of the principal of the loan within a term of 20 years, and(2) by extending the maximum duration of residential and farm con-struction loans which are not to be regarded as real estate loansfrom 6 to 9 months. This proposed legislation, which was recom-mended by the President of the United States in his Economic Reportof January 1955 (p. 60), has now been transmitted to Congress witha recommendation that it be enacted.

In the 1952 and 1953 Annual Reports of the Comptroller of theCurrency it was stated that there had been transmitted to Congressproposed legislation that would amend section 5221 of the RevisedStatutes by eliminating the requirement that national banks goinginto voluntary liquidation be required to publish notice of this factin a newspaper published in the city of New York. This legislationhas again been transmitted to Congress with a recommendation thatit be enacted.

Under present law three-fourths of the directors of a national bankmust reside in the State in which the bank is located or within 50miles of the location of the bank. In the light of modern transporta-tion this 50-mile limitation is unduly restrictive. Hence legislationwhich would change the 50-mile limitation to a 100-mile limitationhas been drafted and transmitted to Congress with a recommendationthat it be enacted.

There has been introduced in Congress legislation which wouldeliminate mandatory cumulative voting in the election of directors ofnational banks. This legislation would, however, permit cumulativevoting if provided for in a bank's articles of association. The experi-ence of the Comptroller's office has been that cumulative voting whenresorted to in national banks, is used primarily for the purpose of


BEPORT OF THE COMPTROLLER OF THE CURRENCY 2 3

placing on a particular board a director who is not congenial with theremaining directors, thereby causing disharmony in the bank. TheComptroller is in favor of the proposed legislation.

There has come to light recently a competitive advantage given toState banks over national banks in the State of Massachusetts bycertain provisions of the Massachusetts tax laws. That State taxesinterest received by depositors on savings deposits in national banks,but exempts from taxation interest received by depositors on theirdeposits in State savings or commercial banks. In addition, Statesavings banks which are taxed on their deposits may deduct from thegross amounts of their deposits subject to taxation the amounts in-vested by them in stock of State commercial banks, but they may notdeduct the amounts invested by them in the stock of national banks.These provisions of the State tax laws operate to the detriment ofthe national banking system in the State of Massachusetts. Con-sideration is being given to appropriate steps which might be takento correct this situation.

Legislation Enacted

Public Law 460 of the 83d Congress, approved June 30, 1954,eliminated the conflict between sections 23A and 24A of the FederalReserve Act as to the permissive investment by national banks in thestock of corporations engaged in holding bank premises, by makingsection 23A completely inapplicable to corporations engaged solely inowning and operating the building or buildings in which are housedthe offices of the bank. Consequently, national banks may now owntheir banking premises either through a direct investment in suchpremises, or by investing in the stock of a corporation engaged solelyin owning and operating the bank premises.

Public Law 520 of the 83d Congress, approved July 22, 1954,amended section 24 of the Federal Reserve Act dealing with realestate loans which may be made by national banks, by excepting fromthe restrictions or limitations of that section loans in which the SmallBusiness Administration cooperates or purchases a participation underthe Small Business Act of 1953. This legislation was recommendedby the Comptroller at the request of the Small Business Administra-tion.

Public Law 560 of the 83d Congress, approved August 2, 1954, the"Housing Act of 1954," created a Federal National Mortgage Associa-tion, directed the Association to require each mortgage seller to makecertain nonrefundable capital contributions to the Associations,authorized national banks to make such nonrefundable capital contri-butions, to receive stock of the Association evidencing such capitalcontributions and to hold or dispose of such stock, and to deal in,underwrite, and purchase for its own account, obligations of theAssociation.

Public Law 576 of the 83d Congress, approved August 10, 1954,amended the District of Columbia Credit Unions Act by transferringsupervision of the 16 District-chartered credit unions from theComptroller of the Currency to the Director of the Bureau of FederalCredit Unions. This legislation was recommended by the Comp-troller.



Public Law 597 of the 83d Congress, approved August 17, 1954,amended the Act of August 28, 1937, by adding provisions whichauthorized the Secretary of Agriculture to establish a program ofinsuring loans made for the purpose of financing soil and water con-servation improvements and practices. This legislation amendedsection 24 of the Federal Reserve Act dealing with real estate loanswhich may be made by national banks, by making certain limitationsand restrictions contained in that section inapplicable to such insuredloans.

Public Law 630 of the 83d Congress, approved August 23, 1954,authorized the Central Bank for Cooperatives and the regional banksfor cooperatives to issue consolidated debentures and authorizednational banks to deal in and underwrite such of these consolidateddebentures as are eligible for purchase by national banks, in amountsup to 10 percent of their captial stock and surplus.

Bank Holding Company Legislation

Each of the past several Congresses has had before it legislationdesigned to further regulate and control bank holding companies.During the year 1954, the Senate Committee on Banking and Currencyconcluded hearings begun in 1953 on S. 76 and S. 1118, both on thissubject. However, no action was taken by the committee with respectto the proposed legislation.

The Comptroller of the Currency continues to favor bank holdingcompany legislation which would provide Federal supervisory controlover expansion through the acquisition of banks and bank stocks andrestraints on engaging in businesses other than banking. In theopinion of the Comptroller, such legislation should be reasonable andshould place no arbitrary limitations on expansion within the bankingfield, but should leave the extent of permissible expansion to thediscretion of the administering supervisory agency, which will be ableto act in the light of conditions as they exist at the time action isrequested. There should be no attempt to base restrictions on expan-sion on the laws of the various States dealing with branch banking,and there should be no geographical limitations written into the law.

The legislation should be administered by a single supervisoryagency, and there should be no veto power on its decisions in otheragencies or in the State banking authorities. The legislation shouldspecify, however, that the other Federal supervisory agencies and theappropriate State banking authorities should be given an opportunityto comment upon applications affecting banks within their respectivejurisdictions, and that their opinions should be considered by theagency making the final decision.

Litigation

During the year 1954 the Comptroller became involved in threecases of litigation. In the first of these the Delaware County Na-tional Bank of Chester, Pa., filed suit in the United States DistrictCourt for the Eastern District of Pennsylvania against the Comp-



troller of the Currency alleging that his action in approving the es-tablishment and operation of a branch in Chester by the PhiladelphiaNational Bank had been unlawful. Subsequent to the filing of thissuit, a similar suit brought by the Delaware County National Bankagainst the State banking officials who had approved the establishmentand operation of a branch in Chester by a State-chartered trustcompany located in Philadelphia, was decided adversely to the con-tentions of the plaintiff. Following this decision, and because of thefact that substantially the same issue of law was involved in each ofthe two cases, the plaintiff voluntarily dismissed its action againstthe Comptroller.

The second suit was one brought by the Michigan National Bankof Lansing, Mich., against the Comptroller of the Currency seekinga declaratory judgment that the Comptroller is not precluded byMichigan law from approving the establishment by the bank of anadditional branch in Saginaw, Mich., where it already has one branch.The Comptroller had declined to approve the branch on the groundsthat under the applicable statutes the branch cannot legally beestablished. The Comptroller's decision in this matter was in accordwith opinions rendered on the legal questions involved by the AttorneyGeneral of the State of Michigan, by counsel for the Comptroller'soffice, and the General Counsel of the Treasury Department. Thislitigation is now pending before the United States District Courtfor the District of Columbia.

The third case of litigation in which the Comptroller became in-volved during 1954 was a suit between the First National Bank ofAuburn, Ala., and the United States Fidelity & Guaranty Co. Thereports of examination made by the Comptroller's examiners andfurnished to the bank for the use of its directors, together with allcorrespondence between the Comptroller's office and the bank overa period of years, were subpoenaed. The Comptroller has always main-tained the position that these documents are confidential papers ofthe Treasury Department and that they are privileged against dis-closure. Accordingly, an assertion of interest and claim of privilegewas filed in this litigation on behalf of the Comptroller by A. N.Overby, Acting Secretary of the Treasury. This matter was heardbefore the United States District Court for the Middle District ofAlabama and the assertion of interest and claim of privilege wasdenied. The Treasury Department, acting through the Departmentof Justice, appealed this decision to the United States Court of Appealsfor the Fifth Circuit, and the case is now pending before that court.

A comparison of the assets and liabilities of the banks in the na-tional banking system as of December 31, 1953, April 15, June 30,October 7, and December 31, 1954, reported pursuant to calls forcondition statements by the Comptroller of the Currency, is shown inthe following table.


Assets and liabilities of national banks on dates indicated[In thousands of dollars]

Dec. 31, 1953(4,864 banks)

37,944,14635,563,334

25,4296,330, 2652,086,723

204,48282,154,87926,545,518

807,52730,81151,650

191,856216,485118,473

110,116,699

56,614,39122,863, Oil2,830,6696,793,634

10,155,9421,689,586

100,947,23376,189,78424,757,449

14,851190

203,910320,592491,117729,290

102,707,183

Apr. 15, 1954(4,848 banks)

37,703.64834,560,499

26,9976,783,4501,936,535

209,66481,220,79824,203,082

838,08818,21351,117

195, 612217,938154,054

106,898,897

53,886,29123,424,8282,480,4146,917,3579,143,4111,477,337

97,329,63871,639,04825,690,590

319,466341

205,972319,647489,048614,645

99,278,757

June 30,1954(4,842 banks)

37,782,38635,835,931

26,4246,954,5811,905,204

210,93682,715,46224,699,908"

847,46318, 56552, 610

175,054253,115151,438

108,913,615

53, 784,45023,978,1133,627,1057,063,4259,752,5161,439,122

99,644,73173,280,89126,864,340

28,751434

182,799310,814407,537633,649

101, 208,715

Oct. 7, 1954(4,827 banks)

37,446,01239,910,958

3,8367,339,8661,925,840

215,63686,842,14823,376,491

868,43716,77554,190

186,143249,320166,306

111,759,810

55,144,43624,418,9204,388,0016,480,477

10,127,6961,320,499

101,880,02974,996,08326,888,996

233,478572

191,965322,447560,738658,250

103,847,479

Dec. 31,1954(4,796 banks)

g39,827,678 g39,500,738 ^

6,261 Q

7,246,304 21,956,124 ^

222,831 ^88,769,936 j*j25,721,897 -

904,037 216,607 556,009 g

291,881 2227,699 2172,503 g

116,150,569 3

59,005,232 O

24,676,853 Hrj2,837,0347,174,667 h3

10,717,647 hj1,734,380 13

106,145,813 079,016,805 S27,129,508 3

11,098 563 0

305,950 J323,979571,189687,735

108,046,327

ASSETS

Loans and discounts, including overdrafts _ ..U. S. Government securities, direct obligationsObligations guaranteed by U. S. GovernmentObligations of States and political subdivisionsOther bonds, notes, and debenturesCorporate stocks, including stocks of Federal Reserve banks

Total loans and securities _ _ _ _Cash, balances with other banks, including reserve balances, and cash items in process of

collectionBank premises owned, furniture and fixtures _Real estate owned other than bank premises _ _Investments and other assets indirectly representing bank premises or other real estateCustomers' liability on acceptances _ - _ .Income accrued but not yet collected. _Other assets.- _ _ -

Total assets .

LIABILITIES

Demand deposits of individuals, partnerships, and corporations _ _.Time deposits of individuals, partnerships, and corporations _Deposits of U. S. Government and postal savingsDeposits of States and political subdivisions . . . -Deposits of banksOther deposits (certified and cashiers' checks, etc.) -

Total deposits . . .Demand deposits _ _ _ _Time deposits _ -

Bills payable, rediscounts, and other liabilities for borrowed money.Mortgages or other liens on bank premises and other real estateAcceptances outstanding _ _Income collected but not yet earnedExpenses accrued and unpaid.. __ _.Other liabilities

Total liabilities- - _


CAPITAL ACCOUNTS

Capital stock (see memoranda below)SurplusUndivided profits _ __Reserves and retirement account for preferred stock

Total capital accounts _ __.Total liabilities and capital accounts _ _

MEMORANDAPar value of capital stock:

Class A preferred stock _Class B preferred stock.Common stock

Total

Hetirable value of preferred capital stock:Class A preferred stockClass B preferred stock

Total -Assets pledged or assigned to secure liabilities and for other purposes (including notes and bills

rftdiscounted and securities sold with agreement to repurchase) . .

2,301,7573,523,4431,310,761

273,5557,409,516

110,116,699

4,892319

2, 296,5462,301,757

7,924344

8,268

12, 901,734

2,352,6813,608, 6481,385,346

273,4657,620,140

106,898,897

4,641312

2,347,7282,352,681

7,459337

7,796

13,006,575

2,371,0783,645, 3301,404,866

283,6267,704,900

108,913, 615

4,481312

2,366, 2852,371,078

7,063337

7,400

13,701,520

2,394,4863,690,9081,540, 254

286,6837,912,331

111, 759, 810

4,294308

2,389,8842,394,486

6,776333

7,109

15,011,083

2,485,8443,950,5521,377,282

290,5648,104,242

116,150,569

4,181208

2,481,4552,485,844

6,631233

6,864

14,090,744

S

a

i3

to


2 8 REPORT OF THE COMPTROLLER OF THE CURRENCY

TRENDS IN BANKING

The following table shows the changes that have occurred in recentyears in the relationships of the major asset and liability accounts ofnational banks to the aggregate of assets and liabilities.

Distribution of assets and liabilities of national banks, Dec. 81, 1951-54

ASSETSSecurities:

U. S. Government, direct and guaranteed ._ ._ .Obligations of States and political subdivisionsStock of Federal Reserve banks. _Other bonds and securities _.

Total securities.

Loans and discounts __ _ - _ _ - _Cash and balances with other banks, excluding reservesReserve with Reserve banksBank premises, furniture and fixtures.. _._ . - - _ _ - .Other real estate ownedAll other assets ._

Total assets

LIABILITIESDeposits:

Demand of individuals, partnerships, and corporations ,_Time of individuals, partnerships, and corporations.U. S GovernmentStates and political subdivisions .BanksOther deposits (including postal savings)

Total depositsDemand depositsTime deposits _ _ _

Other liabilities _ _ _Capital funds:

Capital stock _SurplusUndivided profits and reserves.

Total capital fundsTotal liabilities and capital funds

1951

Percent34.225.19.15

2.34

41.9031.5612.8412.48

.66

.02

.54100. 00

53.3919.302.185.779.531.75

91.92

71.2120.71

1.592.053.001.44

6.49100. 00

1952

Percent33.245.53.15

2.04

40.9633.4112.4311.98

.69

.02

.51100. 00

52.4219.902.995.809.171.51

91.7970.4121.381.682.063.081.396.53

100.00

1953

Percent32.325.75.16

1.92

40.1534.4612.1811.92

.73

.03

.53100. 00

51.4120.762.566.179.221.55

91.6769.1922.48

1.602.093.201.44

6.73100. 00

1954

Percent34.016 24.17

1.7142.13

34.2911.4310.72

.78

.01

.64100. 00

50. 8021. 252 436.189 231.50

91.39

68.0323.36

1.632.143.401.44

6.98100.00

FIDUCIARY ACTIVITIES OF NATIONAL BANKS

As of December 31, 1954, there were 1,759 national banks whichhad been authorized by the Board of Governors of the Federal Re-serve System to administer fiduciary accounts, either full or limited.Under these authorizations there were also 67 trust departments inbranches of national banks. There were 256 banks not acting underany of their granted fiduciary powers. During the year endedDecember 31, 1954, there were 1,480 head office trust departmentexaminations conducted and 62 branch examinations, making a totalof 1,542 examinations of trust departments in national banks.

Trust department assets totaled $47,939,000,000 as of December 31,1954, compared to $43,150,000,000 as of December 31, 1953, and to$3,297,300,000 as of October 3, 1928. While carrying values fortrust department assets have not been standardized throughout thecou

compcurr_1954

Documents

totalassets of national

total deposits

savings banks of thenation

demand fromcorrespondent

comptroller of thecurrency

federal reserve bank

commercial bank assets

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