DOMESTIC AND FOREIGN BRANCH BANKING Branch Banking Within the United States Branch banking in the United States has always aroused much opposition, especially among the smaller banks, on the theory that it results in monopoly and is contrary to our democratic ideals, "the big banks eating up the little ones." In the fact of their private ownership our state and national banks afford a wide contrast to the system in vogue in Canada and in England where, indeed, the tendency to consolidation has been strongly evident for many years. In the last-named country, between 1891 and 1917 the number of private banks decreased from 37 to 6, and between 1886 and 1918 the joint-stock banks fell from 109 to 35, the number of branches of the latter increasing from 1,547 to 5,993, and the total liabilities increasing from £376,808,999 to £1,316,220,000. In 1917, however, the proposal to amalgamate two more of these large banks led to public outcry and adverse Parliamentary action.
The great objection to the concentration of banking resources is a fear of a "money trust," with results detrimental to the national interest; and the small trader fears that the big bank will favor the more important traders and dealers at his expense.
In order to guard against these evils, in the United States the law prohibits a national bank from acquiring and holding the stocks of another national bank as an investment. The reasoning behind this inhibition, according to our courts, is, that to permit one bank to invest its surplus funds in other banks situated per haps at a distance would make it no longer possible to confine the management of each bank to persons who live in the neighbor hood and who may be supposed to know the trustworthiness of the appointed officers and the financial ability of applicant borrowers; and that such concentration of ownership would de prive the people of the advantages from bank competition.
Of course, the fundamental reason for establishing branches is to gather more business so that the economies of large-scale business can be realized and additional services performed. Since
the branch bank need not be as fully equipped as an independent local bank, since its official list may be small, and since its account ing system may be combined with that of the parent bank, a branch can be operated at lower cost than an independent bank, and therefore branches can reach communities too small for inde pendent banks. On the other hand, as compared with the inde pendent bank, the parent and branch system may not be so alive to local needs, may be tardy in establishing branches, and may not adapt them to local conditions as fully.
State and National Branch Bank In certain states, state banks and trust companies are em powered to establish branches in their home cities, elsewhere in the state or abroad, but even in those states the system has not spread as far as might be expected, because of the dogged hold and possession of the field by independent banks. The idea of branch establishment is, however, not strange to our banking thought as shown by the number of branches of state banks in the following representative states in 1920.
This argument against concentration is not altogether con clusive. In Canada, where conditions are similar to those in the United States, an efficient system of branch banking has arisen, and centralized ownership and direction do not seem to promote loose extensions of credit. The managements of local interior banks rely increasingly for credit data and advice upon the large metropolitan banks, and it is probable that a parent bank could function in this capacity even more effectually than a metropolitan correspondent. Besides, any locality large enough to support two banks might find the competition of two branches of differ ent parent banks quite as beneficent as the competition of two independent banks.