AMERICAN BANKING

New Zealand Herald, Volume LXX, Issue 21518, 15 June 1933, Page 10

AMERICAN BANKING

Adoption by the United States Congress of a bill described as providing for fundamental changes in the national banking system is reported. The mere fact that between 1920 and 1932—-that is before the acute crisis of March developed—some 5748 banks, holding deposits valued at more than £700,000,000 at par closed their doors, seems to offer sufficient warranty for drastic reform. This becomes even more the case when a serious historian of American banking says that every financial crisis since the days of Hamilton and Jefferson, when the present organisation was in fact founded, has witnessed the collapse of the American banking system. Yet even from the brief cablo message it would appear that the central weakness is not being dealt with to any extent. Comment on the new measure says it will sanction branch banking within the States whose laws permit it. At present branch banking is recognised in only seven States of the Union, and national banks possess branch-banking power in those States alone. Elsewhere the so-called unit banking system prevails. Each bank is limited to a particular State and to a particular locality in that State. The result is all against the growth of powerful institutions with banking risks widely spread and resources kept mobile, so that an unexpected demand in any one locality can be met, by drawing on the strength of another. In some instances the fate of a bank may be bound up with that of one . particular industry. Rural banks are sometimes concerned in one crop only, so that its failure or a fall in the price of its product may bring a crisis. The drawbacks of such a system seem obvious to accustomed to the British organisation. Yet those who have tested the feeling of the American public are impressed by its strength in favour of unit banking: local deposits, it is claimed, flow back into local industries, and decentralised control is assured. It is perhaps recognition of this sentiment that makes the present bill so mild on the question of branch banking, when the opportunity to make a new start virtually from the beginning seems to have presented itself.